What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-24 compared with 2021-02-25 · 627 added, 693 removed, 986 unchanged (57% of the section changed)

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Impact of COVID-19 on Sallie Mae

During the first quarter of 2020, the outbreak of coronavirus 2019 or COVID-19 (“COVID-19”) began to spread worldwide and has caused significant disruptions to the U.S.

During the first quarter of 2020, the outbreak of COVID-19 began to spread worldwide and has caused significant disruptions to the U.S.

and world economies.

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to combat the spread of COVID-19.

All 50 states have reported cases of COVID-19 and each has implemented various containment efforts, including lockdowns on non-essential businesses.

Early in the second quarter of 2020, severe restrictions were placed on businesses to slow the growth of COVID-19 infections.

Many shut down, causing the unemployment rate to increase dramatically, while others instituted a work from home regime.

Throughout 2020, all 50 states reported cases of COVID-19 and each implemented various containment efforts, including lockdowns on non-essential businesses and work from home regimes.

As a result of these measures, in early 2020 the unemployment rate increased dramatically.

In response, we offered disaster forbearance to those customers who contacted us and were negatively affected by COVID-19.

As the second quarter of 2020 concluded, the country experienced a significant spike in COVID-19 infections as more people left homes for work and other activities.

During the third quarter of 2020, economic and consumer trends appeared to be slightly improving and progress was made on vaccine trials and possible treatments to mitigate the spread of the virus.

The fourth quarter of 2020 saw a rapid economic recovery from the initial onset of the COVID-19 pandemic.

Concurrently, a significant spike in COVID-19 infections during the fourth quarter, and the continued threat of a surge in virus cases nationally, posed a renewed threat to the economic recovery.

However, at the end of the fourth quarter, the rollout of new vaccines and the ratification of the Consolidated Appropriations Act, 2021 (the “CAA”), which provides for additional COVID-19 focused relief and extends certain provisions of the CARES Act (which was signed into law on March 27, 2020 by then President Trump), contributed to a more positive long-term outlook.

In addition, the new Biden administration, which has control of both houses of the U.S.

Congress, has proposed additional economic stimulus in early 2021.

The second half of 2020 saw improvements in economic and consumer trends, but continued waves of new cases of COVID-19 created continued uncertainty in the economic environment.

However, at the end of the fourth quarter of 2020 and into the first quarter of 2021, the rollout of new vaccines and the ratification of two additional stimulus laws resulted in lower infection rates and significant improvement in the outlook of the economy.

The improved outlook in the economy has contributed to faster prepayment rates.

We have continued to see improved trends in unemployment rates in 2021 despite the increase in COVID-19 infections from the Delta and Omicron variants that occurred in the latter half of 2021.

The impact of COVID-19 is felt by our colleagues, our customers, and our communities.

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Economists expect the impact of COVID-19 on the U.S.

economy to continue to be significant well into 2021.

economy to continue to be significant into 2022 and beyond.

Accordingly, the information below should be read in conjunction with our COVID-19 pandemic risk factor, see Part I, Item 1A.

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Customers and Credit Performance

COVID-19 is having far reaching, negative impacts on individuals, businesses, and, consequently, the overall economy.

Specifically, COVID-19 has materially disrupted business operations throughout the country, resulting in significantly higher levels of unemployment or underemployment.

As a result, we expect many of our individual customers will experience financial hardship, creating a challenge to meet credit standards for new loan originations and making it difficult, if not

impossible, to fulfill their payment obligations to us without temporary assistance.

COVID-19 is having far reaching, negative impacts on individuals and businesses.

Specifically, COVID-19 has materially disrupted business operations throughout the country, resulting in supply chain disruptions and inflationary pressures.

As a result, we expect many of our individual customers will experience financial hardship, creating a challenge to meet credit standards for new loan originations and making it difficult, if not impossible, to fulfill their payment obligations to us without temporary assistance.

We are monitoring key metrics as early warning indicators of financial hardship, including changes in weekly unemployment claims, enrollment in auto-debit payments, requests for new forbearances, enrollment in hardship payment plans, and early delinquency metrics.

As a result of the negative impact on employment from COVID-19, our customers are experiencing higher levels of financial hardship, which has led to elevated levels of forbearance, especially during the initial months of the pandemic.

We expect such higher levels of financial hardship to lead to higher levels of delinquencies and defaults in the future, as borrowers who had received disaster forbearance from us re-enter repayment status.

We expect that, left unabated, this deterioration in forbearance, delinquency, and default rates will persist until such time as the economy and employment return to relatively normal levels.

As a result of the negative impact on employment from COVID-19, our customers are experiencing higher levels of financial hardship, which initially led to elevated levels of forbearance, as we provided disaster forbearance to borrowers who requested it.

We are seeing higher levels of delinquencies and defaults and expect that to continue into the future, as borrowers who had received disaster forbearance from us re-enter repayment status.

We expect that, left unabated, this

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deterioration in forbearance, delinquency, and default rates will persist until such time as the economy and employment return to relatively normal levels.

This past year has shown us that there is a lot of uncertainty regarding COVID-19 as two new variants caused a significant increase in infections.

We maintain an allowance for credit losses that incorporates multiple economic scenarios.

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We used Moody’s Analytics economic forecasts in estimating the losses on our loan portfolio.

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

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

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

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

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

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

As these forbearances ended in the late second quarter and early third quarter of 2020, we have reduced the disaster forbearance to one-month increments and implemented additional discussions between our servicing agents and borrowers to encourage borrowers/cosigners to enter repayment.

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

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

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

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

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

We observed a significant increase in the use of disaster forbearance at the onset of the pandemic as businesses closed in accordance with broadly adopted ‘shelter at home’ policies and unemployment rose.

While the pandemic persists, we have seen a corresponding reduction in the usage of other payment programs and defaults, given the availability of the disaster forbearance.

Additionally, we have seen lower usage of automatic direct debit payments as customers manage the uncertainty associated with the pandemic.

For customers experiencing financial hardship unrelated to COVID-19, our normal collection efforts and programs are in place.

In the second quarter of 2020, we had planned to revise our credit administration practices to phase in (i) a required six-month period between successive grants of forbearance and between forbearance grants and certain other repayment alternatives (with exceptions for forbearances granted during the first six months following a customer’s grace period and exceptions for contractual interest rate reductions), and (ii) a limitation on the participation of delinquent customers in certain short-term extended or interest-only repayment alternatives to once in 12 months and twice in five years.

Prior to full implementation of the planned credit administration practices changes, which we originally expected to have been completed by year-end 2020, we planned to conduct a controlled testing program on randomly selected customers to measure the impact of the changes on our customers, our credit operations, and key credit metrics.

The testing commenced in October 2019 for some of the planned changes on a very small percentage of our total portfolio and we originally expected to expand the number of borrowers in repayment who would be subject to the new credit administration practices.

However, due to the COVID-19 pandemic, we postponed our efforts so that we can be more flexible in dealing with our customers’ financial hardship.

In October 2020, we began to roll out in a methodical approach the implementation of the credit administration practices changes and related testing.

Management now expects to have completed implementation of the planned credit

administration practices changes by year-end 2022.

However, we may modify the contemplated practice changes, the proposed timeline, or the method of implementation as we learn more about the impacts of the program on our customers.

To make it as easy as possible to access the assistance they need, we have communicated to our customers multiple times and in multiple ways.

Historically, we have utilized disaster forbearance to assist borrowers affected by material events, including hurricanes, wildfires, floods, and the COVID-19 pandemic.

We typically grant disaster forbearance to affected borrowers in increments of up to three months at a time, but the disaster forbearance granted generally does not apply toward the 12-month forbearance limit described later in this Form 10-K.

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

During 2021, we ended all COVID-19 disaster forbearances and at December 31, 2021, there were no loans under a disaster forbearance program related to COVID-19.

To make it as easy as possible to access the assistance our customers need, we have communicated to them multiple times and in multiple ways.

At the start of the pandemic, we sent all our customers an email explaining their self-serve options and how to contact us if they need assistance.

We continue to send e-mails to those customers who have enrolled for COVID-19 disaster forbearance and we regularly update our website at www.SallieMae.com/coronavirus with the latest information on how our customers can access their account and get assistance or payment relief, if needed.

We continue to send e-mails to those customers who enrolled for COVID-19 disaster forbearance and we regularly update our website at www.SallieMae.com/coronavirus with the latest information on how our customers can access their account and get assistance or payment relief, if needed.

We expect that, as the economic impact of COVID-19 evolves, we will continue to evaluate the measures we have put in place to assist our customers during this unprecedented time.

We continue to adapt and evolve our customer care and collections practices to meet the needs of our customers, while operating in a safe and sound manner.

See also “— Financial Results” in this section for further discussion of the impact of the COVID-19 pandemic on students returning to college campuses.

Our Team Members

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In addition, we have limited in-person meetings, non-employee visits to our locations, and non-essential business travel.

Based on the national and local guidelines, we developed a principles-based, phased-in approach for returning to the office, which will differ for each of our office locations.

We have gathered team members’ feedback and are considering social distancing measures, workplace layout, employee schedules, and sanitation policies for each phase.

The phases are a flexible framework that may shift over time as we monitor guidelines from our national and local governments and prepare for workplace readiness.

To further protect the health and welfare of our people and respond to their individual circumstances, we have provided additional wellness assistance.

We have also encouraged team members who potentially have been exposed to COVID-19 to self-quarantine for 14 days while we continue to pay them.

To ease access to medical assistance, we are waiving co-payments for COVID-19 testing and telemedicine for those team members enrolled in our health insurance plans .

In the second quarter of 2021, we communicated our return to office plans to our team members.

Based on the national and local guidelines, we developed a phased-in approach for returning to the office.

Under this phased-in approach, we opened our offices in early July 2021 for employees who wanted to voluntarily come to the office.

We had planned for a more substantial return to our campuses in early October;

however, with the increase in new cases due to the COVID-19 Delta and Omicron variants, we postponed a more fulsome return to our offices until April 2022.

The return to our offices will include enhanced safety protocols and processes to provide the best working environment for our team members and we will implement limited flexible work-from-home schedules for employees.

We have robust pandemic and business continuity plans that include our business units and technology environments.

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The ECMT directed a series of activities to address the health and safety of our workforce, to assist customers, to sustain business operations, and to address our management of other ongoing pandemic activities.

In response to a growing infected population across the United States, we executed plans for social-distancing in our facilities and implemented work-from-home contingencies.

As the virus spread, we created remote-working capabilities for our call center agents and consulted with regulators about our plans.

In response to a growing infected population across the United States in 2020, we executed plans for social-distancing in our facilities and implemented work-from-home contingencies.

As the virus spread, we created remote-working capabilities for our teams and consulted with regulators about our plans.

We also completed a series of additional steps to appropriately ensure compliance with our telecommuting policy.

The policy is designed to create a secure at-home work environment that protects our customers’ information and transactions while also providing the necessary technology capabilities to enable effective remote-working for our team members.

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In addition, we enhanced the functionality of our chatbot, IVR, mobile app, and website features to help our customers manage their accounts.

Initially there was a modest decline in productivity as our team members adjusted to the significant change in their work experience.

However, we largely have seen productivity return to pre-COVID-19 rates and customer satisfaction survey results also have returned to pre-crisis levels.

We currently believe our technology infrastructure is sufficient to maintain a remote-working environment for the vast majority of our workforce for the foreseeable future.

The level and ability of our team members to continue working from home could change, however, as conditions surrounding COVID-19 evolve and infections increase, or if there are interruptions in the internet infrastructure where our team members live or if our internet service providers are otherwise adversely affected.

Most teams continue to work remotely at this time;

however, we continue to see productivity and customer satisfaction survey result at pre-pandemic levels.

Our technology infrastructure is sufficient to maintain a remote-working environment for the vast majority of our workforce for the foreseeable future.

Liquidity and Capital

Over the course of 2019, we significantly increased our overall liquidity position for risk management purposes and enhanced our liquidity stress testing regime.

As a result of these efforts and the activities that occurred in the first quarter of 2020, described below, we currently believe our liquidity position is stable and we expect to be able to fund our business operations through 2021.

However, because of the disruptions in the capital markets that occurred at the onset of the pandemic, we implemented our Contingency Funding Plan, which entailed monitoring and reporting to management our liquidity position and the health of deposit and asset-backed securities markets.

As a result of these efforts and the activities that occurred in 2020, described below, we currently believe our liquidity position is stable and we expect to be able to fund our business operations through 2022.

Because of the disruptions in the capital markets that occurred at the onset of the pandemic, in the first quarter of 2020 we implemented our Contingency Funding Plan, which entailed monitoring and reporting to management our liquidity position and the health of deposit and asset-backed securities markets.

In times of financial distress, we often see a flight to quality, where investors seek safer places to invest their money, such as insured bank deposits and in securities such as U.S.

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We saw similar trends in the marketplace during this crisis and expect that as a well-capitalized insured depository institution, we will have ample access to deposit markets.

As pandemic-related capital market disruptions abated, we de-activated the Contingency Funding Plan in October 2020, but remain watchful for signs of renewed market stress as the pandemic evolves.

Maintaining our focus on earnings quality as well as prudent liquidity management, we have actively managed the cost of our retail deposits downward in response to the rapid downturn in short-term interest rates in the first nine months of 2020.

As pandemic-related capital market disruptions abated, we de-activated the Contingency Funding Plan in October 2020, but have continued to remain watchful for signs of renewed market stress as the pandemic evolves.

Maintaining our focus on earnings quality as well as prudent liquidity management, we actively managed the cost of our retail deposits downward in response to the rapid downturn in short-term interest rates in the first nine months of 2020.

Rates were further managed downward in early 2021, and were increased slightly in the second half of the year as market rates began to rise.

Despite the lower deposit rates, we have experienced only moderate retail deposit outflows, primarily in term CDs, that are within the outflow targets our Asset and Liability Committee approved.

In addition, we were able to access the brokered deposit, asset-backed security and unsecured debt markets throughout 2020.

In addition, we were able to access the brokered deposit, asset-backed security, and unsecured debt markets throughout 2020 and 2021.

We manage our capital position through a rigorous capital stress testing regime.

As a result, we believe that, given the high quality of our Private Education Loan portfolio, we have sufficient capital to withstand our current estimate of the expected downturn.

As a result, we believe that, given the high quality of our Private Education Loan portfolio, we have sufficient capital to withstand our current estimate in the event of a downturn.

If circumstances surrounding COVID-19 change in a significantly more adverse way, however, it is possible our liquidity and regulatory capital position could be materially and adversely affected, which could materially and adversely impact our business operations and our overall financial condition.

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These agencies have encouraged regulated entities to work constructively with customers affected by COVID-19 and have provided guidance regarding loan modifications.

The federal banking regulators have stated that working with customers who are current on existing loans, either individually or as part of a program for creditworthy customers who are experiencing short-term financial or operational problems as a result COVID-19, generally would not be considered TDRs.

For modification programs, such as forbearance, designed to provide temporary relief for current customers affected by COVID-19, we may presume that customers who are current on payments are not experiencing financial difficulties at the time of the modification for purposes of determining TDR status, and thus no further TDR analysis is required for each loan modification in the program.

In addition, the regulators have indicated their examiners will exercise judgment in reviewing loan modifications, including TDRs, and will not automatically adversely risk-rate credits that are affected by COVID-19, including those considered TDRs.

Regardless of whether modifications result in loans being considered TDRs or adversely classified, bank examiners have indicated they will not criticize prudent efforts to modify the terms of existing loans to affected customers.

We have briefed our regulators on the actions taken to date, including the vast majority of our employees working from home and the exceptions we have granted to our existing policies, and on privacy and security issues and how these risks have been mitigated in a work-from-home environment.

We understand that the communities in which our employees live, work, and serve are also suffering financial distress as a result of COVID-19.

Due to the growing needs of our neighbors, many of the organizations in place to provide assistance are overburdened.

In March 2020, The Sallie Mae Fund donated a total of $1 million to local food banks in states home to Sallie Mae facilities.

Each of the five organizations received a $200,000 grant from The Sallie Mae Fund to support emergency response efforts to combat food insecurity for those in the community impacted by the COVID-19 pandemic.

Those efforts resulted in the donation of more than 900,000 meals and 2 million pounds of food and provided personal protective equipment for staff and food bank volunteers.

For modification programs, such as forbearance, designed to provide short-term relief for current customers affected by COVID-19, we may presume that customers who are current on payments are not experiencing financial difficulties at the time of the modification for purposes of determining TDR status, and thus no further TDR analysis is required for each loan modification in the program.

In addition, the federal banking regulators have indicated their examiners will exercise judgment in reviewing loan modifications, including TDRs, and will not automatically adversely risk-rate credits that are affected by COVID-19, including those considered TDRs.

Regardless of whether modifications result in loans being considered TDRs or adversely classified, the federal banking regulators have indicated their examiners will not criticize prudent efforts to modify the terms of existing loans to affected customers.

In response to the exceptional needs in our communities, during 2021, our team members volunteered more than 1,100 hours and donated nearly $50,000 through our matching gift program to charitable organizations.

Additionally, through a combination of individual and team led fundraising and "Adopt-A-Family"/"Adopt-A-School" programs, team members also donated clothes to needy families, 20 boxes of school supplies, totaling 14,305 items to local middle and elementary schools, and raised nearly $7,000 to help children and families facing serious illnesses and challenging

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financial situations because of required medical care.

We view these efforts as extensions of our core mission.

Strong communities become the launching pads for students’ academic endeavors.

Financial Result s

For the year ended December 31, 2021, we considered the current economic forecasts as well as the how the significant uncertainty surrounding COVID-19 may affect future unemployment rates and the economy in estimating our allowance for credit losses.

While we remain cautious about the near-term economic forecasts, we changed the economic scenarios used in determining the allowance for credit losses in the fourth quarter of 2020 to a more balanced formula from the scenarios used in the second and third quarters of 2020, which gave a 50 percent weighting to the downside scenario.

During the first quarter of 2021, we increased our estimates of future prepayment speeds during both the two-year reasonable and supportable period as well as the remaining term of the underlying loans, and in the fourth quarter of 2021 we increased them again for the remaining term of the underlying loans.

These faster estimated prepayment speeds during the two-year reasonable and supportable period reflect the significant improvement in economic forecasts, as well as the implementation of an updated prepayment speed model.

We experienced higher prepayments during the COVID-19 pandemic, when unemployment rates were elevated, than we would have expected based upon our experience during past financial crises.

In determining the adequacy of the allowance for credit losses, we include forecasts of college graduate unemployment and the Consumer Price Index in our loss forecasting models.

We obtain forecasts for these two inputs from Moody’s Analytics.

Moody’s Analytics provides a range of forecasts for each of these inputs with various likelihoods of occurring.

We determine which forecasts we will include in our estimation of allowance for credit losses and the associated weightings for each of these inputs.

At January 1, 2020 (the initial adoption date of CECL), December 31, 2020, and December 31, 2021, we used the Base (50th percentile likelihood of occurring)/S1 (stronger near-term growth scenario with 10 percent likelihood of occurring)/S3 (downside scenario with 10 percent likelihood of occurring) scenarios and weighted them 40 percent, 30 percent, and 30 percent, respectively.

Management reviews both the scenarios and their respective weightings each quarter in determining the allowance for credit losses.

Provisions for credit losses for the year ended December 31, 2021 decreased by $126 million compared with the year-ago period.

The allowance in 2019 was determined using an incurred loss model which, for the most part, based its allowance on expected losses over the next 12 months.

On January 1, 2020, we adopted CECL, which required a life-of-loan loss allowance, and recorded an increase to the allowance for on-balance sheet loans and off-balance sheet loan commitments of $1.3 billion with an offsetting entry of $953 million in retained earnings and a $306 million deferred tax asset.

After January 1, 2020, all future changes in the allowance were recorded through the provisions for credit losses.

For the year ended December 31, 2020, we had provisions for credit losses of $93 million.

This was the result of $290 million in additional provisions for credit losses related to new commitments made in 2020, an additional $129 million due to deteriorating economic conditions during the year as a result of the COVID-19 pandemic, and $99 million caused by lower recovery rates and various overlays and other adjustments applied during the year.

Offsetting these was a $206 million reduction in the provisions for credit losses as a result of $2.9 billion of loans transferred to held-for-sale from held for investment in the fourth quarter of 2020, the sale of $3.1 billion of Private Education Loans in the first quarter of 2020, which resulted in a reduction to our provision for credit losses of $162 million, a benefit of $121 million from faster prepayment speeds, and the sale of our entire Personal Loan portfolio, which resulted in a reduction to our provision for credit losses of $43 million.

The benefit from faster prepayment speeds reflected actual loan prepayment speeds being higher than what our models were predicting due to the significant amount of COVID-19 related government stimulus.

This decrease of $126 million in 2021 compared with the year-ago period was primarily the result of improving economic forecasts in 2021 and faster prepayment speeds.

In the fourth quarter of 2021, we increased our long-term estimate of prepayment speeds to reflect higher long-term prepayment experience.

Partially offsetting these benefits were additional provisions to reflect the adoption of our credit administration practices changes and other management overlays.

As COVID-19 continues to impact the economy, the Company could continue to experience significant changes in its allowance for credit losses in 2022.

Private Education Loans (held for investment) in forbearance as a percentage of held for investment Private Education Loans in repayment and forbearance was 1.9 percent at December 31, 2021, compared to 4.3 percent at December 31, 2020.

The majority of our disaster forbearances were entered into during March and April of 2020 because of COVID-19 and the resulting shelter-at-home guidance that caused many businesses to shut down during the early part of the pandemic.

When these disaster forbearances expired in June and July of 2020, they were no longer considered in forbearance until the borrower requested, and was granted, an additional forbearance.

Many of these borrowers went back into repayment status at the end of their original three-month disaster forbearance.

Other borrowers asked for additional forbearance and we began granting those in one-month increments.

In the third and fourth quarters of 2020, we saw our forbearance rate decline from the high levels we experienced in the second quarter of 2020.

Higher forbearance rates in the year ended December 31, 2020 compared with the year-ago period are primarily a result of our working with customers affected by COVID-19.

The majority of colleges, universities, and trade schools across the country shifted their fall 2020 semester to a hybrid model, which includes a mix of online, in-person classes and scaled back residential options.

The remaining schools are executing a fully remote or on campus experience.

Colleges and universities have reported their enrollment figures for fall 2020 and have indicated lower results due to an increase in freshmen deferring enrollment.

With second semester courses underway, most campuses are continuing the learning model used in the fall semester.

Our application volumes also decreased and our 2020 Private Education Loan origination volume was $5.3 billion, a decline of 5 percent compared to 2019.

For some students, going back to school in the fall was not an option because of the pandemic, or for other reasons.

Therefore, some students are taking a “gap year” before returning to school.

In 2020, for those students that had unexpectedly separated from school, we provided an extension of time through fall 2021 to re-enroll, before beginning their grace period that occurs prior to entering full principal and interest repayment status.

At December 31, 2020, $1.0 billion of Private Education Loans were granted this extended period of time.

See “ — Financial Condition — Summary of Our Loans Held for Investment Portfolio — Ending Loans Held for Investment Balance, net” for an additional breakout of those loans.

On March 27, 2020, then President Trump signed into law the CARES Act, which, among other things, allows us to (i) elect to suspend the requirements under GAAP for loan modifications related to COVID-19 that would otherwise be categorized as troubled debt restructurings (“TDRs”), and (ii) suspend any determination of a loan modified as a result of the effects of COVID-19 as being a TDR, including impairment for accounting purposes.

Furthermore, on December 27, 2020, the CAA was signed into law.

The forbearance rate on December 31, 2021 was lower than on December 31, 2020 due to our ending disaster forbearance related to COVID-19 in June 2021 and our adoption of the previously announced planned credit administration practices changes.

Delinquencies at December 31, 2021, as a percentage of Private Education Loans in repayment, increased to 3.3 percent from 2.8 percent at December 31, 2020.

The increase in delinquencies was primarily due to the ending of the disaster forbearance program related to COVID-19 and the adoption of the new credit administration practices changes.

For the start of the 2021-2022 academic year, the majority of colleges, universities, and trade schools returned to in-person classes while offering full residential options.

While these schools moved away from an emphasis on hybrid and online policies, some regional reports indicate an increase in colleges maintaining online classes as a safety precaution, due to the recent uptick in COVID-19 variant infections.

For some students, going back to school in the fall of 2020 was not an option because of the pandemic or for other reasons.

Therefore, some students took a “gap year” before returning to school.

In 2020, for those students that had unexpectedly separated from school, we had provided an extension of time, until the fall of 2021, to re-enroll before beginning their grace period that occurs upon separation from school and prior to entering full principal and interest repayment status.

At December 31, 2020, $1.0 billion of Private Education Loans had been granted during this extended period of time.

Beginning September 30, 2021, we no longer granted this “gap year” extension.

On March 27, 2020, then President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which, among other things, allows us to (i) elect to suspend the requirements under GAAP for loan modifications related to COVID-19 that would otherwise be categorized as troubled debt restructurings (“TDRs”), and (ii) suspend any determination of a loan modified as a result of the effects of COVID-19 as being a TDR, including impairment

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for accounting purposes.

Furthermore, on December 27, 2020, the Consolidated Appropriations Act, 2021 (“CAA”) was signed into law.

The CAA provides for additional COVID-19 focused relief and extends certain provisions of the CARES Act.

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We are continuing to apply TDR accounting to those loans that were more than 30 days past due as of December 31, 2019 and were subsequently modified.

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

We have elected to use this option.

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

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

In addition, from January 1, 2020 through the end of the two-year deferral period, 25 percent of the ongoing impact of CECL on our allowance for credit losses, retained earnings, and average total consolidated assets, each as reported for regulatory capital purposes, will be added to the deferred transition amounts (“adjusted transition amounts”) and deferred for the two-year period.

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

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

Under regulations issued by the FDIC and other federal banking agencies, banking organizations that adopt CECL during the 2020 calendar year, including the Bank, may elect to delay for two years, and then phase in over the following three years, the effects on regulatory capital of CECL relative to the incurred loss methodology.

The Bank has elected to use this option.

Therefore, the regulatory capital impact of the Bank’s transition adjustments recorded on January 1, 2020 from the adoption of CECL, and 25 percent of the ongoing impact of CECL on the Bank’s allowance for credit losses, retained earnings, and average total consolidated assets, each as reported for regulatory capital purposes (collectively, the “adjusted transition amounts”), were deferred for the two-year period ending January 1, 2022.

From January 1, 2022 to January 1, 2025, the adjusted transition amounts will be phased in for regulatory capital purposes at a rate of 25 percent per year, with the phased-in amounts included in regulatory capital at the beginning of each year.

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

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

At December 31, 2020, the adjusted transition amounts, subject to changes over the two-year phase-in period, that will be deferred for regulatory capital purposes are as follows:

Transition Amounts Adjustments for the Year Ended Adjusted Transition Amounts

(Dollars in thousands) January 1, 2020 December 31, 2020 December 31, 2020

At December 31, 2021, the adjusted transition amounts, reflecting changes over the two-year phase-in period, that will be deferred for regulatory capital purposes are as follows:

Transition Amounts Adjustments for the Year Ended Adjustments for the Year Ended Adjusted Transition Amounts

(Dollars in thousands) January 1, 2020 December 31, 2020 December 31, 2021 December 31, 2021

Retained earnings $ 952,639 $ (57,859) $ (58,429) $ 836,351

2 unchanged sentences

Deferred tax asset 306,171 — — 306,171

52 SLM CORPORATION — 2021 Form 10-K

The following discussion and analysis presents a review of our business and operations as of and for the year ended December 31, 2021.

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Consequently, our operating results may be significantly affected by whether we choose to sell loans and recognize current gains on sale or continue to hold or finance loans, thereby retaining some or all the net interest income from those loans.

In the first quarter of 2020, we sold $3.1 billion of our Private Education Loans, including $2.9 billion of principal, $199 million in capitalized interest, and $12 million in accrued interest, to unaffiliated third parties.

In the third quarter of 2020, we sold our entire Personal Loan portfolio, including $697 million of principal and $7 million in accrued interest.

For additional information, see Notes to Consolidated Financial Statements, Note 5, “Loans Held for Investment.” In the first quarter of 2021, we sold $3.0 billion of our Private Education Loans, including $2.8 billion of principal, $185 million in capitalized interest, and $15 million in accrued interest, to unaffiliated third parties.

For additional information, see Notes to Consolidated Financial Statements, Note 6, “Loans Held for Sale.”

In 2021, we recognized $548 million in gains from the sale of approximately $4.24 billion of our Private Education Loans, including $3.98 billion of principal and $264 million in capitalized interest, to unaffiliated third parties.

For additional information, see Notes to Consolidated Financial Statements, Note 5, “Loans Held for Investment.”

Allowance for Credit Losses

3 unchanged sentences

As they occur, actual loan charge-offs and recoveries are then charged or credited, respectively, against the allowance for credit losses rather than against earnings.

The allowance for credit losses and provision expense rise when future charge-offs are expected to increase and fall when future charge-offs are expected to decline.

The allowance for credit losses and provision expense rise in periods of high loan origination, when future charge-offs are expected to increase, and fall when future charge-offs are expected to decline.

We bear the full credit exposure on our Private Education Loans and Credit Cards.

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As a larger proportion of our Private Education Loan portfolio enters full principal and interest repayment in the coming years, we would expect the amount of TDRs, and charge-offs, to increase.

2021 Form 10-K — SLM CORPORATION 53

Our allowance for credit losses for FFELP Loans and related periodic provision expense are small because we generally bear a maximum of three percent loss exposure due to the federal guarantee on such loans.

1 unchanged sentence

We maintain an allowance for Credit Card losses at an amount sufficient to absorb losses estimated to cover lifetime expected credit losses.

Because our Credit Card portfolio is new and we do not have historical loss experience, we use estimated loss rates reported by other financial institutions to estimate our allowance for credit losses for Credit Cards, net of expected recoveries.

Because our Credit Card portfolio is relatively new and we do not have sufficient historical loss experience, we use estimated loss rates reported by other financial institutions to estimate our allowance for credit losses for Credit Cards, net of expected recoveries.

In addition, we use a model that utilizes purchased credit card information with risk characteristics similar to those of our own portfolio as a challenger model.

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The cost to service a delinquent borrower is significantly higher than the cost to service a current or in-school borrower.

“Core Earnings”

Non-GAAP “Core Earnings”

We prepare financial statements in accordance with GAAP.

However, we also produce and report our after-tax earnings on a separate basis that we refer to as “Core Earnings.” The difference between our non-GAAP “Core Earnings” and GAAP results for periods presented generally is driven by the unrealized, mark-to-fair value gains (losses) on derivatives contracts recognized in GAAP, but not in “Core Earnings.”

“Core Earnings” recognizes the difference in accounting treatment based upon whether a derivative qualifies for hedge accounting treatment.

However, we also produce and report our after-tax earnings on a separate basis that we refer to as non-GAAP “Core Earnings.” The difference between our non-GAAP “Core Earnings” and GAAP results for periods presented generally is driven by the unrealized, mark-to-fair value gains (losses) on derivative contracts recognized in GAAP, but not in non-GAAP “Core Earnings.”

Non-GAAP “Core Earnings” recognizes the difference in accounting treatment based upon whether a derivative qualifies for hedge accounting treatment.

We enter into derivative instruments to economically hedge interest rate and cash flow risk associated with our portfolio.

6 unchanged sentences

“Gains (losses) on derivatives and hedging activities, net.”

For periods prior to July 1, 2018, the amount recorded in “Gains (losses) on derivatives and hedging activities, net” includes (a) the accrual of the current payment on those interest rate swaps that do not qualify for hedge accounting treatment,

(b) the change in fair values related to future expected cash flows for derivatives that do not qualify for hedge accounting treatment, and (c) ineffectiveness on derivatives that receive hedge accounting treatment.

For purposes of “Core Earnings” in those periods prior to July 1, 2018, we include in GAAP earnings the current period accrual amounts (interest reclassification) on the swaps and exclude the remaining ineffectiveness (and change in fair values for those derivatives not qualifying for hedge accounting treatment).

“Core Earnings” in those periods is meant to represent what earnings would have been had these derivatives qualified for hedge accounting and there was no ineffectiveness.

In the third quarter of 2018, we changed our definition of “Core Earnings” to no longer exclude ineffectiveness related to derivative instruments that are receiving hedge accounting treatment.

Accordingly, the only adjustments required to reconcile from our “Core Earnings” results to our GAAP results of operations, net of tax, relate to differing treatments for our derivative instruments used to hedge our economic risks that do not qualify for hedge accounting treatment.

For periods beginning July 1, 2018, the amount recorded in “Gains (losses) on derivatives and hedging activities, net” includes (a) the accrual of the current payment on the interest rate swaps that do not qualify for hedge accounting treatment and (b) the change in fair values related to future expected cash flows for derivatives that do not qualify for hedge accounting treatment.

For purposes of “Core Earnings,” we include in GAAP earnings the current period accrual amounts (interest reclassification) on the swaps and exclude the change in fair values for those derivatives not qualifying for hedge accounting treatment.

“Core Earnings” is meant to represent what earnings would have been had these derivatives qualified for hedge accounting and there was no ineffectiveness.

“Core Earnings” are not a substitute for reported results under GAAP.

We provide a “Core Earnings” basis of presentation because (i) earnings per share computed on a “Core Earnings” basis is one of several measures we utilize in establishing management incentive compensation, and (ii) we believe it better reflects the financial results for derivatives that are economic hedges of interest rate risk, but which do not qualify for hedge accounting treatment.

The adjustments required to reconcile from our non-GAAP “Core Earnings” results to our GAAP results of operations, net of tax, relate to differing treatments for those derivative instruments used to hedge our economic risks that do not qualify for hedge accounting treatment.

The amount recorded in “Gains (losses) on derivatives and hedging activities, net” includes (i) the accrual of the current payment on the interest rate swaps that do not qualify for hedge accounting treatment, and (ii) the change in fair values related to future expected cash flows for derivatives that

54 SLM CORPORATION — 2021 Form 10-K

do not qualify for hedge accounting treatment.

For purposes of non-GAAP “Core Earnings,” we include in GAAP earnings the current period accrual amounts (interest reclassification) on the swaps and exclude the change in fair values for those derivatives not qualifying for hedge accounting treatment.

Non-GAAP “Core Earnings” is meant to represent what earnings would have been had these derivatives qualified for hedge accounting and there was no ineffectiveness.

Non-GAAP “Core Earnings” are not a substitute for reported results under GAAP.

We provide a non-GAAP “Core Earnings” basis of presentation because (i) earnings per share computed on a non-GAAP “Core Earnings” basis is one of several measures we utilize in establishing management incentive compensation, and (ii) we believe it better reflects the financial results for derivatives that are economic hedges of interest rate risk, but which do not qualify for hedge accounting treatment.

GAAP provides a uniform, comprehensive basis of accounting.

Our “Core Earnings” basis of presentation differs from GAAP in the way it treats derivatives as described above.

Our non-GAAP “Core Earnings” basis of presentation differs from GAAP in the way it treats derivatives as described above.

The following table shows the amount in “Gains (losses) on derivatives and hedging activities, net” that relates to the interest reclassification on the derivative contracts.

1 unchanged sentence

(dollars in thousands) 2021 2020 2019

Hedge ineffectiveness gains prior to adoption of ASU No.

$ — $ — $ 2,684

Unrealized gains (losses) on instruments not in a hedging relationship $ (23,216) $ 10,164 $ 19,469

Interest reclassification 23,360 39,380 (1,644)

Gains (losses) on derivatives and hedging activities, net $ 49,544 $ 17,825 $ (87)

(1) The hedge ineffectiveness gains of $3 million for the year ended December 31, 2018 related to hedging relationships that were discontinued in 2018 prior to the adoption of ASU No.

Gains on derivatives and hedging activities, net $ 144 $ 49,544 $ 17,825

2021 Form 10-K — SLM CORPORATION 55

The following table reflects adjustments associated with our derivative activities.

1 unchanged sentence

(dollars in thousands, except per share amounts) 2021 2020 2019

“ Core Earnings ” adjustments to GAAP:

Non-GAAP “Core Earnings” adjustments to GAAP:

GAAP net income $ 1,160,513 $ 880,690 $ 578,276

5 unchanged sentences

5,615 (2,481) (4,758)

Total “Core Earnings” adjustments to GAAP (7,683) (14,711) (972)

“Core Earnings” attributable to SLM Corporation common stock $ 863,273 $ 546,728 $ 470,864

Total non-GAAP “Core Earnings” adjustments to GAAP 17,601 (7,683) (14,711)

Non-GAAP “Core Earnings” attributable to SLM Corporation common stock $ 1,173,378 $ 863,273 $ 546,728

GAAP diluted earnings per common share $ 3.61 $ 2.25 $ 1.30

Derivative adjustments, net of tax 0.06 (0.02) (0.03)

“Core Earnings” diluted earnings per common share $ 2.23 $ 1.27 $ 1.07

Non-GAAP “Core Earnings” diluted earnings per common share $ 3.67 $ 2.23 $ 1.27

(1) Derivative Accounting:

“Core Earnings” exclude periodic unrealized gains and losses caused by the mark-to-fair value valuations on derivatives that do not qualify for hedge accounting treatment under GAAP, but include current period accruals on the derivative instruments.

For periods prior to July 1, 2018, “Core Earnings” also exclude the periodic unrealized gains and losses that are a result of ineffectiveness recognized related to effective hedges under GAAP, net of tax.

Non-GAAP “Core Earnings” exclude periodic unrealized gains and losses caused by the mark-to-fair value valuations on derivatives that do not qualify for hedge accounting treatment under GAAP, but include current period accruals on the derivative instruments.

Under GAAP, for our derivatives held to maturity, the cumulative net unrealized gain or loss over the life of the contract will equal $0.

(2) “Core Earnings” tax rate is based on the effective tax rate at the Bank, where the derivative instruments are held.

(2) Non-GAAP “Core Earnings” tax rate is based on the effective tax rate at the Bank, where the derivative instruments are held.

The following table reflects our provisions for credit losses and total portfolio net charge-offs:

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Total portfolio net charge-offs (200,762) (216,036) (253,143)

Beginning in 2020, we began to evaluate management’s performance internally using a measure that starts with “Core Earnings” net income as disclosed above for a period, and further adjusting it by increasing it by the impact of GAAP provisions for credit losses, and decreasing it by the total portfolio net charge-offs recorded in that period, net of the tax impact of these adjustments.

Beginning in 2020, we began to evaluate management’s performance internally using a measure that starts with Non-GAAP “Core Earnings” net income as disclosed above for a period, and further adjusting it by increasing it by the impact of GAAP provisions for credit losses, and decreasing it by the total portfolio net charge-offs recorded in that period, net of the tax impact of these adjustments.

56 SLM CORPORATION — 2021 Form 10-K

Private Education Loan Originations

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Loan Securitizations

We have diversified our funding sources by issuing term ABS and by entering into the Secured Borrowing Facility (which was previously called the asset-backed commercial paper facility, or ABCP Facility).

We have diversified our funding sources by issuing term ABS and by entering into the Secured Borrowing Facility.

Term ABS financing provides long-term funding for our Private Education Loan portfolio at attractive interest rates and at terms that effectively match the average life of the assets.

Loans associated with these transactions will remain on our balance sheet if we retain the residual interest in these trusts.

Loans associated with these transactions will remain on our balance sheet if we retain the residual interest in the related trusts.

The Secured Borrowing Facility provides an extremely flexible source of funds that can be drawn upon on short notice to meet funding needs within the Bank.

Borrowings under our Secured Borrowing Facility are accounted for as secured financings.

2020 Strategic Imperatives and Corporate Restructuring

At the beginning of 2020, we were focused on executing our legacy strategy comprised of three main pillars:

growing our primary student loan business, maintaining and enhancing our best-in-class customer experience platform, and continuing our efforts to diversify into other financial products.

Based on these pillars, we set six goals:

(1) prudently grow our Private Education Loan assets and revenues;

(2) maintain our strong capital position;

(3) continue our credit card initiative to increase the level of engagement with our existing customers and attract new customers;

(4) manage operating expenses to improve the efficiency of our operations;

(5) maintain our strong governance, risk oversight and compliance infrastructure;

and (6) leverage our culture to engage employees, recognize and reward contributions to business results, and develop talent to support our business strategy and growth.

With the arrival of a new CEO, and based on changing market dynamics, we undertook a comprehensive strategic review.

The strategic review validated much of our previous strategy, but also highlighted several areas for greater focus.

As a result, we introduced the following five strategic imperatives in the third quarter of 2020, which we believe will increase shareholder value:

• Maximize the profitability and growth of our core business .

Our goal is to build upon our position as the leading lender in the private student loan market to maximize profitability and growth.

We will seek to expand our share of the market through initiatives to increase the volume of applications, approval rate on the applications we receive, and ultimate funding rate for customers.

We will endeavor to accomplish this without diminishing our risk/return appetite and, in some cases, by enhancing it.

We will also seek to improve the efficiency of our marketing and customer acquisition strategies through the implementation of robust direct to consumer marketing technologies.

Finally, we will endeavor to drive greater efficiency and operating leverage through continued efficiency efforts and leveraging past investments in systems and platforms.

• Optimize the value of our brand and our attractive client base.

Our well-known brand, which is synonymous with student lending, is a strong asset.

Our goal, however, is to improve upon it and make it a beloved brand that will strengthen our position in the private student loan industry.

We will endeavor to do this by improving our current products and our servicing experience.

We will focus on improving our already high customer satisfaction scores by simplifying our customer touch points.

In addition, we plan to improve the presentation of our free products that help students and families plan and pay for college, such as our cost of college calculators and our scholarship search engine.

A very large number of people who currently visit our website are not our borrowers.

We would like to deepen our relationship with those customers to enhance our brand, improve our core business, and potentially develop new growth opportunities in the future.

• Better inform the external narrative about student lending.

The marketplace presents both real and perceived risk to private student lending.

We will engage with bipartisan policymakers to help them better understand the role of private lenders and how Sallie Mae provides tools, resources, and responsible financing to help students and families access and complete college.

• Maintain a rigorous and predictable capital allocation and return program to create shareholder value.

Our goal is to remain very disciplined by generating high returns on equity in our core business and by returning capital to shareholders when it cannot be deployed in a way that generates high returns and supports our core private student lending business.

We expect to continue to sell loans at premiums attractive to us and use the capital released and gains generated to repurchase shares of our common stock, if we believe the stock is undervalued by reasonable measures.

Our focus on loan sales to generate capital to return to shareholders is likely to continue throughout the phase-in of the regulatory capital implications of CECL, after which period of time we intend to generate significant excess capital organically for shareholders.

• Drive a mission-led culture.

We believe, and research affirms, mission-led companies generate superior outcomes for customers, employees, shareholders, and other key stakeholders.

To drive performance, we will continue to align and advance a culture tied directly to our mission:

to power confidence as students begin their unique journey.

To help align us to accomplish these initiatives, during the third quarter of 2020 we restructured our senior management team and assigned a senior management team member to be responsible for the progress of each of the imperatives described above.

In addition to the senior management changes, during the third quarter of 2020, we initiated a restructuring program to reduce costs and improve operating efficiencies by better aligning our organizational structure with our new corporate strategic imperatives.

In conjunction with the restructuring plan, involuntary termination benefit arrangements and certain other costs that are incremental and incurred as a direct result of our restructuring plan are classified as restructuring expenses in the

accompanying consolidated statements of income.

Restructuring expenses of $26 million were recorded in the year ended December 31, 2020.

The majority of these restructuring expenses incurred through December 31, 2020 were severance costs related to the elimination of approximately 165 positions, or approximately 9 percent of the workforce that existed as of December 31, 2019.

During the third and fourth quarters of 2020, we began making progress on the corporate strategic imperatives.

In the third quarter of 2020, we sold our entire Personal Loan portfolio, including $697 million of principal and $7 million in accrued interest.

In the fourth quarter of 2020, we issued an unsecured debt offering of $500 million of 4.20 percent Senior Notes due October 29, 2025 at par.

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

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

LIBOR Transition

Following announcements by the UKFCA, which regulates LIBOR, and ICE Benchmark Administration Limited, the administrator of LIBOR, publication of 1-week and 2-month USD LIBOR and all tenors for other currencies ceased after December 31, 2021.

While publication of the remaining USD settings is expected to cease after June 30, 2023, U.S.

banking and other global financial services regulators have directed regulated institutions to cease entering into new LIBOR-based contracts as soon as practicable and in any event by the end of 2021.

In 2020, we launched a formal cross-functional replacement project with the goal of ensuring a smooth transition to a replacement index for our LIBOR-based assets and obligations 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 Chief Financial Officer and/or project team reports status regularly to our Board of Directors.

In 2020, we began accepting certain deposits based on SOFR.

In the second quarter of 2021, we began issuing variable-rate Private Education Loans that are indexed to SOFR.

In 2022, subject to market conditions and investor demand, we expect to begin issuing ABS that are indexed to SOFR and to renew the Secured Borrowing Facility with an index based on SOFR.

Substantially all our assets, liabilities, and off-balance sheet items referencing LIBOR are comprised of Private Education Loans originated before April 2021, deposits, variable-rate ABS, and derivatives.

In addition, our Series B Preferred Stock is indexed to LIBOR.

We plan to transition these exposures to LIBOR by changing them to an alternative reference rate, either through modification or replacement, by June 30, 2023, although we may accelerate the transition of our legacy Private Education Loans depending upon a number of considerations, including regulatory guidance.

Approximately $339 million of our variable-rate ABS (those issued before November 2017) do not have fallback provisions for an alternative reference rate and we intend to rely upon the safe harbors provided by proposed federal legislation, which is currently drafted to supersede state legislation, and/or current New York legislation to transition these ABS to an alternative reference rate.

Generally, the safe harbors will shield parties from liability for transitioning certain USD LIBOR-indexed contracts (generally, those that do not have provisions for an alternative

2021 Form 10-K — SLM CORPORATION 57

reference rate) to SOFR and will render nonactionable any claims brought by parties to such contracts that allege breach of contract based on another party’s use of SOFR.

We have evaluated the potential basis risk associated with a mismatch in variable-rate assets and liabilities, including any mismatches related to (i) legacy assets and liabilities that remain indexed to LIBOR up to June 2023 and newly issued assets and liabilities that are, or will be, indexed to SOFR and (ii) term SOFR-indexed assets and liabilities and average SOFR assets and liabilities.

In all such cases, we have determined the basis risk is immaterial on an aggregate basis.

The chart below depicts our current LIBOR exposure at December 31, 2021.

As of December 31, 2021

(dollars in thousands) LIBOR

Private Education Loans $ 9,680,263

FFELP Loans 590,660

Available-for-sale investments 70,087

Total Assets $ 10,341,010

Deposits $ 4,202,554

Private Education Loan term securitizations - no contractual fallback 339,348

Private Education Loan term securitizations - alternative reference rate fallback 709,631

Total Liabilities 5,251,533

Total Equity (preferred stock) 251,070

Total Liabilities and Equity $ 5,502,603

Off-Balance Sheet:

Pay LIBOR derivative notional $ 3,915,999

Receive LIBOR derivative notional 1,438,144

Total derivative notional 5,354,143

Secured Borrowing Facility 2,000,000

Total Off-Balance Sheet $ 7,354,143

See Part I, Item 1A.

“Risk Factors” in this Form 10-K for additional discussion regarding the risks associated with the transition from LIBOR.

58 SLM CORPORATION — 2021 Form 10-K

Strategic Imperatives

To further focus our business and increase shareholder value, we continue to advance our strategic imperatives.

Our focus remains on maximizing the profitability and growth of our core private student loan business, while harnessing and optimizing the power of our brand and attractive client base.

In addition, we continue to seek to better inform the external narrative about student lending and Sallie Mae’s role in helping students and families responsibly plan and pay for college.

We also strive to maintain a rigorous and predictable capital allocation and return program to create shareholder value.

Our internal focus is to drive a mission-led culture that continues to make Sallie Mae a great place to work.

Finally, we continue to strengthen our risk and compliance efforts, to enhance and build upon our risk management framework, and to keep focused and aligned on assessing and monitoring enterprise-wide risk.

During 2021, we made the following progress on the above corporate strategic imperatives.

New Servicing Call Center Platform and Rebranded Online Resource Tools

In late March 2021, we migrated our servicing call center to a new integrated platform that will further our goal to deliver exceptional customer experiences.

This new platform allows us to streamline our processes and provide efficiencies, thereby creating more customer-centric capabilities for our team members.

We also relaunched our online resource to provide a centralized and simplified site that provides information on tools and resources for school counselors as they assist students and families plan and pay for college.

We are also creating a suite of confidence inspiring tools and resources as well as new, innovative partnerships that will provide significant value to our customers.

Introduced new www.SallieMakesSense.com website

We launched www.SallieMakesSense.com to help educate and inform policymakers, influencers, media, and others about who Sallie Mae is today and illustrate the important role we continue to play in helping students and families plan and pay for college.

In addition to providing key statistics and information about the success of our customers, and the important role of private student lenders, the site also highlights the various tools and resources we provide families to make an informed decision about higher education.

It also features content on the higher education landscape and our work in helping students complete their education.

2021 Loan Sales and 2021-A and 2021-C Transactions

During 2021, we sold $4.24 billion of our Private Education Loans, including $3.98 billion in principal and $264 million in capitalized interest, to unaffiliated third parties.

The transactions qualified for sale treatment and removed the balance of the loans from our balance sheet on the respective settlement dates.

We remained the servicer of these loans pursuant to applicable servicing agreements executed in connection with the sales.

These sales resulted in our recognizing a gain of $548 million during 2021.

For additional information regarding these transactions, see Notes to Consolidated Financial Statements, Note 5, “Loans Held for Investment” and Note 11, “Borrowings - Unconsolidated VIEs.”

2021-B Securitization

On May 19, 2021, we executed our $531 million SMB Private Education Loan Trust 2021-B term ABS transaction, which was accounted for as a secured financing.

We sold $531 million of notes to third-parties and retained a 100 percent interest in the residual certificates issued in the securitization, raising approximately $529 million of gross proceeds.

The Class A and Class B notes had a weighted average life of 4.26 years and priced at a weighted average LIBOR equivalent cost of 1-month LIBOR plus 0.77 percent.

2021-D Securitization

On August 18, 2021, we executed our $527 million SMB Private Education Loan Trust 2021-D term ABS transaction, which was accounted for as a secured financing.

We sold $527 million of notes to third-parties and retained a 100 percent interest in the residual certificates issued in the securitization, raising approximately $525 million of gross proceeds.

The Class A and Class B notes had a weighted average life of 4.22 years and priced at a weighted average LIBOR equivalent cost of 1-month LIBOR plus 0.69 percent.

2021-E Securitization

On November 9, 2021, we executed our $534 million SMB Private Education Loan Trust 2021-E term ABS transaction, which was accounted for as a secured financing.

We sold $534 million of notes to third-parties and retained a 100 percent interest in the residual certificates issued in the securitization, raising approximately $532 million of gross

2021 Form 10-K — SLM CORPORATION 59

The Class A and Class B notes had a weighted average life of 4.15 years and priced at a weighted average LIBOR equivalent cost of 1-month LIBOR plus 0.69 percent.

Final Settlement of ASR

On January 26, 2021, we completed our ASR with a third-party financial institution and we received an additional 13 million shares.

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

For additional information regarding this ASR, see Notes to Consolidated Financial Statements, Note 13, “Stockholders’ Equity.”

Common Stock Tender Offer

On February 2, 2021, we announced the commencement of the Tender Offer to purchase up to $1 billion in aggregate purchase price of our outstanding shares of common stock, par value $0.20 per share.

Pursuant to the Tender Offer, we repurchased 28.5 million shares at a price of $16.50 per share.

The purchase of shares settled on March 16, 2021, for an aggregate cost of approximately $472 million, including fees and expenses related to the Tender Offer.

We cancelled the 28.5 million shares purchased in connection with the Tender Offer.

Share Repurchases under our Rule 10b5-1 Trading Plans

During the year ended December 31, 2021, we repurchased 57 million shares of our common stock at a total cost of $1.1 billion under Rule 10b5-1 trading plans authorized under our share repurchase programs.

Common Stock Dividends

We paid quarterly cash dividends on our common stock of $0.03 per share for the first, second, and third quarters of 2021.

In the fourth quarter of 2021 we increased our dividend per share on our common stock to $0.11 per share, which was paid on December 15, 2021 to shareholders of record at the close of business on December 3, 2021.

Secured Borrowing Facility

On July 30, 2021, we amended and extended the maturity of the Secured Borrowing Facility, discussed in Notes to Consolidated Financial Statements, Note 11, “Borrowings.” The Secured Borrowing Facility is a $2 billion secured borrowing facility, under which the full $2 billion is available for us to draw.

Under the amended Secured Borrowing Facility, we incur financing costs on unused borrowing capacity and on outstanding advances.

The amended Secured Borrowing Facility extended the revolving period, during which we may borrow, repay, and reborrow funds, until May 17, 2022.

The scheduled amortization period, during which amounts outstanding under the Secured Borrowing Facility must be repaid, ends on May 17, 2023 (or earlier, if certain material adverse events occur).

Business — Human Capital Resources and Talent Development” for a discussion regarding our mission-led culture.

60 SLM CORPORATION — 2021 Form 10-K

Results of Operations

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GAAP Consolidated Statements of Income

Increase (Decrease)

Years Ended December 31, 2020 vs.

Years ended December 31,

(dollars in millions, except per share amounts) Increase (Decrease)

2020 2020 vs.

(Dollars in millions, except per share data) 2020 2019 2018 $ % $ %

2021 2020 2019 $ % $ %

Interest income:

7 unchanged sentences

Net interest income after provisions for credit losses 1,428 1,387 1,269 41 3 118 9

Non-interest income (loss):

Non-interest income:

Gains on sales of loans, net 548 238 — 310 130 238 100

Losses on sales of securities, net — — (2) — — 2 —

Gains on derivatives and hedging activities, net — 50 18 (50) (100) 32 178

Other income (loss) 43 31 (52) 12 (39) 83 160

Total non-interest income (loss) 331 49 (52) 282 576 101 194

Other income 84 43 31 41 95 12 (39)

Total non-interest income 632 331 49 301 91 282 576

Non-interest expenses:

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Net income attributable to SLM Corporation common stock $ 1,156 $ 871 $ 561 $ 285 33 % $ 310 55 %

Basic earnings per common share attributable to SLM Corporation $ 2.27 $ 1.31 $ 1.08 $ 0.96 73 % $ 0.23 21 %

Diluted earnings per common share attributable to SLM Corporation $ 2.25 $ 1.30 $ 1.07 $ 0.95 73 % $ 0.23 21 %

Declared dividends per common share attributable to SLM Corporation $ 0.12 $ 0.12 $ — $ — — % $ 0.12 100 %

Basic earnings per common share $ 3.67 $ 2.27 $ 1.31 $ 1.40 62 % $ 0.96 73 %

Diluted earnings per common share $ 3.61 $ 2.25 $ 1.30 $ 1.36 60 % $ 0.95 73 %

Declared dividends per common share $ 0.20 $ 0.12 $ 0.12 $ 0.08 67 % $ — — %

2021 Form 10-K — SLM CORPORATION 61

GAAP Consolidated Earnings Summary

Year Ended December 31, 2021 Compared with Year Ended December 31, 2020

For the year ended December 31, 2021, net income was $1.16 billion, or $3.61 diluted earnings per common share, compared with net income of $881 million, or $2.25 diluted earnings per common share, for the year ended December 31, 2020.

The year-over-year increase was primarily attributable to increases in gains on sales of loans, net, other income, lower provisions for credit losses, and lower operating expenses, which were offset by a decline in total net interest income.

The primary contributors to each of the identified drivers of change in net income for the current year period compared with the year-ago period are as follows:

• Net interest income in 2021 decreased by $85 million compared with the year-ago period primarily due to a $2.1 billion reduction in average loans outstanding.

The decline in average loans outstanding was due to the sale of our Personal Loan portfolio that occurred in the third quarter of 2020 and the sale of $4.2 billion of Private Education Loans in 2021.

Net interest margin in 2021 was unchanged from the prior year as the lower yield on our interest earning assets was offset by lower cost of funds.

• Provisions for credit losses for the year ended December 31, 2021 decreased by $126 million compared with the year-ago period.

This decrease of $126 million in 2021 compared with the year-ago period was primarily the result of improving economic forecasts in 2021 and faster prepayment speeds.

In the fourth quarter of 2021, we increased our long-term estimate of prepayment speeds to reflect higher long-term prepayment experience.

Partially offsetting these benefits were additional provisions to reflect the adoption of our credit administration practices changes and other management overlays.

• Gains on sales of loans, net, were $548 million in 2021, compared with $238 million in the year-ago period.

The increase in gains on sales of loans was primarily the result of $1.14 billion in additional Private Education Loan sales in 2021 when compared with the year-ago period and improved pricing on the sale of those loans in 2021 compared with the year-ago period.

• Gains on derivatives and hedging activities, net, decreased $50 million in 2021 compared with the year-ago period.

The year-ago period was favorably impacted by a significant decrease in interest rates caused by the economic fallout from the COVID-19 pandemic, which made our receive fixed/pay variable interest rate swaps that are not designated as accounting hedges, but are economic hedges, to increase in value.

• Other income increased $41 million in 2021 from the year-ago period.

The increase in other income compared with the year-ago period was primarily the result of a $35 million gain related to changes in the valuation of certain non-marketable securities, and a $26 million increase in third-party servicing fees, offset by an $11 million gain from the sale of our former Upromise subsidiary recognized in the year-ago period and $6 million in lower revenue related to our former Upromise subsidiary.

In addition, other income during the year ended December 31, 2021 was negatively affected by a $3 million loss from fees related to the redemption of $200 million of our 5.125 percent unsecured senior notes due in April 2022.

Third-party servicing fees increased in 2021 because we sold $4.24 billion in loans in 2021 where we retained servicing rights.

• For the year ended December 31, 2021, total operating expenses were $519 million, compared with $538 million in the year-ago period.

The decrease in total operating expenses was primarily driven by lower personnel costs as a result of the corporate reorganization that occurred in the second half of 2020, the divestiture of our former Upromise subsidiary in 2020, the sale of the Personal Loan portfolio in 2020, and lower initiative spending and improved servicing efficiencies in 2021.

• In the third quarter of 2020, we implemented a restructuring plan that resulted in our recording a $26 million restructuring charge in the year ended December 31, 2020.

These expenses were primarily related to involuntary termination benefit arrangements, as well as certain other costs, such as legal and consulting fees, that were incremental and incurred as a direct result of our 2020 restructuring plan.

There were de minimis restructuring expenses recorded for the year ended December 31, 2021.

• Income tax expense for the year ended December 31, 2021 was $380 million, compared with $273 million in the year-ago period.

The effective tax rate increased in 2021 to 24.7 percent from 23.7 percent in the year-ago period.

62 SLM CORPORATION — 2021 Form 10-K

The increase in the effective tax rate was primarily driven by higher state income tax expense related to an increase in our uncertain tax positions.

Year Ended December 31, 2020 Compared with Year Ended December 31, 2019

For the year ended December 31, 2020, net income was $881 million, or $2.25 diluted earnings per common share, compared with net income of $578 million, or $1.30 diluted earnings per common share, for the year ended December 31, 2019.

The year-over-year increase was primarily attributable to increases in gains on sales of loans, net, lower provisions for credit losses, and lower operating expenses, which were offset by a decline in total net interest income.

The primary contributors to each of the identified drivers of change in net income for the current year period compared with the year-ago period are as follows:

• Net interest income in 2020 decreased by $143 million compared with the year-ago period primarily due to a 95 basis point decrease in net interest margin.

The primary contributors to each of the identified drivers of change in net income for 2020 compared with 2019 are as follows:

• Net interest income in 2020 decreased by $143 million compared with 2019 primarily due to a 95 basis point decrease in net interest margin.

Net interest margin decreased primarily due to (i) rates on our cash and short-term investments portfolio decreasing faster than our deposits repriced as interest rates fell as a result of the COVID-19 pandemic, as well as (ii) the sale of our higher yielding Personal Loan portfolio.

• Provisions for credit losses for the year ended December 31, 2020, decreased by $261 million compared with the year-ago period.

• Provisions for credit losses for the year ended December 31, 2020 decreased by $261 million compared with 2019.

The allowance in 2019 was determined using an incurred loss model which, for the most part, based its allowance on expected losses over the next 12 months.

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This was primarily the result of $290 million in additional provision for credit losses related to new commitments made in 2020, an additional $129 million due to deteriorating economic conditions during the year as a result of the COVID-19 pandemic, and $99 million caused by lower recovery rates and various overlays and other adjustments applied during the year.

Offsetting these was a $206 million reduction in the provisions for credit losses as a result of $2.9 billion of loans transferred to held-for-sale from held for investment in the fourth quarter of 2020, the sale of $3.1 billion of Private Education Loans in the first quarter of 2020, which resulted in a reduction to our provisions for credit losses of $162 million, a benefit of $121 million from faster prepayment speeds, and the sale of our entire Personal Loan portfolio, which resulted in a reduction to our provisions for credit losses of $43 million.

The benefit from faster prepayment speeds was to reflect actual loan prepayment speeds being higher than what our models were predicting due to the significant amount of COVID-19 related government stimulus.

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There were no loan sales in 2019.

• Gains on derivatives and hedging activities, net, increased $32 million in 2020 compared with the year-ago period.

• Gains on derivatives and hedging activities, net, increased $32 million in 2020 compared with 2019.

The increase was driven by a significant decrease in interest rates during 2020 as a result of the economic impact of the COVID-19 pandemic, which caused our receive-fixed/pay-variable interest rate swaps that are not designated as accounting hedges, but are economic hedges, to increase in value.

• Other income increased $12 million in 2020 from the year-ago period primarily due to an $11 million gain from the sale of our Upromise subsidiary in the second quarter of 2020, and an increase of $17 million in third-party servicing fees, offset by $13 million in lower revenue from our divested Upromise business, and an $8 million gain we recorded in the year-ago period related to changes in the valuation of certain non-marketable securities.

• Other income increased $12 million in 2020 from 2019 primarily due to an $11 million gain from the sale of our former Upromise subsidiary in the second quarter of 2020, and an increase of $17 million in third-party servicing fees, offset by $13 million in lower revenue from our divested Upromise business, and an $8 million gain we recorded in 2019 related to changes in the valuation of certain non-marketable securities.

Third-party servicing fees increased primarily as a result of the sale of $3.1 billion of Private Education loans in the first quarter of 2020 (where we continued to service the loans after they were sold).

• For the year ended December 31, 2020, total operating expenses were $538 million, compared with $574 million in the year-ago period.

The decrease in operating expenses was primarily driven by reduced personnel and marketing costs as a result of the suspension of Personal Loan originations and the subsequent sale of our Personal Loan portfolio, the sale of our Upromise subsidiary, lower FDIC fees, and lower employee compensation costs as a result of the restructuring, which were offset by increased costs from growth in the serviced and owned loan portfolio, CEO transition costs, and costs related to other initiatives.

• For the year ended December 31, 2020, total operating expenses were $538 million, compared with $574 million in 2019.

The decrease in operating expenses was primarily driven by reduced personnel and marketing costs as a result of the suspension of Personal Loan originations and the subsequent sale of our Personal Loan portfolio, the sale of our former Upromise subsidiary, lower FDIC fees, and lower employee compensation costs as a result of the restructuring, which were offset by increased costs from growth in the serviced and owned loan portfolio, CEO transition costs, and costs related to other initiatives.

• Restructuring expenses for the year ended December 31, 2020 were $26 million, related to the restructuring plan we implemented in the third quarter of 2020.

These expenses were primarily related to involuntary termination benefit

arrangements, as well as certain other costs, such as legal and consulting fees that were incremental and incurred as a direct result of our restructuring plan.

There were no restructuring expenses recorded in the year-ago period.

• Income tax expense for the year ended December 31, 2020 was $273 million, compared with $165 million in the year-ago period.

The effective tax rate increased in 2020 to 23.7 percent from 22.2 percent in the year-ago period.

These expenses were primarily related to involuntary termination

2021 Form 10-K — SLM CORPORATION 63

benefit arrangements, as well as certain other costs, such as legal and consulting fees that were incremental and incurred as a direct result of our restructuring plan.

There were no restructuring expenses recorded in 2019.

• Income tax expense for the year ended December 31, 2020 was $273 million, compared with $165 million in 2019.

The effective tax rate increased in 2020 to 23.7 percent from 22.2 percent in 2019.

The increase in the effective tax rate was primarily driven by $14 million in tax credits recorded in 2019.

Year Ended December 31, 2019 Compared with Year Ended December 31, 2018

For the year ended December 31, 2019, net income was $578 million, or $1.30 diluted earnings per common share, compared with net income of $487 million, or $1.07 diluted earnings per common share, for the year ended December 31, 2018.

The year-over-year increase was primarily attributable to increases in net interest income and total non-interest income, which were offset by increases in provisions for credit losses, total non-interest expenses and an increase in income tax expense.

The primary contributors to each of the identified drivers of change in net income for 2019 compared with 2018 are as follows:

• Net interest income in 2019 increased by $210 million compared with 2018 primarily due to a $3.1 billion increase in average loans outstanding.

Net interest margin decreased by 34 basis points primarily as a result of an additional $1.8 billion in average cash and other short-term investments held in 2019 compared with 2018.

In 2019, we began increasing the amount of cash and cash equivalents held to increase overall liquidity levels for risk management purposes.

Yields on deposits placed with the Federal Reserve and government and agency securities are below our cost of funds, which reduces the weighted average yield on our interest-earning assets and our net interest margin.

The increase in yield on our education loan portfolios in 2019 compared with 2018 was primarily due to the carryover benefit in early 2019 from the increase in LIBOR rates during 2018, which increased the yield on our variable-rate Private Education Loan and FFELP portfolios.

The increase in our cost of funds in 2019 compared to 2018 was also due to the increasing rates that occurred in the latter half of 2018.

The increased liquidity levels in 2019 reduced the net interest margin by approximately $11 million compared with 2018.

• Provisions for credit losses in 2019 increased $109 million compared with 2018 primarily due to a higher provision for our TDR portfolio as a result of the impact of declining interest rates, higher delinquencies, and a 14 percent growth in Private Education Loans in repayment.

The allowance for a TDR loan equals the difference between the carrying amount of the loan and the present value of the expected future cash flows discounted at the effective interest rate of the loan just prior to the loan’s classification as a TDR.

For our variable-rate TDR loans, we locked in the discount rate at the time of TDR classification and did not adjust that rate as interest rates changed.

Therefore, when interest rates increased, which they did in 2018, we recorded a lower allowance on our variable-rate TDR portfolio because of the higher future expected cash flows.

Conversely, when interest rates declined, as they did during 2019, the present value of future expected cash flows of the variable-rate TDR portfolio declined and the related allowance increased.

• There were no gains on sales of loans, net, in 2019.

Gains on sales of loans, net, resulted in a net gain of $2 million in 2018, as we sold the $43 million Split Loan (as hereinafter defined) portfolio in second-quarter 2018.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Arrangements with Navient Corporation — Amended Loan Participation and Purchase Agreement.”

• There were no sales of securities in 2019, compared with losses on sales of securities, net, of $2 million in 2018, due to the sale of $41 million of mortgage-backed securities in second-quarter 2018.

• Gains (losses) on derivatives and hedging activities, net, resulted in a net gain of $18 million in 2019 compared with a net loss of less than $1 million in 2018.

The increase was driven by several factors, including an additional $2.6 billion of notional derivative contracts entered into during 2019 that were economic hedges but did not receive hedge accounting treatment.

These derivatives, as well as other derivative contracts that did not receive hedge accounting treatment, were favorably affected by interest rates and future interest rate expectations during 2019.

• Other income in the year ended December 31, 2019 increased $83 million from 2018.

In 2019 and 2018, we reduced other income by $12 million and $94 million, respectively, to reflect the reduction in our tax indemnification receivable because of the expiration of certain statutes of limitations related to a portion of indemnified uncertain tax positions.

Absent these tax-related items, other income in 2019 increased $1 million compared to 2018.

recorded an $8 million gain related to changes in the valuation of certain non-marketable securities, which was offset by lower revenue in our Upromise business.

• For the year ended December 31, 2019, non-interest expenses were $574 million, compared with $557 million in 2018.

Full-year non-interest expenses grew 3 percent year-over-year.

The increase in non-interest expenses was driven by the growth in our Private Education Loan portfolio and increased investments in marketing, slightly offset by a reduction in initial costs related to our migration to the cloud.

• Income tax expense increased to $165 million in 2019 from $72 million in 2018.

Our effective income tax rate increased to 22.2 percent in 2019 from 12.8 percent in 2018.

The increase in the effective tax rate was primarily the result of a $94 million decrease in income tax expense in 2018 due to the previously mentioned expiration of certain statutes of limitations regarding a portion of indemnified uncertain tax positions.

Absent that item, our effective tax rate for 2018 would have been 25.4 percent.

The further decrease in the effective tax rate in 2019 was primarily driven by $14 million of tax credits recorded in 2019, the majority of which related to prior year tax filings.

64 SLM CORPORATION — 2021 Form 10-K

Financial Condition

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Years ended December 31,

2020 2019 2018

(Dollars in thousands) Balance

(dollars in thousands) 2021 2020 2019

Average Assets

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Personal Loans — — 582,552 12.43 1,141,503 12.09

Credit Cards 14,982 4.67 9,390 (6.04) — —

Taxable securities 2,142,025 0.65 1,547,837 0.73 324,849 2.35

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Net interest margin 4.81 % 4.81 % 5.76 %

_________________

(1) Includes the average balance of our unsecured borrowings, as well as secured borrowings and amortization expense of transaction costs related to our term asset-backed securitizations and our Secured Borrowing Facility.

2021 Form 10-K — SLM CORPORATION 65

Rate/Volume Analysis - GAAP

The following rate/volume analysis shows the relative contribution of changes in interest rates and asset volumes.

Years Ended December 31,

(dollars in thousands) Increase

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Net interest income $ (143,322) $ (282,344) $ 139,022

_____________

(1) Changes in income and expense due to both rate and volume have been allocated in proportion to the relationship of the absolute dollar amounts of the change in each.

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Ending Loans Held for Investment Balances, net

December 31, 2020

As of December 31, 2021

(dollars in thousands) Private

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(1) Loans for customers still attending school and who are not yet required to make payments on the loans.

At December 31, 2020, the loans in the “in-school” category include $254 million of Private Education Loans whose borrowers did not return to school in the fall of 2020 because of the pandemic, or other reasons, and who received an extension of time from us to re-enroll before beginning their grace period and, therefore, currently are not required to make any payments.

For further discussion, see “— Impact of COVID-19 on Sallie Mae — Financial Results.”

(2) At December 31, 2020, the loans in the “grace, repayment and other” category include (a) $147 million of Private Education Loans whose borrowers are in a grace or deferred status and who did not return to school in the fall of 2020, who received an extension of time from us to re-enroll before beginning their grace period and, therefore, currently are not required to make any payments, and (b) $639 million of Private Education Loans whose borrowers are in a forbearance or repayment status and who did not return to school in the fall of 2020 and who received an extension of time from us to re-enroll before beginning their grace period.

For further discussion, see “— Impact of COVID-19 on Sallie Mae — Financial Results.”

(2) Includes loans in deferment or forbearance.

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

December 31, 2019

66 SLM CORPORATION — 2021 Form 10-K

As of December 31, 2020

(dollars in thousands) Private

Loans Personal

Cards Total Loans Held for Investment

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% of total 96 % 4 % — % 100 %

December 31, 2018

(1) Loans for customers still attending school and who are not yet required to make payments on the loans.

For further discussion, see “— Impact of COVID-19 on Sallie Mae — Financial Results.”

(2) At December 31, 2020, the loans in the “grace, repayment and other” category include (a) $147 million of Private Education Loans whose borrowers were in a grace or deferred status and who did not return to school in the fall of 2020, who received an extension of time from us to re-enroll before beginning their grace period and, therefore, were not then required to make any payments, and (b) $639 million of Private Education Loans whose borrowers were in a forbearance or repayment status and who did not return to school in the fall of 2020 and who then received an extension of time from us to re-enroll before beginning their grace period.

For further discussion, see “— Impact of COVID-19 on Sallie Mae — Financial Results.”

(3) Includes loans in deferment or forbearance.

2021 Form 10-K — SLM CORPORATION 67

As of December 31, 2019

(dollars in thousands) Private

Loans Personal

Loans Total Loans Held for Investment

Cards Total Loans Held for Investment

Total loan portfolio:

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% of total 93 % 3 % 4 % — % 100 %

(1) Loans for customers still attending school and who are not yet required to make payments on the loans.

(2) Includes loans in deferment or forbearance.

December 31, 2017

As of December 31, 2018

(dollars in thousands) Private

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% of total 91 % 4 % 5 % 100 %

December 31, 2016

As of December 31, 2017

(dollars in thousands) Private

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68 SLM CORPORATION — 2021 Form 10-K

Average Loans Held for Investment Balances (net of unamortized premium/discount)

Years Ended December 31,

(Dollars in thousands) 2020 2019 2018

Years Ended December 31, (dollars in thousands) 2021 2020 2019

Private Education Loans $ 20,968,061 97 % $ 22,426,216 94 % $ 22,225,473 92 %

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Personal Loans — — 582,552 3 1,141,503 5

Credit Cards 14,982 — 9,390 — — —

Total portfolio $ 21,701,229 100 % $ 23,776,111 100 % $ 24,181,174 100 %

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(dollars in thousands) Private

Loans Personal

Cards Total Loans Held for Investment, net

Beginning balance $ 18,436,968 $ 735,208 $ 10,967 $ 19,183,143

Day 1 CECL adjustment to allowance (1,060,830) (2,852) (79,183) (188) (1,143,053)

Balance at January 1, 2020 21,835,685 780,964 904,460 3,630 23,524,739

Acquisitions and originations:

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Loan consolidations to third-parties (1,583,691) (27,031) — (1,610,722)

(1,332,802) (21,243) — — (1,354,045)

Allowance 196,868 300 (780) 196,388

Transfer to loans held-for-sale (2,885,640) — — — (2,885,640)

Transfer from loans held-for-sale 25,040 — — 25,040

Repayments and other (2,357,023) (42,775) (50,232) (2,450,030)

(2,292,484) (52,178) (352,489) (26,588) (2,723,739)

Ending balance $ 19,625,374 $ 692,954 $ 22,955 $ 20,341,283

(1) In our Form 10-Qs for the first three fiscal quarters of 2020:

(i) the “loan consolidations to third-parties” line item incorrectly included consolidation activity for loans we serviced but did not own, and (ii) the “repayments and other” line item did not correctly reflect the total of all scheduled repayments and voluntary prepayments made on loans in repayment that we owned and held for investment.

The “ending balance” line item, which includes the effects of those two line items, was reflected correctly in the Form 10-Qs.

The “loan consolidations to third-parties” line item was overstated in the Form 10-Qs for the first, second, and third fiscal quarters by $13 million, $45 million, and $39 million, respectively.

The “repayments and other” line item was understated in the Form 10-Qs for the first, second, and third fiscal quarters by $13 million, $45 million, and $39 million, respectively.

In order to correctly reflect the activity that occurred throughout 2020 regarding those line items for loans we owned and held for investment, in this Form 10-K for the year ended December 31, 2020, the “loan consolidations to third-parties” line item reflects a reduction of $97 million to the line item amount to reflect the aggregate overstatement for the first three fiscal quarters, and the “repayments and other” line item reflects an increase of $97 million to the line item amount to reflect the aggregate understatement for the first three fiscal quarters.

The “loan consolidations to third-parties” for Private Education Loans for the fourth quarter of 2020 were $345 million, and totaled $1.3 billion for the year ended December 31, 2020.

The “repayments and other” for Private Education Loans for the fourth quarter of 2020 were $576 million and totaled $2.3 billion for the year ended December 31, 2020.

2021 Form 10-K — SLM CORPORATION 69

Year Ended December 31, 2020

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Beginning balance $ 22,896,515 $ 783,816 $ 983,643 $ 3,818 $ 24,667,792

Day 1 CECL adjustment to allowance (1,060,830) (2,852) (79,183) (188) (1,143,053)

Balance at January 1, 2020 21,835,685 780,964 904,460 3,630 23,524,739

Acquisitions and originations:

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Capitalized interest and deferred origination cost premium amortization 616,115 27,558 (253) (819) 642,601

(2,925,478) — (588,285) — (3,513,763)

Loan consolidations to third-parties (1,332,802) (21,243) — — (1,354,045)

Allowance 79,285 107 36,526 (1,211) 114,707

Transfer to loans held-for-sale (2,885,640) — — — (2,885,640)

Repayments and other (2,292,484) (52,178) (352,489) (26,588) (2,723,739)

3 unchanged sentences

Loans Personal

Loans Total Loans Held for Investment, net

Cards Total Loans Held for Investment, net

Beginning balance $ 20,294,843 $ 847,889 $ 1,128,187 $ — $ 22,270,919

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Capitalized interest and deferred origination cost premium amortization 722,153 28,258 (323) — 750,088

(43,988) — — (43,988)

Loan consolidations to third-parties (1,512,279) (27,461) — — (1,539,740)

4 unchanged sentences

Loans in full principal and interest repayment status in our Private Education Loans held for investment portfolio at December 31, 2021 decreased by 3 percent compared with December 31, 2020, and now total 44.7 percent of our Private Education Loans held for investment portfolio at December 31, 2021.

The balance of loans held for investment in full principal and interest repayment status was affected in 2020 by loan sales and the transfer of loans from held for investment to held-for-sale.

The balance of loans held for investment in full principal and interest repayment status was affected in 2021 and 2020 by loan sales, and the transfer of loans from held for investment to held-for-sale in 2020.

“Loan consolidations to third-parties” for the year ended December 31, 2021 total 18.1 percent of our Private Education Loans held for investment portfolio in full principal and interest repayment status at December 31, 2021, or 8.1 percent of our total Private Education Loans held for investment portfolio at December 31, 2021, compared with the year-ago period of 14.7 percent of our Private Education Loan held for investment portfolio in full principal and interest repayment status, or 7.2 percent of our total Private Education Loans held for investment portfolio, respectively.

One driver of the increase in the rate of consolidations in 2020 was the result of our transferring $2.9 billion in loans to held-for-sale.

Absent this transfer, the rate of consolidation activity (as a percent of our total Private Education Loan held for investment portfolio in full principal and interest repayment status) would have been 12.9 percent for the year ended December 31, 2020.

The other contributor to the increase in consolidations is attributable to consolidators having ready access to funding for much of 2020 in spite of the

COVID-19 pandemic impact on the economy.

The increase in consolidations is attributable to consolidators having ready access to funding in spite of the COVID-19 pandemic impact on the economy.

Historical experience has shown that loan consolidation activity is heightened in the period when the loan initially enters full principal and interest repayment status and then subsides over time.

The “Repayments and other” category includes all scheduled repayments, as well as voluntary prepayments, made on loans in repayment (including loans in full principal and interest repayment status) and also includes charge-offs.

70 SLM CORPORATION — 2021 Form 10-K

The “Repayments and other” category includes all scheduled repayments and returns, as well as voluntary prepayments, made on loans in repayment (including loans in full principal and interest repayment status) and also includes charge-offs.

Consequently, this category can be significantly affected by the volume of loans in repayment.

Historically, voluntary prepayments and loan consolidations decrease when unemployment increases as borrowers and lenders look to conserve liquidity.

While we saw a decrease in voluntary prepayments in the second quarter of 2020 (as compared to the first quarter of 2020) as a result of the COVID-19 pandemic, the decrease was not as significant as we expected based upon historical experience during higher unemployment periods and has increased to closer to pre-pandemic levels in 2020 (as compared to the year-ago period).

Private Education Loan Originations

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Parent Loan (2)

87,325 2 98,023 2 115,910 2

Total Private Education Loan originations $ 5,422,531 100 % $ 5,320,737 100 % $ 5,624,786 100 %

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“Business - Our Business - Private Education Loans” for further discussion.

(2) In December 2021, we discontinued offering our Parent Loan product.

Applications for those loans received before the offering termination date will continue to be processed, with final disbursements under those loans to occur until mid–December 2022.

(3) Represents the higher credit score of the cosigner or the borrower.

2021 Form 10-K — SLM CORPORATION 71

Allowance for Credit Losses

Allowance for Credit Losses Activity

Years Ended December 31,

(Dollars in thousands) Private

Loans Personal Loans Credit

(dollars in thousands) 2021 2020

Portfolio Private

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(1) See Note 8, “Unfunded Loan Commitments,” in this Form 10-K for a summary of the activity in the allowance for and balance of unfunded loan commitments, respectively.

(2) For the year ended December 31, 2020, below is a reconciliation of the provision for credit losses reported in the consolidated statements of income.

(2) For the years ended December 31, 2021 and 2020, below is a reconciliation of the provision for credit losses reported in the consolidated statements of income.

When a new loan commitment is made, we record the CECL allowance as a liability for unfunded commitments by recording a provision for credit losses.

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Provisions for Credit Losses Reconciliation

(Dollars in thousands) Year Ended December 31, 2020

Years Ended December 31,

(dollars in thousands) 2021 2020

Private Education Loan provisions for credit losses:

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Credit Cards 1,124 1,328

Total 1,144 (691)

Provisions for credit losses reported in consolidated statements of income $ (32,957) $ 93,133

(3) Represents the unpaid principal balance of loans classified as troubled debt restructurings.

Years Ended December 31,

2018 2017 2016

(Dollars in thousands) Private

Loans Personal Loans Total

72 SLM CORPORATION — 2021 Form 10-K

Years Ended December 31, (dollars in thousands) Private

Loans Personal Loans Credit Cards Total

Portfolio Private

Loans Personal Loans Total

Portfolio Private

Beginning balance $ 277,943 $ 977 $ 62,201 $ — $ 341,121 $ 243,715 $ 1,132 $ 6,628 $ 251,475

(208,978) (822) (74,313) (1) (284,114) (154,701) (1,135) (19,690) (175,526)

Loan sales (1)

— — — — — (1,216) — — (1,216)

Recoveries 25,765 — 5,206 — 30,971 20,858 — 946 21,804

Provisions for loan losses 279,570 1,478 72,783 103 353,934 169,287 980 74,317 244,584

Ending balance $ 374,300 $ 1,633 $ 65,877 $ 102 $ 441,912 $ 277,943 $ 977 $ 62,201 $ 341,121

Troubled debt restructurings (2)

$ 1,581,966 $ — $ — $ — $ 1,581,966 $ 1,257,856 $ — $ — $ 1,257,856

Years Ended December 31, (dollars in thousands) Private

Loans Personal Loans Total

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(2) Represents the unpaid principal balance of loans classified as troubled debt restructurings.

2021 Form 10-K — SLM CORPORATION 73

Private Education Loan Allowance for Credit Losses

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For a more detailed discussion of our policy for determining the collectability of Private Education Loans and maintaining our allowance for Private Education Loans, see “—Allowance for Credit Losses” and Note 5, “Loans Held for Investment — Certain Collection Tools - Private Education Loans” in this Form 10-K.

74 SLM CORPORATION — 2021 Form 10-K

The table below presents our Private Education Loans held for investment portfolio delinquency trends.

Loans in repayment include loans making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period (but, for purposes of the following table, do not include those loans while they are in forbearance).

For the periods presented below, we updated our delinquency bucket periods from what we reported in our 2020 Form 10-K to conform with the delinquency bucket periods defined by the Federal Financial Institutions Examination Council (“FFIEC”).

Private Education Loans Held for Investment 2021 2020 2019

2020 2019 2018

(Dollars in thousands) Balance % Balance % Balance %

December 31, (dollars in thousands) Balance % Balance % Balance %

Loans in-school/grace/deferment (1)(2)

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116,947 0.8 119,643 0.8 121,302 0.7

Loans delinquent greater than 90 days (4)

Loans 90 days or greater past due (4)

79,933 0.5 80,702 0.6 62,666 0.4

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Loans in forbearance as a percentage of Private Education Loans in repayment and forbearance 1.9 % 4.3 % 4.1 %

(1) At December 31, 2020, the loans in the “in-school/grace/deferment” category above include $401 million of Private Education Loans whose borrowers did not return to school in the fall of 2020 because of the pandemic, or for other reasons, and who received an extension of time from us to re-enroll before beginning their grace period.

At December 31, 2020, the loans in the “in forbearance” category above include $30 million of Private Education Loans whose borrowers did not return to school in the fall of 2020 and who received an extension of time from us to re-enroll before beginning their grace period.

At December 31, 2020, the loans in the “in repayment” category above include $609 million of Private Education Loans whose borrowers did not return to school in the fall of 2020 and who received an extension of time from us to re-enroll before beginning their grace period.

(1) At December 31, 2020, the loans in the “in-school/grace/deferment” category above include $401 million of Private Education Loans whose borrowers did not return to school in the fall of 2020 because of the pandemic, or for other reasons, and who then received an extension of time from us to re-enroll before beginning their grace period.

At December 31, 2020, the loans in the “in forbearance” category above include $30 million of Private Education Loans whose borrowers did not return to school in the fall of 2020 and who then received an extension of time from us to re-enroll before beginning their grace period.

At December 31, 2020, the loans in the “in repayment” category above include $609 million of Private Education Loans whose borrowers did not return to school in the fall of 2020 and who then received an extension of time from us to re-enroll before beginning their grace period.

This program ended in September 2021.

For further discussion, see “— Impact of COVID-19 on Sallie Mae — Financial Results.”

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(4) The period of delinquency is based on the number of days scheduled payments are contractually past due.

Delinquencies as a percentage of Private Education Loans (held for investment) in repayment remained unchanged at 2.8 percent at December 31, 2020 compared with December 31, 2019, and the forbearance rate increased to 4.3 percent at December 31, 2020 from 4.1 percent at December 31, 2019.

While delinquency rates remained static, there were significantly higher unemployment rates in 2020, as a result of the COVID-19 pandemic, when compared with 2019.

Typically, higher unemployment rates, as we saw in 2020, would cause delinquency rates to increase significantly;

however, several factors contributed to lower than expected delinquencies, including the suspension of payments on federal loans which reduced the payment burden by our borrowers, as well as the disaster forbearance program we invoked to assist our customers.

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

When these disaster forbearances expired in June and July 2020, the loans were no longer considered in forbearance until the borrowers requested, and were granted, an additional forbearance.

Many of these borrowers went back into repayment status at the end of their original three-month disaster forbearance.

Other borrowers asked for additional forbearance and we began granting those in one-month increments.

In the third and fourth quarters of 2020, we saw our forbearance rate decline from the high levels we experienced in the second of quarter 2020, as borrowers exited their original three-month disaster forbearance.

As our borrowers exit forbearance and enter repayment status, we expect to see an increase in delinquency rates in future periods due to higher unemployment rates.

Higher forbearance rates in 2020 compared with the year-ago period are primarily a result of our working with customers affected by COVID-19.

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

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

See additional discussion related to collections activity and the COVID-19 pandemic in “ — Impact of COVID-19 on Sallie Mae — Customers and Credit Performance.”

Delinquencies as a percentage of Private Education Loans (held for investment) in repayment increased to 3.3 percent at December 31, 2021 from 2.8 percent at December 31, 2020, and the forbearance rate decreased to

2021 Form 10-K — SLM CORPORATION 75

1.9 percent at December 31, 2021 from 4.3 percent at December 31, 2020.

The increase in delinquencies and the reduction in forbearance at December 31, 2021, compared with the prior year, were due to a combination of factors, including our new credit administration practices changes that imposed additional requirements for those borrowers requesting forbearance, and the cessation of the use of disaster forbearance related to COVID-19.

We stopped providing COVID-19 related disaster forbearances in June 2021.

See additional discussion in “ — Impact of COVID-19 on Sallie Mae — Customers and Credit Performance” and “— Use of Forbearance and Rate Modifications as a Private Education Loan Collection Tool.”

The following table summarizes changes in the allowance for Private Education Loan (held for investment) losses.

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and delinquency and forbearance percentages.

76 SLM CORPORATION — 2021 Form 10-K

Use of Forbearance and Rate Modifications as a Private Education Loan Collection Tool

We adjust the terms of loans for certain borrowers when we believe such changes will help our customers manage their student loan obligations, achieve better student outcomes, and increase the collectability of the loan.

We adjust the terms of loans for certain borrowers when we believe such changes will help our customers manage their student loan obligations and achieve better student outcomes, and increase the collectability of the loan.

These changes generally take the form of a temporary forbearance of payments, a temporary interest rate reduction, a temporary interest rate reduction with a permanent extension of the loan term, and/or a short-term extended repayment alternative.

Forbearance is granted prospectively for borrowers who are current in their payments and may be granted retroactively for certain delinquent borrowers.

Forbearance allows a borrower to temporarily not make scheduled payments or to make smaller than scheduled payments, in each case for a specified period of time.

Forbearance allows a borrower to not make scheduled payments for a specified period of time.

Using forbearance extends the original term of the loan by the term of forbearance taken.

Forbearance does not grant any reduction in the total principal or interest repayment obligation.

While a loan is in forbearance status, interest continues to accrue and is capitalized to principal when the loan re-enters repayment status (except as described below in the case of disaster forbearance).

While a loan is in forbearance status, interest continues to accrue and is capitalized (added to principal) at the end of the forbearance.

Interest will not capitalize at the end of certain types of forbearance, such as disaster forbearance, however.

We grant forbearance through our servicing centers to borrowers who are current in their payments and through our collections centers to certain borrowers who are delinquent.

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At the end of the forbearance period, the customer will enter repayment status as current and is expected to begin making scheduled monthly payments.

Currently, we generally grant forbearance in our servicing centers if a borrower who is current requests it for increments of up to three months at a time, for up to 12 months.

Forbearance may also be granted through our collections centers to customers who are delinquent in their payments.

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This strategy is aimed at assisting customers while mitigating the risks of delinquency and default as well as encouraging resolution of delinquent loans.

In all instances, we require one or more payments before granting forbearance to delinquent borrowers.

The COVID-19 pandemic is having far reaching, negative impacts on individuals, businesses, and, consequently, the overall economy.

Specifically, COVID-19 has materially disrupted business operations throughout the country, resulting in significantly higher levels of unemployment or underemployment.

As a result, we expect many of our individual customers will experience financial hardship, making it difficult, if not impossible, to meet their payment obligations to us without temporary assistance.

As a result of the negative impact on employment from COVID-19, our customers are experiencing higher levels of financial hardship, which led initially to higher levels of forbearance.

We expect that, left unabated, this deterioration in forbearance, delinquency, and default rates will persist until such time as the economy and employment return to relatively normal levels.

For some students, going back to school in the fall was not an option because of the pandemic, or for other reasons.

Therefore, some students are taking a “gap

year” before returning to school.

At December 31, 2020, $1.0 billion of Private Education Loans were granted this extended period of time.

We assist customers with an array of payment programs during periods of financial hardship as standard operating convention, including:

forbearance, which defers payments during a short-term hardship;

our GRP, which is an interest-only payment for 12 months;

or a loan modification that, in the event of long-term hardship, reduces the interest rate on a loan to 4 percent for 24 months and/or permanently extends the maturity date of the loan.

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

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

We have invoked this same disaster forbearance program to assist our customers through COVID-19 and offer this program across our operations, including through mobile app and self-service channels such as chat and IVR.

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

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

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

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

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

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

In most instances, we require one payment, as an indication of a customer’s willingness and ability to repay, before granting forbearance to delinquent borrowers.

Historically, we have utilized disaster forbearance to assist borrowers affected by material events, including hurricanes, wildfires, floods, and the COVID-19 pandemic.

During COVID-19, our customers experienced higher levels of financial hardship, which initially led to higher levels of forbearance.

We expect for some customers financial hardship may lead to higher levels of delinquencies and defaults in the future, as borrowers who had received disaster forbearance from us re-enter repayment status.

Beginning in June 2021, we stopped granting disaster forbearance in response to the COVID-19 pandemic.

As borrowers in the various delinquency buckets exit disaster forbearance and begin to enter repayment, we expect elevated levels of losses on this segment of our customers.

We expect that, left unabated, this deterioration in delinquency and default rates may persist until economic conditions return to pre-pandemic levels.

Management continually monitors our credit administration practices and may periodically modify these practices based upon performance, industry conventions, and/or regulatory feedback.

In light of these considerations, we previously announced that we plan to implement certain changes to our credit administration practices in the future.

As discussed below, however, we postponed until the fourth quarter of 2020 the implementation of the announced credit administration practices changes due to the COVID-19 pandemic.

Specifically, we previously announced that we plan to revise our credit administration practices limiting the number of forbearance months granted consecutively and the number of times certain extended or reduced repayment alternatives may be granted.

For example, we currently grant forbearance to borrowers without requiring any period of prior principal and interest payments, meaning that, if a borrower satisfies all eligibility requirements, forbearance increments may be granted consecutively.

We previously announced that, beginning in the second quarter of 2020, we would phase in a required six-month period between successive grants of forbearance and between forbearance grants and certain other repayment alternatives.

We announced this required period will not apply, however, to forbearances granted during the first six months following a borrower’s grace period and will not be required for a borrower to receive a contractual interest rate reduction.

In addition, we announced we would limit the participation of delinquent borrowers in certain short-term extended or interest-only repayment alternatives to once in 12 months and twice in five years.

As previously announced, prior to full implementation of the credit administration practices changes described above, management will conduct a controlled testing program on randomly selected borrowers to measure the impact of the changes on our customers, our credit operations, and key credit metrics.

However, due to the COVID-19 pandemic, we postponed our efforts so that we can be more flexible in dealing with our customers’ financial hardship.

In October 2020, we began to roll out in a methodical approach the implementation of the credit administration practices changes and related testing.

Management now expects to have completed implementation of the planned credit administration practices changes by year-end 2022.

However, we may modify or delay the contemplated practice changes, the proposed timeline, or the method of implementation as we learn more about the impacts of the program on our customers.

In light of these considerations, we previously announced certain planned changes to our credit administration practices, including the imposition of limits on the number of forbearance months granted consecutively and the number of times certain extended or reduced repayment alternatives may be granted.

Prior to implementation of the previously announced changes, borrowers could receive consecutive forbearance grants without intervening payments of principal and interest, if they satisfied all eligibility requirements.

We commenced testing in October 2019 for some of the previously announced planned changes on a very small percentage of our total portfolio and in March 2020 we began to expand the number of borrowers who would be subject to

2021 Form 10-K — SLM CORPORATION 77

the new credit administration practices.

However, due to the COVID-19 pandemic, in April 2020 we postponed our efforts so that we could be more flexible in dealing with our customers’ financial hardship.

In October 2020, we re-initiated a multi-phased deployment of certain previously announced credit administration practices changes.

In October 2021, we announced additional planned changes to our credit administration practices, which we implemented in December 2021.

Currently, we generally grant forbearance in increments of one to two months at a time, for up to 12 months over the life of the loan, although disaster forbearance and certain assistance we grant to borrowers who are still in school do not apply toward the 12-month limit.

We also currently require 12 months of positive payment performance by a borrower (meaning the borrower must make payment in a cumulative amount equivalent to 12 monthly required payments under the loan) between successive grants of forbearance and between forbearance grants and certain other repayment alternatives.

This required period of positive payment performance does not apply, however, to forbearances granted during the first six months following a borrower’s grace period and is not required for a borrower to receive a contractual interest rate reduction.

In addition, we currently limit the participation of delinquent borrowers in certain short-term extended or interest-only repayment alternatives to once in 12 months and twice in five years.

We also now count the number of months a borrower receives a short-term extended repayment alternative toward the 12-month forbearance limit described above.

We also offer rate and term modifications to customers experiencing more severe hardship.

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As part of demonstrating the ability and willingness to pay, the customer must make three consecutive monthly payments at the reduced payment to qualify for the program.

The combination of the rate reduction and maturity extension helps reduce the monthly payment due from the borrower and increases the likelihood the borrower will

remain current during the interest rate modification period as well as when the loan returns to its original contractual interest rate.

At December 31, 2020 and December 31, 2019, 7.8 percent and 7.2 percent, respectively, of our Private Education Loans held for investment then currently in full principal and interest repayment status were subject to interest rate reductions made under our rate modification program.

We currently have no plans to change the basic elements of the rate and term modifications we offer to our customers experiencing more severe hardship.

While there are limitations to our estimate of the future impact of the credit administration practices changes described above, absent the effect of any mitigating measures, and based on an analysis of borrower behavior under our current credit administration practices, which may not be indicative of how borrowers will behave under revised credit administration practices, we expect that the credit administration practices changes described above will accelerate defaults and could increase life of loan defaults in our Private Education Loan held for investment portfolio by approximately 4 percent to 14 percent.

Among the measures that we are planning to implement and expect may partly offset or moderate any acceleration of or increase in defaults will be greater focus on the risk assessment process to ensure borrowers are mapped to the appropriate program, better utilization of existing programs (e.g., GRP and rate modifications), and the introduction of a new program offering short-term payment reductions (permitting interest-only payments for up to six months) for certain early stage delinquencies.

The full impact of these changes to our collections practices described above may only be realized over the longer term, however.

In particular, when we calculate the allowance for credit losses under CECL, which became effective on January 1, 2020, our loan loss reserves increased materially because we expect the life of loan defaults on our overall Private Education Loan portfolio to increase, in part as a result of the planned changes to our credit administration practices.

As we progress with the controlled testing program of the planned changes to our credit administration practices, we expect to learn more about how our borrowers are reacting to these changes and, as we analyze such reactions, we will continue to refine our estimates of the impact of those changes on our allowance for credit losses.

The combination of the rate reduction and maturity extension helps reduce the monthly payment due from the borrower and increases the likelihood the borrower will remain current during the interest rate modification period as well as when the loan returns to its original contractual interest rate.

We currently limit the granting of a permanent extension of the final maturity date of the loan under our loan modification program to one time over the life of the loan.

We also currently permit two consecutive rate reductions to 4.0 percent so long as the borrower qualifies and makes three consecutive monthly payments at the reduced payment in connection with each rate reduction.

We currently require 12 months of positive payment performance after the interest rate adjusts upward to its previous rate (at the end of the rate reduction periods) before the borrower may be eligible for a forbearance or certain other repayment alternatives, however.

We also now limit the number of interest rate reductions to twice over the life of the loan.

At December 31, 2021 and December 31, 2020, 7.2 percent and 7.8 percent, respectively, of our loans then currently in full principal and interest repayment status were subject to interest rate reductions made under our rate modification program.

Although we are not regulated by the Office of the Comptroller of the Currency, we have reviewed their student lending guidelines when considering and assessing our practices in certain areas.

Now that we have implemented the previously announced credit administration practices changes, we believe our current collection and servicing practices generally align with the guidelines for student lending published by the Office of the Comptroller of the Currency.

While there are limitations to our estimate of the future impact of the various credit administration practices changes we have implemented, absent the effect of any mitigating measures, we expect that the credit administration practices described above, including the changes we implemented in 2021, will accelerate periodic defaults and could increase periodic defaults in our Private Education Loan held for investment portfolio by approximately 10.1 percent to 16.6 percent.

Among the measures that we have implemented and may modify further and expect may partly offset or moderate any acceleration of or increase in defaults will be greater focus on the risk assessment process to ensure borrowers are mapped to the appropriate program, better utilization of existing loss mitigation programs (e.g., GRP and rate modifications), and the use of a program offering short-term payment reductions (permitting interest-only payments for up to six months) for certain early-stage delinquencies.

The full impact of these changes to our collections practices described above will only be realized over the long term.

When we calculated the allowance for credit losses under CECL at December 31, 2021, our loan loss reserves were significantly impacted because we expect the life of loan defaults on our overall Private Education Loan portfolio to increase, in part as a result of the changes to our credit administration practices described above.

We expect to learn more about how our borrowers are reacting to these changes to credit administration practices and, as we analyze such reactions, we will continue to refine our estimates of the impact of those changes on our allowance for credit losses.

As discussed above, we will continue to monitor our credit administration practices and may modify them further from time to time based upon performance, industry conventions, and/or regulatory feedback.

The tables below show the composition and status of the Private Education Loan portfolio held for investment aged by number of months in active repayment status (months for which a scheduled monthly payment was due).

Active repayment status includes loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.

Our experience shows that the percentage of loans in forbearance status generally decreases the longer the loans have been in active repayment status.

At December 31, 2020, loans in forbearance status as a percentage of total Private Education Loans in repayment and forbearance were 3.0 percent for Private Education Loans (held for investment) that have been in active repayment status for fewer than 25 months.

Approximately 69 percent of our Private Education Loans (held for investment) in forbearance status have been in active repayment status less than 25 months.

(Dollars in millions)

December 31, 2020

Private Education Loans Held for Investment

Our experience shows that the

78 SLM CORPORATION — 2021 Form 10-K

percentage of loans in forbearance status generally decreases the longer the loans have been in active repayment status.

At December 31, 2021, for Private Education Loans (held for investment) that have been in active repayment status for fewer than 25 months, loans in forbearance status as a percentage of loans in repayment and forbearance were 2.7 percent.

Approximately 74 percent of our Private Education Loans (held for investment) in forbearance status have been in active repayment status fewer than 25 months.

For the periods presented below, we updated our delinquency bucket periods from what we reported in our 2020 Form 10-K to conform with the delinquency bucket periods defined by the FFIEC.

As of December 31, 2021

(dollars in millions) Private Education Loans Held for Investment

Monthly Scheduled Payments Due Not Yet in

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Loans in repayment - delinquent 60-89 days 38 25 17 13 24 — 117

Loans in repayment - delinquent greater than 90 days 33 15 12 8 13 — 81

Loans in repayment - 90 days or greater past due 26 18 12 9 15 — 80

Total $ 4,603 $ 3,546 $ 2,524 $ 1,743 $ 3,397 $ 4,904 20,717

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Loans in forbearance as a percentage of total Private Education Loans in repayment and forbearance 1.14 % 0.28 % 0.20 % 0.13 % 0.16 % — % 1.91 %

(Dollars in millions)

December 31, 2019

Private Education Loans Held for Investment

2021 Form 10-K — SLM CORPORATION 79

As of December 31, 2020

(dollars in millions) Private Education Loans Held for Investment

Monthly Scheduled Payments Due Not Yet in

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Loans in repayment - delinquent 60-89 days 49 21 17 12 21 — 120

Loans in repayment - delinquent greater than 90 days 25 13 9 7 9 — 63

Loans in repayment - 90 days or greater past due 33 15 12 8 13 — 81

Total $ 4,498 $ 3,347 $ 2,345 $ 1,720 $ 3,040 $ 4,779 19,729

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Loans in forbearance as a percentage of total Private Education Loans in repayment and forbearance 2.36 % 0.61 % 0.48 % 0.36 % 0.51 % — % 4.32 %

(Dollars in millions)

December 31, 2018

Private Education Loans Held for Investment

As of December 31, 2019

(dollars in millions) Private Education Loans Held for Investment

Monthly Scheduled Payments Due Not Yet in

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Loans in repayment - delinquent 60-89 days 48 24 18 14 17 — 121

Loans in repayment - delinquent greater than 90 days 21 11 8 5 6 — 51

Loans in repayment - 90 days or greater past due 25 13 9 7 9 — 63

Total $ 5,352 $ 4,004 $ 2,903 $ 2,214 $ 3,030 $ 5,687 23,190

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Loans in forbearance as a percentage of total Private Education Loans in repayment and forbearance 2.30 % 0.55 % 0.45 % 0.37 % 0.41 % — % 4.08 %

80 SLM CORPORATION — 2021 Form 10-K

Private Education Loans Held for Investment Types

The following table provides information regarding the loans in repayment balance and total loan balance by Private Education Loan held for investment product type for the years ended December 31, 2021 and 2020.

December 31, 2020

(Dollars in thousands Signature and

Other Parent Loan Smart Option Career

As of December 31, 2021 (dollars in thousands) Signature and

Other Parent Loan (1)

Smart Option Career

Training Graduate

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$ in total $ 318,055 $ 302,764 $ 18,789,771 $ 9,402 $ 1,296,871 $ 20,716,863

December 31, 2019

(Dollars in thousands Signature and

Other Parent Loan Smart Option Career

As of December 31, 2020 (dollars in thousands) Signature and

Other Parent Loan (1)

Smart Option Career

Training Graduate

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$ in total $ 330,979 $ 289,572 $ 18,067,491 $ 12,797 $ 1,028,498 $ 19,729,337

(1) In December 2021, we discontinued offering our Parent Loan product.

Applications for those loans received before the offering termination date will continue to be processed, with final disbursements under those loans to occur until mid–December 2022.

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

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Accrued Interest Receivable

The following table provides information regarding accrued interest receivable on our Private Education Loans held for investment.

The table also discloses the amount of accrued interest on loans greater than 90 days past due as compared to our allowance for uncollectible interest.

The table also discloses the amount of accrued interest on loans 90 days and greater past due as compared to our allowance for uncollectible interest.

The majority of the total accrued interest receivable represents accrued interest on deferred loans where no payments are due while the borrower is in school and fixed-pay loans where the borrower makes a $25 monthly payment that is smaller than the interest accruing on that loan in that month.

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Accrued Interest Receivable

(Dollars in thousands) Total Interest Receivable Greater Than

(dollars in thousands) Total Interest Receivable 90 Days and Greater

Past Due Allowance for

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December 31, 2017 $ 951,138 $ 1,372 $ 4,664

82 SLM CORPORATION — 2021 Form 10-K

Liquidity and Capital Resources

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Beginning in the second quarter of 2019, we began to increase our liquidity levels by increasing cash and marketable investments held as part of our ongoing efforts to enhance our ability to maintain a strong risk management position.

By early 2020 we held a significant liquidity buffer of cash and securities, which we expect to maintain through 2021.

By early 2020 and continuing through 2021, we held a significant liquidity buffer of cash and securities, which we expect to maintain through 2022.

Due to the seasonal nature of our business, our liquidity levels will likely vary from quarter to quarter.

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Ending Balances

As of December 31,

(dollars in thousands) 2021 2020 2019

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(1) This amount will be used primarily to originate Private Education Loans at the Bank.

2021 Form 10-K — SLM CORPORATION 83

Average Balances

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The following table summarizes total deposits.

As of December 31,

(dollars in thousands) 2021 2020

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Fees paid to third-party brokers related to brokered CDs were $13 million, $5 million, and $28 million during the years ended December 31, 2021, 2020, and 2019, respectively.

84 SLM CORPORATION — 2021 Form 10-K

Interest bearing deposits at December 31, 2021 and 2020 are summarized as follows:

December 31, 2020 December 31, 2019

As of December 31,

(dollars in thousands) Amount Year-End Weighted Average Stated Rate (1)

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At December 31, 2021 and 2020, we had a net positive exposure (derivative gain positions to us, less collateral held by us and plus collateral posted with counterparties) related to derivatives of $9 million and $43 million, respectively.

2021 Form 10-K — SLM CORPORATION 85

We have liquidity exposure related to collateral movements between us and our derivative counterparties.

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The table below highlights exposure related to our derivative counterparties as of December 31, 2021.

As of December 31, 2021

(dollars in thousands) SLM Corporation

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Tier 1 Capital (to Average Assets) $ 3,579,005 11.3 % $ 1,264,424 > 4.0 %

________________

(1) Reflects the U.S.

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(2) The Bank’s regulatory capital ratios also exceeded all applicable standards for the Bank to qualify as “well capitalized” under the prompt corrective action framework.

86 SLM CORPORATION — 2021 Form 10-K

Capital Management

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

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

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

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Basel III and the “well capitalized” standard.

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

The Bank’s ability to pay dividends is subject to the laws of Utah and the regulations of the FDIC.

Generally, under Utah’s industrial bank laws and regulations as well as FDIC regulations, the Bank may pay dividends to the Company from its net profits without regulatory approval if, following the payment of the dividend, the Bank’s capital and surplus would not be impaired.

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

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

The Bank declared $1.4 billion, $579 million, and $254 million in dividends to the Company for the years ended December 31, 2021, 2020 and 2019, respectively, with the proceeds primarily used to fund the 2021, 2020, and 2019 Share Repurchase Programs, respectively, and stock dividends.

See Part I, Item 1.

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“Risk Factors — General Risks” for possible limitations on the payments of our dividends.

Outstanding borrowings consist of unsecured debt and secured borrowings issued through our term ABS program and our Secured Borrowing Facility (which was previously called the asset-backed commercial paper facility or ABCP Facility).

2021 Form 10-K — SLM CORPORATION 87

Outstanding borrowings consist of unsecured debt and secured borrowings issued through our term ABS program and our Secured Borrowing Facility.

The issuing entities for those secured borrowings are variable interest entities and are consolidated for accounting purposes.

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For additional information, see Notes to Consolidated Financial Statements, Note 11, “Borrowings.”

December 31, 2020 December 31, 2019

As of December 31,

(dollars in thousands) Short-Term Long-Term Total Short-Term Long-Term Total

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Short-term borrowings

On February 19, 2020, we amended our Secured Borrowing Facility to, among other things, increase the amount that can be borrowed under the facility to $2 billion (from $750 million) and extend the maturity of the facility.

On July 30, 2021, we amended our Secured Borrowing Facility to extend the maturity of the facility.

The amount that can be borrowed under the facility is $2 billion.

We hold 100 percent of the residual interest in the Secured Borrowing Facility trust.

Under the amended Secured Borrowing Facility, we incur financing costs on unused borrowing capacity and on outstanding advances.

The amended Secured Borrowing Facility extended the revolving period, during which we may borrow, repay and reborrow funds, until February 17, 2021.

On February 17, 2021, we further amended and extended the maturity of our Secured Borrowing Facility such that the revolving period now extends until February 16, 2022.

The scheduled amortization period, during which amounts outstanding under the Secured Borrowing Facility must be repaid, now ends on February 16, 2023 (or earlier, if certain material adverse events occur).

At December 31, 2020, there were no secured borrowings outstanding under the Secured Borrowing Facility and at December 31, 2019, $289 million secured borrowings were outstanding under the Secured Borrowing Facility.

For additional information, see Notes to Consolidated Financial Statements, Note 11, “Borrowings” and Note 25, “Subsequent Events.”

Under the Secured Borrowing Facility, we incur financing costs on unused borrowing capacity and on outstanding advances.

The amended Secured Borrowing Facility extended the revolving period, during which we may borrow, repay.

and reborrow funds, until May 17, 2022.

The scheduled amortization period, during which amounts outstanding under the Secured Borrowing Facility must be repaid, ends on May 17, 2023 (or earlier, if certain material adverse events occur).

At December 31, 2021, and December 31, 2020, there were no secured borrowings outstanding under the Secured Borrowing Facility.

For additional information, see Notes to Consolidated Financial Statements, Note 11, “Borrowings.”

Short-term borrowings have a remaining term to maturity of one year or less.

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Unsecured Debt

On April 5, 2017, we issued at par an unsecured debt offering of $200 million of 5.125 percent Senior Notes due April 5, 2022.

At December 31, 2020, the outstanding balance was $199 million.

On November 15, 2021, we redeemed $200 million, 5.125 percent Senior Notes due April 5, 2022.

The Senior Notes were redeemed at 101.39 percent of their principal amount, plus the accrued and unpaid interest thereon through the redemption date.

As a result of the redemption, we recognized a $3 million loss on the transaction.

On October 29, 2020, we issued at par an unsecured debt offering of $500 million of 4.20 percent Senior Notes due October 29, 2025.

At December 31, 2021, the outstanding balance was $495 million.

On November 1, 2021, we issued an unsecured debt offering of $500 million, 3.125 percent Senior Notes due November 2, 2026, at a price of 99.43 percent.

At December 31, 2021, the outstanding balance was $491 million.

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Secured Financings

2021 Transactions

On February 12, 2020, we executed our $636 million SMB Private Education Loan Trust 2020-A term ABS transaction, which was accounted for as a secured financing.

On May 19, 2021, we executed our $531 million SMB Private Education Loan Trust 2021-B term ABS transaction, which was accounted for as a secured financing.

We sold $531 million of notes to third-parties and retained a 100 percent interest in the residual certificates issued in the securitization, raising approximately $529 million of gross proceeds.

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At December 31, 2021, $496 million of our Private Education Loans, including $467 million of principal and $29 million in capitalized interest, were encumbered because of this transaction.

On August 12, 2020, we executed our $707 million SMB Private Education Loan Trust 2020-B term ABS transaction, which was accounted for as a secured financing.

On August 18, 2021, we executed our $527 million SMB Private Education Loan Trust 2021-D term ABS transaction, which was accounted for as a secured financing.

We sold $527 million of notes to third-parties and retained a 100 percent interest in the residual certificates issued in the securitization, raising approximately $525 million of gross proceeds.

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At December 31, 2021, $515 million of our Private Education Loans, including $485 million of principal and $30 million in capitalized interest, were encumbered because of this transaction.

On November 9, 2021, we executed our $534 million SMB Private Education Loan Trust 2021-E term ABS transaction, which was accounted for as a secured financing.

We sold $534 million of notes to third-parties and retained a 100 percent interest in the residual certificates issued in the securitization, raising approximately $532 million of gross proceeds.

The Class A and Class B notes had a weighted average life of 4.15 years and priced at a weighted average LIBOR equivalent cost of 1-month LIBOR plus 0.69 percent.

At December 31, 2021, $533 million of our Private Education Loans, including $502 million of principal and $31 million in capitalized interest, were encumbered because of this transaction.

2020 Transactions

On March 13, 2019, we executed our $453 million SMB Private Education Loan Trust 2019-A term ABS transaction, which was accounted for as a secured financing.

On February 12, 2020, we executed our $636 million SMB Private Education Loan Trust 2020-A term ABS transaction, which was accounted for as a secured financing.

We sold $636 million of notes to third-parties and retained a 100 percent interest in the residual certificates issued in the securitization, raising approximately $634 million of gross proceeds.

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At December 31, 2021, $496 million of our Private Education Loans, including $469 million of principal and $27 million in capitalized interest, were encumbered because of this transaction.

On June 12, 2019, we executed our $657 million SMB Private Education Loan Trust 2019-B term ABS transaction, which was accounted for as a secured financing.

On August 12, 2020, we executed our $707 million SMB Private Education Loan Trust 2020-B term ABS transaction, which was accounted for as a secured financing.

We sold $707 million of notes to third-parties and retained a 100 percent interest in the residual certificates issued in the securitization, raising approximately $705 million of gross proceeds.

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Generally, collateral value is assigned based on the estimated fair value of the pledged assets.

At December 31, 2020 and December 31, 2019, the value of our pledged collateral at the FRB was $3.8 billion and $3.2 billion, respectively.

At December 31, 2021 and December 31, 2020, the value of our pledged

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collateral at the FRB was $3.3 billion and $3.8 billion, respectively.

The interest rate charged to us is the discount rate set by the FRB.

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Contractual Cash Obligations

The following table provides a summary of our contractual principal obligations associated with long-term Bank deposits, secured borrowings, unsecured debt, loan commitments and lease obligations at December 31, 2020.

or Less 1 to 3

(Dollars in thousands)

Long-term bank deposits (1)

$ 8,456,768 $ 6,311,200 $ 1,446,149 $ 51,797 $ 16,265,914

Secured borrowings (2)

612,195 1,770,041 1,659,191 634,186 4,675,613

Unsecured debt — 200,000 500,000 — 700,000

Loan commitments (1)

1,673,007 11 — — 1,673,018

Lease obligations 6,101 13,158 13,308 24,720 57,287

Total contractual cash obligations $ 10,748,071 $ 8,294,410 $ 3,618,648 $ 710,703 $ 23,371,832

(1) Interest obligations are either variable or fixed in nature.

(2) Amounts reflect the contractual requirements of the Private Education Loan term securitizations, based on the expected paydown of the underlying collateral.

In addition to our contractual loan commitments, we have certain other contractual cash obligations and commitments.

This includes contractual principal obligations associated with long-term Bank deposits, secured borrowings, unsecured debt, and lease obligations.

Our material contractual cash obligations relate to bank deposits.

At December 31, 2021, we had $5.7 billion of principal obligations related to bank deposits due in the next year, and $8.4 billion thereafter.

At December 31, 2021, our contractual cash obligations due in the next year for secured borrowings, and lease obligations were $718 million and $6 million, respectively, and our contractual cash obligations due thereafter for our secured borrowings, unsecured debt, and lease obligations were $4.4 billion, $1.0 billion and $45 million, respectively.

Other Cash Obligations

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and development expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years.

If these provisions are not deferred, modified, or repealed by Congress with retroactive effect to January 1, 2022, they will decrease our cash from operations beginning in 2022.

We currently estimate an approximately $18 million impact to 2022 cash from operations based on the provisions currently in effect.

The actual impact on 2022 cash from operations will depend on if and when these provisions are deferred, modified, or repealed by Congress, including if retroactively, and the amount of research and development expenses paid or incurred in 2022, among other factors.

In addition, recent proposals to increase the U.S.

corporate income tax rate would require us to increase our net deferred tax assets upon enactment of new tax legislation, with a corresponding material, one-time, non-cash decrease in income tax expense, but our income tax expense and payments would likely be materially increased in subsequent years.

Our shareholders have authorized the issuance of 1.125 billion shares of common stock (par value of $0.20).

At December 31, 2021, 279 million shares were issued and outstanding and 41 million shares were unissued but encumbered for outstanding stock options, restricted stock, restricted stock units, performance stock units, and dividend equivalent units for employee compensation and remaining authority for stock-based compensation plans.

See Notes to Consolidated Financial Statements, Note 13, “Stockholders’ Equity” for additional details.

Arrangements with Navient Corporation

In connection with the Spin-Off, we entered into a Separation and Distribution Agreement.

We also entered into various other ancillary agreements with Navient to effect the Spin-Off and provide a framework for our relationship with Navient thereafter, such as a transition services agreement, a tax sharing agreement, an employee matters agreement, a loan servicing and administration agreement, a joint marketing agreement, a key services agreement, a data sharing agreement, and a master sublease agreement.

The majority of these agreements were transitional in nature with most having terms that have expired or will expire within the next year.

We continue to have exposure to risks related to Navient’s creditworthiness.

If we are unable to obtain indemnification payments from Navient, our results of operations and financial condition could be materially and adversely affected.

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Pursuant to the terms of the Spin-Off and applicable law, Navient is responsible for all liabilities (whether accrued, contingent, or otherwise and whether known or unknown) arising out of or resulting from the conduct of pre-Spin-Off SLM and its subsidiaries’ businesses prior to the Spin-Off, other than certain specifically identified liabilities relating to the conduct of our consumer banking business for which the Bank is responsible.

Nonetheless, given the prior usage of the Sallie Mae and SLM names by entities now owned by Navient, we and our subsidiaries may from time to time be improperly named as defendants in legal proceedings where the allegations at issue are the legal responsibility of Navient.

Most of these legal proceedings involve matters that arose in whole or in part in the ordinary course of business of pre-Spin-Off SLM.

Likewise, as the period of time since the Spin-Off increases, so does the likelihood any allegations that may be made may be in part for our own actions in a post-Spin-Off time period and in part for Navient’s conduct in a pre-Spin-Off time period.

We will not be providing information on these proceedings unless there are material issues of fact or disagreement with Navient as to the bases of the proceedings or responsibility therefor that we believe could have a material, adverse impact on our business, assets, financial condition, liquidity, or outlook if not resolved in our favor.

We briefly summarize below some of the most significant agreements and relationships we continue to have with Navient.

For additional information regarding the Separation and Distribution Agreement and the other ancillary agreements, see our Current Report on Form 8-K filed on May 2, 2014.

Separation and Distribution Agreement

The Separation and Distribution Agreement addresses, among other things, the following activities:

• the obligation of each party to indemnify the other against liabilities retained or assumed by that party pursuant to the Separation and Distribution Agreement and in connection with claims of third-parties;

• the allocation among the parties of rights and obligations under insurance policies;

• the creation of a governance structure by which matters related to the separation and other transactions contemplated by the Separation and Distribution Agreement are to be managed.

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 financial condition could be materially and adversely affected over time.

Indemnification Obligations

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

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 the Company and the Bank for any liabilities, costs, or expenses they 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, 2021, the remaining balance of the indemnification receivable related to those uncertain tax positions was $5 million.

Long-Term Arrangements

The loan servicing and administration agreement governs the terms by which Navient provides servicing, administration, and collection services for the Bank’s portfolio of FFELP Loans, as well as servicing history information

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with respect to Private Education Loans previously serviced by Navient and access to certain promissory notes in Navient’s possession.

The term of the loan servicing and administration agreement has been extended to April 30, 2022.

The data sharing agreement provided us the right to obtain from Navient certain post-Spin-Off performance data relating to Private Education Loans owned or serviced by Navient to support and facilitate ongoing underwriting, originations, forecasting, performance, and reserve analyses.

The term of the data sharing agreement expired on April 29, 2019, however.

The tax sharing agreement governs the respective rights, responsibilities, and obligations of us and Navient, after the Spin-Off relating to taxes, including with respect to the payment of taxes, the preparation and filing of tax returns, and the conduct of tax contests.

Under this agreement, each party is generally liable for taxes attributable to its business.

The agreement also addresses the allocation of tax liabilities that are incurred as a result of the Spin-Off and related transactions.

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Critical Accounting Policies and Estimates

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The most significant judgments, estimates, and assumptions relate to the following critical accounting policies that are discussed in more detail below.

On January 1, 2020, we adopted FASB’s ASU No.

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

Measurement of Credit Losses on Financial Instruments” (“CECL”), which resulted in a significant change to our allowance for credit losses policy, and is outlined below.

Recently Issued and Adopted Accounting Pronouncements

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

Measurement of Credit Losses on Financial Instruments”

In June 2016, the FASB issued ASU No.

2016-13, which became effective for us on January 1, 2020.

This ASU eliminated the previous accounting guidance for the recognition of credit impairment.

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 over the remaining contractual term of the assets.

Updates to that estimate each period will be recorded through provision expense.

The estimate of credit losses must be based on historical experience, current conditions, and reasonable and supportable forecasts.

The ASU does not mandate the use of any specific method for estimating credit loss, permitting companies to use judgment in selecting the approach that is most appropriate in their circumstances.

In addition, Topic 326 made changes to the accounting for available-for-sale debt securities.

One such change is to require an assessment of unrealized losses on available-for-sale debt securities that we have the ability and intent to hold for a period of time sufficient to recover the amortized cost of the security, for the purpose of determining credit impairment.

If any credit impairment exists, an allowance for losses must be established for the amount of the unrealized loss that is determined to be credit-related.

On January 1, 2020, we adopted CECL using the modified retrospective method and it had a material impact on how we record and report our financial condition and results of operations and on regulatory capital.

Allowance for Credit Losses

Adoption of CECL

On January 1, 2020, we adopted ASU No.

2016-13 (“CECL”) using the modified retrospective method and it had a material impact on how we record and report our financial condition and results of operations and on regulatory capital.

The following table illustrates the impact of the cumulative effect adjustment made upon adoption of CECL:

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

Under CECL, 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 over the remaining contractual term of the assets.

Updates to that estimate each period are recorded through provision expense.

The estimate of credit losses must be based on historical experience, current conditions, and reasonable and supportable forecasts.

CECL does not mandate the use of any specific method for estimating credit loss, permitting companies to use judgment in selecting the approach that is most appropriate in their circumstances.

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Allowance for Credit Losses

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We also develop an adverse and favorable economic scenario.

At each reporting date, we determine the appropriate weighting of these alternate scenarios

based upon the current economic conditions and our view of the risks of alternate outcomes.

At each reporting date, we determine the appropriate weighting of these alternate scenarios based upon the current economic conditions and our view of the risks of alternate outcomes.

This weighting of expectations is used in calculating our current expected credit losses recorded each period.

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• Prepayment speeds;

• New loan volume, including commitments made but not yet disbursed;

• Loan sales.

Management overlays can encompass a broad array of factors not captured by model inputs, such as changes in servicing policies.

• Recovery rates.

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Management overlays can encompass a broad array of factors not captured by model inputs, including but not limited to, changes in servicing policies, collection administration practices, state law changes that could impact servicing and collection practices, and observed differences between forecasted and actual results.

Of the model inputs outlined above, economic forecasts, weighting of economic forecasts, prepayments speeds, and recovery rates are subject to estimation uncertainty, and changes in these inputs could have a material impact to our allowance for credit losses and the related provision for credit losses.

In determining the adequacy of the allowance for credit losses, we include forecasts of college graduate unemployment and the Consumer Price Index in our loss forecasting models.

We obtain forecasts for these two inputs from Moody’s Analytics.

Moody’s Analytics provides a range of forecasts for each of these inputs with various likelihoods of occurrence.

We determine which forecasts we will include in our estimation of allowance for credit losses and the associated weightings for each of these inputs.

Management reviews both the scenarios and their respective weightings each quarter in determining the allowance for credit losses.

These faster estimated prepayment speeds during the two-year reasonable and supportable period reflected the significant improvement in economic forecasts, as well as the implementation of an updated prepayment speed model.

We experienced higher prepayments during the COVID-19 pandemic, when unemployment rates were elevated, than we would have expected based upon our experience during past financial crises.

In the fourth quarter of 2021, we increased our long-term estimate of prepayment speeds to reflect higher long-term prepayment experience.

A one-percent increase in the college graduate unemployment rate is estimated to increase our allowance for credit losses by $16.9 million and a one-percent decrease in the college graduate unemployment rate is estimated to decrease our allowance for credit losses by $16.2 million.

Increases in the weighting of economic forecasts resulting in greater weight given to more severe economic forecasts would result in an increase in the allowance for credit losses.

A one-percent increase in prepayment speeds is estimated to decrease our allowance for credit losses by $20.4 million and a one-percent decrease in prepayment speeds is estimated to increase our allowance for credit losses by $20.5 million.

The estimated impacts of changes in prepayment speeds and the college graduate unemployment rates on the allowance for credit losses were calculated for the two-year reasonable and supportable period, but were not calculated for the remaining periods since long-term assumptions used to calculate the allowance for the remaining periods will not change.

A one-percent change in recovery rates is estimated to change the allowance for credit losses by $14.2 million.

The estimated change in the recovery rate is based on long-term assumptions.

Below we describe in further detail our policies and procedures for the allowance for credit losses as they relate to our Private Education Loan, Credit Card, and FFELP Loan portfolios.

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We receive information regarding projected graduation dates from a third-party clearinghouse.

The separation from school date will be updated quarterly based on updated information received from the clearinghouse.

The separation from school date is updated quarterly based on updated information received from the clearinghouse.

Additionally, when we have a contractual obligation to fund a loan or a portion of a loan at a later date, we make an estimate regarding the percentage of this obligation that will be funded.

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We consider credit score at original approval and periodically refreshed/updated credit scores through the loan’s term, existence of a cosigner, loan status, and loan seasoning as the key credit quality indicators because they have the most significant effect on the determination of the adequacy of our allowance for credit losses.

Credit scores are an indicator of the creditworthiness of borrowers and the higher the credit scores the more likely it is the borrowers will be able to make all of their contractual payments.

Credit scores are an indicator of

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the creditworthiness of borrowers and the higher the credit scores the more likely it is the borrowers will be able to make all of their contractual payments.

Loan status affects the credit risk because a past due loan is more likely to result in a credit loss than a current loan.

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Consequently, the loss estimates for these loans are generally low while the borrower is in school and then increase upon the end of the grace period after separation from school.

At December 31, 2020 and 2019, 24 percent and 25 percent, respectively, of the principal balance of the Private Education Loan portfolio was related to borrowers who are in an in-school (fully deferred), grace, or other deferment status and not required to make payments.

At both December 31, 2021 and 2020, 24 percent of the principal balance of the Private Education Loan portfolio was related to borrowers who were then in an in-school (fully deferred), grace, or other deferment status and not required to make payments.

Our collection policies for Private Education Loans allow for periods of nonpayment for certain borrowers requesting an extended grace period upon leaving school or experiencing temporary difficulty meeting payment obligations.

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We consider a Private Education Loan to be delinquent if the borrower has not made a required payment prior to the 31st day after such payment was contractually due.

Troubled Debt Restructurings

Troubled Debt Restructurings (“TDRs”)

In estimating the expected defaults for our Private Education Loans that are considered TDRs, we follow the same discounted cash flow process described above but use the historical loss rates related to past TDR loans.

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The first step is to identify a loan that was in full principal and interest repayment status and received more than three months of forbearance in a 24-month period;

however, during the first nine months after a loan had entered full principal and interest repayment status, we do not count up to the first

six months of forbearance received during that period against the three-month policy limit.

however, during the first nine months after a loan had entered full principal and interest repayment status, we do not count up to the first six months of forbearance received during that period against the three-month policy limit.

The second step is to evaluate the creditworthiness of the loan by examining its most recent refreshed FICO score.

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A loan also becomes a TDR when it is modified to reduce the interest rate on the loan (regardless of when such modification occurs and/or whether such interest rate reduction is temporary).

Once a loan qualifies for TDR status, it remains a TDR for allowance purposes for the remainder of its life.

About half of our loans that are considered TDRs involve a temporary forbearance of payments and do not change the contractual interest rate of the loan.

As of December 31, 2020 and 2019, approximately 47 percent and 50 percent, respectively, of TDRs were classified as such due to their forbearance status.

Once a loan qualifies for TDR status, it

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remains a TDR for allowance purposes for the remainder of its life.

About half our loans that are considered TDRs involve a temporary forbearance of payments and do not change the contractual interest rate of the loan.

As of both December 31, 2021 and 2020, approximately 47 percent, respectively, of TDRs were classified as such due to their forbearance status.

For additional information, see Notes to Consolidated Financial Statements, Note 7, “Allowance for Credit Losses.”

During the first quarter of 2020, COVID-19 began to spread worldwide and has caused significant disruptions to the U.S.

and world economies.

On March 27, 2020, then President Trump signed into law the CARES Act, which, among other things, allows us to (i) elect to suspend the requirements under GAAP for loan modifications related to COVID-19 that would otherwise be categorized as TDRs, and (ii) suspend any determination of a loan modified as a result of the effects of COVID-19 as being a TDR, including impairment for accounting purposes.

We have elected to suspend TDR accounting for modifications of loans that occur as a result of COVID-19 for the applicable period of the CARES Act and CAA relief.

Furthermore, on December 27, 2020, the CAA was signed into law.

The CAA provides for additional COVID-19 focused relief and extends certain provisions of the CARES Act.

We have elected to suspend TDR accounting for both forbearance and interest rate modifications of loans that occur as a result of COVID-19 for the applicable period of the CARES Act and CAA relief.

The relief from TDR guidance applies to modifications of loans that were not more than 30 days past due as of December 31, 2019, and that occur during the period beginning on March 1, 2020, and ending on the earlier of (i) sixty days after the date on which the national emergency related to the COVID-19 outbreak is terminated, or (ii) January 1, 2022.

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We use the gross loss approach when estimating the allowance for credit losses for our Credit Card portfolio.

In addition, we use

a model that utilizes purchased credit card information with risk characteristics similar to those of our own portfolio as a challenger model.

Because our Credit Card portfolio is new and we do not have sufficient historical loss experience, we use estimated loss rates reported by other financial institutions to estimate our allowance for credit losses for Credit Cards, net of expected recoveries.

In addition, we use a model that utilizes purchased credit card information with risk characteristics similar to those of our own portfolio as a challenger model.

We then consider any qualitative factors that may change our future expectations of losses.

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These insurance obligations are supported by contractual rights against the United States.

For loans disbursed on or after July 1, 2006, we receive 97 percent reimbursement on all qualifying default claims.

For loans disbursed after October 1, 1993, and before July 1, 2006, we receive 98 percent reimbursement on all qualifying claims.

For loans disbursed on or after July 1, 2006, we receive 97 percent reimbursement on all qualifying claims.

For loans disbursed after October 1, 1993, and before July 1, 2006, we receive 98 percent reimbursement on all qualifying

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For loans disbursed prior to October 1, 1993, we receive 100 percent reimbursement.

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Once the quantitative calculation is performed, we review the adequacy of the allowance for credit losses and determine if qualitative adjustments need to be considered.

Loan Interest Income

For all loans, including impaired loans, classified as held for investment, we recognize interest income as earned, adjusted for the amortization of deferred direct origination and acquisition costs.

Deferred fees or costs are required to be recognized as yield adjustments over the life of the related loans and are recognized by the interest method.

The objective of the interest method is to arrive at periodic interest income (including recognition of fees and costs) at a constant effective yield on the net investment in the receivable (i.e., the principal amount of the receivable adjusted by unamortized fees or costs, purchase premium or discount and any hedging activity—these unamortized costs will collectively be referred to as “basis adjustments”).

The difference between the periodic interest income so determined and the interest income determined by applying the stated interest rate to the outstanding principal amount of the receivable is the amount of periodic amortization of deferred direct origination and acquisition costs.

For the amortization of the basis adjustments, we determine the constant effective yield necessary to apply the interest method based upon the contractual terms of the loan contract, with no consideration given to expected prepayments.

For fixed-rate loans, when a prepayment occurs the unamortized balance of the basis adjustments is adjusted so that future amortization (based upon the contractual terms of the loan) will result in a constant effective yield equal to the original effective interest rate.

Prepayments do not result in a change in the effective interest rate of the loan.

We determine the contractual payments on a pool basis;

as such, when a prepayment occurs, future contractual payments will be determined assuming the pool will make smaller payments through the original term of the contract.

The adjustment to the unamortized basis adjustment balance is recorded in interest income.

For variable-rate loans, the effective interest rate at the time of origination is the loan’s effective interest rate assuming all future contractual payments.

The effective interest rate remains the same for that loan until the loan rate changes.

If there is no prepayment and no change in the stated interest rate, the periodic amortization of the basis adjustments is equal to the difference between the effective interest rate multiplied by the book basis and the contractual interest due.

We determine the contractual payments on a pool basis;

as such, when a prepayment occurs, future contractual payments will be determined assuming the pool will make smaller payments through the original term of the contract.

The adjustment to the unamortized basis adjustment balance is recorded in interest income.

When the interest rate on a variable-rate loan changes, the effective interest rate is recalculated using the same methodology described in the previous paragraph;

however, the future contractual payments are changed to reflect the new interest rate.

There is no forecasting of future expected changes in interest rates.

The accounting basis used to determine the effective interest rate of the cash flows is equal to the balances of the unpaid principal balance and unamortized basis adjustments at the time of the rate change.

We also pay to the DOE an annual 105 basis point Consolidation Loan Rebate Fee on FFELP consolidation loans, which is netted against loan interest income.

Additionally, interest earned on education loans reflects potential non-payment adjustments in accordance with our uncollectible interest recognition policy.

We do not amortize any adjustments to the basis of loans when they are classified as held-for-sale.

With the adoption of CECL on January 1, 2020, we continue to analyze the collectability of accrued interest associated with loans not currently in full principal and interest repayment status or in interest only repayment status as discussed above;

however, we have changed the recognition of the allowance for this portion of uncollectible interest (amounts to be capitalized after separation from school and the expiration of the grace period) to the provision for loan losses from our historical practice of recording it as a reduction of interest income, as well as classifying this allowance as part of our allowance for credit losses as opposed to our historical practice of recording it as a reduction of accrued interest income receivable.

The allowance for the portion of uncollectible interest on loans making full interest payments will continue to be recorded as a reduction of interest income.

We recognize certain fee income (primarily late fees) on all loans when earned according to the contractual provisions of the promissory notes, as well as our expectation of collectability.

Fee income is recorded when earned in “other non-interest income” in the accompanying consolidated statements of income.

Allowance for Credit Losses 2019

Prior to the adoption of CECL on January 1, 2020, we maintained an allowance for credit losses at an amount sufficient to absorb probable losses incurred in our portfolios as well as regarding future loan commitments, at the reporting date based on a projection of estimated probable credit losses incurred in the portfolio.

For a detailed description of this approach, see Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies—Allowance for Credit Losses 2019” for significant judgments related to the determination of the allowance for credit losses in 2019.

Derivative Accounting

The most significant judgments related to derivative accounting are:

(1) concluding the derivative is an effective hedge and qualifies for hedge accounting, and (2) determining the fair value of certain derivatives and hedged items.

To qualify for hedge accounting, a derivative must be a highly effective hedge upon designation and on an ongoing basis.

There are no “bright line” tests on what is considered a highly effective hedge.

We use a historical regression analysis to prove ongoing and prospective hedge effectiveness.

See Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies — Fair Value Measurement” for significant judgments related to the valuation of derivatives.

Although some of our valuations require more judgment than others, we compare the fair values of our derivatives that we calculate to those fair values provided by our counterparties on a monthly basis.

We view this as a critical control which helps validate these judgments.

Any significant differences with our counterparties are identified and resolved appropriately.

On July 1, 2018, we adopted FASB’s ASU No.

2017-12, “Derivatives and Hedging:

Targeted Improvements to Accounting for Hedging Activities,” which (1) improved the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements, and (2) made certain targeted improvements to simplify the application of the hedge accounting guidance.

One of the key changes was that the standard eliminated the separate measurement and reporting of hedge ineffectiveness.

In accordance with the standard, certain provisions were required to be applied on a modified retrospective basis, which requires a cumulative effect adjustment to accumulated other comprehensive income with a corresponding adjustment to retained earnings as of the beginning of the fiscal year of adoption, or January 1, 2018 in our case.

The accounting for derivative instruments requires that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded on the balance sheet as either an asset or liability measured at fair value.

Our derivative instruments are classified and accounted for by us as fair value hedges, cash flow hedges, or trading hedges.

Fair Value Hedges

We generally use fair value hedges to offset the exposure to changes in fair value of a recognized fixed-rate liability.

We enter into interest rate swaps to economically convert fixed-rate liabilities into variable-rate liabilities.

For fair value hedges, we generally consider all components of the derivative’s gain and/or loss when assessing hedge effectiveness and generally hedge changes in fair values due to interest rates.

For fair value hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness is recorded in the same line item in the consolidated statements of income

that is used to present the earnings effect of the hedged component of the hedged item.

The timing of recognition of the change in fair value of a hedging instrument included in the assessment of hedge effectiveness is the same as prior to the adoption of ASU No.

Cash Flow Hedges

We use cash flow hedges to hedge the exposure to variability in cash flows of floating-rate liabilities.

This strategy is used primarily to minimize the exposure to volatility in cash flows from future changes in interest rates.

In assessing hedge effectiveness, generally all components of each derivative’s gains or losses are included in the assessment.

We hedge exposure to changes in cash flows due to changes in interest rates or total changes in cash flow.

For cash flow hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness is recorded in other comprehensive income (loss).

Those amounts are subsequently reclassified to earnings, in the same line item in the consolidated statements of income as impacted by the hedged item, when the hedged item affects earnings.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate deposits.

During the next twelve months, we estimate that $19 million will be reclassified as an increase to interest expense.

Trading Activities

When derivative instruments do not qualify for hedge accounting treatment, they are accounted for at fair value with all changes in fair value recorded through earnings.

All of our derivative instruments entered into with maturities of less than three years are economically hedging risk, but do not receive hedge accounting treatment.

Trading derivatives also include any hedges that originally received hedge accounting treatment, but lost hedge accounting treatment due to failed effectiveness testing, as well as the activity of certain derivatives prior to those derivatives receiving hedge accounting treatment.

Cumulative effect of applying ASU No.

As a result of the cumulative effect of applying the hedging standard to our fair value hedges on July 1, 2018, we recorded a $2 million basis increase to our hedged deposit balances with a corresponding increase to retained earnings of approximately $0.8 million, net of taxes and a $3 million loss to “gains (losses) on derivatives and hedging activities, net” in our consolidated statements of income to adjust the life-to-date ineffectiveness.

To reflect the adoption of the hedging standard on our cash flow hedging relationships at July 1, 2018, we recorded a $0.2 million, net of taxes decrease to retained earnings and a corresponding $0.3 million increase to accumulated other comprehensive income.

On March 12, 2020, FASB issued Accounting Standards Update ASU No.

2020-04, “Reference Rate Reform (“Topic 848”):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” On January 7, 2021, the FASB issued Accounting Standards Update ASU No.

2021-01, “Reference Rate Reform (“Topic 848”):

Scope” that clarified the scope of Topic 848.

Topic 848 contains temporary optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships, and other transactions affected by reference rate reform.

Our derivative portfolio is made up of interest rate swaps that are centrally cleared through either the CME or the LCH.

On October 16, 2020, both the CME and the LCH changed the price alignment interest and discount rate applied when valuing these transactions to SOFR.

The ISDA 2020 IBOR Fallbacks Protocol (the “ISDA Fallback Protocol”) was made available for adherence on October 23, 2020, with an effective date of January 25, 2021.

Once adhered to by both counterparties in a bilateral relationship and the effective date is reached, the ISDA Fallback Protocol represents a change to the contractual terms of derivatives governed by each respective ISDA agreement between the Company and a derivative counterparty.

We have elected the option provided in Topic 848 to not reassess previous accounting determinations as well as the option to not dedesignate a hedging relationship due to a current or future change in a critical or contractual term related to reference rate reform, including changes in the discount rate.

As our liabilities may begin to use alternatives to LIBOR before LIBOR is no longer published, for cash flow hedges of forecasted LIBOR based payments, we have elected the expedient offered in Topic 848 to disregard the potential change in the designated hedged interest rate risk that may occur because of reference rate reform when we assesses whether the hedged forecasted transactions are probable, in accordance with the requirements of “Derivatives and Hedging” Topic 815.

also elected the expedient provided by Topic 848 to assume the reference rate will not be replaced for the remainder of the hedging relationship when assessing hedge effectiveness.

Topic 848 allows for different elections to be made at different points in time.

We intend to reassess our elections of optional expedients and exceptions included within Topic 848 when changes or additions are necessary.

98 SLM CORPORATION — 2021 Form 10-K

Risk Management

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The ability of management to anticipate, identify, and remediate risk in a timely manner is critical to our continued success.

Our enterprise risk management (“ERM”) framework is designed to identify, remediate, control and report these risks and escalate as appropriate to the Board of Directors or its designee.

Our risk management framework is designed to identify, remediate, control, and report these risks and escalate as appropriate to the Board of Directors or its designee.

Risk Oversight

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We have a robust process to escalate to the Board meaningful departures from our risk appetite statements.

The Board of Directors oversees the continued development of the ERM program.

The Board of Directors oversees the continued development of the risk management program.

The Governance Framework

Our overall objective is to ensure all significant risks inherent in our business can be identified, remediated where appropriate, controlled and reported.

Our overall objective is to ensure all significant risks inherent in our business can be identified, remediated where appropriate, managed, monitored, and reported.

To this end, we have adopted the “three lines of defense” approach to governance.

Specifically, the business units form the “first line of defense” and are the “owners” of risks inherent in their business activities.

As the risk owner, the first line of defense is accountable for the day-to-day execution of risk and control policy and procedures (including activities performed by third-party contractors).

Specifically, the business units form the “first line of defense” and are the “owners” of risks in their business activities.

As the risk owner, the first line of defense is accountable for the day-to-day execution of risk and control policies and procedures (including activities performed by third-party contractors).

Our Independent Risk Function constitutes the “second line of defense” and conducts oversight and effective challenge of the risk and control activities within the first line of defense.

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Finally, the Internal Audit function comprises the “third line of defense.” The Internal Audit function provides opinions to the Board of Directors on the effectiveness of the first and second lines of defense, as reflected in audit reports.

Enterprise Risk Management Policy and Framework

The ERM policy and risk appetite framework are designed to establish a stable risk and control environment across the enterprise.

The policy, which is approved by the Board of Directors, outlines the framework used to ensure that risk and control issues across the enterprise are identified, remediated, controlled and reported.

The ERM policy, the risk appetite framework and the related policies and procedures constitute the core of the Independent Risk governance program.

The risk appetite statements are at the core of the governance framework.

The risk appetite statements establish the level of risk we are willing to accept within each risk category, described below, in pursuit of our business objectives.

Compliance with our risk appetite is monitored using a set of key risk indicators, with thresholds and limits, for each risk type.

Risk Management Policy and Risk Appetite Framework

The risk management policy and risk appetite framework are designed to establish a stable risk and control environment across the enterprise.

The policy, which is approved by the Board of Directors, outlines the framework used to ensure that risk and control issues across the enterprise are identified, assessed, measured, remediated, managed, monitored, and reported.

The risk management policy, the risk appetite framework, and the related policies and procedures constitute the core of the Independent Risk governance program.

The risk appetite statements are at the heart of the governance framework and establish the level of risk we are willing to accept within each risk category, as described below, in pursuit of our business objectives.

Compliance with our risk appetite is monitored using a set of risk metrics, with thresholds and limits, for each risk type.

The Enterprise Risk Committee (the “ERC”) provides oversight of the risk appetite framework with escalation to the Board of Directors, as appropriate.

Our Board of Directors approves the risk appetite framework annually and requires that management provide ongoing updates on adherence to the risk appetites.

2021 Form 10-K — SLM CORPORATION 99

Board of Directors Committee Structure

We have a robust Board of Directors committee structure that facilitates oversight, effective challenge, and escalation of risk and control issues.

Risk Committee.

The Risk Committee was established to assist the Board of Directors in fulfilling its risk management oversight responsibilities.

Annually, the Risk Committee recommends the ERM policy and the risk appetite framework to the Board of Directors for approval.

The Risk Committee receives periodic updates on compliance with the framework from the Chief Risk Officer (the “CRO”).

Financial Risk Committee.

The Financial Risk Committee was established to assist the Board of Directors in fulfilling its risk management oversight responsibilities with regard to financial risks.

Annually, the Financial Risk Committee, along with the Operational and Compliance Risk Committee, recommends the risk management policy and the risk appetite framework to the Board of Directors for approval.

The Financial Risk Committee receives periodic updates on compliance with the framework from the Chief Risk Officer.

Operational and Compliance Risk Committee.

The Operational and Compliance Risk Committee assists the Board of Directors in fulfilling their oversight responsibilities relating to the major non-financial risks, including compliance risks, operational risks, information security risk and model risk.

Annually, the Operational and Compliance Risk Committee, along with the Financial Risk Committee, recommends the risk management policy and the risk appetite framework to the Board of Directors for approval.

The Operational and Compliance Risk Committee receives periodic updates on compliance with the framework from the Chief Risk Officer.

Audit Committee .

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and our system of internal financial controls.

Nominations, Governance and Compensation Committee.

The Nominations, Governance and Compensation Committee, among other things:

(1) periodically reviews management’s succession planning;

(2) confirms our compensation practices properly balance risk and reward and do not promote excessive risk-taking;

(3) implements good governance policies for us and our Board of Directors;

(4) approves all compensation and benefits for our Chief Executive Officer, Executive Vice Presidents, and independent members of our Board of Directors;

(5) approves our equity-based compensation plans and management’s administration of employee benefit plans;

(6) reviews related party transactions;

(7) conducts assessments of the performance of our Board of Directors and its committees;

and (8) recommends nominees for election to our Board of Directors.

Nominations and Governance Committee.

The Nominations and Governance Committee, among other things:

(i) implements good governance policies for us and our Board of Directors;

(ii) reviews related party transactions;

(iii) conducts assessments of the performance of our Board of Directors and its committees;

and (iv) recommends nominees for election to our Board of Directors.

Compensation Committee .

The Compensation Committee assists the Board of Directors in fulfilling its oversight responsibilities including those related to the compensation and benefits of our Chief Executive Officer (“CEO”), our incentive compensation practices for employees of all levels, and management’s succession planning.

Preferred Stock Committee.

The Preferred Stock Committee monitors and evaluates proposed actions that may impact the rights of holders of our preferred stock.

Compliance Committee.

The purpose of the Compliance Committee of the Board of Directors of the Bank is to assist the Board of Directors in:

(1) overseeing the continuing maintenance and enhancement of a strong and sustainable compliance culture;

(2) providing oversight of the compliance management system;

(3) approving sound policies and objectives and effectively supervising all compliance - related activities;

(4) ensuring that the Bank has a qualified Chief Compliance Officer with sufficient authority, independence and resources to administer an effective compliance management system;

(5) ensuring our compliance with the Code of Business Conduct;

and (6) exercising and performing all other duties and responsibilities delegated to the Committee.

Management-Level Committee Structure

Executive Committee (“EC”) .

The EC is authorized by the Board of Directors to assist the Chief Executive Officer (“CEO”) in the general supervision of the business of the Bank.

Specifically, the EC will (1) provide to the CEO advice and counsel, subject matter expertise, and recommendations as requested, and (2) through its subcommittees, facilitate the evaluation and decision-making on routine cross-functional matters, and assist management in the fulfillment of management’s duties related to specific risks.

The EC is authorized by the Board of Directors to assist the CEO in the general supervision of the business of the Company.

Specifically, the EC will (i) provide to the CEO advice and counsel, subject matter expertise, and recommendations as requested, and (ii) through its subcommittees, facilitate the evaluation and decision-making on routine cross-functional matters, and assist management in the fulfillment of management’s duties related to specific risks.

The EC has established the following sub-committees to assist in fulfilling its duties.

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The ERC provides independent oversight and effective challenge to risk and control activities across the enterprise.

Additionally, the ERC informs the Risk and Compliance Committees of the Board of Directors, including escalation of instances of non-compliance with the framework.

Additionally, through reports from the Chief Risk Officer the ERC informs the Financial Risk Committee and the Operational and Compliance Risk Committee of the Board of Directors, including escalation of instances of non-compliance with the framework.

• Credit Committee .

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ALCO is responsible for the strategy, processes, and authorities with which the Bank’s interest rate risk, liquidity, and capital adequacy are managed.

Each of these sub-committees is comprised of subject matter experts from the senior management team and is accountable to the EC.

Moreover, these sub-committees may be supported by steering or working groups, as appropriate.

• Disclosure Committee.

Our Disclosure Committee assists our CEO and Chief Financial Officer in their review of periodic SEC reporting documents, earnings releases, investor materials, and related disclosure policies and procedures.

Internal Audit Risk Assessment

Each of these sub-committees is comprised of subject matter experts from the senior management team and is accountable to the EC.

Moreover, these sub-committees may be supported by steering or working groups, as appropriate.

100 SLM CORPORATION — 2021 Form 10-K

Internal Audit

Internal Audit regularly monitors our various risk management and compliance efforts, identifies areas that may require increased focus and resources, and reports significant control issues and recommendations to executive management and the Audit Committee of the Board of Directors.

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Additionally, Internal Audit performs selected reviews of both risk management and compliance functions, including key controls, processes, and systems, to assess the effectiveness of the overall risk management framework.

The Internal Audit function provides challenge to the first and second lines of defense and also provides opinions to the Board of Directors on the effectiveness of the first and second lines of defense.

Risk Categories

Our ERM framework is designed to address the following risk categories:

Strategic Risk .

Strategic risk is the risk to shareholder value and growth trajectory from incorrect assumptions about external and internal factors, inappropriate business plans, ineffective business strategy execution, or failure to respond in a timely manner to changes in the regulatory, macroeconomic, or competitive environments.

Management must be able to develop and implement business strategies that leverage the organization’s core competencies and are appropriately structured, resourced, and executed.

The overall development of the strategic plan includes extensive engagement with the Board of Directors.

Similarly, the Board of Directors provides oversight and effective challenge on performance relative to the strategic plan.

Credit Risk .

Credit risk is the risk to earnings or capital resulting from an obligor’s failure to meet the terms of any contract with us or other failure to perform as agreed.

Credit risk is the risk to earnings, capital, or reputation resulting from an obligor’s failure to repay their contractual obligations to Sallie Mae or otherwise to perform as agreed.

Credit risk is found in all activities where success depends on counterparty, issuer, or borrower performance.

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The credit and counterparty risk associated with derivatives is measured based on the replacement cost should the counterparty with contracts in a gain position to us fail to perform under the terms of the contract.

Operational Risk .

Operational risk is the risk to earnings resulting from inadequate or failed internal processes, people and systems and third-party vendors, or from external events.

Operational risk is pervasive in that it exists in all business lines, functional units, legal entities and geographic locations, and it includes information technology risk, physical security risk on tangible assets, as well as regulatory and legal risk.

Operational risk exposures are managed through a combination of first line of defense risk, and control activities and second line of defense oversight.

The ORC is the management committee responsible for operational risk, and it supports the EC in its oversight duties.

The ORC is responsible for escalation to the EC, as appropriate.

Additionally, our key risk indicators include operational risk metrics, thresholds and limits and are included in the periodic reporting to the Risk Committee of the Board of Directors.

Legal risk is the risk to earnings, capital or reputation manifested by claims made through the legal system and may arise from a product, a transaction, a business relationship, property (real, personal or intellectual), conduct of an employee or a change in law or regulation.

Primary ownership and responsibility for legal risk is placed with the first lines of defense, working with their legal colleagues, to identify and manage.

Compliance supports these activities by providing extensive training, monitoring and testing of the processes, policies and procedures utilized by the first lines of defense, maintaining relevant legal and regulatory requirements, and working in close coordination with our Legal group.

The General Counsel provides periodic reports, as appropriate, to the Risk Committee of the Board of Directors.

Our Code of Business Conduct and the on-going training our employees receive in many compliance areas provide a framework for our employees to conduct themselves with the highest integrity.

We instill a risk-conscious culture through communications, training, policies and procedures.

Market risk is the risk to earnings or capital resulting from changes in market conditions, such as interest rates, credit spreads or other volatilities.

We are exposed to various types of market risk, in particular the risk of loss resulting

from interest rate risk, basis risk and other risks that arise through the management of our investment, debt and loan portfolios.

Market risk is the risk to earnings, capital, or reputation resulting from changes in market conditions, such as interest rates, credit spreads, or other volatilities.

We are exposed to various types of market risk, in particular the risk of loss resulting from interest rate risk, basis risk, and other risks that arise through the management of our investment, debt, and loan portfolios.

Market risk exposures are managed primarily through ALCO.

These activities are closely tied to those related to the management of our funding and liquidity risks.

The Risk Committee of our Board of Directors periodically reviews and approves the investment and asset and liability management policies and contingency funding plan developed and administered by ALCO.

The Chief Financial Officer provides reports to the Risk Committee of the Board of Directors on market risk management.

Funding and Liquidity Risk .

Funding and liquidity risk is the risk to earnings, capital or the conduct of our business arising from the inability to meet our obligations when they become due without incurring unacceptable losses, such as the inability to fund liability maturities and deposit withdrawals, or invest in future asset growth and business operations at reasonable market rates, as well as the inability to fund Private Education Loan and other loan originations.

The Financial Risk Committee of our Board of Directors periodically reviews and approves the investment and asset and liability management policies and contingency funding plan developed and administered by ALCO.

The Chief Financial Officer provides reports to the Financial Risk Committee of the Board of Directors on market risk management.

Liquidity Risk .

Liquidity risk is the risk to earnings, capital, or reputation from an inability to meet financial obligations when they come due without incurring unacceptable losses, such as the inability to fund liability maturities and deposit withdrawals or invest in future asset growth and business operations at reasonable market rates, as well as the inability to fund Private Education Loan and other loan originations.

Our primary liquidity needs include our ongoing ability to:

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and service our indebtedness and bank deposits.

Ultimately, our funding and liquidity risk relates to our ability to access the capital markets at reasonable rates and to maintain retail deposits and other funding sources through the Bank, as well as our maintenance of a reserve of cash and unencumbered highly-liquid investment securities that may be readily converted to cash if needed.

Our funding and liquidity risk activities are centralized within our Corporate Finance department, which is responsible for developing and executing our funding strategy.

Ultimately, our liquidity risk relates to our ability to access the capital markets at reasonable rates and to maintain deposits and other

2021 Form 10-K — SLM CORPORATION 101

funding sources through the Bank, as well as our maintenance of a reserve of cash and unencumbered highly liquid investment securities that may be readily converted to cash if needed.

Our liquidity risk activities are centralized within our Corporate Finance department, which is responsible for developing and executing our funding strategy.

We analyze and monitor our liquidity risk, maintain excess liquidity, and access diverse funding sources depending on current market conditions.

Funding and liquidity risks are overseen and recommendations approved primarily through ALCO.

The Risk Committee of our Board of Directors is responsible for periodically reviewing the funding and liquidity positions and contingency funding plan developed and administered by ALCO.

Reputational Risk .

Reputational risk is the risk to shareholder value and growth trajectory from a negative perception, whether true or not, of an organization by its key stakeholders, the changing expectations of its stakeholders and/or inadequate internal coordination of business decisions.

This could expose us to litigation, financial loss or other damage to our business or brand.

Management proactively assesses and manages reputational risk.

We have established our government relations function to manage our review of and response to all formal inquiries from members of Congress, state legislators, and their staff, as well as providing targeted messaging that reinforces our public policy goals.

We review and consider reputational risk on matters as diverse as the launch of new products and services, our credit underwriting activities, and how we fund operations.

Our public relations, marketing and media teams continuously monitor print, electronic and social media to understand how we are perceived;

proactively address customer complaints;

and endeavor to enhance the value of our corporate brand.

Metrics related to reputational risk are reported to and monitored by the EC.

Our Legal, Government Relations and Compliance groups regularly meet and collaborate with our Media and Investor Relations teams to provide more coordinated monitoring and management of our reputational risks.

Strategic Risk .

Strategic risk is the risk to shareholder value and growth trajectory from adverse business decisions and/or improper implementation of business strategies.

Management must be able to develop and implement business strategies that leverage the organization’s core competencies and are appropriately structured, resourced and executed.

The overall development of the strategic plan includes extensive engagement with the Board of Directors.

Similarly, the Board of Directors provides oversight and effective challenge on performance, relative to the strategic plan.

Our shareholders have authorized the issuance of 1.125 billion shares of common stock (par value of $0.20).

At December 31, 2020, 375 million shares were issued and outstanding and 35 million shares were unissued but encumbered for outstanding stock options, restricted stock, restricted stock units, performance stock units and dividend equivalent units for employee compensation and remaining authority for stock-based compensation plans.

See Notes to Consolidated Financial Statements, Note 13, “Stockholders’ Equity” for additional details.

Arrangements with Navient Corporation

In connection with the Spin-Off, we entered into a Separation and Distribution Agreement.

The majority of these agreements were transitional in nature with most having terms that have expired or will expire within the next year.

We continue to have exposure to risks related to Navient’s creditworthiness.

If we are unable to obtain indemnification payments from Navient, our results of operations and financial condition could be materially and adversely affected.

Pursuant to the terms of the Spin-Off and applicable law, Navient is responsible for all liabilities (whether accrued, contingent or otherwise and whether known or unknown) arising out of or resulting from the conduct of pre-Spin-Off SLM and its subsidiaries’ businesses prior to the Spin-Off, other than certain specifically identified liabilities relating to the conduct of our consumer banking business for which the Bank is responsible.

Most of these legal proceedings involve matters that arose in whole or in part in the ordinary course of business of pre-Spin-Off SLM.

We briefly summarize below some of the most significant agreements and relationships we continue to have with Navient.

For additional information regarding the Separation and Distribution Agreement and the other ancillary agreements, see our Current Report on Form 8-K filed on May 2, 2014.

Separation and Distribution Agreement

The Separation and Distribution Agreement addresses, among other things, the following activities:

• the allocation among the parties of rights and obligations under insurance policies;

• the creation of a governance structure by which matters related to the separation and other transactions contemplated by the Separation and Distribution Agreement are to be managed.

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 financial condition could be materially and adversely affected over time.

Indemnification Obligations

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

is obligated to indemnify Navient).

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 the Company and the Bank for any liabilities, costs or expenses they 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, 2020, the remaining balance of the indemnification receivable related to those uncertain tax positions was $7 million.

Long-Term Arrangements

The loan servicing and administration agreement governs the terms by which Navient provides servicing, administration and collection services for the Bank’s portfolio of FFELP Loans, as well as servicing history information with respect to Private Education Loans previously serviced by Navient and access to certain promissory notes in Navient’s possession.

The term of the loan servicing and administration agreement has been extended to April 30, 2022.

The term of the data sharing agreement expired on April 29, 2019, however.

The tax sharing agreement governs the respective rights, responsibilities and obligations of us and Navient after the Spin-Off relating to taxes, including with respect to the payment of taxes, the preparation and filing of tax returns and the conduct of tax contests.

Under this agreement, each party is generally liable for taxes attributable to its business.

The agreement also addresses the allocation of tax liabilities that are incurred as a result of the Spin-Off and related transactions.

Amended Loan Participation and Purchase Agreement

Prior to the Spin-Off, the Bank sold substantially all of its Private Education Loans to several former affiliates, now subsidiaries of Navient (collectively, the “Purchasers”), pursuant to an amended loan participation and purchase agreement.

The agreement predates the Spin-Off but was significantly amended and reduced in scope in connection with the Spin-Off.

Post-Spin-Off, the Bank retained only the right to require the Purchasers to purchase loans whose borrowers had a lending relationship with both the Bank and Navient (“Split Loans”) (such purchases to be made at fair value) when the Split Loans either (1) are more than 90 days past due;

(2) have been restructured;

(3) have been granted a hardship forbearance or more than six months of administrative forbearance;

or (4) have a borrower or cosigner who has filed for bankruptcy.

In the second quarter of 2018, we sold our remaining $43 million portfolio of Split Loans (both current and non-current loans) to Navient and recognized a net gain of $2 million.

Liquidity risks are overseen and recommendations approved primarily through ALCO.

The Financial Risk Committee of our Board of Directors is responsible for periodically reviewing the liquidity positions and contingency funding plan developed and administered by ALCO.

Operational Risk .

Operational risk is the risk to earnings, capital, or reputation resulting from inadequate or failed internal processes, people and systems and third-party vendors, or from external events.

Operational risk is pervasive in that it exists in all business lines, functional units, legal entities, and geographic locations, and it includes information technology risk, physical security risk on tangible assets, as well as model, regulatory, and legal risk.

Operational risk exposures are managed through a combination of first line of defense and control activities and second line of defense oversight.

The ORC is the management committee responsible for operational risk, and it supports the EC in its oversight duties.

The ORC is responsible for escalation to the EC, as appropriate.

Additionally, our key risk indicators include operational risk metrics, thresholds, and limits and are included in the periodic reporting to the Operational and Compliance Risk Committee of the Board of Directors.

Primary ownership and responsibility for legal risk is placed with the first lines of defense, working with their legal colleagues, to identify and manage.

Compliance supports these activities by providing extensive training, monitoring, and testing of the processes, policies, and procedures utilized by the first lines of defense, maintaining relevant legal and regulatory requirements, and working in close coordination with our Legal department.

The General Counsel provides periodic reports, as appropriate, to the Operational and Compliance Risk Committee and other committees of the Board of Directors.

Compliance Risk.

The risk to earnings, capital, or reputation arising from violations of, or non-conformance with, laws, regulations, related self-regulatory organizations’ standards, and Code of Business Conduct.

Our Code of Business Conduct and the on-going training our employees receive in many compliance areas provide a framework for our employees to conduct themselves with the highest integrity.

We instill a risk-conscious culture through communications, training, policies, and procedures.

102 SLM CORPORATION — 2021 Form 10-K

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 7. Management’s Discussion and Analysis