3. Education Loans

In School Private Education Loans

Effective July 1, 2026, the Company elected the fair value option for In-School Education Loans originated on or after that date. $479 million of In-School Education Loans were originated in third-quarter 2026 consisting of $226 million of loans disbursed in the third quarter and $253 million of commitments to disburse at a future date after September 30, 2026. With the assistance of a third-party valuation specialist these originations were valued at 105% of par, at quarter end, resulting in a $23 million gain in the third quarter ($11 million of which is recorded as part of the basis of the disbursed loans and the remaining $12 million recorded in Other Assets on the balance sheet). See "Note 11 – Fair Value Measurements” for additional detail on the valuation methodology.

Additionally, we classified the remaining $1.0 billion of In-School Education Loans as held for sale as of September 30, 2026. The fair value of these loans was greater than the carrying value which resulted in the reversal of the corresponding $42 million allowance for loan losses through provision for loan losses. Fair value was determined with the assistance of a third party valuation specialist using the same methodology as the In-School Education Loans under the fair value option discussed above. We classified these loans as held for sale because we intend to sell those loans, or the residual interest in the securitized loans, as part of our ongoing balance sheet and capital management strategy.

Legacy Private Education Loans

Consistent with our broader effort to redeploy capital and align our balance sheet with today’s lending products, in the second quarter we classified approximately $600 million (par amount) of the $5.7 billion Legacy Private Education Loan portfolio as held for sale ("Legacy" refers to In-School Private Education Loans originated prior to 2020). This resulted in $19 million of allowance for loan losses being reversed as the fair value was greater than the carrying value. These loans were sold in September 2026 resulting in a $99 million gain.

Additionally, in September 2026, we sold the residual interests in three Legacy Private Education Loan securitization trusts that were consolidated on our balance sheet to a third party. The trusts contained approximately $150 million of Legacy Private Education Loans. The transfer qualified for sale accounting under ASC Topic 860, "Transfers and Servicing," and was supported by a legal opinion that the transfer constituted a “true sale.” Following the transfer, we no longer held any variable interests in the trusts and, accordingly, deconsolidated the trusts under ASC Topic 810, "Consolidation." The transaction resulted in a gain of $63 million, which was recognized in “Gains on sales of loans” in the income statement. The non-cash gain primarily reflects the derecognition of the excess of the trusts’ debt over the carrying amount of their assets at the time of deconsolidation.

In the third quarter, in continuing our effort to align our balance sheet with today’s lending products, we classified an additional $1.4 billion of Legacy Private Education Loans as held for sale. This resulted in a $29 million loss, recorded through provision for loan losses, when adjusting to the lower of fair value or amortized cost basis. Fair value was determined with the assistance of a third-party valuation specialist using the same methodology as the In-School Education Loans under the fair value option discussed above, appropriately adjusted for different assumptions primarily regarding prepayments, credit losses and the discount rate.

3. Education Loans (Continued)