Fair Value Measurements

3 Months Ended

Mar. 31, 2024

We use estimates of fair value in applying various accounting standards for our consolidated financial statements.

We categorize our fair value estimates based on a hierarchical framework associated with three levels of price transparency utilized in measuring financial instruments at fair value. For additional information regarding our policies for determining fair value and the hierarchical framework, see Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies - Fair Value Measurement” in our 2023 Form 10-K.

During the three months ended March 31, 2024, there were no significant transfers of financial instruments between levels or changes in our methodology or assumptions used to value our financial instruments.

The following table summarizes the valuation of our financial instruments that are marked-to-fair value on a recurring basis.


	Fair Value Measurements on a Recurring Basis
	March 31, 2024								December 31, 2023
(Dollars in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total

Assets:
Trading investments	$	—	$	—	$	58,166	$	58,166	$	—	$	—	$	54,481	$	54,481
Available-for-sale investments	—		2,271,108		—		2,271,108		—		2,411,622		—		2,411,622
Derivative instruments	—		208		—		208		—		—		—		—
Total	$	—	$	2,271,316	$	58,166	$	2,329,482	$	—	$	2,411,622	$	54,481	$	2,466,103

Liabilities:
Derivative instruments	$	—	$	(116)	$	—	$	(116)	$	—	$	(370)	$	—	$	(370)
Total	$	—	$	(116)	$	—	$	(116)	$	—	$	(370)	$	—	$	(370)

Change in Balance Sheet Carrying Value Associated with Level 3 Financial Instruments Carried at Fair Value on a Recurring Basis

At March 31, 2024 and December 31, 2023, we had $58 million and $54 million, respectively, classified as level 3 financial instruments carried at fair value on a recurring basis through earnings which represent the five percent vertical risk retentions in the residual classes of Private Education Loans sold through securitizations. Total gains/(losses), net included in earnings were $2 million in net gains in the three months ended March 31, 2024, and in the year-ago period, recorded in the specified line item “gains/(losses) on sale of securities”. Net settlements in the three months ended March 31, 2024 were $2 million, compared to $(1) million in the year-ago period. There were no transfers into or out of level 3 related to these residual interest investments during the three months ended March 31, 2024 and 2023. The change in mark to market gains/(losses) on investments held as of the reporting date were $2 million in the three months ended March 31, 2024 and in the year-ago period.

The fair value at March 31, 2024 of the residual interests classified as level 3 valuations was $58 million. The residual interest investments are the projected future cash flows representing the difference between the securitized trust’s asset cash flows and the related outflows to the bondholders and for other fees. The residual investments are valued using an internal discounted cash flow model to arrive at the net present value of expected trust residual distributions. These instruments are not actively traded, nor do they have quoted market prices. As a result, unobservable model input assumptions are made regarding the expected CPR and the probability of defaults of the loans in the securitization trusts. At March 31, 2024, the range (average by volume) of the CPR input was 7.1 percent to 11.1 percent (average of 8.49 percent) and the range of the defaults input was 5.1 percent to 20.7 percent (average of 11.03 percent).

The significant inputs considered unobservable detailed above would be expected to have the following impacts to the valuations:

•A decrease in CPR would result in a longer weighted average life of the trust, resulting in a decrease to the valuation due to the delay in residual cash flows with the increased term. The opposite is true for an increase in the CPR.

•A decrease in the probability of defaults means increased principal receipts, resulting in an increase to the valuation due to the increase in residual cash flow.

•Conversely, an increase in the probability of defaults means decreased principal receipts, resulting in a decrease to the valuation due to the decrease in residual cash flow.

The following table summarizes the fair values of our financial assets and liabilities, including derivative financial instruments.


	March 31, 2024						December 31, 2023
(Dollars in thousands)	Fair Value		Carrying Value		Difference		Fair Value		Carrying Value		Difference
Earning assets:
Loans held for investment, net:
Private Education Loans	$	22,342,438	$	19,687,783	$	2,654,655	$	22,229,045	$	19,772,293	$	2,456,752
FFELP Loans	521,527		513,006		8,521		542,775		534,064		8,711


Cash and cash equivalents	3,584,013		3,584,013		—		4,149,838		4,149,838		—
Trading investments	58,166		58,166		—		54,481		54,481		—
Available-for-sale investments	2,271,108		2,271,108		—		2,411,622		2,411,622		—
Accrued interest receivable	1,467,249		1,386,487		80,762		1,448,766		1,379,904		68,862
Tax indemnification receivable	—		—		—		—		—		—
Derivative instruments	208		208		—		—		—		—
Total earning assets	$	30,244,709	$	27,500,771	$	2,743,938	$	30,836,527	$	28,302,202	$	2,534,325
Interest-bearing liabilities:
Money-market and savings accounts	$	10,268,578	$	10,417,629	$	149,051	$	11,134,883	$	11,203,292	$	68,409
Certificates of deposit	10,431,342		10,483,580		52,238		10,380,684		10,448,365		67,681

Long-term borrowings	4,703,196		4,976,882		273,686		4,873,690		5,227,512		353,822
Accrued interest payable	89,328		89,328		—		105,066		105,066		—
Derivative instruments	116		116		—		370		370		—
Total interest-bearing liabilities	$	25,492,560	$	25,967,535	$	474,975	$	26,494,693	$	26,984,605	$	489,912

Excess of net asset fair value over carrying value					$	3,218,913					$	3,024,237

Please refer to Notes to Consolidated Financial Statements, Note 17, “Fair Value Measurements” in our 2023 Form 10-K for a full discussion of the methods and assumptions used to estimate the fair value of each class of financial instruments.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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