123 Justison Street

Wilmington, DE 19801

Navient Corporation

Form 10-K for Fiscal Year Ended December 31, 2021

Filed: February 25, 2022

File No. 001-36228

Non-GAAP Financial Measure (“NGFM”) Allowance for Loan Losses (“Allowance”) presentation

Remove the NGFM Allowance presentation from the allowance table in our footnotes and thus only present this NGFM Allowance in the Allowance table in MD&A;

Define the NGFM Allowance within our existing “Non-GAAP Financial Measures” section on page 37 of Form 10-K. This description has been expanded to more fully describe the intent and usefulness of this NGFM Allowance in our filings with the SEC.

Charge-off presentation

Present charge-offs as previously discussed with the Staff. This results in disclosing the gross charge-off and expected recovery on such charge-off which nets to our previously disclosed charge-off amounts.

Page 2 of Form 10-K (USE OF NON-GAAP FINANCIAL MEASURES)

Page 37 of Form 10-K (Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures)

Page 45 of Form 10-K (Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures)

                Allowance coverage of charge-offs

                Allowance as a percentage of the ending total loan balance

                Allowance as a percentage of the ending loans in repayment

Page 28 of Form 10-K (Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Allowance for Loan Losses)

(Dollars in millions)

Beginning balance

Provision:

Reversal of allowance related to loan sales⁽¹⁾

Remaining provision

Total provision

Charge-offs:

Total charge-offs⁽³⁾

Gross charge-offs

Expected future recoveries on current period gross charge-offs

Total⁽³⁾

Adjustment resulting from the change in charge-off rate⁽²⁾

Net charge-offs

Decrease in expected future recoveries on previously fully charged-off loans⁽⁴⁾

Allowance at end of period (GAAP)

Plus: expected future recoveries on previously fully charged-off loans⁽⁴⁾

Allowance at end of period excluding expected future recoveries on previously fully charged-off loans (Non-GAAP Financial Measure)⁽⁵⁾

Net charge-offs as a percentage of average loans in repayment, excluding the net adjustment resulting from the change in the charge-off rate⁽²⁾

Net adjustment resulting from the change in charge-off rate as a percentage of average loans in repayment⁽²⁾

Net charge-offs as a percentage of average loans in repayment

Allowance coverage of charge-offs⁽⁵⁾

Allowance as a percentage of the ending total loan balance⁽⁵⁾

Allowance as a percentage of the ending loans in repayment⁽⁵⁾

Ending total loans

Average loans in repayment

Ending loans in repayment

In connection with the sale of approximately $1.6 billion of Private Education Loans in 2021.

In 2021, the portion of the loan amount charged off at default on Private Education Loans increased from 81.4% to 81.7%. This change resulted in a $16 million reduction to the balance of the expected future recoveries on charged-off loans.

Charge-offs are reported net of expected recoveries. For Private Education Loans, at the time of charge-off, the expected recovery amount is transferred from the education loan balance to the allowance for loan loss and is referred to as the expected future recoveries on charged-off loans we charge off the estimated loss of a defaulted loan balance by charging off the entire defaulted loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as “expected future recoveries on previously fully charged-off loans.” For FFELP Loans, the recovery is received at the time of charge-off.

At the end of each month, for Private Education Loans that are 212 or more days past due, we charge off the estimated loss of a defaulted loan balance. Actual recoveries are applied against the remaining loan balance that was not charged off. We refer to this as the “expected future recoveries on previously charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately charged off through the allowance for Private Education Loan losses with an offsetting reduction in the expected future recoveries for on previously charged-off loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. At the end of each month, for Private Education Loans that are 212 days past due, we charge off the estimated loss of a defaulted loan balance by charging off the entire loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as “expected future recoveries on previously fully charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately reflected as a reduction to expected future recoveries on previously fully charged-off loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. The following table summarizes the activity in the expected future recoveries on previously fully charged-off loans:

(Dollars in millions)

Beginning of period expected future recoveries on previously fully charged-off loans

Expected future recoveries of current period defaults

Recoveries (cash collected)

Charge-offs (as a result of lower recovery expectations)

Reduction in expected recoveries related to regulatory settlement⁽⁶⁾

End of period expected future recoveries on previously fully charged-off loans

Change in balance during period

The allowance used for these metrics excludes the expected future recoveries on charged-off loans to better reflect the current expected credit losses remaining in the portfolio. For Private Education Loans, the item is a non-GAAP financial measure. For a description and reconciliation, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures.”

See “Results of Operations – GAAP Comparison of 2021 Results with 2020” for further details.

Pages F-16 and F-17 of Form 10-K (Note 2 to Consolidated Financial Statements – Significant Accounting Policies)

We have determined that, for modeling current expected credit losses, we can reasonably estimate expected losses that incorporate current and forecasted economic conditions over a “reasonable and supportable” period. For Private Education Loans, we incorporate a reasonable and supportable forecast of various macro-economic variables over the remaining life of the loans. The development of the reasonable and supportable forecast incorporates an assumption that each macro-economic variable will revert to a long-term expectation starting in years 2-4 of the forecast and largely completing within the first five years of the forecast. For FFELP Loans, after a three-year reasonable and supportable period, there is an immediate reversion to a long-term expectation. The models used to project losses utilize key credit quality indicators of the loan portfolio and predict how those attributes are expected to perform in connection with the forecasted economic conditions. These losses are calculated on an undiscounted basis. For Private Education Loans, we utilize a transition rate model that estimates the probability of prepayment and default and apply the loss given default. For FFELP Loans, we use historical transition rates to determine prepayments and defaults. The forecasted economic conditions used in our modeling of expected losses are provided by a third party. The primary economic metrics we use in the economic forecast are unemployment, GDP, interest rates,

consumer loan delinquency rates and consumer income. Several forecast scenarios are provided which represent the baseline economic expectations as well as favorable and adverse scenarios. We analyze and evaluate the alternative scenarios for reasonableness and determine the appropriate weighting of these alternative scenarios based upon the current economic conditions and our view of the likelihood and risks of the alternative scenarios. We project losses at the loan level and make estimates regarding prepayments, recoveries on defaults and reasonably expected new Troubled Debt Restructurings (TDRs).

Separately, as it relates to interest rate concessions granted as part of our Private Education Loan modification program, a discounted cash flow model is used to calculate the amount of interest forgiven for loans currently in the program. The present value of this interest rate concession is included in our allowance for loan loss.

Charge-offs include the discount or premium related to such defaulted loan.

CECL requires our expected future recoveries on charged-off loans to be presented within the allowance for loan loss whereas previously, we accounted for our receivable for partially charged-off loans as part of our Private Education Loan portfolio. This change is only a change in classification on the balance sheet and did not impact retained earnings at adoption of CECL or provision and net income post-adoption.

Once our loss model calculations are performed, we determine if qualitative adjustments are needed for factors not reflected in the quantitative model. These adjustments may include, but are not limited to, changes in lending and servicing and collection policies and practices, as well as the effect of other external factors such as the economy and changes in legal or regulatory requirements that impact the amount of future credit losses.

(Dollars in millions)

Allowance as of December 31, 2019 (prior to CECL)

Transition adjustments made under CECL on January 1, 2020:

Current expected credit losses on non-PCD portfolio⁽¹⁾

Current expected credit losses on PCD portfolio⁽²⁾

Reclassification of the expected future recoveries on charged-off loans⁽³⁾

Net increase to allowance for loan losses under CECL

Allowance as of January 1, 2020 (after CECL)

Recorded net of tax through retained earnings. Resulted in a $620 million reduction to equity.

Recorded as an increase in basis of the loans. No impact to equity.

Reclassification of the expected future recoveries on charged-off loans (previously referred to as the receivable for partially charged-off loans) from the Private Education Loan balance to the allowance for loan losses. No impact to equity.

Page F-27 of Form 10-K (Note 4 to Consolidated Financial Statements – Allowance for Loan Losses)

(Dollars in millions)

Beginning balance

Provision:

Reversal of allowance related to loan sales⁽¹⁾

Remaining provision

Total provision

Charge-offs:

    Net adjustment resulting from the change in the charge-off rate⁽²⁾

    Net charge-offs remaining⁽³⁾

Total charge-offs⁽³⁾

Gross charge-offs

Expected future recoveries on current period gross charge-offs

Total⁽³⁾

Adjustment resulting from the change in charge-off rate⁽²⁾

Net charge-offs

Decrease in expected future recoveries on previously fully charged-off loans⁽⁴⁾

Allowance at end of period

Plus: expected future recoveries on charged-off loans⁽⁴⁾

Allowance at end of period excluding expected future recoveries on charged-off loans⁽⁵⁾

Net charge-offs as a percentage of average loans in repayment, excluding the net adjustment resulting from the change in the charge-off rate⁽²⁾

Net adjustment resulting from the change in charge-off rate as a percentage of average loans in repayment⁽²⁾

Net charge-offs as a percentage of average loans in repayment

Allowance coverage of charge-offs⁽⁶⁾

Allowance as a percentage of the ending total loan balance⁽⁶⁾

Allowance as a percentage of the ending loans in repayment⁽⁶⁾

Ending total loans

Average loans in repayment

Ending loans in repayment

In connection with the sale of approximately $1.6 billion of Private Education Loans in 2021.

In 2021, the portion of the loan amount charged off at default on Private Education Loans increased from 81.4% to 81.7%. This change resulted in a $16 million reduction to the balance of the expected future recoveries on charged-off loans in 2021.

Charge-offs are reported net of expected recoveries. For Private Education Loans, at the time of charge-off, the expected recovery amount is transferred from the education loan balance to the allowance for loan loss and is referred to as the expected future recoveries on charged-off loans we charge off the estimated loss of a defaulted loan balance by charging off the entire defaulted loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as “expected future recoveries on previously fully charged-off loans.” For FFELP Loans, the recovery is received at the time of charge-off.

At the end of each month, for Private Education Loans that are 212 or more days past due, we charge off the estimated loss of a defaulted loan balance. Actual recoveries are applied against the remaining loan balance that was not charged off. We refer to this as the “expected future recoveries on charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately charged off through the allowance for Private Education Loan losses with an offsetting reduction in the expected future recoveries for charged-off loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. At the end of each month, for Private Education Loans that are 212 days past due, we charge off the estimated loss of a defaulted loan balance by charging off the entire loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as “expected future recoveries on previously fully charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately reflected as a reduction to expected future recoveries on previously fully charged-off loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. The following table summarizes the activity in the expected future recoveries on previously fully charged-off loans:

(Dollars in millions)

Beginning of period expected future recoveries on previously fully charged-off loans

Expected future recoveries of current period defaults

Recoveries (cash collected)

Charge-offs (as a result of lower recovery expectations)

Reduction in expected recoveries related to regulatory settlement⁽⁵⁾

End of period expected future recoveries on previously fully charged-off loans

Change in balance during period

See “Note 12 – Commitments, Contingencies and Guarantees” for further discussion.

The allowance used for these metrics excludes the expected future recoveries on charged-off loans to better reflect the current expected credit losses remaining in the portfolio.

the Company and its management are responsible for the accuracy and adequacy of their disclosures, notwithstanding any review, comments, action or absence of action by the Staff.