Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2026

Valuation of Financial Instruments that are Marked-to-Market on Recurring Basis

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


	Fair Value Measurements on a Recurring Basis
	September 30, 2026											December 31, 2025
(Dollars in millions)	Level 1		Level 2			Level 3			Total			Level 1		Level 2		Level 3			Total
Assets
Private Education Loans at fair value	$	—	$	—		$	235		$	235		$	—	$	—	$	—		$	—
Private Education Loan commitments(1)		—		—			12			12			—		—		—			—
Interest rate swaps(2)(3)		—		—			—			—			—		39		—			39
Cross-currency interest rate swaps(2)(3)		—		—			—			—			—		—		3			3
Total assets	$	—	$	—		$	247		$	247		$	—	$	39	$	3		$	42
Liabilities(4)
Interest rate swaps(2)(3)	$	—	$	(6	)	$	—		$	(6	)	$	—	$	—	$	—		$	—
Cross-currency interest rate swaps(2)(3)		—		—			(95	)		(95	)		—		—		(79	)		(79	)
Total liabilities	$	—	$	(6	)	$	(95	)	$	(101	)	$	—	$	—	$	(79	)	$	(79	)

(1)

Private Education Loan commitments are loans that have been originated but have not yet disbursed. These are carried in Other Assets on the balance sheet.

(2)

Fair value of derivative instruments excludes accrued interest and the value of collateral.

(3)

See "Note 7 – Derivative Financial Instruments" for a reconciliation of gross positions without the impact of master netting agreements to the balance sheet classification.

(4)

Borrowings which are the hedged item in a fair value hedge relationship and which are adjusted for changes in value due to benchmark interest rates only are not carried at full fair value and not reflected in this table.

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

The following tables summarize the change in balance sheet carrying value associated with level 3 financial instruments carried at fair value on a recurring basis.


	Three Months Ended September 30,
	2026										2025
(Dollars in millions)	Interest Rate Swaps		Cross Currency Interest Rate Swaps			Private Education Loans			Private Education Loan Commitments		Interest Rate Swaps		Cross Currency Interest Rate Swaps
Balance, beginning of period	$	—	$	(91	)	$	—		$	—	$	—	$	(75	)
Total gains/(losses):
Included in earnings(1)		—		(9	)		11			12		—		(10	)
Purchases(2)		—		—			226			—		—		—
Settlements(3)		—		5			(2	)		—		—		9
Other changes(4)		—		—			—			—		—		—
Transfers in and/or out of level 3		—		—			—			—		—		—
Balance, end of period	$	—	$	(95	)	$	235		$	12	$	—	$	(76	)
Change in mark-to- market gains/ (losses) relating to instruments still held at the reporting date(5)	$	—	$	(4	)	$	11		$	12	$	—	$	(1	)


	Nine Months Ended September 30,
	2026										2025
(Dollars in millions)	Interest Rate Swaps		Cross Currency Interest Rate Swaps			Private Education Loans			Private Education Loan Commitments		Interest Rate Swaps		Cross Currency Interest Rate Swaps
Balance, beginning of period	$	—	$	(76	)	$	—		$	—	$	—	$	(244	)
Total gains/(losses):
Included in earnings(1)		—		(38	)		11			12		—		142
Purchases(2)		—		—			226			—		—		—
Settlements(3)		—		19			(2	)		—		—		26
Other changes(4)		—		—			—			—		—		—
Transfers in and/or out of level 3		—		—			—			—		—		—
Balance, end of period	$	—	$	(95	)	$	235		$	12	$	—	$	(76	)
Change in mark-to- market gains/ (losses) relating to instruments still held at the reporting date(5)	$	—	$	(26	)	$	11		$	12	$	—	$	168

“Included in earnings” is comprised of the following amounts recorded in the specified line item in the consolidated statements of income:

Included in Earnings


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in millions)	2026			2025			2026			2025
Gains (losses) on derivative and hedging activities, net	$	—		$	—		$	—		$	—
Interest expense		(9	)		(10	)		(38	)		142
Net fair value changes of loans		23			—			23			—
Total	$	14		$	(10	)	$	(15	)	$	142

(2)

Purchases for education loans represents consideration paid for loans.

(3)

Settlements for education loans represents principal payments made on loans during the period.

(4)

Other changes for education loans represents amortization of purchase premiums.

(5)

Recorded in “gains (losses) on derivative and hedging activities, net” in the consolidated statements of income for interest rate swaps. Recorded in interest expense for cross-currency interest rate swaps in fair value hedges. Recorded in "net fair value changes of loans" for Private Education Loans and Private Education Loan commitments.

Unobservable Data Used in Recurring Valuations of Level 3

The following table presents the significant inputs that are unobservable or from inactive markets used in the recurring valuations of the level 3 financial instruments detailed above.


(Dollars in millions)	Fair Value at September 30, 2026			Valuation Technique	Input	Weighted Average
Education Loans
Private Education Loans and commitments	$	247		Discounted cash flow	Discount rate	6.7%
					Constant prepayment rate	12.7%
					Constant default rate	0.9%
Derivatives
Cross-currency interest rate swaps		(95	)	Discounted cash flow	Constant Prepayment Rate	4%
Total	$	152

The key assumptions for Private Education loans and commitments are defined as follows:

•

Discount rate – The weighted average rate at which the projected cashflows are discounted to arrive at the net present value (fair value) of the loans. An increase in the discount rate, in isolation, would result in a decrease in fair value.

•

Constant prepayment rate – the annual percentage of beginning period principal that will be paid in addition to the scheduled payment amount. An increase in the constant prepayment rate, in isolation, would result in a decrease in fair value.

•

Constant default rate – the annual percentage of beginning of period principal that will default. An increase in the constant default rate, in isolation, would result in a decrease in fair value.

Fair Values of Financial Assets and Liabilities, Including Derivative Financial Instruments

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


	September 30, 2026									December 31, 2025
(Dollars in millions)	Fair Value			Carrying Value			Difference			Fair Value			Carrying Value			Difference
Earning assets
Private Education Loans at amortized cost	$	11,947		$	12,680		$	(733	)	$	15,051		$	15,451		$	(400	)
Private Education Loans at fair value		235			235			—			—			—			—
Private Education Loans held for sale		2,348			2,339			9			—			—			—
FFELP Loans		25,826			25,898			(72	)		28,096			28,141			(45	)
Cash and investments		2,133			2,133			—			2,270			2,270			—
Total earning assets		42,489			43,285			(796	)		45,417			45,862			(445	)
Interest-bearing liabilities
Short-term borrowings		5,758			5,751			(7	)		5,084			5,073			(11	)
Long-term borrowings		36,586			37,429			843			40,120			40,633			513
Total interest-bearing liabilities		42,344			43,180			836			45,204			45,706			502
Derivative financial instruments
Interest rate swaps		(6	)		(6	)		—			39			39			—
Cross-currency interest rate swaps		(95	)		(95	)		—			(76	)		(76	)		—
Excess of net asset fair value over carrying value							$	40								$	57