SLM Corp 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis also contains forward-looking statements and should be read in conjunction with the disclosures and information contained in “Forward-Looking and Cautionary Statements” and Item 1A. “Risk Factors” in this Annual Report on Form 10-K. Through this discussion and analysis, we intend to provide the reader with some narrative context for how our management views our consolidated financial statements, additional context within which to assess our operating results, and information on the quality and variability of our earnings, liquidity, and cash flows. Impact of COVID-19 on Sallie Mae 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. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a pandemic. On March 13, 2020, then President Trump declared a national emergency, which made federal funds available to respond to the crisis. Beginning on March 15, 2020, many businesses closed or reduced hours throughout the U.S. to combat the spread of COVID-19. 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. 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. In response to COVID-19, we implemented efforts to safeguard our team members and enabled a remote work environment. In addition, we have taken steps to help our customers in this time of crisis. Further, The Sallie Mae Fund, our charitable arm, has made contributions to assist in our hometown communities. The following discussion highlights how we are responding and the expected impacts of COVID-19 on our business. The COVID-19 crisis is unprecedented and has had a significant impact on the economic environment globally and in the U.S. While we have highlighted below how we have responded to the pandemic and described its financial impact, there is a significant amount of uncertainty as to the length and breadth of the impact to the U.S. economy and, consequently, on us. Economists expect the impact of COVID-19 on the U.S. 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. “Risk Factors - Pandemic Risk ” in this annual report on Form 10-K. In addition, see the forward-looking and cautionary statements discussion in this annual report on Form 10-K. Forward-looking statements are subject to risks, uncertainties, assumptions, and other factors that may cause actual results to be materially different from those reflected in such forward-looking statements. These factors include, among others, the risks and uncertainties set forth in Part I, Item 1A. “Risk Factors” and elsewhere in this annual report on Form 10-K. Customers and Credit Performance 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 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 48 SLM CORPORATION — 2021 Form 10-K Table of Contents 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. For the year ended December 31, 2021, we considered the current economic forecasts as well as how the significant uncertainty may affect future unemployment rates and the economy in estimating our allowance for credit losses. We could experience significant changes in our allowance for credit losses as the economic impact of the COVID-19 pandemic becomes clearer. The process for determining our allowance contemplates material external factors that may require management adjustments. We used Moody’s Analytics economic forecasts in estimating the losses on our loan portfolio. 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 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 Our team members have been affected by COVID-19 in many ways, including disruptions due to unexpected school and day-care closings, family underemployment or unemployment, and learning how to work remotely with, in some cases, new tools and technology to learn and support that work. Our goal has been to support our team members during the present uncertainty while meeting the needs of our customers and providing business continuity. Early in the crisis, we provided our team members with information about best practices to prevent the spread of COVID-19 and other viruses or illnesses. We enabled substantially all of our workforce to work remotely. In addition, we have limited in-person meetings, non-employee visits to our locations, and non-essential business travel. 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. Operations We have robust pandemic and business continuity plans that include our business units and technology environments. When COVID-19 advanced to a pandemic, we activated our business continuity plan. As an element of the plan, we activated our Executive Crisis Management Team (“ECMT”), a group of the most senior managers across the enterprise. 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 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. 2021 Form 10-K — SLM CORPORATION 49 Table of Contents In addition, we enhanced the functionality of our chatbot, IVR, mobile app, and website features to help our customers manage their accounts. 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 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. Treasuries and government- sponsored debt and mortgage-backed securities. 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 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 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 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. See “Liquidity and Capital Resources” and “Borrowings” for additional discussion on our capital and funding activities. Regulatory agencies have also provided regulatory capital relief to financial institutions as a result of the crisis. See “ — Financial Results” for additional discussion regarding the regulatory relief. Regulatory We are regulated by the FDIC, the UDFI, and the CFPB. 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 (as hereinafter defined). 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. Community 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 50 SLM CORPORATION — 2021 Form 10-K Table of Contents 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. 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. 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. 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. 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. 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 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 2021 Form 10-K — SLM CORPORATION 51 Table of Contents 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. 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. 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. 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. 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, 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 Allowance for credit losses 1,143,053 (55,811) (49,097) 1,038,145 Liability for unfunded commitments 115,758 (2,048) (9,333) 104,377 Deferred tax asset 306,171 — — 306,171 52 SLM CORPORATION — 2021 Form 10-K Table of Contents Overview The following discussion and analysis presents a review of our business and operations as of and for the year ended December 31, 2021. Key Financial Measures Set forth below are brief summaries of our key financial measures. Our operating results are primarily driven by net interest income from our Private Education Loan portfolio, gains and losses on loan sales, provision expense for credit losses, and operating expenses. The growth of our business and the strength of our financial condition are primarily driven by our ability to achieve our annual Private Education Loan origination goals while sustaining credit quality and maintaining cost-efficient funding sources to support our originations. Net Interest Income Most of our earnings are generated from the interest income earned on assets in our education loan portfolios and on Credit Cards, net of the interest expense we pay on the funding for those loans. We report these earnings as net interest income. We also often refer to the net interest margin, which is the net interest yield earned on our interest-earning assets less the rate paid on our related interest-bearing liabilities. The majority of our interest income comes from our Private Education Loan portfolio. FFELP Loans have a lower net interest yield and carry lower risk than Private Education Loans, as a result of the federal government guarantee supporting FFELP Loans. Loan Sales and Secured Financings We may sell loans to third-parties through whole loan sales, securitizations, or other similar transactions. We typically retain servicing of loans subsequent to their sale and earn revenue for this servicing at prevailing market rates for such services. Selling loans removes the loan assets from our balance sheet and helps us manage our asset growth, capital, and liquidity needs. Alternatively, we may use loans as collateral in connection with the creation of asset-backed securitizations or secured funding facilities structured as financings. These types of transactions may provide us long-term financing, but they do not remove loan assets from our balance sheet, nor do they generate gains on sales of loans, net. 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 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 Management estimates and maintains an allowance for credit losses for the lifetime expected credit losses on loans in our portfolios, as well as for future loan commitments, at the reporting date. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Allowance for Credit Losses.” Allowances for credit losses are an important indicator of management’s perspective on the future performance of a loan portfolio. Each quarter, management makes an adjustment to the allowance for credit losses to reflect its most up-to-date estimate of future losses by recording a charge against quarterly revenues known as provision expense. 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 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. Losses on our Private Education Loans are affected by risk characteristics such as loan status (in-school, grace, forbearance, repayment, and delinquency), loan seasoning (number of months in active repayment), underwriting criteria (e.g., credit scores), presence of a cosigner, and the current economic environment. See “CREDIT RISK - Defaults on our loans, particularly Private Education Loans, could adversely affect our business, financial position, results of operations, and/or cash flows . ” in Item 1A. “Risk Factors” for additional information. Losses typically emerge once a borrower separates from school and enters full principal and interest repayment after the borrower’s grace period (six months, typically) ends. 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 Table of Contents 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. We maintain an allowance for credit losses for our FFELP Loans at a level sufficient to cover lifetime expected credit losses. 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 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. We then consider any qualitative factors that may change our future expectations of losses. As all of our Credit Card loans are unconditionally cancelable by us, the issuer, we do not record any estimate of credit losses for unused portions of our Credit Card commitments. Charge-Offs and Delinquencies Delinquencies are another important indicator of potential future credit performance. When a Private Education Loan reaches 120 days delinquent, it is charged against the allowance for credit losses. We charge off Credit Cards when they are 180 days delinquent. Charge-off data provides relevant information with respect to the actual performance of a loan portfolio over time. Management focuses on delinquencies as well as the progression of loans from early to late stage delinquency as a key metric in estimating the allowance for credit losses and tailoring its future collections strategies. We manage our charged-off loans through a mix of in-house collectors, third-party collectors, and sales to third-parties. Operating Expenses The cost of operating our business directly affects our profitability. We strive to manage growth in our business in a prudent fashion by focusing on investments to improve efficiency throughout the Company. We monitor and report internally various metrics, including cost to acquire and cost to service our loans (which include both owned and serviced loans), among others. The cost to acquire is affected by such variables as technology, personnel, and marketing costs. Servicing expenses primarily include compensation and benefit expenses related to our collections, customer support, and payment processing employees, and technology costs and other expenses associated with facilitating and servicing borrowers. Costs to service can vary period to period based upon seasonality and borrower payment status. The cost to service a delinquent borrower is significantly higher than the cost to service a current or in-school borrower. 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 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. We believe that our derivatives are effective economic hedges and, as such, are a critical element of our interest rate risk management strategy. Those derivative instruments that qualify for hedge accounting treatment have their related cash flows recorded in interest income or interest expense along with the hedged item. Some of our derivatives do not qualify for hedge accounting treatment and the stand-alone derivative must be marked-to-fair value in the income statement with no consideration for the corresponding change in fair value of the hedged item. These gains and losses, recorded in “Gains (losses) on derivatives and hedging activities, net,” are primarily caused by interest rate volatility and changing credit spreads during the period as well as the volume and term of derivatives not receiving hedge accounting treatment. Cash flows on derivative instruments that do not qualify for hedge accounting are not recorded in interest income and interest expense; they are recorded in non-interest income: “Gains (losses) on derivatives and hedging activities, net.” 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 Table of Contents 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 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. Years Ended December 31, (dollars in thousands) 2021 2020 2019 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 on derivatives and hedging activities, net $ 144 $ 49,544 $ 17,825 2021 Form 10-K — SLM CORPORATION 55 Table of Contents The following table reflects adjustments associated with our derivative activities. Years Ended December 31, (dollars in thousands, except per share amounts) 2021 2020 2019 Non-GAAP “Core Earnings” adjustments to GAAP: GAAP net income $ 1,160,513 $ 880,690 $ 578,276 Preferred stock dividends 4,736 9,734 16,837 GAAP net income attributable to SLM Corporation common stock $ 1,155,777 $ 870,956 $ 561,439 Adjustments: Net impact of derivative accounting (1) 23,216 (10,164) (19,469) Net tax expense (benefit) (2) 5,615 (2,481) (4,758) 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) Non-GAAP “Core Earnings” diluted earnings per common share $ 3.67 $ 2.23 $ 1.27 (1) Derivative Accounting: 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) 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: Years Ended December 31, (dollars in thousands) 2021 2020 2019 Provisions for credit losses $ (32,957) $ 93,133 $ 354,249 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 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 Table of Contents Private Education Loan Originations Private Education Loans are the principal asset on our balance sheet, and the amount of new Private Education Loan originations we generate each year is a key indicator of the trajectory of our business, including our future earnings and asset growth. Funding Sources Deposits We utilize brokered, retail, and other core deposits to meet funding needs and enhance our liquidity position. These deposits can be term or liquid deposits. Our term brokered deposits have terms as long as seven years. Interest rates on a portion of our long-term deposits are swapped into one-month LIBOR. This structure has the effect of transforming the interest rate characteristics of these deposits to match the index on which the majority of our assets reset, thereby minimizing our exposure to interest rate risk. Retail deposits are sourced through a direct banking platform and serve as an important source of diversified funding. Brokered deposits are sourced through a network of brokers and provide a stable source of funding. In addition, we accept certain deposits considered non-brokered that are held in large accounts structured to allow FDIC insurance to flow through to underlying individual depositors. We diversify our funding sources with deposits from Educational 529 savings plan and Health Savings plans. These and other large omnibus accounts, aggregating the deposits of many individual depositors, represented $7.3 billion of our deposit totals as of December 31, 2021. Loan Securitizations 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 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. 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 Table of Contents 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 Exposure 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 Table of Contents 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 Table of Contents 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. 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). See “Item 1. Business — Human Capital Resources and Talent Development” for a discussion regarding our mission-led culture. 60 SLM CORPORATION — 2021 Form 10-K Table of Contents Results of Operations We present the results of operations below on a consolidated basis in accordance with GAAP. GAAP Consolidated Statements of Income Years ended December 31, (dollars in millions, except per share amounts) Increase (Decrease) 2021 vs. 2020 2020 vs. 2019 2021 2020 2019 $ % $ % Interest income: Loans $ 1,757 $ 1,989 $ 2,249 $ (232) (12) % $ (260) (12) % Investments 14 12 8 2 17 4 50 Cash and cash equivalents 6 21 74 (15) (71) (53) (72) Total interest income 1,777 2,022 2,331 (245) (12) (309) (13) Total interest expense 382 542 708 (160) (30) (166) (23) Net interest income 1,395 1,480 1,623 (85) (6) (143) (9) Less: provisions for credit losses (33) 93 354 (126) (135) (261) (74) Net interest income after provisions for credit losses 1,428 1,387 1,269 41 3 118 9 Non-interest income: Gains on sales of loans, net 548 238 — 310 130 238 100 Gains on derivatives and hedging activities, net — 50 18 (50) (100) 32 178 Other income 84 43 31 41 95 12 (39) Total non-interest income 632 331 49 301 91 282 576 Non-interest expenses: Total operating expenses 519 538 574 (19) (4) (36) (6) Restructuring expenses 1 26 — (25) (96) 26 100 Total non-interest expenses 520 564 574 (44) (8) (10) (2) Income before income tax expense 1,540 1,154 744 386 33 410 55 Income tax expense 380 273 165 107 39 108 65 Net income 1,160 881 578 279 32 302 52 Preferred stock dividends 4 10 17 (6) (60) (7) (41) Net income attributable to SLM Corporation common stock $ 1,156 $ 871 $ 561 $ 285 33 % $ 310 55 % 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 Table of Contents 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. 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. 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. 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 Table of Contents 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 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 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. 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 a $953 million reduction in retained earnings and a $306 million increase in our 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, our provisions for credit losses were $93 million. 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. • Gains on sales of loans, net, were $238 million in 2020, primarily as a result of the sale of $3.1 billion of Private Education Loans to unaffiliated third-parties in the first quarter of 2020. There were no loan sales in 2019. • 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 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 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 2021 Form 10-K — SLM CORPORATION 63 Table of Contents 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. 64 SLM CORPORATION — 2021 Form 10-K Table of Contents Financial Condition Average Balance Sheets - GAAP The following table reflects the rates earned on interest-earning assets and paid on interest-bearing liabilities and reflects our net interest margin on a consolidated basis. Years ended December 31, (dollars in thousands) 2021 2020 2019 Balance Rate Balance Rate Balance Rate Average Assets Private Education Loans $ 20,968,061 8.25 % $ 22,426,216 8.42 % $ 22,225,473 9.32 % FFELP Loans 718,186 3.43 757,953 3.76 814,198 4.79 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 Cash and other short-term investments 5,139,731 0.14 5,447,844 0.41 3,693,245 2.01 Total interest-earning assets 28,982,985 6.13 % 30,771,792 6.57 % 28,199,268 8.27 % Non-interest-earning assets 636,691 236,536 1,318,290 Total assets $ 29,619,676 $ 31,008,328 $ 29,517,558 Average Liabilities and Equity Brokered deposits $ 11,015,170 1.35 % $ 12,777,874 1.84 % $ 11,760,646 2.66 % Retail and other deposits 10,540,170 0.70 10,772,161 1.47 9,588,747 2.44 Other interest-bearing liabilities (1) 5,390,098 2.94 4,982,771 2.98 4,658,075 3.43 Total interest-bearing liabilities 26,945,438 1.42 % 28,532,806 1.90 % 26,007,468 2.72 % Non-interest-bearing liabilities 279,344 234,798 392,173 Equity 2,394,894 2,240,724 3,117,917 Total liabilities and equity $ 29,619,676 $ 31,008,328 $ 29,517,558 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 Table of Contents 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 (Decrease) Change Due To (1) Rate Volume 2021 vs. 2020 Interest income $ (244,816) $ (130,949) $ (113,867) Interest expense (159,589) (130,830) (28,759) Net interest income $ (85,227) $ 857 $ (86,084) 2020 vs. 2019 Interest income $ (309,372) $ (508,217) $ 198,845 Interest expense (166,050) (229,719) 63,669 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. The changes in income and expense are calculated independently for each line in the table. The totals for the rate and volume columns are not the sum of the individual lines. Summary of Our Loans Held for Investment Portfolio Ending Loans Held for Investment Balances, net As of December 31, 2021 (dollars in thousands) Private Education Loans FFELP Loans Credit Cards Total Loans Held for Investment Total loan portfolio: In-school (1) $ 3,544,030 $ 82 $ — $ 3,544,112 Grace, repayment and other (2) 17,172,833 695,134 25,014 17,892,981 Total, gross 20,716,863 695,216 25,014 21,437,093 Deferred origination costs and unamortized premium/(discount) 67,488 1,815 222 69,525 Allowance for credit losses (1,158,977) (4,077) (2,281) (1,165,335) Total loans held for investment portfolio, net $ 19,625,374 $ 692,954 $ 22,955 $ 20,341,283 -2281 % of total 97 % 3 % — % 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. 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. 66 SLM CORPORATION — 2021 Form 10-K Table of Contents As of December 31, 2020 (dollars in thousands) Private Education Loans FFELP Loans Credit Cards Total Loans Held for Investment Total loan portfolio: In-school (1) $ 3,582,394 $ 81 $ — $ 3,582,475 Grace, repayment and other (2)(3) 16,146,943 737,512 12,238 16,896,693 Total, gross 19,729,337 737,593 12,238 20,479,168 Deferred origination costs and unamortized premium/(discount) 63,475 1,993 230 65,698 Allowance for credit losses (1,355,844) (4,378) (1,501) (1,361,723) Total loans held for investment portfolio, net $ 18,436,968 $ 735,208 $ 10,967 $ 19,183,143 % of total 96 % 4 % — % 100 % (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, were then 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 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. 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. 2021 Form 10-K — SLM CORPORATION 67 Table of Contents As of December 31, 2019 (dollars in thousands) Private Education Loans FFELP Loans Personal Loans Credit Cards Total Loans Held for Investment Total loan portfolio: In-school (1) $ 4,288,239 $ 81 $ — $ — $ 4,288,320 Grace, repayment and other (2) 18,901,352 783,225 1,049,007 3,884 20,737,468 Total, gross 23,189,591 783,306 1,049,007 3,884 25,025,788 Deferred origination costs and unamortized premium/(discount) 81,224 2,143 513 36 83,916 Allowance for credit losses (374,300) (1,633) (65,877) (102) (441,912) Total loans held for investment portfolio, net $ 22,896,515 $ 783,816 $ 983,643 $ 3,818 $ 24,667,792 % of total 93 % 3 % 4 % — % 100 % As of December 31, 2018 (dollars in thousands) Private Education Loans FFELP Loans Personal Loans Total Loans Held for Investment Total loan portfolio: In-school (1) $ 4,037,125 $ 163 $ — $ 4,037,288 Grace, repayment and other (2) 16,467,340 846,324 1,190,091 18,503,755 Total, gross 20,504,465 846,487 1,190,091 22,541,043 Deferred origination costs and unamortized premium/(discount) 68,321 2,379 297 70,997 Allowance for credit losses (277,943) (977) (62,201) (341,121) Total loans held for investment portfolio, net $ 20,294,843 $ 847,889 $ 1,128,187 $ 22,270,919 % of total 91 % 4 % 5 % 100 % As of December 31, 2017 (dollars in thousands) Private Education Loans FFELP Loans Personal Loans Total Loans Held for Investment Total loan portfolio: In-school (1) $ 3,740,237 $ 257 $ — $ 3,740,494 Grace, repayment and other (2) 13,691,930 927,403 400,280 15,019,613 Total, gross 17,432,167 927,660 400,280 18,760,107 Deferred origination costs and unamortized premium/(discount) 56,378 2,631 — 59,009 Allowance for credit losses (243,715) (1,132) (6,628) (251,475) Total loans held for investment portfolio, net $ 17,244,830 $ 929,159 $ 393,652 $ 18,567,641 % of total 93 % 5 % 2 % 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. 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. 68 SLM CORPORATION — 2021 Form 10-K Table of Contents Average Loans Held for Investment Balances (net of unamortized premium/discount) 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 % FFELP Loans 718,186 3 757,953 3 814,198 3 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 % Loans Held for Investment, Net — Activity Year Ended December 31, 2021 (dollars in thousands) Private Education Loans FFELP Loans Credit Cards Total Loans Held for Investment, net Beginning balance $ 18,436,968 $ 735,208 $ 10,967 $ 19,183,143 Acquisitions and originations: Fixed-rate 3,027,440 — — 3,027,440 Variable-rate 2,421,082 — 63,323 2,484,405 Total acquisitions and originations 5,448,522 — 63,323 5,511,845 Capitalized interest and deferred origination cost premium amortization 597,416 27,252 (323) 624,345 Sales (1,138,726) — — (1,138,726) Loan consolidations to third-parties (1,583,691) (27,031) — (1,610,722) Allowance 196,868 300 (780) 196,388 Transfer from loans held-for-sale 25,040 — — 25,040 Repayments and other (2,357,023) (42,775) (50,232) (2,450,030) Ending balance $ 19,625,374 $ 692,954 $ 22,955 $ 20,341,283 2021 Form 10-K — SLM CORPORATION 69 Table of Contents Year Ended December 31, 2020 (dollars in thousands) Private Education Loans FFELP Loans Personal Loans Credit Cards Total Loans Held for Investment, net 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: Fixed-rate 2,903,258 — 41 — 2,903,299 Variable-rate 2,439,029 — — 35,955 2,474,984 Total acquisitions and originations 5,342,287 — 41 35,955 5,378,283 Capitalized interest and deferred origination cost premium amortization 616,115 27,558 (253) (819) 642,601 Sales (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) Ending balance $ 18,436,968 $ 735,208 $ — $ 10,967 $ 19,183,143 Year Ended December 31, 2019 (dollars in thousands) Private Education Loans FFELP Loans Personal Loans Credit Cards Total Loans Held for Investment, net Beginning balance $ 20,294,843 $ 847,889 $ 1,128,187 $ — $ 22,270,919 Acquisitions and originations: Fixed-rate 3,784,860 — 480,398 — 4,265,258 Variable-rate 1,866,914 — — 5,933 1,872,847 Total acquisitions and originations 5,651,774 — 480,398 5,933 6,138,105 Capitalized interest and deferred origination cost premium amortization 722,153 28,258 (323) — 750,088 Loan consolidations to third-parties (1,512,279) (27,461) — — (1,539,740) Allowance (96,357) (656) (3,676) (102) (100,791) Repayments and other (2,163,619) (64,214) (620,943) (2,013) (2,850,789) Ending balance $ 22,896,515 $ 783,816 $ 983,643 $ 3,818 $ 24,667,792 “Loan consolidations to third-parties” and “Repayments and other” are both significantly affected by the volume of loans in our held for investment portfolio in full principal and interest repayment status. 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 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. 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. 70 SLM CORPORATION — 2021 Form 10-K Table of Contents 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 2021. Private Education Loan Originations The following table summarizes our Private Education Loan originations. Originations represent loans that were funded or acquired during the period presented. Years Ended December 31, (dollars in thousands) 2021 % 2020 % 2019 % Smart Option - interest only (1) $ 1,123,624 21 % $ 1,222,148 23 % $ 1,234,246 22 % Smart Option - fixed pay (1) 1,680,947 31 1,498,578 28 1,560,496 28 Smart Option - deferred (1) 1,994,483 36 1,912,978 36 2,082,147 37 Smart Option - principal and interest 11,102 — 9,559 — 9,806 — Graduate Loan 525,050 10 579,451 11 622,181 11 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 % Percentage of loans with a cosigner 86.2 % 86.0 % 86.6 % Average FICO at approval (3) 750 749 746 (1) Interest only, fixed pay and deferred describe the payment option while in school or in grace period. See Item 1. “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 Table of Contents Allowance for Credit Losses Allowance for Credit Losses Activity Years Ended December 31, (dollars in thousands) 2021 2020 Private Education Loans FFELP Loans Credit Cards Total Portfolio Private Education Loans FFELP Loans Personal Loans Credit Cards Total Portfolio Beginning balance $ 1,355,844 $ 4,378 $ 1,501 $ 1,361,723 $ 374,300 $ 1,633 $ 65,877 $ 102 $ 441,912 Day 1 adjustment for adoption of CECL — — — — 1,060,830 2,852 79,183 188 1,143,053 Balance at January 1 1,355,844 4,378 1,501 1,361,723 1,435,130 4,485 145,060 290 1,584,965 Transfer from unfunded commitment liability (1) 301,655 — — 301,655 320,808 — — — 320,808 Less: Charge-offs (229,591) (321) (356) (230,268) (205,326) (519) (39,079) (119) (245,043) Loan sales — — — — — — (108,534) — (108,534) Plus: Recoveries 29,494 — 12 29,506 24,021 — 4,984 2 29,007 Provisions for credit losses: Provision, current period (233,852) 20 1,124 (232,708) 148,673 412 40,485 1,328 190,898 Loan sale reduction to provision (66,460) — — (66,460) (161,793) — (42,916) — (204,709) Loans transferred to held-for-sale 1,887 — — 1,887 (205,669) — — — (205,669) Total provisions for credit losses (2) (298,425) 20 1,124 (297,281) (218,789) 412 (2,431) 1,328 (219,480) Ending balance $ 1,158,977 $ 4,077 $ 2,281 $ 1,165,335 $ 1,355,844 $ 4,378 $ — $ 1,501 $ 1,361,723 Troubled debt restructurings (3) $ 1,057,665 $ — $ — $ 1,057,665 $ 1,274,590 $ — $ — $ — $ 1,274,590 (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 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. When the loan is funded, we transfer that liability to the allowance for credit losses. Consolidated Statements of Income Provisions for Credit Losses Reconciliation Years Ended December 31, (dollars in thousands) 2021 2020 Private Education Loan provisions for credit losses: Provisions for loan losses $ (298,425) $ (218,789) Provisions for unfunded loan commitments 264,324 312,613 Total Private Education Loan provisions for credit losses (34,101) 93,824 Other impacts to the provisions for credit losses: Personal Loans — (2,431) FFELP Loans 20 412 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. 72 SLM CORPORATION — 2021 Form 10-K Table of Contents 2019 2018 Years Ended December 31, (dollars in thousands) Private Education Loans FFELP Loans Personal Loans Credit Cards Total Portfolio Private Education Loans FFELP Loans Personal Loans Total Portfolio Beginning balance $ 277,943 $ 977 $ 62,201 $ — $ 341,121 $ 243,715 $ 1,132 $ 6,628 $ 251,475 Less: Charge-offs (208,978) (822) (74,313) (1) (284,114) (154,701) (1,135) (19,690) (175,526) Loan sales (1) — — — — — (1,216) — — (1,216) Plus: 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 2017 Years Ended December 31, (dollars in thousands) Private Education Loans FFELP Loans Personal Loans Total Portfolio Beginning balance $ 182,472 $ 2,171 $ 58 $ 184,701 Less: Charge-offs (130,063) (954) (579) (131,596) Loan sales (1) (4,871) — — (4,871) Plus: Recoveries 17,635 — 11 17,646 Provisions for loan losses 178,542 (85) 7,138 185,595 Ending balance $ 243,715 $ 1,132 $ 6,628 $ 251,475 Troubled debt restructurings (2) $ 990,351 $ — $ — $ 990,351 (1) Represents fair value adjustments on loans sold. (2) Represents the unpaid principal balance of loans classified as troubled debt restructurings. 2021 Form 10-K — SLM CORPORATION 73 Table of Contents Private Education Loan Allowance for Credit Losses In establishing the allowance for Private Education Loan losses as of December 31, 2021, we considered several factors with respect to our Private Education Loan held for investment portfolio, in particular, credit quality and delinquency, forbearance, and charge-off trends. Private Education Loans held for investment in full principal and interest repayment status were 45 percent of our total Private Education Loans held for investment portfolio at December 31, 2021, compared with 49 percent at December 31, 2020. 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 Table of Contents 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 December 31, (dollars in thousands) Balance % Balance % Balance % Loans in-school/grace/deferment (1)(2) $ 4,904,414 $ 4,779,040 $ 5,687,405 Loans in forbearance (1)(3) 301,237 645,476 714,516 Loans in repayment and percentage of each status (1) : Loans current 15,005,773 96.7 % 13,898,948 97.2 % 16,315,651 97.2 % Loans delinquent 30-59 days (4) 308,559 2.0 205,528 1.4 288,051 1.7 Loans delinquent 60-89 days (4) 116,947 0.8 119,643 0.8 121,302 0.7 Loans 90 days or greater past due (4) 79,933 0.5 80,702 0.6 62,666 0.4 Total Private Education Loans in repayment 15,511,212 100.0 % 14,304,821 100.0 % 16,787,670 100.0 % Total Private Education Loans, gross 20,716,863 19,729,337 23,189,591 Private Education Loans deferred origination costs and unamortized premium/(discount) 67,488 63,475 81,224 Total Private Education Loans 20,784,351 19,792,812 23,270,815 Private Education Loans allowance for losses (1,158,977) (1,355,844) (374,300) Private Education Loans, net $ 19,625,374 $ 18,436,968 $ 22,896,515 Percentage of Private Education Loans in repayment 74.9 % 72.5 % 72.4 % Delinquencies as a percentage of Private Education Loans in repayment 3.3 % 2.8 % 2.8 % 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 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.” (2) Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on the loans (e.g., residency periods for medical students or a grace period for bar exam preparation). (3) Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors, consistent with established loan program servicing policies and procedures. (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 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 Table of Contents 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. Years Ended December 31, (dollars in thousands) 2021 2020 2019 2018 2017 Beginning balance $ 1,355,844 $ 374,300 $ 277,943 $ 243,715 $ 182,472 Day 1 adjustment for adoption of CECL — 1,060,830 — — — Balance at January 1 1,355,844 1,435,130 277,943 243,715 182,472 Transfer from unfunded commitment liability (1) 301,655 320,808 — — — Provision for credit losses: Provision, current period (233,852) 148,673 279,570 169,287 178,542 Loan sale reduction to provision (66,460) (161,793) — — — Loans transferred to held-for-sale 1,887 (205,669) — — — Total provision (298,425) (218,789) 279,570 169,287 178,542 Net charge-offs: Charge-offs (229,591) (205,326) (208,978) (154,701) (130,063) Recoveries 29,494 24,021 25,765 20,858 17,635 Net charge-offs (200,097) (181,305) (183,213) (133,843) (112,428) Loan sales (2) — — — (1,216) (4,871) Ending Balance $ 1,158,977 $ 1,355,844 $ 374,300 $ 277,943 $ 243,715 Allowance as a percentage of the ending total loan balance 5.59 % 6.87 % 1.61 % 1.36 % 1.40 % Allowance as a percentage of the ending loans in repayment (3) 7.47 % 9.48 % 2.23 % 1.90 % 2.00 % Allowance coverage of net charge-offs 5.79 7.48 2.04 2.08 2.17 Net charge-offs as a percentage of average loans in repayment (3) 1.33 % 1.17 % 1.17 % 1.01 % 1.03 % Delinquencies as a percentage of ending loans in repayment (3) 3.26 % 2.84 % 2.81 % 2.57 % 2.42 % Loans in forbearance as a percentage of ending loans in repayment and forbearance (3) 1.91 % 4.32 % 4.08 % 3.79 % 3.70 % Ending total loans, gross $ 20,716,863 $ 19,729,337 $ 23,189,591 $ 20,504,465 $ 17,432,167 Average loans in repayment (3) $ 15,019,869 $ 15,518,851 $ 15,605,927 $ 13,303,801 $ 10,881,058 Ending loans in repayment (3) $ 15,511,212 $ 14,304,821 $ 16,787,670 $ 14,666,856 $ 12,206,033 (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) Represents fair value adjustments on loans sold. (3) 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. As part of concluding on the adequacy of the allowance for credit losses, we review key allowance and loan metrics. The most significant of these metrics considered are the allowance coverage of net charge-offs ratio; the allowance as a percentage of ending total loans and of ending loans in repayment; and delinquency and forbearance percentages. 76 SLM CORPORATION — 2021 Form 10-K Table of Contents 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 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 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 (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. Our forbearance policies and practices vary depending upon whether a borrower is current or delinquent at the time forbearance is requested, generally with stricter payment requirements for delinquent borrowers. We view the population of borrowers that use forbearance positively because the borrowers are either proactively reaching out to us to obtain assistance in managing their obligations or are working with our collections center to bring their loans current. Forbearance may be granted through our servicing centers to customers who are exiting their grace period, and to other customers who are current in their payments, to provide temporary payment relief. In these circumstances, a customer’s loan is placed into a forbearance status in limited monthly increments and is reflected in the forbearance status at month-end during this time. At the end of the forbearance period, the customer will enter repayment status as current and is expected to begin making scheduled monthly payments. Forbearance may also be granted through our collections centers to customers who are delinquent in their payments. If specific payment requirements are met, the forbearance can cure the delinquency and the customer is returned to a current repayment status. Forbearance as a collection tool is used most effectively when applying historical experience and our judgment to a customer’s unique situation. We leverage updated customer information and other decision support tools to best determine who will be granted forbearance based on our expectations as to a customer’s ability and willingness to repay their obligation. This strategy is aimed at assisting customers while mitigating the risks of delinquency and default as well as encouraging resolution of delinquent loans. 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. 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 below. 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 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 Table of Contents 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. Currently, we temporarily reduce the contractual interest rate on a loan to 4.0 percent for a two-year period and, in the vast majority of cases, permanently extend the final maturity date of the loan. 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. 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 78 SLM CORPORATION — 2021 Form 10-K Table of Contents 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 Repayment Total 0 to 12 13 to 24 25 to 36 37 to 48 More than 48 Loans in-school/grace/deferment $ — $ — $ — $ — $ — $ 4,904 $ 4,904 Loans in forbearance 180 44 30 21 26 — 301 Loans in repayment - current 4,234 3,405 2,424 1,671 3,272 — 15,006 Loans in repayment - delinquent 30-59 days 125 54 41 29 60 — 309 Loans in repayment - delinquent 60-89 days 38 25 17 13 24 — 117 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 Deferred origination costs and unamortized premium/(discount) 67 Allowance for credit losses (1,159) Total Private Education Loans, net $ 19,625 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 % 2021 Form 10-K — SLM CORPORATION 79 Table of Contents As of December 31, 2020 (dollars in millions) Private Education Loans Held for Investment Monthly Scheduled Payments Due Not Yet in Repayment Total 0 to 12 13 to 24 25 to 36 37 to 48 More than 48 Loans in-school/grace/deferment $ — $ — $ — $ — $ — $ 4,779 $ 4,779 Loans in forbearance 353 91 71 54 76 — 645 Loans in repayment - current 3,987 3,181 2,215 1,624 2,892 — 13,899 Loans in repayment - delinquent 30-59 days 76 39 30 22 38 — 205 Loans in repayment - delinquent 60-89 days 49 21 17 12 21 — 120 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 Deferred origination costs and unamortized premium/(discount) 64 Allowance for credit losses (1,356) Total Private Education Loans, net $ 18,437 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 % As of December 31, 2019 (dollars in millions) Private Education Loans Held for Investment Monthly Scheduled Payments Due Not Yet in Repayment Total 0 to 12 13 to 24 25 to 36 37 to 48 More than 48 Loans in-school/grace/deferment $ — $ — $ — $ — $ — $ 5,687 $ 5,687 Loans in forbearance 402 97 79 65 72 — 715 Loans in repayment - current 4,769 3,817 2,752 2,093 2,885 — 16,316 Loans in repayment - delinquent 30-59 days 108 53 45 35 47 — 288 Loans in repayment - delinquent 60-89 days 48 24 18 14 17 — 121 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 Deferred origination costs and unamortized premium/(discount) 81 Allowance for credit losses (374) Total Private Education Loans, net $ 22,897 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 Table of Contents 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. As of December 31, 2021 (dollars in thousands) Signature and Other Parent Loan (1) Smart Option Career Training Graduate Loan Total $ in repayment (2) $ 221,637 $ 301,422 $ 14,097,819 $ 9,354 $ 880,980 $ 15,511,212 $ in total $ 318,055 $ 302,764 $ 18,789,771 $ 9,402 $ 1,296,871 $ 20,716,863 As of December 31, 2020 (dollars in thousands) Signature and Other Parent Loan (1) Smart Option Career Training Graduate Loan Total $ in repayment (2) $ 215,439 $ 285,323 $ 13,130,229 $ 12,250 $ 661,580 $ 14,304,821 $ 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. 2021 Form 10-K — SLM CORPORATION 81 Table of Contents 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 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. The accrued interest on these loans will be capitalized against the balance of the loans when the borrower exits the grace period upon separation from school. The allowance for uncollectible interest exceeds the amount of accrued interest on our 90 days past due portfolio for all periods presented. Private Education Loans Accrued Interest Receivable (dollars in thousands) Total Interest Receivable 90 Days and Greater Past Due Allowance for Uncollectible Interest December 31, 2021 $ 1,187,123 $ 3,635 $ 4,937 December 31, 2020 $ 1,168,895 $ 4,354 $ 4,467 December 31, 2019 $ 1,366,158 $ 2,390 $ 5,309 December 31, 2018 $ 1,168,823 $ 1,920 $ 6,322 December 31, 2017 $ 951,138 $ 1,372 $ 4,664 82 SLM CORPORATION — 2021 Form 10-K Table of Contents Liquidity and Capital Resources Funding and Liquidity Risk Management Our primary liquidity needs include our ongoing ability to fund our businesses throughout market cycles, including during periods of financial stress, our ongoing ability to fund originations of Private Education Loans and other loans, and our ability to meet any outflows of our Bank deposits. To achieve these objectives, we analyze and monitor our liquidity needs, maintain excess liquidity and access to diverse funding sources, such as deposits at the Bank, issuance of secured debt primarily through asset-backed securitizations, and other financing facilities, and loan sales. It is our policy to manage operations so liquidity needs are fully satisfied through normal operations to avoid unplanned loan sales under all but the most dire emergency conditions. Our liquidity management is governed by policies approved by our Board of Directors. Oversight of these policies is performed in the Asset and Liability Committee, a management-level committee. These policies take into account the volatility of cash flow forecasts, expected asset and liability maturities, anticipated loan demand, and a variety of other factors to establish minimum liquidity guidelines. Key risks associated with our liquidity relate to our ability to access the capital markets and the markets for bank deposits at reasonable rates. This ability may be affected by our performance, competitive pressures, the macroeconomic environment, and the impact they have on the availability of funding sources in the marketplace. We target maintaining sufficient on-balance sheet and contingent sources of liquidity to enable us to meet all contractual and contingent obligations under various stress scenarios, including severe macroeconomic stresses as well as specific stresses that test the resiliency of our balance sheet. As the Bank has grown, we have improved our liquidity stress testing practices to align more closely with the industry, which resulted in our adopting increased liquidity requirements. 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 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. Sources of Liquidity and Available Capacity Ending Balances As of December 31, (dollars in thousands) 2021 2020 2019 Sources of primary liquidity: Unrestricted cash and liquid investments: Holding Company and other non-bank subsidiaries $ 2,588 $ 1,117 $ 29,620 Sallie Mae Bank (1) 4,332,015 4,454,175 5,534,257 Available-for-sale investments 2,325,711 1,927,726 487,669 Total unrestricted cash and liquid investments $ 6,660,314 $ 6,383,018 $ 6,051,546 (1) This amount will be used primarily to originate Private Education Loans at the Bank. 2021 Form 10-K — SLM CORPORATION 83 Table of Contents Average Balances Years Ended December 31, (dollars in thousands) 2021 2020 2019 Sources of primary liquidity: Unrestricted cash and liquid investments: Holding Company and other non-bank subsidiaries $ 3,739 $ 20,307 $ 38,705 Sallie Mae Bank (1) 4,934,506 5,202,302 3,455,216 Available-for-sale investments 1,953,154 1,495,155 323,930 Total unrestricted cash and liquid investments $ 6,891,399 $ 6,717,764 $ 3,817,851 (1) This amount will be used primarily to originate Private Education Loans at the Bank. Deposits The following table summarizes total deposits. As of December 31, (dollars in thousands) 2021 2020 Deposits - interest bearing $ 20,826,692 $ 22,664,899 Deposits - non-interest bearing 1,432 1,140 Total deposits $ 20,828,124 $ 22,666,039 Our total deposits of $20.8 billion were comprised of $10.1 billion in brokered deposits and $10.7 billion in retail and other deposits at December 31, 2021, compared with total deposits of $22.7 billion, which were comprised of $11.9 billion in brokered deposits and $10.8 billion in retail and other deposits, at December 31, 2020. Interest bearing deposits as of December 31, 2021 and 2020 consisted of retail and brokered non-maturity savings deposits, retail and brokered non-maturity money market deposit accounts (“MMDAs”) and retail and brokered CDs. Interest bearing deposits include deposits from Educational 529 and Health Savings plans that diversify our funding sources and add deposits we consider to be core. These and other large omnibus accounts, aggregating the deposits of many individual depositors, represented $7.3 billion of our deposit total as of December 31, 2021, compared with $7.1 billion at December 31, 2020. Some of our deposit products are serviced by third-party providers. Placement fees associated with the brokered CDs are amortized into interest expense using the effective interest rate method. We recognized placement fee expense of $16 million, $19 million, and $18 million in the years ended December 31, 2021, 2020, and 2019, respectively. 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 Table of Contents Interest bearing deposits at December 31, 2021 and 2020 are summarized as follows: 2021 2020 As of December 31, (dollars in thousands) Amount Year-End Weighted Average Stated Rate (1) Amount Year-End Weighted Average Stated Rate (1) Money market $ 10,473,569 0.69 % $ 10,159,657 0.83 % Savings 959,122 0.43 907,976 0.55 Certificates of deposit 9,394,001 1.20 11,597,266 1.34 Deposits - interest bearing $ 20,826,692 $ 22,664,899 (1) Includes the effect of interest rate swaps in effective hedge relationships. As of December 31, 2021 and 2020, there were $743 million and $571 million, respectively, of deposits exceeding FDIC insurance limits. Accrued interest on deposits was $35 million and $50 million at December 31, 2021 and 2020, respectively. Counterparty Exposure Counterparty exposure related to financial instruments arises from the risk that a lending, investment, or derivative counterparty will not be able to meet its obligations to us. Excess cash is generally invested with the FRB on an overnight basis or in the FRB’s Term Deposit Facility, minimizing counterparty exposure on cash balances. Our investment portfolio is primarily comprised of a small portfolio of mortgage-backed securities issued by government agencies and government-sponsored enterprises that are purchased to meet CRA targets. Additionally, our investing activity is governed by Board-approved limits on the amount that is allowed to be invested with any one issuer based on the credit rating of the issuer, further minimizing our counterparty exposure. Counterparty credit risk is considered when valuing investments and considering impairment. Related to derivative transactions, protection against counterparty risk is generally provided by International Swaps and Derivatives Association, Inc. Credit Support Annexes (“CSAs”), or clearinghouses for over-the-counter derivatives. CSAs require a counterparty to post collateral if a potential default would expose the other party to a loss. All derivative contracts entered into by the Bank are covered under CSAs or clearinghouse agreements and require collateral to be exchanged based on the net fair value of derivatives with each counterparty. Our exposure is limited to the value of the derivative contracts in a gain position, less any collateral held by us and plus collateral posted with the counterparty. Title VII of the Dodd-Frank Act requires all standardized derivatives, including most interest rate swaps, to be submitted for clearing to central counterparties to reduce counterparty risk. Two of the central counterparties we use are the CME and the LCH. All variation margin payments on derivatives cleared through the CME and LCH are accounted for as legal settlement. As of December 31, 2021, $5.2 billion notional of our derivative contracts were cleared on the CME and $0.3 billion were cleared on the LCH. The derivative contracts cleared through the CME and LCH represent 94.4 percent and 5.6 percent, respectively, of our total notional derivative contracts of $5.5 billion at December 31, 2021. For derivatives cleared through the CME and LCH, the net gain (loss) position includes the variation margin amounts as settlement of the derivative and not collateral against the fair value of the derivative. The amount of variation margin included as settlement as of December 31, 2021 was $(72) million and $8 million for the CME and LCH, respectively. Changes in fair value for derivatives not designated as hedging instruments are presented as realized gains (losses). Our exposure is limited to the value of the derivative contracts in a gain position less any collateral held and plus any collateral posted. When there is a net negative exposure, we consider our exposure to the counterparty to be zero. 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 Table of Contents We have liquidity exposure related to collateral movements between us and our derivative counterparties. Movements in the value of the derivatives, which are primarily affected by changes in interest rates, may require us to return cash collateral held or may require us to access primary liquidity to post collateral to counterparties. 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 and Sallie Mae Bank Contracts Total exposure, net of collateral $ 9,408 Exposure to counterparties with credit ratings, net of collateral $ 9,408 Percent of exposure to counterparties with credit ratings below S&P AA- or Moody’s Aa3 — % Percent of exposure to counterparties with credit ratings below S&P A- or Moody’s A3 — % Regulatory Capital The Bank is subject to various regulatory capital requirements administered by federal and state banking authorities. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on our business, results of operations, and financial condition. Under U.S. Basel III and the regulatory framework for prompt corrective action, the Bank must meet specific capital standards that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and its classification under the prompt corrective action framework are also subject to qualitative judgments by the regulators about components of capital, risk weightings, and other factors. The following capital amounts and ratios are based upon the Bank’s average assets and risk-weighted assets, as indicated. Actual U.S. Basel III Minimum Requirements Plus Buffer (1)(2) (Dollars in thousands) Amount Ratio Amount Ratio As of December 31, 2021: Common Equity Tier 1 Capital (to Risk-Weighted Assets) $ 3,314,657 14.1 % $ 1,643,132 > 7.0 % Tier 1 Capital (to Risk-Weighted Assets) $ 3,314,657 14.1 % $ 1,995,232 > 8.5 % Total Capital (to Risk-Weighted Assets) $ 3,410,183 14.5 % $ 2,464,699 > 10.5 % Tier 1 Capital (to Average Assets) $ 3,314,657 11.1 % $ 1,198,808 > 4.0 % As of December 31, 2020: Common Equity Tier 1 Capital (to Risk-Weighted Assets) $ 3,579,005 14.0 % $ 1,794,780 > 7.0 % Tier 1 Capital (to Risk-Weighted Assets) $ 3,579,005 14.0 % $ 2,179,375 > 8.5 % Total Capital (to Risk-Weighted Assets) $ 3,849,820 15.0 % $ 2,692,169 > 10.5 % Tier 1 Capital (to Average Assets) $ 3,579,005 11.3 % $ 1,264,424 > 4.0 % (1) Reflects the U.S. Basel III minimum required ratio plus the applicable capital conservation buffer. (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 Table of Contents Capital Management The Bank intends to maintain at all times regulatory capital levels that meet both the minimum levels required under U.S. Basel III (including applicable buffers) and the levels necessary to be considered “well capitalized” under the FDIC’s prompt corrective action framework, in order to support asset growth and operating needs, address unexpected credit risks, and protect the interests of depositors and the DIF administered by the FDIC. The Bank’s Capital Policy requires management to monitor these capital standards and the Bank’s compliance with them. The Board of Directors and management periodically evaluate the quality of assets, the stability of earnings, and the adequacy of the allowance for credit losses for the Bank. The Company is a source of strength for the Bank and will provide additional capital if necessary. We believe that current and projected capital levels are appropriate for 2022. As of December 31, 2021, the Bank’s risk-based and leverage capital ratios exceed the required minimum ratios and the applicable buffers under the fully phased-in U.S. Basel III standards as well as the “well capitalized” standards under the prompt corrective action framework. Under U.S. Basel III, the Bank is required to maintain the following minimum regulatory capital ratios: 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 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. As of December 31, 2021, the Bank had a Common Equity Tier 1 risk-based capital ratio and a Tier 1 risk-based capital ratio of 14.1 percent, a Total risk-based capital ratio of 14.5 percent and a Tier 1 leverage ratio of 11.1 percent, which exceed the capital levels required under U.S. Basel III and the “well capitalized” standard. Dividends 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 $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. “Business — Supervision and Regulation — Regulation of Sallie Mae Bank — Dividends and Share Repurchase Programs,” regarding the expectation that the Bank will pay dividends to the Company as may be necessary to enable the Company to pay any declared dividends on its Series B Preferred Stock and common stock and to consummate any common share repurchases by the Company under the share repurchase programs. See also Part I, Item 1A. “Risk Factors — General Risks” for possible limitations on the payments of our dividends. 2021 Form 10-K — SLM CORPORATION 87 Table of Contents Borrowings 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. The following table summarizes our secured borrowings at December 31, 2021 and 2020. For additional information, see Notes to Consolidated Financial Statements, Note 11, “Borrowings.” 2021 2020 As of December 31, (dollars in thousands) Short-Term Long-Term Total Short-Term Long-Term Total Unsecured borrowings: Unsecured debt (fixed-rate) $ — $ 986,138 $ 986,138 $ — $ 692,879 $ 692,879 Total unsecured borrowings — 986,138 986,138 — 692,879 692,879 Secured borrowings: Private Education Loan term securitizations: Fixed-rate — 3,897,996 3,897,996 — 3,261,233 3,261,233 Variable-rate — 1,046,856 1,046,856 — 1,235,105 1,235,105 Total Private Education Loan term securitizations — 4,944,852 4,944,852 — 4,496,338 4,496,338 Secured Borrowing Facility — — — — — — Total secured borrowings — 4,944,852 4,944,852 — 4,496,338 4,496,338 Total $ — $ 5,930,990 $ 5,930,990 $ — $ 5,189,217 $ 5,189,217 Short-term borrowings 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 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. The Secured Borrowing Facility’s contractual maturity is two years from the date of inception or renewal (one-year revolving period plus a one-year amortization period); however, we classify advances under our Secured Borrowing Facility as short-term borrowings because it is our intention to repay those advances within one year. Long-term borrowings Unsecured Debt 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. 88 SLM CORPORATION — 2021 Form 10-K Table of Contents Secured Financings 2021 Transactions 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. 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 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. 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 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. The Class A and Class B notes had a weighted average life of 4.18 years and priced at a weighted average LIBOR equivalent cost of 1-month LIBOR plus 0.88 percent. 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 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. The Class A and Class B notes had a weighted average life of 4.14 years and priced at a weighted average LIBOR equivalent cost of 1-month LIBOR plus 1.30 percent. At December 31, 2021, $615 million of our Private Education Loans, including $581 million of principal and $34 million in capitalized interest, were encumbered because of this transaction. Pre-2020 Transactions Prior to 2020, we executed a total of $6.9 billion in ABS transactions that were accounted for as secured financings. At December 31, 2021, $3.6 billion of our Private Education Loans, including $3.5 billion of principal and $141 million in capitalized interest, were encumbered as a result of these transactions. Other Borrowing Sources We maintain discretionary uncommitted Federal Funds lines of credit with various correspondent banks, which totaled $125 million at December 31, 2021. The interest rate we are charged on these lines of credit is priced at Fed Funds plus a spread at the time of borrowing, and is payable daily. We did not utilize these lines of credit in the years ended December 31, 2021 and 2020. We established an account at the FRB to meet eligibility requirements for access to the Primary Credit borrowing facility at the FRB’s Discount Window (the “Window”). The Primary Credit borrowing facility is a lending program available to depository institutions that are in generally sound financial condition. All borrowings at the Window must be fully collateralized. We can pledge asset-backed and mortgage-backed securities, as well as FFELP Loans and Private Education Loans, to the FRB as collateral for borrowings at the Window. Generally, collateral value is assigned based on the estimated fair value of the pledged assets. At December 31, 2021 and December 31, 2020, the value of our pledged 2021 Form 10-K — SLM CORPORATION 89 Table of Contents 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. We did not utilize this facility in the years ended December 31, 2021 and 2020. Contractual Loan Commitments When we approve a Private Education Loan at the beginning of an academic year, that approval may cover the borrowing for the entire academic year. As such, we do not always disburse the full amount of the loan at the time of such approval, but instead have a commitment to fund a portion of the loan at a later date (usually at the start of the second semester or subsequent trimesters). At December 31, 2021, we had $1.8 billion of outstanding contractual loan commitments which we expect to fund during the remainder of the 2021/2022 academic year. At December 31, 2021, we had a $73 million reserve recorded in “Other Liabilities” to cover expected losses that may occur during the one-year loss emergence period on these unfunded commitments. Contractual Cash Obligations 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. Common Stock 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. 90 SLM CORPORATION — 2021 Form 10-K Table of Contents 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; and • 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 2021 Form 10-K — SLM CORPORATION 91 Table of Contents 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. 92 SLM CORPORATION — 2021 Form 10-K Table of Contents Critical Accounting Policies and Estimates Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses our consolidated financial statements, which have been prepared in accordance with GAAP. Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies” includes a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of income and expenses during the reporting periods. Actual results may differ from these estimates under varying assumptions or conditions. On a quarterly basis, management evaluates its estimates, particularly those that include the most difficult, subjective, or complex judgments and are often about matters that are inherently uncertain. The most significant judgments, estimates, and assumptions relate to the following critical accounting policies that are discussed in more detail below. 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: January 1, 2020 (Dollars in thousands) As reported under CECL Pre-CECL Adoption Impact of CECL Adoption Assets: Allowance for credit losses: Private Education Loans $ 1,435,130 $ 374,300 $ 1,060,830 FFELP Loans 4,485 1,633 2,852 Personal Loans 145,060 65,877 79,183 Credit Cards 290 102 188 Total $ 1,584,965 $ 441,912 $ 1,143,053 Deferred tax asset $ 415,540 $ 109,369 $ 306,171 Liabilities: Allowance for credit losses: Off-balance sheet exposures $ 118,239 $ 2,481 $ 115,758 Equity: Retained Earnings $ 897,873 $ 1,850,512 $ (952,639) 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. 2021 Form 10-K — SLM CORPORATION 93 Table of Contents Allowance for Credit Losses We maintain an allowance for credit losses for the lifetime expected credit losses on loans in our portfolios, as well as for future loan commitments, at the reporting date. In determining the lifetime expected credit losses on our Private Education Loan portfolio loan segments, we use a discounted cash flow model. This method requires us to project future principal and interest cash flows on our loans in those portfolios. To estimate the future expected cash flows, we use a vintage-based model that considers life of loan loss expectations, prepayments (both voluntary and involuntary), defaults, recoveries, and any other adjustments deemed necessary, to determine the adequacy of the allowance at each balance sheet date. These cash flows are discounted at the loan’s effective interest rate to calculate the present value of those cash flows. Management adjusts the effective interest rate used to discount expected cash flows to incorporate expected prepayments. The difference between the present value of those cash flows and the amortized cost basis of the underlying loans is the allowance for credit losses. Entities that measure credit losses based on the present value of expected future cash flows are permitted to report the entire change in present value as credit loss expense, but may alternatively report the change in present value due to the passage of time as interest income. We have elected to report the entire change in present value as credit loss expense. In determining the loss rates used for the vintage-based approach, we start with our historical loss rates, stratify the loans within each vintage, and then adjust the loss rates based upon economic factors forecasted over a reasonable and supportable forecast period. The reasonable and supportable forecast period is meant to represent the period in which we believe we can estimate the impact of forecasted economic factors in our expected losses. At the end of the reasonable and supportable forecast period, we immediately revert our forecast of expected losses to our historical averages. We use a two-year reasonable and supportable forecast period, although this period is subject to change as our view evolves on our ability to reasonably forecast economic conditions to estimate future losses. In estimating our current expected credit losses, we use a combination of expected economic scenarios coupled with our historical experience to derive a base case adjusted for any qualitative factors (as described below). 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. This weighting of expectations is used in calculating our current expected credit losses recorded each period. In estimating recoveries, we use both estimates of what we would receive from the sale of defaulted loans as well as historical borrower payment behavior to estimate the timing and amount of future recoveries on charged-off loans. We use historical experience and economic forecasts to estimate future prepayment speeds. As with our loss forecasts, at the end of the two-year reasonable and supportable forecast for prepayments, we immediately revert to our historical long-term prepayment rates. In addition to the above modeling approach, we also take certain other qualitative factors into consideration when calculating the allowance for credit losses. These qualitative factors include, but are not limited to, changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off and recovery practices not already included in the analysis, and the effect of other external factors such as legal and regulatory requirements on the level of estimated current expected credit losses. The evaluation of the allowance for credit losses is inherently subjective, as it requires material estimates that may be susceptible to significant changes. If actual future performance in delinquency, charge-offs, and recoveries is significantly different than estimated, or management assumptions or practices were to change, this could materially affect the estimate of the allowance for credit losses, the timing of when losses are recognized, and the related provision for credit losses on our consolidated statements of income. When calculating our allowance for credit losses and liability for unfunded commitments, we incorporate several inputs that are subject to change period to period. These include, but are not limited to, CECL model inputs and any overlays deemed necessary by management. The most impactful CECL model inputs include: • Economic forecasts; • Weighting of economic forecasts; • Prepayment speeds; and • Recovery rates. 94 SLM CORPORATION — 2021 Form 10-K Table of Contents 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. 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. 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. 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. During the third quarter of 2020, we sold our entire Personal Loan portfolio. Allowance for Private Education Loan Losses In addition to the key assumptions/estimates described above, some estimates are unique to our Private Education Loan portfolio. Estimates are made on our Private Education Loans regarding when each borrower will separate from school. The cash flow timing of when a borrower will begin making full principal and interest payments is dependent upon when the student either graduates or leaves school. These dates can change based upon many factors. We receive information regarding projected graduation dates from a third-party 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. This estimate is based on historical experience. For unfunded commitments, we recognize the related life of loan allowance as a liability. Once the loan is funded, that liability transfers to the allowance for Private Education Loan losses. Key Credit Quality Indicators - Private Education Loans We determine the collectability of our Private Education Loan portfolio by evaluating certain risk characteristics. 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 2021 Form 10-K — SLM CORPORATION 95 Table of Contents 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. Additionally, loans in the deferred payment status have different credit risk profiles compared with those in current pay status. Loan seasoning affects credit risk because a loan with a history of making payments generally has a lower incidence of default than a loan with a history of making infrequent or no payments. The existence of a cosigner lowers the likelihood of default as well. We monitor and update these credit quality indicators in the analysis of the adequacy of our allowance for credit losses on a quarterly basis. We collect on defaulted loans through a mix of in-house collectors, third-party collectors, and sales to third-parties. For December 31, 2021 and 2020, we used both an estimate of recovery rates from in-house collections as well as expectations of future sales of defaulted loans to estimate the timing and amount of future recoveries on charged-off loans. Private Education Loans generally do not require borrowers to begin principal and interest repayment until at least six months after the borrowers have graduated or otherwise separated from school. 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 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. This is referred to as forbearance and is considered in estimating the allowance for credit losses. As part of concluding on the adequacy of the allowance for credit losses for Private Education Loans, we review key allowance and loan metrics. The most relevant of these metrics considered are the allowance as a percentage of ending total loans, delinquency percentages, and forbearance percentages. 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 (“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. The appropriate gross loss rates are determined for each individual loan by evaluating loan maturity, risk characteristics, and macroeconomic conditions. The allowance for our TDR portfolio is included in our overall allowance for Private Education Loans. Our TDR portfolio is comprised mostly of loans with interest rate reductions and loans with forbearance usage greater than three months, as further described below. 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 loans. 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. When we give a borrower facing financial difficulty an interest rate reduction, we temporarily reduce the rate (currently to 4.0 percent) for a two-year period and, in the vast majority of cases, permanently extend the final maturity of the loan. The combination of these two loan term changes 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 classify a loan as a TDR due to forbearance using a two-step process. 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. The second step is to evaluate the creditworthiness of the loan by examining its most recent refreshed FICO score. Loans that have met the criteria in the first test and have a FICO score above a certain threshold (based on the most recent quarterly FICO score refresh) will not be classified as TDRs. Loans that have met the criteria in the first test and have a FICO score under the threshold (based on the most recent quarterly FICO score refresh) will be classified as TDRs. 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 96 SLM CORPORATION — 2021 Form 10-K Table of Contents 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.” 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. 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. 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. Off-Balance Sheet Exposure for Contractual Loan Commitments When we approve a Private Education Loan at the beginning of an academic year, that approval may cover the borrowing for the entire academic year. As such, we do not always disburse the full amount of the loan at the time of such approval, but instead have a commitment to fund a portion of the loan at a later date (usually the start of the second semester or subsequent trimesters). We estimate expected credit losses over the contractual period in which we are exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by us. The discounted cash flow approach described above includes expected future contractual disbursements. The portion of the allowance for credit losses related to future disbursements is shown as a liability on the face of the balance sheet, and related provision for credit losses is reflected on the income statement. Uncollectible Interest The majority of the total accrued interest receivable on our Private Education Loan portfolio represents accrued interest on deferred loans where no payments are due while the borrower is in school and on fixed-pay loans where the borrower makes a $25 monthly payment that is smaller than the interest accrued on the loan in that month. The accrued interest on these loans will be capitalized and increase the unpaid principal balance of the loans when the borrower exits the grace period after separation from school. The discounted cash flow approach described above considers both the collectability of principal as well as this portion of accrued interest that is expected to capitalize to the balance of the loan. Therefore, the allowance for this portion of accrued interest balance is included in our allowance for credit losses. The discounted cash flow approach does not consider interest accrued on loans that are in a full principal and interest repayment status or in interest-only repayment status. We separately capture the amount of expected uncollectible interest associated with these loans using historical experience to estimate the uncollectible interest for the next four months at each period-end date. This amount is recorded as a reduction of interest income. Accrued interest receivable is separately disclosed on the face of the balance sheet. Allowance for Credit Card Loans We use the gross loss approach when estimating the allowance for credit losses for our Credit Card portfolio. 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. As all of our Credit Card loans are unconditionally cancelable by us, the issuer, we do not record any estimate of credit losses for unused portions of our Credit Card commitments. Allowance for FFELP Loan Losses FFELP Loans are insured as to their principal and accrued interest in the event of default, subject to a risk-sharing level based on the date of loan disbursement. 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 claims. For loans disbursed after October 1, 1993, and before July 1, 2006, we receive 98 percent reimbursement on all qualifying 2021 Form 10-K — SLM CORPORATION 97 Table of Contents claims. For loans disbursed prior to October 1, 1993, we receive 100 percent reimbursement. Because we bear a maximum of three percent loss exposure due to this federal guarantee, our allowance for credit losses for FFELP Loans and related periodic provision expense are relatively small. We use the gross loss approach when estimating the allowance for credit losses for the unguaranteed portion of our FFELP Loans. We maintain an allowance for credit losses for our FFELP Loans at a level sufficient to cover lifetime expected credit losses. The allowance for FFELP Loan losses uses historical experience of customer default behavior. We apply the default rate projections, net of applicable risk sharing, to our FFELP Loans for the current period to perform our quantitative calculation. 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. 98 SLM CORPORATION — 2021 Form 10-K Table of Contents Risk Management Our Approach Risk is inherent in our business activities and the specialized lending industry we serve. The ability of management to anticipate, identify, and remediate risk in a timely manner is critical to our continued success. 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 Our Board of Directors oversees our overall strategic direction, including our risk management capability and effectiveness. The Board of Directors has oversight of key policies as well as the risk management framework developed and administered by the management team. 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 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, 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 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. Rather than focusing on execution, the second line of defense is accountable for the related policy and standards executed upon by the first line of defense. 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. 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 Table of Contents 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. 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 . The Audit Committee is responsible for oversight of the Internal Audit function. Additionally, the Audit Committee oversees the quality and integrity of our financial reporting process and financial statements; the qualifications, hiring, performance, and independence of our independent registered accounting firm; and our system of internal financial controls. 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. Management-Level Committee Structure Executive Committee (“EC”) . 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. • Enterprise Risk Committee . The ERC provides independent oversight and effective challenge to risk and control activities across the enterprise. 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 . The Credit Committee is responsible for credit and counterparty risk, product pricing, and credit and collections operations. • Operational Risk Committee (“ORC”) . The ORC is the oversight body for risk related to inadequate or failed internal processes, people, and systems or from external events. It also reviews information technology risk and regulatory and legal risks. • Asset and Liability Committee (“ALCO”). ALCO is responsible for the strategy, processes, and authorities with which the Bank’s interest rate risk, liquidity, and capital adequacy are managed. • 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. 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 Table of Contents 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. Annually, Internal Audit performs an independent risk assessment to evaluate the risk of all significant components of the Company and uses the results to develop their annual Internal Audit plan. 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, 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. The credit risk related to Private Education Loans is managed within a credit risk infrastructure that includes: (i) a well-defined underwriting, asset quality, and collection policy framework; (ii) an ongoing monitoring and review process of portfolio composition and trends; (iii) assignment and management of credit authorities and responsibilities; and (iv) establishment of an allowance for credit losses that covers estimated future losses based upon an analysis of portfolio metrics and economic factors. Credit risk related to derivative contracts is managed by reviewing counterparties for credit strength on an ongoing basis and through our credit policies, which place limits on the amount of exposure we may take with any one counterparty and require collateral to secure the position. 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. Market Risk. 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 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: meet our funding needs through market cycles, including periods of financial stress; manage the relative maturities of assets and liabilities on our balance sheet; fund disbursements of Private Education Loans and other loans; and service our indebtedness and bank deposits. 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 Table of Contents 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. 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 Table of Contents