What changed in this filing

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Item 1A. Risk Factors

2021-02-25 compared with 2020-02-28 · 217 added, 304 removed, 154 unchanged (77% of the section changed)

Economic Environment

Economic conditions could have a material adverse effect on our business, results of operations, financial condition and/or liquidity.

Our business is significantly influenced by economic conditions.

In general, economic growth in the United States remains uneven.

Employment levels in the United States are often sensitive not only to domestic economic growth but to the performance of major foreign economies and commodity prices.

Rising unemployment rates and the failure of our in-school borrowers to graduate are two of the most significant macroeconomic factors that could increase loan delinquencies, defaults and loan modifications, or otherwise negatively affect performance of our existing education loan portfolios.

Likewise, high unemployment and decreased savings rates may impede Private Education Loan originations growth, as well as growth in credit cards and the development of other financial products, as loan applicants and cosigners may experience trouble repaying credit obligations or may not meet our credit standards.

Additionally, if interest rates rise causing payments on variable-rate loans to increase, borrowers and cosigners could experience trouble repaying loans we have made to them.

Consequently, for a number of reasons, our borrowers may experience more trouble in repaying loans we have made to them, which could increase our loan delinquencies, defaults and loan modifications.

In addition, some consumers may find that higher education is an unnecessary investment during uncertain economic times and defer enrollment in educational institutions until continued economic growth appears to be more likely or sustainable, or they may turn to less costly forms of secondary education, thus decreasing our education loan application and funding volumes.

Increased savings rates, especially those related to savings by consumers for educational purposes, also could potentially lead to reduced Private Education Loan originations and funding volumes, as customers may prefer to use targeted savings to pay for college or graduate school in lieu of incurring additional household debt.

Higher credit-related losses and weaker credit quality negatively affect our business, financial condition and results of operations and limit funding options, which could also adversely impact our liquidity position.

Competition/Concentration

We operate in a competitive environment.

PANDEMIC RISK

The pandemic caused by a novel coronavirus, or COVID-19 (“COVID-19 pandemic”), and resulting adverse economic conditions have adversely impacted our business and results and, in the future, could have a more material adverse impact on our business, results of operations, financial condition, and/or cash flows.

Any future pandemics could subject our business to the same or greater risks than the COVID-19 pandemic.

The COVID-19 pandemic has caused significant disruption to the U.S.

and world economies, including the closing of many schools and businesses for extended periods of time, significantly higher unemployment and underemployment, significantly lower interest rates, volatility in equity market valuations, and extreme volatility in the U.S.

and world financial markets.

Depending upon the success of the distribution, public acceptance, and administration of COVID-19 vaccines or other therapies, we expect the impact of the COVID-19 pandemic on the U.S.

economy may be significant during a large part of 2021 and that it could materially adversely affect our operations, our regulatory capital and liquidity position, the credit performance of our Private Education Loans and other assets, the number of borrowers seeking payment relief, our results of operations and financial condition, and/or our cash flows.

As described in Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Impact of COVID-19 on Sallie Mae — Customers and Credit Performance,” in this annual report on Form 10-K, during 2020 we experienced a significant increase in disaster forbearance grants, and our borrowers experienced higher levels of financial hardship, which could lead to increased levels of delinquencies and defaults in the future.

Also, our loan application volumes decreased and we had lower Private Education Loan origination volumes in 2020 than we had anticipated.

In addition, our employees may have to continue to work from home for a significant portion of 2021.

Unanticipated issues arising from handling personal, confidential, and other information from a less efficient work-from-home environment could adversely impact our operations and lead to greater risk for us.

The extent to which the COVID-19 pandemic impacts our business, results of operations, financial condition, and/or cash flows will depend on future developments, which are highly uncertain and largely beyond our control, including the impact of the pandemic on colleges and universities, student enrollment, and the need for Private Education Loans.

There can be no assurance that colleges and universities will return to normal pre-pandemic operations, which could adversely affect enrollments and, consequently, the need for Private Education Loans.

In addition, the impact of the COVID-19 pandemic on our business, results of operations, financial condition, and/or cash flows will depend upon, among other factors:

the scope and duration of the pandemic;

the number of our employees, customers, and vendors adversely affected by the pandemic;

the broader public health and economic dislocations resulting from the pandemic;

the actions taken by governmental authorities to limit the public health, financial, and economic impacts of the COVID-19 pandemic;

any legislative or regulatory changes that suspend or reduce payments or cancel or discharge obligations for education loan borrowers;

any reputational damage related to the broader reception and perception of our response to the COVID-19 pandemic;

and the impact of the COVID-19 pandemic on local, U.S., and world economies.

Moreover, we expect that effects of the COVID-19 pandemic will heighten many of the other known risks to our business described below in this Item 1A, and the impact of COVID-19 on our business could be material and adverse.

Any future pandemic could subject our business to the same or greater risks than the COVID-19 pandemic.

CONCENTRATION RISK

Our product offerings are primarily concentrated in loan products for higher education and deposit products for online depositors.

Such concentrations and the competitive environment subject us to risks that could adversely affect our financial position.

At December 31, 2019, approximately 70 percent of our assets and 84 percent of our assets, excluding cash and cash equivalents, were comprised of Private Education Loans.

This concentration poses the risk that any disruption, dislocation or other negative event or trend in the Private Education Loan market could disproportionately and adversely affect our business, financial condition and results of operations.

We compete in the Private Education Loan market with banks and other consumer lending institutions, many with strong consumer brand name recognition and greater financial resources.

Such concentrations and the competitive environment for those products subject us to risks that could adversely affect our financial position.

At December 31, 2020, approximately 60 percent of our total assets, and 70 percent of our total assets excluding cash and cash equivalents, were comprised of Private Education Loans.

This concentration poses the risk that any disruption, dislocation, or other negative event or trend in the Private Education Loan market or the overall economic environment could disproportionately and adversely affect our business, financial condition, and results of operations.

We compete in the Private Education Loan market with banks and other consumer lending institutions, many with strong consumer brand name

recognition and greater financial resources.

Many of those lenders also have a greater level of diversification in their mix of assets, which can enable them to be more competitive in uncertain or challenging economic times.

Moreover, our competition will increase as various lending institutions and other competitors, including Navient, enter or re-enter the Private Education Loan market.

Moreover, our competition will increase as various lending institutions and other competitors, including Navient, through its Earnest subsidiary, enter or re-enter the Private Education Loan market.

We also compete with FinTech companies (as defined below), many of whom have lower return hurdles than more traditional consumer lending institutions.

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

We compete based on our brand products, origination capability, and customer service.

To the extent our competitors compete more aggressively or effectively, we could lose market share to them or subject our existing loans to consolidation or refinancing risk.

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The availability and terms of loans the government originates or guarantees affect the demand for Private Education Loans because students and their families often rely on Private Education Loans to bridge the gap between available funds, including family savings, scholarships, grants, and federal and state loans, and the costs of post-secondary education.

The federal government currently places both annual and aggregate limits on the amount of federal loans any student can receive and determines the

criteria for student eligibility.

The federal government currently places both annual and aggregate limits on the amount of federal loans any student can receive and determines the criteria for student eligibility.

Parents and graduate students may obtain additional federal education loans through other programs.

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The HEA’s reauthorization is currently pending in the U.S.

Congress, but it remains unlikely that a Republican-led Senate and Democratic-controlled House can produce legislation.

Should legislation be enacted, one possible component could be increased federal education loan limits, which could decrease demand for Private Education Loans.

Reauthorization, as well as measures to provide relief for COVID-19, could provide a legislative vehicle for changes to student loan programs.

Possible components that could impact the Private Education Loan market are changes to federal education loan limits, private loan refinancing programs, or Private Education Loan forgiveness.

Other components of any legislation also could have a negative impact on our business and financial condition.

See “— POLITICAL/REPUTATIONAL RISK.

Consumer access to alternative means of financing the costs of education and other factors may reduce demand for, or adversely affect our ability to retain, Private Education Loans, which could have a material adverse effect on our business, financial condition, results of operations and/or cash flows.

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• Government education loan programs such as the DSLP;

Direct loans from colleges and universities, as well as income sharing agreements with schools.

• Direct loans from colleges and universities, as well as income sharing agreements offered by schools and facilitated by private companies.

In addition, our ability to grow Private Education Loan originations and retain assets at our planned levels could be negatively affected if:

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• the cost of attendance of higher education decreases;

• consumers increase their targeted savings for higher education;

• prepayment rates on our Private Education Loans increase or accelerate due to greater market liquidity, availability of alternative means of financing, improved household incomes, increasing consumer confidence, and/or various other factors;

public resistance to increasing higher education costs strengthens;

proposals for new federal education spending designed to make higher education “free” or substantially so regardless of financial need, or to create new federally funded programs to refinance private student loans, gain broader appeal or momentum.

• there is broader public resistance to increasing higher education costs;

• proposals for new federal and state education spending described below in “Political/Reputational Risk” gain broader appeal or momentum.

Consolidation or refinancing of existing Private Education Loans could have a material adverse effect on our business, financial condition, results of operations and/or cash flows.

We believe the design of our Private Education Loan products, with emphasis on rigorous underwriting, credit-worthy cosigners and variable or fixed interest rates, creates sustainable, competitive loan products.

However, increasing amounts of private education consolidation loans at interest rates below those of our existing portfolio - whether from private sources (including financial technology (“FinTech”) companies) or otherwise - have contributed to an increase in the prepayment rates of our existing Private Education Loans and, if prolonged and continuous, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

However, increasing amounts of private education consolidation loans at interest rates below those of our existing portfolio - whether from private sources (including financial technology (“FinTech”) companies) or otherwise - can contribute to an increase in the prepayment rates of our existing Private Education Loans and, if prolonged and continuous, could have a material adverse effect on our business, financial condition, results of operations and/or cash flows.

Since 2010, there have been a number of bills introduced in the United States Congress to promote federal financing for consolidation or refinancing of existing student loans, as well as an increase in the number of lenders offering similar products.

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The special purpose national bank charter is available to qualifying companies engaged in a limited range of banking activities, including paying checks or lending money, but that do not take deposits.

Concurrent with the announcement, the OCC issued a supplement to the Comptroller’s licensing manual to provide guidance for evaluating special purpose national bank charters for FinTechs.

While the OCC has not approved any applications from FinTech companies for special purpose national bank charters, we are still evaluating the potential competitive impact if the OCC begins to charter FinTech companies that offer bank products and services, including loans to consolidate or refinance existing student loans.

We are dependent on key personnel and the loss of one or more of those key personnel could harm our business.

Our future success depends significantly on the continued services and performance of our management team.

We believe our management team’s depth and breadth of experience in our industry is integral to executing our business plan.

We also will need to continue to attract, motivate and retain other key personnel.

The loss of the services of members of our management team or other key personnel to our competitors or other companies or the inability to attract additional qualified personnel as needed could have a material adverse effect on our business, financial position, results of operations and/or cash flows.

Failure to comply with consumer protection, privacy or cybersecurity laws and requirements could subject us to civil and criminal penalties or litigation, including class actions, and have a material adverse effect on our business.

We are subject to a broad range of federal and state consumer protection laws applicable to our lending and retail banking activities, including laws governing fair lending, unfair, deceptive and abusive acts and practices, service member protections, interest rates and loan fees, disclosures of loan terms, marketing, servicing and collections.

We are also subject to a dynamically changing landscape of privacy and cybersecurity laws, regulations, and requirements.

For example, the CCPA took effect on January 1, 2020, and is broad, sweeping legislation that gives California consumers certain rights similar to those provided by the European General Data Protection Regulation.

Among other things, the CCPA provides for enhanced regulatory penalties and potential statutory damages in relation to certain types of data breaches.

“Business — Supervision and Regulation — Regulation of Sallie Mae Bank — Privacy Laws” for additional information.

Violations of, or changes in, federal or state consumer protection, privacy or cybersecurity laws or related regulations, or in the prevailing interpretations thereof, may expose us to litigation, administrative fines, penalties and restitution, result in greater compliance costs, constrain the marketing and origination of Private Education Loans or other products, adversely affect the collection of balances due on the loan assets held by us or by securitization trusts or otherwise adversely affect our business.

Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations, as well as increased intensity in compliance and supervision activities, often impose additional compliance costs.

Accordingly, we could incur substantial additional expense complying with these requirements and may be required to create new processes and information systems.

Moreover, changes in federal or state consumer protection laws and related regulations, or in the prevailing interpretations thereof, could invalidate or call into question the legality of certain of our services and business practices.

The CFPB is the Bank’s primary consumer compliance supervisor, with exclusive authority to conduct examinations for the purposes of assessing compliance with the requirements of Federal consumer financial laws and with primary consumer compliance enforcement authority.

CFPB jurisdiction could result in additional regulation and supervision, which could increase our costs and limit our ability to pursue business opportunities.

The CFPB/DOE MOU could lead to additional complaints received by the CFPB regarding us, which could lead to additional scrutiny of us and increase our costs.

Consent orders, decrees or settlements entered into with governmental agencies may also increase our compliance costs or restrict certain of our activities.

Finally, we operate in an environment of heightened political and regulatory scrutiny of education loan lending, servicing and originations.

The rising cost of higher education, questions regarding the quality of education provided, particularly among for-profit institutions, and the increasing amount of student loan debt outstanding in the United States have prompted this

heightened and ongoing scrutiny.

This environment could lead to further laws and regulations applicable to, or limiting, our business.

For example, the regulatory environment at the state level has shifted such that many states recently have enacted new legislation specifically restricting the conduct and practices of student loan servicers.

In addition, increasing state actions against for-profit institutions could lead us to further curtail the loans we make to students of these institutions or increase the risk of enforceability of our existing loans to graduates of particular institutions found to have made fraudulent misrepresentations or failed to provide reasonably expected training or educational benefits.

We operate in a highly regulated environment and the laws and regulations that govern our operations, or changes in these laws and regulations, or our failure to comply with them, may adversely affect us.

In addition to consumer protection laws, we are also subject to extensive regulation and supervision that govern almost all aspects of our operations.

Intended to protect clients, depositors, the DIF, and the overall financial system, these laws and regulations may, among other matters:

prescribe minimum capital requirements;

limit the rates of growth of our business;

impose limitations on the business activities in which we can engage;

limit the dividends or distributions the Bank can pay to us;

restrict the ability of institutions to guarantee our debt;

limit proprietary trading and investments in certain private funds;

impose certain specific accounting requirements on us that may be more restrictive;

result in changes from time to time in our practices, policies, and procedures in various areas of our business;

result in greater or earlier charges to earnings or reductions in our capital.

The FDIC has the authority to limit the Bank’s annual total balance sheet growth, but no such limitations were imposed in recent years.

There can be no assurance that limitations will not be imposed in the future, however.

Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations, as well as increased intensity in supervision, often impose additional compliance costs.

We, like the rest of the banking sector, are facing increased regulation and supervision of our industry by bank regulatory agencies and expect there may be additional and changing requirements and conditions imposed on us, any of which could increase our costs, require increased management attention and adversely impact our results of operations.

Our failure to comply with these laws and regulations, even if the failure is inadvertent or reflects a difference in interpretation, could subject us to fines, other penalties and restrictions on our business activities, any of which could adversely affect our business, financial condition, cash flows, results of operations, capital base and/or the price of our securities.

Significant increases in our FDIC insurance premiums could have an adverse impact on our financial position, results of operations and/or cash flows.

Deposits at the Bank are insured up to the applicable legal limits by the DIF, which is funded primarily by quarterly assessments on insured banks.

An insured bank’s assessment is calculated by multiplying its assessment rate by its assessment base.

A bank’s assessment base and assessment rate are determined each quarter.

“Business — Supervision and Regulation — Regulation of Sallie Mae Bank — Deposit Insurance and Assessments.” The FDIC may further redefine how assessments are calculated, impose special assessments or surcharges on us or increase our deposit insurance premiums.

Regulatory agencies have increased their expectations with respect to how regulated institutions oversee their relationships with third-party vendors and service providers.

The CFPB and the FDIC have issued guidance to supervised banks with respect to increased responsibilities to supervise the activities of service providers to ensure compliance with federal consumer protection laws.

The issuance of regulatory

guidance and the enforcement of the enhanced vendor management standards via examination and investigation of us or any third-party with whom we do business may increase our costs, require increased management attention and adversely impact our operations.

In the event we should fail to meet the heightened standards for management of service providers, we could be subject to supervisory orders to cease and desist, civil monetary penalties or other actions due to claimed noncompliance, which could have an adverse effect on our business, financial condition, operating results and/or cash flows.

Capital and Liquidity

Adverse market conditions or an inability to effectively manage our liquidity risk could negatively impact our ability to meet our liquidity and funding needs, which could materially and adversely impact our business operations and our overall financial condition.

Defaults on our loans, particularly Private Education Loans, could adversely affect our business, financial position, results of operations, and/or cash flows.

We bear the full credit exposure on our Private Education Loans and Credit Card loans, which are unsecured loans.

If they were to default at rates much higher than anticipated or at speeds faster than anticipated, our business, financial position, results of operations, and/or cash flows could be adversely affected.

Delinquencies are an important indicator of the potential future credit performance of those loan portfolios.

Many factors can have an impact on borrower delinquencies.

But rising unemployment rates and the failure of our in-school borrowers to graduate are two of the most significant macroeconomic factors that could increase loan delinquencies, defaults and loan modifications, or otherwise negatively affect performance of our existing education loan portfolios.

Likewise, high unemployment may impede Private Education Loan originations growth, as loan applicants and cosigners may experience trouble repaying credit obligations or may not meet our credit standards.

Additionally, if interest rates rise causing payments on variable-rate loans to increase, borrowers and cosigners could experience trouble repaying loans we have made to them.

See Part II, Item 7.

“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 a discussion of how items such as changes in credit administration practices can impact the timing and level of delinquencies and defaults on our loans.

Higher credit-related losses and weaker credit quality negatively affect our business, financial condition, and results of operations and limit funding options, which could also adversely impact our liquidity position.

Our Private Education Loan delinquencies (loans greater than 30 days past due), as a percentage of Private Education Loans in repayment, were 2.8 percent at December 31, 2020.

Our allowance for credit losses may not be adequate to cover actual losses, and we may be required to materially increase our allowance, which may adversely affect our capital, financial condition, and/or results of operations.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-13, “Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments,” which became effective for us on January 1, 2020.

Under the new guidance, for all loans carried at amortized cost, upon loan

origination we are required to measure our allowance for credit losses based on our estimate of all current expected credit losses (“CECL”) over the remaining contractual term of the assets.

The CECL standard resulted in a significant change in how we recognize credit losses and will have a material impact on our financial condition, results of operations, and capital levels.

The evaluation of our allowance for credit losses is inherently subjective, as it requires material estimates that may be subject to significant changes.

The measurement of expected credit losses is based on historical information, current conditions, and reasonable and supportable forecasts to estimate the expected loss over the life of the loan.

This differs significantly from the “incurred loss” model, which was in effect during 2019 and delays recognition until it is probable a loss has been incurred.

Our models take into account historical loss experience in various economic conditions to estimate expected future losses based upon future economic forecasts over a period of time, at which point we revert expected losses to our historical rates.

Future defaults can be higher than anticipated due to a variety of factors outside of our control, and our models may not accurately estimate future loan loss performance.

The models used in calculating our CECL estimates include forecasts of future economic conditions, loss rates, prepayment rates, and recovery rates.

If these forecasts prove to be inaccurate, or our models were not designed properly, our allowance for credit losses may not be sufficient to cover future losses, which could negatively impact our financial condition, results of operations, and capital levels.

In addition, the amount of losses recorded under CECL is very sensitive to the inputs described above.

As such, changes to these inputs could significantly change the amount of allowance necessary, which could have a negative impact on our financial results and capital levels.

See Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Allowance for Credit Losses 2020 ” for further details.

LIQUIDITY RISK

Our ability to achieve our business goals will be heavily reliant on our ability to obtain deposits, obtain financing through asset-backed securitizations, and, for at least the next few years, sell loans at attractive prices to help fund any share repurchase programs that may be authorized from time to time.

An inability to effectively manage our liquidity could negatively impact our ability to fund our business obligations and opportunities, which could lead to regulatory scrutiny and could have a material adverse effect on our business, financial condition, results of operations, and/or cash flows.

We must effectively manage the liquidity risk inherent in our business.

We require liquidity to meet cash requirements for such things as day-to-day operating expenses, funding of our Private Education Loan and Credit Card originations, deposit withdrawals and maturities, payment of any declared dividends on our preferred stock and common stock, and payment for any shares of common stock acquired under any common stock repurchase program or otherwise.

Our primary sources of liquidity and funding are customer deposits, payments received on Private Education Loans and FFELP Loans that we hold, and proceeds from securitization transactions.

Our primary sources of liquidity and funding are customer deposits, payments received on Private Education Loans and FFELP Loans that we hold, and proceeds from loan sales and securitization transactions.

We may maintain too much liquidity, which can be costly, or we may be too illiquid, which could result in financial distress during times of economic stress or capital market disruptions.

For at least the next several years, our ability to achieve our business goals will be heavily reliant on our ability to obtain deposits, obtain financing through asset-backed securitizations, and sell loans at attractive prices in order to help fund any share repurchase programs that may be authorized from time to time.

Should those goals require us to increase deposits, generate asset-backed financing, or sell loans at a pace greater than we expect, and we are not able to meet this challenge, we may not achieve our business goals, which could have a material adverse effect on our business, financial condition, operating results and/or cash flows.

We fund Private Education Loan originations through asset-backed securitizations and deposits raised by the Bank, including term and liquid brokered and retail deposits, as well as Educational 529 and Health Savings Account deposits.

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The significant competition for deposits from other banking organizations that are also seeking stable deposits to support their funding needs may affect deposit renewal rates, costs, or availability.

In addition, our ability to maintain existing balances or obtain additional deposits may be affected by factors, including those beyond our control, such as a rising stock market, perceptions about our financial strength, quality of deposit servicing or online banking generally, and general economic conditions, including high unemployment and decreased savings rates, which could reduce the number of consumers choosing to make deposits with us.

Also, our ability to maintain our current level of deposits or grow our deposit base could be affected by regulatory restrictions, including the possible imposition by our regulators of prior approval requirements or restrictions on deposit growth through brokered deposits.

Given the potential negative impact of such restrictions on our ability to fund our business, we monitor and manage our reliance on brokered deposits.

Our short-term success also depends on our ability to structure Private Education Loan securitizations or execute other secured funding transactions.

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• Our inability to structure and gain market acceptance for new product features or services to meet new demands of ABS investors, rating agencies, or credit facility providers.

If we require funding beyond that which we may be able to obtain through deposits and proceeds from ABS transactions, we may need to raise additional liquidity through other forms of secured and unsecured debt financing which, in turn, could increase our funding costs and reduce our net interest margin.

Several factors, some of which may be beyond our control, may have a material adverse effect on our ability to raise this additional funding in the amounts, at the rates, or within the timeframes we desire.

If we are unable to obtain adequate liquidity through a combination of any of the channels described above in order to fund new Private Education Loan and Credit Card originations, our business, financial condition, results of operations and cash flows could be materially adversely affected.

If we require funding beyond that which we may be able to obtain through deposits and proceeds from ABS transactions at attractive prices, we may need to raise additional liquidity through other forms of secured and unsecured debt financing, which, in turn, could increase our funding costs and reduce our net interest margin.

Our ability to sell loans at attractive prices, as well as the timing and volume of any sales, will be subject to market conditions, and there can be no guarantee that we will be able to effectuate planned loan sales at the prices, times, or volumes we desire, or at all.

If we are unable to effectuate loan sales at the prices, times, and volumes we desire, we may not be able to fund share repurchase programs that are authorized from time to time or achieve other business goals and our business, results of operations, financial position and/or cash flow could be materially and adversely affected.

We currently maintain sufficient risk-based capital through adequate retention and reinvestment of earnings from operations.

If our business objectives require capital above and beyond what we generate through retained earnings, we may need to raise capital for our business by issuing additional equity to investors.

Several factors, some of which may be beyond our control, may have a material adverse effect on our ability to issue additional equity in the amounts, at the prices, or within the timeframes we desire.

Several factors, some of which may be beyond our control, may have a material adverse effect on our ability to raise funding at any given time through any of the channels described above in this Risk Factor in the amounts, at the rates, or within the timeframes we desire or need.

If this occurs, our business, results of operations, financial position, and/or cash flow could be materially and adversely affected.

In structuring and facilitating securitizations of Private Education Loans, administering securitization trusts or providing portfolio management, we may incur liabilities to transaction parties.

In structuring and facilitating securitizations or sales of Private Education Loans, administering securitization trusts, or servicing loans we have securitized or sold, we may incur liabilities to transaction parties.

Under applicable state and federal securities laws, if investors incur losses as a result of purchasing ABS issued in connection with our securitization transactions, we could be deemed responsible and could be liable to investors for damages.

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If we fail to cause the securitization trusts or other transaction parties to disclose adequately all material information regarding an investment in any securities, if we or the trusts make statements that are misleading in any material respect in information delivered to investors in any securities, if we breach any representations or warranties made in connection with securitization of the loans, or if we breach any other duties as the administrator or servicer of the securitization trusts, it is possible we could be sued and ultimately held liable to an investor or other transaction party.

This risk includes failure to properly administer or oversee servicing or collections and may increase if the performance of the securitization trusts’ loan portfolios degrades.

In addition, under various agreements, we may be contractually bound to indemnify transaction parties if an investor is successful in seeking to recover any loss from those parties and the securitization trusts are found to have made a materially misleading statement or to have omitted material information.

We may also be required to repurchase affected loans if we were to breach certain representations, warranties or covenants in various agreements.

Incurring substantial liabilities to securitization transaction parties could adversely affect our business, financial condition, operating results and/or cash flows.

If we are liable to an investor or other transaction party for a loss incurred in any securitization we facilitated or structured and any insurance that we may have does not cover this liability or proves to be insufficient, our business, financial position, results of operations and/or cash flows could be materially adversely affected.

The interest rate and maturity characteristics of our earning assets do not always match the interest rate and maturity characteristics of our funding arrangements, which may increase the price of, or decrease our ability to obtain, necessary liquidity.

We are also subject to repayment and prepayment risks, which can adversely affect our financial condition.

In transactions involving the sale of loans in non-securitized form where we remain the servicer of the loans, it is possible we could be sued and ultimately held liable to the purchaser of the loans or another transaction party for breaches or representations of warranties or breaches of servicing covenants.

INTEREST RATE RISK

The interest rate and maturity characteristics of our earning assets do not fully match the interest rate and maturity characteristics of our funding arrangements, which may negatively impact the level of our net interest income.

We are also subject to repayment and prepayment risks, which can increase uncertainty as we manage our interest rate risk and can adversely affect our business, financial condition, results of operations, and/or cash flows.

Net interest income is the primary source of cash flow generated by our loan portfolios.

Interest earned on our Private Education Loans and FFELP Loans is either fixed rate or indexed to a short-term rate, primarily one-month LIBOR, and these loans are originated with a relatively long repayment periods.

Personal loans carry a fixed rate and are of shorter maturities.

Interest earned on our Private Education Loans and FFELP Loans is either fixed-rate or indexed to a short-term variable rate, and these loans are originated with relatively long repayment periods.

ABS funding closely mirrors the expected maturities of our education loans and provides a combination of fixed and variable-rate funding.

Deposits are issued with both fixed and variable rates, and the average term is typically shorter than the expected term of our combined loan portfolios.

The different interest rate and maturity characteristics of our loan portfolio and the liabilities funding that portfolio result in interest rate risk, basis risk and re-pricing risk.

In certain interest rate environments, this mismatch may reduce our net interest margin (the interest yield earned on our portfolio less the rate paid on our interest-bearing liabilities).

While we actively monitor and manage mismatches in the interest rate and maturity characteristics of our assets and liabilities, using derivative transactions where necessary to avoid excessive levels of repricing and refunding risk, it is not possible to hedge all of our exposure to such risks.

The different interest rate and maturity characteristics of our loan portfolio and the liabilities funding that portfolio result in fluctuations in our net interest income.

In certain interest rate environments, this mismatch may reduce our net interest margin (the interest yield earned on our portfolio less the rate paid on our interest-bearing liabilities) and net interest income.

While we actively monitor and manage mismatches in the interest rate and maturity characteristics of our assets and liabilities,

using derivative transactions where necessary to avoid excessive levels of repricing and refunding risk, it is not possible to hedge all of our exposure to such risks.

While the assets, liabilities, and related hedging derivative contract re-pricing indices are typically highly correlated, there can be no assurance that the historically high correlation will not be disrupted by capital market dislocations or other factors outside our control.

In these circumstances, our earnings could be materially adversely affected.

We are also subject to risks associated with changes in repayment and prepayment rates on Private Education Loans and Personal Loans, and changes in our interest rates and to repricing risk.

Consolidations and refinancings continue to contribute to increased prepayment rates.

In addition, increases in employment levels, wages, family income, or alternative sources of financing may also contribute to higher than expected prepayment rates, which can adversely affect our interest rate and repricing risk and our financial condition.

We are also subject to risks associated with changes in repayment and prepayment rates on Private Education Loans, which can increase uncertainty as we manage our interest rate risk.

Consolidations and refinancings contribute to increased prepayment rates.

In addition, increases in employment levels, wages, family income, alternative sources of financing, and government support for student loan borrowers during times of crisis, such as during the COVID-19 pandemic, may also contribute to higher than expected prepayment rates, which can adversely affect our interest rate and repricing risk and our financial condition and results of operations.

Our use of derivatives to manage interest rate sensitivity exposes us to credit and market risk that could have a material adverse effect on our earnings.

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In addition, some of our interest rate risk management activities expose us to mark-to-market losses if interest rates move in a materially different way than was expected when we entered into the related derivative contracts.

As a result, there can be no assurance hedging activities using derivatives will effectively manage our interest rate sensitivity, have the desired beneficial impact on our results of operations or financial condition or not adversely impact our liquidity and earnings.

Our use of derivatives also exposes us to market risk and credit risk.

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Therefore, the change in fair value, called the “mark-to-market,” of the swaps that do not qualify as accounting hedges is included in our statement of income.

A decline in the fair value of those derivatives could have an adverse effect on our reported earnings.

We are also subject to the creditworthiness of third-parties, including counterparties to derivative transactions.

For example, we have exposure to the financial conditions of various lending, investment and derivative counterparties.

If a counterparty fails to perform its obligations, we could, depending on the type of counterparty arrangement, experience a loss of liquidity or an economic loss.

In addition, if a derivative counterparty fails to perform, we might not be able to cost effectively replace the derivative position, depending on the type of derivative and the current economic environment, and thus could be exposed to a greater level of interest rate risk, potentially leading to additional losses.

Our counterparty exposure is more fully discussed in Part II, Item 7.

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

Liquidity and Capital Resources — Counterparty Exposure.” If our counterparties are unable to perform their obligations, such inability could have a material adverse impact on our business, financial condition, results of operations and/or cash flows.

The future of LIBOR as a “benchmark” interest rate is uncertain and that uncertainty or any change to the LIBOR benchmark could adversely affect the value of or the interest rates on our assets and obligations indexed to LIBOR, as well as the revenue and expenses associated with those assets and obligations.

A decline in the fair value of those derivatives could have a material adverse effect on our reported earnings.

We are also subject to the creditworthiness of third-parties, including various lending, investment, and derivative counterparties.

Our overall counterparty exposure is more fully discussed in Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Counterparty Exposure.” If our counterparties are unable to perform their obligations, such inability could have a material adverse impact on our business, financial condition, results of operations, and/or cash flows.

The transition from LIBOR to an alternative reference “benchmark” interest rate is uncertain and could adversely affect the value of or the interest rates on our assets and obligations indexed to LIBOR, as well as the revenue and expenses associated with those assets and obligations.

The interest rates on our variable-rate Private Education Loans and certain other assets are indexed to LIBOR, the London interbank offered rate.

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On July 27, 2017, the United Kingdom's Financial Conduct Authority, which regulates LIBOR, publicly announced that it intends to stop persuading or compelling banks on the London interbank market to submit LIBOR rates after 2021.

On December 4, 2020, the administrator of LIBOR, the ICE Benchmark Administration, published a consultation on its intention to extend the date on which the rates on most tenors of U.S.

dollar LIBOR would cease being published from December 31, 2021 to June 30, 2023.

Any publication beyond December 31, 2021 will need to comply with applicable regulations, including as to representativeness.

banking regulators have encouraged banks to stop entering into new LIBOR-based contracts as soon as practicable and in any event by the end of 2021.

It is unclear at this time, and we are not able to predict, whether or when LIBOR will cease to exist, whether or when new methods of calculating LIBOR will be established such that it continues to exist after 2021, or whether or when alternative benchmark or reference rates will be available, either through regulatory action or financial market developments, as viable alternatives to LIBOR.

If one or more replacement benchmark or reference rates is available, it is unknown at this time, and we are unable to predict, whether any such alternatives will be acceptable to investors, financial markets or regulators, or applied consistently and concurrently to various assets, obligations or financial instruments.

If one or more replacement benchmark or reference rates is available, it is unknown at this time, and we are unable to predict, whether any such alternatives will be acceptable to investors,

financial markets or regulators, or applied consistently and concurrently to various assets, obligations, or financial instruments.

Certain of our existing assets and obligations do not include provisions clearly specifying a method for transitioning from LIBOR to an alternative benchmark rate.

Given this situation, it is unclear what consents or approvals, if any, will be required, and from whom they will be required, to replace LIBOR under our various agreements.

As a result of these potential changes and related uncertainties, the interest rates on and value of our assets and obligations indexed to LIBOR, and the revenue and expenses associated with those assets and obligations, could be affected in disparate ways at disparate times, which could have an adverse effect on our business and results of operations.

The Company has actively monitored market developments with respect to LIBOR replacement since 2017 and in 2020 will conduct a formal cross-functional replacement project with the goal of ensuring a smooth transition to a replacement index with minimal negative impact on our customers, investors and the Company’s business, financial condition and results of operations.

There can be no guarantee our replacement project will occur as planned, however, and failure to implement the project effectively could have a material adverse effect on our business, results of operations, financial position and/or cash flows.

Defaults on our loans, particularly Private Education Loans and Personal Loans, could adversely affect our business, financial position, results of operations and/or cash flows.

We bear the full credit exposure on our Private Education Loans, Personal Loans and Credit Card loans.

If they were to default at rates much higher than anticipated or at speeds faster than anticipated, our business, financial position, results of operations and/or cash flows could be adversely affected.

Delinquencies are an important indicator of the potential future credit performance of those loan portfolios.

Many factors can have an impact on borrower delinquencies, including, without limitation, economic conditions, changes in interest rates, personal circumstances and hardships, risk characteristics such as school type, loan status, loan seasoning, underwriting criteria, presence of a cosigner, changes made in credit administration practices from time to time, changes in loan underwriting criteria made from time to time, regulatory and operational changes and unforeseen trends.

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 a discussion of how items such as changes in credit administration practices can impact the timing and level of delinquencies and defaults on our loans.

Our Private Education Loan delinquencies (loans greater than 30 days past due), as a percentage of Private Education Loans in repayment, were 2.8 percent at December 31, 2019.

Our Personal Loan delinquencies (loans greater than 30 days past due), as a percentage of Personal Loans in repayment, were 2.4 percent at December 31, 2019.

In addition, we will bear full credit exposure on credit cards and other products we may introduce to the market.

Our allowance for loan losses may not be adequate to cover actual losses, and we may be required to materially increase our allowance, which may adversely affect our capital, financial condition, and/or results of operations.

The evaluation of our allowance for loan losses is inherently subjective, as it requires material estimates that may be subject to significant changes.

As of December 31, 2019, our allowance for Private Education Loan losses was approximately $374 million.

During the year ended December 31, 2019, we recognized provisions for Private Education Loan losses of approximately $280 million.

As of December 31, 2019, our allowance for Personal Loan losses was approximately $66 million.

During the year ended December 31, 2019, we recognized provisions for Personal Loan losses of approximately $73 million.

The provision for loan losses in 2019 reflects the respective Private Education Loan and Personal Loan performance for the applicable period and establishes the allowance at a level that management believes is appropriate to cover probable losses inherent in the loan portfolio (based on the accounting standards in effect during 2019).

See “The current expected credit loss standard established by the FASB will result in a significant change in how we recognize credit losses and will have a material impact on our financial condition, results of operations and capital levels” in Part I, Item 1A.

“Risk Factors” for a discussion of CECL (as hereinafter defined), which will become effective for the Company on January 1, 2020 and impact the manner in which the Company will recognize credit losses.

Future defaults can be higher than anticipated, however, due to a variety of factors outside of our control, such as downturns in the economy, rising interest rates, regulatory or operational changes and other unforeseen future trends.

Losses on Private Education Loans are also determined by risk characteristics such as school type, loan status (in-school, grace, forbearance, repayment and delinquency), loan seasoning (number of months in active repayment), underwriting criteria (e.g., credit scores), presence of a cosigner and the current economic environment.

Losses on Personal Loans are affected by risk characteristics such as FICO scores at origination and seasoning.

Worsening general economic and employment conditions may lead to higher rates of loan defaults.

In addition, our product offerings may incur higher than expected losses resulting in these products being unprofitable.

If actual loan performance is worse than currently estimated, it could materially increase our estimate of the allowance for loan losses in our balance sheet and the related provision for loan losses in our statements of income and, as a result, adversely affect our capital, financial condition and results of operations.

Changes in accounting standards could adversely affect our capital levels, results of operation and/or financial condition.

We are subject to the requirements of entities that set and interpret the accounting standards governing the preparation of our financial statements and other financial reports.

These entities, which include the Financial Accounting Standards Board (“FASB”), the SEC, banking regulators and our independent registered public accounting firm, may add new requirements or change their interpretations of how those standards should be applied.

Changes in our accounting policies or in accounting standards could materially affect how we report our financial condition and/or results of operations.

As a result of changes to financial accounting or reporting standards, whether promulgated or required by the FASB or other regulators, we could be required to change certain of the assumptions or estimates we have previously used in preparing our financial statements, which could negatively impact how we record and report our financial condition, results of operations and capital levels.

For additional information on the key areas for which assumptions and estimates are used in preparing our financial statements, see Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” and Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies.”

The current expected credit loss standard established by the FASB will result in a significant change in how we recognize credit losses and will have a material impact on our financial condition, results of operations and capital levels.

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No.

2016-13, “Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments,” which will become effective for us on January 1, 2020.

Under the new guidance, for all loans carried at amortized cost, upon loan origination we will be required to measure our allowance for loan losses based on our estimate of all current expected credit losses (“CECL”) over the remaining contractual term of the assets.

The CECL standard will result in a significant change in how we recognize credit losses and will have a material impact on our financial condition, results of operations and capital levels.

The measurement of expected credit losses is based on historical information, current conditions and reasonable and supportable forecasts to estimate the expected loss over the life of the loan.

This differs significantly from the “incurred loss” model, which was in effect during 2019 and delays recognition until it is probable a loss has been incurred.

These models may not accurately estimate future loan loss performance.

The models used in calculating our CECL estimates include forecasts of future economic conditions, loss rates and prepayment

If these forecasts prove to be inaccurate, or our models were not designed properly, our allowance for loan losses may not be sufficient to cover future losses, which could negatively impact our financial condition, results of operations and capital levels.

In addition, the amount of losses recorded under CECL is very sensitive to the inputs described above.

As such, changes to these inputs could significantly change the amount of allowance necessary, which could have a negative impact on our financial results and capital levels.

See Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Recently Issued but Not Yet Adopted Accounting Pronouncements” for further details.

See also “Our allowance for loan losses may not be adequate to cover actual losses, and we may be required to materially increase our allowance, which may adversely affect our capital, financial condition, and/or results of operations” in Part I, Item 1A.

“Risk Factors” for further details.

Given this situation, it is unclear what consents or approvals, if any, will be required to replace LIBOR under our various agreements.

As a result of these potential changes and related uncertainties, the interest rates on and value of our assets and obligations indexed to LIBOR, and the revenue and expenses associated with those assets and obligations, could be affected in disparate ways at disparate times, creating basis risk and potential adverse effects on our business and results of operations.

Changes to the reference rate used could result in dissatisfied customers, lenders, investors, or counterparties, which could result in reputational damage, litigation or regulatory scrutiny.

The Company has actively monitored market developments with respect to LIBOR replacement since 2017 and during 2020 launched a formal cross-functional replacement project with the goal of ensuring a smooth transition to a replacement index with minimal negative impact on our customers, investors, and the Company’s business, financial condition, and results of operations.

The project team monitors developments, assesses impacts, proposes plans and, with the approval of an executive committee, implements changes.

The project team reports status regularly to our Board of Directors.

In 2020 we began issuing certain deposits based on the Secured Overnight Financing Rate (“SOFR”).

We expect to begin to issue variable-rate Private Education Loans that do not use LIBOR as a reference rate in 2021.

We plan to significantly reduce the number of contracts that reference LIBOR, either through modification or replacement, by June 2023.

There can be no guarantee our reference rate replacement plan will occur as expected, however, and failure to implement the plan effectively or changes in how LIBOR transition occurs could have a material adverse effect on our business, results of operations, financial position, and/or cash flows.

The Bank is subject to various regulatory capital requirements administered by the FDIC and the UDFI.

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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.

The Bank is required to maintain the following minimum regulatory 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, since January 1, 2019, the Bank has been 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 by the Bank to maintain the buffer may result in restrictions on dividend payments, share repurchases and the payment of 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:

a Common Equity Tier 1 risk-based capital ratio of greater than 7.0 percent, a Tier 1 risk-based capital ratio of greater than 8.5 percent and a Total risk-based capital ratio of greater than 10.5 percent.

To qualify as “well capitalized” under the prompt corrective action framework for insured depository institutions, an insured depository institution 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.

As of December 31, 2019, the Bank had a Common Equity Tier 1 risk-based capital ratio of 12.2 percent, a Tier 1 risk-based capital ratio of 12.2 percent, a Total risk-based capital ratio of 13.4 percent and a Tier 1 leverage ratio of 10.2 percent.

If the Bank fails to satisfy regulatory risk-based or leverage capital requirements, it may be subject to serious regulatory sanctions that could prevent us from successfully executing our business plan and may have a material adverse effect on our business, results of operations, financial position, and/or cash flows.

“Business — Supervision and Regulation — Regulation of Sallie Mae Bank — Regulatory Capital Requirements.”

Unfavorable results from the periodic stress tests we conduct under regulatory guidance may adversely affect our business and result in regulatory action that could adversely affect our cost of capital and liquidity position.

Pursuant to regulatory guidance, the Bank conducts annual capital stress tests utilizing systemic and company-specific stress scenarios.

In 2019, the Bank conducted its annual capital stress tests and the results of these tests were presented to and reviewed by the Bank’s senior management, the Bank’s Board of Directors and the Board’s Risk Committee.

In addition, the Bank made the results of the stress tests available to its prudential regulators - the FDIC and the UDFI.

Unfavorable results from the periodic stress scenarios we model under regulatory guidance may adversely affect our business and result in regulatory action that could adversely affect our cost of capital and liquidity position.

Pursuant to regulatory guidance, the Bank conducts annual capital stress tests, modeling systemic and company-specific stress scenarios.

In 2020, as the Bank responded to the macroeconomic and humanitarian challenges of the COVID-19 pandemic, the Bank selected as its primary stress scenario its current forecast, reflecting the severe stresses anticipated due to the impact of the pandemic on our customers and the U.S.

economy (including the impacts of disaster forbearance practices designed to alleviate the severity of the pandemic on our borrowers).

The results of this analysis were presented to and reviewed by the Bank’s senior management, the Bank’s Board of Directors and the Board’s Risk Committee.

In addition, the Bank made the results of the stress tests (its current business forecast) available to its prudential regulators - the FDIC and the UDFI.

The process we utilized in 2020 was a pragmatic departure from our standard testing practices, dictated by the severity of the pandemic.

Generally, the stress test results include certain measures that evaluate the Bank’s ability to absorb losses in severely adverse economic and financial conditions;

On the basis of this analysis, senior management may elect to adjust its business plans or capital targets to reduce risks identified by the analysis.

the 2020 scenario analysis tested the Bank’s resources and resiliency in real time.

Typically, on the basis of a stress analysis, senior management may elect to adjust its business plans or capital targets to reduce risks identified by the analysis.

Our regulators may also require the Bank to raise additional capital or take other actions, or may impose restrictions on our business, based on the results of the stress tests.

We may not be able to raise additional capital if required to do so, or may not be able to do so on terms which are advantageous to us.

We may not be able to raise additional capital if required to do so, or may not be able to do so on terms that are advantageous to us.

Any such capital raises, if required, may also be dilutive to our existing stockholders.

We also conduct quarterly liquidity stress tests to evaluate the adequacy of our liquidity sources under several stress scenarios, including a severely adverse macroeconomic scenario.

In 2020, the forecast of business operations through the pandemic served as the severely adverse scenario.

The results of these scenarios may lead management to determine, or regulators to demand, that higher levels of liquidity be maintained at significant incremental expense to the Bank.

Changes in accounting standards, or incorrect estimates and assumptions by management in connection with the preparation of our consolidated financial statements, could adversely affect our capital levels, results of operation, and/or financial condition.

We are subject to the requirements of entities that set and interpret the accounting standards governing the preparation of our financial statements and other financial reports.

These entities, which include the FASB, the SEC and banking regulators, may add new requirements or change their interpretations of how those standards should be applied.

Changes in our accounting policies or in accounting standards could materially affect how we report our financial condition and/or results of operations.

The preparation of our consolidated financial statements requires us to make critical accounting estimates and assumptions that affect the reported amounts of assets, liabilities, income, and expenses during the reporting periods.

Incorrect estimates and assumptions by us in connection with the preparation of our consolidated financial statements could adversely affect the reported amounts of assets, liabilities, income, and expenses.

If we make incorrect assumptions or estimates, we may under- or overstate reported financial results, which could materially and adversely affect our business, financial condition, and/or results of operations.

For additional information on the key areas for which assumptions and estimates are used in preparing our financial statements, see Part II, Item 7.

REGULATORY RISK

Failure to comply with consumer protection, privacy, or cybersecurity laws and requirements could subject us to civil and criminal penalties or litigation, including class actions, and have a material adverse effect on our business.

We are also subject to a dynamically changing landscape of privacy and cybersecurity laws, regulations, and requirements.

Among other things, the CCPA provides for enhanced regulatory penalties and potential statutory damages in relation to certain types of data breaches.

“Business — Supervision and Regulation — Regulation of Sallie Mae Bank — Privacy Laws” for additional information.

Accordingly, we could incur substantial additional expense complying with these requirements and may be required to create new processes and information systems.

CFPB jurisdiction could result in additional regulation and supervision, which could

increase our costs and limit our ability to pursue business opportunities.

The CFPB/DOE MOU could lead to additional complaints received by the CFPB regarding us, which could lead to additional scrutiny of us and increase our costs.

Consent orders, decrees or settlements entered into with governmental agencies may also increase our compliance costs or restrict certain of our activities.

The issuance of regulatory guidance and the enforcement of the enhanced vendor management standards via examination and investigation of us or any third-party with whom we do business may increase our costs, require increased management attention and adversely impact our operations.

In the event we should fail to meet the heightened standards for management of service providers, we could be subject to supervisory orders to cease and desist, civil monetary penalties, or other actions due to claimed noncompliance, which could have an adverse effect on our business, financial condition, operating results, and/or cash flows.

In addition to consumer protection laws, we are also subject to extensive regulation and supervision that govern almost all aspects of our operations.

Intended to protect clients, depositors, the DIF, and the overall financial system, these laws and regulations may, among other matters:

• prescribe minimum capital requirements;

• limit the rates of growth of our business;

• impose limitations on the business activities in which we can engage;

• limit the dividends or distributions the Bank can pay to us;

• limit share repurchases;

• restrict the payment of discretionary bonuses to executive officers;

• restrict the ability of institutions to guarantee our debt;

• limit proprietary trading and investments in certain private funds;

• impose certain specific accounting requirements on us that may be more restrictive;

• result in changes from time to time in our practices, policies, and procedures in various areas of our business;

• result in greater or earlier charges to earnings or reductions in our capital.

The FDIC has the authority to limit the Bank’s annual total balance sheet growth, but no such limitations were imposed in recent years.

There can be no assurance that limitations will not be imposed in the future, however.

Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations, as well as increased intensity in supervision, often impose additional compliance costs.

POLITICAL/REPUTATIONAL RISK

Proposals of federal and state governments, or of various political candidates, affecting the student loan industry in particular, such as proposals for new federal education spending designed to make higher education “free” or substantially so regardless of financial need, or to create new federally funded programs to refinance private student loans, subject us to political risk and could have a material adverse impact on our business, results of operations, financial condition, and/or cash flows.

We operate in an environment of heightened political and regulatory scrutiny of education loan lending, servicing, and originations.

The rising cost of higher education, questions regarding the quality of education provided, particularly among for-

profit institutions, and the increasing amount of student loan debt outstanding in the United States have prompted this heightened and ongoing scrutiny.

This environment could lead to further proposals by political candidates and state and federal legislators and regulators, and to the enactment of laws and regulations, applicable to, or limiting, our business.

For instance, over the last several years, numerous proposals for new federal spending have been discussed by political candidates and/or introduced by legislators to make higher education “free” or substantially so.

Some proposals have included the potential forgiveness of substantial amounts of existing outstanding student loan indebtedness.

Also, various states have proposed and/or enacted legislation providing for “free” or “substantially free” higher education to residents of the state having incomes below a certain level and who attend publicly-funded universities in the state.

Moreover, since 2010, a number of bills have been introduced in the United States Congress to promote federal financing for consolidation or refinancing of existing student loans.

The regulatory environment at the state level has shifted such that many states recently have enacted new legislation specifically restricting the conduct and practices of student loan servicers.

The enactment of any of the proposed legislation or policies described above, even if they do not apply specifically to private education loans, could have a material adverse impact on our business, results of operations, financial condition, and/or cash flows.

In addition, the continued ongoing publicity regarding these various proposals, even if they are not enacted, could negatively impact the market price of our common stock.

We are subject to reputational risk, which could damage our brand and have a material adverse impact on our business, results of operations, financial condition, and/or cash flows.

Our reputation as an originator and servicer of high-quality Private Education Loans is very dependent upon how our customers, our regulators, legislators, the education community, and the broader market perceive our business practices, financial heath, and integrity, and the business practices, financial health, and integrity of the overall student loan market or other loan markets, as applicable.

Negative publicity, including as a result of our actual or alleged conduct or public opinion of the student loan industry or other relevant industries generally, or as a result of achieving lower environmental, social, and governance, or “sustainability,” scores or ratings than those desired by certain investors, could damage our reputation and business and adversely impact the price of our common stock.

Additionally, as described above, proposals of political candidates or legislators that may affect the financial industry, or the student loan industry in particular, could damage our reputation and business and adversely impact the price of our common stock.

Any internal, market, or other developments, including those relating to our competitors or our business, that result in a negative impact on our reputation or the reputation of the student loan industry or other relevant industries could have an adverse effect on our ability to originate, service, and retain Private Education Loans or other loans, as applicable, result in greater regulatory, legislative, and media scrutiny, increase our risk of litigation and regulatory sanctions or other actions, and have a material adverse effect on our financial condition and/or results of operations.

OPERATIONAL RISKS

Failure of our operating systems or infrastructure or the inability to adapt to changes could disrupt our business, cause significant losses, result in regulatory action, or damage our reputation.

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Any such failure could adversely affect our ability to service our customers, result in financial loss or liability to our customers and investors, disrupt our business, result in regulatory action or cause reputational damage.

Despite the plans and facilities we have in place, our ability to conduct business may be adversely affected by a disruption in the infrastructure that supports our businesses.

This may include a disruption involving electrical, communications, internet, information technology, transportation or other services used by us or third-parties with whom we conduct business.

Despite the plans we have in place, our ability to operate may be adversely affected by a disruption in the infrastructure that supports our businesses.

Notwithstanding our efforts to maintain business continuity, a disruptive event impacting our processing locations could adversely affect our business, financial condition, results of operations and/or cash flows.

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Our future success depends, in part, on our ability to underwrite and approve loans, process loan applications and payments and provide other customer services, in a safe, automated manner with high-quality service standards.

The volume of loan originations we are able to process is based, in large part, on the systems and processes we have implemented and developed.

These systems and processes are becoming increasingly dependent upon technological advancement, such as the ability to process loans and payments over the internet via personal computers or mobile devices, accept electronic signatures and provide initial decisions instantly.

Our future success also depends, in part, on our ability to develop and implement technology solutions that anticipate and keep pace with continuing changes in technology, industry standards and client preferences, including FinTech developments, and technological innovations such as bitcoin.

We may not be successful in anticipating or responding to these developments on a timely basis.

The volume of loan originations we are able to process is reliant on the systems and processes we have implemented and developed.

These systems and processes are becoming increasingly dependent upon technological advancement, such as the ability to process loans and payments over the internet or mobile applications, accept electronic signatures and provide initial decisions instantly.

Our future success also depends, in part, on our ability to develop and implement technology solutions that keep pace with continuing changes in technology, industry standards and client preferences, including FinTech developments.

We may not be successful in anticipating or responding to these developments in a timely manner.

We have made, and need to continue to make, investments in our technology platform to provide competitive products and services.

We may be required to expend significant funds to develop or acquire new technologies.

If competitors introduce products, services, systems and processes that are better than ours or that are more cost-effective or that gain greater market acceptance, those we offer or use may become obsolete or noncompetitive and we could lose market share.

If competitors introduce products, services, and systems that are better than ours or that are more cost-effective or that gain greater market acceptance, we could lose market share.

Any one of these circumstances could have a material adverse effect on our business reputation and ability to obtain and retain clients and, therefore, could materially adversely affect our business, financial condition and/or results of operations.

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Our operations rely on the secure collection, processing, storage and transmission of personal, confidential and other information in a significant number of customer transactions on a continuous basis through our computer systems and networks and those of our third-party service providers.

To access our products and services, our customers may use computers, smart phones, tablets and other mobile devices that are outside our security systems and those of our third-party service providers, and thus may create risks that we cannot control.

Information security risks for financial institutions and third-party service

providers have increased in recent years and continue to evolve in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, activists and other external parties, including foreign state-sponsored actors.

Information security risks for financial institutions and third-party service providers have increased in recent years and continue to evolve in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, activists and other external parties, including foreign state-sponsored actors.

These parties also may fraudulently induce employees, customers and others who use our or our service providers’ systems or have access to our or our customers’ data, to gain access to our and our customers’ data or our assets.

As further evidence that cyber incidents have been accelerating in frequency and impact, in recent years several financial institutions and major companies across industries have reported cyber-attacks that compromised significant customer or employee data, or resulted in the theft of funds, or the theft or destruction of corporate information or other assets.

While we have not been materially impacted by these reported or other cyber incidents, we continue to evolve our security controls to effectively prevent, detect and respond to the continually changing threats, and we may be required to expend significant additional resources in the future to modify and enhance our security controls in response to new or more sophisticated threats, new regulations related to cybersecurity and other developments.

While we have not been materially impacted by cyber incidents, we continue to evolve our security controls to effectively prevent, detect and respond to the continually changing threats, and we may be required to expend significant additional resources in the future to enhance our security controls in response to new or more sophisticated threats, as well as new regulations related to cybersecurity.

Additionally, while we, and our third-party service providers, commit resources to the design, implementation, maintenance, security and monitoring of our networks and systems, there is no guarantee that our security controls, or those of our third-party service providers, will protect against all threats.

Despite the measures we and our third-party service providers implement to protect our systems and our or our customers’ data, we may not be able to anticipate, identify, prevent or detect cyber-attacks, particularly because the techniques used by attackers change frequently or are not recognized until launched, and because cyber-attacks can originate from a wide variety of sources, including third parties who are or may be involved in organized crime or linked to terrorist organizations or hostile foreign governments.

Despite the measures we and our third-party service providers implement to protect our systems and our or our customers’ data, we may not be able to anticipate, prevent or detect cyber-attacks, particularly because the techniques used by attackers change frequently or are not recognized until launched, and because cyber-attacks can originate from a wide variety of sources, including third parties who are or may be involved in organized crime or linked to terrorist organizations or hostile foreign governments.

Such third parties may seek to gain unauthorized access to our systems either directly or using equipment or security passwords belonging to employees, customers, third-party service providers or other users of our systems or those of our third-party service providers.

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As a result, our computer systems, software and networks, as well as those of third-party vendors we utilize, may be vulnerable to unauthorized access, computer viruses, malicious attacks and other events that could have a security impact beyond our control.

Our staff, technologies, systems, networks and those of third-parties we utilize also may become the target of cyber-attacks, unauthorized access, malicious code, computer viruses, denial of service attacks, ransomware, and physical attacks that could result in information security breaches, the unauthorized release, gathering, monitoring, misuse, loss or destruction of systems, our or our customers’ confidential, proprietary and other information, or otherwise disrupt our or our customers’ or other third-party service providers’ business operations.

We also routinely transmit and receive personal, confidential and proprietary information, some through third parties, which may be vulnerable to interception, misuse or mishandling.

If one or more of such events occur, personal, confidential and other information processed by, stored in, or transmitted through our computer systems and networks, or those of third-party vendors, could be compromised or could cause interruptions or malfunctions in our or our customers’ or service providers’ operations that could result in significant losses, loss of business and confidence by, and harm to reputation with, businesses and customers, customer dissatisfaction, significant litigation, regulatory exposures and harm to our reputation and brand.

In the event personal, confidential or other information is threatened, intercepted, misused, mishandled, accessed, acquired or otherwise compromised without authorization, we may be required to expend significant additional resources to modify our protective measures, to investigate the circumstances surrounding the event and implement mitigation and remediation measures.

loss of business by us and loss of confidence in us, customer dissatisfaction, significant litigation, regulatory exposures, and harm to our reputation and brand.

In addition, we may be required to expend significant resources to modify our protective measures, to investigate the circumstances surrounding the event and implement mitigation and remediation measures.

We also may be subject to fines, penalties, litigation (including securities fraud class action lawsuits) and regulatory investigation costs and settlements and financial losses that are either not insured against or not fully covered through any insurance maintained by us.

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While we seek to mitigate cyber and related risks associated with outsourcing to third-party service providers, including through our vendor management processes, both operational and technological cyber risks remain and certain risks are beyond our security and control systems.

affect the availability of our services, and impose costs and other liabilities that significantly and adversely affect us in the ways discussed above.

Cyber-attacks targeted at our service providers may result in unauthorized interception, misuse, mishandling, access, acquisition, loss or destruction of our or our customers’ data, or other cyber incidents, that may affect the availability of our services, and impose costs and other liabilities that significantly and adversely affect us in the ways discussed above.

We depend significantly on third-parties for a wide array of our operations and customer services and key components of our information technology infrastructure, and a breach of security or service levels, or violation of law by one of these third-parties, could disrupt our business or provide our competitors with an opportunity to enhance their position at our expense.

We depend significantly on third-parties for a wide array of our operations and customer services and key components of our information technology and security infrastructures.

Third-party vendors are significantly involved in aspects of our servicing for Private Education Loans, FFELP Loans and Personal Loans, Bank deposit-taking activities, payroll software and systems development, data center and operations, including the timely and secure transmission of information across our data communication network, and for other telecommunications, email, processing, storage, remittance and technology-related services in connection with our business.

Third-party vendors are significantly involved in aspects of our servicing for Private Education Loans, FFELP Loans, Bank deposit-taking activities, payroll software and systems development, data center and operations, including the timely and secure transmission of information across our data communication network, and for other telecommunications, email, processing, storage, remittance and technology-related services in connection with our business.

If a service provider fails to provide the services we require or expect, or fails to meet applicable regulatory or contractual requirements, such as service levels, protection of our customers’ personal and confidential information, or compliance with applicable laws, that failure could negatively impact our business by adversely affecting our ability to process customers’ transactions in a timely and accurate manner, otherwise hampering our ability to serve our customers and investors, or subjecting us to litigation and regulatory risk for matters as diverse as poor vendor oversight, improper release or protection of personal information, or release of incorrect information.

Such a failure could adversely affect the perception of the reliability of our networks and services, and the quality of our brands, and could materially adversely affect our business, financial condition or results of operations.

Such a failure could adversely affect the perception of the reliability of our networks and services, and the quality of our brand, and could materially adversely affect our business, financial condition and/or results of operations.

We primarily rely upon Amazon Web Services to deliver our offerings to users on our platform, and any disruption of or interference with our use of Amazon Web Services could adversely impact our business and operations.

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We may face risks from our operations related to litigation or regulatory actions that could result in significant legal expenses and settlement or damage awards.

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 specifically assumed by the Bank in the agreement as to which the Bank would be obligated to indemnify Navient.

Among other things, Navient is obligated to indemnify us for any liabilities, costs or expenses we may incur arising from any action or threatened action related to the servicing, operations and collections activities of pre-Spin-Off SLM and its subsidiaries with respect to Private Education Loans and FFELP Loans that were assets of the Bank or Navient at the time of the Spin-Off, but that obligation extends only to claims or potential claims for which Navient has received notice from us on or before April 30, 2017.

Due to Navient’s indemnification obligations and the smaller, relatively younger vintages of our Private Education Loans, over the near term our dispute-related expenses may be lower than might otherwise be expected.

As our business grows, we will likely be subject to additional claims and litigation, which could seriously harm our business and require us to incur significant costs.

Defending against litigation may require significant attention and resources of management and, regardless of the outcome, such actions could result in significant expenses.

could have a material adverse effect on our business, results of operations and/or financial condition.

Likewise, similar material adverse effects could occur if Navient is unwilling or unable to honor its indemnification or other obligations under the Separation and Distribution Agreement.

Our ability to sustain or exceed our recent rates of earnings growth over the long term may be supported by, among other things, strategically diversifying our consumer products beyond Private Education Loans, which may be difficult.

Our success in sustaining or exceeding our recent rates of earnings growth over the long term may be supported by, among other things, our ability to profitably acquire or originate a more diversified suite of complimentary consumer products.

Our ability to profitably acquire or originate complimentary consumer products is in turn dependent on a number of factors, some of which are beyond our control, including general economic conditions, demographic trends, demand for other consumer products, and capital markets conditions.

There also may be substantial regulatory, operational and credit challenges, risks and uncertainties associated with these efforts.

We may invest significant time and resources in developing, launching and/or attempting to acquire new products or services, yet not be successful in achieving our goal regarding earnings growth, credit performance and/or profitability due to any or all of the factors, risks and uncertainties noted above, as well as others.

In addition, our initial timetables for the introduction and development or acquisition of new products or services may not be met, market acceptance may fall short of our expectations, and price and profitability targets for any or all of our products may not prove achievable, which could in turn unnecessarily divert management’s attention and focus and have a material negative effect on our perception in the marketplace, our business, results of operations and/or financial condition.

The launch of our Credit Card product in 2019 raises risks and uncertainties specific to that particular product.

For example, we may be unable to originate Credit Card loans of acceptable credit quality or in sufficient quantities to achieve our goals.

Also, economic conditions can reduce the usage of credit cards in general and the average purchase amount of transactions industry-wide, including our card, which reduces interest income and transaction fees.

Competition is intense in the credit card industry, and customers may frequently switch credit cards or transfer balances to another card.

Competition in credit cards is also based on the value provided to the customer by a related rewards program.

Our rewards program could be viewed as less attractive to customers than other credit card issuers’ reward programs and thereby adversely impact the timing and/or success of any new credit card product of ours.

Incorrect estimates and assumptions by management in connection with the preparation of our consolidated financial statements could adversely affect our reported assets, liabilities, income and/or expenses.

A description of our critical accounting estimates and assumptions may be found in Part II, Item 7.

Our framework for managing risks may not be effective in mitigating our risk of loss.

If we are a party to material litigation and if the defenses we assert are ultimately unsuccessful, or if we are unable to achieve a favorable settlement, we could be liable for large damages and that could have a material adverse effect on our business, results of operations and/or financial condition.

Our framework for managing risks, including model risk and data governance risk, may not be effective in mitigating our risk of loss.

Our risk management framework seeks to mitigate risk and appropriately balance risk and return.

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Models may be used in such processes as product pricing, extending credit, measuring interest rate and other market risk, estimating losses, calculating and assessing capital levels, estimating the value of financial instruments and balance sheet items, and various other processes.

If the models that we use to measure and/or mitigate these risks and values are poorly designed, based upon incorrect or incomplete information, poorly implemented, or are otherwise inadequate, our business decisions may be adversely affected, we may provide inaccurate information to the public or regulators, and/or we may incur increased losses.

If the models that we use to measure and/or mitigate these risks and values are poorly designed, based upon incorrect or incomplete information, poorly implemented, or are otherwise inadequate, or our governance surrounding the management of data we use in our models and other aspects of our business is poorly designed or implemented, or otherwise is inadequate, our business decisions may be adversely affected, we may provide inaccurate information to the public or regulators, and/or we may incur increased losses.

In addition, there may be existing or developing risks that we have not appropriately anticipated, identified or mitigated.

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Any failure or circumvention of our internal controls over financial reporting or our disclosure controls, failure to comply with rules and regulations related to such controls, or failure to make sound and appropriate application of the criteria established in the framework set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission could have a material adverse effect on our financial condition and/or results of operations.

We are subject to reputational, political and other risks.

Our reputation as an originator and servicer of high-quality Private Education Loans and Personal Loans is very dependent upon how our customers, our regulators, legislators, the education community and the broader market perceive our business practices, financial heath and integrity and the business practices, financial health and integrity of the overall student loan market or other loan markets, as applicable.

Negative publicity, including as a result of our actual or alleged conduct or public opinion of the student loan industry or other relevant industries generally, could damage our reputation and business and adversely impact the price of our common stock.

Additionally, proposals of political candidates or legislators that may affect the financial industry, or the student loan industry in particular, such as proposals for new federal education spending designed to make higher education “free” or substantially so regardless of financial need, or to create new federally funded programs to refinance private student loans, could have a material adverse impact on our business, results of operations, financial condition and the price of our common stock.

Any internal, market or other developments, including those relating to our competitors or our business, that result in a negative impact on our reputation or the reputation of the student loan industry or other relevant industries could have an adverse effect on our ability to originate, service and retain Private Education Loans or other loans, as applicable, result in greater regulatory, legislative and media scrutiny, increase our risk of litigation and regulatory sanctions or other actions, and have a material adverse effect on our financial condition and/or results of operations.

As described above, any failure of our operating systems or infrastructure or cyber-attacks on or other unauthorized access to our information technology systems could harm our reputation and brand and result in significant financial losses.

In addition, employee and customer misconduct could severely harm our reputation, subjecting us to financial losses, lawsuits and/or regulatory sanctions.

Misconduct by our customers could include such activities as providing fraudulent credentials, information or authorization on behalf of a family member or other cosigner through identification theft or by other means in order to secure loan approval.

Customers also may attempt to fraudulently secure Private Education Loan or other loan proceeds.

Misconduct by our employees could include, among other things, theft of our or our customers’ confidential information, or making unauthorized payments on behalf of a collection client in order to meet certain incentive thresholds.

If our operating systems or infrastructure fail or our security and other internal controls fail to prevent or detect compromised records or data, data breaches or an occurrence of customer or employee fraud, or if any resulting loss is not insured or exceeds applicable insurance limits, or if insurance is denied, such occurrence could have a material adverse effect on our reputation, financial condition and/or results of operations.

A low ESG or sustainability score could result in the exclusion of our common shares from consideration by certain investment funds and a negative perception of us by certain investors.

Certain organizations that provide corporate governance and other corporate risk information to investors and shareholders have developed scores and ratings to evaluate companies and investment funds based upon environmental, social and governance (“ESG”) or “sustainability” metrics.

Currently, there are no universal standards for such scores or ratings, but

the importance of sustainability evaluations is becoming more broadly accepted by investors and shareholders.

Indeed, many investment funds focus on positive ESG business practices and sustainability scores when making investments.

In addition, investors, particularly institutional investors, use these scores to benchmark companies against their peers and if a company is perceived as lagging, these investors may engage with companies to require improved ESG disclosure or performance.

Moreover, certain members of the broader investment community may consider a company’s sustainability score as a reputational or other factor in making an investment decision.

Consequently, a low sustainability score could result in exclusion of the Company’s common shares from consideration by certain investment funds, engagement by investors seeking to improve such scores and a negative perception of the Company by certain investors.

Risks Related to the Spin-Off

We continue to rely on Navient’s Private Education Loan data and, because of Navient’s indemnification obligations, have significant exposures to risks related to its creditworthiness.

If we are unable to rely on this data or to obtain indemnification payments from Navient, we could experience higher than expected costs and operating expenses and our results of operations, cash flows and/or financial condition could be materially and adversely affected.

Through the end of 2018, Navient regularly provided us with a significant amount of current and historical data on their portfolios of Private Education Loans, including data that supported, among other things, the tracking of loan performance metrics such as default and recovery rates on those loans, including loans classified as troubled debt restructurings, and, in connection with our ABS financing transactions, our ability to provide investors with historical information about Private Education Loan performance.

We also used these metrics in the development of certain critical accounting assumptions.

RISKS RELATED TO SPIN-OFF

Because of Navient’s indemnification obligations, we have significant exposures to risks related to its creditworthiness.

If we are unable to obtain indemnification payments from Navient, we could experience higher than expected costs and operating expenses and our results of operations, cash flows and/or financial condition could be materially and adversely affected.

Some significant examples of the types of indemnification obligations Navient has under the Separation and Distribution Agreement and related ancillary agreements include:

Navient is required to indemnify us for any liabilities, costs or expenses we may incur arising from any action or threatened action related to the servicing, operations and collections activities of pre-Spin-Off SLM and its subsidiaries with respect to Private Education Loans and FFELP Loans that were assets of the Bank or Navient at the time of the Spin-Off;

provided that written notice was provided to Navient on or prior to April 30, 2017, the third anniversary date of the Spin-Off.

Navient is not required to indemnify for changes in law or changes in prior existing interpretations of law that occur on or after April 30, 2014.

In connection with the Spin-Off, we recorded a liability related to uncertain tax positions of $27 million for which we are indemnified by Navient.

As of December 31, 2019, the remaining balance of the indemnification receivable related to those uncertain tax positions was $15 million.

The Separation and Distribution Agreement provides specific processes and procedures pursuant to which we may submit claims for indemnification to Navient.

If for any reason Navient is unable or unwilling to pay claims made against it, our costs, operating expenses, cash flows and/or financial condition could be materially and adversely affected over time.

Risks Related to Our Securities

Our common and preferred stock prices may fluctuate significantly.

The market price of shares of our common stock may fluctuate significantly due to a number of factors, some of which may be beyond our control, including:

Actual or anticipated fluctuations in our operating results;

Our smaller market capitalization as compared to pre-Spin-Off SLM;

Changes in earnings estimated by securities analysts or our ability to meet those estimates;

Any existence or lack of, or change in, capital return initiatives or policies regarding our common stock;

The operating and stock price performance of comparable companies;

News reports relating to trends, concerns and other issues in the student loan industry or other parts of the financial services industry, including regulatory actions against other financial institutions or proposed legislation, or proposals of political candidates, that may affect the student loan industry or other parts of the financial services industry;

Perceptions in the marketplace regarding us and/or our competitors;

New technology used, or services offered, by competitors;

Significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors;

Changes to the regulatory and legal environment under which we and our subsidiaries operate;

Our ability to securitize our loans;

Domestic and worldwide economic conditions;

Other major events that may occur domestically or internationally that impact capital markets or the stock market generally.

The market price of shares of our preferred stock may fluctuate significantly due to a number of factors, some of which may be beyond our control, including:

Significant sales of our preferred stock, or the expectation of significant sales;

Lack of or a downgrade of credit agency ratings;

Movements in interest rates and spreads that negatively affect return;

Call and redemption features;

Other major events that may occur domestically or internationally that impact capital markets or the stock market generally.

In addition, when the market price of a company’s common stock drops significantly, stockholders often institute securities class action lawsuits against the company.

A securities class action lawsuit against the Company could cause it to incur substantial costs and could divert the time and attention of its management and other resources, which could materially adversely affect our business, financial condition and/or results of operations.

An investment in our securities is not an insured deposit.

Our common stock, preferred stock and indebtedness are not bank deposits and, therefore, are not insured against loss by the FDIC, any other deposit insurance fund or by any other public or private entity.

Investment in our common stock is inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this report and is subject to the same market forces that affect the price of securities of any company.

As a result, if you acquire our common stock, preferred stock or indebtedness, you may lose some or all of your investment.

GENERAL RISKS

The holders of our preferred stock have rights that are senior to those of our common shareholders.

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We also must comply with certain provisions that are protective of the Series B Preferred Stock in order to effectuate any repurchases under our common stock share repurchase program.

In the event of our bankruptcy, dissolution or liquidation, the holders of our Series B Preferred Stock must be satisfied before any distributions can be made to our common shareholders.

In the event of our

bankruptcy, dissolution or liquidation, the holders of our Series B Preferred Stock must be satisfied before any distributions can be made to our common shareholders.

We may be limited in our ability to pay dividends on, and repurchase, our common stock.

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The FDIC has the authority to prohibit or limit the payment of dividends by the Bank and SLM Corporation.

Restrictions on Ownership

The ability of a third-party to acquire us is limited under applicable U.S.

and state banking laws and regulations.

Under the Change in Bank Control Act of 1978, as amended (“CIBC Act”), the FDIC’s regulations thereunder, and similar Utah banking laws, any person, either individually or acting through or in concert with one or more other persons, must provide notice to, and effectively receive prior approval from, the FDIC and the UDFI before acquiring “control” of us.

In practice, the process for obtaining such approval is complicated and time-consuming, often taking longer than six months, and a proposed acquisition may be disapproved for a variety of factors, including, but not limited to, antitrust concerns, financial condition and managerial competence of the applicant, and failure of the applicant to furnish all required information.

Under the FDIC’s CIBC Act regulations, control is rebuttably presumed to exist, and notice is required, where a person owns, controls or holds with the power to vote 10 percent or more of any class of our voting shares and no other person owns, controls or holds with the power to vote a greater percentage of that class of voting shares.

Unresolved Staff Comments

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors