Sallie Mae 2015 Annual Report Download - page 78

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Transition Services
During a transition period, Navient and its affiliates provided the Bank with significant servicing capabilities with respect
to Private Education Loans held by the Company and its subsidiaries. On October 13, 2014, we transitioned the Private
Education Loan servicing to our own platform. In the second quarter of 2015, we completed the build-out of our operational
infrastructure to independently originate Private Education Loans. It is currently anticipated that Navient will continue to
service Private Education Loans owned by the Company or its subsidiaries with respect to individual borrowers who also have
Private Education Loans that are owned by Navient, in order to optimize the customer’s experience. In addition, Navient will
continue to service and collect the Bank’s portfolio of FFELP Loans indefinitely.
Indemnification Obligations
Navient has also agreed to be responsible, and indemnify us, for all claims, actions, damages, losses or expenses that may
arise from the conduct of all activities of pre-Spin-Off SLM occurring prior to the Spin-Off other than those specifically
excluded in the Separation and Distribution Agreement. Some significant examples of the types of indemnification obligations
Navient has under the Separation and Distribution Agreement and related ancillary agreements include:
• Pursuant to a tax sharing agreement, Navient has agreed to indemnify us for $283 million in deferred taxes that the
Company will be legally responsible for but that relate to gains recognized by the Company’s predecessor on debt
repurchases made prior to the Spin-Off. The remaining amount of this indemnification at December 31, 2015 is $170
million. In addition, Navient has agreed to indemnify us for tax assessments incurred related to identified uncertain tax
positions taken prior to the date of the Spin-Off. At December 31, 2015, we have recorded a receivable of $16 million
related to this indemnification.
• Navient has responsibility to assume new or ongoing litigation matters relating to the conduct of most pre-Spin-Off
SLM businesses operated or conducted prior to the Spin-Off.
• Separate and apart from Navient's direct responsibility for its own actions and those of its subsidiaries, Navient will
indemnify the Company and the Bank for any liabilities, costs or expenses they may incur arising from any action or
threatened action related to the servicing, operations and collections activities of pre-Spin-Off SLM and its subsidiaries
with respect to Private Education Loans and FFELP Loans that were assets of the Bank or Navient at the time of the
Spin-Off; provided that written notice is provided to Navient prior to the third anniversary date of the Spin-Off, April
30, 2017. Navient will not indemnify for changes in law or changes in prior existing interpretations of law that occur
on or after April 30, 2014.
• At the time of this filing, the Bank remains subject to the FDIC Consent Order. The FDIC Consent Order replaces a
prior cease and desist order jointly issued in August 2008 by the FDIC and the UDFI which was terminated on July 15,
2014. Specifically, on May 13, 2014, the Bank reached settlements with the FDIC and the DOJ regarding disclosures
and assessments of certain late fees, as well as compliance with the SCRA. The DOJ Consent Order was approved by
the U.S. District Court for the District of Delaware on September 29, 2014. Under the FDIC Consent Order, the Bank
agreed to pay $3.3 million in fines and oversee the refund of up to $30 million in late fees assessed on loans owned or
originated by the Bank since its inception in November 2005. Navient is responsible for funding all liabilities,
restitution and compensation under orders such as these, other than fines directly levied against the Bank.
Long-Term Arrangements
The loan servicing and administration agreement governs the terms by which Navient provides servicing, administration
and collection services for the Bank’s portfolio of FFELP Loans and Private Education Loans, as well as servicing history
information with respect to Private Education Loans previously serviced by Navient and access to certain promissory notes in
Navient’s possession. The loan servicing and administration agreement has a fixed term with a renewal option in favor of the
Bank.