Interest Rate Sensitivity Analysis
Our interest rate risk management seeks to limit the impact of movements in interest rates on our results of operations and financial position. The following tables summarize the potential effect on earnings over the next 12 months and the potential effect on fair values of balance sheet assets and liabilities at June 30, 2026 and 2025, based upon a sensitivity analysis performed by management assuming a hypothetical increase and decrease in market interest rates of 100 basis points. The earnings sensitivities assume an immediate increase and decrease in market interest rates of 100 basis points and are applied only to financial assets and liabilities, including hedging instruments, that existed at the balance sheet date and do not take into account any new assets, liabilities or hedging instruments that may arise over the next 12 months.
As of June 30, 2026 As of June 30, 2025
Impact on Annual Earnings If: Impact on Annual Earnings If:
Interest Rates Interest Rates
(Dollars in millions, except per share amounts) Increase 100 Basis Points Decrease 100 Basis Points Increase 100 Basis Points Decrease 100 Basis Points
Effect on Earnings:
Change in pre-tax net income before mark-to- market gains (losses) on derivative and hedging activities $ (7 ) $ 30 $ (13 ) $ 39
Mark-to-market gains (losses) on derivative and hedging activities (7 ) 8 51 (54 )
Increase (decrease) in income before taxes $ (14 ) $ 38 $ 38 $ (15 )
Increase (decrease) in net income after taxes $ (11 ) $ 29 $ 29 $ (12 )
Increase (decrease) in diluted earnings per common share $ (.11 ) $ .31 $ .29 $ (.12 )
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At June 30, 2026
Interest Rates:
Change from Increase of 100 Basis Points Change from Decrease of 100 Basis Points
(Dollars in millions) Fair Value $ % $ %
Effect on Fair Values:
Assets
Education Loans $ 41,588 $ (62 ) — % $ 103 — %
Other earning assets 2,255 — — — —
Other assets 2,793 23 1 88 3
Total assets gain/(loss) $ 46,636 $ (39 ) — % $ 191 — %
Liabilities
Interest-bearing liabilities $ 43,598 $ (206 ) — % $ 218 1 %
Other liabilities 562 110 20 (3 ) (1 )
Total liabilities (gain)/loss $ 44,160 $ (96 ) — % $ 215 — %
At December 31, 2025
Interest Rates:
Change from Increase of 100 Basis Points Change from Decrease of 100 Basis Points
(Dollars in millions) Fair Value $ % $ %
Effect on Fair Values:
Assets
Education Loans $ 43,147 $ (71 ) — % $ 98 — %
Other earning assets 2,270 — — — —
Other assets 2,819 23 1 86 3
Total assets gain/(loss) $ 48,236 $ (48 ) — % $ 184 — %
Liabilities
Interest-bearing liabilities $ 45,204 $ (223 ) — % $ 238 1 %
Other liabilities 576 79 14 28 5
Total liabilities (gain)/loss $ 45,780 $ (144 ) — % $ 266 1 %
A primary objective in our funding is to minimize our sensitivity to changing interest rates by generally funding our floating rate education loan portfolio with floating rate debt and our fixed rate education loan portfolio with fixed rate debt although we can have a mismatch at times. In addition, we can have a mismatch in the index (including the frequency of reset) of floating rate debt versus floating rate assets. In addition, due to the ability of some FFELP Loans to earn Floor Income, we can have a fixed versus floating mismatch in funding if the education loan earns at the fixed borrower rate and the funding remains floating. We use pay-fixed swaps and fixed rate debt to economically hedge embedded Floor Income in our FFELP Loans. Historically, we have used these instruments on a periodic basis and depending upon market conditions and pricing, we may enter into additional hedges in the future. The result of these hedging transactions is to fix the relative spread between the education loan asset rate and the funding instrument rate.
In the preceding tables, under the scenario where interest rates increase or decrease by 100 basis points, the change in pre-tax net income before the mark-to-market gains (losses) on derivative and hedging activities is primarily due to the impact of (i) a portion of our unhedged FFELP Loans being in a fixed-rate mode due to Floor Income, while being funded with variable rate debt; (ii) certain FFELP fixed rate loans becoming variable interest rate loans when variable interest rates rise above a certain level (Special Allowance Payment or “SAP”). When these loans are funded with fixed rate debt (as we do for a portion of the portfolio to economically hedge Floor Income) we earn additional interest income when earning the higher variable rate that is in effect; and (iii) a portion of our variable rate assets being funded with fixed rate liabilities. Item (i) will generally cause income to decrease when interest rates increase and income to increase when interest rates decrease. Items (ii) and (iii) have the opposite effect. The change due to the interest rate scenario where interest rates increase by 100 basis points in the current period is primarily a result of item (i) having a more significant impact than items (ii) and (iii) as a result of interest rates being lower compared to the prior period. The change due to the interest scenario where interest rates decrease by 100 basis points in the current period is primarily a result of item (i) having a more significant impact than items (ii) and (iii) as a result of interest rates being lower compared to the prior period.
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In the preceding tables, under the scenario where interest rates increase or decrease by 100 basis points, the change in mark-to-market gains (losses) on derivative and hedging activities in both periods is primarily due to (i) the notional amount and remaining term of our derivative portfolio and related hedged debt and (ii) the interest rate environment. In both periods, the mark-to-market gains (losses) are related to both ineffectiveness recognized on hedging relationships as well as to derivatives that don’t qualify for hedge accounting that are used to economically hedge the origination of fixed rate Private Education Loans. As a result of not qualifying for hedge accounting, there is not an offsetting mark-to-market adjustment of the hedged item in this analysis. The decline in impact from the prior year is primarily due to a decline in the notional of derivatives that don't qualify for hedge accounting.
In addition to interest rate risk addressed in the preceding tables, we are also exposed to risks related to foreign currency exchange rates. Foreign currency exchange risk is primarily the result of foreign currency denominated debt issued by us. When we issue foreign denominated corporate unsecured and securitization debt, our policy is to use cross-currency interest rate swaps to swap all foreign currency denominated debt payments (fixed and floating) to USD SOFR using a fixed exchange rate. In the tables above, there would be an immaterial impact on earnings if exchange rates were to decrease or increase, due to the terms of the hedging instrument and hedged items matching. The balance sheet interest-bearing liabilities would be affected by a change in exchange rates; however, the change would be materially offset by the cross-currency interest rate swaps in other assets or other liabilities. In certain economic environments, volatility in the spread between spot and forward foreign exchange rates has resulted in mark-to-market impacts to current period earnings which have not been factored into the above analysis. The earnings impact is noncash, and at maturity of the instruments the cumulative mark-to-market impact will be zero. Navient has not issued foreign currency denominated debt since 2008.
Asset and Liability Funding Gap
The table below presents our assets and liabilities (funding) arranged by underlying indices as of June 30, 2026. Management analyzes interest rate risk and in doing so includes all derivatives that are economically hedging our debt whether they qualify as effective hedges or not (Core Earnings basis). Accordingly, we present the asset and liability funding gap on a Core Earnings basis. The difference between the asset and the funding is the funding gap for the specified index. This represents our exposure to interest rate risk in the form of basis risk and repricing risk, which is the risk that the different indices may reset at different frequencies or may not move in the same direction or at the same magnitude.
Index (Dollars in billions) Frequency of Variable Resets Assets Funding Funding Gap
3 month Treasury bill weekly $ 1.4 $ — $ 1.4
3 month Treasury bill annual .1 — .1
Prime annual .1 — .1
Prime quarterly .7 — .7
Prime monthly 2.4 — 2.4
3 month Term SOFR quarterly .1 .9 (.8 )
3 month Term SOFR monthly — .4 (.4 )
1 month Term SOFR monthly 1.5 .5 1.0
Overnight SOFR(1) daily 25.0 25.7 (.7 )
Non Discrete reset monthly — 4.3 (4.3 )
Non Discrete reset daily/weekly 2.2 — 2.2
Fixed Rate (2) 13.8 15.5 (1.7 )
Total $ 47.3 $ 47.3 $ —
(1)The assets are indexed to 30-day average overnight SOFR. A portion of the funding uses the daily average of overnight SOFR from a period preceding the accrual period of the asset ("lookback debt"). Funding includes $12.0 billion of 30-day average SOFR lookback debt and $11.4 billion of 90-day average SOFR lookback debt.
(2)Assets include receivables and other assets (including goodwill and acquired intangibles). Funding includes other liabilities and stockholders' equity.
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We use interest rate swaps and other derivatives to achieve our risk management objectives. Our asset liability management strategy is to match assets with debt (in combination with derivatives) that have the same underlying index and reset frequency or, when economical, have interest rate characteristics that we believe are highly correlated. Interest earned on our FFELP Loans is primarily indexed to 30-day average overnight SOFR, which is reset daily, and our cost of funds is primarily indexed to overnight SOFR but resetting at different times than the asset. A source of variability in FFELP net interest income could also be Floor Income we earn on certain FFELP Loans. Pursuant to the terms of the FFELP, certain FFELP Loans can earn interest at the stated fixed rate of interest as underlying debt interest rate expense remains variable. We refer to this additional spread income as “Floor Income.” Floor Income can be volatile since it is dependent on interest rate levels. At times, we hedge this volatility to lock in the value of the Floor Income over the term of the contract. Interest earned on our Private Education Refinance Loans and in-school loans originated after 2020 is generally fixed rate with the related cost of funds generally fixed rate as well. Interest earned on the remaining Private Education Loans is generally indexed to either one-month Prime or term SOFR rates and our cost of funds is primarily indexed to one-month or three-month term SOFR. The use of funding with index types and reset frequencies that are different from our assets exposes us to interest rate risk in the form of basis and repricing risk. This could result in our cost of funds not moving in the same direction or with the same magnitude as the yield on our assets. While we believe this risk is low, as all of these indices are short-term with rate movements that are highly correlated over a long period of time, market disruptions (which have occurred in prior years) can lead to a temporary divergence between indices resulting in a negative impact to our earnings.