What changed in this filing

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Item 1. Business

2021-02-25 compared with 2020-02-28 · 148 added, 109 removed, 341 unchanged (43% of the section changed)

Our Company Mission

SLM Corporation, more commonly known as Sallie Mae, is the premier financial brand for college and continuous education.

We are in the business of building prosperous futures by providing access, planning outcomes, and helping students and families responsibly fund their future.

SLM Corporation, more commonly known as Sallie Mae, is the premier financial brand in higher education.

Our mission is to power confidence as students begin their unique journey.

We simplify the college planning process by providing tools, resources, and information to help students and families make informed decisions and to improve access and support college completion through our scholarship programs and responsible financing options.

We believe education, in all forms, is the foundation for success, an equalizer of opportunities, and a proven pathway to economic mobility.

And data clearly shows those who attend and graduate from college, or other postsecondary programs, are better off personally and financially in the long run.

Higher education increases lifetime wages and enables economic mobility.

For example, data from the U.S.

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1 Those with advanced degrees earn an even greater percentage than those with a high school diploma.

1 Even further, our society prospers and becomes more economically inclusive when each of its members is provided with access to postsecondary education.

2 Education represents an investment in one’s future, a transformative investment that yields our country’s next nurses, teachers, engineers, business leaders, and more.

Our customers share a growth mindset that transcends demographics, and they make the investment in education because they aspire to a better future.

For our customers, it is not just about getting to, and graduating from, their course of study, but unlocking new perspectives, thinking big, and achieving more after college.

They want to make an impact in the world.

Their path ahead is our purpose.

Over the course of our relationship, our customers advance from an emerging financial understanding to learning financial responsibility, transitioning to financial stability, and ultimately achieving financial independence.

Our tools, resources, and products help customers to accomplish what is next with confidence and build the strong foundation they will need to succeed.

1 This effect is multigenerational, as children of parents who are college educated are more likely to earn a bachelor’s degree than students whose parents did not go to college.

Most would agree our society prospers and becomes more economically inclusive when each of its members is provided access to post-secondary education.

2 Education represents a transformative investment in one’s future that yields our country’s next nurses, teachers, engineers, business leaders, and more.

While the Sallie Mae name has existed for more than 40 years, the company that operates as Sallie Mae today, SLM Corporation, was formed in late 2013 and includes its wholly-owned subsidiary, Sallie Mae Bank, an industrial bank established in 2005 (the “Bank”).

On April 30, 2014, we legally separated (the “Spin-Off”) from another public company that is now named Navient Corporation (“Navient”), which is in the education loan management, servicing, and asset recovery business.

Navient retained all assets and liabilities generated prior to the Spin-Off other than those explicitly retained by us pursuant to the Separation and Distribution Agreement (as hereinafter defined) executed in connection with the Spin-Off.

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1 https://www.bls.gov/emp/chart-unemployment-earnings-education.htm

1 https://www.bls.gov/careeroutlook/2020/data-on-display/education-pays.htm

2 https://research.collegeboard.org/trends/education-pays

Our business is focused and aligned to strategic imperatives that set the foundation for our continued success.

These imperatives include:

increasing the profitability and growth of our core business, continuing to build and advance a strong brand among our customers, helping policymakers better understand the student lending marketplace and our role in it, allocating capital and returning it to shareholders when appropriate, and fostering a true mission- and performance-led culture.

In 2020, we developed a new organizational structure to better align to these focused strategic imperatives, which resulted in reduced costs and improved operating efficiencies.

For further information on these new imperatives, see Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations — 2020 Strategic Imperatives and Corporate Restructuring,” in this annual report on Form 10-K.

Private Education Loans

Our primary business is to originate and service high-quality Private Education Loans.

“Private Education Loans” are education loans for students or their families that are not made, insured or guaranteed by any state or federal government.

We also offer a range of deposit products insured by the Federal Deposit Insurance Corporation (the “FDIC”) and operate a consumer savings network that provides financial rewards on everyday purchases to help families save for college.

In 2019 , nearly 456,000 families chose us as their Private Education Loan provider, more than any other private student loan lender.

We originated $5.6 billion of Private Education Loans, an increase of 6 percent from the year ended December 31, 2018 .

As of December 31, 2019 , we had $22.9 billion of Private Education Loans, net, outstanding.

Private Education Loans

We also offer a range of deposit products insured by the Federal Deposit Insurance Corporation (the “FDIC”).

In 2020, more than 420,000 families chose us as their Private Education Loan provider, more than any other private student loan lender.

We originated $5.3 billion of Private Education Loans, a decrease of 5 percent from the year ended December 31, 2019, with the decrease largely due to the COVID-19 pandemic.

As of December 31, 2020, we had $18.4 billion of Private Education Loans held for investment, net, outstanding.

The Private Education Loans we make to students and families serve primarily to bridge the gap between the cost of higher education and the amount funded through financial aid, federal loans and student and families’ resources.

We also extend Private Education Loans as an alternative to similar federal education loan products where we believe our rates are competitive.

We earn interest income on our Private Education Loan portfolio.

In 2009, we introduced the Smart Option Student Loan, our primary Private Education Loan product emphasizing in-school payment features that can produce shorter terms and reduce customers’ total finance charges.

Our primary Private Education Loan product is the Smart Option Student Loan, which emphasizes in-school payment features that can produce shorter terms and reduce customers’ total finance charges.

Customers generally elect one of three Smart Option repayment types at the time of loan origination.

The first two, Interest Only and Fixed Payment options, require monthly payments while the student is in school and during the grace period thereafter, and accounted for approximately 50 percent of the Private Education Loans the Bank originated during 2019.

The first two, Interest Only and Fixed Payment options, require monthly payments while the student is in school and during the grace period thereafter, and accounted for approximately half of the Private Education Loans the Bank originated during 2020.

The third repayment option is the more traditional deferred Private Education Loan product where customers are not required to make payments while the student is in school and during the grace period after separation from school.

(The grace period for a Smart Option Student Loan generally runs for six months after the borrower separates from school, but can run for up to 36 months for a small subset of graduate loans).

Lower interest rates on the Interest Only and Fixed Payment options encourage customers to elect those options, which help customers reduce their total loan cost compared with the traditional deferred option loan.

(The grace period for a Smart Option Student Loan generally runs for six months after the borrower separates from school, but can run for up to 36 months for a small subset of graduate loans.) Lower interest rates on the Interest Only and Fixed Payment options encourage customers to elect those options, which help customers reduce their total loan cost compared with the traditional deferred option loan.

Making payments while in school helps customers become accustomed to making on-time regular loan payments.

We offer both variable-rate and fixed-rate loans.

In 2018, we expanded our offerings to include six new loan products for specific graduate programs of study.

These included the Sallie Mae Law School Loan, the Sallie Mae MBA Loan, the Sallie Mae Health Professions Graduate Loan, the Sallie Mae Medical School Loan, the Sallie Mae Dental School Loan, and the Sallie Mae Graduate School Loan.

We also offer six loan products for specific graduate programs of study.

These include the Sallie Mae Law School Loan, the Sallie Mae MBA Loan, the Sallie Mae Health Professions Graduate Loan, the Sallie Mae Medical School Loan, the Sallie Mae Dental School Loan, and the Sallie Mae Graduate School Loan.

These products were designed to address the specific needs of graduate students, such as extended grace periods for medical students.

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For Private Education Loans originated during the year ended December 31, 2020, our average FICO scores (representing the higher credit scores of the cosigners or borrowers) at the time of original approval were 749, and approximately 86.0 percent of those loans were cosigned.

In addition, we voluntarily require school certification of both the need for, and the amount of, every Private Education Loan we originate (to prevent unnecessary borrowing beyond a school’s cost of attendance), and we disburse the loan proceeds directly to the higher education institutions to ensure loan proceeds are applied directly to the student’s education expenses.

In addition, we require school certification of both the need for, and the amount of, every Private Education Loan we originate (to prevent unnecessary borrowing beyond a school’s cost of attendance), and we disburse the loan proceeds directly to the higher education institutions to ensure loan proceeds are applied directly to the student’s education expenses.

The core of our marketing strategy is to promote our products on campuses through financial aid offices as well as through online and direct marketing to students and families.

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Our loans are high credit quality and the overwhelming majority of our customers manage their payments with great success.

Loans in repayment include loans on which customers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.

At December 31, 2019 , 2.8 percent of loans in repayment were greater than 30 days delinquent, and loans in forbearance were 4.1 percent of loans in repayment and forbearance.

In 2019 , net charge-offs as a percentage of average loans in repayment was 1.17 percent.

Private Education Loans in repayment include loans on which customers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.

At December 31, 2020, 2.8 percent of Private Education Loans (held for investment) in repayment were greater than 30 days delinquent, and Private Education Loans (held for investment) in forbearance were 4.3 percent of loans in repayment and forbearance.

In 2020, net charge-offs as a percentage of average loans in repayment were 1.17 percent.

Sallie Mae Bank

The Bank, which is regulated by the Utah Department of Financial Institutions (the “UDFI”), the FDIC, and the Consumer Financial Protection Bureau (the “CFPB”), offers traditional savings products, such as high-yield savings accounts, money market accounts, and certificates of deposit (“CDs”), originates Private Education Loans, and manages a loan portfolio that also includes Personal Loans (as defined below), loans insured or guaranteed under the previously existing Federal Family Education program (“FFELP Loans”) and credit card loans (“Credit Cards”).

At December 31, 2019 , the Bank had total assets of $32.5 billion, including $22.9 billion of Private Education Loans, net, $984 million of Personal Loans, net, $784 million of FFELP Loans, net, $4 million of Credit Cards, net, and total deposits of $24.6 billion.

Our ability to obtain deposit funding and offer competitive interest rates on deposits will be necessary to sustain the growth of our Private Education Loan and other originations.

The Bank, which is regulated by the Utah Department of Financial Institutions (the “UDFI”), the FDIC, and the Consumer Financial Protection Bureau (the “CFPB”), offers traditional savings products, such as high-yield savings accounts, money market accounts, and certificates of deposit (“CDs”), originates Private Education Loans, and manages a loan portfolio that also includes loans insured or guaranteed under the previously existing Federal Family Education Loan Program (“FFELP Loans”) and credit card loans (“Credit Cards”).

At December 31, 2020, the Bank had total assets of $30.3 billion, including $18.4 billion of Private Education Loans (held for investment), net, $735 million of FFELP Loans (held for investment), net, $11 million of Credit Cards (held for investment), net, and total deposits of $23.2 billion.

Our ability to obtain deposit funding and offer competitive interest rates on deposits will be necessary to sustain our Private Education Loan and other originations.

Our ability to obtain such funding is dependent, in part, on the capital levels of the Bank and its compliance with other applicable regulatory requirements.

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We maintained our diversified funding base by raising $1.3 billion in term funding collateralized by pools of Private Education Loans in the long-term asset-backed securities (“ABS”) market in 2020.

This brought our total ABS funding outstanding at December 31, 2019 (which takes into account $1.0 billion in ABS repayments during 2019) to $4.2 billion, or 18 percent of our total Private Education Loan portfolio.

This brought our total ABS funding outstanding at December 31, 2020 to $4.5 billion, or 24 percent of our total Private Education Loans held for investment portfolio.

We plan to continue to use ABS funding, market conditions permitting.

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See the subsection titled “Regulation of Sallie Mae Bank” under “Supervision and Regulation” for additional details about the Bank.

In 2019, we introduced three new credit card offerings, each uniquely designed to promote and reward financial responsibility, including the only card that offers a cash back bonus that cardholders can apply to pay down a student loan.

At December 31, 2019, we had $4 million of Credit Cards, net outstanding.

Personal Loans

We began purchasing unsecured personal loans used for non-educational purposes (“Personal Loans”) from a marketplace lender in 2016 and discontinued those purchases in July 2018.

In 2018, we began to originate Personal Loans.

In the fourth quarter of 2019, we discontinued new Personal Loan originations in order to focus resources on core business strategic priorities and do not expect to originate or purchase any Personal Loans in 2020.

We processed completed Personal Loan applications received by December 15, 2019 and continue to provide Personal Loan customers with the high-quality service they have come to expect.

At December 31, 2019 , we had $984 million of Personal Loans, net outstanding.

Upromise and SmartyPig

Upromise is a free to join rewards program helping Americans save for college.

Members can earn cash back rewards when shopping at participating on-line retailers, dining out at participating restaurants, and by using their Upromise Mastercard.

Since inception, Upromise members have earned more than $1 billion through the program.

We offer three types of credit cards, each uniquely designed to promote and reward financial responsibility, including a card that offers a cash back bonus that cardholders can apply to pay down a student loan.

At December 31, 2020, we had $11 million of Credit Cards, net, outstanding in our held for investment portfolio.

Our SmartyPig™ product is a free, FDIC-insured, online, goal-based savings account that helps consumers save for long- and short-term goals.

Its tiered interest rates reward consumers for growing their savings.

Personal Loans and Upromise

In the fourth quarter of 2019, we discontinued originations of our unsecured personal loans used for non-educational purposes (“Personal Loans”) and did not originate or purchase any Personal Loans in 2020.

In the third quarter of 2020, we sold our entire Personal Loan portfolio to focus our capital and attention on the core education loan business.

As part of our efforts to focus and align to our core business, on May 31, 2020, we also sold our Upromise Inc.

subsidiary, which operated a free to join rewards program.

Our Lending Philosophy

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Explore federal student loans.

We encourage students to explore federal student loan options by completing the Free Application for Federal Student Aid.

Explore federal student loan options by completing the Free Application for Federal Student Aid (“FAFSA”).

Consider a responsible private student loan.

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Our Approach to Assisting Students and Families Borrowing and Repaying Private Education Loans

The majority of our Private Education Loan customers elect an in-school repayment option.

Half of our Private Education Loan customers elect an in-school repayment option.

By making in-school payments, customers learn to establish good repayment patterns, reduce their total loan cost, and graduate with less debt.

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If a customer’s account becomes delinquent, our collections centers work with the customer and/or the cosigner to understand their ability to make ongoing payments.

If the customer is in financial hardship, we work with the customer and/or cosigner to understand their financial circumstances and identify any available alternative arrangements designed to reduce monthly payment obligations.

If the customer is in financial hardship, we work with the customer and/or cosigner and identify any available alternative arrangements designed to reduce monthly payment obligations.

These can include extended repayment schedules, temporary interest rate reductions and, if appropriate, short-term hardship forbearance (which typically is retroactive and granted by our collections department), suited to their individual circumstances and ability to make payments.

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See Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition —

Allowance for Loan Losses — Use of Forbearance and Rate Modifications as a Private Education Loan Collection Tool” for additional information about planned changes to our credit administration practices.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Allowance for Credit Losses — Use of

Forbearance and Rate Modifications as a Private Education Loan Collection Tool” for additional information about planned changes to our credit administration practices.

COVID-19 Response

We are accommodating to customers who face special circumstances or have trouble making loan payments.

Like many Americans, some of our customers faced unforeseen challenges due to the pandemic of respiratory disease caused by the coronavirus 2019 or COVID-19 (“COVID-19”).

In response, we took significant steps to provide relief to assist those customers.

On March 10, 2020, we proactively posted assistance information on our web site and communicated to all Sallie Mae customers, including cosigners, to inform them assistance was available.

We enhanced the functionality of our chat, automated phone system, mobile app, and website features to help all our customers manage their accounts, make or postpone payments, and request hardship relief.

Customers may contact us in whatever way is most convenient for them.

Historically we have utilized disaster forbearance for material events, including hurricanes, wildfires, and floods.

Disaster forbearance defers payments for as many as 90 days upon enrollment.

In accordance with regulatory guidance that encourages lenders to work constructively with customers who have been impacted by COVID-19, we invoked this same disaster forbearance program to assist our customers through COVID-19 and offered this program across our operations, including through mobile and self-service channels such as chat and interactive voice response (“IVR”) to address initial high volumes at the onset of the pandemic.

We have since returned to a policy of interacting with 100 percent of these customers through our customer care and collections personnel.

Customers requesting a disaster forbearance or an extension of a disaster forbearance are required to speak with our customer care and collections personnel.

The first wave of disaster forbearance was granted primarily in 90-day increments.

As these forbearances ended in late second quarter and early third quarter, we reduced the disaster forbearance to one-month increments and implemented additional discussions between our servicing agents and borrowers to encourage borrowers/cosigners to enter repayment.

Customers who receive a disaster forbearance do not progress in delinquency and are not assessed late fees or other fees.

During a disaster forbearance, a customer’s credit file will continue to reflect the status of the loan as it was immediately prior to granting the disaster forbearance.

During the period of the disaster forbearance, interest continues to accrue, but is not capitalized to the loan balance after the loan returns to repayment status.

If the financial hardship extends beyond 90 days, additional assistance is available for eligible customers.

For example, for borrowers exiting disaster forbearance and not eligible for GRP, we may allow them to make interest only payments for 12 months before reverting to full principal and interest payments.

As of December 31, 2020, $44.2 million of Private Education Loans held for investment were in disaster forbearance status.

For further information on the impact of COVID-19 on the Company, see Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Impact of COVID-19 on Sallie Mae,” in this annual report on Form 10-K.

Customer Service

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These and other enhancements have contributed to streamlined originations and servicing processes, increased customer self-services rates, and improved customer satisfaction in all channels.

The Company maintains an A+ rating with the Better Business Bureau and in 2019 earned the J.D.

Powers and Associates Certification for Customer Service for phone support.

The Company maintains an A+ rating with the Better Business Bureau.

Customer Success

We continue to adapt our business to best serve the needs of families who see us as a trusted advisor and partner.

And when our customers succeed, we succeed.

Of total customers, 91 percent of our borrowers complete their program of study, 91 percent are employed, and 98 percent are successfully repaying their Sallie Mae loans.

We are strongly invested in our customers’ success.

Of total customers, 98 percent of loans in repayment are in good standing.

Our College Planning Calculator helps families set college savings goals, projects the full costs of a college degree, and estimates future student loan payments and the annual starting salary level needed to keep payments manageable.

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The Sallie Mae Paying for College Resource provides access to free, online college planning tools, short educational videos on financial aid, and other valuable information to help guide students and their families through the planning for college process.

In 2020, to raise awareness about the importance of completing the FAFSA and to simplify the process, we partnered with Embark, the leading provider of admissions software for schools and universities, to provide a free online tool to help families file the FAFSA.

The tool reduces the average time it takes to complete the FAFSA from 55 minutes to less than 20 minutes.

Key Drivers of Private Education Loan Market Growth

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Due to the low cost of two-year programs, federal grant and loan programs are typically sufficient for the funding needs of these students.

The for-profit industry has been the subject of increased scrutiny and regulation over the last several years.

Approximately 11 percent or $583 million of our 2020 Private Education Loan originations were for students attending for-profit schools.

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We expect students who attend and complete programs at for-profit schools to support the same repayment performance as students who attend and graduate from public and private not-for-profit four-year degree granting institutions.

Our competitors 1 in the Private Education Loan market include large banks such as Wells Fargo Bank, N.A., Discover Bank, Citizens Financial Group, Inc.

and PNC Bank, National Association, as well as a number of smaller specialty finance companies and members of the Education Finance Council.

Our competitors 1 in the Private Education Loan market include large banks such as Discover Bank, Citizens Financial Group, Inc.

and PNC Bank, as well as a number of smaller specialty finance companies and members of the Education Finance Council.

We compete based on our products, originations capability, price, and customer service.

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• According to the U.S.

Department of Education’s projections released in February 2019, the high school graduate population is projected to remain relatively flat from 2020 to 2027.

Department of Education’s projections released in December 2019, the high school graduate population is projected to remain relatively flat from 2020 to 2029.

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www.measureone.com.

Department of Education, National Center for Education Statistics, Projections of Education Statistics to 2027 (NCES, February 2019), Enrollment in Postsecondary Institutions (NCES, October 2018).

Department of Education, National Center for Education Statistics, Projections of Education Statistics to 2029 (NCES, December 2019), Enrollment in Postsecondary Institutions (NCES, December 2019).

These are the most recent sources available to us for this information.

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www.collegeboard.org .

MeasureOne www.measureone.com.

Funding sources in current dollars and include federal and private loan data.

Other sources for the size of the Private Education Loan market exist and may cite the size of the market differently.

We believe the College Board source includes Private Education Loans made by major financial institutions in the Private Education Loan market, with an unknown adjustment for Private Education Loans made by smaller lenders such as credit unions.

The College Board restates its data annually, which may cause previously reported results to vary.

We changed our source of participants in this 2020 annual report, removing our internal estimates for Private Education Loans made by smaller lenders, and relying solely on publicly available sources for market estimates, because we believe it provides a more appropriate basis for comparison of the performance of our business.

• We estimate total spending on higher education was $477 billion in AY 2019-2020, up from $424 billion in AY 2015-2016.

Private Education Loans represent just 2.6 percent of total spending on higher education.

Private Education Loan originations increased to an estimated $13 billion in AY 2019-2020, up 10 percent over the previous year and represent just 2.7 percent of total spending on higher education.

Modest growth in total spending can lead to meaningful increases in Private Education Loans in the absence of growth in other sources of funding.

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In doing so, we utilize information from the U.S.

Department of Education, National Center for Education Statistics, Projections of Education Statistics to 2027 (NCES 2019, February 2019), The Integrated Postsecondary Education Data System (IPEDS), College Board -Trends in Student Aid 2016.

Department of Education, National Center for Education Statistics, Projections of Education Statistics to 2027 (NCES 2020, October 2020), The Integrated Postsecondary Education Data System (IPEDS), College Board -Trends in Student Aid 2016.

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Consumer Financial Protection Bureau

The Consumer Financial Protection Act, a part of the Dodd-Frank Act, established the CFPB, which has broad authority to promulgate regulations under federal consumer financial protection laws and to directly or indirectly enforce those laws, including providing regulatory oversight of the Private Education Loan industry, and to examine financial institutions for compliance.

The CFPB has broad authority to promulgate regulations under federal consumer financial protection laws and to directly or indirectly enforce those laws, including providing regulatory oversight of the Private Education Loan industry, and to examine financial institutions for compliance.

It is authorized to collect fines and order consumer restitution in the event of violations, engage in consumer financial education, track consumer complaints, request data and promote the availability of financial services to underserved consumers and communities.

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The CFPB has been active in its supervision, examination and enforcement of financial services companies, notably bringing enforcement actions, imposing fines and mandating large refunds to customers of several large banking institutions.

As of January 1, 2015, the CFPB has been the Bank’s primary consumer compliance supervisor with compliance examination authority and primary consumer protection enforcement authority.

The CFPB is the Bank’s primary consumer compliance supervisor with compliance examination authority and primary consumer protection enforcement authority.

The UDFI and FDIC remain the prudential regulatory authorities with respect to the Bank’s financial strength.

The Dodd-Frank Act created the Private Education Loan Ombudsman within the CFPB to receive and attempt to informally resolve inquiries about Private Education Loans.

The Private Education Loan Ombudsman within the CFPB is authorized to receive and attempt to informally resolve inquiries about Private Education Loans.

The Private Education Loan Ombudsman is required by law to report to Congress annually on the trends and issues identified through this process.

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The Court took the motion under advisement.

On July 17, 2018, the Mississippi Attorney General filed a lawsuit in Mississippi state court against Navient, Navient Solutions, LLC, and the Bank arising out of the Multi-State Investigation.

The complaint alleges unfair and deceptive trade practices against all three defendants as to private loan origination practices from 2000 to 2009, and against the two Navient defendants as to servicing practices between 2010 and the present.

The complaint further alleges that Navient assumed responsibility for these matters under the Separation and Distribution Agreement for alleged conduct that pre-dated the Spin-Off.

On September 27, 2018, the Mississippi Attorney General filed an amended complaint.

On October 8, 2018, the Bank moved to dismiss the Mississippi Attorney General’s action as to the Bank, arguing, among other things, that the complaint failed to allege with sufficient particularity or specificity how the Bank was responsible for any of the alleged conduct, most of which predated the Bank’s existence.

On November 20, 2018, the Mississippi Attorney General filed an opposition brief, and the Bank filed a reply on December 21, 2018.

The court heard oral argument on the Bank’s motion to dismiss on April 11, 2019.

On August 15, 2019, the court entered an order denying the Bank’s motion to dismiss.

On September 5, 2019, the Bank filed with the Supreme Court of Mississippi a petition for interlocutory appeal.

The Mississippi Attorney General filed an opposition to the petition for interlocutory appeal on September 19, 2019.

On October 16, 2019, the Supreme Court of Mississippi granted the Bank’s petition for interlocutory appeal and stayed the trial court proceedings.

To date, three other state attorneys general (California, Washington and Pennsylvania) have filed suits against Navient and one or more of its current subsidiaries arising out of the Multi-State Investigation.

Neither SLM, the Bank, nor any of their current subsidiaries are named in, or otherwise a party to, the California, Washington or Pennsylvania lawsuits, and no claims are asserted against them.

To date, four other state attorneys general (California, Washington, Pennsylvania, and New Jersey) have filed suits against Navient and one or more of its current subsidiaries arising out of the Multi-State Investigation.

Neither SLM, the Bank, nor any of their current subsidiaries are named in, or otherwise a party to, the California, Washington, Pennsylvania, or New Jersey lawsuits, and no claims are asserted against them.

Each complaint asserts in its own fashion that Navient assumed responsibility under the Separation and Distribution Agreement for the alleged conduct in the complaints prior to the Spin-Off.

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Pursuant to the terms of the Separation and Distribution Agreement, and as contemplated by the structure of the Spin-Off, Navient is legally obligated to indemnify the Bank against all claims, actions, damages, losses or expenses that may arise from the conduct of all activities of pre-Spin-Off SLM occurring prior to the Spin-Off, except for certain liabilities related to the conduct of the pre-Spin-Off consumer banking business that were specifically assumed by the Bank (and as to which the Bank is obligated to indemnify Navient).

Navient has acknowledged its indemnification obligations under the Separation and Distribution Agreement, in connection with the Multi-State Investigation and the related lawsuits in which the Bank has been named as a party.

Navient has acknowledged its indemnification obligations under the Separation and Distribution Agreement, in connection with the Multi-State Investigation

and the related lawsuits in which the Bank has been named as a party.

Navient has informed the Bank, however, that it believes that the Bank may be responsible to indemnify Navient against certain potential liabilities arising from the above-described lawsuits under the Separation and Distribution Agreement and/or a separate loan servicing agreement between the parties, and has suggested that the parties defer further discussion regarding indemnification obligations, and reimbursement of ongoing legal costs, in connection with the lawsuits until the lawsuits are resolved.

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Under the regulations, if a regulator determines a bank fails to meet any prescribed standards, the regulator may require the bank to submit an acceptable plan to achieve compliance, consistent with deadlines for the submission and review of such safety and soundness compliance plans.

Dividends and Share Repurchase Programs

The Bank is chartered under the laws of the State of Utah and its deposits are insured by the FDIC.

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Common stock dividend declarations are subject to determination by, and the discretion of, the Company’s Board of Directors.

The Company’s business plan contemplates that common stock dividends may increase from time to time if the Company’s diluted earnings per common share increase subject to determination by, and discretion of, the Company’s Board of Directors.

The Company may change its common stock dividend policy at any time.

The January 23, 2019 share repurchase program (the “2019 Share Repurchase Program”), which was effective upon announcement and expires on January 22, 2021, permits the Company to repurchase from time to time shares of its common stock up to an aggregate repurchase price not to exceed $200 million.

Under the 2019 Share Repurchase Program, we repurchased 17 million shares of common stock for $167 million for the year ended December 31, 2019.

We had $33 million of remaining capacity under the 2019 Share Repurchase Program available as of December 31, 2019.

On January 22, 2020, the Company announced a new share repurchase program (the “2020 Share Repurchase Program”), which was effective upon announcement and expires on January 21, 2022, and permits the Company to repurchase shares of its common stock from time to time up to an aggregate repurchase price not to exceed $600 million.

The January 23, 2019 share repurchase program (the “2019 Share Repurchase Program”), which was effective upon announcement and expired on January 22, 2021, permitted the Company to repurchase from time to time shares of its common stock up to an aggregate repurchase price not to exceed $200 million.

We have utilized all capacity under the 2019 Share Repurchase Program, having repurchased 17 million shares of common stock for $167 million for the year ended December 31, 2019 and 3 million shares of common stock for $33 million in the year ended December 31, 2020.

The January 22, 2020 share repurchase program (the “2020 Share Repurchase Program”), which was effective upon announcement and expires on January 21, 2022, permits the Company to repurchase shares of its common stock from time to time up to an aggregate repurchase price not to exceed $600 million.

Under the authority of the 2020 Share Repurchase Program, on March 10, 2020, we entered into an accelerated share repurchase agreement (“ASR”) with a third-party financial institution under which we paid $525 million for an upfront delivery of our common stock and a forward agreement.

On March 11, 2020, the third-party financial institution delivered to us approximately 44.9 million shares.

The final total actual number of shares of common stock delivered to us pursuant to the forward agreement was based upon the Rule 10b-18 volume-weighted average price at which the shares of our common stock traded during the regular trading sessions on the NASDAQ Global Select Market during the term of the ASR.

The transactions are accounted for as equity transactions and are included in treasury stock when the shares are received, at which time there is an immediate reduction in the weighted average common shares calculation for basic and diluted earnings per share.

On January 26, 2021, we completed the ASR and upon final settlement on January 28, 2021, we received an additional 13 million shares.

In total, we repurchased 58 million shares under the ASR at an average price per share of $9.01.

For additional information, see Notes to Consolidated Financial Statements, Note 25, “Subsequent Events.”

In October 2020, we initiated a cash tender offer to purchase up to 2,000,000 shares of our Series B Preferred Stock.

On November 30, 2020, we accepted for purchase 1,489,304 shares of the Series B Preferred Stock at a purchase price of $45 per share plus an amount equal to accrued and unpaid dividends, for an aggregate purchase price of approximately $68 million.

On January 27, 2021, the Company announced a new share repurchase program (the “2021 Share Repurchase Program”), which was effective upon announcement and expires on January 26, 2023, and permits the Company to repurchase shares of its common stock from time to time up to an aggregate repurchase price not to exceed $1.25 billion.

On February 2, 2021, we announced the commencement of a tender offer (the “Tender Offer”) to purchase up to $1 billion in aggregate purchase price of our outstanding shares of common stock, par value $0.20 per share (the “Securities”) or such lesser aggregate purchase price of Securities as are properly tendered and not properly withdrawn, at a single per-Security price not greater than $15.00 nor less than $13.10 per share to the seller in cash, less any applicable withholding taxes and without interest.

The Tender Offer may be amended from time to time, and will expire, upon the terms and conditions described in the relevant Tender Offer materials filed with the SEC.

The results of the Tender Offer will be reflected in the Company’s financial results for the first fiscal quarter of 2021.

Repurchases under the programs may occur from time to time and through a variety of methods, including tender offers, open market repurchases, repurchases effected through Rule 10b5-1 trading plans, negotiated block purchases, accelerated share repurchase programs, or other similar transactions.

The timing and volume of any repurchases under the 2020 Share Repurchase Program and the 2021 Share Repurchase Program will be subject to market conditions, and there can be no guarantee that the Company will repurchase up to the limit of the programs or at all.

Repurchases under the programs may occur from time to time and through a variety of methods, including open market repurchases, repurchases effected through Rule 10b5-1 trading plans, negotiated block purchases, accelerated share repurchase programs, tender offers or other similar transactions.

We expect that the Bank will pay dividends to the Company as may be necessary to enable the Company to pay any declared dividends on its Series B Preferred Stock and common stock and to consummate any common share repurchases by the Company under the share repurchase programs.

The Bank declared $254 million in dividends for the year ended December 31, 2019, with the proceeds primarily used to fund the 2019 Share Repurchase Program and stock dividends.

The Bank paid no dividends on its common stock for the years ended December 31, 2018 and 2017.

The Bank declared $579 million and $254 million in dividends for the years ended December 31, 2020 and 2019, respectively, with the proceeds primarily used to fund the 2019 and 2020 Share Repurchase Programs and stock dividends.

The Bank paid no dividends on its common stock for the year ended December 31, 2018.

Regulatory Capital Requirements

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The Bank’s capital amounts and its classification under the prompt corrective action framework are also subject to qualitative judgments by the regulators about components of capital, risk weightings and other factors.

Basel III is aimed at increasing both the quantity and quality of regulatory capital.

Certain aspects of U.S.

Basel III, including new deductions from and adjustments to regulatory capital and a capital conservation buffer, have been phased in over several years.

The Bank is subject to the following minimum capital ratios under U.S.

a Common Equity Tier 1 risk-based capital ratio of 4.5 percent, a Tier 1 risk-based capital ratio of 6.0 percent, a Total risk-based capital ratio of 8.0 percent, and a Tier 1 leverage ratio of 4.0 percent.

In addition, as of January 1, 2019, the Bank is subject to a fully phased-in Common Equity Tier 1 capital conservation buffer of greater than 2.5 percent.

(As of December 31, 2018, the Bank was subject to a Common Equity Tier 1 capital conservation buffer of greater than 1.875 percent.) Failure to maintain the buffer will result in restrictions on the Bank’s ability to make capital distributions, including the payment of dividends, and to pay discretionary bonuses to executive officers.

Including the buffer, as of January 1, 2019, the Bank is required to maintain the following capital ratios under U.S.

In addition, the Bank is subject to a Common Equity Tier 1 capital conservation buffer of greater than 2.5 percent.

Failure to maintain the buffer will result in restrictions on the Bank’s ability to make capital distributions, including the payment of dividends, and to pay discretionary bonuses to executive officers.

Including the buffer, the Bank is required to maintain the following capital ratios under U.S.

Basel III in order to avoid such restrictions:

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To qualify as “well capitalized” under the prompt corrective action framework for insured depository institutions, the Bank must maintain a Common Equity Tier 1 risk-based capital ratio of at least 6.5 percent, a Tier 1 risk-based capital ratio of at least 8.0 percent, a Total risk-based capital ratio of at least 10.0 percent, and a Tier 1 leverage ratio of at least 5.0 percent.

On August 26, 2020, the FDIC and other federal banking agencies published a final rule that provides those banking organizations that adopt CECL (as hereinafter defined) during the 2020 calendar year with the option to delay for two years, and then phase in over the following three years, the effects on regulatory capital of CECL relative to the incurred loss methodology.

We have elected to use this option.

The final rule is substantially similar to an interim final rule issued on March 27, 2020.

Under this final rule, because we have elected to use the deferral option, the regulatory capital impact of our transition adjustments recorded on January 1, 2020 from the adoption of CECL will be deferred for two years.

In addition, from January 1, 2020 through the end of the two-year deferral period, 25 percent of the ongoing impact of CECL on our allowance for credit

losses, retained earnings, and average total consolidated assets, each as reported for regulatory capital purposes, will be added to the deferred transition amounts (“adjusted transition amounts”) and deferred for the two-year period.

At the conclusion of the two-year period (i.e., beginning January 1, 2022), the adjusted transition amounts will be phased in for regulatory capital purposes at a rate of 25 percent per year, with the phased-in amounts included in regulatory capital at the beginning of each year.

Our January 1, 2020 CECL transition amounts increased the allowance for credit losses by $1.1 billion, increased the liability representing our off-balance sheet exposure for unfunded commitments by $116 million, and increased our deferred tax asset by $306 million, resulting in a cumulative effect adjustment that reduced retained earnings by $953 million.

This transition adjustment was inclusive of qualitative adjustments incorporated into our CECL allowance as necessary, to address any limitations in the models used.

Stress Testing Requirements

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Any failure to comply with these laws and regulatory standards could subject us to legal and reputational risk.

For example, California passed the California Consumer Privacy Act (the “CCPA”), which became effective

on January 1, 2020, and applies to for-profit businesses that conduct business in California and meet certain revenue or data collection thresholds.

For example, California passed the California Consumer Privacy Act (the “CCPA”), which became effective on January 1, 2020, and applies to for-profit businesses that conduct business in California and meet certain revenue or data collection thresholds.

The CCPA contains several exemptions, including an exemption applicable to information that is collected, processed, sold or disclosed pursuant to the GLBA.

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While these state laws vary in content, they generally include components relating to licensure and oversight by state authorities and the creation of specialized student loan ombudsman offices to oversee the student loan industry operating within these states.

These laws may also include requirements pertaining to payment processing, the handling of customer inquiries and complaints, information concerning loan repayment options and access to borrower account records, among other requirements.

These laws may also include requirements pertaining to payment processing, customer communications, the handling of customer inquiries and complaints, information concerning loan repayment options and access to borrower account records, among other requirements.

Notably, these laws often include provisions for enforcement of alleged violations by state regulators as well as private litigation by aggrieved consumers.

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The derivative contracts cleared through the CME and the LCH represent 95.3 percent and 4.7 percent, respectively, of our total notional derivative contracts of $8.6 billion at December 31, 2020.

Our exposure is limited to the value of the derivative contracts in a gain position less any collateral held and plus any collateral posted.

Our exposure is limited to the value of the derivative contracts in a

gain position less any collateral held and plus any collateral posted.

When there is a net negative exposure, we consider our exposure to the counterparty to be zero.

Credit Risk Retention

In October 2014, the Department of the Treasury, the Federal Reserve, the Office of the Comptroller of the Currency, the FDIC, the SEC, the Federal Housing Finance Agency and the Department of Housing and Urban Development issued final rules to implement the credit risk retention requirements of Section 941 of the Dodd-Frank Act for ABS, including those backed by residential and commercial mortgages and automobile, commercial, credit card, and student loans, except for certain transactions with limited connections to the United States and U.S.

The final Dodd-Frank risk retention rules generally require sponsors of ABS, such as Sallie Mae, to retain an economic interest in an ABS transaction that represents at least five percent of the credit risk of the assets being securitized.

The final rules took effect in December 2015 for securitization transactions backed by residential mortgages and became effective in December 2016 for other securitization transactions, including those collateralized by Private Education Loans.

The Bank early adopted the Dodd-Frank risk retention rules beginning with its 2016-A securitization transaction completed in May 2016.

For its 2016-A transaction and subsequent securitizations to date, the Bank complies with the Dodd-Frank risk retention rules by retaining (for a requisite period of time) an “eligible horizontal interest” comprised of residual certificates representing at least five percent of the fair value of all interests issued in the securitization transaction, determined as of the date of transfer.

Prior to May 2016, the Bank’s on-balance sheet securitizations complied with the credit risk retention requirements of the FDIC “safe harbor” rule, which generally reduces the risk to securitization investors in the event of an insolvency of the Bank, by retaining five percent of each class of securities issued in each securitization transaction.

With any securitizations, including any structured loan sale transactions, that are treated as off-balance sheet, the Bank intends to comply with the Dodd-Frank risk retention rules by retaining (for a requisite period) an “eligible vertical interest” comprised of a five percent interest in each class of ABS interests issued in any such transaction or a single interest entitling the holder to five percent of any amounts payable by the trustee in respect of each

interest issued by the trust.

The Dodd-Frank risk retention rules generally require sponsors of ABS, such as Sallie Mae, to retain an economic interest in an ABS transaction that represents at least five percent of the credit risk of the assets being securitized.

We early adopted the Dodd-Frank risk retention rules beginning with our 2016-A securitization transaction completed in May 2016.

For our 2016-A transaction and subsequent securitizations to date, we comply with the Dodd-Frank risk retention rules by retaining (for a requisite period of time) an “eligible horizontal residual interest” comprised of residual certificates representing at least five percent of the fair value of all interests issued in the securitization transaction, determined as of the date of transfer.

With any securitizations, including any loan sale transactions structured as securitizations, that are treated as off-balance sheet, we intend to comply with the Dodd-Frank risk retention rules by retaining (for a requisite period) an “eligible vertical interest” comprised of a five percent interest in each class of ABS interests issued in any such transaction or a single interest entitling the holder to five percent of any amounts payable by the trustee in respect of each interest issued by the trust.

The risk retention provisions of the FDIC safe harbor rule were superseded by the Dodd-Frank risk retention rules.

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These prohibitions are subject to a number of important exclusions and exemptions that, for example, permit insured depository institutions and their affiliates to trade for risk-mitigating hedging and liquidity management, subject to certain conditions and restrictions.

A conformance period ended on July 21, 2015.

We do not expect the Volcker Rule to have a meaningful effect on our current operations or those of our subsidiaries, as we do not materially engage in the businesses prohibited by the Volcker Rule.

At December 31, 2019 , we had approximately 1,900 employees, none of whom are covered by collective bargaining agreements.

The Volcker Rule does not have a meaningful effect on our current operations or those of our subsidiaries, as we do not materially engage in the businesses prohibited by the Volcker Rule.

Human Capital Resources and Talent Development

As of December 31, 2020, we had approximately 1,600 team members, all located in the United States, none of whom are covered by collective bargaining agreements.

Our “MAPS” program (Manage, Apply, Practice, and Succeed), is designed to identify, and cultivate, our future leaders from existing employees of Sallie Mae.

Now in its third year and seventh cohort, the MAPS program brings together mid and senior-level managers to enhance their leadership skills and build their project management capabilities through group projects and collaborative exercises.

Our leadership development program, “Inspirational Leadership,” is designed to build on our leadership competencies and provide an opportunity to bring about new solutions through our business challenge.

This program is offered to mid to senior-level leaders who have the potential to assume broader roles in the future.

In addition to what we believe to be attractive compensation and benefits programs, our management incentive plan and long-term incentive plan provide cash and equity bonuses to employees to help incentivize employee productivity, which we believe contributes to our success.

We believe that a diverse and inclusive workforce can lead to a more effective company.

As of December 31, 2020, 54.1 percent of our team members were female and 40.6 percent of our team members self-identified as part of a minority

Our talent acquisition program has led to a steady increase in female and minority representation in leadership positions since 2015 across the Company.

We believe an engaged workforce leads to a more innovative, productive, and profitable company.

For this reason, we periodically measure employee engagement.

The results from engagement surveys are used to implement programs and processes designed to keep our team members connected and growing at Sallie Mae.

Ensuring the safety and well-being of our team members remains a priority during the COVID-19 pandemic.

In March 2020, we enacted a robust business continuity plan, including a work-from-home policy for all team members.

Our technology platform and the adaptability of our team allowed for a seamless transition to a remote working environment;

and we continue to provide team members with the tools and resources necessary to continue our business.

Our team members get involved in the communities where they live and work through the Sallie Mae Employee Volunteer Program and the Sallie Mae Employee Matching Gift Program.

In 2020, our team members donated 861 hours through our community engagement programs and more than $60,000 in matching gifts, which efforts we believe provide a sense of inclusiveness and purpose and support our stakeholder communities.

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What changed 10-K

Item 1. Business