UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
November 8, 2011

NELNET, INC.
(Exact name of registrant as specified in its charter)

					
Nebraska	 	001-31924	 	84-0748903	
(State or other jurisdiction of incorporation)	 	(Commission File Number)	 	(I.R.S. Employer Identification No.)	

	
			
121 South 13th Street
Suite 201
Lincoln, Nebraska	 	68508	
(Address of principal executive offices)	 	(Zip Code)	

Registrant's telephone number, including area code (402) 458-2370
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.
On November 8, 2011 , Nelnet, Inc. (the “Company”) issued a press release with respect to its financial results for the quarter ended September 30, 2011 . A copy of the press release is furnished as Exhibit 99.1 to this report. In addition, a copy of the supplemental financial information for the quarter ended September 30, 2011 , which was made available on the Company's website at www.nelnetinvestors.com on November 8, 2011 in connection with the press release, is furnished as Exhibit 99.2 to this report.

The above information and Exhibits 99.1 and 99.2 shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), nor shall such information and Exhibits be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing. In addition, information on the Company's website is not incorporated by reference into this report and should not be considered part of this report.

Item 9.01 Financial Statements and Exhibits.

(d)      Exhibits. The following exhibits are furnished as part of this report:

			
Exhibit
No.	 	Description	
 	 	 	
99.1	 	Press Release dated November 8, 2011 - “Nelnet Reports Third Quarter 2011 Results”	
99.2	 	Supplemental Financial Information for the Quarter Ended September 30, 2011	

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: November 8, 2011
NELNET, INC.
By:      /s/ TERRY J. HEIMES     
		
Name:	Terry J. Heimes	
		
Title:	Chief Financial Officer	

Nelnet Reports Third Quarter 2011 Results

• Base net income of $1.22 per share for the quarter
• Tuition payment processing and campus commerce revenue increased 15 percent
• Revenue from government servicing contract increased $4.1 million to $12.8 million
• Repurchased 1.1 million shares of common stock in the quarter
• Declared fourth quarter dividend of $0.10 per share

LINCOLN, Neb., November 8, 2011 -- Nelnet (NYSE: NNI) today reported base net income of $58.8 million, or $1.22 per share, for the third quarter of 2011, compared with $60.3 million, or $1.23 per share, for the same quarter a year ago. For the nine months ended September 30, 2011, the company reported base net income of $165.5 million, or $3.43 per share, compared with $175.3 million, or $3.54 per share, for the same period in 2010. Base net income in 2010 excludes litigation settlement and restructuring charges.

Nelnet reported a gain from the repurchase of outstanding debt of $9.9 million before tax, or $0.12 per share after tax, and $28.8 million before tax, or $0.36 per share after tax, for the three and nine months ended September 30, 2010, respectively. In the third quarter of 2011, Nelnet had no gains from the repurchase of outstanding debt. For the first nine months of 2011, Nelnet reported a gain of $8.3 million before tax, or $0.11 per share after tax, from the repurchase of outstanding debt.

"In the third quarter of 2011, we continued to report strong results and generate significant cash flow from our operations and our student loan portfolio,” said Mike Dunlap, Nelnet Chairman and Chief Executive Officer. “We made investments to grow our core businesses and enhance our customers' experience, and also repurchased more than one million shares of common stock. Evaluating opportunities to make investments and deploying capital with a long term focus will continue to be a priority."  

Growing our core and driving diversification

During the third quarter of 2011, revenue from Nelnet's tuition payment processing and campus commerce business increased $2.2 million compared with the third quarter of 2010, or 15 percent, to $16.8 million.

In September 2009, Nelnet began servicing student loans for the Department of Education (Department) under a contract that will increase the company's fee-based revenue as the servicing volume increases. At September 30, 2011, the company was servicing $44.6 billion of loans for 3 million borrowers on behalf of the Department, compared with $21.8 billion of loans for 2.5 million borrowers on September 30, 2010. Revenue from this contract increased to $12.8 million for the third quarter of 2011, up from $8.7 million for the same period a year ago.

The company's enrollment services revenue was $35.5 million in the third quarter of 2011, compared with $36.4 million in the third quarter of 2010. Enrollment services revenue is being affected by the current regulatory uncertainty in the for-profit college industry, which has caused schools to decrease their marketing spending.

Maximizing the value of existing portfolio

In July 2011, the company repurchased the residual interest in $1.9 billion of securitized Federal Family Education Loan Program consolidation loans. Including these loans, at September 30, 2011, net student loan assets were $24.6 billion. The majority of Nelnet's federal student loans are financed for the life of the loan at rates the company believes will generate significant future cash flow in excess of $1.8 billion.

Historically low interest rates are continuing to provide the company opportunities to generate substantial near-term value and cash flow from its student loan portfolio. For the third quarter of 2011, Nelnet reported net interest income of $96.8 million, compared with $92.2 million for the same period a year ago.

Operating with financial discipline

Nelnet reported operating expenses of $104.8 million in the third quarter of 2011, compared with $100.5 million, excluding a $55 million litigation settlement and $4.8 million of restructuring expenses, in the third quarter of 2010. Over time, the company anticipates increasing operating expenses with discipline to support revenue growth in its fee-based businesses.

Repurchasing common stock

During the three-month period ended September 30, 2011, Nelnet repurchased and retired 1,097,441 shares of Class A common stock, under the company's stock repurchase program, for $20.6 million, or an average price of $18.77 per share. Year to date through November 8, 2011, the company has repurchased 1,433,409 shares of Class A common s tock for $27.1 m illion, or an average price of $18.88 per share.

GAAP net income

Nelnet reported GAAP net income for the third quarter of 2011 of $47.5 million, or $0.98 per diluted share, compared with a net loss of $0.4 million, or $0.01 loss per diluted share, for the third quarter of 2010. For the first nine months of 2011, the company reported GAAP net income of $139.5 million, or $2.87 per diluted share, compared with $103.9 million, or $2.08 per diluted share for the same period in 2010. The company recognized a $55.0 million litigation settlement charge in the third quarter of 2010.

While base net income is not a substitute for reported results under GAAP, base net income is the primary financial performance measure used by management to develop financial plans, allocate resources, track results, evaluate performance, establish corporate performance targets, and determine incentive compensation. The company utilizes base net income in operating its business because base net income permits management to make meaningful period-to-period comparisons by eliminating the temporary volatility in the company's performance that arises from certain items that are primarily affected by factors beyond the control of management.

A description of base net income and a reconciliation of GAAP net income to base net income can be found in financial information supplemental to this earnings release online at www.nelnetinvestors.com/results.cfm.

Board of Directors approves dividend

The Nelnet Board of Directors declared a fourth quarter cash dividend on the company's outstanding shares of Class A common stock and Class B common stock of $0.10 per share. The dividend will be paid on December 15, 2011, to shareholders of record at the close of business on December 1, 2011. Nelnet currently has 35.6 million shares of Class A common stock and 11.5 million shares of Class B common stock outstanding.

This press release contains forward-looking statements within the meaning of federal securities laws.  These statements are based on management's current expectations as of the date of this release, and are subject to known and unknown risks and uncertainties that may cause actual results or performance to differ materially from those expressed or implied by the forward-looking statements.  Such risks include, among others, risks related to the company's student loan portfolio such as interest rate basis and repricing risk and the use of derivatives to manage exposure to interest rate fluctuations; the company's funding and liquidity requirements to satisfy asset financing needs; the company's ability to maintain and increase volumes under its loan servicing contract with the Department to service federally owned student loans; changes in the student loan and educational credit and services marketplace resulting from the implementation of or changes in applicable laws, regulations, and government programs, including the uncertain nature of the potential impact of the Department's new loan consolidation program; changes in the demand or preferences for educational financing and related services by educational institutions, students, and their families; uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations; and changes in general economic and credit market conditions.  For more information, see the "Risk Factors" sections and other cautionary discussions of risks and uncertainties included in documents filed or furnished by the company with the Securities and Exchange Commission, including the cautionary information about forward-looking statements contained in the company's supplemental financial information for the third quarter of 2011.  All information in this release is as of the date of this release. Although the company may from time to time voluntarily update or revise its forward-looking statements to reflect actual results or changes in the company's expectations, the company disclaims any commitment to do so except as required by securities laws.

Condensed Consolidated Statements of Operations
(Dollars in thousands, except share data)

																
 	Three months ended	 	Nine months ended	
 	September 30,
2011	 	June 30,
2011	 	September 30,
2010	 	September 30,
2011	 	September 30,
2010	
 	(unaudited)	 	(unaudited)	 	(unaudited)	 	(unaudited)	 	(unaudited)	
Interest Income:	 	 	 	 	 	 	 	 	 	
Loan interest	$	158,809		 	146,827		 	171,208		 	452,983		 	490,158		
Amortization/accretion of loan premiums and	 	 	 	 	 	 	 	 	 	
deferred origination costs, net	(1,854	)	 	(7,893	)	 	(11,921	)	 	(19,736	)	 	(40,551	)	
Investment interest	672		 	856		 	1,169		 	2,254		 	3,474		
Total interest income	157,627		 	139,790		 	160,456		 	435,501		 	453,081		
 	 	 	 	 	 	 	 	 	 	
Interest expense:	 	 	 	 	 	 	 	 	 	
Interest on bonds and notes payable	60,866		 	51,054		 	68,243		 	164,227		 	178,345		
 	 	 	 	 	 	 	 	 	 	
Net interest income	96,761		 	88,736		 	92,213		 	271,274		 	274,736		
Less provision for loan losses	5,250		 	5,250		 	5,500		 	14,250		 	16,700		
 	 	 	 	 	 	 	 	 	 	
Net interest income after provision for loan losses	91,511		 	83,486		 	86,713		 	257,024		 	258,036		
 	 	 	 	 	 	 	 	 	 	
Other income (expense):	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	37,927		 	37,389		 	33,464		 	110,952		 	106,510		
Tuition payment processing and campus	 	 	 	 	 	 	 	 	 	
 commerce revenue	16,774		 	14,761		 	14,527		 	50,904		 	44,704		
Enrollment services revenue	35,505		 	32,315		 	36,439		 	101,688		 	105,113		
Software services revenue	4,622		 	4,346		 	4,624		 	13,745		 	14,467		
Other income	3,931		 	6,826		 	9,432		 	17,249		 	25,188		
Gain on sale of loans and debt repurchases	—		 	—		 	9,885		 	8,307		 	28,821		
Derivative market value and foreign currency	 	 	 	 	 	 	 	 	 	
adjustments	(13,888	)	 	(16,813	)	 	(32,805	)	 	(29,585	)	 	(35,931	)	
Derivative settlements, net	257		 	(3,522	)	 	(2,586	)	 	(7,417	)	 	(8,386	)	
Total other income	85,128		 	75,302		 	72,980		 	265,843		 	280,486		
 	 	 	 	 	 	 	 	 	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	
Salaries and benefits	44,132		 	42,881		 	41,085		 	130,925		 	122,691		
Litigation settlement	—		 	—		 	55,000		 	—		 	55,000		
Cost to provide enrollment services	23,825		 	22,140		 	23,709		 	68,804		 	69,845		
Depreciation and amortization	7,917		 	6,769		 	9,025		 	21,462		 	29,536		
Restructure expense	—		 	—		 	4,751		 	—		 	6,020		
Other expenses	28,904		 	28,767		 	26,717		 	83,776		 	89,120		
Total operating expenses	104,778		 	100,557		 	160,287		 	304,967		 	372,212		
 	 	 	 	 	 	 	 	 	 	
Income (loss) before income taxes	71,861		 	58,231		 	(594	)	 	217,900		 	166,310		
Income tax (expense) benefit	(24,410	)	 	(21,106	)	 	226		 	(78,444	)	 	(62,363	)	
Net income (loss)	$	47,451		 	37,125		 	(368	)	 	139,456		 	103,947		
 	 	 	 	 	 	 	 	 	 	
Earnings (loss) per common share:	 	 	 	 	 	 	 	 	 	
Net earnings (loss) - basic	$	0.98		 	0.76		 	(0.01	)	 	2.88		 	2.09		
Net earnings (loss) - diluted	$	0.98		 	0.76		 	(0.01	)	 	2.87		 	2.08		
 	 	 	 	 	 	 	 	 	 	
Weighted average shares outstanding:	 	 	 	 	 	 	 	 	 	
Basic	48,059,747		 	48,302,779		 	48,938,333		 	48,177,539		 	49,460,625		
Diluted	48,253,888		 	48,488,046		 	48,938,333		 	48,367,923		 	49,663,505		

Condensed Consolidated Balance Sheets
(Dollars in thousands)

	
										
 	As of	 	As of	 	As of	
 	September 30, 2011	 	December 31, 2010	 	September 30, 2010	
 	(unaudited)	 	 	 	(unaudited)	
Assets:	 	 	 	 	 	
Student loans receivable, net	$	24,641,614		 	23,948,014		 	24,436,162		
Student loans receivable - held for sale	—		 	84,987		 	2,109,440		
Cash, cash equivalents, and investments (trading securities)	141,928		 	327,037		 	349,443		
Restricted cash and investments	653,518		 	757,285		 	747,234		
Goodwill	117,118		 	117,118		 	143,717		
Intangible assets, net	33,074		 	38,712		 	43,352		
Other assets	648,975		 	620,739		 	757,231		
Total assets	26,236,227		 	25,893,892		 	28,586,579		
 	 	 	 	 	 	
Liabilities:	 	 	 	 	 	
Bonds and notes payable	24,926,512		 	24,672,472		 	27,391,188		
Other liabilities	298,232		 	314,787		 	350,777		
Total liabilities	25,224,744		 	24,987,259		 	27,741,965		
 	 	 	 	 	 	
Shareholders' equity	1,011,483		 	906,633		 	844,614		
Total liabilities and shareholders' equity	$	26,236,227		 	25,893,892		 	28,586,579		

Contacts:
Media, Ben Kiser, +1-402-458-3024, or Investors, Phil Morgan, +1-402-458-3038, both of Nelnet, Inc .

For Release: November 8, 2011
Media Contact: Ben Kiser, 402.458.3024
Investor Contact: Phil Morgan, 402.458.3038

Nelnet, Inc. supplemental financial information for the third quarter 2011
(All dollars are in thousands, except per share amounts, unless otherwise noted)

The following information should be read in connection with Nelnet, Inc.'s (the “Company's”) press release for third quarter 2011 earnings, dated November 8, 2011 , and the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 .

This earnings supplement contains forward-looking statements and information that are based on management's current expectations as of the date of this document.  Statements that are not historical facts, including statements about the Company's plans and expectations for future financial condition, results of operations or economic performance, or that address management's plans and objectives for future operations, and statements that assume or are dependent upon future events, are forward-looking statements. The words “may,” “should,” “could,” “would,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate,” “assume,” “forecast,” “will,” and similar expressions, as well as statements in future tense, are intended to identify forward-looking statements.

The forward-looking statements are based on assumptions and analyses made by management in light of management's experience and its perception of historical trends, current conditions, expected future developments, and other factors that management believes are appropriate under the circumstances. These statements are subject to known and unknown risks, uncertainties, assumptions, and other factors that may cause the actual results and performance to be materially different from any future results or performance expressed or implied by such forward-looking statements.  These risks and uncertainties are described in the “Risk Factors” section included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010 and the discussion of risks and uncertainties set forth elsewhere in the Company's Annual Report on Form 10-K for the year ended December 31, 2010 and subsequent Quarterly Reports on Form 10-Q and include such risks and uncertainties as:

•	risks related to the Company's student loan portfolio, such as interest rate basis and repricing risk resulting from the fact that the interest rate characteristics of the Company's student loan assets do not match the interest rate characteristics of the funding for those assets, the risk of loss of floor income on certain student loans originated under the Federal Family Education Loan Program (the “FFEL Program” or “FFELP”) of the U.S. Department of Education (the “Department”), risks related to the use of derivatives to manage exposure to interest rate fluctuations, and potential losses from loan defaults, changes in prepayment rates, guaranty rates, loan floor rates, and credit spreads;	

•	risks related to the Company's liquidity and funding requirements, including the Company's ability to maintain credit facilities or obtain new facilities, the ability of lenders under the Company's credit facilities to fulfill their lending commitments under these facilities, the Company's ability to satisfy debt obligations secured by student loan assets and related collateral, and changes in the general interest rate environment and in the securitization markets for education loans which may increase the costs or limit the availability of financings necessary to purchase, refinance, or continue to carry education loans;	

•	risks from changes in the student loan and educational credit and services marketplace resulting from the implementation of, or changes in, applicable laws, regulations, and government programs, including the discontinuance of private sector student loan originations under the FFEL Program effective July 1, 2010, the uncertain nature of the potential impact of the Department's new loan consolidation program, and the Company's ability to maintain its loan servicing contract with the Department to service federally-owned student loans and to comply with servicing agreements with third party customers for the service of loans under the Federal Direct Loan and FFEL Programs;	

•	risks from changes in the demand or preferences for educational financing and related services by educational institutions, students, and their families;	

1

		
•	uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations;	

•	risks associated with litigation, complex government regulations, changes in general economic conditions, which have recently led to higher rates of student loan defaults, changes in credit market conditions, and related party transactions; and	

•	uncertainties inherent in the estimates and assumptions about future events that management is required to make in the preparation of the Company's consolidated financial statements.	

All forward-looking statements contained in this earnings supplement are qualified by these cautionary statements and are made only as of the date of this document. Although the Company may from time to time voluntarily update or revise its prior forward-looking statements to reflect actual results or changes in the Company's expectations, the Company disclaims any commitment to do so except as required by securities laws.

Reclassifications

Certain amounts previously reported within operating expenses have been reclassified to conform to the current period presentation. These reclassifications include:

•	Reclassifying “professional and other services,” “occupancy and communications,” “postage and distribution,” “advertising and marketing,” and “trustee and other debt related fees” to “other” operating expenses.	

•	Reclassifying student list amortization, which was previously included in “advertising and marketing,” to “depreciation and amortization.”	

The reclassifications had no effect on consolidated net income or consolidated assets and liabilities.

2

Condensed Consolidated Statements of Operations

	
																
 	Three months ended	 	Nine months ended	
 	September 30, 2011	 	June 30, 2011	 	September 30, 2010	 	September 30, 2011	 	September 30, 2010	
 	(unaudited)	 	(unaudited)	 	(unaudited)	 	(unaudited)	 	(unaudited)	
Interest Income:	 	 	 	 	 	 	 	 	 	
Loan interest	$	158,809		 	146,827		 	171,208		 	452,983		 	490,158		
Amortization/accretion of loan premiums and	 	 	 	 	 	 	 	 	 	
deferred origination costs, net	(1,854	)	 	(7,893	)	 	(11,921	)	 	(19,736	)	 	(40,551	)	
Investment interest	672		 	856		 	1,169		 	2,254		 	3,474		
Total interest income	157,627		 	139,790		 	160,456		 	435,501		 	453,081		
 	 	 	 	 	 	 	 	 	 	
Interest expense:	 	 	 	 	 	 	 	 	 	
Interest on bonds and notes payable	60,866		 	51,054		 	68,243		 	164,227		 	178,345		
 	 	 	 	 	 	 	 	 	 	
Net interest income	96,761		 	88,736		 	92,213		 	271,274		 	274,736		
Less provision for loan losses	5,250		 	5,250		 	5,500		 	14,250		 	16,700		
 	 	 	 	 	 	 	 	 	 	
Net interest income after provision for loan losses	91,511		 	83,486		 	86,713		 	257,024		 	258,036		
 	 	 	 	 	 	 	 	 	 	
Other income (expense):	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	37,927		 	37,389		 	33,464		 	110,952		 	106,510		
Tuition payment processing and campus	 	 	 	 	 	 	 	 	 	
 commerce revenue	16,774		 	14,761		 	14,527		 	50,904		 	44,704		
Enrollment services revenue	35,505		 	32,315		 	36,439		 	101,688		 	105,113		
Software services revenue	4,622		 	4,346		 	4,624		 	13,745		 	14,467		
Other income	3,931		 	6,826		 	9,432		 	17,249		 	25,188		
Gain on sale of loans and debt repurchases	—		 	—		 	9,885		 	8,307		 	28,821		
Derivative market value and foreign currency	 	 	 	 	 	 	 	 	 	
adjustments	(13,888	)	 	(16,813	)	 	(32,805	)	 	(29,585	)	 	(35,931	)	
Derivative settlements, net	257		 	(3,522	)	 	(2,586	)	 	(7,417	)	 	(8,386	)	
Total other income	85,128		 	75,302		 	72,980		 	265,843		 	280,486		
 	 	 	 	 	 	 	 	 	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	
Salaries and benefits	44,132		 	42,881		 	41,085		 	130,925		 	122,691		
Litigation settlement	—		 	—		 	55,000		 	—		 	55,000		
Cost to provide enrollment services	23,825		 	22,140		 	23,709		 	68,804		 	69,845		
Depreciation and amortization	7,917		 	6,769		 	9,025		 	21,462		 	29,536		
Restructure expense	—		 	—		 	4,751		 	—		 	6,020		
Other expenses	28,904		 	28,767		 	26,717		 	83,776		 	89,120		
Total operating expenses	104,778		 	100,557		 	160,287		 	304,967		 	372,212		
 	 	 	 	 	 	 	 	 	 	
Income (loss) before income taxes	71,861		 	58,231		 	(594	)	 	217,900		 	166,310		
Income tax (expense) benefit	(24,410	)	 	(21,106	)	 	226		 	(78,444	)	 	(62,363	)	
Net income (loss)	$	47,451		 	37,125		 	(368	)	 	139,456		 	103,947		
 	 	 	 	 	 	 	 	 	 	
Earnings (loss) per common share:	 	 	 	 	 	 	 	 	 	
Net earnings (loss) - basic	$	0.98		 	0.76		 	(0.01	)	 	2.88		 	2.09		
Net earnings (loss) - diluted	$	0.98		 	0.76		 	(0.01	)	 	2.87		 	2.08		
 	 	 	 	 	 	 	 	 	 	
Weighted average shares outstanding:	 	 	 	 	 	 	 	 	 	
Basic	48,059,747		 	48,302,779		 	48,938,333		 	48,177,539		 	49,460,625		
Diluted	48,253,888		 	48,488,046		 	48,938,333		 	48,367,923		 	49,663,505		

3

Condensed Consolidated Balance Sheets

	
										
 	As of	 	As of	 	As of	
 	September 30, 2011	 	December 31, 2010	 	September 30, 2010	
 	(unaudited)	 	 	 	(unaudited)	
Assets:	 	 	 	 	 	
Student loans receivable, net	$	24,641,614		 	23,948,014		 	24,436,162		
Student loans receivable - held for sale	—		 	84,987		 	2,109,440		
Cash, cash equivalents, and investments (trading securities)	141,928		 	327,037		 	349,443		
Restricted cash and investments	653,518		 	757,285		 	747,234		
Goodwill	117,118		 	117,118		 	143,717		
Intangible assets, net	33,074		 	38,712		 	43,352		
Other assets	648,975		 	620,739		 	757,231		
Total assets	26,236,227		 	25,893,892		 	28,586,579		
 	 	 	 	 	 	
Liabilities:	 	 	 	 	 	
Bonds and notes payable	24,926,512		 	24,672,472		 	27,391,188		
Other liabilities	298,232		 	314,787		 	350,777		
Total liabilities	25,224,744		 	24,987,259		 	27,741,965		
 	 	 	 	 	 	
Shareholders' equity	1,011,483		 	906,633		 	844,614		
Total liabilities and shareholders' equity	$	26,236,227		 	25,893,892		 	28,586,579		

4

OVERVIEW

The Company is an innovative education services company focused primarily on providing fee-based processing services and quality education-related products and services in four core areas: loan financing, loan servicing, payment processing, and enrollment services (education planning). These products and services help students and families plan, prepare, and pay for their education and make the administrative and financial processes more efficient for schools and financial organizations. In addition, the Company earns net interest income on a portfolio of federally insured student loans.

The Company has certain business objectives in place that include:

•	Continue to grow and diversify fee-based revenue	
		
•	Manage operating costs	
		
•	Maximize the value of existing portfolio	
		
•	Use liquidity to capitalize on market opportunities	

Achieving these business objectives, as well as significant legislation changes in the student loan industry as discussed below, has impacted and will continue to impact the financial condition and operating results of the Company.

Legislative Impact on Operating Results

The Company has a portfolio of student loans in which it earns net interest income. These loans were originated and acquired by the Company under the FFEL Program.

On March 30, 2010, President Obama signed into law the Reconciliation Act of 2010.  Effective July 1, 2010, this law prohibits new loan originations under the FFEL Program and requires that all new federal loan originations be made through the Federal Direct Loan Program.  The new law does not alter or affect the terms and conditions of existing FFELP loans.

As a result of the Reconciliation Act of 2010, effective July 1, 2010, the Company no longer originates new FFELP loans. In addition, as a result of this legislation, net interest income on the Company’s existing FFELP loan portfolio, as well as fee-based revenue from guarantee and third party FFELP servicing, will decline over time as the Company’s customers’ FFELP loan portfolios are paid down.

Due to the legislative changes in the student loan industry, the Company believes there will be opportunities to purchase FFELP loan portfolios and/or expand its current level of guarantee and third party FFELP servicing volume on behalf of current FFELP participants looking to adjust their FFELP businesses.  For example, during the first nine months of 2011 , the Company purchased $2.7 billion of FFELP student loans.

In addition, on October 25, 2011, The White House and the Department announced a short-term consolidation program to eligible student loan borrowers. The Department's program will allow student loan borrowers with at least one legacy FFELP loan and at least one federal student loan owned by the Department to convert those loans to Special Direct Consolidation Loans under the Federal Direct Loan Program. The Company currently owns approximately $3 billion of FFEL Program loans that the Company believes will be eligible for the new program. This program could reduce the Company's FFEL Program student loan portfolio and related net interest income.

Continue to Grow and Diversify Fee-Based Revenue

The Company has expanded products and services generated from businesses that are not dependent upon the FFEL Program, thereby reducing legislative and political risk related to the education lending industry. Revenues from these businesses are primarily generated from products and services offered in the Company’s Tuition Payment Processing and Campus Commerce and Enrollment Services operating segments. In addition, in September 2009, the Company began servicing federally-owned student loans for the Department. The amount of federally-owned student loans originated through the Direct Loan Program is expected to increase substantially, which will lead to an increase in servicing volume and related revenue for the Company. Revenue earned from servicing federally-owned student loans is included in the Student Loan and Guaranty Servicing operating segment. A summary of revenue from the Company’s fee-based businesses is shown below.

5

	
													
 	Three months ended September 30,	 	 	 	 	
 	2011	 	2010	 	$ Change	 	% Change	
Student Loan and Guaranty Servicing (a)	$	42,564		 	38,101		 	4,463		 	11.7	 %	
Tuition Payment Processing and Campus Commerce	16,785		 	14,539		 	2,246		 	15.4	 %	
Enrollment Services (b)	35,505		 	36,439		 	(934	)	 	(2.6	)%	
Total revenue from fee-based businesses	$	94,854		 	89,079		 	5,775		 	6.5	 %	
 	 	 	 	 	 	 	 	
 	Nine months ended September 30,	 	 	 	 	
 	2011	 	2010	 	$ Change	 	% Change	
Student Loan and Guaranty Servicing (a)	$	124,739		 	121,793		 	2,946		 	2.4	 %	
Tuition Payment Processing and Campus Commerce	50,923		 	44,728		 	6,195		 	13.9	 %	
Enrollment Services (b)	101,688		 	105,113		 	(3,425	)	 	(3.3	)%	
Total revenue from fee-based businesses	$	277,350		 	271,634		 	5,716		 	2.1	 %	

(a)	The Student Loan and Guaranty Servicing operating segment included $8.6 million and $5.3 million of revenue earned from rehabilitation collections on defaulted loans for the three months ended September 30, 2011 and 2010 , respectively, and $24.2 million and $27.6 million for the nine months ended September 30, 2011 and 2010 , respectively.	

(b)	Enrollment services revenue has been negatively affected by the current regulatory uncertainty in the for-profit college industry, which has caused schools to decrease spending on marketing efforts.	

As shown below, the Company's revenue and income before taxes related to its fee-based operating segments continues to increase. The table below includes the consolidated operating results of the Company excluding the Asset Generation and Management Operating segment. Thus, the below table reflects the operating results of the Company as if it was not generating any earnings from its student loan portfolio.

	
					
Income (loss) before taxes (a)	
($5 million)	 	$67 million	 	$80 million	

(a)	Excludes restructure and impairment expenses and a litigation settlement charge recognized in 2010. See the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 for additional information on total operating expenses by segment and these adjustments thereto.	

The Company's revenue and income before taxes related to its fee-based operating segments for the nine months ended September 30, 2011 was $336 million and $61 million, respectively.

6

Hosted Servicing Software Revenue

The Company offers a hosted servicing software solution that can be used by third parties to service various types of student loans, including Federal Direct Loan Program and FFEL Program loans. Currently, including a contract with an incumbent Direct Loan Program service provider, the Company has agreements with third parties to add more than 12 million borrowers to its hosted servicing software solution. The Company does not provide servicing of loans as part of these agreements. In October 2011, the Company began hosting student loan servicing volume on its servicing software platforms. As of October 31, 2011, more than 9.5 million borrowers were hosted on these platforms. The Company will begin to recognize this additional software services revenue in the fourth quarter of 2011.

Manage Operating Costs

Excluding a litigation settlement and restructuring charges recognized in 2010, operating expenses increased $4.2 million ( 4.2% ) for the three months ended September 30, 2011 and decreased $6.2 million ( 2.0% ) for the nine months ended September 30, 2011 compared to the same periods in 2010 as shown below.

														
 	Three months ended September 30,	 	Change	
 	2011	 	2010	 	 $	 	%	
Salaries and benefits	$	44,132		 	41,085		 	3,047		 	7.4	 %	
Cost to provide enrollment services	23,825		 	23,709		 	116		 	0.5		
Depreciation and amortization	7,917		 	9,025		 	(1,108	)	 	(12.3	)	
Other expenses	28,904		 	26,717		 	2,187		 	8.2		
Total operating expenses, excluding litigation settlement and restructure expense	104,778		 	100,536		 	$	4,242		 	4.2	 %	
Litigation settlement	—		 	55,000		 	 	 	 	
Restructure expense	—		 	4,751		 	 	 	 	
Total operating expenses	$	104,778		 	160,287		 	 	 	 	
 	 	 	 	 	 	 	 	
 	Nine months ended September 30,	 	Change	
 	2011	 	2010	 	 $	 	%	
Salaries and benefits	$	130,925		 	122,691		 	8,234		 	6.7	 %	
Cost to provide enrollment services	68,804		 	69,845		 	(1,041	)	 	(1.5	)	
Depreciation and amortization	21,462		 	29,536		 	(8,074	)	 	(27.3	)	
Other expenses	83,776		 	89,120		 	(5,344	)	 	(6.0	)	
Total operating expenses, excluding litigation settlement and restructure expense	304,967		 	311,192		 	$	(6,225	)	 	(2.0	)%	
Litigation settlement	—		 	55,000		 	 	 	 	
Restructure expense	—		 	6,020		 	 	 	 	
Total operating expenses	$	304,967		 	372,212		 	 	 	 	

Maximize the Value of Existing Portfolio

Fixed rate floor income

Loans originated prior to April 1, 2006 generally earn interest at the higher of a floating rate based on the Special Allowance Payment or the SAP formula set by the Department and the borrower rate, which is fixed over a period of time.  The SAP formula is based on an applicable indice plus a fixed spread that is dependent upon when the loan was originated, the loan’s repayment status, and funding sources for the loan.  The Company generally finances its student loan portfolio with variable rate debt.  In low and/or declining interest rate environments, when the fixed borrower rate is higher than the rate produced by the SAP formula, the Company’s student loans earn at a fixed rate while the interest on the variable rate debt typically continues to decline.  In these interest rate environments, the Company earns additional spread income that it refers to as floor income.  For loans where the borrower rate is fixed to term, the Company earns floor income for an extended period of time, which the Company refers to as fixed rate floor income.

7

A summary of fixed rate floor income is summarized below.

	
													
 	Three months ended September 30,	 	Nine months ended September 30,	
 	2011	 	2010	 	2011	 	2010	
Fixed rate floor income, gross	$	44,080		 	38,263		 	121,126		 	112,731		
Derivative settlements (a)	(3,482	)	 	(4,040	)	 	(16,045	)	 	(12,183	)	
Fixed rate floor income, net	$	40,598		 	34,223		 	105,081		 	100,548		
 	 	 	 	 	 	 	 	
Fixed rate floor income contribution to spread, net	0.65	%	 	0.51	%	 	0.59	%	 	0.53	%	

(a)	Includes settlement payments on derivatives used to hedge student loans earning fixed rate floor income.	

The high levels of fixed rate floor income earned during 2011 and 2010 are due to historically low interest rates.  If interest rates remain low, the Company anticipates continuing to earn significant fixed rate floor income in future periods.

Future Cash Flow from Portfolio

The majority of the Company’s portfolio of student loans is funded in asset-backed securitizations that are structured to substantially match the maturity of the funded assets, thereby minimizing liquidity risk. In addition, due to (i) the difference between the yield the Company receives on the loans and cost of financing within these transactions, and (ii) the excess servicing and administration fees the Company earns from these transactions, the Company has created a portfolio that will generate earnings and significant cash flow over the life of these transactions.

As of September 30, 2011 , based on cash flow models developed to reflect management’s current estimate of, among other factors, prepayments, defaults, deferment, forbearance, and interest rates, the Company currently expects future undiscounted cash flows from its portfolio to be approximately $1.83 billion as detailed below.  The $1.83 billion includes approximately $330 million (as of September 30, 2011 ) of overcollateralization included in the asset-backed securitizations.  These excess net asset positions are reflected variously in the following balances on the consolidated balance sheet:  "student loans receivable," "restricted cash and investments," and "accrued interest receivable."

The forecasted cash flow presented below includes all loans currently funded in asset-backed securitizations.  As of September 30, 2011 , the Company had $21.5 billion of loans included in asset-backed securitizations, which represented 87 percent of its total FFELP student loan portfolio. The forecasted cash flow does not include cash flows that the Company expects to receive related to loans funded through the Department of Education’s Conduit Program and other warehouse facilities or loans originated and/or acquired subsequent to September 30, 2011 .

(a)	The Company uses various assumptions, including prepayments and future interest rates, when preparing its cash flow forecast.  These assumptions are further discussed below.	

8

Prepayments :  The primary variable in establishing a life of loan estimate is the level and timing of prepayments. Prepayment rates equal the percentage of loans that prepay annually as a percentage of the beginning of period balance, net of scheduled principal payments.  A number of factors can affect estimated prepayment rates, including the level of consolidation activity and default rates.  Should any of these factors change, management may revise its assumptions, which in turn would impact the projected future cash flow. The Company’s cash flow forecast above assumes prepayment rates that are generally consistent with those utilized in the Company’s recent asset-backed securities transactions. If management used a prepayment rate assumption two times greater than what was used to forecast the cash flow, the cash flow forecast would be reduced by approximately $370 million to $430 million .

On October 25, 2011, The White House and the Department announced a short-term consolidation program to eligible student loan borrowers. The Department's program will allow student loan borrowers with at least one legacy FFELP loan and at least one federal student loan owned by the Department to convert those loans to Special Direct Consolidation Loans under the Federal Direct Loan Program. The Company currently owns approximately $3 billion of FFEL Program loans that the Company believes will be eligible for the new program, of which approximately $2 billion are permanently funded in asset-backed securitizations, and the forecased cash flows from these loans are included in the table above. This program could increase the prepayments on the loans eligible for this program and decrease the forecasted cash flows.

Interest rates :  The Company funds the majority of its student loans with three-month LIBOR (“LIBOR”) indexed floating rate securities.  Meanwhile, the interest earned on the Company’s student loan assets are indexed primarily to a commercial paper rate (“CP”).  The different interest rate characteristics of the Company’s loan assets and liabilities funding these assets result in basis risk.  The Company’s cash flow forecast assumes LIBOR will exceed CP by 12 basis points for the life of the portfolio, which approximates the historical relationship between these indices.  If the forecast is computed assuming a spread of 24 basis points between CP and LIBOR for the life of the portfolio, the cash flow forecast would be reduced by approximately $80 million to $120 million .

The Company uses the current forward interest rate yield curve to forecast cash flows.  A change in the forward interest rate curve would impact the future cash flows generated from the portfolio.  An increase in future interest rates will reduce the amount of fixed rate floor income the Company is currently receiving.  The Company attempts to mitigate the impact of a rise in short-term rates by hedging interest rate risks. As of September 30, 2011 , the net fair value of the Company’s interest rate derivatives used to hedge loans earning fixed rate floor income was a liability of $25.8 million .

Use Liquidity to Capitalize on Market Opportunities

The Company has used and will continue to use its improved liquidity position to capitalize on market opportunities, including FFELP student loan acquisitions; strategic acquisitions and investments in its core business areas of loan financing, loan servicing, payment processing, and enrollment services (education planning); and capital management initatives, including stock repurchases, debt repurchases, and dividend distributions.

During 2011 , the Company has used its improved liquidity to accomplish the following items:

•	FFELP Student Loan Acquisitions	
		
-	Purchased $2.7 billion of FFELP student loans through September 30, 2011	

•	Acquisitions and Investments in Core Business Areas	
		
-	Purchased contracts with more than 370 K-12 schools to provide tuition payment plan services	

•	Capital Management	
		
-	Repurchased 1.1 million shares of common stock through September 30, 2011 for $21.1 million ($18.83 per share)	
		
-	Repurchased $74.8 million notional amount of debt through September 30, 2011 recognizing a gain of $7.0 million	
		
-	Raised the quarterly dividend paid on the Company’s common stock to $0.10 per share ($13.1 million of dividends paid through September 30, 2011)	

9

Non-GAAP Performance Measures

In accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”), the Company prepares financial statements in accordance with generally accepted accounting principles (“GAAP”). In addition to evaluating the Company's GAAP-based financial information, management also evaluates the Company on a non-GAAP performance measure referred to as “base net income”. While “base net income” is not a substitute for reported results under GAAP, the Company provides “base net income” as additional information regarding its financial results.

“Base net income” is the primary financial performance measure used by management to develop financial plans, establish corporate performance targets, allocate resources, track results, evaluate performance, and determine incentive compensation. The Company's board of directors utilizes “base net income” to set performance targets and evaluate management's performance. The Company also believes analysts, rating agencies, and creditors use “base net income” in their evaluation of the Company's results of operations. While “base net income” is not a substitute for reported results under GAAP, the Company utilizes “base net income” in operating its business because “base net income” permits management to make meaningful period-to-period comparisons by eliminating the temporary volatility in the Company's performance that arises from certain items that are primarily affected by factors beyond the control of management. Management believes “base net income” provides additional insight into the financial performance of the core business activities of the Company's operations.

The following table provides a reconciliation of GAAP net income to “base net income.”

																
 	Three months ended	 	Nine months ended	
 	September 30, 2011	 	June 30,
2011	 	September 30, 2010	 	September 30, 2011	 	September 30, 2010	
GAAP net income (loss)	$	47,451		 	37,125		 	(368	)	 	139,456		 	103,947		
Base adjustments:	 	 	 	 	 	 	 	 	 	
Derivative market value and foreign currency adjustments	13,888		 	16,813		 	32,805		 	29,585		 	35,931		
Amortization of intangible assets	4,490		 	3,959		 	5,355		 	12,425		 	18,103		
Total base adjustments before income taxes	18,378		 	20,772		 	38,160		 	42,010		 	54,034		
Net tax effect	(6,984	)	 	(7,893	)	 	(14,501	)	 	(15,964	)	 	(20,533	)	
Total base adjustments	11,394		 	12,879		 	23,659		 	26,046		 	33,501		
Base net income	$	58,845		 	50,004		 	23,291		 	165,502		 	137,448		
 	 	 	 	 	 	 	 	 	 	
Earnings (loss) per share:	 	 	 	 	 	 	 	 	 	
GAAP net income (loss)	$	0.98		 	0.76		 	(0.01	)	 	2.88		 	2.09		
Total base adjustments before two-class method of computing earnings per share (a)	—		 	—		 	—		 	0.01		 	0.01		
Total base adjustments	0.24		 	0.28		 	0.48		 	0.54		 	0.68		
Base net income	$	1.22		 	1.04		 	0.47		 	3.43		 	2.78		

(a)	The two-class method requires the calculation of separate earnings per share amounts for unvested share-based awards and for common stock. Unvested share-based awards that contain nonforfeitable rights to dividends are considered securities which participate in undistributed earnings with common stock. GAAP net earnings per share in the above table represents earnings per share attributable to common shareholders. The adjustment to base net income reflects the earnings allocated to holders of unvested restricted stock awards.	

10

The following table summarizes the impact to “base net income” from a litigation settlement and restructure charges recognized by the Company in 2010.

																
 	Three months ended	 	Nine months ended	
 	September 30,
2011	 	June 30,
2011	 	September 30,
2010	 	September 30,
2011	 	September 30,
2010	
Base net income	$	58,845		 	50,004		 	23,291		 	165,502		 	137,448		
Adjusted base adjustments:	 	 	 	 	 	 	 	 	 	
Litigation settlement	—		 	—		 	55,000		 	—		 	55,000		
Restructure expense	—		 	—		 	4,751		 	—		 	6,020		
Adjusted base adjustments before income taxes	—		 	—		 	59,751		 	—		 	61,020		
Net tax effect	—		 	—		 	(22,705	)	 	—		 	(23,187	)	
Total adjusted base adjustments	—		 	—		 	37,046		 	—		 	37,833		
Total base adjustments before settlement and restructure expense (net of tax)	$	58,845		 	50,004		 	60,337		 	165,502		 	175,281		
 	 	 	 	 	 	 	 	 	 	
Earnings per share:	 	 	 	 	 	 	 	 	 	
Base net income	$	1.22		 	1.04		 	0.47		 	3.43		 	2.78		
Total adjusted base adjustments	—		 	—		 	0.76		 	—		 	0.76		
Base net income, excluding litigation settlement and restructure expense (net of tax)	$	1.22		 	1.04		 	1.23		 	3.43		 	3.54		

Limitations of Base Net Income

While GAAP provides a uniform, comprehensive basis of accounting, for the reasons discussed above, management believes that “base net income” is an important additional tool for providing a more complete understanding of the Company's results of operations. Nevertheless, “base net income” is subject to certain general and specific limitations that investors should carefully consider. For example, as stated above, unlike financial accounting, there is no comprehensive, authoritative guidance for management reporting. The Company's “base net income” is not a defined term within GAAP and may not be comparable to similarly titled measures reported by other companies. Investors, therefore, may not be able to compare the Company's performance with that of other companies based upon “base net income.” “Base net income” results are only meant to supplement GAAP results by providing additional information regarding the operational and performance indicators that are most closely monitored and used by the Company's management and board of directors to assess performance and information which the Company believes is important to analysts, rating agencies, and creditors.

Other limitations of “base net income” arise from the specific adjustments that management makes to GAAP results to derive “base net income” results. These differences are described below.

Differences between GAAP and Base Net Income

Management's financial planning and evaluation of operating results does not take into account the following items because their volatility and/or inherent uncertainty affect the period-to-period comparability of the Company's results of operations. A more detailed discussion of the differences between GAAP and “base net income” follows.

11

Derivative market value and foreign currency adjustments

“ Base net income” excludes the periodic unrealized gains and losses that are caused by the change in fair value on derivatives used in the Company's risk management strategy in which the Company does not qualify for “hedge treatment” under GAAP. As such, the Company recognizes changes in fair value of derivative instruments currently in earnings. The Company maintains an overall interest rate risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative instruments primarily used by the Company to manage interest rate risks include interest rate swaps and basis swaps. Management has structured the majority of the Company's derivative transactions with the intent that each is economically effective. However, the Company does not qualify its derivatives for “hedge treatment,” and the stand-alone derivative must be marked-to-market in the income statement with no consideration for the corresponding change in fair value of the hedged item. The Company believes these point-in-time estimates of asset and liability values that are subject to interest rate fluctuations make it difficult to evaluate the ongoing results of operations against its business plan and affect the period-to-period comparability of the results of operations. Included in “base net income” are the economic effects of the Company's derivative instruments, which includes any cash paid or received being recognized as an expense or revenue upon actual derivative settlements. These settlements are included in “derivative settlements, net” on the attached condensed consolidated statements of operations.

“Base net income” excludes the foreign currency transaction gains or losses caused by the re-measurement of the Company's Euro-denominated bonds to U.S. dollars. In connection with the issuance of the Euro-denominated bonds, the Company has entered into cross-currency interest rate swaps. Under the terms of these agreements, the principal payments on the Euro-denominated notes will effectively be paid at the exchange rate in effect between the U.S. dollar and Euro at the issuance date of the bonds. The cross-currency interest rate swaps also convert the floating rate paid on the Euro-denominated bonds (EURIBOR index) to an index based on LIBOR. Included in “base net income” are the economic effects of any cash paid or received being recognized as an expense or revenue upon actual settlements of the cross-currency interest rate swaps. These settlements are included in “derivative settlements, net” on the attached condensed consolidated statements of income. However, the gains or losses caused by the re-measurement of the Euro-denominated bonds to U.S. dollars and the change in market value of the cross-currency interest rate swaps are excluded from “base net income” as the Company believes the point-in-time estimates of value that are subject to currency rate fluctuations related to these financial instruments make it difficult to evaluate the ongoing results of operations against the Company's business plan and affect the period-to-period comparability of the results of operations. The re-measurement of the Euro-denominated bonds generally correlates with the change in fair value of the cross-currency interest rate swaps. However, the Company will experience unrealized gains or losses related to the cross-currency interest rate swaps if the two underlying indices (and related forward curve) do not move in parallel.

The gains and/or losses included in “derivative market value and foreign currency adjustments” on the attached condensed consolidated statements of income are primarily caused by interest rate and currency volatility, as well as the volume and terms of derivatives not receiving hedge treatment. “Base net income” excludes these unrealized gains and losses and isolates the effect of interest rate and currency volatility related to the fair value of such instruments during the period. Under GAAP, the effects of these factors on the fair value of the derivative instruments (but not the underlying hedged item) tend to show more volatility in the short term.

Amortization of intangible assets

“Base net income” excludes the amortization of acquired intangibles, which arises primarily from the acquisition of definite life intangible assets in connection with the Company's business and asset acquisitions, since the Company feels that such charges do not drive the Company's operating performance on a long-term basis and can affect the period-to-period comparability of the results of operations.

Operating Segments

The Company earns fee-based revenue through its Student Loan and Guaranty Servicing, Tuition Payment Processing and Campus Commerce, and Enrollment Services operating segments. In addition, the Company earns net interest income on its student loan portfolio in its Asset Generation and Management operating segment. The Company’s operating segments are defined by the products and services they offer and the types of customers they serve, and they reflect the manner in which financial information is currently evaluated by management.

The accounting policies of the Company’s operating segments are the same as those described in note 2 in the notes to the consolidated financial statements included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2010 . Intersegment revenues are charged by a segment to another segment that provides the product or service.  Intersegment revenues and expenses are included within each segment consistent with the income statement presentation provided to management.  Changes in management structure or allocation methodologies and procedures may result in changes in reported

12

segment financial information. The Company allocates certain corporate overhead expenses to the individual operating segments.  These expenses include certain corporate activities related to executive management, human resources, accounting, legal, occupancy, and marketing. These costs are allocated to each operating segment based on estimated use of such activities and services.

The management reporting process measures the performance of the Company’s operating segments based on the management structure of the Company as well as the methodology used by management to evaluate performance and allocate resources.  Management, including the Company’s chief operating decision maker, evaluates the performance of the Company’s operating segments based on their profitability.  As discussed further below, management measures the profitability of the Company’s operating segments based on “base net income.”  Accordingly, information regarding the Company’s operating segments is provided based on “base net income.”  The Company’s “base net income” is not a defined term within generally accepted accounting principles (“GAAP”) and may not be comparable to similarly titled measures reported by other companies.  Unlike financial accounting, there is no comprehensive, authoritative guidance for management reporting.

Fee-Based Operating Segments

Student Loan and Guaranty Servicing

The following are the primary product and service offerings the Company offers as part of its Student Loan and Guaranty Servicing segment:

•	Servicing of FFELP loans	
		
•	Origination and servicing of non-federally insured student loans	
		
•	Servicing federally-owned student loans for the Department of Education	
		
•	Servicing and support outsourcing for guaranty agencies	
		
•	Student loan servicing software and other information technology products and services	

The Student Loan and Guaranty Servicing operating segment provides for the servicing of the Company’s student loan portfolios and the portfolios of third parties. The loan servicing activities include loan origination activities, loan conversion activities, application processing, borrower updates, 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.

In June 2009, the Department of Education named the Company as one of four private sector companies awarded a servicing contract to service federally-owned student loans. In September 2009, the Company began servicing loans under this contract. The contract spans five years with one five-year renewal at the option of the Department.

This operating segment also provides servicing activities for guarantee agencies. These activities include providing software and data center services, borrower and loan updates, default aversion tracking services, claim processing services, and post-default collection services.

This operating segment also develops student loan servicing software, which is used internally by the Company and also licensed to third party student loan holders and servicers. In addition, this operating segment provides information technology products and services with core areas of business in educational loan software solutions, technical consulting services, and Enterprise content management solutions.

Tuition Payment Processing and Campus Commerce

The Company’s Tuition Payment Processing and Campus Commerce operating segment 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 with the everyday challenges of collecting and processing commerce data.

In the K-12 market, the Company offers actively managed tuition payment plans as well as assistance with financial needs assessment, enrollment management, and donor management. The Company offers two principal products to the higher education market: actively managed tuition payment plans and campus commerce technologies and payment processing.

13

Enrollment Services

The Enrollment Services operating segment offers products and services that are focused on helping colleges recruit and retain students (interactive and list marketing services) and helping students plan and prepare for life after high school (publishing services and resource centers). Interactive marketing products and services include agency of record services, qualified inquiry generation, pay per click, and other marketing management, along with call center solutions. The majority of interactive marketing revenue is derived from fees which are earned through the delivery of qualified inquiries or clicks provided to colleges and universities. List marketing services include providing lists to help higher education institutions and businesses reach the middle school, high school, college bound high school, college, and young adult market places. Publishing services include test preparation study guides, school directories and databases, and career exploration guides.  Resource centers include online courses, scholarship search and selection data, career planning, and on-line information about colleges and universities.

Asset Generation and Management Operating Segment

The Asset Generation and Management Operating Segment includes the acquisition, management, and ownership of the Company’s student loan assets, which has historically been the Company’s largest product and service offering. The Company generates a substantial portion of its earnings from the spread, referred to as the Company’s student loan spread, between the yield it receives on its student loan portfolio and the associated costs to finance such portfolio. The student loan assets are held in a series of education lending subsidiaries designed specifically for this purpose. In addition to the student 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.

As a result of legislation (the Reconciliation Act of 2010), effective July 1, 2010, all new federal loan originations are made by the Department of Education through the Direct Loan Program and the Company no longer originates FFELP loans. This legislation does not alter or affect the terms and conditions of existing FFELP loans.

Corporate Activity and Overhead

Corporate Activity and Overhead includes the following items:

•	Income earned on certain investment activities	
		
•	Interest expense incurred on unsecured debt transactions	
		
•	Other products and service offerings that are not considered operating segments	

Corporate Activities also includes certain corporate activities and overhead functions related to executive management, human resources, accounting and finance, legal, and marketing. Beginning in 2010, these costs were allocated to each operating segment based on estimated use of such activities and services.

Segment Operating Results – “Base Net Income”

The tables below include the operating results of each of the Company’s operating segments. Management, including the chief operating decision maker, evaluates the Company on certain non-GAAP performance measures that the Company refers to as “base net income” for each operating segment. While “base net income” is not a substitute for reported results under GAAP, the Company relies on “base net income” to manage each operating segment because it believes this measure provides additional information regarding the operational and performance indicators that are most closely assessed by management.

“Base net income” is the primary financial performance measure used by management to develop the Company’s financial plans, track results, and establish corporate performance targets and incentive compensation. Management believes this information provides additional insight into the financial performance of the core business activities of the Company’s operating segments. Accordingly, the tables presented below reflect “base net income,” which is the operating measure reviewed and utilized by management to manage the business. Reconciliations of the segment totals to the Company’s operating results in accordance with GAAP are also included in the tables below.

Income Taxes

For segment reporting, income taxes are applied based on 38% of income (loss) before taxes for each individual operating segment. The difference between the consolidated income tax expense and the sum of taxes calculated for each operating segment is included in income taxes in Corporate Activity and Overhead.

14

Reclassifications

Certain amounts previously reported within operating expenses have been reclassified to conform to the current period presentation. These reclassifications had no effect on any of the segments’ net income or assets and liabilities.

Segment Operating Results and Reconciliations to GAAP

																															
 	Three months ended September 30, 2011	
 	Fee-Based	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Student
Loan
and
Guaranty
Servicing	 	Tuition
Payment
Processing
and
Campus
Commerce	 	Enrollment
Services	 	Total Fee-
Based	 	Asset
Generation and
Management	 	Corporate
Activity
and
Overhead	 	Eliminations	 	Base Net
Income	 	Adjustments
to GAAP
Results	 	GAAP
Results of
Operations	
Total interest income	$	15		 	11		 	—		 	26		 	157,071		 	1,285		 	(755	)	 	157,627		 	—		 	157,627		
Interest expense	—		 	—		 	—		 	—		 	59,049		 	2,572		 	(755	)	 	60,866		 	—		 	60,866		
Net interest income (loss)	15		 	11		 	—		 	26		 	98,022		 	(1,287	)	 	—		 	96,761		 	—		 	96,761		
Less provision for loan losses	—		 	—		 	—		 	—		 	5,250		 	—		 	—		 	5,250		 	—		 	5,250		
Net interest income (loss)after provision for loan losses	15		 	11		 	—		 	26		 	92,772		 	(1,287	)	 	—		 	91,511		 	—		 	91,511		
Other income (expense):	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		
Loan and guaranty servicing revenue	37,927		 	—		 	—		 	37,927		 	—		 	—		 	—		 	37,927		 	—		 	37,927		
Intersegment servicing revenue	16,622		 	—		 	—		 	16,622		 	—		 	—		 	(16,622	)	 	—		 	—		 	—		
Tuition payment processing and campus commerce revenue	—		 	16,774		 	—		 	16,774		 	—		 	—		 	—		 	16,774		 	—		 	16,774		
Enrollment services revenue	—		 	—		 	35,505		 	35,505		 	—		 	—		 	—		 	35,505		 	—		 	35,505		
Software services revenue	4,622		 	—		 	—		 	4,622		 	—		 	—		 	—		 	4,622		 	—		 	4,622		
Other income	—		 	—		 	—		 	—		 	3,694		 	237		 	—		 	3,931		 	—		 	3,931		
Gain on sale of loans and debt repurchases	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		
Derivative market value and foreign currency adjustments	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		 	(13,888	)	 	(13,888	)	
Derivative settlements, net	—		 	—		 	—		 	—		 	507		 	(250	)	 	—		 	257		 	—		 	257		
Total other income (expense)	59,171		 	16,774		 	35,505		 	111,450		 	4,201		 	(13	)	 	(16,622	)	 	99,016		 	(13,888	)	 	85,128		
Operating expenses:	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		
Salaries and benefits	25,335		 	7,594		 	6,484		 	39,413		 	694		 	4,025		 	—		 	44,132		 	—		 	44,132		
Cost to provide enrollment services	—		 	—		 	23,825		 	23,825		 	—		 	—		 	—		 	23,825		 	—		 	23,825		
Depreciation and amortization	2,005		 	286		 	784		 	3,075		 	—		 	352		 	—		 	3,427		 	4,490		 	7,917		
Restructure expense	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		
Other	14,420		 	2,302		 	2,129		 	18,851		 	3,311		 	6,742		 	—		 	28,904		 	—		 	28,904		
Intersegment expenses, net	1,291		 	1,166		 	783		 	3,240		 	16,865		 	(3,483	)	 	(16,622	)	 	—		 	—		 	—		
Total operating expenses	43,051		 	11,348		 	34,005		 	88,404		 	20,870		 	7,636		 	(16,622	)	 	100,288		 	4,490		 	104,778		
Income (loss) before income taxes and corporate overhead allocation	16,135		 	5,437		 	1,500		 	23,072		 	76,103		 	(8,936	)	 	—		 	90,239		 	(18,378	)	 	71,861		
Corporate overhead allocation	(963	)	 	(321	)	 	(321	)	 	(1,605	)	 	(1,605	)	 	3,210		 	—		 	—		 	—		 	—		
Income (loss) before income taxes	15,172		 	5,116		 	1,179		 	21,467		 	74,498		 	(5,726	)	 	—		 	90,239		 	(18,378	)	 	71,861		
Income tax (expense) benefit	(5,765	)	 	(1,944	)	 	(448	)	 	(8,157	)	 	(27,902	)	 	4,665		 	—		 	(31,394	)	 	6,984		 	(24,410	)	
Net income (loss)	$	9,407		 	3,172		 	731		 	13,310		 	46,596		 	(1,061	)	 	—		 	58,845		 	(11,394	)	 	47,451		

15

	
																															
 	Three months ended June 30, 2011	
 	Fee-Based	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Student
Loan
and
Guaranty
Servicing	 	Tuition
Payment
Processing
and
Campus
Commerce	 	Enrollment
Services	 	Total Fee-
Based	 	Asset
Generation and
Management	 	Corporate
Activity
and
Overhead	 	Eliminations	 	Base Net
Income	 	Adjustments
to GAAP
Results	 	GAAP
Results of
Operations	
Total interest income	$	12		 	2		 	—		 	14		 	139,284		 	1,147		 	(655	)	 	139,790		 	—		 	139,790		
Interest expense	—		 	—		 	—		 	—		 	49,269		 	2,440		 	(655	)	 	51,054		 	—		 	51,054		
Net interest income (loss)	12		 	2		 	—		 	14		 	90,015		 	(1,293	)	 	—		 	88,736		 	—		 	88,736		
Less provision for loan losses	—		 	—		 	—		 	—		 	5,250		 	—		 	—		 	5,250		 	—		 	5,250		
Net interest income (loss) after provision for loan losses	12		 	2		 	—		 	14		 	84,765		 	(1,293	)	 	—		 	83,486		 	—		 	83,486		
Other income (expense):	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		
Loan and guaranty servicing revenue	37,389		 	—		 	—		 	37,389		 	—		 	—		 	—		 	37,389		 	—		 	37,389		
Intersegment servicing revenue	16,793		 	—		 	—		 	16,793		 	—		 	—		 	(16,793	)	 	—		 	—		 	—		
Tuition payment processing and campus commerce revenue	—		 	14,761		 	—		 	14,761		 	—		 	—		 	—		 	14,761		 	—		 	14,761		
Enrollment services revenue	—		 	—		 	32,315		 	32,315		 	—		 	—		 	—		 	32,315		 	—		 	32,315		
Software services revenue	4,346		 	—		 	—		 	4,346		 	—		 	—		 	—		 	4,346		 	—		 	4,346		
Other income	—		 	—		 	—		 	—		 	3,997		 	2,829		 	—		 	6,826		 	—		 	6,826		
Gain on sale of loans and debt repurchases	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		
Derivative market value and foreign currency adjustments	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		 	(16,813	)	 	(16,813	)	
Derivative settlements, net	—		 	—		 	—		 	—		 	(3,274	)	 	(248	)	 	—		 	(3,522	)	 	—		 	(3,522	)	
Total other income (expense)	58,528		 	14,761		 	32,315		 	105,604		 	723		 	2,581		 	(16,793	)	 	92,115		 	(16,813	)	 	75,302		
Operating expenses:	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		
Salaries and benefits	24,731		 	7,249		 	5,931		 	37,911		 	709		 	4,261		 	—		 	42,881		 	—		 	42,881		
Cost to provide enrollment services	—		 	—		 	22,140		 	22,140		 	—		 	—		 	—		 	22,140		 	—		 	22,140		
Depreciation and amortization	1,336		 	345		 	780		 	2,461		 	—		 	349		 	—		 	2,810		 	3,959		 	6,769		
Restructure expense	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		
Other	14,605		 	2,327		 	2,442		 	19,374		 	5,139		 	4,254		 	—		 	28,767		 	—		 	28,767		
Intersegment expenses, net	1,060		 	1,118		 	959		 	3,137		 	17,047		 	(3,391	)	 	(16,793	)	 	—		 	—		 	—		
Total operating expenses	41,732		 	11,039		 	32,252		 	85,023		 	22,895		 	5,473		 	(16,793	)	 	96,598		 	3,959		 	100,557		
Income (loss) before income taxes and corporate overhead allocation	16,808		 	3,724		 	63		 	20,595		 	62,593		 	(4,185	)	 	—		 	79,003		 	(20,772	)	 	58,231		
Corporate overhead allocation	(1,233	)	 	(411	)	 	(411	)	 	(2,055	)	 	(2,054	)	 	4,109		 	—		 	—		 	—		 	—		
Income (loss) before income taxes	15,575		 	3,313		 	(348	)	 	18,540		 	60,539		 	(76	)	 	—		 	79,003		 	(20,772	)	 	58,231		
Income tax (expense) benefit	(5,917	)	 	(1,259	)	 	132		 	(7,044	)	 	(23,412	)	 	1,457		 	—		 	(28,999	)	 	7,893		 	(21,106	)	
Net income (loss)	$	9,658		 	2,054		 	(216	)	 	11,496		 	37,127		 	1,381		 	—		 	50,004		 	(12,879	)	 	37,125		

16

	
																															
 	Three months ended September 30, 2010	
 	Fee-Based	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Student
Loan
and
Guaranty
Servicing	 	Tuition
Payment
Processing
and
Campus
Commerce	 	Enrollment
Services	 	Total Fee-Based	 	Asset
Generation
and
Management	 	Corporate
Activity
and
Overhead	 	Eliminations	 	Base Net
Income	 	Adjustments
to GAAP
Results	 	GAAP
Results of
Operations	
Total interest income	$	13		 	12		 	—		 	25		 	159,752		 	1,919		 	(1,240	)	 	160,456		 	—		 	160,456		
Interest expense	—		 	—		 	—		 	—		 	64,302		 	5,181		 	(1,240	)	 	68,243		 	—		 	68,243		
Net interest income (loss)	13		 	12		 	—		 	25		 	95,450		 	(3,262	)	 	—		 	92,213		 	—		 	92,213		
Less provision for loan losses	—		 	—		 	—		 	—		 	5,500		 	—		 	—		 	5,500		 	—		 	5,500		
Net interest income (loss) after provision for loan losses	13		 	12		 	—		 	25		 	89,950		 	(3,262	)	 	—		 	86,713		 	—		 	86,713		
Other income (expense):	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		
Loan and guaranty servicing revenue	33,464		 	—		 	—		 	33,464		 	—		 	—		 	—		 	33,464		 	—		 	33,464		
Intersegment servicing revenue	20,022		 	—		 	—		 	20,022		 	—		 	—		 	(20,022	)	 	—		 	—		 	—		
Tuition payment processing and campus commerce revenue	—		 	14,527		 	—		 	14,527		 	—		 	—		 	—		 	14,527		 	—		 	14,527		
Enrollment services revenue	—		 	—		 	36,439		 	36,439		 	—		 	—		 	—		 	36,439		 	—		 	36,439		
Software services revenue	4,624		 	—		 	—		 	4,624		 	—		 	—		 	—		 	4,624		 	—		 	4,624		
Other income	—		 	—		 	—		 	—		 	4,710		 	4,722		 	—		 	9,432		 	—		 	9,432		
Gain on sale of loans and debt repurchases	—		 	—		 	—		 	—		 	4,963		 	4,922		 	—		 	9,885		 	—		 	9,885		
Derivative market value and foreign currency adjustments	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		 	(32,805	)	 	(32,805	)	
Derivative settlements, net	—		 	—		 	—		 	—		 	(2,131	)	 	(455	)	 	—		 	(2,586	)	 	—		 	(2,586	)	
Total other income (expense)	58,110		 	14,527		 	36,439		 	109,076		 	7,542		 	9,189		 	(20,022	)	 	105,785		 	(32,805	)	 	72,980		
Operating expenses:	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		
Salaries and benefits	22,682		 	6,652		 	6,142		 	35,476		 	1,054		 	4,615		 	(60	)	 	41,085		 	—		 	41,085		
Litigation settlement	—		 	—		 	—		 	—		 	—		 	55,000		 	—		 	55,000		 	—		 	55,000		
Cost to provide enrollment services	—		 	—		 	23,709		 	23,709		 	—		 	—		 	—		 	23,709		 	—		 	23,709		
Depreciation and amortization	1,362		 	330		 	1,624		 	3,316		 	—		 	354		 	—		 	3,670		 	5,355		 	9,025		
Restructure expense	4,751		 	—		 	—		 	4,751		 	—		 	—		 	—		 	4,751		 	—		 	4,751		
Other	12,470		 	2,053		 	2,556		 	17,079		 	2,937		 	6,701		 	—		 	26,717		 	—		 	26,717		
Intersegment expenses, net	1,166		 	973		 	701		 	2,840		 	20,295		 	(3,173	)	 	(19,962	)	 	—		 	—		 	—		
Total operating expenses	42,431		 	10,008		 	34,732		 	87,171		 	24,286		 	63,497		 	(20,022	)	 	154,932		 	5,355		 	160,287		
Income (loss) before income taxes and corporate overhead allocation	15,692		 	4,531		 	1,707		 	21,930		 	73,206		 	(57,570	)	 	—		 	37,566		 	(38,160	)	 	(594	)	
Corporate overhead allocation	(1,676	)	 	(559	)	 	(559	)	 	(2,794	)	 	(2,793	)	 	5,587		 	—		 	—		 	—		 	—		
Income (loss) before income taxes	14,016		 	3,972		 	1,148		 	19,136		 	70,413		 	(51,983	)	 	—		 	37,566		 	(38,160	)	 	(594	)	
Income tax (expense) benefit	(5,326	)	 	(1,510	)	 	(436	)	 	(7,272	)	 	(26,757	)	 	19,754		 	—		 	(14,275	)	 	14,501		 	226		
Net income (loss)	$	8,690		 	2,462		 	712		 	11,864		 	43,656		 	(32,229	)	 	—		 	23,291		 	(23,659	)	 	(368	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Additional information:	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		
Net income (loss)	$	8,690		 	2,462		 	712		 	11,864		 	43,656		 	(32,229	)	 	—		 	23,291		 	 	 	 	
Plus: Litigation settlement (a)	—		 	—		 	—		 	—		 	—		 	55,000		 	—		 	55,000		 	 	 	 	
Plus: Restructure expense (b)	4,751		 	—		 	—		 	4,751		 	—		 	—		 	—		 	4,751		 	 	 	 	
Less: Net tax effect	(1,805	)	 	—		 	—		 	(1,805	)	 	—		 	(20,900	)	 	—		 	(22,705	)	 	 	 	 	
Net income (loss), excluding litigation settlement and restructure expense	$	11,636		 	2,462		 	712		 	14,810		 	43,656		 	1,871		 	—		 	60,337		 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(a) During the third quarter of 2010, the Company recorded a $55.0 million litigation settlement charge.	
(b) During 2010, the Company recorded restructuring charges associated with previously implemented restructuring plans.	

17

	
																															
 	Nine months ended September 30, 2011	
 	Fee-Based	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Student
Loan
and
Guaranty
Servicing	 	Tuition
Payment
Processing
and
Campus
Commerce	 	Enrollment
Services	 	Total Fee-
Based	 	Asset
Generation and
Management	 	Corporate
Activity
and
Overhead	 	Eliminations	 	Base Net
Income	 	Adjustments
to GAAP
Results	 	GAAP
Results of
Operations	
Total interest income	$	42		 	19		 	—		 	61		 	433,994		 	3,578		 	(2,132	)	 	435,501		 	—		 	435,501		
Interest expense	—		 	—		 	—		 	—		 	158,034		 	8,325		 	(2,132	)	 	164,227		 	—		 	164,227		
Net interest income (loss)	42		 	19		 	—		 	61		 	275,960		 	(4,747	)	 	—		 	271,274		 	—		 	271,274		
Less provision for loan losses	—		 	—		 	—		 	—		 	14,250		 	—		 	—		 	14,250		 	—		 	14,250		
Net interest income (loss) after provision for loan losses	42		 	19		 	—		 	61		 	261,710		 	(4,747	)	 	—		 	257,024		 	—		 	257,024		
Other income (expense):	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		
Loan and guaranty servicing revenue	110,952		 	—		 	—		 	110,952		 	—		 	—		 	—		 	110,952		 	—		 	110,952		
Intersegment servicing revenue	51,272		 	—		 	—		 	51,272		 	—		 	—		 	(51,272	)	 	—		 	—		 	—		
Tuition payment processing and campus commerce revenue	—		 	50,904		 	—		 	50,904		 	—		 	—		 	—		 	50,904		 	—		 	50,904		
Enrollment services revenue	—		 	—		 	101,688		 	101,688		 	—		 	—		 	—		 	101,688		 	—		 	101,688		
Software services revenue	13,745		 	—		 	—		 	13,745		 	—		 	—		 	—		 	13,745		 	—		 	13,745		
Other income	—		 	—		 	—		 	—		 	11,827		 	5,422		 	—		 	17,249		 	—		 	17,249		
Gain on sale of loans and debt repurchases	—		 	—		 	—		 	—		 	1,400		 	6,907		 	—		 	8,307		 	—		 	8,307		
Derivative market value and foreign currency adjustments	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		 	(29,585	)	 	(29,585	)	
Derivative settlements, net	—		 	—		 	—		 	—		 	(6,805	)	 	(612	)	 	—		 	(7,417	)	 	—		 	(7,417	)	
Total other income (expense)	175,969		 	50,904		 	101,688		 	328,561		 	6,422		 	11,717		 	(51,272	)	 	295,428		 	(29,585	)	 	265,843		
Operating expenses:	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		
Salaries and benefits	75,454		 	21,995		 	18,672		 	116,121		 	2,181		 	12,623		 	—		 	130,925		 	—		 	130,925		
Cost to provide enrollment services	—		 	—		 	68,804		 	68,804		 	—		 	—		 	—		 	68,804		 	—		 	68,804		
Depreciation and amortization	4,647		 	967		 	2,377		 	7,991		 	—		 	1,046		 	—		 	9,037		 	12,425		 	21,462		
Restructure expense	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		
Other	43,604		 	7,263		 	6,889		 	57,756		 	9,988		 	16,032		 	—		 	83,776		 	—		 	83,776		
Intersegment expenses, net	3,720		 	3,377		 	2,560		 	9,657		 	52,059		 	(10,444	)	 	(51,272	)	 	—		 	—		 	—		
Total operating expenses	127,425		 	33,602		 	99,302		 	260,329		 	64,228		 	19,257		 	(51,272	)	 	292,542		 	12,425		 	304,967		
Income (loss) before income taxes and corporate overhead allocation	48,586		 	17,321		 	2,386		 	68,293		 	203,904		 	(12,287	)	 	—		 	259,910		 	(42,010	)	 	217,900		
Corporate overhead allocation	(2,949	)	 	(983	)	 	(983	)	 	(4,915	)	 	(4,914	)	 	9,829		 	—		 	—		 	—		 	—		
Income (loss) before income taxes	45,637		 	16,338		 	1,403		 	63,378		 	198,990		 	(2,458	)	 	—		 	259,910		 	(42,010	)	 	217,900		
Income tax (expense) benefit	(17,340	)	 	(6,208	)	 	(533	)	 	(24,081	)	 	(75,616	)	 	5,289		 	—		 	(94,408	)	 	15,964		 	(78,444	)	
Net income (loss)	$	28,297		 	10,130		 	870		 	39,297		 	123,374		 	2,831		 	—		 	165,502		 	(26,046	)	 	139,456		

18

	
																															
 	Nine months ended September 30, 2010	
 	Fee-Based	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Student
Loan
and
Guaranty
Servicing	 	Tuition
Payment
Processing
and
Campus
Commerce	 	Enrollment
Services	 	Total Fee-Based	 	Asset
Generation
and
Management	 	Corporate
Activity
and
Overhead	 	Eliminations	 	Base Net
Income	 	Adjustments
to GAAP
Results	 	GAAP
Results of
Operations	
Total interest income	$	43		 	24		 	—		 	67		 	450,715		 	5,439		 	(3,140	)	 	453,081		 	—		 	453,081		
Interest expense	—		 	—		 	—		 	—		 	164,063		 	17,422		 	(3,140	)	 	178,345		 	—		 	178,345		
Net interest income (loss)	43		 	24		 	—		 	67		 	286,652		 	(11,983	)	 	—		 	274,736		 	—		 	274,736		
Less provision for loan losses	—		 	—		 	—		 	—		 	16,700		 	—		 	—		 	16,700		 	—		 	16,700		
Net interest income (loss) after provision for loan losses	43		 	24		 	—		 	67		 	269,952		 	(11,983	)	 	—		 	258,036		 	—		 	258,036		
Other income (expense):	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		
Loan and guaranty servicing revenue	106,764		 	—		 	—		 	106,764		 	—		 	(254	)	 	—		 	106,510		 	—		 	106,510		
Intersegment servicing revenue	63,571		 	—		 	—		 	63,571		 	—		 	—		 	(63,571	)	 	—		 	—		 	—		
Tuition payment processing and campus commerce revenue	—		 	44,704		 	—		 	44,704		 	—		 	—		 	—		 	44,704		 	—		 	44,704		
Enrollment services revenue	—		 	—		 	105,113		 	105,113		 	—		 	—		 	—		 	105,113		 	—		 	105,113		
Software services revenue	14,467		 	—		 	—		 	14,467		 	—		 	—		 	—		 	14,467		 	—		 	14,467		
Other income	519		 	—		 	—		 	519		 	14,114		 	10,555		 	—		 	25,188		 	—		 	25,188		
Gain on sale of loans and debt repurchases	—		 	—		 	—		 	—		 	23,899		 	4,922		 	—		 	28,821		 	—		 	28,821		
Derivative market value and foreign currency adjustments	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		 	(35,931	)	 	(35,931	)	
Derivative settlements, net	—		 	—		 	—		 	—		 	(7,931	)	 	(455	)	 	—		 	(8,386	)	 	—		 	(8,386	)	
Total other income (expense)	185,321		 	44,704		 	105,113		 	335,138		 	30,082		 	14,768		 	(63,571	)	 	316,417		 	(35,931	)	 	280,486		
Operating expenses:	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		
Salaries and benefits	69,591		 	19,864		 	18,660		 	108,115		 	3,698		 	12,540		 	(1,662	)	 	122,691		 	—		 	122,691		
Litigation settlement	—		 	—		 	—		 	—		 	—		 	55,000		 	—		 	55,000		 	—		 	55,000		
Cost to provide enrollment services	—		 	—		 	69,845		 	69,845		 	—		 	—		 	—		 	69,845		 	—		 	69,845		
Depreciation and amortization	3,538		 	1,002		 	5,744		 	10,284		 	3		 	1,146		 	—		 	11,433		 	18,103		 	29,536		
Restructure expense	6,040		 	—		 	—		 	6,040		 	—		 	(20	)	 	—		 	6,020		 	—		 	6,020		
Other	45,638		 	6,433		 	7,563		 	59,634		 	10,147		 	19,339		 	—		 	89,120		 	—		 	89,120		
Intersegment expenses, net	4,158		 	2,626		 	1,775		 	8,559		 	63,011		 	(9,661	)	 	(61,909	)	 	—		 	—		 	—		
Total operating expenses	128,965		 	29,925		 	103,587		 	262,477		 	76,859		 	78,344		 	(63,571	)	 	354,109		 	18,103		 	372,212		
Income (loss) before income taxes and corporate overhead allocation	56,399		 	14,803		 	1,526		 	72,728		 	223,175		 	(75,559	)	 	—		 	220,344		 	(54,034	)	 	166,310		
Corporate overhead allocation	(4,349	)	 	(1,450	)	 	(1,450	)	 	(7,249	)	 	(7,247	)	 	14,496		 	—		 	—		 	—		 	—		
Income (loss) before income taxes	52,050		 	13,353		 	76		 	65,479		 	215,928		 	(61,063	)	 	—		 	220,344		 	(54,034	)	 	166,310		
Income tax (expense) benefit	(19,779	)	 	(5,076	)	 	(28	)	 	(24,883	)	 	(82,053	)	 	24,040		 	—		 	(82,896	)	 	20,533		 	(62,363	)	
Net income (loss)	$	32,271		 	8,277		 	48		 	40,596		 	133,875		 	(37,023	)	 	—		 	137,448		 	(33,501	)	 	103,947		
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Additional information:	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		
Net income (loss)	$	32,271		 	8,277		 	48		 	40,596		 	133,875		 	(37,023	)	 	—		 	137,448		 	 	 	 	
Plus: Litigation settlement (a)	—		 	—		 	—		 	—		 	—		 	55,000		 	—		 	55,000		 	 	 	 	
Plus: Restructure expense (b)	6,040		 	—		 	—		 	6,040		 	—		 	(20	)	 	—		 	6,020		 	 	 	 	
Less: Net tax effect	(2,295	)	 	—		 	—		 	(2,295	)	 	—		 	(20,892	)	 	—		 	(23,187	)	 	 	 	 	
Net income (loss), excluding litigation settlement and restructure expense	$	36,016		 	8,277		 	48		 	44,341		 	133,875		 	(2,935	)	 	—		 	175,281		 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(a) During the third quarter of 2010, the Company recorded a $55.0 million litigation settlement charge.	
(b) During 2010, the Company recorded restructuring charges associated with previously implemented restructuring plans.	

19

The adjustments required to reconcile from the Company's “base net income” measure to its GAAP results of operations relate to differing treatments for derivatives, foreign currency transaction adjustments, and amortization of intangible assets. These items are excluded from management's evaluation of the Company's operating results. The following tables reflect adjustments associated with these areas by operating segment and Corporate Activity and Overhead:

																			
 	Student
Loan
and
Guaranty
Servicing	 	Tuition
Payment
Processing
and Campus
Commerce	 	Enrollment
Services	 	Asset
Generation
and
Management	 	Corporate
Activity
and
Overhead	 	Total	
 	 	 	 	 	 	 	 	 	 	 	 	
 	Three months ended September 30, 2011	
Derivative market value and foreign currency adjustments	$	—		 	—		 	—		 	(6,677	)	 	20,565		 	13,888		
Amortization of intangible assets	2,099		 	1,513		 	878		 	—		 	—		 	4,490		
Net tax effect (a)	(798	)	 	(575	)	 	(334	)	 	2,537		 	(7,814	)	 	(6,984	)	
Total adjustments to GAAP	$	1,301		 	938		 	544		 	(4,140	)	 	12,751		 	11,394		
 	 	 	 	 	 	 	 	 	 	 	 	
 	Three months ended June 30, 2011	
Derivative market value and foreign currency adjustments	$	—		 	—		 	—		 	12,531		 	4,282		 	16,813		
Amortization of intangible assets	2,100		 	981		 	878		 	—		 	—		 	3,959		
Net tax effect (a)	(798	)	 	(373	)	 	(334	)	 	(4,762	)	 	(1,626	)	 	(7,893	)	
Total adjustments to GAAP	$	1,302		 	608		 	544		 	7,769		 	2,656		 	12,879		
 	 	 	 	 	 	 	 	 	 	 	 	
 	Three months ended September 30, 2010	
Derivative market value and foreign currency adjustments	$	—		 	—		 	—		 	24,966		 	7,839		 	32,805		
Amortization of intangible assets	2,112		 	1,120		 	2,123		 	—		 	—		 	5,355		
Net tax effect (a)	(803	)	 	(426	)	 	(807	)	 	(9,487	)	 	(2,978	)	 	(14,501	)	
Total adjustments to GAAP	$	1,309		 	694		 	1,316		 	15,479		 	4,861		 	23,659		
 	 	 	 	 	 	 	 	 	 	 	 	
 	Nine months ended September 30, 2011	
Derivative market value and foreign currency adjustments	$	—		 	—		 	—		 	6,443		 	23,142		 	29,585		
Amortization of intangible assets	6,299		 	3,492		 	2,634		 	—		 	—		 	12,425		
Net tax effect (a)	(2,394	)	 	(1,327	)	 	(1,001	)	 	(2,448	)	 	(8,794	)	 	(15,964	)	
Total adjustments to GAAP	$	3,905		 	2,165		 	1,633		 	3,995		 	14,348		 	26,046		
 	 	 	 	 	 	 	 	 	 	 	 	
 	Nine months ended September 30, 2010	
Derivative market value and foreign currency adjustments	$	—		 	—		 	—		 	20,955		 	14,976		 	35,931		
Amortization of intangible assets	6,462		 	4,636		 	7,005		 	—		 	—		 	18,103		
Net tax effect (a)	(2,456	)	 	(1,763	)	 	(2,665	)	 	(7,963	)	 	(5,686	)	 	(20,533	)	
Total adjustments to GAAP	$	4,006		 	2,873		 	4,340		 	12,992		 	9,290		 	33,501		
(a) Income taxes are based on 38% for the individual operating segments.

Net interest income after provision for loan losses (net of settlements on derivatives)

The following table summarizes the components of “net interest income after provision for loan losses,” net of “derivative settlements, net” included in the attached condensed consolidated statements of income.

																
 	Three months ended	 	Nine months ended	
 	September 30, 2011	 	June 30, 2011	 	September 30, 2010	 	September 30, 2011	 	September 30, 2010	
Variable student loan interest margin, net of settlements on derivatives	$	58,320		 	53,997		 	59,416		 	164,847		 	179,750		
Fixed rate floor income, net of settlements on derivatives	40,598		 	32,801		 	34,223		 	105,081		 	100,548		
Investment interest	672		 	856		 	1,169		 	2,254		 	3,474		
Corporate debt interest expense	(2,572	)	 	(2,440	)	 	(5,181	)	 	(8,325	)	 	(17,422	)	
Provision for loan losses	(5,250	)	 	(5,250	)	 	(5,500	)	 	(14,250	)	 	(16,700	)	
Net interest income after provision for loan losses (net of settlements on derivatives)	$	91,768		 	79.964		 	84,127		 	249,607		 	249,650		

20

Student Loan Servicing Volumes (dollars in millions)

	
									
Company Owned	$23,139	$24,378	$26,351	$26,183	$23,727	$23,249	$22,757	$22,503	
% of Total	61.6%	56.7%	55.3%	47.0%	38.6%	34.2%	33.0%	30.2%	
Number of borrowers:	 	 	 	 	 	 	 	 	
Government Servicing:	441,913	1,055,896	1,530,308	2,510,630	2,804,502	2,814,142	2,666,183	2,966,706	
FFELP servicing:	2,311,558	2,327,016	2,329,150	2,227,288	1,912,748	1,870,538	1,837,272	1,812,582	
Total:	2,753,471	3,382,912	3,859,458	4,737,918	4,717,250	4,684,680	4,503,455	4,779,288	

Derivative Market Value and Foreign Currency Adjustments

The following table summarizes the components of “derivative market value and foreign currency adjustments” included in the attached condensed consolidated statements of income.

																
 	Three months ended	 	Nine months ended	
 	September 30,
2011	 	June 30,
2011	 	September 30,
2010	 	September 30,
2011	 	September 30,
2010	
Change in fair value of derivatives - income (expense)	$	(87,341	)	 	2,207		 	73,663		 	(18,683	)	 	(94,539	)	
Foreign currency transaction adjustment - income (expense)	73,453		 	(19,020	)	 	(106,468	)	 	(10,902	)	 	58,608		
Derivative market value and foreign currency adjustments - income (expense)	$	(13,888	)	 	(16,813	)	 	(32,805	)	 	(29,585	)	 	(35,931	)	

Derivative Settlements, net

The following table summarizes the components of "derivative settlements, net" included in the attached condensed consolidated statements of income.

																
 	Three months ended	 	Nine months ended	
 	September 30,
2011	 	June 30,
2011	 	September 30,
2010	 	September 30,
2011	 	September 30,
2010	
Settlements:	 	 	 	 	 	 	 	 	 	
1:3 basis swaps	$	321		 	373		 	893		 	902		 	974		
T-Bill/LIBOR basis swaps	(69	)	 	(64	)	 	—		 	(263	)	 	—		
Interest rate swaps - floor income hedges	(3,482	)	 	(6,345	)	 	(4,040	)	 	(16,045	)	 	(12,183	)	
Interest rate swaps - hybrid debt hedges	(250	)	 	(248	)	 	(242	)	 	(744	)	 	(242	)	
Cross-currency interest rate swaps	3,745		 	2,770		 	1,025		 	8,625		 	3,243		
Other	(8	)	 	(8	)	 	(222	)	 	108		 	(178	)	
Total settlements - (expense) income	$	257		 	(3,522	)	 	(2,586	)	 	(7,417	)	 	(8,386	)	

21

Student Loans Receivable

The tables below outline the components of the Company’s student loan portfolio:

										
 	As of	 	As of	
 	September 30, 2011	 	December 31, 2010	
 	Held for investment	 	Held for investment	 	Held for sale (a)	
Federally insured loans:	 	 	 	 	 	
Stafford and other	$	7,573,717		 	7,927,525		 	—		
Consolidation	17,081,935		 	15,830,174		 	—		
Total	24,655,652		 	23,757,699		 	—		
Non-federally insured loans	29,061		 	26,370		 	84,987		
 	24,684,713		 	23,784,069		 	84,987		
Unamortized loan discount/premiums and deferred origination costs, net	2,674		 	207,571		 	—		
Allowance for loan losses – federally insured loans	(35,190	)	 	(32,908	)	 	—		
Allowance for loan losses – non-federally insured loans	(10,583	)	 	(10,718	)	 	—		
 	$	24,641,614		 	23,948,014		 	84,987		
 	 	 	 	 	 	
Allowance for federally insured loans as a percentage of such loans	0.14	%	 	0.14	%	 	 		
 	 	 	 	 	 	
Allowance for non-federally insured loans as a percentage of such loans	36.42	%	 	40.64	%	 	 		

(a)	On January 13, 2011, the Company sold a portfolio of non-federally insured loans for proceeds of $91.3 million (100% of par value).  The Company retained credit risk related to this portfolio and will pay cash to purchase back any loans which become 60 days delinquent.  As of December 31, 2010, the Company classified this portfolio as held-for-sale and the loans were carried at fair value.	

Student Loan Spread

The following table analyzes the student loan spread on the Company’s portfolio of student loans and represents the spread on assets earned in conjunction with the liabilities and derivative instruments used to fund the assets.

	
																
 	Three months ended	 	Nine months ended	
 	September 30,
2011	 	June 30,
2011	 	September 30,
2010	 	September 30,
2011	 	September 30,
2010	
Variable student loan yield, gross	2.57	 %	 	2.57	 %	 	2.63	 %	 	2.58	 %	 	2.64	 %	
Consolidation rebate fees	(0.73	)	 	(0.71	)	 	(0.64	)	 	(0.72	)	 	(0.68	)	
Premium/discount and deferred origination costs amortization/accretion (a)	(0.03	)	 	(0.14	)	 	(0.18	)	 	(0.11	)	 	(0.21	)	
Variable student loan yield, net	1.81		 	1.72		 	1.81		 	1.75		 	1.75		
Student loan cost of funds - interest expense	(0.82	)	 	(0.83	)	 	(0.94	)	 	(0.83	)	 	(0.83	)	
Student loan cost of funds - bonds and notes payable discount accretion (a)	(0.11	)	 	—		 	—		 	(0.04	)	 	—		
Student loan cost of funds - derivative settlements	0.06		 	0.05		 	0.03		 	0.05		 	0.02		
Variable student loan spread	0.94		 	0.94		 	0.90		 	0.93		 	0.94		
Fixed rate floor income, net of settlements on derivatives	0.65		 	0.57		 	0.51		 	0.59		 	0.53		
Core student loan spread	1.59	 %	 	1.51	 %	 	1.41	 %	 	1.52	 %	 	1.47	 %	
 	 	 	 	 	 	 	 	 	 	
Average balance of student loans	$	24,794,416		 	23,298,870		 	26,548,957		 	23,891,512		 	25,520,327		
 	 	 	 	 	 	 	 	 	 	
Average balance of debt outstanding	24,979,332		 	23,510,072		 	26,636,184		 	24,118,465		 	25,661,594		

(a)	On July 8, 2011, the Company purchased the residual interest in $1.9 billion of consolidation loans and recorded the loans and related debt at fair value resulting in the recognition of a significant student loan discount and bonds and notes payable discount. These discounts are being accreted using the effective interest method over the lives of the underlying assets/liabilities.	

22

Fixed Rate Floor Income
The following table shows the Company’s student loan assets that are earning fixed rate floor income as of September 30, 2011 :

										
 	 	Borrower/	 	Estimated	 	Balance of	
Fixed	 	lender	 	variable	 	assets earning fixed-rate	
interest	 	weighted	 	conversion	 	floor income as of	
rate range	 	average yield	 	rate (a)	 	September 30, 2011	
< 3.0%	 	2.88%	 	0.24%	 	$	1,748,492		 	
3.0 - 3.49%	 	3.20%	 	0.56%	 	2,031,640		 	
3.5 - 3.99%	 	3.65%	 	1.01%	 	1,993,143		 	
4.0 - 4.49%	 	4.20%	 	1.56%	 	1,527,216		 	
4.5 - 4.99%	 	4.72%	 	2.08%	 	866,947		 	
5.0 - 5.49%	 	5.24%	 	2.60%	 	578,132		 	
5.5 - 5.99%	 	5.67%	 	3.03%	 	351,143		 	
6.0 - 6.49%	 	6.18%	 	3.54%	 	410,195		 	
6.5 - 6.99%	 	6.70%	 	4.06%	 	365,508		 	
7.0 - 7.49%	 	7.17%	 	4.53%	 	143,939		 	
7.5 - 7.99%	 	7.70%	 	5.06%	 	241,515		 	
8.0 - 8.99%	 	8.17%	 	5.53%	 	546,593		 	
> 9.0%	 	9.04%	 	6.40%	 	258,840		 	
 	 	 	 	 	 	$	11,063,303		 	

(a)	The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to a variable rate.  As of September 30, 2011 , the short-term interest rate was 20 basis points.	

The following table summarizes the outstanding derivative instruments as of September 30, 2011 used by the Company to hedge loans earning fixed rate floor income.

									
 	 	 	Notional	 	Weighted average fixed rate paid by the Company (a)	
 	Maturity	 	amount	 		
 	2013	 	$	2,150,000		 	0.85	%	
 	2014	 	750,000		 	0.85		
 	2015	 	100,000		 	2.26		
 	2020	 	50,000		 	3.23		
 	 	 	$	3,050,000		 	0.87	%	

(a)	For all interest rate derivatives, the Company receives discrete three-month LIBOR.	

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