NELNET INC, 10-K filed on 2/27/2019
Annual Report
v3.10.0.1
Document and Entity Information Document - USD ($)
12 Months Ended
Dec. 31, 2018
Jan. 31, 2019
Jun. 29, 2018
Document Information [Line Items]      
Entity Registrant Name NELNET INC    
Document Type 10-K    
Current Fiscal Year End Date --12-31    
Entity Public Float     $ 1,224,618,686
Amendment Flag false    
Entity Central Index Key 0001258602    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Filer Category Large Accelerated Filer    
Entity Well-known Seasoned Issuer Yes    
Document Period End Date Dec. 31, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Entity Emerging Growth Company false    
Entity Small Business false    
Entity Shell Company false    
Class A      
Document Information [Line Items]      
Entity Common Stock, Shares Outstanding   28,732,998  
Class B      
Document Information [Line Items]      
Entity Common Stock, Shares Outstanding   11,459,641  
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Assets:    
Loans receivable (net of allowance for loan losses of $60,388 and $54,590 respectively) $ 22,377,142 $ 21,814,507
Cash and cash equivalents:    
Cash and cash equivalents - not held at a related party 9,472 6,982
Cash and cash equivalents - held at a related party 111,875 59,770
Total cash and cash equivalents 121,347 66,752
Total investments and notes receivable 249,370 240,538
Restricted cash 701,366 688,193
Restricted cash - due to customers 369,678 187,121
Loan accrued interest receivable 679,197 430,385
Accounts receivable (net of allowance for doubtful accounts of $3,271 and $1,436, respectively) 59,531 37,863
Goodwill 156,912 138,759
Intangible assets, net 114,290 38,427
Property and equipment, net 344,784 248,051
Other assets 45,533 73,021
Fair value of derivative instruments 1,818 818
Total assets 25,220,968 23,964,435
Liabilities:    
Bonds and notes payable 22,218,740 21,356,573
Accrued interest payable 61,679 50,039
Other liabilities 256,092 198,252
Due to customers 369,678 187,121
Fair value of derivative instruments 0 7,063
Total liabilities 22,906,189 21,799,048
Commitments and contingencies
Nelnet, Inc. shareholders' equity:    
Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding 0 0
Common stock:    
Additional paid-in capital 622 521
Retained earnings 2,299,556 2,143,983
Accumulated other comprehensive earnings 3,883 4,617
Noncontrolling interests 10,315 15,858
Total equity 2,314,779 2,165,387
Total liabilities and equity 25,220,968 23,964,435
Class A    
Common stock:    
Common stock 288 293
Class B    
Common stock:    
Common stock 115 115
Variable Interest Entity, Primary Beneficiary    
Assets:    
Loans receivable (net of allowance for loan losses of $60,388 and $54,590 respectively) 22,359,655 21,909,476
Cash and cash equivalents:    
Restricted cash 677,611 641,994
Other assets 679,735 431,934
Liabilities:    
Bonds and notes payable 22,146,374 21,702,298
Other liabilities 163,327 168,637
Common stock:    
Net assets of consolidated education lending variable interest entities $ 1,407,300 $ 1,112,469
v3.10.0.1
Consolidated Balance Sheets (Parentheticals) - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Allowance for loan losses $ 60,388 $ 54,590
Allowance for doubtful accounts $ 3,271 $ 1,436
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, authorized shares (in shares) 50,000,000 50,000,000
Preferred stock, issued shares (in shares) 0 0
Preferred stock, outstanding shares (in shares) 0 0
Class A    
Par value (in dollars per share) $ 0.01 $ 0.01
Shares authorized (in shares) 600,000,000 600,000,000
Shares issued (in shares) 28,798,464 29,341,517
Shares outstanding (in shares) 28,798,464 29,341,517
Class B    
Par value (in dollars per share) $ 0.01 $ 0.01
Shares authorized (in shares) 60,000,000 60,000,000
Shares issued (in shares) 11,459,641 11,468,587
Shares outstanding (in shares) 11,459,641 11,468,587
v3.10.0.1
Consolidated Statements of Income - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Interest income:      
Loan interest $ 897,666 $ 757,731 $ 751,280
Investment interest 26,600 12,695 9,466
Total interest income 924,266 770,426 760,746
Interest expense:      
Interest on bonds and notes payable 669,906 465,188 388,183
Net interest income 254,360 305,238 372,563
Less provision for loan losses 23,000 14,450 13,500
Net interest income after provision for loan losses 231,360 290,788 359,063
Other income:      
Other income 54,446 52,826 58,255
Gain from debt repurchases 359 2,902 7,981
Derivative market value and foreign currency transaction adjustments and derivative settlements, net 71,085 (18,554) 49,795
Total other income 832,532 479,062 524,218
Cost of services:      
Cost of services 76,492 58,628 51,182
Operating expenses:      
Salaries and benefits 436,179 301,885 255,924
Depreciation and amortization 86,896 39,541 33,933
Loan servicing fees to third parties 12,059 22,734 25,750
Other expenses 165,972 120,378 117,678
Total operating expenses 701,106 484,538 433,285
Income before income taxes 286,294 226,684 398,814
Income tax expense 58,770 64,863 141,313
Net income 227,524 161,821 257,501
Net loss (income) attributable to noncontrolling interests 389 11,345 (750)
Net income attributable to Nelnet, Inc. $ 227,913 $ 173,166 $ 256,751
Earnings per common share:      
Net income attributable to Nelnet, Inc. shareholders - basic and diluted (in dollars per share) $ 5.57 $ 4.14 $ 6.02
Weighted average common shares outstanding - basic and diluted (in shares) 40,909,022 41,791,941 42,669,070
Loan servicing and systems revenue      
Other income:      
Revenue $ 440,027 $ 223,000 $ 214,846
Education technology services and payment processing services      
Other income:      
Revenue 221,962 193,188 175,682
Cost of services:      
Cost of services 59,566 48,678 44,316
Communications revenue      
Other income:      
Revenue 44,653 25,700 17,659
Cost of services:      
Cost of services 16,926 9,950 6,866
Enrollment services revenue      
Other income:      
Revenue $ 0 $ 0 $ 4,326
v3.10.0.1
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Dec. 31, 2018
Sep. 30, 2018
Jun. 30, 2018
Mar. 31, 2018
Dec. 31, 2017
Sep. 30, 2017
Jun. 30, 2017
Mar. 31, 2017
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement of Comprehensive Income [Abstract]                      
Net income $ 21,674 $ 43,126 $ 49,539 $ 113,185 $ 45,714 $ 43,535 $ 24,651 $ 47,920 $ 227,524 $ 161,821 $ 257,501
Available-for-sale securities:                      
Unrealized holding gains arising during period, net of losses                 1,056 2,349 5,789
Reclassification adjustment for gains recognized in net income, net of losses                 (978) (2,528) (1,907)
Income tax effect                 (69) 66 (1,436)
Total other comprehensive income (loss)                 9 (113) 2,446
Comprehensive income                 227,533 161,708 259,947
Comprehensive loss (income) attributable to noncontrolling interests                 389 11,345 (750)
Comprehensive income attributable to Nelnet, Inc.                 $ 227,922 $ 173,053 $ 259,197
v3.10.0.1
Consolidated Statements of Shareholders' Equity - USD ($)
$ in Thousands
Total
Preferred stock shares
Common stock shares
Class A
Common stock shares
Class B
Additional paid-in capital
Retained earnings
Accumulated other comprehensive earnings
Noncontrolling interests
Beginning balance (in shares) at Dec. 31, 2015   0 32,476,528 11,476,932        
Beginning balance at Dec. 31, 2015 $ 1,892,158 $ 0 $ 325 $ 115 $ 0 $ 1,881,708 $ 2,284 $ 7,726
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of noncontrolling interests 1,366             1,366
Net income 257,501         256,751   750
Other comprehensive income (loss) 2,446           2,446  
Distribution to noncontrolling interests (572)             (572)
Cash dividends on Class A and Class B common stock (21,188)         (21,188)    
Issuance of common stock, net of forfeitures (in shares)     189,952          
Issuance of common stock, net of forfeitures 4,219   $ 1   4,218      
Compensation expense for stock based awards 4,086       4,086      
Repurchase of common stock (in shares)     (2,038,368)          
Repurchase of common stock (69,091)   $ (20)   (7,884) (61,187)    
Ending balance at Dec. 31, 2016 2,070,925 $ 0 $ 306 $ 115 420 2,056,084 4,730 9,270
Ending balance (in shares) at Dec. 31, 2016   0 30,628,112 11,476,932        
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of noncontrolling interests 19,578             19,578
Net income 161,821         173,166   (11,345)
Other comprehensive income (loss) (113)           (113)  
Distribution to noncontrolling interests (1,645)             (1,645)
Cash dividends on Class A and Class B common stock (24,097)         (24,097)    
Issuance of common stock, net of forfeitures (in shares)     178,114          
Issuance of common stock, net of forfeitures 3,621   $ 2   3,619      
Compensation expense for stock based awards 4,193       4,193      
Repurchase of common stock (in shares)     (1,473,054)          
Repurchase of common stock (68,896)   $ (15)   (7,711) (61,170)    
Conversion of of common stock (in shares)     8,345 (8,345)        
Ending balance at Dec. 31, 2017 2,165,387 $ 0 $ 293 $ 115 521 2,143,983 4,617 15,858
Ending balance (in shares) at Dec. 31, 2017   0 29,341,517 11,468,587        
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Impact of adoption of new accounting standards 1,264         2,007 (743)  
Issuance of noncontrolling interests 1,023             1,023
Net income 227,524         227,913   (389)
Other comprehensive income (loss) 9           9  
Distribution to noncontrolling interests (525)             (525)
Cash dividends on Class A and Class B common stock (26,839)         (26,839)    
Issuance of common stock, net of forfeitures (in shares)     316,148          
Issuance of common stock, net of forfeitures 5,174   $ 3   5,171      
Compensation expense for stock based awards 6,194       6,194      
Repurchase of common stock (in shares)     (868,147)          
Repurchase of common stock (45,331)   $ (8)   (11,264) (34,059)    
Acquisition of noncontrolling interest (19,101)         (13,449)   (5,652)
Conversion of of common stock (in shares)     8,946 (8,946)        
Ending balance at Dec. 31, 2018 $ 2,314,779 $ 0 $ 288 $ 115 $ 622 $ 2,299,556 $ 3,883 $ 10,315
Ending balance (in shares) at Dec. 31, 2018   0 28,798,464 11,459,641        
v3.10.0.1
Consolidated Statements of Shareholders' Equity (Parentheticals) - $ / shares
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Class B      
Cash dividend on Class A and Class B common stock (in dollars per share) $ 0.66 $ 0.58 $ 0.50
Class A      
Cash dividend on Class A and Class B common stock (in dollars per share) $ 0.66 $ 0.58 $ 0.50
v3.10.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement of Cash Flows [Abstract]      
Net income attributable to Nelnet, Inc. $ 227,913 $ 173,166 $ 256,751
Net (loss) income attributable to noncontrolling interests 389 11,345 (750)
Net income 227,524 161,821 257,501
Adjustments to reconcile net income to net cash provided by operating activities, net of acquisition:      
Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs 184,682 137,823 122,547
Loan discount accretion (40,800) (44,812) (40,617)
Provision for loan losses 23,000 14,450 13,500
Derivative market value adjustment (1,014) (26,379) (59,895)
Unrealized foreign currency transaction adjustment 0 45,600 (11,849)
Payments to terminate and/or amend derivative instruments, net of proceeds 10,283 (30,382) 3,999
Payments to enter into derivative instruments (4,770) (929) 0
Proceeds from clearinghouse - initial and variation margin, net 40,382 76,325 0
Gain from debt repurchases (359) (2,902) (7,981)
(Gain) loss from investments and notes receivable, net (8,139) 2,108 979
Deferred income tax expense (benefit) 10,981 (1,544) 27,005
Non-cash compensation expense 6,539 4,416 4,348
Impairment expense 11,721 3,626 0
Other 2,219 (687) 1,329
Increase in loan accrued interest receivable (248,869) (39,203) (7,439)
Decrease (increase) in accounts receivable 3,059 (4,234) 10,667
Increase in other assets (4,069) (42,270) (5,416)
Increase in accrued interest payable 11,640 4,362 14,170
(Decrease) increase in other liabilities (12,506) (2,341) 2,409
Increase (decrease) in due to customers 59,388 67,419 (25,069)
Net cash provided by operating activities 270,892 322,267 300,188
Cash flows from investing activities, net of acquisitions:      
Purchases of loans (3,847,553) (312,293) (319,511)
Purchase of loans from related party (74,698) (13,183) (29,633)
Net proceeds from loan repayments, claims, capitalized interest, and other 3,322,783 3,363,526 3,735,772
Proceeds from sale of loans 23,712 53,203 44,760
Purchases of available-for-sale securities (46,424) (128,523) (94,673)
Proceeds from sales of available-for-sale securities 71,415 156,540 144,252
Purchases of investments and issuance of notes receivable (67,040) (29,339) (21,511)
Proceeds from investments and notes receivable 23,039 11,545 15,898
Purchases of property and equipment (125,023) (156,005) (67,602)
Business acquisition, net of cash and restricted cash acquired (12,562) 0 0
Proceeds from sale of business, net 0 4,511 0
Net cash (used in) provided by investing activities (732,351) 2,949,982 3,407,752
Cash flows from financing activities:      
Payments on bonds and notes payable (3,113,503) (5,403,224) (4,134,890)
Proceeds from issuance of bonds and notes payable 3,922,962 1,984,558 650,909
Payments of debt issuance costs (13,808) (6,497) (5,845)
Payment of contingent consideration 0 (850) 0
Dividends paid (26,839) (24,097) (21,188)
Repurchases of common stock (45,331) (68,896) (69,091)
Proceeds from issuance of common stock 1,359 678 889
Acquisition of noncontrolling interest (13,449) 0 0
Issuance of noncontrolling interests 918 19,473 1,241
Distribution to noncontrolling interests (525) (1,645) (572)
Net cash provided by (used in) financing activities 711,784 (3,500,500) (3,578,547)
Net increase (decrease) in cash, cash equivalents and restricted cash 250,325 (228,251) 129,393
Cash, cash equivalents, and restricted cash, beginning of year 942,066 1,170,317 1,040,924
Cash, cash equivalents, and restricted cash, end of year 1,192,391 942,066 1,170,317
Supplemental disclosures of cash flow information:      
Cash disbursements made for interest 591,394 390,278 301,118
Cash disbursements made for income taxes, net of refunds and credits (a) 473 [1] 96,721 115,415
Cash and cash equivalents:      
Cash, cash equivalents, and restricted cash $ 1,192,391 $ 1,170,317 $ 1,170,317
[1] For 2018, the Company utilized $14.7 million of federal and state tax credits, related primarily to renewable energy.
v3.10.0.1
Description of Business
12 Months Ended
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Description of Business Description of Business
Nelnet, Inc. and its subsidiaries (“Nelnet” or the “Company”) is a diverse company with a focus on delivering education-related products and services and loan asset management. The largest operating businesses engage in loan servicing; education technology, services, and payment processing; and communications. A significant portion of the Company's revenue is net interest income earned on a portfolio of federally insured student loans. The Company also makes investments to further diversify the Company both within and outside of its historical core education-related businesses, including, but not limited to, investments in real estate and early-stage and emerging growth companies. Substantially all revenue from external customers is earned, and all long-lived assets are located, in the United States.
The Company was formed as a Nebraska corporation in 1978 to service federal student loans for two local banks. The Company built on this initial foundation as a servicer to become a leading originator, holder, and servicer of federal student loans, principally consisting of loans originated under the Federal Family Education Loan Program (“FFELP” or “FFEL Program”) of the U.S. Department of Education (the “Department”).
The Health Care and Education Reconciliation Act of 2010 (the "Reconciliation Act of 2010”) discontinued new loan originations under the FFEL Program, effective July 1, 2010, and requires that all new federal student loan originations be made directly by the Department through the Federal Direct Loan Program. This law does not alter or affect the terms and conditions of existing FFELP loans. As a result of this law, the Company no longer originates new FFELP loans. To reduce its reliance on interest income on student loans, the Company has expanded its services and products. This expansion has been accomplished through internal growth and innovation as well as business acquisitions.
The Company has four reportable operating segments. The Company's reportable operating segments include:
Loan Servicing and Systems ("LSS")
Education Technology, Services, and Payment Processing ("ETS&PP")
Communications 
Asset Generation and Management ("AGM")

During the first quarter of 2018, the Company changed the name of the Tuition Payment Processing and Campus Commerce operating segment to Education Technology, Services, and Payment Processing to better describe the evolution of services this operating segment provides. In addition, the Loan Systems and Servicing segment was retitled as Loan Servicing and Systems. As a result, the line items "tuition payment processing, school information, and campus commerce revenue" and "loan systems and servicing revenue" on the consolidated statements of income were changed to "education technology, services, and payment processing revenue" and "loan servicing and systems revenue," respectively.
A description of each reportable operating segment is included below. See note 14 for additional information on the Company's segment reporting.
Loan Servicing and Systems
The primary service offerings of the Loan Servicing and Systems operating segment include:
Servicing federally-owned student loans for the Department of Education
Servicing FFELP loans
Originating and servicing private education and consumer loans
Providing student loan servicing software and other information technology products and services
Providing outsourced services including call center, processing, and marketing services

LSS provides for the servicing of the Company's student loan portfolio and the portfolios of third parties. The loan servicing activities include loan conversion activities, application processing, borrower updates, customer service, payment processing, due diligence procedures, funds management reconciliations, and claim processing. These activities are performed internally for the Company's portfolio in addition to generating external fee revenue when performed for third-party clients.
On February 7, 2018, the Company acquired Great Lakes Educational Loan Services, Inc. ("Great Lakes"). See note 7 for additional information related to this acquisition. Nelnet Servicing, LLC, ("Nelnet Servicing"), a subsidiary of the Company, and Great Lakes are two of four private sector companies (referred to as Title IV Additional Servicers, or "TIVAS") awarded a student loan servicing contract by the Department to provide additional servicing capacity for loans owned by the Department.
This operating segment also provides student loan servicing software, which is used internally by the Company and licensed to third-party student loan holders and servicers. These software systems have been adapted so that they can be offered as hosted servicing software solutions usable by third parties to service various types of student loans, including Federal Direct Loan Program and FFEL Program loans.
This segment also provides business process outsourcing specializing in contact center management. The contact center solutions and services include taking inbound calls, helping with outreach campaigns and sales, and interacting with customers through multi-channels.
Education Technology, Services, and Payment Processing
ETS&PP provides products and services to help students and families manage the payment of education costs at all levels (K-12 and higher education). It also provides innovative education-focused technologies, services, and support solutions to help schools automate administrative processes and collect and process commerce data.
In the K-12 market, the Company (known as FACTS Management) offers (i) actively managed tuition payment plans and billing services; (ii) assistance with financial needs assessment and donor management; (iii) school information system software that helps schools automate administrative processes such as admissions, enrollment, scheduling, student billing, attendance, and grade book management; (iv) professional development and educational instruction services; and (v) innovative technology products that aid in teacher and student evaluations. In the higher education market (known as Nelnet Campus Commerce) the Company offers two principal products: actively managed tuition payment plans, and education technologies and payment processing.
Outside of the education market, the Company also offers technology and payments services including electronic transfer and credit card processing, reporting, billing and invoicing, mobile and virtual terminal solutions, and specialized integrations to business software. In addition, this operating segment offers mobile first technology focused on increasing engagement, online giving, and communication for church and not-for-profit customers.
Communications
ALLO Communications LLC (“ALLO”) provides pure fiber optic service to homes and businesses for internet, television, and telephone services. The acquisition of ALLO in 2015 provides additional diversification of the Company's revenues and cash flows outside of education. In addition, the acquisition leverages the Company's existing infrastructure, customer service capabilities and call centers, and financial strength and liquidity for continued growth.
ALLO derives its revenue primarily from the sale of communication services to residential and business customers in Nebraska and Colorado. Internet and television services include revenue from residential and business customers for subscriptions to ALLO's data and video products. ALLO data services provide high-speed internet access over ALLO's all-fiber network at various symmetrical speeds of up to 1 gigabit per second for residential customers and is capable of providing symmetrical speeds of over 1 gigabit per second for business customers. Telephone services include local and long distance telephone service, hostedPBX services, and other basic services.
Asset Generation and Management
The Company's Asset Generation and Management operating segment includes the acquisition, management, and ownership of the Company's loan assets. Substantially all loan assets included in this segment are student loans originated under the FFEL Program, including the Stafford Loan Program, the PLUS Loan program, and loans that reflect the consolidation into a single loan of certain previously separate borrower obligations (“Consolidation” loans). The Company also acquires private education and consumer loans. The Company generates a substantial portion of its earnings from the spread, referred to as the Company's loan spread, between the yield it receives on its loan portfolio and the associated costs to finance such portfolio. The student loan assets are held in a series of education lending subsidiaries and associated securitization trusts designed specifically for this purpose. In addition to the loan spread earned on its portfolio, all costs and activity associated with managing the portfolio, such as servicing of the assets and debt maintenance, are included in this segment.
Corporate and Other Activities
Other business activities and operating segments that are not reportable are combined and included in Corporate and Other Activities. Corporate and Other Activities include the following items:
The operating results of Whitetail Rock Capital Management, LLC ("WRCM"), the Company's SEC-registered investment advisor subsidiary
Income earned on certain investment activities, including real estate
Interest expense incurred on unsecured debt transactions
Other product and service offerings that are not considered reportable operating segments

Corporate and Other Activities also include certain corporate activities and overhead functions related to executive management, internal audit, human resources, accounting, legal, enterprise risk management, information technology, occupancy, and marketing. These costs are allocated to each operating segment based on estimated use of such activities and services.
v3.10.0.1
Summary of Significant Accounting Policies and Practices
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies and Practices Summary of Significant Accounting Policies and Practices
Consolidation
The consolidated financial statements include the accounts of Nelnet, Inc. and its consolidated subsidiaries. In addition, the accounts of all variable interest entities (“VIEs”) of which the Company has determined that it is the primary beneficiary are included in the consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation. 
Variable Interest Entities
The following entities are VIEs of which the Company has determined that it is the primary beneficiary. The primary beneficiary is the entity which has both: (1) the power to direct the activities of the VIE that most significantly impact the VIE's economic performance, and (2) the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE.
The Company's education lending subsidiaries are engaged in the securitization of education finance assets. These education lending subsidiaries hold beneficial interests in eligible loans, subject to creditors with specific interests. The liabilities of the Company's education lending subsidiaries are not the direct obligations of Nelnet, Inc. or any of its other subsidiaries. Each education lending subsidiary is structured to be bankruptcy remote, meaning that it should not be consolidated in the event of bankruptcy of the parent company or any other subsidiary. The Company is generally the administrator and master servicer of the securitized assets held in its education lending subsidiaries and owns the residual interest of the securitization trusts. As a result, for accounting purposes, the transfers of student loans to the securitization trusts do not qualify as sales. Accordingly, all the financial activities and related assets and liabilities, including debt, of the securitizations are reflected in the Company's consolidated financial statements and are summarized as supplemental information on the balance sheet.
As of December 31, 2018, the Company owned 98.8 percent of the economic rights of ALLO Communications LLC and has a disproportional 80 percent of the voting rights related to all operating decisions for ALLO's business. See note 1, “Description of Business,” for a description of ALLO, including the primary services offered. In addition to the Company’s original equity investment, Nelnet, Inc. (the parent) issued a line of credit to ALLO. On January 1, 2018, Nelnet, Inc. contributed more equity with an associated guaranteed payment and ALLO used the proceeds to retire the outstanding balance on the line of credit. On October 1, 2018, the guaranteed payment accrual was replaced with a yield-based preferred return of future earnings due on the newly contributed equity. The Company will continue to increase its ownership interests as it makes cash contributions to fund ALLO's operating losses and capital expenditures. In addition, ALLO's management, as current minority members, has the opportunity to earn ownership interests based on the financial performance of ALLO. Nelnet, Inc.’s maximum exposure to loss as a result of its involvement with ALLO is equal to its ownership interests investment. All of ALLO’s financial activities and related assets and liabilities are reflected in the Company’s consolidated financial statements.  See note 14, “Segment Reporting,” for disclosure of ALLO’s total assets and results of operations (included in the "Communications" operating segment), note 9, "Goodwill," for disclosure of ALLO's goodwill, and note 10, “Property and Equipment,” for disclosure of ALLO’s fixed assets. ALLO's goodwill and property and equipment comprise the majority of its assets. The assets recognized as a result of consolidating ALLO are the property of ALLO and are not available for any other purpose.
Reclassifications
Certain amounts previously reported within the Company's consolidated balance sheet, statements of income, and statements of cash flows have been reclassified to conform to the current period presentation. These reclassifications include:
Reclassifying certain non-customer receivables, which were previously included in "accounts receivable," to "other assets," and reclassifying non-customer receivables activity on the consolidated statements of cash flows as appropriate. This did not result in a change in the Company's previously reported net cash provided by operating activities.

Reclassifying direct costs to provide services for education technology, services, and payment processing, which were previously included in "other expenses," to "cost to provide education technology, services, and payment processing services."

Reclassifying the line item "cost to provide communications services" on the consolidated statements of income from part of "operating expenses" and presenting such costs as part of "cost of services."

Reclassifying "enrollment services revenue" and "cost to provide enrollment services" in 2016 to "other income" and "other expenses," respectively.

Accounting Standards Adopted in 2018
In the first quarter of 2018, the Company adopted the following new accounting standards and other guidance:
Revenue Recognition
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC Topic 606"). Under the standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
The Company adopted the standard effective January 1, 2018, using the full retrospective method, which required it to restate each prior reporting period presented. As a result, the Company changed its accounting policy for revenue recognition as detailed in the "Revenue Recognition" section of this note.
The most significant impact of the standard relates to identifying the Company's fee-based Education Technology, Services, and Payment Processing operating segment as the principal in its payment services transactions. As a result of this change, the Company presents the payment services revenue gross, with the direct costs to provide these services presented separately. The Company’s other fee-based operating segments will recognize revenue consistent with historical revenue recognition patterns. The majority of the Company's revenue earned in its non-fee-based Asset Generation and Management operating segment, including loan interest and derivative activity, is explicitly excluded from the scope of the new standard.
Impacts to Previously Reported Results
Adoption of the revenue recognition standard impacted the Company’s previously reported results on the consolidated statements of income as follows:
Year ended December 31, 2017
As previously reportedImpact of adoptionAs restated
Education technology, services, and payment processing revenue
$145,751 47,437 193,188 
Cost to provide education technology, services, and payment processing services
— 47,437 47,437 (a) 

Year ended December 31, 2016
As previously reportedImpact of adoptionAs restated
Education technology, services, and payment processing revenue
$132,730 42,952 175,682 
Cost to provide education technology, services, and payment processing services
— 42,952 42,952 (a) 

(a) In addition to the impact of adopting the new revenue recognition standard, as discussed above, the Company reclassified   other direct costs to provide education technology, services, and payment processing services which were previously   reported as part of "other expenses" to "cost to provide education technology, services, and payment processing services."
Adoption of the new revenue recognition standard had no impact to the consolidated balance sheets or cash provided by or used in operating, investing, or financing activities on the consolidated statements of cash flows.
Equity Investments
In January 2016, the FASB issued new accounting guidance related to the recognition and measurement of financial assets and financial liabilities. The guidance, including a related clarifying update, requires equity investments with readily determinable fair values to be measured at fair value, with changes in the fair value recognized through net income. An entity may choose to measure equity investments without readily determinable fair values at fair value or use the measurement alternative of cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
The guidance requires a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption to reclassify the cumulative change in fair value of equity securities with readily determinable fair values previously recognized in accumulated other comprehensive income, and was adopted by the Company as of January 1, 2018. Upon adoption, the Company recorded an immaterial cumulative-effect adjustment to retained earnings, accumulated other comprehensive earnings, and investments and notes receivable. Subsequent to the adoption, the Company is accounting for all its equity investments without readily determinable fair values using the measurement alternative.
Other Comprehensive Income
In February 2018, the FASB issued guidance which allows a reclassification from accumulated other comprehensive earnings to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act, which became effective on January 1, 2018. This guidance is effective for fiscal years beginning after December 15, 2018, but early adoption is permitted. The Company elected to early adopt this guidance as of January 1, 2018. Upon adoption, the Company recorded an immaterial reclassification between accumulated other comprehensive earnings and retained earnings.
Restricted Cash
In November 2016, the FASB issued accounting guidance related to restricted cash. The new guidance requires that the statement of cash flows present the change during the period in total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents, and a reconciliation of such total to amounts on the balance sheet. The Company adopted the standard effective January 1, 2018 using the retrospective transition method. Adoption of this standard impacted the Company's previously reported amounts on the consolidated statements of cash flows as follows:
Year ended December 31, 2017
As previously reportedImpact of adoptionAs restated
Increase in due to customers
$— 67,419 67,419 
Proceeds from clearinghouse - initial and variation margin, net
48,985 27,340 76,325 
Net cash provided by operating activities
227,508 94,759 322,267 
Decrease in restricted cash, net
320,108 (320,108)— 
Net cash provided by investing activities
3,270,090 (320,108)2,949,982 
Year ended December 31, 2016
As previously reportedImpact of adoptionAs restated
Decrease in due to customers
$— (25,069)(25,069)
Net cash provided by operating activities
325,257 (25,069)300,188 
Increase in restricted cash, net
(147,487)147,487 — 
Purchases of investments and issuance of notes receivable (22,361)850 (21,511)
Net cash provided by investing activities
3,259,415 148,337 3,407,752 

Noncontrolling Interests
Amounts for noncontrolling interests reflect the proportionate share of membership interest (equity) and net income attributable to the holders of minority membership interests in the following entities:
Whitetail Rock Capital Management, LLC - WRCM is the Company’s SEC-registered investment advisor subsidiary.  WRCM issued 10 percent minority membership interests on January 1, 2012.
ALLO Communications LLC - On December 31, 2015, the Company purchased 92.5 percent of the ownership interests in ALLO. On January 1, 2016, the Company sold a 1.0 percent ownership interest in ALLO to a non-related third-party. During 2018, the Company contributed additional equity to increase its ownership interest in ALLO to 98.8 percent. Per ALLO's operating agreement, currently all operating results of ALLO are allocated to the Company.
401 Building, LLC (“401 Building”) - 401 Building is an entity established in October 2015 for the sole purpose of acquiring, developing, and operating a commercial building. The Company owns 50 percent of 401 Building.
TDP Phase Three, LLC (“TDP”) and TDP Phase Three-NMTC ("TDP-NMTC") - TDP and TDP-NMTC are entities that were established in October 2015 for the sole purpose of developing and operating the new headquarters of Hudl, a related party. The Company owns 25 percent of each TDP and TDP-NMTC.
330-333 Building, LLC ("330-333 Building") - 330-333 Building is an entity established in January 2016 for the sole purpose of acquiring, developing, and operating a commercial building. The Company owns 50 percent of 330-333 Building.
The Company is a tenant in the 401 Building, the headquarters of Hudl, and the 330-333 Building. Because the Company, as lessee, was involved in the asset construction, 401 Building, TDP, TDP-NMTC, and 330-333 Building are included in the Company's consolidated financial statements.
GreatNet Solutions, LLC ("GreatNet") - GreatNet was a joint venture created in 2017 to respond to an initiative by the Department for the procurement of a contract for federal student loan servicing. Nelnet Servicing and Great Lakes each owned 50 percent of the ownership interests in GreatNet. For financial reporting purposes, the balance sheet and operating results of GreatNet were included in the Company's consolidated financial statements and presented in the Company's Loan Servicing and Systems operating segment. On February 7, 2018, the Company purchased 100 percent of the outstanding stock of Great Lakes. See note 7, “Business Combinations” for additional information on this business acquisition.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities, reported amounts of revenues and expenses, and other disclosures. Actual results may differ from those estimates.
Loans Receivable
Loans consist of federally insured student loans, private education loans, and consumer loans. If the Company has the ability and intent to hold loans for the foreseeable future, such loans are held for investment and carried at amortized cost. Amortized cost includes the unamortized premium or discount and capitalized origination costs and fees, all of which are amortized to interest income. Loans which are held-for-investment also have an allowance for loan loss as needed. Any loans the Company has the ability and intent to sell are classified as held for sale and are carried at the lower of cost or fair value. Loans which are held for sale do not have the associated premium or discount and origination costs and fees amortized into interest income and there is also no related allowance for loan losses. There were no loans classified as held for sale as of December 31, 2018 and 2017.
Federally insured loans were originated under the FFEL Program by certain eligible lenders as defined by the Higher Education Act of 1965, as amended (the “Higher Education Act”). These loans, including related accrued interest, are guaranteed at their maximum level permitted under the Higher Education Act by an authorized guaranty agency, which has a contract of reinsurance with the Department. The terms of the loans, which vary on an individual basis, generally provide for repayment in monthly installments of principal and interest. Generally, Stafford and PLUS loans have repayment periods between five and ten years. Consolidation loans have repayment periods of twelve to thirty years. FFELP loans do not require repayment while the borrower is in-school, and during the grace period immediately upon leaving school. The borrower may also be granted a deferment or forbearance for a period of time based on need, during which time the borrower is not considered to be in repayment. Interest continues to accrue on loans in the in-school, deferment, and forbearance program periods. In addition, eligible borrowers may qualify for income-driven repayment plans offered by the Department. These plans determine the borrower's payment amount based on their discretionary income and may extend their repayment period. Interest rates on federally insured student loans may be fixed or variable, dependent upon the type of loan, terms of the loan agreements, and date of origination.
Substantially all FFELP loan principal and related accrued interest is guaranteed as provided by the Higher Education Act. These guarantees are subject to the performance of certain loan servicing due diligence procedures stipulated by applicable Department regulations. If these due diligence requirements are not met, affected student loans may not be covered by the guarantees in the event of borrower default. Such student loans are subject to “cure” procedures and reinstatement of the guarantee under certain circumstances.
Loans also include private education and consumer loans. Private education loans are loans to students or their families that are non-federal loans and loans not insured or guaranteed under the FFEL Program. These loans are used primarily to bridge the gap between the cost of higher education and the amount funded through financial aid, federal loans, or borrowers' personal resources. The terms of the private education loans, which vary on an individual basis, generally provide for repayment in monthly installments of principal and interest over a period of up to 30 years. The private education loans are not covered by a guarantee or collateral in the event of borrower default. Consumer loans are unsecured loans to an individual for personal, family, or household purposes. The terms of the consumer loans, which vary on an individual basis, generally provide for repayment in weekly or monthly installments of principal and interest over a period of up to 6 years.
Allowance for Loan Losses
The allowance for loan losses represents management's estimate of probable losses on loans. The provision for loan losses reflects the activity for the applicable period and provides an allowance at a level that the Company's management believes is appropriate to cover probable losses inherent in the loan portfolio. The Company evaluates the adequacy of the allowance for loan losses separately on each of its federally insured, private education, and consumer loan portfolios. These evaluation processes are subject to numerous judgments and uncertainties.
The allowance for the federally insured loan portfolio is based on periodic evaluations of the Company's loan portfolios considering loans in repayment versus those in a nonpaying status, delinquency status, trends in defaults in the portfolio based on Company and industry data, past experience, trends in student loan claims rejected for payment by guarantors, changes to federal student loan programs, current economic conditions, and other relevant factors. The federal government guarantees 97 of the principal of and the interest on federally insured student loans disbursed on and after July 1, 2006 (and 98 for those loans disbursed on and after October 1, 1993 and prior to July 1, 2006), which limits the Company's loss exposure on the outstanding balance of the Company's federally insured portfolio. Student loans disbursed prior to October 1, 1993 are fully insured.
In determining the appropriate allowance for loan losses on the private education and consumer loans, the Company considers several factors, including: loans in repayment versus those in a nonpaying status, delinquency status, type of program, trends in defaults in the portfolio based on Company and industry data, past experience, current economic conditions, and other relevant factors. The Company places private education and consumer loans on nonaccrual status when the collection of principal and interest is 90 days past due, and charges off the loan when the collection of principal and interest is 120 days or 180 days past due, depending on type of loan program. Collections, if any, are reflected as a recovery through the allowance for loan losses.
Management has determined that each of the federally insured loan portfolio, private education loan portfolio, and consumer loan portfolio meets the definition of a portfolio segment, which is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses.  Accordingly, the portfolio segment disclosures are presented on this basis in note 3 for each of these portfolios.  The Company does not disaggregate its portfolio segment loan portfolios into classes of financing receivables. The Company collectively evaluates loans for impairment and as of December 31, 2018 and 2017, the Company did not have any impaired loans as defined in the Receivables Topic of the FASB Accounting Standards Codification.
For loans purchased where there is evidence of credit deterioration since the origination of the loan, the Company records a credit discount, separate from the allowance for loan losses, which is non-accretable to interest income. Remaining discounts and premiums for purchased loans are recognized in interest income over the remaining estimated lives of the loans. The Company continues to evaluate credit losses associated with purchased loans based on current information and changes in expectations to determine the need for any additional allowance for loan losses.
Cash and Cash Equivalents and Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Company considers all investments with original maturities of three months or less to be cash equivalents.
Accrued interest on loans purchased and sold is included in cash flows from operating activities in the respective period. Net purchased loan accrued interest was $181.0 million in 2018. Net purchased loan accrued interest in 2017 and 2016 was insignificant.
Investments
The Company classifies its debt securities, primarily student loan and other asset-backed securities, as available-for-sale. These securities are carried at fair value, with the temporary changes in fair value, net of taxes, carried as a separate component of shareholders’ equity. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts, which are amortized using the effective interest rate method. Other-than-temporary impairment is evaluated by considering several factors, including the length of time and extent to which the fair value has been less than the amortized cost basis, the financial condition and near-term prospects of the issuer of the security (considering factors such as adverse conditions specific to the security and ratings agency actions), and the intent and ability of the Company to retain the investment to allow for any anticipated recovery in fair value. The entire fair value loss on a security that has experienced an other-than-temporary impairment is recorded in earnings if the Company intends to sell the security or if it is more likely than not that the Company will be required to sell the security before the expected recovery of the loss. However, if the impairment
is other-than-temporary, and either of those two conditions does not exist, the portion of the impairment related to credit losses is recorded in earnings and the impairment related to other factors is recorded in other comprehensive income. When an investment is sold, the cost basis is determined through specific identification of the security sold.
Equity investments with readily determinable fair values are measured at fair value, with changes in the fair value recognized through net income (other than those equity investments accounted for under the equity method of accounting or those that result in consolidation of the investee).
For equity investments without readily determinable fair value, the Company uses the measurement alternative of cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The Company uses qualitative factors to identify impairment on these investments.
The Company accounts for equity investments over which it has significant influence but not a controlling financial interest using the equity method of accounting.  Equity method investments are recorded at cost and subsequently increased or decreased by the amount of the Company’s proportionate share of the net earnings or losses and other comprehensive income of the investee.  Equity method investments are evaluated for other-than-temporary impairment using certain impairment indicators such as a series of operating losses of an investee or other factors.  These factors may indicate that a decrease in value of the investment has occurred that is other-than-temporary and shall be recognized.
For periods prior to January 1, 2018, equity securities with readily determinable fair values were primarily classified as available-for-sale and stated at fair value with unrealized gains and losses reported as a separate component of accumulated other comprehensive income, net of tax. Equity securities without readily determinable fair values were recorded at cost less impairment, if any.
Restricted Cash
Restricted cash primarily includes amounts for student loan securitizations and other secured borrowings. This cash must be used to make payments related to trust obligations. Amounts on deposit in these accounts are primarily the result of timing differences between when principal and interest is collected on the student loans held as trust assets and when principal and interest is paid on the trust's asset-backed debt securities. Restricted cash also includes collateral deposits with derivative counterparties and third-party clearinghouses.
Restricted Cash - Due to Customers
As a servicer of student loans, the Company collects student loan remittances and subsequently disburses these remittances to the appropriate lending entities. In addition, as part of the Company's Education Technology, Services, and Payment Processing operating segment, the Company collects tuition payments and subsequently remits these payments to the appropriate schools. Cash collected for customers and the related liability are included in the accompanying consolidated balance sheets.
Accounts Receivable
Accounts receivable are presented at their net realizable values, which include allowances for doubtful accounts. Allowance estimates are based upon individual customer experience, as well as the age of receivables and likelihood of collection. 
Business Combinations
The Company uses the acquisition method in accounting for acquired businesses. Under the acquisition method, the financial statements reflect the operations of an acquired business starting from the completion of the acquisition. The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of acquisition. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. All contingent consideration is measured at fair value on the acquisition date and included in the consideration transferred in the acquisition. Contingent consideration classified as a liability is remeasured to fair value at each reporting date until the contingency is resolved, and changes in fair value are recognized in earnings.
Goodwill
The Company reviews goodwill for impairment annually (in the fourth quarter) and whenever triggering events or changes in circumstances indicate its carrying value may not be recoverable. Goodwill is tested for impairment using a fair value approach at the reporting unit level. A reporting unit is the operating segment, or a business one level below that operating segment if discrete financial information is prepared and regularly reviewed by segment management. However, components are aggregated as a single reporting unit if they have similar economic characteristics.
The Company tests goodwill for impairment in accordance with applicable accounting guidance. The guidance provides an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the estimated fair value of a reporting unit is less than its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform a quantitative impairment test (described below), otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test.
If the Company elects to not perform a qualitative assessment or if the Company determines it is more likely than not that the fair value of a reporting unit is less than the carrying amount, then the Company performs a quantitative impairment test on goodwill. In the quantitative test, the Company compares the fair value of each reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is considered not impaired and the Company is not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company would record an impairment loss equal to the difference.
Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and determination of appropriate market comparables. Actual future results may differ from those estimates.
See note 9, "Goodwill," for information regarding the Company's annual goodwill impairment review.
Intangible Assets
The Company uses estimates to determine the fair value of acquired assets to allocate the purchase price to acquired intangible assets. Such estimates are generally based on estimated future cash flows or cost savings associated with particular assets and are discounted to present value using an appropriate discount rate. The estimates of future cash flows associated with intangible assets are generally prepared using a cost savings method, a lost income method, or an excess return method, as appropriate. In utilizing such methods, management must make certain assumptions about the amount and timing of estimated future cash flows and other economic benefits from the assets, the remaining economic useful life of the assets, and general economic factors concerning the selection of an appropriate discount rate. The Company may also use replacement cost or market comparison approaches to estimating fair value if such methods are determined to be more appropriate.
Intangible assets with finite lives are amortized over their estimated lives. Such assets are amortized using a method of amortization that reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up. If that pattern cannot be reliably determined, the Company uses a straight-line amortization method.
The Company evaluates the estimated remaining useful lives of purchased intangible assets and whether events or changes in circumstances warrant a revision to the remaining periods of amortization. 
Property and Equipment
Property and equipment are carried at cost, net of accumulated depreciation. Maintenance and repairs are charged to expense as incurred, and major improvements, including leasehold improvements, are capitalized. Gains and losses from the sale of property and equipment are included in determining net income. The Company uses the straight-line method for recording depreciation and amortization. Leasehold improvements are amortized straight-line over the shorter of the lease term or estimated useful life of the asset.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets, such as property and equipment and purchased intangibles subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Assumptions and estimates about future cash flows generated by, remaining useful lives of, and fair values of the Company's intangible and other long-lived assets are complex and subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in the Company's business strategy and internal forecasts. Although the Company believes the historical assumptions and estimates used are reasonable and appropriate, different assumptions and estimates could materially impact the reported financial results. 
Fair Value Measurements
The Company uses estimates of fair value in applying various accounting standards for its financial statements.
Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company's policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value, such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates, and credit spreads, relying first on observable data from active markets. Depending on current market conditions, additional adjustments to fair value may be based on factors such as liquidity, credit, and bid/offer spreads. In some cases fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Transaction costs are not included in the determination of fair value. When possible, the Company seeks to validate the model's output to market transactions. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the estimates of current or future values.
The Company categorizes its fair value estimates based on a hierarchical framework associated with three levels of price transparency utilized in measuring assets and liabilities at fair value. Classification is based on the lowest level of input that is significant to the fair value of the instrument. The three levels include:
Level 1: Quoted prices for identical instruments in active markets. The types of financial instruments included in Level 1 are highly liquid instruments with quoted prices.
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose primary value drivers are observable.
Level 3: Instruments whose primary value drivers are unobservable. Inputs are developed based on the best information available; however, significant judgment is required by management in developing the inputs.
The Company's accounting policy is to recognize transfers between levels of the fair value hierarchy at the end of the reporting period.
Revenue Recognition
The Company applies the provisions of ASC Topic 606 to its fee-based operating segments. The majority of the Company’s revenue earned in its Asset Generation and Management operating segment, including loan interest and derivative activity, is explicitly excluded from the scope of ASC Topic 606. The Company recognizes revenue under the core principle of ASC Topic 606 to depict the transfer of control of products and services to the Company’s customers in an amount reflecting the consideration to which the Company expects to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.
Additional information related to the Company's revenue recognition of specific items is provided below.
Loan interest income - Loan interest on federally insured student loans is paid by the Department or the borrower, depending on the status of the loan at the time of the accrual. In addition, the Department makes quarterly interest subsidy payments on certain qualified FFELP loans until the student is required under the provisions of the Higher Education Act to begin repayment. Borrower repayment of FFELP loans normally begins within six months after completion of the borrower's course of study, leaving school, or ceasing to carry at least one-half the normal full-time academic load, as determined by the educational institution. Borrower repayment of PLUS and Consolidation loans normally begins within 60 days from the date of loan disbursement. Borrower repayment of private education loans typically begins six months following the borrower's graduation from a qualified institution, and the interest is either paid by the borrower or capitalized annually or at repayment. Repayment of consumer loans typically starts upon origination of the loan.
The Department provides a special allowance to lenders participating in the FFEL Program. The special allowance is accrued based upon the fiscal quarter average rate of 13-week Treasury Bill auctions (for loans originated prior to January 1, 2000), the fiscal quarter average rate of the daily three-month financial commercial paper rates (for loans originated on and after January 1, 2000), or the fiscal quarter average rate of daily one-month LIBOR rates (for loans originated on and after January 1, 2000, and for lenders which elected to change the special allowance index to one-month LIBOR effective April 1, 2012) relative to the yield of the student loan.
The Company recognizes loan interest income as earned, net of amortization of loan premiums and deferred origination costs and the accretion of loan discounts. Loan interest income is recognized based upon the expected yield of the loan after giving effect to interest rate reductions resulting from borrower utilization of incentives such as timely payments ("borrower benefits") and other yield adjustments. Loan premiums or discounts, deferred origination costs, and borrower benefits are amortized/accreted over the estimated life of the loans, which includes an estimate of forecasted payments in excess of contractually required payments (the constant prepayment rate). The constant prepayment rate used by the Company to amortize/accrete loan premiums/discounts is 5 percent for Stafford loans and 3 percent for Consolidation loans. The Company periodically evaluates the assumptions used to estimate the life of the loans and prepayment rates. In instances where there are changes to the assumptions, amortization/accretion is adjusted on a cumulative basis to reflect the change since the acquisition of the loan.
The Company also pays the Department an annual 105 basis point rebate fee on Consolidation loans. These rebate fees are netted against loan interest income.
Loan servicing and systems revenue - Loan servicing and systems revenue consists of the following items:
Loan servicing revenue - Loan servicing revenue consideration is determined from individual contracts with customers and is calculated monthly based on the dollar value of loans, number of loans, number of borrowers serviced for each customer, or number of transactions. Loan servicing requires a significant level of integration and the individual components are not considered distinct. The Company will perform various services, including, but not limited to, (i) application processing, (ii) monthly servicing, (iii) conversion processing, and (iv) fulfillment services, during each distinct service period. Even though the mix and quantity of activities that the Company performs each period may differ, the nature of the activities are substantially the same. Revenue is allocated to the distinct service period, typically a month, and recognized as control transfers as customers simultaneously receive and consume benefits.
Software services revenue - Software services revenue consideration is determined from individual contracts with customers and includes license and maintenance fees associated with loan software products, generally in a remote hosted environment, and computer and software consulting. Usage-based revenue from remote hosted licenses is allocated to the distinct service period, typically a month, and recognized as control transfers as customers simultaneously receive and consume benefits. Revenue from any non-refundable up-front fee is recognized ratably over the contract period, as the fee relates to set-up activities that provide no incremental benefit to the customers. Computer and software consulting is also capable of being distinct and accounted for as a separate performance obligation. Revenue allocated to computer and software consulting is recognized as services are provided.

Outsourced services revenue - Outsourced services revenue consideration is determined from individual contracts with customers and is calculated monthly based on the volume of services. Revenue is allocated to the distinct service period, typically a month, and recognized as control transfers as customers simultaneously receive and consume benefits.
The following table provides disaggregated revenue by service offering:
Year ended December 31, 
201820172016
Government servicing - Nelnet$157,091 155,829 151,728 
Government servicing - Great Lakes168,298 — — 
FFELP servicing
31,542 15,542 15,948 
Private education and consumer loan servicing
41,474 28,060 15,600 
Software services32,929 17,782 18,132 
Outsourced services and other
8,693 5,787 3,878 
FFELP guarantee collection and servicing (a) — — 9,560 
Loan servicing and systems revenue
$440,027 223,000 214,846 

(a) Guarantee collection and servicing revenue in 2016 was earned from one customer that exited the FFELP guaranty   business on June 30, 2016.

Education technology, services, and payment processing revenue - Education technology, services, and payment processing revenue consists of the following items:
Tuition payment plan services - Tuition payment plan services consideration is determined from individual plan agreements, which are governed by plan service agreements, and includes access to a remote hosted environment and management of payment processing. The management of payment processing is considered a distinct performance obligation when sold with the remote hosted environment. Revenue for each performance obligation is allocated to the distinct service period, the academic school term, and recognized ratably over the service period as customers simultaneously receive and consume benefits.
Payment processing - Payment processing consideration is determined from individual contracts with customers and includes electronic transfer and credit card processing, reporting, virtual terminal solutions, and specialized integrations to business software for education and non-education markets. Volume-based revenue from payment processing is allocated and recognized to the distinct service period, based on when each transaction is completed, and recognized as control transfers as customers simultaneously receive and consume benefits. The electronic transfer and credit card processing consideration is recognized as revenue on a gross basis as the Company is the principal in the delivery of the payment processing. The Company has concluded it is the principal as it controls the services before delivery to the educational institution or business, it is primarily responsible for the delivery of the services, and it has discretion in setting prices charged to its customers. In addition, the Company has the unilateral ability to accept or reject a transaction based on criteria established by the Company. The Company is liable for the costs of processing the transactions and records such costs within "cost to provide education technology, services, and payment processing services."
Education technology and services - Education technology and services consideration is determined from individual contracts with customers and is based on the services selected by the customer. Services in K-12 private and faith based schools include (i) assistance with financial needs assessment, (ii) automating administrative processes such as admissions, online applications and enrollment services, scheduling, student billing, attendance, and grade book management, and (iii) professional development and educational instruction services. Revenue for these services is recognized for the consideration the Company has a right to invoice, the amount of which corresponds directly with the value provided to the customer based on the performance completed. Services provided to the higher education market include innovative education-focused technologies, services, and support solutions to help schools with the everyday challenges of collecting and processing commerce data. These services are considered distinct performance obligations. Revenue for each performance obligation is allocated to the distinct service period, typically a month or based on when each transaction is completed, and recognized as control transfers as customers simultaneously receive and consume benefits.
The following table provides disaggregated revenue by service offering:
Year ended December 31, 
201820172016
Tuition payment plan services$85,381 76,753 72,405 
Payment processing 84,289 71,652 64,100 
Education technology and services 51,155 44,539 38,308 
Other 1,137 244 869 
Education technology, services, and payment processing revenue $221,962 193,188 175,682 

Cost to provide education technology, services, and payment processing services is primarily associated with providing payment processing services. Interchange and payment network fees are charged by the card associations or payment networks. Depending upon the transaction type, the fees are a percentage of the transaction’s dollar value, a fixed amount, or a combination of the two methods. Other items included in cost to provide education technology, services, and payment processing services include salaries and benefits and third-party professional service costs directly related to providing professional development and educational instruction services to teachers, school leaders, and students.
Communications revenue - Communications revenue is derived principally from internet, television, and telephone services and is billed as a flat fee in advance of providing the service. Revenues for usage-based services, such as access charges billed to other telephone carriers for originating and terminating long-distance calls on the Company's network, are billed in arrears. These are each considered distinct performance obligations. Revenue is recognized monthly for the consideration the Company has a right to invoice, the amount of which corresponds directly with the value provided to the customer based on the performance completed. The Company recognizes revenue from these services in the period the services are rendered rather than billed. Revenue received or receivable in advance of the delivery of services is included in deferred revenue. Earned but unbilled usage-based services are recorded in accounts receivable.
The following table provides disaggregated revenue by service offering and customer type:
Year ended December 31, 
201820172016
Internet$24,068 11,976 7,028 
Television12,949 8,018 5,774 
Telephone7,546 5,603 4,768 
Other89 103 88 
Communications revenue$44,653 25,700 17,659 
Residential revenue$33,434 17,696 11,088 
Business revenue10,976 7,744 6,235 
Other243 260 336 
Communications revenue$44,653 25,700 17,659 

Cost to provide communications services is primarily associated with television programming costs.  The Company has various contracts to obtain television programming from programming vendors whose compensation is typically based on a flat fee per customer. The cost of the right to exhibit network programming under such arrangements is recorded in the month the
programming is available for exhibition.  Programming costs are paid each month based on calculations performed by the Company and are subject to periodic audits performed by the programmers. Other items in cost to provide communications services include connectivity, franchise, and other regulatory costs directly related to providing internet and telephone services.
Other incomeThe following table provides the components of "other income" on the consolidated statements of income:
Year ended December 31, 
201820172016
Borrower late fee income $12,302 11,604 12,838 
Gain on investments and notes receivable, net of losses
9,579 939 4,549 
Management fee revenue
6,497 — — 
Investment advisory fees6,009 12,723 6,129 
Peterson's revenue— 12,572 14,254 
Enrollment services revenue (a) — — 4,326 
Other
20,059 14,988 16,159 
Other income$54,446 52,826 58,255 

(a) On February 1, 2016, the Company sold Sparkroom LLC. After this sale, the Company no longer earns enrollment   services revenue.

Borrower late fee income - Late fee income is earned by the education lending subsidiaries. Revenue is allocated to the distinct service period, based on when each transaction is completed.
Management fee revenue - Management fee revenue is earned for technology and certain administrative support services provided to Great Lakes' former parent company. Revenue is allocated to the distinct service period, based on when each transaction is completed.
Investment advisory fees - Investment advisory services are provided by WRCM, the Company's SEC-registered investment advisor subsidiary, under various arrangements. The Company earns monthly fees based on the monthly outstanding balance of investments and certain performance measures, which are recognized monthly as the uncertainty of the transaction price is resolved.
Peterson's revenue - The Company earned revenue related to digital marketing and content solution products and services under the brand name Peterson's. These products and services included test preparation study guides, school directories and databases, career exploration guides, on-line courses and test preparation, scholarship search and selection data, career planning information and guides, and on-line information about colleges and universities. Several content solutions services included services to connect students to colleges and universities, and were sold based on subscriptions. Revenue from sales of subscription services was recognized ratably over the term of the contract as it was earned. Subscription revenue received or receivable in advance of the delivery of services was included in deferred revenue. Revenue from the sale of print products was generally earned and recognized, net of estimated returns, upon shipment or delivery. All other digital marketing and content solutions revenue was recognized over the period in which services were provided to customers. On December 31, 2017, the Company sold Peterson's. The Company applied a practical expedient for the retrospective comparative period which allowed the Company not to restate revenue from contracts that began and were completed within the same annual reporting period.
Contract Balances - The following table provides information about liabilities from contracts with customers:
As of December 31, 
20182017
Deferred revenue, which is included in "other liabilities" on the consolidated balance sheets
$39,122 32,276 

Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records deferred revenue when revenue is received or receivable in advance of the delivery of service. For multi-year contracts, the Company generally
invoices customers annually at the beginning of each annual coverage period. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined its contracts do not include a significant financing component.
Activity in the deferred revenue balance is shown below:
Year ended December 31, 
201820172016
Balance, beginning of period $32,276 33,141 31,068 
Deferral of revenue 113,292 94,789 89,580 
Recognition of revenue (109,742)(93,670)(86,627)
Other 3,296 (1,984)(880)
Balance, end of period $39,122 32,276 33,141 

Assets Recognized from the Costs to Obtain a Contract with a Customer - The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year. The Company has determined that certain sales incentive programs meet the requirements to be capitalized. Total capitalized costs to obtain a contract were immaterial during the periods presented and are included in “other assets” on the consolidated balance sheets.
Interest Expense
Interest expense is based upon contractual interest rates, adjusted for the amortization of debt issuance costs and the accretion of discounts. The amortization of debt issuance costs and accretion of discounts are recognized using the effective interest method.
Transfer of Financial Assets and Extinguishments of Liabilities
The Company accounts for loan sales and debt repurchases in accordance with applicable accounting guidance. If a transfer of loans qualifies as a sale, the Company derecognizes the loan and recognizes a gain or loss as the difference between the carrying basis of the loan sold and the consideration received. The Company from time to time repurchases its outstanding debt and records a gain or loss on the early extinguishment of debt based upon the difference between the carrying amount of the debt and the amount paid to the third party. The Company recognizes the results of a transfer of loans and the extinguishment of debt based upon the settlement date of the transaction.
Derivative Accounting
Effective June 10, 2013, all over-the-counter derivative contracts executed by the Company are cleared post-execution at the Chicago Mercantile Exchange (“CME”), a regulated clearinghouse.  Clearing is a process by which a third-party, the clearinghouse, steps in between the original counterparties and guarantees the performance of both, by requiring that each post liquid collateral on an initial (initial margin) and mark-to-market (variation margin) basis to cover the clearinghouse’s potential future exposure in the event of default. 
Effective January 3, 2017, the CME amended its rulebooks to legally characterize variation margin payments for over-the-counter derivatives they clear as settlements of the derivatives’ exposure rather than collateral against the exposure.  Based on these rulebook changes, for accounting and presentation purposes, the Company considers variation margin and the corresponding derivative instrument as a single unit of account.  As such, effective January 3, 2017, the variation margin received or paid is no longer accounted for separately as a liability or asset ("collateralized-to-market").  Instead, these payments are considered in determining the fair value of the centrally cleared derivative portfolio ("settled-to-market"). The Company records settled-to-market derivative contracts on its balance sheet with a fair value of zero and no collateral posted due to the payment or receipt of variation margin between the Company and the CME settling the outstanding mark-to-market exposure on such derivatives to a balance of zero on a daily basis, and records the underlying daily changes in the market value of such derivative contracts that result in such receipts or payments on its income statement as realized derivative market value adjustments in "Derivative market value and foreign currency transaction adjustments and derivative settlements, net."
The Company records derivative instruments that are not required to be cleared at a clearinghouse (non-centrally cleared derivatives) in the consolidated balance sheets on a gross basis as either an asset or liability measured at its fair value. Certain
non-centrally cleared derivatives are subject to right of offset provisions with counterparties. For these derivatives, the Company does not offset fair value amounts executed with the same counterparty under a master netting arrangement. In addition, the Company does not offset fair value amounts recognized for derivative instruments with respect to the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable).
The Company determines the fair value for its derivative instruments using either (i) pricing models that consider current market conditions and the contractual terms of the derivative instrument or (ii) counterparty valuations. The factors that impact the fair value of the Company's derivatives include interest rates, time value, forward interest rate curve, and volatility factors. Pricing models and their underlying assumptions impact the amount and timing of realized and unrealized gains and losses recognized, and the use of different pricing models or assumptions could produce different financial results. Management has structured all of the Company's derivative transactions with the intent that each is economically effective; however, the Company's derivative instruments do not qualify for hedge accounting. As a result, the change in fair value of derivative instruments is reported in current period earnings. Changes or shifts in the forward yield curve can significantly impact the valuation of the Company’s derivatives, and therefore impact the financial position and results of operations of the Company. Any proceeds received or payments made by the Company to terminate a derivative in advance of its expiration date, or to amend the terms of an existing derivative, are included in the Company's consolidated statements of income and are accounted for as a change in fair value of such derivative. The changes in fair value of derivative instruments, as well as the settlement payments made on such derivatives, are included in “derivative market value and foreign currency adjustments and derivative settlements, net” on the consolidated statements of income.
Foreign Currency
During 2006, the Company issued Euro-denominated bonds, which were included in “bonds and notes payable” on the consolidated balance sheets. Transaction gains and losses resulting from exchange rate changes when re-measuring these bonds to U.S. dollars at the balance sheet date were included in “derivative market value and foreign currency adjustments and derivative settlements, net” on the consolidated statements of income. On October 25, 2017, the Company completed a remarketing of its Euro notes which reset the principal amount outstanding on the notes to U.S. dollars.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company uses the deferred method of accounting for its investment tax credits related to state tax incentives.
Income tax expense includes deferred tax expense, which represents the net change in the deferred tax asset or liability balance during the year, plus any change made in the valuation allowance, and current tax expense, which represents the amount of tax currently payable to or receivable from a tax authority plus amounts for expected tax deficiencies.
Compensation Expense for Stock Based Awards
The Company has a restricted stock plan that is intended to provide incentives to attract, retain, and motivate employees in order to achieve long term growth and profitability objectives. The restricted stock plan provides for the grant to eligible employees of awards of restricted shares of Class A common stock. The fair value of restricted stock awards is determined on the grant date based on the Company's stock price and is amortized to compensation cost over the related vesting periods, which range up to ten years. For those awards with only service conditions that have graded vesting schedules, the Company recognizes compensation expense on a straight-line basis over the requisite service period for each separately vesting portion of the award, as if the award was, in substance, multiple awards. Holders of restricted stock are entitled to receive dividends from the date of grant whether or not vested. The Company accounts for forfeitures as they occur.
The Company also has a directors stock compensation plan pursuant to which non-employee directors can elect to receive their annual retainer fees in the form of fully vested shares of Class A common stock, and also elect to defer receipt of such shares until the termination of their service on the board of directors. The fair value of grants under this plan is determined on the grant date based on the Company's stock price, and is expensed over the board member's annual service period.
v3.10.0.1
Loans Receivable and Allowance for Loan Losses
12 Months Ended
Dec. 31, 2018
Receivables [Abstract]  
Loans Receivable and Allowance for Loan Losses Loans Receivable and Allowance for Loan Losses
Loans receivable consisted of the following:
As of December 31,
  20182017
Federally insured student loans:
Stafford and other$4,969,667 4,418,881 
Consolidation17,186,229 17,302,725 
Total22,155,896 21,721,606 
Private education loans225,975 212,160 
Consumer loans138,627 62,111 
  22,520,498 21,995,877 
Loan discount, net of unamortized loan premiums and deferred origination costs
(53,572)(113,695)
Non-accretable discount (a)(29,396)(13,085)
Allowance for loan losses:
Federally insured loans(42,310)(38,706)
Private education loans(10,838)(12,629)
Consumer loans(7,240)(3,255)
  $22,377,142 21,814,507 
(a) At December 31, 2018 and 2017, the non-accretable discount related to purchased loan portfolios of  $5.7 billion and   $5.8 billion, respectively.
Activity in the Allowance for Loan Losses
The provision for loan losses represents the periodic expense of maintaining an allowance sufficient to absorb losses, net of recoveries, inherent in the portfolio of loans. Activity in the allowance for loan losses is shown below.
  Year ended December 31, 2018
  Balance at beginning of periodProvision for loan lossesCharge-offsRecoveriesOtherBalance at end of period
Federally insured loans $38,706 14,000 (11,396)— 1,000 42,310 
Private education loans12,629 — (2,415)624 — 10,838 
Consumer loans3,255 9,000 (5,056)41 — 7,240 
$54,590 23,000 (18,867)665 1,000 60,388 
Year ended December 31, 2017
Federally insured loans$37,268 13,000 (11,562)— — 38,706 
Private education loans14,574 (2,000)(1,313)768 600 12,629 
Consumer loans— 3,450 (195)— — 3,255 
$51,842 14,450 (13,070)768 600 54,590 
Year ended December 31, 2016
Federally insured loans$35,490 14,000 (12,292)— 70 37,268 
Private education loans15,008 (500)(1,728)954 840 14,574 
Consumer loans— — — — — — 
$50,498 13,500 (14,020)954 910 51,842 
Student Loan Status and Delinquencies
Delinquencies have the potential to adversely impact the Company’s earnings through increased servicing and collection costs and account charge-offs.  The table below shows the Company’s loan delinquency amounts.
As of December 31,
  201820172016
Federally insured loans:
        
Loans in-school/grace/deferment (a)$1,298,493   $1,260,394   $1,606,468 
Loans in forbearance (b)1,430,291   1,774,405   2,295,367 
Loans in repayment status:     
Loans current 16,882,252 86.9 %16,477,004 88.2 %18,125,768 86.6 %
Loans delinquent 31-60 days (c)683,084 3.5  682,586 3.7  818,976 3.9  
Loans delinquent 61-90 days (c)427,764 2.2  374,534 2.0  487,647 2.3  
Loans delinquent 91-120 days (c)283,831 1.5  287,922 1.5  335,291 1.6  
Loans delinquent 121-270 days (c)806,692 4.2  629,480 3.4  854,432 4.1  
Loans delinquent 271 days or greater (c)(d)343,489 1.7  235,281 1.2  306,035 1.5  
Total loans in repayment 19,427,112 100.0 %18,686,807 100.0 %20,928,149 100.0 %
Total federally insured loans$22,155,896   $21,721,606   $24,829,984 
Private education loans:
Loans in-school/grace/deferment (a)$4,320 $6,053 $35,146 
Loans in forbearance (b)1,494 2,237 3,448 
Loans in repayment status: 
Loans current 208,977 95.0 %196,720 96.5 %228,612 97.2 %
Loans delinquent 31-60 days (c)3,626 1.6  1,867 0.9  1,677 0.7  
Loans delinquent 61-90 days (c)1,560 0.7  1,052 0.5  1,110 0.5  
Loans delinquent 91 days or greater (c)5,998 2.7  4,231 2.1  3,666 1.6  
Total loans in repayment 220,161 100.0 %203,870 100.0 %235,065 100.0 %
Total private education loans$225,975   $212,160   $273,659 
Consumer loans:
Loans in repayment status: 
Loans current $136,130 98.2 %61,344 98.7 %
Loans delinquent 31-60 days (c)1,012 0.7  289 0.5  
Loans delinquent 61-90 days (c)832 0.6  198 0.3  
Loans delinquent 91 days or greater (c)653 0.5  280 0.5  
Total loans in repayment 138,627 100.0 %62,111 100.0 %
Total consumer loans$138,627 $62,111 

(a) Loans for borrowers who still may be attending school or engaging in other permitted educational activities and  are not yet required to make   payments on the loans, e.g., residency periods for medical students or a grace period for bar exam preparation for law students.
(b) Loans for borrowers who have temporarily ceased making full payments due to hardship or other factors, according to a schedule approved by   the servicer consistent with the established loan program servicing  procedures and policies.
(c) The period of delinquency is based on the number of days scheduled payments are contractually past due and relate to repayment loans, that is,   receivables not charged off, and not in school, grace, deferment, or forbearance.
(d) A portion of loans included in loans delinquent 271 days or greater includes loans in claim status, which are loans that have gone into default   and have been submitted to the guaranty agency.
v3.10.0.1
Bonds and Notes Payable
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Bonds and Notes Payable
4. Bonds and Notes Payable
The following tables summarize the Company’s outstanding debt obligations by type of instrument:
  As of December 31, 2018 
Carrying
amount
Interest rate
range
Final maturity 
Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:
      
Bonds and notes based on indices $20,192,123 2.59% - 4.52% 11/25/24 - 2/25/67
Bonds and notes based on auction793,476 2.84% - 3.55% 3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes20,985,599 
FFELP warehouse facilities 986,886 2.65% / 2.71%  5/20/20 / 5/31/21
Variable-rate bonds and notes issued in private education loan asset-backed securitization
50,720 4.26%  12/26/40
Fixed-rate bonds and notes issued in private education loan asset-backed securitization
63,171 3.60% / 5.35%  12/26/40 / 12/28/43
Unsecured line of credit 310,000 3.92% - 4.01% 6/22/23
Unsecured debt - Junior Subordinated Hybrid Securities 20,381 6.17%  9/15/61
Other borrowings 120,342 3.05% - 5.22% 1/3/19 - 12/15/45
  22,537,099     
Discount on bonds and notes payable and debt issuance costs(318,359)
Total $22,218,740 
 
  As of December 31, 2017 
Carrying
amount
Interest rate
range
Final maturity 
Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:
      
Bonds and notes based on indices $20,352,045 1.47% - 3.37% 8/25/21 - 2/25/66
Bonds and notes based on auction780,829 2.09% - 2.69% 3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes21,132,874 
FFELP warehouse facilities 335,992 1.55% / 1.56%  11/19/19 / 5/31/20
Variable-rate bonds and notes issued in private education loan asset-backed securitization
74,717 3.30%  12/26/40
Fixed-rate bonds and notes issued in private education loan asset-backed securitization
82,647 3.60% / 5.35%  12/26/40 / 12/28/43
Unsecured line of credit 10,000 2.98%  12/12/21
Unsecured debt - Junior Subordinated Hybrid Securities 20,381 5.07%  9/15/61
Other borrowings 70,516 2.44% - 3.38% 1/12/18 - 12/15/45
  21,727,127     
Discount on bonds and notes payable and debt issuance costs(370,554)
Total $21,356,573 
Secured Financing Transactions
The Company has historically relied upon secured financing vehicles as its most significant source of funding for loans. The net cash flow the Company receives from the securitized loans generally represents the excess amounts, if any, generated by the underlying loans over the amounts required to be paid to the bondholders, after deducting servicing fees and any other expenses relating to the securitizations. The Company’s rights to cash flow from securitized loans are subordinate to bondholder interests, and the securitized loans may fail to generate any cash flow beyond what is due to bondholders. The Company’s secured financing vehicles during the periods presented include loan warehouse facilities and asset-backed securitizations.
The majority of the bonds and notes payable are primarily secured by the loans receivable, related accrued interest, and by the amounts on deposit in the accounts established under the respective bond resolutions or financing agreements.
FFELP warehouse facilities
The Company funds the majority of its FFELP loan acquisitions using its FFELP warehouse facilities. Student loan warehousing allows the Company to buy and manage student loans prior to transferring them into more permanent financing arrangements.
 As of December 31, 2018, the Company had two FFELP warehouse facilities as summarized below.
NFSLW-INHELP-IITotal 
Maximum financing amount
$700,000 500,000 1,200,000 
Amount outstanding 620,671 366,215 986,886 
Amount available $79,329 133,785 213,114 
Expiration of liquidity provisions
May 20, 2019May 31, 2019
Final maturity date May 20, 2020May 31, 2021
Advanced as equity support $30,550 26,423 56,973 
The FFELP warehouse facilities are supported by liquidity provisions, which are subject to the respective expiration date shown in the above table. In the event the Company is unable to renew the liquidity provisions by such date, the facility would become a term facility at a stepped-up cost, with no additional student loans being eligible for financing, and the Company would be required to refinance the existing loans in the facility by the facility's final maturity date. The NFSLW-I warehouse facility has a static advance rate until the expiration date of the liquidity provisions. In the event the liquidity provisions are not extended, the valuation agent has the right to perform a one-time mark to market on the underlying loans funded in this facility, subject to a floor. The loans would then be funded at this new advance rate until the final maturity date of the facility. The NHELP-II warehouse facility has a static advance rate that requires initial equity for loan funding and does not require increased equity based on market movements.
The FFELP warehouse facilities contain financial covenants relating to levels of the Company’s consolidated net worth, ratio of recourse indebtedness to adjusted EBITDA, and unencumbered cash. Any noncompliance with these covenants could result in a requirement for the immediate repayment of any outstanding borrowings under the facilities.
Asset-backed securitizations
The following tables summarize the asset-backed securitization transactions completed in 2018 and 2017.
Securitizations completed during the year ended December 31, 2018
2018-12018-22018-32018-42018-5Total
Class
A-1
Notes
Class
A-2
Notes
2018-1 totalClass
A-1
Notes
Class
A-2
Notes
Class
A-3
Notes
2018-3 totalClass
A-1
Notes
Class
A-2
Notes
2018-4 total
Date securities issued3/29/183/29/183/29/186/7/187/26/187/26/187/26/187/26/188/30/188/30/188/30/1812/13/18
Total original principal amount
$98,000 375,750 473,750 509,800 220,000 546,900 220,000 1,001,900 30,500 451,900 495,700 511,500 $2,992,650 
Class A senior notes:
Total principal amount
$98,000 375,750 473,750 509,800 220,000 546,900 220,000 986,900 30,500 451,900 482,400 498,000 2,950,850 
Cost of funds (1-month LIBOR plus:)
0.32%  0.76%  0.65%