NELNET INC, 10-Q filed on 8/9/2011
Quarterly Report
Document And Entity Information
6 Months Ended
Jun. 30, 2011
Jul. 31, 2011
Common Class B [Member]
Jul. 31, 2011
Common Class A [Member]
Entity Registrant Name
Nelnet Inc 
 
 
Document Type
10-Q 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Common Stock, Shares Outstanding
 
11,495,377 
37,043,597 
Amendment Flag
FALSE 
 
 
Entity Central Index Key
0001258602 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Filer Category
Accelerated Filer 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
Document Period End Date
Jun. 30, 2011 
 
 
Document Fiscal Year Focus
2011 
 
 
Document Fiscal Period Focus
Q2 
 
 
Consolidated Balance Sheet (USD $)
In Thousands
Jun. 30, 2011
Dec. 31, 2010
Assets:
 
 
Student loans receivable (net of allowance for loan losses of $42,300 and $43,626, respectively)
$ 23,228,778 
$ 23,948,014 
Student loans receivable - held for sale
 
84,987 
Cash and cash equivalents:
 
 
Cash and cash equivalents - not held at a related party
12,851 
6,952 
Cash and cash equivalents - held at a related party
103,490 
276,849 
Total cash and cash equivalents
116,341 
283,801 
Investments - trading securities
31,664 
43,236 
Restricted cash and investments
610,730 
668,757 
Restricted cash - due to customers
64,452 
88,528 
Accrued interest receivable
302,481 
318,152 
Accounts receivable (net of allowance for doubtful accounts of $1,172 and $1,221, respectively)
51,116 
52,614 
Goodwill
117,118 
117,118 
Intangible assets, net
37,564 
38,712 
Property and equipment, net
34,593 
30,573 
Other assets
94,224 
101,054 
Fair value of derivative instruments
182,450 
118,346 
Total assets
24,871,511 
25,893,892 
Liabilities:
 
 
Bonds and notes payable
23,605,413 
24,672,472 
Accrued interest payable
17,093 
19,153 
Other liabilities
172,386 
191,017 
Due to customers
64,452 
88,528 
Fair value of derivative instruments
23,383 
16,089 
Total liabilities
23,882,727 
24,987,259 
Shareholders' equity:
 
 
Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding
0 
0 
Common stock:
 
 
Total shareholders' equity
988,784 
906,633 
Commitments and contingencies
 
 
Total liabilities and shareholders' equity
24,871,511 
25,893,892 
Common Class A [Member]
 
 
Common stock:
 
 
Common Stock
370 
368 
Common Class B [Member]
 
 
Common stock:
 
 
Common Stock
115 
115 
Additional paid-in capital
74,646 
76,263 
Retained earnings
914,823 
831,057 
Employee notes receivable
(1,170)
(1,170)
Total shareholders' equity
$ 988,784 
$ 906,633 
Consolidated Balance Sheet (Parentheticals) (USD $)
In Thousands, except Share data
Jun. 30, 2011
Dec. 31, 2010
Allowance for loan losses (in Dollars)
$ 42,300 
$ 43,626 
Allowance for doubtful accounts (in Dollars)
$ 1,172 
$ 1,221 
Preferred stock, par value (in Dollars per share)
$ 0.01 
$ 0.01 
Preferred stock, authorized shares
50,000,000 
50,000,000 
Preferred stock, issued shares
0 
0 
Preferred stock, outstanding shares
0 
0 
Common Class A [Member]
 
 
Par Value (in Dollars per share)
$ 0.01 
$ 0.01 
Shares Authorized
600,000,000 
600,000,000 
Shares Issued
37,044,372 
36,846,353 
Shares Outstanding
37,044,372 
36,846,353 
Common Class B [Member]
 
 
Par Value (in Dollars per share)
$ 0.01 
$ 0.01 
Shares Authorized
60,000,000 
60,000,000 
Shares Issued
11,495,377 
11,495,377 
Shares Outstanding
11,495,377 
11,495,377 
Consolidated Statements of Income (USD $)
In Thousands, except Share data
3 Months Ended
Jun. 30,		 6 Months Ended
Jun. 30,
2011
2010
2011
2010
Interest income:
 
 
 
 
Loan interest
$ 138,934 
$ 155,353 
$ 276,292 
$ 290,320 
Investment interest
856 
1,304 
1,582 
2,305 
Total interest income
139,790 
156,657 
277,874 
292,625 
Interest expense:
 
 
 
 
Interest on bonds and notes payable
51,054 
59,243 
103,361 
110,102 
Net interest income
88,736 
97,414 
174,513 
182,523 
Less provision for loan losses
5,250 
6,200 
9,000 
11,200 
Net interest income after provision for loan losses
83,486 
91,214 
165,513 
171,323 
Other income (expense):
 
 
 
 
Loan and guaranty servicing revenue
37,389 
36,652 
73,025 
73,046 
Tuition payment processing and campus commerce revenue
14,761 
12,795 
34,130 
30,177 
Enrollment services revenue
32,315 
35,403 
66,183 
68,674 
Software services revenue
4,346 
5,499 
9,123 
9,843 
Other income
6,826 
8,496 
13,318 
15,756 
Gain on sale of loans and debt repurchases
 
8,759 
8,307 
18,936 
Derivative market value and foreign currency adjustments and derivative settlements, net
(20,335)
(10,608)
(23,371)
(8,926)
Total other income
75,302 
96,996 
180,715 
207,506 
Operating expenses:
 
 
 
 
Salaries and benefits
42,881 
40,962 
86,793 
81,606 
Cost to provide enrollment services
22,140 
24,111 
44,979 
46,136 
Depreciation and amortization
6,769 
9,728 
13,545 
20,511 
Restructure expense
 
72 
 
1,269 
Other
28,767 
33,348 
54,872 
62,403 
Total operating expenses
100,557 
108,221 
200,189 
211,925 
Income before income taxes
58,231 
79,989 
146,039 
166,904 
Income tax expense
(21,106)
(29,996)
(54,034)
(62,589)
Net income
$ 37,125 
$ 49,993 
$ 92,005 
$ 104,315 
Earnings per common share:
 
 
 
 
Net earnings - basic (in Dollars per share)
$ 0.76 
$ 1 
$ 1.90 
$ 2.08 
Net earnings - diluted (in Dollars per share)
$ 0.76 
$ 0.99 
$ 1.89 
$ 2.08 
Weighted average common shares outstanding:
 
 
 
 
Basic (in Shares)
48,302,779 
49,735,398 
48,237,411 
49,726,099 
Diluted (in Shares)
48,488,046 
49,934,648 
48,425,886 
49,923,680 
Consolidated Statements of Shareholders' Equity and Comprehensive Income (USD $)
In Thousands, except Share data
Total
Common Class A [Member]
Common Class B [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Employee Notes Receivable [Member]
Balance at Mar. 31, 2010
$ 839,213 
$ 386 
$ 115 
$ 112,980 
$ 726,982 
$ (1,250)
Balance (in Shares) at Mar. 31, 2010
 
38,587,293 
11,495,377 
 
 
 
Comprehensive income:
 
 
 
 
 
 
Net income
49,993 
 
 
 
49,993 
 
Cash dividend on Class A and Class B common stock
(3,507)
 
 
 
(3,507)
 
Issuance of common stock, net of forfeitures
702 
1 
 
701 
 
 
Issuance of common stock, net of forfeitures (in Shares)
 
71,156 
 
 
 
 
Compensation expense for stock based awards
366 
 
 
366 
 
 
Repurchase of common stock
(12,822)
(7)
 
(12,815)
 
 
Repurchase of common stock (in Shares)
 
(663,443)
 
 
 
 
Balance at Jun. 30, 2010
873,945 
380 
115 
101,232 
773,468 
 
Balance (in Shares) at Jun. 30, 2010
 
37,995,006 
11,495,377 
 
 
 
Balance at Dec. 31, 2009
784,563 
384 
115 
109,359 
676,154 
(1,449)
Balance (in Shares) at Dec. 31, 2009
 
38,396,791 
11,495,377 
 
 
 
Comprehensive income:
 
 
 
 
 
 
Net income
104,315 
 
 
 
104,315 
 
Cash dividend on Class A and Class B common stock
(7,001)
 
 
 
(7,001)
 
Issuance of common stock, net of forfeitures
4,236 
3 
 
4,233 
 
 
Issuance of common stock, net of forfeitures (in Shares)
 
274,594 
 
 
 
 
Compensation expense for stock based awards
691 
 
 
691 
 
 
Repurchase of common stock
(13,058)
(7)
 
(13,051)
 
 
Repurchase of common stock (in Shares)
 
(676,379)
 
 
 
 
Reduction of employee stock notes receivable
199 
 
 
 
 
199 
Balance at Jun. 30, 2010
873,945 
380 
115 
101,232 
773,468 
(1,250)
Balance (in Shares) at Jun. 30, 2010
 
37,995,006 
11,495,377 
 
 
 
Balance at Dec. 31, 2010
906,633 
368 
115 
76,263 
831,057 
(1,170)
Balance (in Shares) at Dec. 31, 2010
 
36,846,353 
11,495,377 
 
 
 
Comprehensive income:
 
 
 
 
 
 
Net income
92,005 
 
 
 
92,005 
 
Cash dividend on Class A and Class B common stock
(8,239)
 
 
 
(8,239)
 
Contingency payment related to business combination
(5,893)
 
 
(5,893)
 
 
Issuance of common stock, net of forfeitures
4,116 
3 
 
4,113 
 
 
Issuance of common stock, net of forfeitures (in Shares)
 
222,463 
 
 
 
 
Compensation expense for stock based awards
697 
 
 
697 
 
 
Repurchase of common stock
(535)
(1)
 
(534)
 
 
Repurchase of common stock (in Shares)
 
(24,444)
 
 
 
 
Balance at Jun. 30, 2011
988,784 
370 
115 
74,646 
914,823 
(1,170)
Balance (in Shares) at Jun. 30, 2011
 
37,044,372 
11,495,377 
 
 
 
Balance at Mar. 31, 2011
955,367 
370 
115 
73,502 
882,550 
(1,170)
Balance (in Shares) at Mar. 31, 2011
 
36,983,557 
11,495,377 
 
 
 
Comprehensive income:
 
 
 
 
 
 
Net income
37,125 
 
 
 
37,125 
 
Cash dividend on Class A and Class B common stock
(4,852)
 
 
 
(4,852)
 
Issuance of common stock, net of forfeitures
1,028 
1 
 
1,027 
 
 
Issuance of common stock, net of forfeitures (in Shares)
 
70,794 
 
 
 
 
Compensation expense for stock based awards
342 
 
 
342 
 
 
Repurchase of common stock
(226)
(1)
 
(225)
 
 
Repurchase of common stock (in Shares)
 
(9,979)
 
 
 
 
Balance at Jun. 30, 2011
$ 988,784 
$ 370 
$ 115 
$ 74,646 
$ 914,823 
$ (1,170)
Balance (in Shares) at Jun. 30, 2011
 
37,044,372 
11,495,377 
 
 
 
Consolidated Statements of Shareholders' Equity and Comprehensive Income (Parentheticals)
3 Months Ended
Jun. 30,		 6 Months Ended
Jun. 30,
2011
2010
2011
2010
Common Class A [Member]
 
 
 
 
Dividends paid per common share (in dollars per share)
$ 0.10 
$ 0.07 
$ 0.17 
$ 0.14 
Common Class B [Member]
 
 
 
 
Dividends paid per common share (in dollars per share)
$ 0.10 
$ 0.07 
$ 0.17 
$ 0.14 
Consolidated Statements of Cash Flows (USD $)
In Thousands
6 Months Ended
Jun. 30,
2011
2010
Net income
$ 92,005 
$ 104,315 
Adjustments to reconcile net income to net cash provided by operating activities, net of business acquisition:
 
 
Depreciation and amortization, including loan premiums/discount and deferred origination costs
35,841 
50,193 
Provision for loan losses
9,000 
11,200 
Derivative market value adjustment
(68,658)
168,201 
Foreign currency transaction adjustment
84,354 
(165,075)
Proceeds to terminate and/or amend derivative instruments
12,369 
14,764 
Payments to terminate and/or amend derivative instruments
(522)
(763)
Gain on sale of loans
(1,345)
 
Gain from debt repurchases
(6,962)
(18,936)
Change in investments - trading securities, net
11,572 
(31,017)
Deferred income tax (benefit) expense
(8,715)
7,229 
Non-cash compensation expense
1,092 
1,119 
Other non-cash items
108 
495 
Decrease (increase) in accrued interest receivable
15,671 
(68,182)
Decrease (increase) in accounts receivable
1,498 
(15,393)
Decrease in other assets
3,258 
4,036 
(Decrease) increase in accrued interest payable
(2,060)
2,531 
Decrease in other liabilities
(10,290)
(3,306)
Net cash provided by operating activities
168,216 
61,411 
Cash flows from investing activities, net of business acquisition:
 
 
Originations and purchases of student loans, including loan premiums/discounts and deferred origination costs
(662,324)
(2,936,134)
Purchases of student loans, including loan premiums, from a related party
(29)
(988,998)
Net proceeds from student loan repayments, claims, capitalized interest, participations, and other
1,350,344 
1,049,712 
Proceeds from sale of student loans
95,131 
21,036 
Purchases of property and equipment, net
(8,281)
(4,670)
Decrease (increase) in restricted cash and investments, net
58,027 
(44,397)
Business and asset acquisitions, net of cash acquired, including contingency payments
(14,080)
(3,000)
Net cash provided by (used in) investing activities
818,788 
(2,906,451)
Cash flows from financing activities:
 
 
Payments on bonds and notes payable
(1,782,953)
(1,778,360)
Proceeds from issuance of bonds and notes payable
745,554 
4,586,636 
Payments on bonds payable due to a related party
(107,050)
 
Payments of debt issuance costs
(1,506)
(7,043)
Dividends paid
(8,239)
(7,001)
Repurchases of common stock
(535)
(13,058)
Proceeds from issuance of common stock
265 
247 
Payments received on employee stock notes receivable
 
199 
Net cash (used in) provided by financing activities
(1,154,464)
2,781,620 
Net decrease in cash and cash equivalents
(167,460)
(63,420)
Cash and cash equivalents, beginning of period
283,801 
338,181 
Cash and cash equivalents, end of period
116,341 
274,761 
Supplemental disclosures of cash flow information:
 
 
Interest paid
101,007 
102,783 
Income taxes paid, net of refunds
$ 63,331 
$ 51,887 
Note 1 - Basis of Financial Reporting
Basis of Accounting [Text Block]
1.    Basis of Financial Reporting

The accompanying unaudited consolidated financial statements of Nelnet, Inc. and subsidiaries (the “Company”) as of June 30, 2011 and for the three and six months ended June 30, 2011 and 2010 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2010 and, in the opinion of the Company’s management, the unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results of operations for the interim periods presented. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and six months ended June 30, 2011 are not necessarily indicative of the results for the year ending December 31, 2011. The unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

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.

Note 2 - Student Loans Receivable and Allowance for Loan Losses
Loans, Notes, Trade and Other Receivables Disclosure [Text Block]
2.    Student Loans Receivable and Allowance for Loan Losses

The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-20, Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (“ASU 2010-20”), which was an update to the Receivables Topic of the FASB Accounting Standards Codification (“ASC”).   In accordance with ASU 2010-20, the Company has expanded its disclosures about the credit quality of its student loans receivable and the associated allowance for loan losses.  ASU 2010-20 requires entities to provide disclosures on a disaggregated basis. The ASU defines two levels of disaggregation – portfolio segment and class of financing receivable.  A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses.  Classes of financing receivables generally are a disaggregation of a portfolio segment. The Company evaluates the adequacy of the allowance for loan losses on its federally insured loan portfolio separately from its non-federally insured loan portfolio.  Management has determined that each of the federally insured loan portfolio and the non-federally insured loan portfolio meets the definition of a portfolio segment.  Accordingly, the portfolio segment basis disclosures required by ASU 2010-20 are presented in this note for each of these portfolios.  The Company does not disaggregate its portfolio segment student loan portfolios into classes of financing receivables as defined in ASU 2010-20. In addition, as of June 30, 2011 and December 31, 2010, the Company does not have any impaired loans as defined in the Receivables Topic of the FASB ASC.

Student loans receivable consisted of the following:

   
As of June 30, 2011
   
As of December 31, 2010
 
   
Held for investment
   
Held for investment
   
Held for sale (a)
 
Federally insured loans
  $ 23,083,157       23,757,699        —  
Non-federally insured loans
    30,655        26,370        84,987   
      23,113,812        23,784,069        84,987   
Unamortized loan premiums/discounts and deferred origination costs, net
    157,266        207,571        —  
Allowance for loan losses – federally insured loans
    (31,968 )       (32,908 )       —  
Allowance for loan losses – non-federally insured loans
    (10,332 )       (10,718 )       —  
    $ 23,228,778       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
    33.70 %     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.

Activity in the Allowance for Loan Losses

The provision for loan losses represents the periodic expense of maintaining an allowance sufficient to absorb losses, net of recoveries, inherent in the portfolio of student loans. Activity in the allowance for loan losses is shown below.

   
Three months ended June 30,
   
Six months ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Balance at beginning of period
  $ 41,097       49,400        43,626        50,887   
Provision for loan losses:
                               
Federally insured loans
    5,000        5,200        8,500        9,200   
Non-federally insured loans
    250        1,000        500        2,000   
Total provision for loan losses
    5,250        6,200        9,000        11,200   
Charge-offs:
                               
Federally insured loans
    (4,585 )       (4,971 )       (9,440 )       (9,039 )  
Non-federally insured loans
    (1,226 )       (2,383 )       (2,220 )       (3,763 )  
Total charge-offs
    (5,811 )       (7,354 )       (11,660 )       (12,802 )  
Recoveries:
                               
Non-federally insured loans
    283        331        653        582   
Total recoveries
    283        331        653        582   
                                 
Purchase of federally insured loans
    —       2,000        —       2,710   
Purchase of non-federally insured loans
    —       220        —       220   
Transfer to/from repurchase obligation related to loans sold/purchased, net
    1,481        —       681        (2,000 )  
Balance at end of period
  $ 42,300       50,797        42,300        50,797   
                                 
Allocation of the allowance for loan losses:
                               
Federally insured loans
  $ 31,968       32,972        31,968        32,972   
Non-federally insured loans
    10,332        17,825        10,332        17,825   
Total allowance for loan losses
  $ 42,300       50,797        42,300        50,797   

Repurchase Obligations

As of June 30, 2011, the Company had participated a cumulative amount of $117.1 million of non-federally insured loans to third parties. Loans participated under these agreements have been accounted for by the Company as loan sales. Accordingly, the participation interests sold are not included on the Company’s consolidated balance sheets. Per the terms of the servicing agreements, the Company’s servicing operations are obligated to repurchase loans subject to the participation interests in the event such loans become 60 or 90 days delinquent.

In addition, 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.

The Company’s estimate related to its obligation to repurchase these loans is included in “other liabilities” in the Company’s consolidated balance sheet. The activity related to this accrual is detailed below.

   
Three months ended June 30,
   
Six months ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Beginning balance
  $ 19,670       12,600       12,600       10,600  
Repurchase obligation transferred to/from the allowance for loan losses related to loans purchased/sold, net
    (1,481 )     —       (681 )     2,000  
Repurchase obligation associated with loans sold (a)
    —       —       6,270       —  
Current period expense (b)
    2,500       —       2,500       —  
Ending balance
  $ 20,689       12,600       20,689       12,600  

 
(a)
As discussed previously, on January 13, 2011, the Company sold a portfolio of loans and retained all credit risk related to this portfolio. These loans were classified as held for sale as of December 31, 2010 and the loans were carried at fair value. Upon sale, the Company established a repurchase obligation associated with those loans that are estimated to become 60 days delinquent.

 
(b)
The current period expense is included in “other” under operating expenses in the accompanying consolidated statements of income. During the three months ended June 30, 2011, the Company recorded an expense of $2.5 million related to its obligation to repurchase non-federally insured loans.

Student Loan Status and Delinquencies

Delinquencies have the potential to adversely impact the Company’s earnings through increased servicing and collection costs and account charge-offs.  The table below shows the Company’s student loan delinquency amounts on loans held for investment.

   
As of June 30, 2011
   
As of December 31, 2010
 
   
Dollars
   
Percent
   
Dollars
   
Percent
 
Federally Insured Loans:
                       
Loans in-school/grace/deferment (a)
  $ 4,061,955           $ 4,358,616        
Loans in forebearance (b)
    3,263,802             2,984,869        
Loans in repayment status:
                           
Loans current
    13,748,083       87.2 %     14,309,480       87.2 %
Loans delinquent 31-60 days (c)
    583,443       3.7       794,140       4.8  
Loans delinquent 61-90 days (c)
    358,539       2.3       306,853       1.9  
Loans delinquent 91 days or greater (d)
    1,067,335       6.8       1,003,741       6.1  
Total loans in repayment
    15,757,400       100.0 %     16,414,214       100.0 %
Total federally insured loans
  $ 23,083,157             $ 23,757,699          
Non-Federally Insured Loans:
                               
Loans in-school/grace/deferment (a)
  $ 3,749             $ 3,500          
Loans in forebearance (b)
    510               292          
Loans in repayment status:
                               
Loans current
    22,221       84.2 %     16,679       73.9 %
Loans delinquent 31-60 days (c)
    624       2.4       1,546       6.8  
Loans delinquent 61-90 days (c)
    587       2.2       1,163       5.2  
Loans delinquent 91 days or greater
    2,964       11.2       3,190       14.1  
Total loans in repayment
    26,396       100.0 %     22,578       100.0 %
Total non-federally insured loans
  $ 30,655             $ 26,370          

(a)
Loans for borrowers who still may be attending school or engaging in other permitted educational activities and are not yet required to make payments on the loans, e.g., residency periods for medical students or a grace period for bar exam preparation for law students.

(b)
Loans for borrowers who have temporarily ceased making full payments due to hardship or other factors, according to a schedule approved by the servicer consistent with the established loan program servicing procedures and policies.

(c)
The period of delinquency is based on the number of days scheduled payments are contractually past due and relate to repayment loans, that is, receivables not charged off, and not in school, grace, deferment, or forbearance.

(d)
Loans delinquent 91 days or greater include federally insured loans in claim status, which are loans that have gone into default and have been submitted to the guaranty agency.

Loan Sales

See note 4, “Gain on Sale of Loans and Debt Repurchases,” for a summary of loans sold by the Company.

Loan Purchases

See note 14, “Subsequent Event,” for a summary of a significant purchase of federally insured loans that occurred subsequent to June 30, 2011.

Note 3 - Bonds and Notes Payable
Debt Disclosure [Text Block]
3.     Bonds and Notes Payable

The following tables summarize the Company’s outstanding debt obligations by type of instrument:

   
As of June 30, 2011
   
Carrying
   
Interest rate
   
   
amount
   
range
 
Final maturity
               
Variable-rate bonds and notes (a):
             
Bonds and notes based on indices
  $ 19,629,816       0.26% - 6.90 %
5/26/14 - 7/27/48
Bonds and notes based on auction or remarketing
    717,175        0.10% - 1.44 %
5/1/28 - 5/1/42
                   
Total variable-rate bonds and notes
    20,346,991             
                   
Commercial paper - FFELP warehouse facility
    469,578        0.18% - 0.29 %
7/29/13
Department of Education Conduit
    2,497,198        0.25 %
5/8/14
Unsecured line of credit
    177,300        0.56 %
5/8/12
Unsecured debt - Junior Subordinated Hybrid Securities
    100,697        7.40 %
9/15/61
Other borrowings
    13,649        3.50% - 5.10 %
11/14/11 - 11/11/15
                   
    $ 23,605,413            

   
As of December 31, 2010
   
Carrying
   
Interest rate
   
   
amount
   
range
 
Final maturity
Variable-rate bonds and notes (a):
             
Bonds and notes based on indices
  $ 20,170,217       0.30% - 6.90 %
5/26/14 - 7/27/48
Bonds and notes based on auction or remarketing
    944,560        0.24% - 1.51 %
5/1/11 - 7/1/43
                   
Total variable-rate bonds and notes
    21,114,777             
                   
Commercial paper - FFELP warehouse facility
    108,381        0.29% - 0.35 %
7/29/13
Department of Education Conduit
    2,702,345        0.31 %
5/8/14
Unsecured line of credit
    450,000        0.79 %
5/8/12
Unsecured debt - Junior Subordinated Hybrid Securities
    163,255        7.40 %
9/15/61
Related party debt
    107,050        0.53 %
5/20/11
Other borrowings
    26,664        0.26% - 5.10 %
1/1/11 - 11/11/15
                   
    $ 24,672,472            

 
(a)
Issued in asset-backed securitizations

Secured Financing Transactions

The Company has historically relied upon secured financing vehicles as its most significant source of funding for student loans. The net cash flow the Company receives from the securitized student loans generally represents the excess amounts, if any, generated by the underlying student loans over the amounts required to be paid to the bondholders, after deducting servicing fees and any other expenses relating to the securitizations. The Company’s rights to cash flow from securitized student loans are subordinate to bondholder interests and may fail to generate any cash flow beyond what is due to bondholders. The Company’s secured financing vehicles during the periods presented above include a loan warehouse facility, asset-backed securitizations, and the government’s Conduit Program (as described below).

The majority of the bonds and notes payable are primarily secured by the student loans receivable, related accrued interest, and by the amounts on deposit in the accounts established under the respective bond resolutions or financing agreements. Certain variable rate bonds and notes are secured by a letter of credit and reimbursement agreement issued by a third-party liquidity provider.

FFELP warehouse facilities

The Company funds a portion of its Federal Family Education Loan Program (the “FFEL Program” or “FFELP”) loan acquisitions using its FFELP warehouse facility. Student loan warehousing allows the Company to buy and manage student loans prior to transferring them into more permanent financing arrangements. As of June 30, 2011, the Company’s FFELP warehouse facility had a maximum financing amount of $500.0 million, with a revolving financing structure supported by 364-day liquidity provisions.  As of June 30, 2011, $469.6 million was outstanding under the FFELP warehouse facility, $30.4 million was available for future use, and $28.1 million was advanced as equity support.

On July 14, 2011, the Company renewed the liquidity agreement on its existing FFELP warehouse facility (the “NFSLW-I Warehouse”) and entered into an additional FFELP warehouse facility (the “NHELP-I Warehouse”).

Effective July 14, 2011, the Company’s NFSLW-I Warehouse facility has a maximum financing amount of $300.0 million, with a revolving financing structure supported by 364-day liquidity provisions, which expires on April  1, 2012. The final maturity date of the facility is July 1, 2014. In the event the Company is unable to renew the liquidity provisions by April 1, 2012, the facility would become a term facility at a stepped-up cost, with no additional student loans being eligible for financing, and the Company would be required to refinance the existing loans in the facility by July 1, 2014.

The NFSLW-I Warehouse facility provides for formula based advance rates depending on FFELP loan type, up to a maximum of 85 percent to 98 percent of the principal and interest of loans financed. The advance rates for collateral may increase or decrease based on market conditions, but they are subject to a minimum advance of 84.5 to 90 percent based on loan type. The facility contains financial covenants relating to levels of the Company’s consolidated net worth, ratio of adjusted EBITDA to corporate debt interest, and unencumbered cash. Any violation of these covenants could result in a requirement for the immediate repayment of any outstanding borrowings under the facility

The new NHELP-I Warehouse has a maximum financing amount of $500.0 million, with a revolving financing structure supported by 364-day liquidity provisions, which expires on October 1, 2012. The final maturity date of the facility is July 1, 2014. In the event the Company is unable to renew the liquidity provisions by October 1, 2012, the facility would become a term facility at a stepped-up cost, with no additional student loans being eligible for financing, and the Company would be required to refinance the existing loans in the facility by July 1, 2014.

The NHELP-I Warehouse facility provides for formula based advance rates depending on FFELP loan type, up to a maximum of 93 percent to 95 percent of the principal and interest of loans financed. The advance rates for collateral may increase or decrease based on market conditions, but they are subject to a minimum advance of 85 to 90 percent based on loan type. The facility contains financial covenants relating to levels of the Company’s consolidated net worth, ratio of adjusted EBITDA to corporate debt interest, and unencumbered cash. Any violation of these covenants could result in a requirement for the immediate repayment of any outstanding borrowings under the facility.

Asset-backed securitizations

During the first quarter of 2011, the Company completed an asset-backed securities transaction totaling $384.4 million.  Notes issued in this asset-backed securities transaction carry interest rates based on a spread to LIBOR.  The Company used the proceeds from the sale of these notes to purchase principal and interest on student loans, including loans which were previously financed in the FFELP warehouse facility.

See note 14, “Subsequent Event,” for a summary of notes payable related to a significant purchase of oederally insured loans that occurred subsequent to June 30, 2011.

Department of Education’s Conduit Program

In May 2009, the U.S. Department of Education (the “Department”) implemented a program under which it finances eligible FFELP Stafford and PLUS loans in a conduit vehicle established to provide funding for student lenders (the “Conduit Program”).  Loans eligible for the Conduit Program had to be first disbursed on or after October 1, 2003, but not later than June 30, 2009, and fully disbursed before September 30, 2009, and meet certain other requirements. Funding for the Conduit Program is provided by the capital markets at a cost based on market rates, with the Company being advanced 97 percent of the student loan face amount. Excess amounts needed to fund the remaining 3 percent of the student loan balances were contributed by the Company. The Conduit Program expires on May 8, 2014. The Student Loan Short-Term Notes (“Student Loan Notes”) issued by the Conduit Program are supported by a combination of  (i) notes backed by FFELP loans, (ii) a liquidity agreement with the Federal Financing Bank, and (iii) a put agreement provided by the Department.  If the conduit does not have sufficient funds to pay all Student Loan Notes, then those Student Loan Notes will be repaid with funds from the Federal Financing Bank.  The Federal Financing Bank will hold the notes for a short period of time and, if at the end of that time, the Student Loan Notes still cannot be paid off, the underlying FFELP loans that serve as collateral to the Conduit Program will be sold to the Department through a put agreement at a price of 97 percent of the face amount of the loans.  As of June 30, 2011, the Company had $2.5 billion borrowed under the facility and $87.9 million advanced as equity support in the facility. Effective July 1, 2010, no additional loans could be funded using the Conduit Program.

Unsecured Line of Credit

The Company has a $750.0 million unsecured line of credit that terminates in May 2012.  As of June 30, 2011, there was $177.3 million outstanding on this line.  Upon termination in 2012, there can be no assurance that the Company will be able to maintain this line of credit, find alternative funding, or increase the amount outstanding under the line, if necessary.  The lending commitment under the Company’s unsecured line of credit is provided by a total of thirteen banks, with no individual bank representing more than 11% of the total lending commitment. The bank lending group includes Lehman Brothers Bank (“Lehman”), a subsidiary of Lehman Brothers Holdings Inc., which represents approximately 7% of the lending commitment under the line of credit. In September 2008, Lehman Brothers Holdings Inc. filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. The Company does not expect that Lehman will fund future borrowing requests. As of June 30, 2011, excluding Lehman’s lending commitment, the Company has $532.6 million available for future use under its unsecured line of credit.

The line of credit agreement contains certain financial covenants that, if not met, lead to an event of default under the agreement.  The covenants include maintaining:

 
·
A minimum consolidated net worth

 
·
A minimum adjusted EBITDA to corporate debt interest (over the last four rolling quarters)

 
·
A limitation on subsidiary indebtedness

 
·
A limitation on the percentage of non-guaranteed loans in the Company’s portfolio

As of June 30, 2011, the Company was in compliance with all of these requirements. Many of these covenants are duplicated in the Company’s other lending facilities, including its FFELP warehouse facilities.

The Company’s operating line of credit does not have any covenants related to unsecured debt ratings.  However, changes in the Company’s ratings (as well as the amounts the Company borrows) have modest implications on the pricing level at which the Company obtains funding.

A default on the Company’s FFELP warehouse facilities would result in an event of default on the Company’s unsecured line of credit that would result in the outstanding balance on the line of credit becoming immediately due and payable.

Related Party Transactions

Union Bank Participation Agreement

The Company maintains an agreement with Union Bank and Trust Company (“Union Bank”), an entity under common control, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in student loans (the “FFELP Participation Agreement”). The Company uses this facility as an additional source to fund FFELP student loans. The Company has the option to purchase the participation interests from the grantor trusts at the end of a 364-day term upon termination of the participation certificate.  As of June 30, 2011 and December 31, 2010, $570.7 million and $350.4 million, respectively, of loans were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. The agreement automatically renews annually and is terminable by either party upon five business days notice. This agreement provides beneficiaries of Union Bank’s grantor trusts with access to investments in interests in student loans, while providing liquidity to the Company.  The Company can participate loans to Union Bank to the extent of availability under the grantor trusts, up to $750 million or an amount in excess of $750 million if mutually agreed to by both parties.  Loans participated under this agreement have been accounted for by the Company as loan sales.  Accordingly, the participation interests sold are not included on the Company’s consolidated balance sheets.

Related Party Debt

The Company has from time to time repurchased certain of its own asset-backed securities (bonds and notes payable). For accounting purposes, these notes have been effectively retired and are not included on the Company’s consolidated balance sheets. However, these securities are legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated by the trust estate. As of December 31, 2010, the Company had $107.1 million of these securities participated to Union Bank, as trustee for various grantor trusts, and such notes were included in “bonds and notes payable” on the Company’s consolidated balance sheet. During the first quarter of 2011, the Company redeemed all outstanding notes under this participation.

Debt Repurchases

During the first six months of 2010 and 2011, the Company repurchased outstanding debt as summarized in note 4, “Gain on Sale of Loans and Debt Repurchases.”

Note 4 - Gain on Sale of Loans and Debt Repurchases
Additional Financial Information Disclosure [Text Block]
4.   Gain on Sale of Loans and Debt Repurchases

“Gain on sale of loans and debt repurchases” in the accompanying consolidated statements of income is composed of the following items:
 

   
Three months ended June 30, 2011
   
Six months ended June 30, 2011
 
   
Notional
amount
   
Purchase
price
   
Gain
   
Notional
amount
   
Purchase
price
   
Gain
 
Gains on debt repurchases:
                                   
Junior Subordinated Hybrid Securities
  $ —       —       —       62,558       55,651       6,907  
Asset-backed securities (a)
    —       —       —       600       545       55  
    $ —       —       —       63,158       56,196       6,962  
Gain on sale of loans
                    —                       1,345  
                                                 
Gain on sale of loans and debt repurchases, net
                  $ —                     $ 8,307  
                                                 
   
Three months ended June 30, 2010
   
Six months ended June 30, 2010
 
   
Notional
amount
   
Purchase
price
   
Gain
   
Notional
amount
   
Purchase
price
   
Gain
 
Gains on debt repurchases:
                                               
Asset-backed securities (a)
  $ 117,775       109,016       8,759       392,025       373,089       18,936  

 
(a)
For accounting purposes, the asset-backed securities repurchased by the Company are effectively retired and are not included on the Company’s consolidated balance sheet.  However, as of June 30, 2011, the Company has purchased a cumulative amount of $61.7 million of these securities that remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated by the trust estate.  Upon a sale to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. The par value of these notes ($61.7 million as of June 30, 2011) may not represent market value of such securities.

Note 5 - Derivative Financial Instruments
Derivative Instruments and Hedging Activities Disclosure [Text Block]
5.  Derivative Financial Instruments

The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are interest rate risk and foreign currency exchange risk.

Interest Rate Risk

The Company’s primary market risk exposure arises from fluctuations in its borrowing and lending rates, the spread between which could impact the Company due to shifts in market interest rates. Because the Company generates a significant portion of its earnings from its student loan spread, the interest rate sensitivity of the balance sheet is a key profitability driver.  The Company has adopted a policy of periodically reviewing the mismatch related to the interest rate characteristics of its assets and liabilities together with the Company’s assessment of current and future market conditions. Based on those factors, the Company uses derivative instruments as part of its overall risk management strategy.

Basis Swaps

The Company funds the majority of its student loan assets with one-month or three-month LIBOR indexed floating rate securities. Meanwhile, the interest earned on the Company’s student loan assets is indexed to commercial paper and treasury bill rates. The different interest rate characteristics of the Company’s loan assets and liabilities funding these assets results in basis risk. The Company also faces repricing risk due to the timing of the interest rate resets on its liabilities, which may occur as infrequently as once a quarter, in contrast to the timing of the interest rate resets on its assets, which generally occurs daily. In a declining interest rate environment, this may cause the Company’s student loan spread to compress, while in a rising rate environment, it may cause the spread to increase. As of June 30, 2011, the Company had $22.1 billion and $1.0 billion of FFELP loans indexed to the three-month financial commercial paper rate and the three-month treasury bill rate, respectively, both of which reset daily, and $18.9 billion of debt indexed to three-month LIBOR, which resets quarterly, and $0.7 billion of debt indexed to one-month LIBOR, which resets monthly.

Because of the different indice types and different indice reset frequencies, the Company is exposed to interest rate risk in the form of basis risk and repricing risk, which, as noted above, is the risk that the different indices may reset at different frequencies, or will not move in the same direction or with the same magnitude. While these indices are all short term in nature with rate movements that are highly correlated over a longer period of time, there have been points in recent history when volatility has been high and correlation has been reduced.

The Company has used derivative instruments to hedge both the basis and repricing risk on certain student loans in which the Company earns interest based on a treasury bill rate that resets daily and are funded with debt indexed to primarily three-month LIBOR.  To hedge these loans, the Company has entered into basis swaps in which the Company receives three-month LIBOR set discretely in advance and pays a weekly treasury bill rate plus a spread as defined in the agreement (“T-Bill/LIBOR Basis Swaps”).

However, the Company does not generally hedge the basis risk on those assets indexed to the commercial paper rate that are funded with liabilities in which the Company pays primarily on the LIBOR indice, since the derivatives needed to hedge this risk are generally illiquid or non-existent and the relationship between these indices has been highly correlated over a long period of time.

The Company has also used derivative instruments to hedge the repricing risk due to the timing of the interest rate resets on its assets and liabilities.  The Company has entered into basis swaps in which the Company receives three-month LIBOR set discretely in advance and pays one-month LIBOR plus or minus a spread as defined in the agreements (the “1:3 Basis Swaps”).

The following table summarizes the Company’s basis swaps outstanding as of both June 30, 2011 and December 31, 2010:
 

   
Notional Amounts
 
   
1:3 Basis Swaps
   
T-Bill/LIBOR
Basis Swaps
 
Maturity
             
2011
  $ -       225,000  
2021
    250,000       -  
2023
    1,250,000       -  
2024
    250,000       -  
2028
    100,000       -  
2039 (a)
    150,000       -  
2040 (b)
    200,000       -  
                 
    $ 2,200,000       225,000  

 
(a)
This derivative has a forward effective start date in 2015.

 
(b)
This derivative has a forward effective start date in 2020.

Interest rate swaps – floor income hedges

FFELP loans originated prior to April 1, 2006 generally earn interest at the higher of a floating rate based on the Special Allowance Payment (or 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 may earn additional spread income that it refers to as floor income.

Depending on the type of loan and when it was originated, the borrower rate is either fixed to term or is reset to an annual rate each July 1. As a result, for loans where the borrower rate is fixed to term, the Company may earn floor income for an extended period of time, which the Company refers to as fixed rate floor income, and for those loans where the borrower rate is reset annually on July 1, the Company may earn floor income to the next reset date, which the Company refers to as variable rate floor income. In accordance with legislation enacted in 2006, lenders are required to rebate fixed rate floor income and variable rate floor income to the Department for all FFELP loans first originated on or after April 1, 2006.

Absent the use of derivative instruments, a rise in interest rates may reduce the amount of floor income received and this may have an impact on earnings due to interest margin compression caused by increasing financing costs, until such time as the federally insured loans earn interest at a variable rate in accordance with their special allowance payment formulas. In higher interest rate environments, where the interest rate rises above the borrower rate and fixed rate loans effectively become variable rate loans, the impact of the rate fluctuations is reduced.

As of June 30, 2011 and December 31, 2010, the Company had $9.8 billion and $8.5 billion, respectively, of student loan assets that were earning fixed rate floor income. The following tables summarize the outstanding derivative investments used by the Company to economically hedge these loans.

   
As of June 30, 2011
       
Weighted
       
average fixed
   
Notional
 
rate paid by
Maturity
 
Amount
 
the Company (a)
           
2011
  $ 3,300,000   0.55 %
2012
    950,000   1.08  
2013
    2,150,000   0.85  
2015
    100,000   2.26  
2020
    50,000   3.23  
             
    $ 6,550,000   0.77
%
   

   
As of December 31, 2010
       
Weighted
       
average fixed
   
Notional
 
rate paid by
Maturity
 
Amount
 
the Company (a)
           
2011
  $ 4,300,000   0.53 %
2012
    3,950,000   0.67  
2013
    650,000   1.07  
2015
    100,000   2.26  
2020
    50,000   3.23  
             
    $ 9,050,000   0.66 %
 (a)
 
For all interest rate derivatives, the Company receives discrete  

Interest rate swaps – unsecured debt hedges

On September 27, 2006, the Company issued $200.0 million aggregate principal amount of Junior Subordinated Hybrid Securities. As of June 30, 2011, $100.7 million of these notes were outstanding. The interest rate on the Hybrid Securities from the date they were issued through September 28, 2011 is 7.40%, payable semi-annually. Beginning September 29, 2011 through September 29, 2036, the interest rate on the Hybrid Securities will be equal to three-month LIBOR plus 3.375%, payable quarterly. As of both June 30, 2011 and December 31, 2010, the Company had the following derivatives outstanding that were used to effectively convert the future variable interest rate on the Hybrid Securities to a fixed rate.

     
Weighted
     
average fixed
Notional
   
rate paid by
Amount (a)
   
the Company (b)
           
$ 100,000       4.27   %

 
(a)
The effective start date on $75 million (notional amount) of the derivatives outstanding is March 2012 with a maturity date of September 29, 2036. $25 million (notional amount) of the derivatives outstanding are cancelable on September 29, 2011 at the Company’s discretion. If this one time option to cancel is not exercised by the Company, the maturity date will be September 29, 2036.

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

Foreign Currency Exchange Risk

During 2006, the Company completed separate debt offerings of student loan asset-backed securities that included €420.5 million and €352.7 million Euro Notes with interest rates based on a spread to the EURIBOR index. As a result of these transactions, the Company is exposed to market risk related to fluctuations in foreign currency exchange rates between the U.S. dollar and Euro. The principal and accrued interest on these notes is re-measured at each reporting period and recorded on the Company’s balance sheet in U.S. dollars based on the foreign currency exchange rate on that date. Changes in the principal and accrued interest amounts as a result of foreign currency exchange rate fluctuations are included in the “derivative market value and foreign currency adjustments and derivative settlements, net” in the Company’s consolidated statements of income.

The Company entered into cross-currency interest rate swaps in connection with the issuance of the Euro Notes. Under the terms of these derivative instrument agreements, the Company receives from a counterparty a spread to the EURIBOR indice based on notional amounts of €420.5 million and €352.7 million and pays a spread to the LIBOR indice based on notional amounts of $500.0 million and $450.0 million, respectively. In addition, under the terms of these agreements, all principal payments on the Euro Notes will effectively be paid at the exchange rate in effect as of the issuance of the notes.

The following table shows the income statement impact as a result of the re-measurement of the Euro Notes and the change in the fair value of the related derivative instruments. These items are included in “derivative market value and foreign currency adjustments and derivative settlements, net” on the accompanying consolidated statements of income.

   
Three months ended June 30,
   
Six months ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Re-measurement of Euro Notes
  $ (19,020 )     93,401       (84,355 )     165,075  
Change in fair value of cross currency interest rate swaps
    18,734       (100,946 )     81,266       (160,021 )
                                 
Total impact to statements of income - income (expense)
  $ (286 )     (7,545 )     (3,089 )     5,054  

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. Management intends to hold the cross-currency interest rate swaps through the maturity of the Euro-denominated bonds.

Accounting for Derivative Financial Instruments

The Company records derivative instruments on the consolidated balance sheets as either an asset or liability measured at its fair value. Management has structured the majority of the Company’s derivative transactions with the intent that each is economically effective; however, the Company’s derivative instruments do not qualify for hedge accounting.  As a result, the change in fair value of the Company’s derivatives at each reporting date are included in “derivative market value and foreign currency adjustments and derivative settlements, net” in the Company’s consolidated statements of income. Changes or shifts in the forward yield curve and fluctuations in currency rates can significantly impact the valuation of the Company’s derivatives. Accordingly, changes or shifts to the forward yield curve and fluctuations in currency rates will impact the financial position and results of operations of the Company.

Any proceeds received or payments made by the Company to terminate a derivative in advance of its expiration date, or to amend the terms of an existing derivative, are included in “derivative market value and foreign currency adjustments and derivative settlements, net” on the consolidated statements of income and are accounted for as a change in fair value of such derivative. During the three and six months ended June 30, 2011, the Company terminated and/or amended certain derivatives for net payments of $0.4 million and net proceeds of $11.8 million, respectively. During the three and six months ended June 30, 2010, the Company terminated and/or amended certain derivatives for net proceeds of $13.1 million and $14.0 million, respectively.

The following table summarizes the fair value of the Company’s derivatives not designated as hedging:

   
Fair value of asset derivatives
   
Fair value of liability derivatives
 
   
As of June 30, 2011
   
As of December 31, 2010
   
As of June 30, 2011
   
As of December 31, 2010
 
                         
1:3 basis swaps
  $ 5,477       10,489       470       44  
T-Bill/LIBOR basis swaps
    —       —       80       201  
Interest rate swaps - floor income hedges
    621       10,569       20,506       15,372  
Interest rate swaps - hybrid debt hedges
    166       1,132       1,953       470  
Cross-currency interest rate swaps
    176,184       94,918       —       —  
Other
    2       1,238       374       2  
                                 
Total
  $ 182,450       118,346       23,383       16,089  

The following table summarizes the effect of derivative instruments in the consolidated statements of income. All gains and losses recognized in income related to the Company’s derivative activity are included in “derivative market value and foreign currency and derivative settlements, net” on the consolidated statements of income.

Derivatives not designated as hedging
 
Three months ended June 30,
   
Six months ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Settlements:
                       
1:3 basis swaps
  $ 373       80        581        221   
T-Bill/LIBOR basis swaps
    (64 )       —       (194 )       —  
Interest rate swaps - floor income hedges
    (6,345 )       (4,286 )       (12,563 )       (8,142 )  
Interest rate swaps - hybrid debt hedges
    (248 )       (79 )       (494 )       (79 )  
Cross-currency interest rate swaps
    2,770        917        4,880        2,219   
Other
    (8 )       (9 )       116        (19 )  
   Total settlements - (expense) income
    (3,522 )       (3,377 )       (7,674 )       (5,800 )  
                                 
Change in fair value:
                               
1:3 basis swaps
    (1,228 )       6,300        (5,438 )       5,754   
T-Bill/LIBOR basis swaps
    92        190        121        236   
Interest rate swaps - floor income hedges
    (11,109 )       (9 )       (4,714 )       (7,548 )  
Interest rate swaps - hybrid debt hedges
    (3,897 )       (5,377 )       (2,449 )       (5,321 )  
Cross-currency interest rate swaps
    18,734        (100,946 )       81,266        (160,021 )  
Other
    (385 )       (790 )       (128 )       (1,301 )  
   Total change in fair value - (expense) income
    2,207        (100,632 )       68,658        (168,201 )  
                                 
Re-measurement of Euro Notes (foreign currency transaction adjustment) - (expense) income
    (19,020 )       93,401        (84,355 )       165,075   
                                 
Derivative market value and foreign currency adjustments and derivative settlements - (expense) income
  $ (20,335 )     (10,608 )       (23,371 )       (8,926 )  

Derivative Instruments - Credit and Market Risk

By using derivative instruments, the Company is exposed to credit and market risk.

When the fair value of a derivative instrument is negative (a liability on the Company’s balance sheet), the Company would owe the counterparty if the derivative was settled and, therefore, has no immediate credit risk.  Additionally, if the negative fair value of derivatives with a counterparty exceeds a specified threshold, the Company may have to make a collateral deposit with the counterparty. The threshold at which the Company posts collateral is dependent upon the Company’s unsecured credit rating.  If the Company’s credit ratings are downgraded from current levels or if interest and foreign currency exchange rates move materially, the Company could be required to deposit a significant amount of collateral with its derivative instrument counterparties. The collateral deposits, if significant, could negatively impact the Company’s liquidity and capital resources. As of June 30, 2011, the Company had $22.3 million posted as collateral to derivative counterparties, which is included in “restricted cash and investments” in the Company’s consolidated balance sheet. The Company does not use the collateral to offset fair value amounts recognized in the financial statements for derivative instruments.

When the fair value of a derivative contract is positive (an asset on the Company’s balance sheet), this generally indicates that the counterparty would owe the Company if the derivative was settled. If the counterparty fails to perform, credit risk with such counterparty is equal to the extent of the fair value gain in the derivative less any collateral held by the Company. If the Company was unable to collect from a counterparty, it would have a loss equal to the amount the derivative is recorded on the consolidated balance sheet. As of June 30, 2011, the trustee for the Company’s asset-backed securities transactions held $167.5 million of collateral from the counterparty on the cross-currency interest rate swaps. The Company considers counterparties’ credit risk when determining the fair value of derivative positions on its exposure net of collateral. However, the Company does not use the collateral to offset fair value amounts recognized in the financial statements for derivative instruments.

The Company attempts to manage market and credit risks associated with interest and foreign currency exchange rates by establishing and monitoring limits as to the types and degree of risk that may be undertaken and by entering into transactions with high-quality counterparties that are reviewed periodically by the Company’s risk committee. As of June 30, 2011, all of the Company’s derivative counterparties had investment grade credit ratings. The Company also has a policy of requiring that all derivative contracts be governed by an International Swaps and Derivatives Association, Inc. Master Agreement.

Note 6 - Investments
Investment Holdings [Text Block]
6.    Investments

Included in “investments – trading securities” on the consolidated balance sheets as of June 30, 2011 and December 31, 2010 are debt and equity securities that are bought and held principally for the purpose of selling them in the near term. These investments are classified as trading securities and reported at fair value.

In December 2010, Union Bank established various trusts whereby Union Bank serves as trustee for the purpose of purchasing, holding, managing, and selling investments in student loan asset backed securities.  Union Bank, in its individual capacity, and the Company have both invested money into the trusts.  As of June 30, 2011 and December 31, 2010, the Company had $17.7 million and $4.9 million, respectively,  invested in the trusts. The Company’s investments held in the trusts are included in “investments – trading securities” on the consolidated balance sheets.

Prior to May 1, 2011, the Company and Union Bank employed certain individuals as dual employees and such employees provided consulting and advisory services to Union Bank as trustee for these trusts, and Union Bank agreed to pay the Company for the share of such employees’ salary and payroll based on the value of such services rendered as well as the loss of value of such dual employees’ services to the Company.  On May 9, 2011, a subsidiary of the Company entered into a management agreement with Union Bank, effective as of May 1, 2011, under which the subsidiary performs various advisory and management services on behalf of Union Bank with respect to investments in securities by the trusts, including identifying securities for purchase or sale by the trusts.  The agreement provides that Union Bank will pay to the subsidiary annual fees of 25 basis points on the outstanding balance of the investments in the trusts.  As of June 30, 2011, the outstanding balance of investments in the trusts was $279.5 million.  In addition, Union Bank will pay additional fees to the subsidiary of 50% of the gains from the sale of securities from the trusts.  During the three month period ended June 30, 2011, the Company recognized $1.2 million of fee revenue related to this agreement which is included in “other income” in the accompanying consolidated statement of income.

Note 7 - Intangible Assets
Intangible Assets Disclosure [Text Block]
7.    Intangible Assets

Intangible assets consist of the following:

   
Weighted
             
   
average
             
   
remaining
             
   
useful life as of
   
As of
   
As of
 
   
June 30,
   
June 30,
   
December 31,
 
   
2011 (months)
   
2011
   
2010
 
Amortizable intangible assets:
           
Customer relationships (net of accumulated amortization of $55,199 and $49,743, respectively)
    64     $ 29,907       28,576  
Computer software (net of accumulated amortization of $3,739 and $2,419, respectively)
    19       4,179       5,499  
Trade names (net of accumulated amortization of $8,115 and $6,956, respectively)
    18       3,478       4,637  
                         
Total - amortizable intangible assets
    54     $ 37,564       38,712  

The Company recorded amortization expense on its intangible assets of $4.0 million and $6.2 million for the three months ended June 30, 2011 and 2010, respectively, and $­­­7.9 million and $12.7 million for the six months ended June 30, 2011 and 2010, respectively. The Company will continue to amortize intangible assets over their remaining useful lives.  As of June 30, 2011, the Company estimates it will record amortization expense as follows:

2011 (July 1 - December 31)
  $ 8,981  
2012
    17,531  
2013
    4,286  
2014
    2,429  
2015
    925  
2016 and thereafter
    3,412  
    $ 37,564  

During the first quarter of 2010, the Company purchased certain assets of a software company that constituted a business combination.  The initial consideration paid by the Company was $3.0 million in cash.  In addition to the initial purchase price, additional payments are to be made by the Company based on certain operating results as defined in the purchase agreement.  These contingent payments are payable in two additional annual installments due in March 2012 and March 2013 and in total are estimated by the Company, as of June 30, 2011, to be $3.5 million.  The contingent payments will be remeasured to fair value each reporting date until the contingency is resolved, with all changes in fair value being recognized in earnings. Substantially all of the purchase price was allocated to a computer software intangible asset that is being amortized over three years.

On June 30, 2011, the Company purchased contracts with more than 370 K–12 schools to provide tuition payment plan services.  The initial consideration paid by the Company was $6.9 million in cash.  The purchase price is subject to adjustment based on customer retention.  The adjustment to purchase price, if any, will occur on September 30, 2011 and May 31, 2012.  Substantially all of the purchase price was allocated to a customer relationship intangible asset that is being amortized over three years.

Note 8 - Goodwill
Goodwill Disclosure [Text Block]
8.    Goodwill

The following table summarizes the Company’s allocation of goodwill by operating segment as of June 30, 2011 and December 31, 2010:

Student Loan and Guaranty Servicing
  $ 8,596  
Tuition Payment Processing and Campus Commerce
    58,086  
Enrollment Services
    8,553  
Asset Generation and Management
    41,883  
    $ 117,118  

Note 9 - Shareholders’ Equity
Stockholders' Equity Note Disclosure [Text Block]
9.    Shareholders’ Equity

Dividends

Dividends of $0.07 and $0.10 per share on the Company’s Class A and Class B common stock were paid on March 15, 2011 and June 15, 2011, respectively, to all holders of record as of March 1, 2011, and June 1, 2011, respectively. In addition, a $0.10 per share dividend on the Company’s Class A and Class B common stock will be paid on September 15, 2011 to all holders of record as of September 1, 2011.

Contingent Consideration - infiNET Integrated Solutions, Inc. (“infiNET”)

In 2004, the Company purchased 50% of the stock of infiNET and, in 2006, purchased the remaining 50% of infiNET’s stock. infiNET provides software for customer-focused electronic transactions, information sharing, and electronic account and bill presentment for colleges and universities. Consideration for the purchase of the remaining 50% of the stock of infiNET included 95,380 restricted shares of the Company’s Class A common stock. The purchase agreement provided that the 95,380 shares of Class A common stock issued in the acquisition were subject to stock price guaranty provisions whereby if on or about February 28, 2011 the average market trading price of the Class A common stock was less than $104.8375 per share and had not exceeded that price for any 25 consecutive trading days during the 5-year period from the closing of the acquisition to February 28, 2011, then the Company was required to pay additional cash to the sellers of infiNET for each share of Class A common stock issued in an amount representing the difference between $104.8375 less the greater of $41.9335 or the gross sales price such seller obtained from a sale of the shares occurring subsequent to February 28, 2011. On February 28, 2011, the Company paid $5.9 million in cash to satisfy this obligation. This payment was recorded by the Company as a reduction to additional paid-in capital.

Note 10 - Earnings per Common Share
Earnings Per Share [Text Block]
10.  Earnings per Common Share

Presented below is a summary of the components used to calculate basic and diluted earnings per share. The Company applies the two-class method of computing earnings per share, which 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. Earnings per share attributable to common stock is shown in the table below.

A reconciliation of weighted average shares outstanding follows:

   
Three months ended June 30,
   
Six months ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Net income attributable to Nelnet, Inc.
  $ 37,125       49,993       92,005       104,315  
Less earnings allocated to holders of unvested restricted stock
    226       315       570       653  
Net income available to common stockholders
  $ 36,899       49,678       91,435       103,662  
Weighted average common shares outstanding - basic
    48,302,779       49,735,398       48,237,411       49,726,099  
Dilutive effect of the assumed vesting of restricted stock awards
    185,267       199,250       188,475       197,581  
Weighted average common shares outstanding - diluted
    48,488,046       49,934,648       48,425,886       49,923,680  
Basic earnings per common share
  $ 0.76       1.00       1.90       2.08  
Diluted earnings per common share
  $ 0.76       0.99       1.89       2.08  
                                 
                                 

There were no shares that were antidilutive and not included in average shares outstanding for the diluted earnings per share calculation.

Note 11 - Segment Reporting
Segment Reporting Disclosure [Text Block]
11.    Segment Reporting

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 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.

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 school operations consulting and 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 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.

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 Results and Reconciliations to GAAP

   
Three months ended June 30, 2011
 
   
Fee-Based
                                           
         
Tuition
                                                 
   
Student
   
Payment
                                                 
   
Loan
   
Processing
               
Asset
   
Corporate
                         
   
and
Guaranty
   
and
Campus
   
Enrollment
   
Total Fee-
   
Generation and
   
Activity
and
         
Base Net
   
Adjustments
to GAAP
   
GAAP
Results of
 
   
Servicing
   
Commerce
   
Services
   
Based
   
Management
   
Overhead
   
Eliminations
   
Income
   
Results
   
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  

   
Three months ended June 30, 2010
 
   
Fee-Based
                                           
         
Tuition
                                                 
   
Student
   
Payment
                                                 
   
Loan
   
Processing
               
Asset
   
Corporate
                         
   
and
Guaranty
   
and
Campus
   
Enrollment
   
Total
Fee-
   
Generation
and
   
Activity
and
         
Base Net
   
Adjustments
to GAAP
   
GAAP
Results of
 
   
Servicing
   
Commerce
   
Services
   
Based
   
Management
   
Overhead
   
Eliminations
   
Income
   
Results
   
Operations
 
       
                                                             
Total interest income
  $ 17       4       —       21       155,701       1,922       (987 )     156,657       —       156,657  
Interest expense
    —       —       —       —       54,105       6,125       (987 )     59,243       —       59,243  
Net interest income (loss)
    17       4       —       21       101,596       (4,203 )     —       97,414       —       97,414  
                                                                                 
Less provision for loan losses
    —       —       —       —       6,200       —       —       6,200       —       6,200  
Net interest income (loss) after provision for loan losses
    17       4       —       21       95,396       (4,203 )     —       91,214       —       91,214  
                                                                                 
Other income (expense):
                                                                               
Loan and guaranty servicing revenue
    36,652       —       —       36,652       —       —       —       36,652       —       36,652  
Intersegment servicing revenue
    21,969       —       —       21,969       —       —       (21,969 )     —       —       —  
Tuition payment processing and campus commerce revenue
    —       12,795       —       12,795       —       —       —       12,795       —       12,795  
Enrollment services revenue
    —       —       35,403       35,403       —       —       —       35,403       —       35,403  
Software services revenue
    5,499       —       —       5,499       —       —       —       5,499       —       5,499  
Other income
    295       —       —       295       4,636       3,565       —       8,496       —       8,496  
Gain on sale of loans and debt repurchases
    —       —       —       —       8,759       —       —       8,759       —       8,759  
Derivative market value and foreign currency adjustments
    —       —       —       —       —       —       —       —       (7,231 )     (7,231 )
Derivative settlements, net
    —       —       —       —       (3,377 )     —       —       (3,377 )     —       (3,377 )
Total other income (expense)
    64,415       12,795       35,403       112,613       10,018       3,565       (21,969 )     104,227       (7,231 )     96,996  
                                                                                 
Operating expenses:
                                                                               
Salaries and benefits
    23,327       6,594       6,447       36,368       1,286       3,808       (500 )     40,962       —       40,962  
Cost to provide enrollment services
    —       —       24,111       24,111       —       —       —       24,111       —       24,111  
Depreciation and amortization
    1,157       339       1,616       3,112       —       384       —       3,496       6,232       9,728  
Restructure expense
    84       —       —       84       —       (12 )     —       72       —       72  
Other
    18,668       2,272       2,449       23,389       2,992       6,967       —       33,348       —       33,348  
Intersegment expenses, net
    1,149       879       641       2,669       21,891       (3,091 )     (21,469 )     —       —       —  
Total operating expenses
    44,385       10,084       35,264       89,733       26,169       8,056       (21,969 )     101,989       6,232       108,221  
                                                                                 
Income (loss) before income taxes and corporate overhead allocation
    20,047       2,715       139       22,901       79,245       (8,694 )     —       93,452       (13,463 )     79,989  
Corporate overhead allocation
    (1,484 )     (495 )     (495 )     (2,474 )     (2,473 )     4,947       —       —       —       —  
Income (loss) before income taxes
    18,563       2,220       (356 )     20,427       76,772       (3,747 )     —       93,452       (13,463 )     79,989  
Income tax (expense) benefit
    (7,053 )     (844 )     135       (7,762 )     (29,173 )     1,823       —       (35,112 )     5,116       (29,996 )
Net income (loss)
  $ 11,510       1,376       (221 )     12,665       47,599       (1,924 )     —       58,340       (8,347 )     49,993  
                                                                                 
Additional information:
                                                                               
Net income (loss)
  $ 11,510       1,376       (221 )     12,665       47,599       (1,924 )     —       58,340       (8,347 )     49,993  
Plus: Restructure expense (a)
    84       —       —       84       —       (12 )     —       72       (72 )     —  
Less: Net tax effect
    (32 )     —       —       (32 )     —       5       —       (27 )     27       —  
                                                                                 
Net income (loss), excluding restructure expense
  $ 11,562       1,376       (221 )     12,717       47,599       (1,931 )     —       58,385       (8,392 )     49,993  
                                                                                 
(a) During the second quarter of 2010, the Company recorded restructuring charges associated with previously implemented restructuring plans.
 

   
Six months ended June 30, 2011
 
   
Fee-Based
                                           
         
Tuition
                                                 
   
Student
   
Payment
                                                 
   
Loan
   
Processing
               
Asset
   
Corporate
                         
   
and
Guaranty
   
and
Campus
   
Enrollment
   
Total
Fee-
   
Generation
and
   
Activity
and
         
Base Net
   
Adjustments
to GAAP
   
GAAP
Results of
 
   
Servicing
   
Commerce
   
Services
   
Based
   
Management
   
Overhead
   
Eliminations
   
Income
   
Results
   
Operations
 
       
                                                             
Total interest income
  $ 27       8       —       35       276,923       2,293       (1,377 )     277,874       —       277,874  
Interest expense
    —       —       —       —       98,985       5,753       (1,377 )     103,361       —       103,361  
Net interest income (loss)
    27       8       —       35       177,938       (3,460 )     —       174,513       —       174,513  
                                                                                 
Less provision for loan losses
    —       —       —       —       9,000       —       —       9,000       —       9,000  
Net interest income (loss) after provision for loan losses
    27       8       —       35       168,938       (3,460 )     —       165,513       —       165,513  
                                                                                 
Other income (expense):
                                                                               
Loan and guaranty servicing revenue
    73,025       —       —       73,025       —       —       —       73,025       —       73,025  
Intersegment servicing revenue
    34,650       —       —       34,650       —       —       (34,650 )     —       —       —  
Tuition payment processing and campus commerce revenue
    —       34,130       —       34,130       —       —       —       34,130       —       34,130  
Enrollment services revenue
    —       —       66,183       66,183       —       —       —       66,183       —       66,183  
Software services revenue
    9,123       —       —       9,123       —       —       —       9,123       —       9,123  
Other income
    —       —       —       —       8,133       5,185       —       13,318       —       13,318  
Gain on sale of loans and debt repurchases
    —       —       —       —       1,400       6,907       —       8,307       —       8,307  
Derivative market value and foreign currency adjustments
    —       —       —       —       —       —       —       —       (15,697 )     (15,697 )
Derivative settlements, net
    —       —       —       —       (7,312 )     (362 )     —       (7,674 )     —       (7,674 )
Total other income (expense)
    116,798       34,130       66,183       217,111       2,221       11,730       (34,650 )     196,412       (15,697 )     180,715  
                                                                                 
Operating expenses:
                                                                               
Salaries and benefits
    50,119       14,401       12,188       76,708       1,487       8,598       —       86,793       —       86,793  
Cost to provide enrollment services
    —       —       44,979       44,979       —       —       —       44,979       —       44,979  
Depreciation and amortization
    2,642       681       1,593       4,916       —       694       —       5,610       7,935       13,545  
Restructure expense
    —       —       —       —       —       —       —       —       —       —  
Other
    29,184       4,961       4,760       38,905       6,677       9,290       —       54,872       —       54,872  
Intersegment expenses, net
    2,429       2,211       1,777       6,417       35,194       (6,961 )     (34,650 )     —       —       —  
Total operating expenses
    84,374       22,254       65,297       171,925       43,358       11,621       (34,650 )     192,254       7,935       200,189  
                                                                                 
Income (loss) before income taxes and corporate overhead allocation
    32,451       11,884       886       45,221       127,801       (3,351 )     —       169,671       (23,632 )     146,039  
Corporate overhead allocation
    (1,986 )     (662 )     (662 )     (3,310 )     (3,309 )     6,619       —       —       —       —  
Income (loss) before income taxes
    30,465       11,222       224       41,911       124,492       3,268       —       169,671       (23,632 )     146,039  
Income tax (expense) benefit
    (11,575 )     (4,264 )     (85 )     (15,924 )     (47,714 )     624       —       (63,014 )     8,980       (54,034 )
Net income (loss)
  $ 18,890       6,958       139       25,987       76,778       3,892       —       106,657       (14,652 )     92,005  

   
Six months ended June 30, 2010
 
   
Fee-Based
                                           
         
Tuition
                                                 
   
Student
   
Payment
                                                 
   
Loan
   
Processing
               
Asset
   
Corporate
                         
   
and
Guaranty
   
and
Campus
   
Enrollment
   
Total
Fee-
   
Generation
and
   
Activity
and
         
Base net
   
Adjustments
to GAAP
   
GAAP
Results of
 
   
Servicing
   
Commerce
   
Services
   
Based
   
Management
   
Overhead
   
Eliminations
   
income
   
Results
   
Operations
 
       
                                                             
Total interest income
  $ 30       12       —       42       290,963       3,520       (1,900 )     292,625       —       292,625  
Interest expense
    —       —       —       —       99,761       12,241       (1,900 )     110,102       —       110,102  
Net interest income (loss)
    30       12       —       42       191,202       (8,721 )     —       182,523       —       182,523  
                                                                                 
Less provision for loan losses
    —       —       —       —       11,200       —       —       11,200       —       11,200  
Net interest income (loss) after provision for loan losses
    30       12       —       42       180,002       (8,721 )     —       171,323       —       171,323  
                                                                                 
Other income (expense):
                                                                               
Loan and guaranty servicing revenue
    73,300       —       —       73,300       —       (254 )     —       73,046       —       73,046  
Intersegment servicing revenue
    43,549       —       —       43,549       —       —       (43,549 )     —       —       —  
Tuition payment processing and campus commerce revenue
    —       30,177       —       30,177       —       —       —       30,177       —       30,177  
Enrollment services revenue
    —       —       68,674       68,674       —       —       —       68,674       —       68,674  
Software services revenue
    9,843       —       —       9,843       —       —       —       9,843       —       9,843  
Other income
    519       —       —       519       9,404       5,833       —       15,756       —       15,756  
Gain on sale of loans and debt repurchases
    —       —       —       —       18,936       —       —       18,936       —       18,936  
Derivative market value and foreign currency adjustments
    —       —       —       —       —       —       —       —       (3,126 )     (3,126 )
Derivative settlements, net
    —       —       —       —       (5,800 )     —       —       (5,800 )     —       (5,800 )
Total other income (expense)
    127,211       30,177       68,674       226,062       22,540       5,579       (43,549 )     210,632       (3,126 )     207,506  
                                                                                 
Operating expenses:
                                                                               
Salaries and benefits
    46,909       13,212       12,518       72,639       2,644       7,925       (1,602 )     81,606       —       81,606  
Cost to provide enrollment services
    —       —       46,136       46,136       —       —       —       46,136       —       46,136  
Depreciation and amortization
    2,176       672       4,120       6,968       3       792       —       7,763       12,748       20,511  
Restructure expense
    1,289       —       —       1,289       —       (20 )     —       1,269       —       1,269  
Other
    33,168       4,380       5,007       42,555       7,210       12,638       —       62,403       —       62,403  
Intersegment expenses, net
    2,992       1,653       1,074       5,719       42,716       (6,488 )     (41,947 )     —       —       —  
Total operating expenses     86,534       19,917       68,855       175,306       52,573       14,847       (43,549 )     199,177       12,748       211,925  
                                                                                 
Income (loss) before income taxes and corporate overhead allocation     40,707       10,272       (181 )     50,798       149,969       (17,989 )     —       182,778       (15,874 )     166,904  
Corporate overhead allocation
    (2,673 )     (891 )     (891 )     (4,455 )     (4,454 )     8,909       —       —       —       —  
Income (loss) before income taxes     38,034       9,381       (1,072 )     46,343       145,515       (9,080 )     —       182,778       (15,874 )     166,904  
Income tax (expense) benefit
    (14,453 )     (3,566 )     408       (17,611 )     (55,296 )     4,286       —       (68,621 )     6,032       (62,589 )
Net income (loss)   $ 23,581       5,815       (664 )     28,732       90,219       (4,794 )     —       114,157       (9,842 )     104,315  
                                                                                 
Additional information:
                                                                               
Net income (loss)
  $ 23,581       5,815       (664 )     28,732       90,219       (4,794 )     —       114,157       (9,842 )     104,315  
Plus: Restructure expense (a)
    1,289       —       —       1,289       —       (20 )     —       1,269       (1,269 )     —  
Less: Net tax effect
    (490 )     —       —       (490 )     —       8       —       (482 )     482       —  
                                                                                 
Net income (loss), excluding restructure expense
  $ 24,380       5,815       (664 )     29,531       90,219       (4,806 )     —       114,944       (10,629 )     104,315  
                                                                                 
(a) During the first six months of 2010, the Company recorded restructuring charges associated with previously implemented restructuring plans.
 

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
   
Tuition
                         
   
Loan
   
Payment
         
Asset
   
Corporate
       
   
and
   
Processing
         
Generation
   
Activity
       
   
Guaranty
   
and Campus
   
Enrollment
   
and
   
and
       
   
Servicing
   
Commerce
   
Services
   
Management
   
Overhead
   
Total
 
                                     
   
Three months ended June 30, 2011
 
       
Derivative market value and foreign currency adjustments (a)
  $ —       —       —       12,531        4,282        16,813   
Amortization of intangible assets (b)
    2,100        981        878        —       —       3,959   
Net tax effect (c)
    (798 )       (373 )       (334 )       (4,762 )       (1,626 )       (7,893 )  
                                                 
Total adjustments to GAAP
  $ 1,302       608        544        7,769        2,656        12,879   

   
Student
   
Tuition
                         
   
Loan
   
Payment
         
Asset
   
Corporate
       
   
and
   
Processing
         
Generation
   
Activity
       
   
Guaranty
   
and Campus
   
Enrollment
   
and
   
and
       
   
Servicing
   
Commerce
   
Services
   
Management
   
Overhead
   
Total
 
                                     
   
Three months ended June 30, 2010
 
       
Derivative market value and foreign currency adjustments (a)
  $ —       —       —       550        6,681        7,231   
Amortization of intangible assets (b)
    2,114        1,591        2,527        —       —       6,232   
Net tax effect (c)
    (803 )       (605 )       (958 )       (209 )       (2,541 )       (5,116 )  
                                                 
Total adjustments to GAAP
  $ 1,311       986        1,569        341        4,140        8,347   
                                                 
   
Six months ended June 30, 2011
 
       
Derivative market value and foreign currency adjustments (a)
  $ —       —       —       13,120        2,577        15,697   
Amortization of intangible assets (b)
    4,200        1,979        1,756        —       —       7,935   
Net tax effect (c)
    (1,596 )       (752 )       (667 )       (4,986 )       (979 )       (8,980 )  
                                                 
Total adjustments to GAAP
  $ 2,604       1,227        1,089        8,134        1,598        14,652   
                                                 
   
Six months ended June 30, 2010
 
       
Derivative market value and foreign currency adjustments (a)
  $ —       —       —       (4,011 )       7,137        3,126   
Amortization of intangible assets (b)
    4,350        3,516        4,882        —       —       12,748   
Net tax effect (c)
    (1,653 )       (1,337 )       (1,858 )       1,524        (2,708 )       (6,032 )  
                                                 
Total adjustments to GAAP
  $ 2,697       2,179        3,024        (2,487 )       4,429        9,842   

 
(a)
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.  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.  “Base net income” also excludes the foreign currency transaction gains or losses caused by the re-measurement of the Company’s Euro-denominated bonds to U.S. dollars.

 
(b)
Amortization of intangible assets:  “Base net income” excludes the amortization of acquired intangibles.

 
(c)
Income taxes are applied based on 38% for the individual operating segments.

Note 12 - Fair Value
Fair Value Disclosures [Text Block]
12.           Fair Value

The following tables present the Company’s financial assets and liabilities that are measured at fair value on a recurring basis.

   
As of June 30, 2011
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                       
Investments (a)
  $ 6,992       —       24,672        31,664   
Fair value of derivative instruments (b)
    —       182,450        —       182,450   
                                 
Total assets
  $ 6,992       182,450        24,672        214,114   
                                 
Liabilities:
                               
Fair value of derivative instruments (b)
  $ —       23,383        —       23,383   
                                 
Total liabilities
  $ —       23,383        —       23,383   

   
As of December 31, 2010
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                       
Investments (a)
  $ 31,375       —       11,861        43,236   
Fair value of derivative instruments (b)
    —       118,346        —       118,346   
                                 
Total assets
  $ 31,375       118,346        11,861        161,582   
                                 
Liabilities:
                               
Fair value of derivative instruments (b)
  $ —       16,089        —       16,089   
                                 
Total liabilities
  $ —       16,089        —       16,089   

 
(a)
Investments represent investments classified by the Company as “trading securities” which are recorded at fair value on a recurring basis. Level 1 investments are measured based upon quoted prices and include investments traded on an active exchange, such as the New York Stock Exchange, and U.S. Treasury securities. Level 3 investments include student loan auction rate asset-backed securities. The fair value for the student loan auction rate asset-backed securities is determined using an income approach valuation technique (present value using the discount rate adjustment technique) that considers, among other things, rates currently observed in publicly traded debt markets for debt of similar terms to companies with comparable credit risk.

 
(b)
All derivatives are accounted for at fair value on a recurring basis.  The fair value of derivative financial instruments is determined by derivative pricing models using the stated terms of the contracts and observable yield curves, forward foreign currency exchange rates, and volatilities from active markets.  Fair value of derivative instruments is comprised of market value less accrued interest and excludes collateral.

There were no transfers into or out of level 1, level 2, or level 3 for the six months ended June 30, 2011.

The following tables present a roll-forward of the fair value of Level 3 (significant unobservable inputs) assets for the six months ended June 30, 2011:

   
Level 3
 
   
Investments -
 
   
trading securities
 
Balance at December 31, 2010
  $ 11,861  
Total realized and unrealized gains (losses) included in income, net (a)
    (105 )
Purchases
    23,890  
Redemptions/Sales
    (5,931 )
Balance at March 31, 2011
    29,715  
         
Total realized and unrealized gains (losses) included in income, net (a)
    636  
Purchases
    3,261  
Redemptions/Sales
    (8,940 )
Balance at June 30, 2011
  $ 24,672  
         
         
Total gains included in income attributable to the change in unrealized gains relating to assets held at June 30, 2011: (a)
       
         
Three month period ended June 30, 2011
  $ 405  
Six month period ended June 30, 2011
    151  

 
(a)
Realized and unrealized gains are included in “other income” in the Company’s consolidated statements of income.

The following table summarizes the fair values of all of the Company’s financial instruments on the consolidated balance sheet:

   
As of June 30, 2011
   
As of December 31, 2010
 
   
Fair value
   
Carrying value
   
Fair value
   
Carrying value
 
Financial assets:
                       
Student loans receivable
  $ 24,025,821       23,228,778        24,836,538        23,948,014   
Student loans receivable - held for sale
    —       —       84,987        84,987   
Cash and cash equivalents
    116,341        116,341        283,801        283,801   
Investments - trading securities
    31,664        31,664        43,236        43,236   
Restricted cash
    350,703        350,703        453,748        453,748   
Restricted cash – due to customers
    64,452        64,452        88,528        88,528   
Restricted investments
    260,027        260,027        215,009        215,009   
Accrued interest receivable
    302,481        302,481        318,152        318,152   
Derivative instruments
    182,450        182,450        118,346        118,346   
                                 
Financial liabilities:
                               
Bonds and notes payable
    23,594,840        23,605,413        24,651,191        24,672,472   
Accrued interest payable
    17,093        17,093        19,153        19,153   
Due to customers
    64,452        64,452        88,528        88,528   
Derivative instruments
    23,383        23,383        16,089        16,089   

The methodologies for estimating the fair value of financial assets and liabilities that are measured at fair value on a recurring basis are discussed above.  The remaining financial assets and liabilities were estimated using the following methods and assumptions:

Student Loans Receivable and Student Loans Receivable – Held for Sale

The Company’s student loans are accounted for at cost or at the lower of cost or market if the loan is held-for-sale. Student loans classified as held for sale at December 31, 2010 are those loans which the Company sold in January 2011 and were valued using the sales price (100% of par value) less the estimated credit risk related to this portfolio. The Company retained credit risk related to this portfolio and will pay cash to purchase back any loans which become 60 days delinquent. For all other loans, fair values were determined by modeling loan cash flows using stated terms of the assets and internally-developed assumptions to determine aggregate portfolio yield, net present value, and average life. The significant assumptions used to project cash flows are prepayment speeds, default rates, and future interest rates and indice relationships. A number of significant inputs into the models are internally derived.

Cash and Cash Equivalents, Restricted Cash, Restricted Cash – Due to Customers, Restricted Investments, Accrued Interest Receivable/Payable and Due to Customers

The carrying amount approximates fair value due to the variable rate of interest and/or the short maturities of these instruments.

Bonds and Notes Payable

The fair value of the bonds and notes payable is based on market prices for securities that possess similar credit risk and interest rate risk.

Note 13 - Legal Proceedings
Legal Matters and Contingencies [Text Block]
13.           Legal Proceedings

General

The Company is subject to various claims, lawsuits, and proceedings that arise in the normal course of business. These matters principally consist of claims by student loan borrowers disputing the manner in which their student loans have been processed and disputes with other business entities. In addition, from time to time, the Company receives information and document requests from state or federal regulators concerning its business practices. The Company cooperates with these inquiries and responds to the requests. While the Company cannot predict the ultimate outcome of any inquiry or investigation, the Company believes its activities have materially complied with applicable law, including the Higher Education Act, the rules and regulations adopted by the Department of Education thereunder, and the Department’s guidance regarding those rules and regulations. On the basis of present information, anticipated insurance coverage, and advice received from counsel, it is the opinion of the Company’s management that the disposition or ultimate determination of these claims, lawsuits, and proceedings will not have a material adverse effect on the Company’s business, financial position, or results of operations.

Bais Yaakov of Spring Valley v. Peterson’s Nelnet, LLC

On January 4, 2011, a complaint against Peterson’s Nelnet, LLC (“Peterson’s”), a subsidiary of the Company, was filed in the U.S. District Court for the District of New Jersey (the “District Court”).  The complaint alleges that Peterson’s sent six advertising faxes to the named plaintiff in 2008-2009 that were not the result of express invitation or permission granted by the plaintiff and did not include certain opt out language.  The complaint also alleges that such faxes violated the federal Telephone Consumer Protection Act (the “TCPA”), purportedly entitling the plaintiff to $500 per violation, trebled for willful violations for each of the six faxes.  The complaint further alleges that Peterson’s had sent putative class members more than 10,000 faxes that violated the TCPA, amounting to more than $5 million in statutory penalty damages and more than $15 million if trebled for willful violations.  The complaint seeks to establish a class action for two different classes of plaintiffs: Class A, to whom Peterson’s sent unsolicited fax advertisements containing opt out notices similar to those contained in the faxes received by the named plaintiff; and Class B, to whom Peterson’s sent fax advertisements containing opt out notices similar to those contained in the faxes received by the named plaintiff.  As of the filing date of this report, the District Court has not established or recognized any class.

On February 16, 2011, Peterson’s filed a motion to dismiss the complaint, which was denied by the District Court on April 15, 2011 shortly after a similar motion to dismiss that had been granted in an unrelated case involving alleged TCPA violations related to faxes was reversed by the U.S. Court of Appeals for the Third Circuit (the “Appeals Court”), which has jurisdiction over the District Court.  On April 29, 2011, Peterson’s filed an answer to the complaint, but also filed a motion for reconsideration of the motion to dismiss.  On May 17, 2011, the Appeals Court granted a petition for rehearing of the motion to dismiss in the unrelated TCPA fax case, and on May 31, 2011 Peterson’s filed a motion for stay pending the outcome of that rehearing.  The motion for reconsideration and the motion for stay are pending before the District Court.

Peterson’s intends to continue to contest the suit vigorously.  Due to the preliminary stage of this matter and the uncertainty and risks inherent in class determination and the overall litigation process, the Company believes that a meaningful estimate of a reasonably possible loss, if any, or range of reasonably possible losses, if any, cannot currently be made.

Note 14 - Subsequent Event
Subsequent Events [Text Block]
14. Subsequent Event

On July 8, 2011, the Company purchased the residual interest in $1.9 billion of FFEL Program consolidation loans. The Company acquired the ownership interest in GCO SLIMS Trust I (the “SLIMS Trust”) giving the Company rights to the residual interest in GCO Education Loan Funding Trust-I (the “GCO Trust”).  The GCO Trust includes FFELP consolidation loans funded to term with $1.9 billion of notes payable that carry interest rates on a spread to LIBOR or are set and periodically reset via a “dutch auction” (“Auction Rate Securities”).

The SLIMS Trust includes $46.2 million of notes payable that carry a fixed interest rate of 5.72%.  All excess interest earned from the GCO Trust must be used to pay the interest and principal on the notes payable in the SLIMS Trust until the SLIMS notes are paid in full.

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 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.