Six Months Ended June 30, 2026 Compared with Six Months Ended June 30, 2025
For the six months ended June 30, 2026, net income was $42 million, or $0.44 diluted earnings per common share, compared with net income of $11 million, or $0.11 diluted earnings per common share, for the year-ago period.
The primary contributors to the change in net income are as follows:
• Net interest income decreased by $5 million primarily due to the paydown of the FFELP portfolio and the Private Education Loan portfolio's changing product mix with Refinance Loans increasing as a percentage of the portfolio. The Refinance Loan portfolio earns a lower net interest margin compared to the non-refinance portfolio, due to lower expected credit losses, which reduces the overall net interest margin. This was partially offset by a $14 million increase in mark-to-market gains on fair value hedges recorded in interest expense.
• Provisions for loan losses decreased $13 million from $67 million to $54 million.
○ The provision for Private Loan losses decreased $14 million from $51 million to $37 million.
○ The provision for FFELP Loan losses increased $1 million from $16 million to $17 million.
The provision for Private Loan losses of $37 million in the current period included $26 million associated with loan originations and $30 million related to a general reserve build primarily as a result of portfolio performance trends. While credit performance improved on a sequential basis during the period, delinquency and default levels in the Private Education Loan portfolio remain elevated. This was partially offset by a $19 million decrease as a result of classifying $528 million of loans as held for sale as of June 30, 2026. When loans are classified as held for sale the corresponding allowance for loan losses is reversed through provision for loan losses and such loans are carried at the lower of fair value or cost basis. These loans are carried at their cost basis as of June 30, 2026. The provision of $51 million in the year-ago quarter included $14 million associated with loan originations and $37 million related to a general reserve build primarily as a result of an increase in delinquency balances as well as a weakening in the forecasted macroeconomic metrics used to estimate expected losses.
The provision for FFELP Loan losses of $17 million in the current period was primarily the result of increased charge-offs due to prior disaster forbearance volume, as well as the continued extension of the portfolio. The provision of $16 million in the year-ago quarter was primarily the result of an increase in delinquency balances.
• Asset recovery and business processing revenue decreased $23 million as a result of the sale of our government services business in February 2025. With the sale of our government services business, Navient no longer provides business processing segment services.
• Other income decreased $11 million primarily related to a $24 million decrease in transition services revenue we had earned related to our various strategic initiatives. The transition services related to the outsourcing of loan servicing and the sale of our healthcare services business ended in May 2025. The transition services related to the sale of our government services business ended in October 2025. This $24 million decrease was partially offset by a $12 million gain on an investment in the current period.
• Net gains on derivative and hedging activities increased $36 million due primarily to interest rate fluctuations. Valuations of derivative instruments fluctuate based upon many factors including changes in interest rates and other market factors. As a result, net gains and losses on derivative and hedging activities may vary significantly in future periods.
• Operating expenses decreased $56 million, $23 million of which was due to a decline in business processing expenses as a result of the sale of our government services business in February 2025 ($20 million of the reduction is in the Business Processing segment and $3 million of the reduction is in the Other segment). In addition, there was a $23 million decline in expenses in connection with providing transition services related to our various strategic initiatives. As of October 2025, we had no further obligations to provide these transition services. There was an $11 million increase in marketing and other expenses associated with the growth of our consumer lending businesses. The remaining $21 million decrease primarily relates to cost saving initiatives implemented, which have reduced our operating costs mostly in connection with our shared service functions and corporate footprint.
• Restructuring and other reorganization expenses decreased $1 million primarily due to a decrease in severance-related costs incurred in connection with the various strategic initiatives that have been and continue to be implemented to simplify the company, continue to reduce our expense base and enhance our flexibility.
• The effective income tax rates for the current year and year-ago periods were 41% and 9%, respectively. The movement in the effective income tax rate was primarily driven by state tax expense in connection with uncertain tax positions as well as changes in the valuation allowance attributed to disallowed interest expense carryovers.
We repurchased 2.6 million and 4.5 million shares of our common stock during the six months ended June 30, 2026 and June 30, 2025, respectively. As a result of repurchases, our average outstanding diluted shares decreased by 7 million common shares
(or 7%) from the year-ago period.
