UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)

|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
 ACT OF 1934 For the fiscal year ended December 31, 2004
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to .
COMMISSION FILE NUMBER 001-31924
NELNET, INC.

(Exact name of Registrant as specified in its charter)

                NEBRASKA                                 84-0748903
        (State of Incorporation)            (I.R.S. Employer Identification No.)
    121 SOUTH 13TH STREET, SUITE 201                       68508
           LINCOLN, NEBRASKA                             (Zip Code)
(Address of Principal Executive Offices)	

Registrant's telephone number, including area code: (402) 458-2370
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS
Class A Common Stock, Par Value $0.01 per Share
NAME OF EACH EXCHANGE ON WHICH REGISTERED:
New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
 None
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the Registrant is an accelerated filer. Yes [X] No [ ]
The aggregate market value of the Registrant's voting common stock held by non-affiliates of the Registrant on June 30, 2004 (the last business day of the Registrant's most recently completed second fiscal quarter), based upon the closing sale price of the Registrant's Class A Common Stock on that date of $17.75, was $360,899,745. For purposes of this calculation, the Registrant's directors, executive officers, and greater than 10 percent shareholders are deemed to be affiliates.
As of February 15, 2005, there were 39,687,037 and 13,983,454 shares of Class A Common Stock and Class B Common Stock, par value $0.01 per share, outstanding, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement to be filed for its 2005 Annual Meeting of Shareholders scheduled to be held May 26, 2005 are incorporated by reference into Part III of this Form 10-K.
This report contains forward-looking statements and information that are based on management's current expectations as of the date of this document. When used in this report, the words "anticipate," "believe," "estimate," "intend," and "expect," and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to risks, uncertainties, assumptions, and other factors that may cause the actual results to be materially different from those reflected in such forward-looking statements. These factors include, among others, the risks and uncertainties set forth in "Risk Factors" and elsewhere in this Form 10-K and changes in the terms of student loans and the educational credit marketplace arising from the implementation of or changes in applicable laws and regulations, which may reduce the volume, average term, and costs of yields on student loans under the Federal Family Education Loan Program (the "FFEL Program" or "FFELP") of the U.S. Department of Education (the "Department") or result in loans being originated or refinanced under non-FFELP programs or may affect the terms upon which banks and others agree to sell FFELP loans to the Company. The Company could also be affected by changes in the demand for educational financing or in financing preferences of lenders, educational institutions, students, and their families; changes in the general interest rate environment and in the securitization markets for education loans, which may increase the costs or limit the availability of financings necessary to initiate, purchase, or carry education loans; losses from loan defaults; and changes in prepayment rates and credit spreads. References to "the Company" refer to Nelnet, Inc. and its subsidiaries.
PART I.
ITEM 1. BUSINESS
OVERVIEW
The Company is one of the leading education finance companies in the United States and is focused on providing quality student loan products and services to students and schools nationwide. The Company ranks among the nation's leaders in terms of total net student loan assets with $13.5 billion as of December 31, 2004. Headquartered in Lincoln, Nebraska, the Company originates, consolidates, securitizes, holds, and services student loans, principally loans originated under the FFEL Program. A detailed description of the FFEL Program appears in Appendix A to this annual report on Form 10-K (the "Report").
The Company offers a broad range of financial services and technology-based products. The Company's products are designed to simplify the student loan process by automating financial aid delivery, loan processing, and funds disbursement. The Company's infrastructure, technological expertise, and breadth of product and service offerings connect the key constituents of the student loan process, including lenders, financial aid officers, guaranty agencies, governmental agencies, student and parent borrowers, servicers, and the capital markets, thereby streamlining the education finance process.
The Company's business is comprised of three primary product and service offerings:
o ASSET MANAGEMENT, INCLUDING STUDENT LOAN ORIGINATIONS AND ACQUISITIONS. The Company provides student loan marketing, originations, acquisition, and portfolio management. The Company owns a large portfolio of student loan assets through a series of education lending subsidiaries. The education lending subsidiaries primarily invest in student loans, through an eligible lender trustee, made under Title IV of the Higher Education Act of 1965, as amended (the "Higher Education Act"). Certain subsidiaries also invest in non-federally insured student loans. The Company obtains loans through direct origination or through acquisition of loans. The Company also provides marketing, sales, managerial, and administrative support related to its asset generation activities.
o STUDENT LOAN AND GUARANTEE SERVICING. The Company services its student loan portfolio and the portfolios of third parties. Servicing activities include loan origination activities, application processing, borrower updates, payment processing, due diligence procedures, and claim processing. In December 2004, the Company purchased EDULINX Canada Corporation ("EDULINX"). EDULINX is a Canadian corporation that engages in servicing Canadian student loans. As of December 31, 2004, the Company serviced or provided complete outsourcing of servicing activities as follows:

                          Company     %    Third party    %      Total
                         ---------  ------ -----------  ------ ---------
                                     (dollars in millions)

FFELP and private loans   $ 11,888    56%    $ 9,188     44%   $ 21,076
Canadian loans                --      --       7,213    100%      7,213
                         ---------  ------ ----------  ------ ----------
Total                     $ 11,888    42%   $ 16,401     58%   $ 28,289
                         =========  ====== ==========  ====== ==========	

The Company also provides servicing support to guaranty agencies, which includes system software, hardware and telecommunication support, borrower and loan updates, default aversion tracking services, claim processing services, and post-default collection services. As of December 31, 2004, the Company provided servicing support to agencies that guarantee more than $19 billion of FFELP loans.
2
o Servicing Software. The Company uses internally developed student loan servicing software and also provides this software to third-party student loan holders and servicers. As of December 31, 2004, the Company's software was used to service more than $50 billion in student loans, which included $29 billion serviced by third parties using the Company's software.
The Company's primary product and service offerings constitute reportable segments under Statement of Financial Accounting Standards ("SFAS") No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS No. 131"). In 2004, the Asset Management, Student Loan and Guarantee Servicing, and Servicing Software segments generated 76.5%, 21.8%, and 1.7%, respectively, of the Company's total segment revenues (excluding intersegment revenue) and 81.1%, 19.7%, and (0.8)%, respectively, of its segment net income (loss) before taxes. As of December 31, 2004, the percent of assets applicable to the Asset Management, Student Loan and Guarantee Servicing, and Servicing Software segments (excluding intersegment and certain operating activity assets) was 97.7%, 2.2%, and 0.1%, respectively. For additional information on the Company's segment reporting, see note 19 of the notes to the consolidated financial statements, which are included in this Report.
The Company's earnings and earnings growth are directly affected by the size of its portfolio of student loans, the interest rate characteristics of its portfolio, the costs associated with financing and managing its portfolio, and the costs associated with origination and acquisition of the student loans in the portfolio. The Company generates the majority of its earnings from the spread, referred to as its student loan spread, between the yield it receives on its student loan portfolio and the cost of funding these loans. While the spread may vary due to fluctuations in interest rates, special allowance payments from the federal government ensure that the Company receives a minimum yield on its student loans, so long as certain requirements are met. In addition, the Company maintains an overall interest rate risk management strategy that incorporates the use of derivative instruments to minimize the economic effect of interest rate volatility. The Company also earns fees from student loan and guarantee servicing and licensing and maintenance fees from its servicing software. Earnings growth is primarily driven by the growth in the student loan portfolio and growth in the Company's fee-based product and service offerings, coupled with cost-effective financing and expense management.
As of December 31, 2004, over 99% of the student loans in the Company's portfolio were federally insured loans, as opposed to the less than 1% of loans in its portfolio that did not carry federal guarantees. At least 98% of the principal and accrued interest of FFELP loans is guaranteed by the federal government, provided that the Company meets certain procedures and standards specified in the Higher Education Act. The Company believes it is in material compliance with the procedures and standards as required in the Higher Education Act. FFELP loans originated prior to October 1, 1993 carry a 100% guarantee on the principal amount and accrued interest, and FFELP loans originated after that date are guaranteed for 98% of the principal amount and accrued interest, unless serviced by a servicer who has been designated as an Exceptional Performer by the Department, allowing these student loans to carry a 100% guarantee. Effective June 1, 2004, the Company was designated as an Exceptional Performer. As of December 31, 2004, service providers designated as an Exceptional Performer serviced more than 99% of the Company's federally insured loans. Of this 99%, third parties serviced approximately 9%. For further information, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview -- Provision for Loan Losses."
HISTORY
The Company has a 27-year history dating back to the formation of UNIPAC Service Corporation in 1978. UNIPAC was formed to service loans for Union Bank & Trust Company, or Union Bank, of Lincoln, Nebraska and Packers Service Corporation of Omaha, Nebraska. The Company grew its third-party student loan servicing business to approximately $9.7 billion in loans in 2000, when it was merged with Nelnet. The Company's immediate predecessor was formed in 1996 as a student loan acquisition company, and, prior to the merger, it had built its student loan portfolio through a series of spot portfolio acquisitions and later through student loan company acquisitions.
In 2000, the Company created a vertically integrated platform that would be able to compete in each sector of the student loan industry. Over the past five years, the Company has acquired several education finance services and asset management companies to complement its service offerings. For information about the Company's recent acquisitions, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview -- Acquisitions."
PRODUCT AND SERVICE OFFERINGS
ASSET MANAGEMENT, INCLUDING STUDENT LOAN ORIGINATIONS AND ACQUISITIONS
The Company's asset management business, including student loan originations and acquisitions, is its largest product and service offering and drives the majority of its earnings. When the Company originates FFELP loans on its own
3
behalf or when the Company acquires FFELP loans from others, it engages one or more "eligible lenders," as defined in the Higher Education Act, to act as its trustees to hold title to all such originated and acquired FFELP loans. These eligible lender trustees hold the legal title to the FFELP loans, and the Company holds 100% of the beneficial interests in those loans. The Company originated or acquired, through student loan channels, $4.1 billion in student loans in 2004. In addition, the Company acquired $136.1 million of student loans through a business combination in April 2004. The Company often originates loans using the Nelnet brand name but, in many cases, it uses well-known, geographically strategic brand names of its branding partners, such as SunTrust Bank, Education Solutions, and Union Bank. This strategy gives the Company the flexibility to market the brand with the best recognition in a given region or at a given college or university. The Company originates and acquires loans through its direct channel, branding partner channel, forward flow channel, and through spot purchases.
Through the direct channel, the Company originates student loans in one of its brand names directly to students and parent borrowers. In 2004, 50.5% of the Company's student loan channel additions were attributable to this channel, including loans originated through consolidation. Student loans that the Company originates through its direct channel are the most profitable student loans because these loans typically cost less than loans acquired through the other channels, and they remain in the Company's portfolio for a longer period of time. Once a student's loans have entered the grace or repayment period, they are eligible to be consolidated if they meet certain requirements. Loan consolidation allows borrowers to make one payment per month and extend the loan repayment period. In addition to these attributes, in recent years, historically low interest rates have contributed to demand for consolidation loans. To meet this demand, the Company has developed an extensive loan consolidation department to serve borrowers with loans in the Company's portfolio as well as borrowers whose loans are held by other lenders.
Through the branding partner channel, the Company acquires student loans from lenders to whom it provides marketing and origination services established through various contracts with FFELP lenders. In 2004, 24.3% of the Company's student loan channel additions were attributable to this channel. The Company frequently acts as an exclusive marketing agent for some branding partners in specified geographic areas. The Company ordinarily purchases loans originated by those branding partners pursuant to a commitment to purchase loans at a premium above par, shortly following full disbursement of the loans. The Company ordinarily retains rights to acquire loans subsequently made to the same borrowers, or serial loans. Some branding partners, however, retain rights to portions of their loan originations. Origination and servicing of loans made by branding partners is primarily performed by the Company during the lives of loan origination and servicing agreements so that loans do not need to be changed to a different servicer upon purchase by the Company. The marketing agreements and commitments to purchase loans are ordinarily for the same term, which are commonly three to five years in duration. These agreements ordinarily contain provisions for automatic renewal for successive terms, subject to termination by notice at the end of a term or early termination for breach. The Company is generally obligated to purchase all of the loans originated by the branding partners under these commitments, although the branding partners are not obligated to provide the Company with a minimum amount of loans.
In addition to the branding partner channel, the Company has established a forward flow channel for acquiring FFELP loans from lenders to whom it provides origination services, but provides no marketing services, or who agree to sell loans to the Company under forward sale commitments. In 2004, 19.1% of the Company's student loan channel additions were attributable to this channel. These forward flow commitments frequently obligate the lender to sell all loans made by the applicable lender, but in other instances are limited to sales of loans originated in certain specific geographic regions or exclude loans that are otherwise committed for sale to third parties. The Company is generally obligated to purchase loans subject to forward flow commitments shortly following full disbursement, although the forward flow lenders are not obligated to provide the Company with a minimum amount of loans. The Company also typically retains rights to purchase serial loans. The loans subject to purchase are generally subject to a servicing agreement with the Company for the life of each such loan. Such forward flow commitments ordinarily are for terms of three to five years in duration.
The Company also acquires student loans through spot purchases, which accounted for 6.1% of the Company's student loan channel additions in 2004.
4
The following table summarizes the composition of the Company's student loan portfolio, exclusive of the unamortized costs of origination and acquisition, as of December 31, 2004.

                                                                  As of
                                                            December 31, 2004
                                                            (loan balances in
                                                                thousands)
             Loans outstanding.............................   $13,299,094
             Federally insured loans:
                  Stafford ................................   $ 5,047,487
                  PLUS/SLS (a).............................   $   252,910
                  Consolidation ...........................   $ 7,908,292
             Non-federally insured loans...................   $    90,405
             Number of borrowers...........................       938,825
             Average outstanding principal balance per
             borrower......................................   $    14,166
             Number of loans...............................     2,345,597
             Average outstanding principal balance per loan   $     5,670
             Weighted average annual borrower interest rate          4.21%
             Weighted average remaining term (months)......           194

----------	

(a) Supplemental loans for students, or SLS, are the predecessor to unsubsidized Stafford loans.
The Company's Capital Markets and Portfolio Administration departments provide financing options to fund the Company's student loan portfolio. As of December 31, 2004, the Company had a student loan warehousing capacity of $4.3 billion through 364-day commercial paper conduit programs (of which $2.5 billion was outstanding as of December 31, 2004). These transactions provide short-term asset financing for the Company's loan originations as well as purchases of student loan portfolios. The financings are constructed to offer short-term capital and are annually renewable.
Short-term student loan warehousing allows the Company to buy and manage student loans prior to transferring them into more permanent financing arrangements. The large student loan warehousing capacity allows the Company to pool student loans in order to maximize loan portfolio characteristics for efficient financing and to properly time market conditions. Generally, loans that best fit long-term financing vehicles are selected to be transferred into long-term securitizations. The Company holds loans in short-term warehousing for a period of time ranging from approximately one month to as many as 18 months, at which point these loans are transferred into long-term securitizations. Because transferring those loans to a long-term securitization includes certain fixed administrative costs, the Company maximizes its economies of scale by executing large transactions that routinely price in line with SLM Corporation, its largest competitor.
The Company had $11.8 billion in asset-backed securities issued and outstanding as of December 31, 2004. These asset-backed securities allow the Company to finance student loan assets over multiple years. In 2004, the Company completed four asset-backed securitizations totaling $5.4 billion, which made the Company the second largest issuer of student loan asset-backed securities for the year.
The Company relies upon secured financing vehicles as its most significant source of funding for student loans on a long-term basis. 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 pay bondholders.
The Company's original securitization transactions began in 1996, utilizing a master trust structure, and were privately placed auction-rate note securitizations. As the size and volume of the Company's securitizations increased, the Company began publicly offering asset-backed securities under shelf registration statements, using special purpose entities. When the Company deemed long-term interest rates attractive, it issued fixed-rate debt backed by cash flows from FFELP loans with fixed-rate floors, which effectively match the funding of its assets and liabilities. In 2002, the Company began accessing the term asset-backed securities market by issuing amortizing multi-tranche LIBOR-indexed variable-rate debt securities. The Company has utilized financial guarantees from monoline insurers and senior/subordinate structures to assist in obtaining "AAA" ratings on its senior securitized debt in addition to cash reserves and excess spread to assist in obtaining "A" and "AA" ratings on its subordinated debt. The Company intends to continue to issue auction-rate notes, variable-rate and fixed-rate term asset-backed securities, and debt securities through other asset funding vehicles in order to minimize its cost of funds and give it the most flexibility to optimize the return on its student loan assets.
5
The Company's subsidiary, Nelnet Capital LLC ("Nelnet Capital"), is a broker dealer. Nelnet Capital sells certain tranches of the Company's auction-rate securities in co-broker-dealer arrangements with certain third-party broker-dealers. Nelnet Capital's fees received in conjunction with sales of the Company's securities reduce the overall costs of issuance with respect to the auction-rate securities.
STUDENT LOAN AND GUARANTEE SERVICING
The Company specializes in the servicing of FFEL Program loans, non-federally insured student loans, and loans under the Canadian government-sponsored student loan program. The Company's servicing division offers lenders across the U.S. and Canada a complete line of education loan services, including recovery of non-guaranteed loans, application processing, disbursement of funds, customer service, account maintenance, federal reporting and billing collections, payment processing, default aversion, and claim filing. The Company's student loan division uses proprietary systems to manage the servicing process. These systems provide for automated compliance with most Higher Education Act regulations as well as regulations of the Canadian government-sponsored student loan program.
Effective June 1, 2004, the Company was designated as an Exceptional Performer by the Department in recognition of its exceptional level of performance in servicing FFEL Program loans. As a result of this designation, the Company and its FFELP third-party servicing customers receive 100% reimbursement on all eligible FFEL Program default claims submitted for reimbursement during the 12-month period following the effective date of its designation. The Company and its third-party servicing customers are not subject to the 2% risk-sharing loss for eligible claims submitted during this 12-month period. The Company is entitled to receive this benefit as long as it continues to meet the required servicing standards published by the Department. Compliance with such standard is assessed on a quarterly basis.
As the Company expands its student loan origination and acquisition activities, it may face increased competition with some of its servicing customers. In the past, servicing customers have terminated their servicing relationships with the Company, and the Company could in the future lose more servicing customers as a result. However, due to the life-of-loan servicing agreements, the Company does not expect the potential loss of customers to have a material adverse effect on its results of operations for the foreseeable future.
The Canadian student loan servicing business of EDULINX is highly concentrated among a handful of servicing customers. In the event EDULINX does not secure a renewal of its contract to service under the Canadian Student Loan Program, this could result in a negative impact on EDULINX's business.
The Company also provides servicing support for guaranty agencies, which are the organizations that serve as the intermediary between the U.S. federal government and the lender of FFELP loans and who are responsible for paying the claims made on defaulted loans. The Company's guarantee servicing division uses a proprietary system to manage the servicing support process and to provide for automated compliance with most Higher Education Act regulations.
SERVICING SOFTWARE
The Company's servicing software is focused on providing technology solutions to education finance issues. The Company's subsidiaries, Idaho Financial Associates, Inc. and Charter Account Systems, Inc., provide student loan software and support for entities involved in the asset management aspects of the student loan arena.
OTHER SERVICES
In addition to the Company's three primary product and service offerings, the Company provides additional services through its 50% owned companies. These services include customized software solutions for the administration and management of the student loan process, collection services for educational debt, and customer-focused electronic transaction processing and account and bill presentment.
SOFTWARE PRODUCTS
The Company offers a suite of software products and services to provide a total systems solution to its customers. This total systems solution is designed to assist the Company's customers, hundreds of colleges, universities, and lenders, in the origination, delivery, and management of the education finance process, while simplifying the financial aid process. The Company also licenses its servicing software products to third-party student loan holders and servicers.
6
The Company also offers a variety of borrower services to assist students and parents in navigating the financial aid process. These services include the Company's unique @theU higher education resource, which provides free information on college planning and financial aid, paired with a loyalty program to allow members to earn credit toward reducing the balance of a student loan regardless of lender or servicer. Another product, Nelnet Notes, provides online assistance to help borrowers better understand the financial aid process, as well as broader money management issues.
The Company's software products, including Web site content and functionality, have been primarily developed and maintained using internal business and technical resources. External software consultants are utilized on selected occasions when circumstances require specific technical knowledge or experience. The Company capitalizes software costs under the provisions of Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Material software developments or enhancements that are considered to have useful lives of greater than one year are capitalized and amortized over their useful lives. In addition, purchased software is capitalized and amortized over the estimated useful life. Costs related to maintaining the Company's existing software, including the costs of programming, are expensed as incurred.
Costs associated with research and development related to the development of computer software to be sold are expensed when incurred in accordance with SFAS No. 86, Accounting for the Cost of Computer Software to be Sold, Leased, or Otherwise Marketed.
INTEREST RATE RISK MANAGEMENT
Because the Company generates the majority of its earnings from its student loan spread, the interest sensitivity of the balance sheet is a key profitability driver. The majority of the student loans have variable-rate characteristics in certain interest rate environments. Some of the student loans include fixed-rate components depending upon the rate reset provisions, or, in the case of consolidation loans, are fixed at the weighted average interest rate of the underlying loans at the time of consolidation.
Historically, the Company has followed a policy of funding the majority of its student loan portfolio with variable-rate debt. In a low interest rate environment, the FFELP loan portfolio yields excess income primarily due to the reduction in interest rates on the variable-rate liabilities that fund student loans at a fixed borrower rate and also due to consolidation loans earning interest at a fixed rate to the borrower. Therefore, absent utilizing derivative instruments, in a low interest rate environment, a rise in interest rates will have an adverse effect on earnings. In higher interest rate environments, where the interest rate rises above the borrower rate and the fixed-rate loans become variable-rate and are effectively matched with variable-rate debt, the impact of rate fluctuations is substantially reduced.
The Company attempts to match the interest rate characteristics of pools of loan assets with debt instruments of substantially similar characteristics, particularly in rising interest rate markets. Due to the variability in duration of the Company's assets and varying market conditions, the Company does not attempt to perfectly match the interest rate characteristics of the entire loan portfolio with the underlying debt instruments. The Company has adopted a policy of periodically reviewing the mismatch related to the interest rate characteristics of its assets and liabilities and the Company's outlook as to current and future market conditions. Based on those factors, the Company will periodically use derivative instruments as part of its overall risk management strategy to manage risk arising from its fixed-rate and variable-rate financial instruments. For further information, see Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk -- Interest Rate Risk."
INTELLECTUAL PROPERTY
The Company owns numerous trademarks and service marks ("Marks") to identify its various products and services. As of December 31, 2004, the Company had 10 pending and 42 registered Marks. The Company actively asserts its rights to these Marks when it believes potential infringement may exist. The Company believes its Marks have developed and continue to develop strong brand-name recognition in the industry and the consumer marketplace. Each of the Marks has, upon registration, an indefinite duration so long as the Company continues to use the Mark on or in connection with such goods or services as the Mark identifies. In order to protect the indefinite duration, the Company makes filings to continue registration of the Marks. The Company owns one patent application that has been published, but has not yet been issued, with respect to a customer-loyalty program and has also actively asserted its rights thereunder in situations where the Company believes its claims may be infringed upon. The Company owns many copyright-protected works, including its various computer system codes and displays, Web sites, publications, and marketing collateral. The Company also has trade secret rights to many of its processes and strategies and its software product designs. The Company's software products are protected by both registered and common law copyrights, as well as strict confidentiality and ownership provisions placed in license agreements which restrict the ability to copy, distribute, or disclose the software products. The Company also has adopted internal procedures designed to protect the Company's intellectual property.
7
The Company seeks federal and/or state protection of intellectual property when deemed appropriate, including patent, trademark/service mark, and copyright. The decision whether to seek such protection may depend on the perceived value of the intellectual property, the likelihood of securing protection, the cost of securing and maintaining that protection, and the potential for infringement. The Company's employees are trained in the fundamentals of intellectual property, intellectual property protection, and infringement issues. The Company's employees are also required to sign agreements requiring, among other things, confidentiality of trade secrets, assignment of inventions, and non-solicitation of other employees post-termination. Consultants, suppliers, and other business partners are also required to sign nondisclosure agreements to protect the Company's proprietary rights.
SEASONALITY
Origination of student loans is generally subject to seasonal trends, which correspond to the beginning of each semester of the school year. Stafford and PLUS loans are disbursed as directed by the school and are usually divided into two or three equal disbursements released at specified times during the school year. The two periods of August through October and December through March account for approximately 80% of the Company's total annual Stafford and PLUS disbursements. While applications and disbursements are seasonal, the Company's earnings are generally not tied to this cycle. Due to the Company's portfolio size and the volume of its acquisitions through its branding and forward flow channels, new disbursements or run-off for any given month will not materially change the net interest earnings of the portfolio.
CUSTOMERS
As of December 31, 2004, the Company provided student loan servicing either directly or through its proprietary software to more than 2.8 million borrowers and currently has direct and indirect relationships with hundreds of colleges and universities. As of December 31, 2004, the Company had servicing agreements with more than 300 customers and software license agreements with more than 35 licensees. Notwithstanding the depth of its customer base, the Company's business is subject to some vulnerability arising from concentrations of loan origination volume with borrowers attending certain schools, loan origination volume generated by certain branding partners, loan and guarantee servicing volume generated by certain loan servicing customers and guaranty agencies, and software licensing volume generated by certain licensees. The Company's ability to maintain strong relationships with significant schools, branding partners, servicing customers, guaranty agencies, and software licensees is subject to a variety of risks. Termination of such a strong relationship could result in a material adverse effect on the Company's business. The Company cannot assure that its forward flow channel lenders or branding partners will continue their relationships with the Company, which could result in an adverse effect on the Company's volume derived from one of its loan acquisition channels.
The business of servicing Canadian student loans by EDULINX is limited to a small group of servicing customers and the agreement with the largest of such customers is currently scheduled to expire in February 2006. EDULINX cannot guarantee that it will obtain a renewal of this largest servicing agreement or that it will maintain its other servicing agreements, and the termination of any such servicing agreements could result in an adverse effect on its business.
COMPETITION
The Company faces competition from many lenders in the highly competitive student loan industry. Using its size, the Company has leveraged economies of scale to gain market share and compete by offering a full array of FFELP and non-federally insured loan products and services. In addition, the Company differentiates itself from other lenders through its vertical integration, technology, and strong relationships with colleges and universities.
The Company views SLM Corporation, the parent company of Sallie Mae, as its largest competitor in loan origination and holding and servicing student loans. Large national and regional banks are also strong competition, although many are involved only in origination. In different geographic locations across the country, the Company faces strong competition from the local tax-exempt student loan secondary markets. The Federal Direct Lending ("FDL") Program has also reduced the origination volume available for FFEL Program participants. In 2003 (according to the most recent Department information available), the FDL Program accounted for approximately 25% of total student loan volume, although this portion of total volume has decreased from approximately 33% in 1998. In addition, in the last few years, low interest rates have attracted many new competitors to the student loan consolidation business.
EMPLOYEES
As of December 31, 2004, the Company had approximately 2,700 employees. Approximately 900 of these employees hold professional and management positions while approximately 1,800 are in support and operational positions. None of the Company's employees are covered by collective bargaining agreements. The Company is not involved in any material disputes with any of its employees, and the Company believes that relations with its employees are good.
AVAILABLE INFORMATION
Copies of the Company's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statement, and amendments to such
8
reports are available on the Company's Web site free of charge as soon as reasonably practicable after such reports are filed with or furnished to the United States Securities and Exchange Commission (the "SEC"). Investors and other interested parties can access these reports at HTTP://WWW.NELNET.NET. The SEC maintains an Internet site (HTTP://WWW.SEC.GOV) that contains periodic and other reports such as annual, quarterly, and current reports on Forms 10-K, 10-Q, and 8-K, respectively, as well as proxy and information statements regarding the Company and other companies that file electronically with the SEC.
The Company has adopted a Code of Business Conduct and Ethics (the "Code of Conduct") that applies to directors, officers, and employees, including the Company's principal executive officers and its principal financial and accounting officer, and has posted such Code of Conduct on its Web site. Amendments to and waivers granted with respect to the Company's Code of Conduct relating to its executive officers and directors required to be disclosed pursuant to the applicable securities law and stock exchange rules and regulations will also be posted on its Web site. The Company's Corporate Governance Guidelines, Audit Committee Charter, Compensation Committee Charter, and Nominating and Corporate Governance Committee Charter are also posted on its Web site and, along with its Code of Conduct, are available in print without charge to any shareholder who requests them. Please direct all requests as follows:
Nelnet, Inc. 121 South 13th Street, Suite 201 Lincoln, Nebraska 68508 Attention: Secretary
RISK FACTORS
If any of the following risks actually occurs, the Company's business, financial condition, and results of operations could be materially and adversely affected.
FAILURE TO COMPLY WITH GOVERNMENTAL REGULATIONS OR GUARANTY AGENCY RULES COULD HARM THE COMPANY'S BUSINESS.
The Company's principal business is comprised of originating, acquiring, holding, and servicing student loans made and guaranteed pursuant to the FFEL Program, which was created by the Higher Education Act. The Higher Education Act governs most significant aspects of the Company's lines of business. The Company is also subject to rules and regulations of the agencies that act as guarantors of the student loans, known as guaranty agencies. In addition, the Company is subject to certain federal and state banking laws, regulations, and examinations, as well as federal and state consumer protection laws and regulations, including, specifically with respect to the Company's non-federally insured loan portfolio, certain state usury laws and related regulations and the Federal Truth in Lending Act. Also, Canadian laws and regulations govern the Company's Canadian loan servicing operations. These laws and regulations impose substantial requirements upon lenders and servicers involved in consumer finance. Failure to comply with these laws and regulations could result in liability to borrowers, the imposition of civil penalties, and potential class action suits.
The Company's failure to comply with regulatory regimes described above may arise from:
o breaches of the Company's internal control systems, such as a failure to adjust manual or automated servicing functions following a change in regulatory requirements;
o technological defects, such as a malfunction in or destruction of the Company's computer systems; or
o fraud by the Company's employees or other persons in activities such as borrower payment processing.
Such failure to comply, irrespective of the reason, could subject the Company to loss of the federal guarantee on federally insured loans, costs of curing servicing deficiencies or remedial servicing, suspension or termination of the Company's right to participate in the FFEL Program or to participate as a servicer, negative publicity, and potential legal claims or actions brought by the Company's servicing customers and borrowers.
THE COMPANY MUST SATISFY CERTAIN REQUIREMENTS NECESSARY TO MAINTAIN THE FEDERAL GUARANTEES OF ITS FEDERALLY INSURED LOANS, AND THE COMPANY MAY INCUR PENALTIES OR LOSE ITS GUARANTEES IF IT FAILS TO MEET THESE REQUIREMENTS.
The Company must meet various requirements in order to maintain the federal guarantee on its federally insured loans. These requirements establish servicing requirements and procedural guidelines and specify school and borrower eligibility criteria. The federal guarantee on the Company's federally insured loans is conditioned on compliance with origination, servicing, and collection standards set by the Department and guaranty agencies. Federally insured loans that are not originated, disbursed, or serviced in accordance with the Department's regulations risk partial or complete loss of the guarantee thereof. If the Company experiences a high rate of servicing deficiencies or costs associated with remedial servicing, and if the Company is unsuccessful in curing such deficiencies, the eventual losses on the loans that are not cured could be material.
9
A guaranty agency may reject a loan for claim payment due to a violation of the FFEL Program due diligence servicing requirements. In addition, a guaranty agency may reject claims under other circumstances, including, for example, if a claim is not timely filed or adequate documentation is not maintained. Once a loan ceases to be guaranteed, it is ineligible for federal interest subsidies and special allowance payments. If a loan is rejected for claim payment by a guaranty agency, the Company continues to pursue the borrower for payment and/or institutes a process to reinstate the guarantee.
Rejections of claims as to portions of interest may be made by guaranty agencies for certain violations of the due diligence collection and servicing requirements, even though the remainder of a claim may be paid. Examples of errors that cause claim rejections include isolated missed collection calls or failures to send collection letters as required.
The Department has implemented school eligibility requirements, which include default rate limits. In order to maintain eligibility in the FFEL Program, schools must maintain default rates below specified levels, and both guaranty agencies and lenders are required to ensure that loans are made only to or on behalf of students attending schools that do not exceed the default rate limits.
If the Company fails to comply with any of the above requirements, it could incur penalties or lose the federal guarantee on some or all of its federally insured loans. If the Company's actual loss experience on denied guarantees were to increase substantially in future periods the impact could be material to the Company's operations.
FAILURE TO COMPLY WITH RESTRICTIONS ON INDUCEMENTS UNDER THE HIGHER EDUCATION ACT COULD HARM THE COMPANY'S BUSINESS.
The Higher Education Act generally prohibits a lender from providing certain inducements to educational institutions or individuals in order to secure applicants for FFELP loans. The Company has entered into arrangements with various schools pursuant to which the schools become lenders of FFELP loans to graduate students, and the Company provides funding, loan origination, and servicing to the schools with respect to such loans. The Department challenged a similar "school-as-lender" arrangement that SLM Corporation previously had in place, but a federal court decision determined the arrangement fell within the parameters of regulatory guidelines established by the Department. SLM Corporation also has come under scrutiny as a result of recent claims that it makes non-federally insured loans available to students of a school only if the school, in return, promises to leave the FDL Program and market SLM Corporation's FFELP loans to its students. The Department has stated that non-federally insured loans are legal and permissible if offered simply as a benefit to schools. The Company offers non-federally insured loans to student borrowers on a regular basis but does so without requiring anything in return from the schools that these borrowers attend. In addition, because guidance from the Department permits de minimus gifts in connection with marketing of FFELP loans, from time to time the Company entertains school financial aid officers at student loan industry conferences and functions and sponsors promotional events such as lunches and golf outings. If the Department were to change its position on any of these matters, the Company may have to change the way it markets non-federally insured and FFELP loans and a new marketing strategy may not be as effective. If the Company fails to respond to the Departments change in position, the Department could potentially impose sanctions upon the Company that could negatively impact its business.
The Company has also entered into various agreements to acquire marketing lists of prospective FFELP loan borrowers from sources such as college alumni associations. The Company pays to acquire these lists and for the completed applications for loans resulting there from. The Company believes that such arrangements are permissible and do not violate restrictions on inducements, as they fit within a regulatory exception recognized by the Department for generalized marketing and advertising activities. The Department has provided informal guidance to the Company that such arrangements are not improper inducements, since such arrangements fall within the generalized marketing exception. If the Department were to change its position, this could harm the Company's reputation and marketing efforts, and, if the Company fails to adjust its practices to such change, could potentially result in the Department imposing sanctions on the Company. Such sanctions could negatively impact the Company's business.
POSSIBLE CHANGES IN LEGISLATION AND REGULATIONS COULD HAVE A NEGATIVE IMPACT UPON THE COMPANY'S BUSINESS.
Pursuant to the terms of the Higher Education Act, the FFEL Program is periodically amended, and the Higher Education Act must be reauthorized by Congress every five to six years in order to prevent sunset of that Act. Changes in the Higher Education Act made in the two most recent reauthorizations have included reductions in student loan yields paid to lenders, increased fees paid by lenders, and a decreased level of federal guarantee. Future changes could result in further negative impacts on the Company's business. Moreover, there can be no assurance that the provisions of the Higher Education Act, which is scheduled to expire on September 30, 2005, will be reauthorized. While Congress has consistently extended the effective date of the Higher Education Act, it may elect not to reauthorize the Department's ability to provide interest subsidies, special allowance payments, and federal guarantees for student loans. A failure to reauthorize such provisions of the Higher Education Act would reduce the number of federally guaranteed student loans available for the Company to originate or acquire in the future. With respect to EDULINX, changes in the Canada Student Loans Program, or the CSLP, which governs the majority of the loans serviced by EDULINX, could result in a similar negative impact on EDULINX' business.
10
Some of the highlights of specific proposed legislation and President Bush's fiscal year 2006 budget proposals that, if enacted, could have a material effect on the Company's operations, in no particular order, include:
o allowing for increased borrower loan limits, which may provide opportunities for increasing the average size of the Company's future loan originations;
o allowing refinancing of consolidation loans, which would open approximately 59% of the Company's portfolio to such refinancing;
o increasing origination fees paid by lenders in connection with making or holding loans;
o allowing for variable-rate consolidation loans and extended repayment terms of Stafford loans, which would lead to fewer loans lost through consolidation of the Company's portfolio, but would also decrease consolidation opportunities;
o allowing for the continuation of variable interest rates on Stafford and PLUS loans beyond the scheduled change to fixed interest rates on July 1, 2006;
o changes to the FFEL Program guarantee rates and terms, including proposals for a decrease in insurance on portfolios receiving the benefit of the Exceptional Performance designation from 100% to 97% of principal and accrued interest, and a decrease in insurance on portfolios not subject to the Exceptional Performance designation from 98% to 95% of principal and accrued interest;
o eliminating variable-rate floor income, including prospectively and permanently eliminating the 9.5% floor interest rate on loans refinanced with funds from pre-1993 tax-exempt financings (the "9.5% Floor") and eliminating rebate of excess earnings on loans where the borrower rate is in excess of the lender rate;
o limiting and/or preventing a FFEL Program lender from making a consolidation loan consisting of only FDL loans; and
o initiatives aimed at promoting the FDL Program to the detriment of the FFEL Program.
In addition, Edward M. Kennedy of Massachusetts and others have been proponents of legislation which could act to retroactively remove eligibility for the 9.5% Floor from FFELP loans that have, prior to September 30, 2004, been refinanced with proceeds of taxable obligations. The Company cannot predict whether such legislation will be advanced in the future. If such retroactive legislation were to be enacted and withstand legal challenge, it would have a material adverse effect upon the Company's financial condition and results of operations. Senator Kennedy called for such retroactive legislation during congressional debate in October 2004. However, the Department has indicated that receipt of the 9.5% Floor income is permissible under current law and previous interpretations thereof. The Company cannot predict whether the Department will maintain its position in the future on the permissibility of the 9.5% Floor.
The Company cannot predict whether the above legislative or budget proposals will be enacted into law, but they may form some of the framework utilized by Congress in negotiating the fiscal year 2006 budget resolution and reauthorization of the Higher Education Act. In addition, the Department oversees and implements the Higher Education Act and periodically issues regulations and interpretations of that Act. Changes in such regulations and interpretations could negatively impact the Company's business.
VARIATION IN THE MATURITIES, TIMING OF RATE RESET, AND VARIATION OF INDICES OF THE COMPANY'S ASSETS AND LIABILITIES MAY POSE RISKS TO THE COMPANY.
Because the Company generates the majority of its earnings from the spread between the yield received on its portfolio of student loans and the cost of financing these loans, the interest rate sensitivity of the balance sheet could have a material effect on the Company's results of operations. The majority of the Company's student loans have variable-rate characteristics in interest rate environments where the special allowance payment formula exceeds the borrower rate. Some of the Company's student loans, primarily consolidation loans, include fixed-rate components depending upon loan terms and the rate reset provisions set by the Department. The Company has financed the majority of its student loan portfolio with variable-rate debt. Absent utilization of derivative instruments to match the interest rate characteristics and duration of the assets and liabilities, fluctuations in the interest rate environment will affect the Company's results of operations. Such fluctuations may be adverse and may be material.
In the current low interest rate environment, the Company's federally insured loan portfolio is yielding excess income due to variable-rate liabilities financing student loans at a fixed borrower rate. Absent the use of derivative instruments, a rise in interest rates will have an adverse effect on earnings and fair values due to interest margin compression caused by increasing financing costs, until such time as that the federally insured loans earn interest at a variable rate in accordance with the special allowance payment formula. In higher interest rate environments, where the interest rate rises
11
above the borrower rate and fixed-rate loans become variable, the impact of the rate fluctuations is reduced. Loans that reset annually on each July 1st can generate excess spread income as compared to the rate based on the special allowance payment formula in declining interest rate environments where the borrower rate establishes a floor on the Company's variable-rate assets. The Company refers to this additional income as variable-rate floor income, and it is included in loan interest income. Historically, the Company has earned variable-rate floor income in declining interest rate environments. Since the rates are reset annually, the Company views these earnings as temporary and not necessarily sustainable. The Company's ability to earn variable-rate floor income in future periods is dependent upon the interest rate environment following the annual reset of borrower rates, and the Company cannot assure that such environment will exist in the future.
Due to the variability in duration of the Company's assets and varying market conditions, the Company does not attempt to perfectly match the interest rate characteristics of its entire loan portfolio with the underlying debt instruments. This mismatch in duration and interest rate characteristics could have a negative impact on the Company's results of operations. The Company has employed various derivative instruments to somewhat offset this mismatch. Changes in interest rates and the composition of the Company's student loan portfolio and derivative instruments will impact the effect of interest rates on the Company's earnings, and the Company cannot predict any such impact with any level of certainty.
MARKET RISKS TO WHICH THE COMPANY IS SUBJECT MAY HAVE AN ADVERSE IMPACT UPON ITS BUSINESS AND OPERATIONS.
The Company's primary market risk exposure arises from fluctuations in its borrowing and lending rates, the spread between which could be impacted by shifts in market interest rates. The borrower rates on federally insured loans are generally reset by the Department each July 1st based on a formula determined by the date of the origination of the loan, with the exception of rates on consolidation loans which are fixed to term. The interest rate the Company actually receives on federally insured loans is the greater of the borrower rate and a rate determined by a formula based on a spread to either the 91-day Treasury Bill index or the 90-day commercial paper index, depending on when the loans were originated and the current repayment status of the loans.
The Company issues asset-backed securities, both fixed- and variable-rate, to fund its student loan assets. The variable-rate debt is generally indexed to 90-day LIBOR or set by auction. The income generated by the Company's student loan assets is generally driven by different short-term indices than the Company's liabilities, which creates interest rate risk. The Company has historically borne this risk internally through the net spread on its portfolio while continuing to monitor this interest rate risk.
The Company purchased EDULINX in December 2004. EDULINX is a Canadian corporation that engages in servicing Canadian student loans. As a result of this acquisition, the Company is also exposed to market risk related to fluctuations in foreign currency exchange rates between the U.S. and Canadian dollars. The Company has not entered into any foreign currency derivative instruments to hedge this risk. Fluctuations in foreign currency exchange rates may have an adverse effect on the financial position, results of operations, and cash flows of the Company.
THE COMPANY'S DERIVATIVE INSTRUMENTS MAY NOT BE SUCCESSFUL IN MANAGING ITS INTEREST RATE RISKS.
When the Company utilizes derivative instruments, it utilizes them to manage interest rate sensitivity. Although the Company does not use derivative instruments for speculative purposes, the majority of its derivative instruments do not qualify for hedge accounting under SFAS No. 133, Accounting for Derivatives Instruments and Hedging Activities ("SFAS No. 133"); consequently, the change in fair value of these derivative instruments is included in the Company's operating results. Changes or shifts in the forward yield curve can significantly impact the valuation of the Company's derivatives. Accordingly, changes or shifts to the forward yield curve will impact the financial position, results of operations, and cash flows of the Company. The derivative instruments used by the Company are typically in the form of interest rate swaps, basis swaps, and interest rate caps. Interest rate swaps effectively convert variable-rate debt obligations to a fixed-rate or fixed-rate debt obligations to a variable-rate. Basis swaps effectively convert variable-rate debt obligations to a variable-rate based on a different index. Interest rate caps effectively limit the maximum interest on variable-rate debt obligations.
Developing an effective strategy for dealing with movements in interest rates is complex, and no strategy can completely insulate the Company from risks associated with such fluctuations. In addition, a counterparty to a derivative instrument could default on its obligation, thereby exposing the Company to credit risk. Further, the Company may have to repay certain costs, such as transaction fees or brokerage costs, if the Company terminates a derivative instrument. Finally, the Company's interest rate risk management activities could expose the Company to substantial losses if interest rates move materially differently from management's expectations. As a result, the Company cannot assure that its economic hedging activities will effectively manage its interest rate sensitivity or have the desired beneficial impact on its results of operations or financial condition.
When the fair value of a derivative instrument is negative, the Company owes the counterparty and, therefore, has no credit risk. However, if the value of derivatives with a counterparty exceeds a specified threshold, the Company may
12
have to pay a collateral deposit to the counterparty. If interest rates move materially differently from management's expectations, 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 capital resources. The Company manages market risks associated with interest rates by establishing and monitoring limits as to the types and degree of risk that may be undertaken.
THE COMPANY FACES LIQUIDITY RISKS DUE TO THE FACT THAT ITS OPERATING AND WAREHOUSE FINANCING NEEDS ARE SUBSTANTIALLY PROVIDED BY THIRD-PARTY SOURCES.
The Company's primary funding needs are those required to finance its student loan portfolio and satisfy its cash requirements for new student loan originations and acquisitions, operating expenses, and technological development. The Company's operating and warehouse financings are substantially provided by third parties, over which it has no control. Unavailability of such financing sources may subject the Company to the risk that it may be unable to meet its financial commitments to creditors, branding partners, forward flow lenders, or borrowers when due unless it finds alternative funding mechanisms.
The Company relies upon conduit warehouse loan financing vehicles to support its funding needs on a short-term basis. There can be no assurance that the Company will be able to maintain such warehouse financing in the future. As of December 31, 2004, the Company had a student loan warehousing capacity of $4.3 billion, of which $2.5 billion was outstanding, through 364-day commercial paper conduit programs. These conduit programs mature in 2005 through 2009; however, they must be renewed annually by underlying liquidity providers and may be terminated at any time for cause. There can be no assurance the Company will be able to maintain such conduit facilities, find alternative funding, or increase the commitment level of such facilities, if necessary. While the Company's conduit facilities have historically been renewed for successive terms, there can be no assurance that this will continue in the future. The Company's has two general operating lines of credit that are for terms of less than one year each, are renewable at the option of the lenders, and may be terminated at any time for cause. In addition, the Company has a credit facility agreement with a Canadian financial institution that is cancelable by either party upon demand.
CHARACTERISTICS UNIQUE TO ASSET-BACKED SECURITIZATION POSE RISKS TO THE COMPANY'S CONTINUED LIQUIDITY.
The Company has historically relied upon, and expects to continue to rely upon, asset-backed securitizations as its most significant source of funding for student loans on a long-term basis. As of December 31, 2004 and 2003, $11.8 billion and $9.3 billion, respectively, of the Company's student loans were funded by long-term asset-backed securitizations. 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. In addition, some of the residual interests in these securitizations have been pledged to secure additional bond obligations. The Company's rights to cash flow from securitized student loans are subordinate to bondholder interests, and these loans may fail to generate any cash flow beyond what is due to pay bondholders.
The interest rates on certain of the Company's asset-backed securities are set and periodically reset via a "dutch auction" utilizing remarketing agents for varying intervals ranging from seven to 91 days. Investors and potential investors submit orders through a broker-dealer as to the principal amount of notes they wish to buy, hold, or sell at various interest rates. The broker-dealers submit their clients' orders to the auction agent or remarketing agent, who determines the interest rate for the upcoming period. If there are insufficient potential bid orders to purchase all of the notes offered for sale or being repriced, the Company could be subject to interest costs substantially above the anticipated and historical rates paid on these types of securities. A failed auction or remarketing could also reduce the investor base of the Company's other financing and debt instruments.
In addition, rising interest rates existing at the time the Company's asset-backed securities are remarketed may cause other competing investments to become more attractive to investors than the Company's securities, which may decrease the Company's liquidity.
FUTURE LOSSES DUE TO DEFAULTS ON LOANS HELD BY THE COMPANY PRESENT CREDIT RISK WHICH COULD ADVERSELY AFFECT THE COMPANY'S EARNINGS.
As of December 31, 2004, more than 99% of the Company's student loan portfolio was comprised of federally insured loans. These loans benefit from a federal guarantee of between 98% and 100% of their principal balance and accrued interest.
13
In June 2004, the Company was designated as an Exceptional Performer by the Department in recognition of its exceptional level of performance in servicing FFEL Program loans. As a result of this designation, the Company is not subject to the 2% risk sharing loss for eligible claims submitted during a 12-month period. The Company is entitled to receive this benefit as long as it and/or its other service providers designated as Exceptional Performers continue to meet the required servicing standards published by the Department. Compliance with such standards is assessed on a quarterly basis. The Company bears full risk of losses experienced with respect to the unguaranteed portion of its federally insured loans (those loans not serviced by a service provider designated as an Exceptional Performer). If the Company or a third party service provider were to lose its Exceptional Performance designation, either by the Department discontinuing the program or the Company or third party not meeting the required servicing standards, loans serviced by the Company or third-party would become subject to the 2% risk sharing loss for all claims submitted after any loss of the Exceptional Performance designation. If the Department discontinued the program, the Company would have to establish a provision for loan losses related to the 2% risk sharing. Based on the balance of federally insured loans outstanding as of December 31, 2004, this provision would be approximately $9.0 million. In addition, President Bush's fiscal year 2006 budget proposals provide for a decrease in insurance (i) under the Exceptional Performer designation from 100% to 97% and (ii) on portfolios not subject to the Exceptional Performer designation from 98% to 95% of principal and accrued interest. The Company cannot predict whether the budget proposals will be enacted into law, but they may form some of the framework for Congress as it negotiates the fiscal year 2006 budget resolution.
Losses on the Company's non-federally insured loans are borne by the Company, with the exception of certain privately insured loans. Privately insured loans constitute a minority of the Company's non-federally insured loan portfolio. The loan loss pattern on the Company's non-federally insured loan portfolio is not as developed as that on its federally insured loan portfolio. As of December 31, 2004, the aggregate principal balance of non-federally insured loans comprised less than 1% of the Company's entire student loan portfolio; however, it is expected to increase to between 3% and 5% over the next three to five years. There can be no assurance that this percentage will not further increase over the long term. The performance of student loans in the portfolio is affected by the economy, and a prolonged economic downturn may have an adverse effect on the credit performance of these loans.
While the Company has provided allowances estimated to cover losses that may be experienced in both its federally insured and non-federally insured loan portfolios, there can be no assurance that such allowances will be sufficient to cover actual losses in the future.
THE COMPANY COULD EXPERIENCE CASH FLOW PROBLEMS IF A GUARANTY AGENCY DEFAULTS ON ITS GUARANTEE OBLIGATION.
A deterioration in the financial status of a guaranty agency and its ability to honor guarantee claims on defaulted student loans could result in a failure of that guaranty agency to make its guarantee payments in a timely manner, if at all. The financial condition of a guaranty agency can be adversely affected if it submits a large number of reimbursement claims to the Department, which results in a reduction of the amount of reimbursement that the Department is obligated to pay the guaranty agency. The Department may also require a guaranty agency to return its reserve funds to the Department upon a finding that the reserves are unnecessary for the guaranty agency to pay its FFEL Program expenses or to serve the best interests of the FFEL Program.
If the Department has determined that a guaranty agency is unable to meet its guarantee obligations, the loan holder may submit claims directly to the Department, and the Department is required to pay the full guarantee claim. However, the Department's obligation to pay guarantee claims directly in this fashion is contingent upon the Department making the determination that a guaranty agency is unable to meet its guarantee obligations. The Department may not ever make this determination with respect to a guaranty agency and, even if the Department does make this determination, payment of the guarantee claims may not be made in a timely manner, which could result in the Company experiencing cash shortfalls.
FAILURE OF COUNTERPARTIES TO PERFORM UNDER CREDIT ENHANCEMENT AGREEMENTS COULD HARM THE COMPANY'S BUSINESS.
In connection with the Company's securitizations, the Company periodically utilizes credit enhancements or other support agreements such as letters of credit, bond insurance, and interest rate swap agreements. The Company utilizes these credit enhancement agreements in order to improve the marketability of certain of its asset-backed securities when such enhancements will lower the overall costs with respect to these securities. The Company cannot assure performance of the counterparties to these various agreements, and failure of such counterparties to perform their obligations under these agreements could impair the viability of the underlying debt or securitization structures, which in turn could adversely impact the Company's results of operations and financial condition.
COMPETITION CREATED BY THE FDL PROGRAM AND FROM OTHER LENDERS AND SERVICERS MAY ADVERSELY IMPACT THE COMPANY'S BUSINESS.
14
Under the FDL Program, the Department makes loans directly to student borrowers through the educational institutions they attend. The volume of student loans made under the FFEL Program and available for the Company to originate or acquire may be reduced to the extent loans are made to students under the FDL Program. In addition, if the FDL Program expands, to the extent the volume of loans serviced by the Company is reduced, the Company may experience reduced economies of scale, which could adversely affect earnings. Loan volume reductions could further reduce amounts received by the guaranty agencies available to pay claims on defaulted student loans.
In the FFEL Program market, the Company faces significant competition from SLM Corporation, the parent company of Sallie Mae. SLM Corporation services nearly half of all outstanding federally insured loans and is the largest holder of student loans. The Company also faces intense competition from other existing lenders and servicers. As the Company expands its student loan origination and acquisition activities, that expansion may result in increased competition with some of its servicing customers. This has in the past resulted in servicing customers terminating their contractual relationships with the Company, and the Company could in the future lose more servicing customers as a result. As the Company seeks to further expand its business, the Company will face numerous other competitors, many of which will be well established in the markets the Company seeks to penetrate. Some of the Company's competitors are much larger than the Company, have better name recognition, and have greater financial and other resources. In addition, several competitors have large market capitalizations or cash reserves and are better positioned to acquire companies or portfolios in order to gain market share. Furthermore, many of the institutions with which the Company competes have significantly more equity relative to their asset bases. Consequently, such competitors may have more flexibility to address the risks inherent in the student loan business. Finally, some of the Company's competitors are tax-exempt organizations that do not pay federal or state income taxes and which generally receive floor income on certain tax-exempt obligations on a greater percentage of their student loan portfolio because they have financed a greater percentage of their student loans with tax-exempt obligations issued prior to October 1, 1993. These factors could give the Company's competitors a strategic advantage.
HIGHER RATES OF PREPAYMENTS OF STUDENT LOANS COULD REDUCE THE COMPANY'S PROFITS.
Pursuant to the Higher Education Act, borrowers may prepay loans made under the FFEL Program at any time. Prepayments may result from consolidating student loans, which tends to occur more frequently in low interest rate environments, from borrower defaults, which will result in the receipt of a guarantee payment, and from voluntary full or partial prepayments, among other things. High prepayment rates will have the most impact on the Company's asset-backed securitization transactions priced in relation to LIBOR. As of December 31, 2004, the Company had six transactions outstanding totaling approximately $5.8 billion that had experienced cumulative prepayment rates ranging from 19.3% to 22.7% as compared to four transactions outstanding totaling approximately $3.2 billion that had experienced cumulative prepayment rates ranging from 19.4% to 22.4% as of December 31, 2003. The rate of prepayments of student loans may be influenced by a variety of economic, social, and other factors affecting borrowers, including interest rates and the availability of alternative financing. The Company's profits could be adversely affected by higher prepayments, which would reduce the amount of interest the Company received and expose the Company to reinvestment risk.
INCREASES IN CONSOLIDATION LOAN ACTIVITY BY THE COMPANY AND ITS COMPETITORS PRESENT A RISK TO THE COMPANY'S LOAN PORTFOLIO AND PROFITABILITY.
The Company's portfolio of federally insured loans is subject to refinancing through the use of consolidation loans, which are expressly permitted by the Higher Education Act. Consolidation loan activity may result in three detrimental effects. First, when the Company consolidates loans in its portfolio, the new consolidation loans have a lower yield than the loans being refinanced due to the statutorily mandated consolidation loan rebate fee of 1.05% per year. Although consolidation loans generally feature higher average balances, longer average lives, and slightly higher special allowance payments, such attributes may not be sufficient to counterbalance the cost of the rebate fees. Second, and more significantly, the Company may lose student loans in its portfolio that are consolidated away by competing lenders. Increased consolidations of student loans by the Company's competitors may result in a negative return on loans, when considering the origination costs or acquisition premiums paid with respect to these loans. Additionally, consolidation of loans away by competing lenders can result in a decrease of the Company's servicing portfolio, thereby decreasing fee-based servicing income. Third, increased consolidations of the Company's own student loans create cash flow risk because the Company incurs upfront consolidation costs, which are in addition to the origination or acquisition costs incurred in connection with the underlying student loans, while extending the repayment schedule of the consolidated loans.
The Company's student loan origination and lending activities could be significantly impacted by the reauthorization of the Higher Education Act relative to the single holder rule. For example, if the single holder rule, which generally restricts a competitor from consolidating loans away from a holder that owns all of a student's loans, were abolished, a substantial portion of the Company's non-consolidated portfolio would be at risk of being consolidated away by a competitor. On the other hand, abolition of the rule would also open up a portion of the rest of the market and provide the Company with the potential to gain market share. Other potential changes to the Higher Education Act relating to consolidation loans that could adversely impact the Company include allowing refinancing of consolidation loans, which would open approximately 59% of the Company's portfolio to such refinancing, and increasing origination fees paid by lenders in connection with making consolidation loans.
15
THE VOLUME OF AVAILABLE STUDENT LOANS MAY DECREASE IN THE FUTURE AND MAY ADVERSELY AFFECT THE COMPANY'S INCOME.
The Company's student loan originations generally are limited to students attending eligible educational institutions in the United States. Volumes of originations are greater at some schools than others, and the Company's ability to remain an active lender at a particular school with concentrated volumes is subject to a variety of risks, including the fact that each school has the option to remove the Company from its "preferred lender" list or to add other lenders to its "preferred lender" list, the risk that a school may enter the FDL Program, or the risk that a school may begin making student loans itself. The Company acquires student loans through forward flow commitments with other student loan lenders, but each of these commitments has a finite term. There can be no assurance that these lenders will renew or extend their existing forward flow commitments on terms that are favorable to the Company, if at all, following their expiration.
In addition, as of December 31, 2004, third parties owned approximately 58% of the loans the Company serviced. To the extent that third-party servicing clients reduce the volume of student loans that the Company processes on their behalf, the Company's income would be reduced, and, to the extent the related costs could not be reduced correspondingly, net income could be materially adversely affected. Such volume reductions occur for a variety of reasons, including if third-party servicing clients commence or increase internal servicing activities, shift volume to another service provider, perhaps because such other service provider does not compete with the client in student loan originations and acquisitions, or exit the FFEL Program completely.
SPECIAL ALLOWANCE PAYMENTS ON STUDENT LOANS ORIGINATED OR ACQUIRED WITH THE PROCEEDS OF CERTAIN TAX-EXEMPT OBLIGATIONS MAY LIMIT THE INTEREST RATE ON CERTAIN STUDENT LOANS TO THE COMPANY'S DETRIMENT.
Student loans originated or acquired with the proceeds of tax-exempt obligations issued prior to October 1, 1993, as well as student loans acquired with the sale proceeds of those student loans, receive only a portion of the special allowance payment which they would otherwise be entitled to receive, but those made prior to October 30, 2004 are guaranteed a minimum rate of return of 9.5% per year, less the applicable interest rate for the student loan.
As of December 31, 2004, approximately $3.0 billion of the Company's student loan portfolio was comprised of loans that were previously financed with the proceeds of tax-exempt obligations issued prior to October 1, 1993. Based upon provisions of the Higher Education Act and related interpretations by the Department, the Company believes that, for each of these student loans, the Company will receive partial special allowance payments, subject to the 9.5% Floor. However, the Department may change its regulations or its interpretations of existing regulations, or the Higher Education Act may be amended, to eliminate this special allowance payment treatment. In this event, the Company would receive regular special allowance payments, but with no minimum rate of return.
In the current low interest rate environment, the Company generally receives partial special allowance payments and the 9.5% Floor with respect to its eligible student loans originated or acquired with qualifying tax-exempt proceeds. In a higher interest rate environment, however, the regular special allowance payments on loans not originated or acquired with qualifying tax-exempt proceeds may exceed the total subsidy to holders of eligible loans originated or acquired with qualifying tax-exempt proceeds. Thus, in a higher interest rate environment, these loans could have an adverse effect upon the Company's earnings.
FAILURES IN THE COMPANY'S INFORMATION TECHNOLOGY SYSTEM COULD MATERIALLY DISRUPT ITS BUSINESS.
The Company's servicing and operating processes are highly dependent upon its information technology system infrastructure, and the Company faces the risk of business disruption if failures in its information systems occur, which could have a material impact upon its business and operations. The Company depends heavily on its own computer-based data processing systems in servicing both its own student loans and those of third-party servicing customers. If servicing errors do occur, they may result in a loss of the federal guarantee on the federally insured loans serviced or in a failure to collect amounts due on the student loans that the Company serviced. In addition, although the Company regularly backs up its data and maintains detailed disaster recovery plans, the Company does not maintain fully redundant information systems. A major physical disaster or other calamity that causes significant damage to information systems could adversely affect the Company's business. Additionally, loss of information systems for a sustained period of time could have a negative impact on the Company's performance and ultimately on cash flow in the event the Company were unable to process borrower payments.
TRANSACTIONS WITH AFFILIATES AND POTENTIAL CONFLICTS OF INTEREST OF CERTAIN OF THE COMPANY'S OFFICERS AND DIRECTORS, INCLUDING ONE OF ITS CO-CHIEF EXECUTIVE OFFICERS, POSE RISKS TO THE COMPANY'S SHAREHOLDERS.
16
The Company has entered into certain contractual arrangements with entities controlled by Michael S. Dunlap, the Company's Chairman and Co-Chief Executive Officer and a principal shareholder, and members of his family and, to a lesser extent, with entities in which other directors and members of management hold equity interests or board or management positions. Such arrangements constitute a significant portion of the Company's business and include, among other things:
o performance of servicing duties;
o sales of student loans by such affiliates to the Company; and
o sales of student loan origination rights by such affiliates to the Company.
These arrangements may present potential conflicts of interest.
Many of these arrangements are with Union Bank, in which Michael S. Dunlap owns an indirect interest and of which he serves as non-executive chairman. Union Bank is a significant source of student loans to the Company and a significant servicing customer.
In 2004 and 2003, approximately 9.5% and 10.4%, respectively, of the principal amount of the Company's student loan channel acquisitions were acquired from Union Bank, a portion of which loans were originated by Union Bank and a portion of which were originated by third parties. The Company believes that the acquisitions were made on terms similar to those made from unrelated entities. The Company intends to maintain its relationship with Union Bank, which provides substantial benefits to the Company, although there can be no assurance that all transactions engaged with Union Bank are, or in the future will be, on terms that are no less favorable than what could be obtained from an unrelated third party.
MATERIAL PROBLEMS AFFECTING UNION BANK COULD HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY.
The ability of Union Bank to continue to do business with the Company will depend on the development of Union Bank's own business, financial condition, and results of operations, which will be affected by competitive and other factors beyond the Company's control or knowledge. Because Union Bank is a privately held company, an investor in the Company's securities might have little advance warning of problems affecting Union Bank, even though these problems could have a material adverse effect on the Company.
IMPOSITION OF PERSONAL HOLDING COMPANY TAX WOULD DECREASE THE COMPANY'S NET
income.
A corporation is considered to be a "personal holding company" under the U.S. Internal Revenue Code of 1986, as amended (the "Code"), if (1) at least 60% of its adjusted ordinary gross income is "personal holding company income" (generally, passive income) and (2) at any time during the last half of the taxable year more than half, by value, of its stock is owned by five or fewer individuals, as determined under attribution rules of the Code. If both of these tests are met, a personal holding company is subject to an additional tax on its undistributed personal holding company income, currently at a 15% rate. Five or fewer individuals hold more than half the value of the Company's stock. In June 2003, the Company submitted a request for a private letter ruling from the Internal Revenue Service seeking a determination that its federally guaranteed student loans qualify as assets of a "lending or finance business," as defined in the Code. Such a determination would have enabled the Company to establish that a company holding such loans does not constitute a personal holding company. Based on its historical practice of not issuing private letter rulings concerning matters that it considers to be primarily factual, the Internal Revenue Service has indicated that it will not issue the requested ruling, taking no position on the merits of the legal issue. So long as more than half of the Company's value continues to be held by five or fewer individuals, if it were to be determined that some portion of its federally guaranteed student loans does not qualify as assets of a "lending or finance business," as defined in the Code, the Company could become subject to personal holding company tax on its undistributed personal holding company income. The Company continues to believe that neither Nelnet, Inc. nor any of its subsidiaries is a personal holding company. However, even if Nelnet, Inc. or one of its subsidiaries was determined to be a personal holding company, the Company believes that by utilizing intercompany distributions, it can eliminate or substantially eliminate its exposure to personal holding company taxes, although it cannot assure that this will be the case.
"DO NOT CALL" REGISTRIES LIMIT THE COMPANY'S ABILITY TO MARKET ITS PRODUCTS AND SERVICES.
The Company's direct marketing operations are or may become subject to various federal and state "do not call" laws and requirements. In January 2003, the Federal Trade Commission amended its rules to provide for a national "do not call" registry. Under these new federal regulations, which are currently being challenged in court, consumers may have their phone numbers added to the national "do not call" registry. Generally, the Company is prohibited from calling anyone on that registry. In September 2003, telemarketers first obtained access to the registry and since that time have been required to compare their call lists against the national "do not call" registry at least once every 90 days. The Company is also required to pay a fee to access the registry on a quarterly basis. Enforcement of the Federal "do not call" provisions began in the fall of 2003, and the rule provides for fines of up to $11,000 per violation and other possible penalties. This and similar state laws may restrict the Company's ability to effectively market its products and services to new customers. Furthermore, compliance with this rule may prove difficult, and the Company may incur penalties for improperly conducting its marketing activities.
17
THE COMPANY'S INABILITY TO MAINTAIN ITS RELATIONSHIPS WITH SIGNIFICANT BRANDING PARTNERS AND/OR CUSTOMERS COULD HAVE AN ADVERSE IMPACT ON ITS BUSINESS.
The Company's inability to maintain strong relationships with significant schools, branding partners, servicing customers, guaranty agencies, and software licensees could result in loss of:
o loan origination volume with borrowers attending certain schools;
o loan origination volume generated by some of the Company's branding partners;
o loan and guarantee servicing volume generated by some of the Company's loan servicing customers and guaranty agencies; and
o software licensing volume generated by some of the Company's licensees.
The Company cannot assure that its forward flow channel lenders or its branding partners will continue their relationships with the Company. Loss of a strong relationship, like that with a significant branding partner such as Union Bank, or with schools from which a significant volume of student loans is directly or indirectly acquired, could result in an adverse effect on the Company's business.
The business of servicing Canadian student loans by EDULINX is limited to a small group of servicing customers and the agreement with the largest of such customers is currently scheduled to expire in February 2006. EDULINX cannot guarantee that it will obtain a renewal of this largest servicing agreement or that it will maintain its other servicing agreements, and the termination of any such servicing agreements could result in an adverse effect on its business.
THE COMPANY CANNOT PREDICT WITH CERTAINTY THE OUTCOME OF THE SEC INFORMAL INVESTIGATION.
Following the Company's disclosures related to recognition of 9.5% Floor income, Senator Edward M. Kennedy, by letter to the Secretary of Education dated August 26, 2004, requested information as to whether the Department had approved of the Company's receipt of the 9.5% Floor income and, if not, why the Department had not sought to recover claimed subsidies under the 9.5% Floor. By letter dated September 10, 2004, the Company furnished to the Department certain background information concerning the growth of the 9.5% Floor loans in its portfolio, which information had been requested by the Department. Senator Kennedy, in a second letter to the SEC dated September 21, 2004, requested that the SEC investigate the Company's activities related to the 9.5% Floor. More specifically, Senator Kennedy raised concerns about the Company's disclosures in connection with its decision to recognize the previously deferred income, and trading of Company securities by Company executives following such disclosures. On September 27, 2004, the Company voluntarily contacted the SEC to request a meeting with the SEC Staff. The Company's request was granted, and representatives of the Company met with representatives of the SEC Staff on October 12, 2004. Company representatives offered to provide to the SEC information that the SEC Staff wished to have relating to the issues raised in Senator Kennedy's letter. By letter dated October 14, 2004, the SEC Staff requested that, in connection with an informal investigation, the Company provide certain identified information. The Company has furnished to the SEC Staff the information it has requested and is fully cooperating with the SEC Staff in its informal investigation. The Company continues to believe that the concerns expressed to the SEC by Senator Kennedy are entirely unfounded, but it is not appropriate or feasible to determine or predict the ultimate outcome of the SEC's informal investigation. The Company's costs related to the SEC's informal investigation are being expensed as incurred. Additional costs, if any, associated with an adverse outcome or resolution of that matter, in a manner that is currently indeterminate and inherently unpredictable, could adversely affect the Company's financial condition and results of operations. Although it is possible that an adverse outcome in certain circumstances could have a material adverse effect, based on information currently known by the Company's management, in its opinion, the outcome of such pending informal investigation is not likely to have such an effect.
ITEM 2. PROPERTIES
The following table lists the principal facilities leased by the Company. The Company does not own any of its principal facilities.

                                                                         Approximate      Lease
                                                                           square       expiration
      Location                    Primary Function or Segment                feet          date
      --------                    ---------------------------                ----          ----

Jacksonville, FL..    Student Loan and Guarantee Servicing, Loan           135,000    October 2013
                      Generation, Technology
Denver, CO........    Student Loan Servicing, Loan Generation, Technology  124,000    February  2008

Mississauga, Ontario  Student Loan Servicing                               114,000    August 2009

Lincoln, NE.......    Corporate Headquarters, Student Loan Servicing,       95,000    December 2010
                      Loan Generation
Indianapolis, IN..    Student Loan Servicing, Loan Generation               59,000    February 2008	

The Company leases other facilities located throughout the United States. These properties are leased on terms and for durations that are reflective of commercial standards in the communities where these properties are located. The Company believes that its respective properties are generally adequate to meet its long-term business goals. The Company's principal office is located at 121 South 13th Street, Suite 201, Lincoln, Nebraska 68508.
ITEM 3. LEGAL PROCEEDINGS
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 borrowers disputing the manner in which their loans have been processed. 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.
In addition to such legal proceedings that arise in the ordinary course of business, the Company has furnished to the SEC Staff information the SEC requested pursuant to an informal investigation and the Company is fully cooperating with the SEC on such informal investigation. For further information, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview -- Recent Developments."
18
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2004.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "NNI," while its Class B Common Stock is not publicly traded. The number of holders of record of the Company's Class A Common Stock and Class B Common Stock as of February 15, 2005 was approximately 206 and seven, respectively. Because many shares of the Company's Class A Common stock are held by brokers and other institutions on behalf of shareholders, the Company is unable to estimate the total number of beneficial owners represented by these record holders.
The following table sets forth the high and low sales prices for the Company's Class A Common Stock for each full quarterly period in 2004 and for the partial quarter from December 11, 2003 (the initial public offering date of the Company's Class A Common Stock) until December 31, 2003. The price paid per share by the initial purchasers in the Company's initial public offering on December 11, 2003 was $21.00.

              2003                               2004
          ------------     -------------------------------------------------
          4th Quarter (a)  1st Quarter  2nd Quarter  3rd Quarter 4th Quarter
          ------------     -----------  -----------  -----------  ----------
High          $ 22.40       $ 25.68      $ 25.83       $ 24.70     $ 27.00
Low             20.86         22.00        16.80         16.76       19.20

----------	

(a) Stock prices are for the partial quarter from December 11, 2003 (the initial public offering date of the Company's Class A Common Stock) through December 31, 2003
The Company did not pay cash dividends on either class of its Common Stock for the two most recent fiscal years and does not intend to pay dividends in the foreseeable future. The Company intends to retain its earnings to finance operations and future growth, and any decision to pay cash dividends will be made by the Company's board of directors based on factors such as the Company's results of operations and working capital requirements. The credit agreement with the Company's general credit providers restricts payment of dividends or other distributions to shareholders in the event the Company is in default under the credit agreement or if payment of such a dividend or distribution would result in such a default. In addition, trust indentures governing debt issued by the education lending subsidiaries generally limit the amounts of funds that can be transferred to the Company by its subsidiaries through cash dividends.
For information regarding the Company's equity compensation plans, see Part III, Item 12 of this Report.
19
 
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and other operating information of the Company. The selected financial data in the table is derived from the consolidated financial statements of the Company. The data should be read in conjunction with the consolidated financial statements, the related notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Report.

                                                    Year ended December 31,
                                -------------------------------------------------------------
                                    2004        2003         2002         2001        2000
                                -----------  -----------  -----------  ----------- ----------
                                           (dollars in thousands, except share data)
Income Statement Data:
Net interest income..........  $   398,166  $   171,722  $   185,029  $   115,120  $   64,853
Less provision (recovery) for
loan losses..................         (529)      11,475        5,587        3,925       1,370
                                -----------  ----------   ----------   ----------  ----------
Net interest income after
  provision (recovery)
  for loan losses............      398,695      160,247      179,442      111,195      63,483
Loan servicing and other fee
  income.....................       98,661      102,959      105,160       93,172      66,015
Software services and other
  income.....................       25,868       19,017       22,781        7,713       8,431
Derivative market value
  adjustment and
  net settlements............      (46,058)      (2,784)        (579)      (3,517)       --
Operating expenses...........     (242,751)    (233,150)    (230,963)    (195,438)   (131,196)
                                -----------  -----------  -----------  ----------- -----------
Income before income taxes
  and minority interest......      234,415       46,289       75,841       13,125       6,733
Net income...................      149,179       27,103       48,538        7,147       4,520
  Earnings per share, basic
  and diluted................  $      2.78  $      0.60  $      1.08  $      0.16 $      0.11
Weighted average shares
  outstanding................   53,648,605   45,501,583   44,971,290   44,331,490  41,187,230
Other Data:
Origination and acquisition
  volume (a).................  $ 4,079,491  $ 3,093,014  $ 1,983,403  $ 1,448,607 $ 1,027,498
Average student loans........  $11,809,663  $ 9,316,354  $ 8,171,898  $ 5,135,227 $ 3,388,156
  Student loans serviced (at
  end of period).............  $28,288,622  $18,773,899  $17,863,210  $16,585,295 $11,971,095
Ratios:
Core student loan spread.....         1.66%        1.78%        1.65%        1.66%       2.26%
Return on average total
  assets.....................         1.11%        0.25%        0.52%        0.12%       0.12%
Return on average equity.....         39.7%        19.4%        49.2%        11.7%       8.2%
Net loan charge-offs as a
  percentage of average
  student loans..............        0.070%       0.080%       0.047%       0.042%      0.055%

                                                       As of December 31,
                                 -------------------------------------------------------------
                                   2004        2003          2002         2001          2000
                                 --------   ---------     ---------     --------     ---------
                                                     (dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents....    $  39,989    $ 198,423    $  40,155    $  36,440   $  23,263
Student loans receivables, net  13,461,814   10,455,442    8,559,420    7,423,872   3,585,943
Total assets.................   15,160,005   11,932,186    9,766,583    8,134,560   4,021,948
Bonds and notes payable......   14,300,606   11,366,458    9,447,682    7,926,362   3,934,130
Shareholders' equity.........      456,175      305,489      109,122       63,186      54,161

------------

(a) Initial loans originated or acquired through various channels, including
    originations through the direct channel and acquisitions through the
    branding partner channel, the forward flow channel, and the secondary market
    (spot purchases).	

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is one of the leading education finance companies in the United States and is focused on providing quality student loan products and services to students and schools nationwide. The Company ranks among the nation's leaders in terms of total net student loan assets with $13.5 billion as of December 31, 2004.
The Company's business is comprised of three primary product and service offerings:
o ASSET MANAGEMENT, INCLUDING STUDENT LOAN ORIGINATIONS AND ACQUISITIONS. The Company provides student loan marketing, originations, acquisition, and portfolio management. The Company owns a large portfolio of student loan assets through a series of education lending subsidiaries. The Company obtains loans through direct origination or through acquisition of loans. The Company also provides marketing, sales, managerial, and administrative support related to its asset generation activities.
o STUDENT LOAN AND GUARANTEE SERVICING. The Company services its student loan portfolio and the portfolios of third parties. Servicing activities include loan origination activities, application processing, borrower updates, payment processing, due diligence procedures, and claim processing. The Company also provides servicing support to guaranty agencies, which includes system software, hardware and telecommunication support, borrower and loan updates, default aversion tracking services, claim processing services, and post-default collection services.
20
o SERVICING SOFTWARE. The Company uses internally developed student loan servicing software and also provides this software to third-party student loan holders and servicers.
The Company's education lending subsidiaries under the Asset Management service offering are engaged in the securitization of education finance assets. These education lending subsidiaries hold beneficial interests in eligible loans, subject to creditors with specific interests. The liabilities of the Company's education lending subsidiaries are not the obligations of the Company or any of its other subsidiaries and cannot be consolidated in the event of bankruptcy. The transfers of student loans to the eligible lender trusts do not qualify for sales under the provisions of SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, as the trusts continue to be under the effective control of the Company. Accordingly, all the financial activities and related assets and liabilities, including debt, of the securitizations are reflected in the Company's consolidated financial statements.
The Company's primary product and service offerings constitute reportable segments per the provisions of SFAS No. 131. The following table shows the percent of total segment revenue (excluding intersegment revenue) and net income
(loss) before taxes for each of the Company's segments:

                                                Years ended December 31,
                             ---------------------------------------------------------------
                                         2004                             2003
                             ------------------------------  -------------------------------
                                        Student                           Student
                                        loan and                         loan and
                                Asset   guarantee  Servicing    Asset    guarantee  Servicing
                             management servicing   software   management servicing   software
                             ---------- ---------  ---------  ---------- ----------  --------
Segment revenue..............    76.5%     21.8%     1.7%        60.8%      36.2%     3.0%

Segment net income (loss)
before taxes.................    81.1%     19.7%   ( 0.8)%       62.2%      41.9%    (4.1)%	

The Company's derivative market value adjustment and net settlements are included in the Asset Management segment. Because the majority of the Company's derivatives do not qualify for hedge accounting under SFAS No. 133, the derivative market value adjustment can cause the percent of revenue and net income (loss) before taxes to fluctuate from period to period between segments.
The Company's student loan portfolio has grown significantly through originations and acquisitions. The Company originated or acquired $4.1 billion of student loans in 2004 through student loan channel acquisitions, including:
o the direct channel, in which the Company originates student loans in one of its brand names directly to student and parent borrowers, which accounted for 50.5% of the student loans added to the Company's loan portfolio through a student loan channel in 2004;
o the branding partner channel, in which the Company acquires student loans from lenders to whom it provides marketing and origination services, which accounted for 24.3% of the student loans added to the Company's loan portfolio through a student loan channel in 2004; and
o the forward flow channel, in which the Company acquires student loans from lenders to whom it provides origination services, but provides no marketing services, or who have agreed to sell loans to the Company under forward sale commitments, which accounted for 19.1% of the student loans added to the Company's loan portfolio through a student loan channel in 2004.
In addition, the Company also acquires student loans through spot purchases, which accounted for 6.1% of student loans added to the Company's loan portfolio through a student loan channel in 2004.
Not included in the previous student loan channel acquisition data is the addition of $136.1 million of student loans acquired through a business combination in April 2004.
21
SIGNIFICANT DRIVERS AND TRENDS
The Company's earnings and earnings growth are directly affected by the size of its portfolio of student loans, the interest rate characteristics of its portfolio, the costs associated with financing and managing its portfolio, and the costs associated with the origination and acquisition of the student loans in the portfolio. See "-- Student Loan Portfolio." In addition to the impact of growth of the Company's student loan portfolio, the Company's results of operations and financial condition may be materially affected by, among other things, changes in:
o applicable laws and regulations that may affect the volume, terms, effective yields, or refinancing options of education loans;
o demand for education financing and competition within the student loan industry;
o the interest rate environment, funding spreads on the Company's financing programs, and access to capital markets; and
o prepayment rates on student loans, including prepayments relating to loan consolidations.
The Company's net interest income, or net interest earned on its student loan portfolio, is the primary source of income and is primarily impacted by the size of the portfolio and the net yield of the assets in the portfolio. If the Company's student loan portfolio continues to grow and its net interest margin remains relatively stable, the Company expects its net interest income to increase. The Company's portfolio of FFELP loans generally earns interest at the higher of a variable 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 index plus a fixed spread that is dependent upon when the loan was originated, the loan's repayment status, and funding sources for the loan. Based upon provisions of the Higher Education Act and related interpretations by the Department, loans financed prior to September 30, 2004 with tax-exempt obligations issued prior to October 1, 1993 are entitled to receive special allowance payments equal to a 9.5% minimum rate of return. In May 2003, the Company sought confirmation from the Department regarding the treatment and recognition of special allowance payments on a portion of its portfolio that had been previously financed with tax-exempt obligations. While pending satisfactory resolution of this issue with the Department, the Company deferred recognition of the interest income that was generated by these loans in excess of income based upon the standard special allowance rate. In June 2004, after consideration of certain clarifying information received in connection with the guidance it had sought, including written and verbal communications with the Department, the Company concluded that the earnings process had been completed related to the special allowance payments on these loans and recognized $124.3 million of interest income. As of December 31, 2003, the amount of deferred excess interest income on these loans was $42.9 million. The Company currently recognizes the income from the special allowance payments, referred to as the special allowance yield adjustment, on these loans as it is earned and would expect its net interest income to increase over historical periods accordingly; however, since the portfolio subject to the 9.5% floor is not expected to increase, amounts recognized will decrease as compared to the current period. In addition, if interest rates rise, the normal yield on the portfolio of loans earning this special allowance will increase, thereby reducing the special allowance yield adjustment. The Company entered into $3.7 billion in notional amount of interest rate swaps in July 2004 to reduce the risk of rising interest rates on this portfolio.
Net interest income increased by $226.4 million, or 131.9%, in 2004 as compared to 2003. Net interest income, excluding the effects of variable-rate floor income and the special allowance yield adjustment, increased approximately $35.4 million, or 22.3%, in 2004 as compared to 2003, due primarily to portfolio growth. Net student loans receivable increased by $3.0 billion, or 28.8%, to $13.5 billion as of December 31, 2004 as compared to $10.5 billion as of December 31, 2003.
Interest income is also dependent upon the relative level of interest rates. The Company maintains an overall interest rate risk management strategy that incorporates the use of interest rate derivative instruments to reduce the economic effect of interest rate volatility. The Company's management has structured all of its derivative instruments with the intent that each is economically effective. However, most of the Company's derivative instruments do not qualify for hedge accounting under SFAS No. 133 and thus may adversely impact earnings. In addition, the mark-to-market adjustment recorded through earnings in the Company's consolidated statements of income may fluctuate from period to period. See Item 7A, "Quantitative and Qualitative Disclosures about Market Risk -- Interest Rate Risk."
Competition for the supply channel of education financing in the student loan industry has caused the cost of acquisition (or premiums) related to the Company's student loan assets to increase. In addition, the Company has seen significant increases in consolidation loan activity and consolidation loan volume within the industry. The increase in competition for consolidation loans has caused the Company to be aggressive in its measures to protect and secure the Company's existing portfolio through consolidation efforts. The Company will amortize its premiums paid from the purchase of student loans over the average
22
useful life of the assets. When the Company's loans are consolidated, the Company may accelerate recognition of unamortized premiums if the consolidated loan is considered a new loan. The increase in premiums paid on student loans due to the increase in entrants and competition within the industry, coupled with the Company's asset retention practices through consolidation efforts, have caused the Company's yields to be reduced in recent periods due to the amortization of premiums, consolidation rebate fees, and the lower yields on consolidation loans. If the percent of consolidation loans continues to increase as a percent of the Company's overall loan portfolio, the Company will continue to experience reduced yields. If these trends continue, the Company could continue to see an increase in consolidation rebate fees and amortization costs and a reduction in yield. See "-- Student Loan Portfolio -- Student Loan Spread Analysis." Although the Company's short-term yields may be reduced if this trend continues, the Company will have been successful in protecting its assets and stabilizing its balance sheet for long-term growth. Conversely, a reduction in consolidation of the Company's own loans or the loans of third parties could positively impact the effect of amortization on the Company's student loan yield from period to period. Also, as the Company's portfolio of consolidation loans grows both in nominal dollars and as a percent of the total portfolio, the impact of premium amortization as a percent of student loan yield should decrease unless the cost of acquisition of consolidation loans or underlying loans increases substantially in the future.
Net interest income includes $70.4 million, or 60 basis points, in yield reduction due to the amortization of premiums and deferred origination costs in 2004 as compared to $69.3 million, or 74 basis points, in 2003. The Company's unamortized premiums and deferred origination costs, as a percent of student loans, decreased from 1.5% as of December 31, 2003 to 1.3% as of December 31, 2004. Net interest income also includes $68.1 million, or 58 basis points, in yield reduction due to consolidation rebate fees in 2004, as compared to $40.9 million, or 44 basis points, in 2003. The increase in the consolidation loan rebate fee, combined with the lower lender yield of the consolidation loans the Company is originating, has resulted in student loan interest spread compression, excluding the effects of variable-rate floor income and the special allowance yield adjustment, net of settlements on derivatives, from 1.78% in 2003 to 1.66% in 2004.
RECENT DEVELOPMENTS
As previously discussed, based on provisions of the Higher Education Act and related interpretations, education lenders may receive special allowance payments providing the 9.5% Floor on loans currently or financed prior to September 30, 2004 with proceeds of tax-exempt obligations issued prior to October 1, 1993. The Company holds FFELP loans, which are receiving special allowance payments based upon the 9.5% Floor, and were previously financed prior to September 30, 2004 with proceeds of tax-exempt obligations issued prior to October 1, 1993, of approximately $3.0 billion as of December 31, 2004. The Company sought confirmation regarding whether it was allowed to receive the special allowance income based on the 9.5% Floor on such loans following refinancing with proceeds of taxable obligations. For periods through March 31, 2004, the Company had deferred recognition of a portion of the income from the 9.5% Floor which exceeded ordinary special allowance payment rates generated by these loans, pending satisfactory resolution of this issue. As previously disclosed, after consideration of certain clarifying information received in connection with the guidance it had sought and based on written and verbal communications with the Department, the Company concluded that the earnings process had been completed and determined to recognize the related income.
Following the Company's disclosures related to recognition of such income, Senator Edward M. Kennedy, by letter to the Secretary of Education dated August 26, 2004, requested information as to whether the Department had approved of the Company's receipt of the 9.5% Floor income and, if not, why the Department had not sought to recover claimed subsidies under the 9.5% Floor. By letter dated September 10, 2004, the Company furnished to the Department certain background information concerning the growth of the 9.5% Floor loans in its portfolio, which information had been requested by the Department. Senator Kennedy, in a second letter to the SEC dated September 21, 2004, requested that the SEC investigate the Company's activities related to the 9.5% Floor. More specifically, Senator Kennedy raised concerns about the Company's disclosures in connection with its decision to recognize the previously deferred income, and trading of Company securities by Company executives following such disclosures. On September 27, 2004, the Company voluntarily contacted the SEC to request a meeting with the SEC Staff. The Company's request was granted, and representatives of the Company met with representatives of the SEC Staff on October 12, 2004. Company representatives offered to provide to the SEC information that the SEC Staff wished to have relating to the issues raised in Senator Kennedy's letter. By letter dated October 14, 2004, the SEC Staff requested that, in connection with an informal investigation, the Company provide certain identified information. The Company has furnished to the SEC Staff the information it has requested and is fully cooperating with the SEC Staff in its informal investigation.
The Company continues to believe that the concerns expressed to the SEC by Senator Kennedy are entirely unfounded, but it is not appropriate or feasible to determine or predict the ultimate outcome of the SEC's informal investigation. The Company's costs related to the SEC's informal investigation are being expensed as incurred. Additional costs, if any, associated with an adverse outcome or resolution of that matter, in a manner that is currently indeterminate and inherently unpredictable, could adversely affect the Company's financial condition and results of operations. Although it is possible that an adverse outcome in certain circumstances could have a material adverse effect, based on information currently known by the Company's management, in its opinion, the outcome of such pending informal investigation is not likely to have such an effect.
23
In October 2004, Congress passed and President Bush signed into law the Taxpayer-Teacher Protection Act of 2004 (the "October Act"), which prospectively suspended eligibility for the 9.5% Floor on any loans refinanced with proceeds of taxable obligations between September 30, 2004 and January 1, 2006. The Company's FFELP loans, which have been refinanced with proceeds of taxable obligations and are receiving special allowance payments under the 9.5% Floor, were all refinanced with proceeds of taxable obligations well before September 30, 2004. The Company had ceased adding to its portfolio of loans receiving special allowance payments subject to the 9.5% Floor in May 2004, and thus the language in the October Act is not expected to have an effect upon the eligibility of such loans for the 9.5% Floor, nor is it expected to have a material effect upon the Company's financial condition or results of operation.
President Bush has made several proposals in connection with the FFEL Program in his fiscal year 2006 budget as proposed to Congress. Some of the highlights of the President's budget proposals, in no particular order, include:
o prospectively ending eligibility for the 9.5% Floor (making the provision of the October Act permanent);
o reducing the federal guarantee on FFEL Program loans from 98% to 95%;
o reducing the guarantee for loans serviced by servicers designated as exceptional performers from 100% to 97%;
o providing for variable interest rates on consolidation loans, and maintaining variable interest rates on all other loan types, effectively repealing the planned change to fixed interest rates that was to occur on July 1, 2006;
o granting extended repayment terms and increasing the limits on the amount that borrowers may borrow for FFELP loans;
o increasing the origination fee charged to lenders from 50 basis points to 100 basis points;
o imposing a new annual 25 basis point origination fee on consolidation loans; and
o permitting the reconsolidation (or refinancing) of existing consolidation loans on multiple occasions and require borrowers to pay a 100 basis point origination fee for each such refinancing.
The Company cannot predict whether the President's budget proposals will be enacted into law, but they may form some of the framework for the Congress as it negotiates the fiscal year 2006 budget resolution.
ACQUISITIONS
The Company has positioned itself for growth by building a strong foundation through acquisitions. Although the Company's assets, loan portfolios, and fee-based revenues increase through such transactions, a key aspect of each transaction is its impact on the Company's prospective organic growth and the development of its integrated platform of services. As a result of these acquisitions and the Company's rapid organic growth, the period-to-period comparability of the Company's results of operations may be difficult. A summary of the Company's 2004 acquisitions follows:
In January 2004, the Company acquired 50% of the membership interests in Premiere Credit of North America, LLC ("Premiere"), a collection services company that specializes in collection of educational debt. This investment is being accounted for under the equity method of accounting.
In March 2004, the Company acquired rights, title, and interest in certain assets of the Rhode Island Student Loan Authority ("RISLA"), including the right to originate student loans in RISLA's name without competition from RISLA for a period of ten years. The Company further agreed to provide administrative services in connection with certain of the indentures governing debt securities of RISLA for a 10-year period.
In April 2004, the Company purchased SLAAA Acquisition Corp. ("SLAAA"), a student loan secondary market.
Also in April 2004, the Company purchased 50% of the stock of infiNET Integrated Solutions, Inc. ("infiNET"), an ecommerce services provider for colleges, universities, and healthcare organizations. InfiNET provides customer-focused electronic transactions, information sharing, and account and bill presentment. This investment is being accounted for under the equity method of accounting.
In December 2004, the Company purchased 100% of the stock of EDULINX. EDULINX is a Canadian corporation that engages in servicing of Canadian student loans.
NET INTEREST INCOME
The Company generates the majority of its earnings from its student loan spread. This spread income is reported on the Company's income statement as net interest income. The amortization and write-offs of premiums or discounts, including capitalized costs of origination, the consolidation loan rebate fee, and yield adjustments from borrower benefit programs, are netted against loan interest income on the Company's income statement. The amortization and write-offs of debt issuance costs are included in interest expense on the Company's income statement.
The Company's portfolio of FFELP loans generally earns interest at the higher of a variable 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 index plus a fixed spread that is dependent upon when the loan was originated, the loan's repayment status, and funding sources for the loan. Depending on the type of student loan and when the loan was originated, the borrower rate is either fixed to term or is reset to a market rate each July 1. The larger the reduction in rates subsequent to the July 1 annual borrower interest rate reset date, the greater the Company's opportunity to earn variable-rate floor income. In declining interest rate environments, the Company can earn significant amounts of such income. Conversely, as the decline in rates abates, or in environments where interest rates are rising, the Company's opportunity to earn variable-rate floor income can be reduced, in some cases substantially. Since the borrower rates are reset annually, the Company views earnings on variable-rate floor income as temporary and not necessarily sustainable. The Company's ability to earn variable-rate floor income in future periods is dependent upon the interest rate environment following the annual reset of borrower rates, and the Company cannot assure the nature of such environment in the future. The Company recorded approximately $348,000 of variable-rate floor income in 2004 as compared to approximately $12.8 million in 2003.
On those FFELP loans with fixed-term borrower rates, primarily consolidation loans, the Company earns interest at the greater of the borrower rate or a variable rate based on the SAP formula. Since the Company finances the majority of its student loan portfolio with variable-rate debt, the Company may earn excess spread on these loans for an extended period of time.
24
On most consolidation loans, the Company must pay a 1.05% per year rebate fee to the Department. Those consolidation loans that have variable interest rates based on the SAP formula earn an annual yield less than that of a Stafford loan. Those consolidation loans that have fixed interest rates less than the sum of 1.05% and the variable rate based on the SAP formula also earn an annual yield less than that of a Stafford loan. As a result, as consolidation loans matching these criteria become a larger portion of the Company's loan portfolio, there will be a lower yield on the Company's loan portfolio in the short term. However, due to the extended terms of consolidation loans, the Company expects to earn the yield on these loans for a longer duration, making them beneficial to the Company in the long term.
Because the Company generates the majority of its earnings from its student loan spread, the interest rate sensitivity of the Company's balance sheet is very important to its operations. The current and future interest rate environment can and will affect the Company's interest earnings, net interest income, and net income. The effects of changing interest rate environments are further outlined in Item 7A, "Quantitative and Qualitative Disclosures about Market Risk -- Interest Rate Risk."
Investment interest income includes income from unrestricted interest-earning deposits and funds in the Company's special purpose entities for its asset-backed securitizations.
PROVISION FOR LOAN LOSSES
The allowance for loan losses is estimated and established through a provision charged to expense. Losses are charged against the allowance when management believes the collectibility of the loan principal is unlikely. Recovery of amounts previously charged off is credited to the allowance for loan losses. The Company maintains an allowance for loan losses associated with its student loan portfolio at a level that is based on the performance characteristics of the underlying loans. The Company analyzes the allowance separately for its federally insured loans and its non-federally insured loans.
The allowance for the federally insured loan portfolio is based on periodic evaluations of the Company's loan portfolios considering past experience, trends in student loan claims rejected for payment by guarantors, changes to federal student loan programs, current economic conditions, and other relevant factors. The federal government guarantees 98% of principal and interest of federally insured student loans, which limits the Company's loss exposure to 2% of the outstanding balance of the Company's federally insured portfolio.
Effective June 1, 2004, the Company was designated as an Exceptional Performer by the Department in recognition of its exceptional level of performance in servicing FFEL Program loans. As a result of this designation, the Company receives 100% reimbursement on all eligible FFEL Program default claims submitted for reimbursement during the 12-month period following the effective date of its designation. The Company is not subject to the 2% risk sharing loss for eligible claims submitted during this 12-month period. Only FFEL Program loans that are serviced by the Company, as well as loans owned by the Company and serviced by other service providers designated as Exceptional Performers by the Department, are subject to the 100% reimbursement. In 2004, the Company's allowance and the provision for loan losses were each reduced by $9.4 million to account for the estimated effects of the Exceptional Performance designations.
As of December 31, 2004, service providers designated as an Exceptional Performer serviced more than 99% of the Company's federally insured loans. Of this 99%, third parties serviced approximately 9%. The Company is entitled to receive this benefit as long as it and/or its other service providers continue to meet the required servicing standards published by the Department. Compliance with such standards is assessed on a quarterly basis.
In determining the adequacy of the allowance for loan losses on the non-federally insured loans, the Company considers several factors including:
loans in repayment versus those in a nonpaying status, months in repayment, delinquency status, type of program, and trends in defaults in the portfolio based on Company and industry data. The Company charges off these uninsured loans when the collection of principal and interest is 120 days past due.
The evaluation of the allowance for loan losses is inherently subjective, as it requires material estimates that may be subject to significant changes. The provision for loan losses reflects the activity for the applicable period and provides an allowance at a level that management believes is adequate to cover probable losses inherent in the loan portfolio.
OTHER INCOME
The Company also earns fees and generates income from other sources, including principally loan servicing, guarantee servicing, and licensing fees on its software products. Loan servicing fees are determined according to individual agreements with customers and are calculated based on the dollar
25
value or number of loans serviced for each customer. Guarantee servicing fees are calculated based on the number of loans serviced or amounts collected. Software services income includes software license and maintenance fees associated with student loan software products. Other income also includes the derivative market value adjustment and net settlements as further discussed in Item 7A, "Quantitative and Qualitative Disclosures about Market Risk -- Interest Rate Risk." The Company's other income included net settlements incurred on derivatives of $34.1 million in 2004 as compared to $1.6 million in 2003. The Company's other income also included mark-to-market losses on derivative instruments of $11.9 million in 2004 as compared to $1.2 million in 2003. This increase, in addition to the changes in interest rates and fluctuations in the forward yield curve, is the result of the Company entering into $3.7 billion in notional amount of derivatives in July 2004.
OPERATING EXPENSES
Operating expenses include costs incurred to manage and administer the Company's student loan portfolio and its financing transactions, costs incurred to generate and acquire student loans, and general and administrative expenses. Operating expenses also include amortization of intangible assets related to acquisitions, which in 2004 was $8.8 million as compared to $12.8 million in 2003.
The Company does not believe inflation has a significant effect on its operations.
RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
                                                                                                  Change
                                                                                          ---------------------
                                                                    2004        2003        Dollars    Percent
                                                                -----------  -----------  ----------  ---------
                                                                              (dollars in thousands)
Interest income:
    Loan interest, excluding variable-rate floor income........ $  705,036   $  413,301   $ 291,735       70.6 %
    Variable-rate floor income.................................        348       12,830     (12,482)     (97.3)
    Amortization of loan premiums and deferred origination costs   (70,370)     (69,316)     (1,054)      (1.5)
    Investment interest........................................     17,762       15,203       2,559       16.8
                                                                -----------  -----------  ----------  ---------
        Total interest income..................................    652,776      372,018     280,758       75.5
Interest expense:
    Interest on bonds and notes payable........................    254,610      200,296      54,314       27.1
                                                                ------------ ------------ ----------- ----------
        Net interest income....................................    398,166      171,722     226,444      131.9
Less provision (recovery) for loan losses......................       (529)      11,475     (12,004)    (104.6)
                                                                -----------  -----------  ----------  ---------
        Net interest income after provision (recovery) for
          loan losses..........................................    398,695      160,247     238,448      148.8
                                                                -----------  -----------  ----------  ---------
Other income:
    Loan servicing and other fee income........................     98,661      102,959      (4,298)      (4.2)
    Software services and other income.........................     25,868       19,017       6,851       36.0
    Derivatives settlements, net...............................    (34,140)      (1,601)    (32,539)  (2,032.4)
    Derivative market value adjustment.........................    (11,918)      (1,183)    (10,735)    (907.4)
                                                                -----------  -----------  ----------  ---------
        Total other income.....................................     78,471      119,192     (40,721)     (34.2)
                                                                -----------  -----------  ----------  ---------
Operating expenses:
    Salaries and benefits......................................    133,667      124,273       9,394        7.6
    Other operating expenses:
      Depreciation and amortization, excluding amortization
        of intangible assets...................................     10,631       10,358         273        2.6
      Amortization of intangible assets........................      8,768       12,766      (3,998)     (31.3)
      Trustee and other debt related fees......................     10,291       14,138      (3,847)     (27.2)
      Occupancy and communications.............................     12,817       12,101         716        5.9
      Advertising and marketing................................     11,470       10,182       1,288       12.6
      Professional services....................................     15,067        9,437       5,630       59.7
      Consulting fees and support services to related parties..       --          3,519      (3,519)    (100.0)
      Postage and distribution.................................     13,235       13,241          (6)      (0.0)
      Other....................................................     26,805       23,135       3,670       15.9
                                                                -----------  -----------  ----------  ---------
        Total other operating expenses.........................    109,084      108,877         207        0.2
                                                                -----------  -----------  ----------  ---------
        Total operating expenses...............................    242,751      233,150       9,601        4.1
                                                                -----------  -----------  ----------  ---------
        Income before income taxes and minority interest.......    234,415       46,289     188,126      406.4
    Income tax expense.........................................     85,236       19,295      65,941      341.8
                                                                -----------  -----------  ----------  ---------
        Income before minority interest........................    149,179       26,994     122,185      452.6
    Minority interest in subsidiary loss.......................      --             109        (109)    (100.0)
                                                                -----------  -----------  ----------  ---------
        Net income............................................. $  149,179   $   27,103   $ 122,076      450.4 %
                                                                ===========  ===========  ==========  =========	

Net interest income. Total loan interest, including amortization of loan premiums and deferred origination costs, increased as a result of an increase in
26
the size of the student loan portfolio and the special allowance yield adjustment, offset by changes in the interest rate environment and in the pricing characteristics of the Company's student loan assets. The special allowance yield adjustment of $203.5 million, offset by lower average interest rates on loans, caused an increase in the student loan net yield on the Company's student loan portfolio to 5.37% from 3.83% (when excluding the special allowance yield adjustment, the student loan yield in 2004 was 3.65%). Variable-rate floor income decreased due to the relative change in interest rates during the periods subsequent to the annual borrower interest rate reset date on July 1 of each year. Consequently, the Company realized approximately $348,000 of variable-rate floor income in 2004 as compared to $12.8 million in 2003. The weighted average interest rate on the student loan portfolio increased due to the special allowance yield adjustment, offset by lower interest rates on loans, and the increase in the number of lower yielding consolidation loans, resulting in an increase in loan interest income of approximately $156.0 million. Consolidation loan activity also increased the amortization and write-off of premiums and deferred origination costs and increased the amount incurred on consolidation rebate fees, reducing loan interest income approximately $29.2 million. The increase in loan interest income was also a result of an increase in the Company's portfolio of student loans. The average student loan portfolio increased $2.5 billion, or 26.8%, which increased loan interest income by approximately $163.3 million.
Interest expense on bonds and notes payable increased as average total debt increased approximately $2.2 billion, or 21.2%. Average variable-rate debt increased $2.4 billion, which increased interest expense by approximately $41.3 million. The Company reduced average fixed-rate debt by $191.6 million, which decreased the Company's overall interest expense by approximately $11.4 million. The increase in interest rates, specifically LIBOR and auction rates, increased the Company's average cost of funds (excluding derivative settlement costs) to 1.99% from 1.89%, which increased interest expense approximately $27.2 million. Interest expense in 2003 also includes $2.6 million due to the write off of debt issuance costs incurred as a result of refinancing certain debt transactions.
Net interest income, excluding the effects of variable-rate floor income and the special allowance yield adjustment, increased approximately $35.4 million, or 22.3%, to approximately $194.3 million from approximately $158.9 million. This increase is consistent with the increase in the average student loan portfolio of 26.8%.
Provision for loan losses. The provision for loan losses for federally insured student loans decreased approximately $11.4 million from an expense of $3.8 million to a recovery of $7.6 million because of the Company and other servicer's Exceptional Performer designation in 2004. The provision for loan losses for non-federally insured loans decreased approximately $530,000 from $7.6 million in 2003 to $7.1 million in 2004 because of the decrease in the non-federally insured loans and expected performance of the non-federally insured loan portfolio.
Other income. Loan servicing and other fee income decreased due to the reduction in the number and dollar amount of loans serviced for third parties in our U.S. servicing operations from $9.6 billion as of December 31, 2003 to $9.2 billion as of December 31, 2004. Total average U.S. third-party loan servicing volume decreased $892.2 million, or 8.8%, which resulted in a decrease in loan servicing income of $6.4 million. The decrease in servicing volume is due to loan pay downs being greater than loan additions within the third-party customer portfolios. This decrease was offset by an increase in servicing fees on the Canadian servicing operations of $4.6 million due to the acquisition of EDULINX in December 2004. The Company had no Canadian servicing operations in 2003. In addition, guarantee servicing income decreased $2.5 million due to a customer that did not renew its servicing contract in March 2004.
The software services and other income increased $1.8 million as the Company began providing administrative services to RISLA in March 2004. In addition, other income increased $1.8 million as a result of the acquisition of Nelnet Capital in August 2003. Also, a one-time gain of $3.0 million was recorded on the sale of a fixed asset in 2004.
The Company utilizes derivative instruments to provide economic hedges to protect against the impact of adverse changes in interest rates. In 2004, the derivative market value adjustment losses were $11.9 million and net settlements representing realized costs were $34.1 million as compared to $1.2 million and $1.6 million, respectively, in 2003. This increase, in addition to the changes in interest rates and fluctuations in the forward yield curve, is the result of the Company entering into $3.7 billion in notional amount of derivatives in July 2004. See Item 7A, "Quantitative and Qualitative Disclosures about Market Risk -- Interest Rate Risk."
Operating expenses. The Company's 2004 compensation plans included various bonus and incentive programs for its employee base and covered the majority of employees, including senior executive management. The incentive compensation plans are tied to various performance targets and measures including loan volume, customer satisfaction, and profitability. A significant portion of the incentive is based on exceeding certain profitability targets and effectively "earning through" the target to fund the incentive pool. The Company's incentive and bonus compensation for 2004 was approximately 10% of net income before taxes. The amount incurred by the Company in 2004 for its bonus and incentive plans was approximately $6.2 million more than the amount incurred in 2003.
In addition to a net increase in the bonus and incentive compensation expenses, salaries and benefits increased due to the acquisition of EDULINX in December 2004 and our increased personnel resulting from our agreement to provide administrative services to RISLA in March 2004 and the continued expansion of our marketing efforts. This increase was reduced by a non-cash stock compensation charge of $5.2 million recognized in 2003 equal to the difference between the product of the estimated initial public offering price and the number of shares issued in March 2003 and the total price paid by the employees.
27
The decrease in the amortization of intangible assets is due to certain intangible assets becoming fully amortized in 2003. The decrease in trustee and other debt related fees relates to the reduced broker dealer fees from the acquisition of Nelnet Capital as previously discussed. Advertising and marketing expenses increased due to the expansion of the Company's marketing efforts, especially in the consolidations area. Professional services increased due to additional costs related to operations as a public company. No costs were incurred in 2004 relating to consulting fees and support services to related parties due to the termination of these agreements in July 2003. Other expenses increased as the Company redeemed a portion of its student loan interest margin notes in July 2004 and expensed the call-premium of $1.9 million on that redemption. In addition, charitable contributions incurred by the Company in 2004 were approximately $4.0 million greater than what was incurred in 2003.
Income tax expense. Income tax expense increased due to the increase in income before income taxes. The Company's effective tax rate was 36.4% and 41.7% in 2004 and 2003, respectively. The decrease in the effective tax rate in 2004 was principally a result of the non-cash compensation expense recognized in 2003 for financial statement purposes that was not deductible for tax purposes.

YEAR ENDED DECEMBER 31, 2003 COMPARED YEAR ENDED DECEMBER 31, 2002

                                                                                          Change
                                                                                   --------------------
                                                               2003       2002      Dollars    Percent
                                                            ---------  ----------  ---------  ---------
                                                                      (dollars in thousands)
Interest income:
    Loan interest, excluding variable-rate floor income..  $ 413,301   $ 408,281  $   5,020        1.2 %
    Variable-rate floor income...........................     12,830      49,800    (36,970)     (74.2)
    Amortization of loan premiums and deferred
      origination costs..................................    (69,316)    (55,065)   (14,251)     (25.9)
    Investment interest..................................     15,203      20,759     (5,556)     (26.8)
                                                            ---------  ----------  ---------  ---------
        Total interest income............................    372,018     423,775    (51,757)     (12.2)
Interest expense:
    Interest on bonds and notes payable..................    200,296     238,746    (38,450)     (16.1)
                                                            ---------  ----------  ---------  ---------
        Net interest income..............................    171,722     185,029    (13,307)      (7.2)
Less provision for loan losses...........................     11,475       5,587      5,888      105.4
                                                            ---------  ----------  ---------  ---------
        Net interest income after provision for
          loan losses....................................    160,247     179,442    (19,195)     (10.7)
                                                            ---------  ----------  ---------  ---------
Other income:
    Loan servicing and other fee income..................    102,959     105,160     (2,201)      (2.1)
    Software services and other income...................     19,017      22,781     (3,764)     (16.5)
    Derivatives settlements, net.........................     (1,601)     (3,541)     1,940       54.8
    Derivative market value adjustment...................     (1,183)      2,962     (4,145)     139.9
                                                            ---------  ----------  ---------  ---------
        Total other income...............................    119,192     127,362     (8,170)      (6.4)
                                                            ---------  ----------  ---------  ---------
Operating expenses:
    Salaries and benefits................................    124,273     106,874     17,399       16.3
    Other operating expenses:
      Depreciation and amortization, excluding
        amortization of intangible assets................     10,358      10,235        123        1.2
      Amortization of intangible assets..................     12,766      22,214     (9,448)     (42.5)
      Trustee and other debt related fees................     14,138..    12,879      1,259        9.8
      Occupancy and communications.......................     12,101      11,424        677        5.9
      Advertising and marketing..........................     10,182      11,512     (1,330)     (11.6)
      Professional services..............................      9,437       9,237        200        2.2
      Consulting fees and support services to
        related parties..................................      3,519      12,800     (9,281)     (72.5)
      Postage and distribution...........................     13,241      11,095      2,146       19.3
      Other..............................................     23,135      22,693        442        1.9
                                                            ---------  ----------  ---------  ---------
        Total other operating expenses...................    108,877     124,089    (15,212)     (12.3)
                                                            ---------  ----------  ---------  ---------
        Total operating expenses.........................    233,150     230,963      2,187        0.9
                                                            ---------  ----------  ---------  ---------
        Income before income taxes and minority interest.     46,289      75,841    (29,552)     (39.0)
    Income tax expense...................................     19,295      27,679     (8,384)     (30.3)
                                                            ---------  ----------  ---------  ---------
        Income before minority interest..................     26,994      48,162    (21,168)     (44.0)
    Minority interest in subsidiary loss.................        109         376       (267)     (71.0)
                                                            ---------  ----------  ---------  ---------
        Net income.......................................   $ 27,103   $  48,538   $ 21,435)     (44.2)%
                                                            =========  ==========  =========  =========	

Net interest income. Total loan interest, including variable-rate floor income and amortization of loan premiums and deferred origination costs, decreased as a result of changes in the interest rate environment and in the pricing characteristics of the Company's student loan assets, offset by an increase in the size of the student loan portfolio. The lower average interest rates on loans caused a decrease in the student loan net yield on the Company's student loan portfolio to 3.83% from 4.93%. Variable-rate floor income decreased due to the relative change in interest rates during the periods subsequent to the annual borrower interest rate reset date on July 1 of each year. Consequently, the Company realized approximately $12.8 million of variable-rate floor income in 2003 as compared to $49.8 million in 2002. The weighted average interest rate on the student loan portfolio decreased due to the lower interest rates and the increase in the number of lower yielding consolidation loans, resulting in a decrease in loan interest income of approximately $36.6 million. Consolidation loan activity also increased the amortization and write-off of premiums and deferred origination costs and increased the amount incurred on consolidation rebate fees, reducing loan interest income approximately $29.8 million. The decrease in loan interest income was partially offset by an increase in the Company's portfolio of student loans. The average student loan portfolio increased $1.1 billion, or 14.0%, which increased loan interest income by approximately $57.3 million.
28
Investment interest income decreased due to the termination of a joint venture with a large financial institution in the second quarter of 2003.
Interest expense on bonds and notes payable decreased despite an increase in average total debt of approximately $1.6 billion. Average variable-rate debt increased $1.8 billion, which increased interest expense by approximately $22.0 million. The Company reduced average fixed-rate debt by $212.0 million, which decreased the Company's overall interest expense by approximately $12.5 million. The reduction in interest rates, specifically LIBOR and auction rates, decreased interest expense approximately $43.0 million and resulted in the decrease in the Company's average cost of funds (excluding derivative settlement costs) to 1.89% from 2.63%. Interest expense in 2003 also includes $2.6 million due to the write off of debt issuance costs incurred as a result of refinancing certain debt transactions as compared to $5.3 million in 2002.
Net interest income, excluding the effects of variable-rate floor income, increased approximately $23.7 million, or 17.5%, to approximately $158.9 million from approximately $135.2 million. This increase is consistent with the increase in the average student loan portfolio of 14.0%.
Provision for loan losses. The provision for loan losses for federally insured student loans increased approximately $878,000 from $3.0 million in 2002 to $3.8 million in 2003 due to the increase in the size of the Company's federally insured student loan portfolio. The provision for loan losses on non-federally insured loans increased $5.0 million from $2.6 million in 2002 to $7.6 million in 2003. This increase was due to a provision of $4.3 million for an identified pool of non-federally insured loans based on aging, delinquency, and performance of such identified pool. This pool of non-federally insured loans was limited to borrowers attending a single school, and, in early 2002, the Company ceased making non-federally insured loans to borrowers attending that school. The remaining increase was due to the increase in the size of the Company's non-federally insured loan portfolio.
Other income. Loan servicing and other fee income decreased primarily due to the reduction in the number and dollar amount of loans the Company serviced for third parties from $10.7 billion as of December 31, 2002 to $9.6 billion as of December 31, 2003. This decrease resulted in a decrease in loan servicing income of $6.9 million. The decrease in servicing volume is due to loan pay downs being greater than loan additions within the third-party customer portfolios. This decrease was offset by an increase in guarantee servicing income of $4.7 million due to higher guarantee volumes.
The software services and other income decreased $5.7 million due to additional income earned in 2002 on marketing contracts that were terminated in the fourth quarter of 2002. The decrease was offset by an increase of $3.4 million due to the acquisitions of Charter Accounts Systems, Inc. in May 2002 and Idaho Financial Associates, Inc. in January 2002 and an increase of $1.3 million due to the broker dealer fee income generated from the acquisition of Nelnet Capital in August 2003. In 2002, the Company recognized marketing income of $2.3 million as a broker on a loan sale as compared to $150,000 in 2003.
The Company utilizes derivative instruments to provide economic hedges to protect against the impact of adverse changes in interest rates. In 2003, the derivative market value adjustment losses were $1.2 million and net settlements representing realized interest costs were $1.6 million as compared to $3.0 million of derivative market value adjustment gains and $3.5 million of net settlements incurred in 2002. See Item 7A, "Quantitative and Qualitative Disclosures about Market Risk -- Interest Rate Risk."
Operating expenses. Salaries and benefits increased as a non-cash stock compensation expense of $5.2 million was recognized in 2003 equal to the difference between the product of the estimated initial public offering price and the number of shares issued in March 2003 and the total price paid by the employees. In addition, salary expense increased $5.1 million in 2003 associated with the termination of consulting and employment agreements. The remaining increase of $7.1 million is due to the increased personnel from the acquisitions previously described and expansion of the Company's marketing efforts.
The decrease in the amortization of intangible assets is due to certain intangible assets becoming fully amortized in 2002. The increase in trustee and other debt related fees relates to the $1.6 billion increase in average debt outstanding. Advertising and marketing expenses decreased due a $2.4 million expense incurred on a large marketing contract that was terminated in December 2002. This decrease was offset by an increase in marketing activities related to consolidation activities in 2003. Consulting fees and support services to related parties decreased due to conversion-related fees paid in 2002 and the termination of a large consulting agreement in December 2002. Postage and distribution expenses increased due to an increase in mass mailings to promote origination of Stafford and consolidation loans.
Income tax expense. Income tax expense decreased due to the decrease in income before income taxes. The Company's effective tax rate was 41.7% and 36.5% in 2003 and 2002, respectively. The increase in the effective tax rate was principally a result of the non-cash compensation expense recognized in 2003 for financial statement purposes that was not deductible for tax purposes.
29
 
FINANCIAL CONDITION

AS OF DECEMBER 31, 2004 COMPARED TO DECEMBER 31, 2003

                                                                                      Change
                                                                              ---------------------
                                                     2004          2003         Dollars     Percent
                                                -------------  ------------   -----------  --------
                                                                 (dollars in thousands)
Assets:
Student loans receivable, net..................  $13,461,814   $10,455,442    $ 3,006,372     28.8 %
Cash, cash equivalents, and investments........    1,302,954     1,155,215        147,739     12.8
Other assets...................................      395,237       321,529         73,708     22.9
                                                 ------------  ------------   ------------  --------
     Total assets..............................  $15,160,005   $11,932,186    $ 3,227,819     27.1 %
                                                 ============  ============   ============  ========

Liabilities:
Bonds and notes payable........................  $14,300,606   $11,366,458    $ 2,934,148     25.8 %
Fair value of derivative instruments, net......       11,895           677         11,218  1,657.0
Other liabilities..............................      391,329       259,562        131,767     50.8
                                                 ------------  ------------   ------------  --------
     Total liabilities.........................   14,703,830    11,626,697      3,077,133     26.5
Shareholders' equity...........................      456,175       305,489        150,686     49.3
                                                 ------------  ------------   ------------  --------
     Total liabilities and shareholders' equity  $15,160,005   $11,932,186    $ 3,227,819     27.1 %
                                                 ============  ============   ============  ========	

Total assets increased primarily because of an increase in student loans receivable. The Company originated or acquired $4.1 billion of student loans in 2004, offset by repayments of approximately $1.2 billion. Cash, cash equivalents, and investments increased primarily because of a $107.2 million increase in restricted cash due to loan program customers, which reflects timing of disbursements on loans and increased lockbox volume. Total liabilities increased primarily because of an increase in bonds and notes payable, resulting from additional borrowings to fund growth in student loans. The fair value of derivatives instruments increased due to the larger notional amounts and change in market conditions on the Company's derivative instruments. Other liabilities include restricted cash due to loan program customers that increased $107.2 million as a result of timing of disbursements on loans and increased lockbox volume. Shareholders' equity increased primarily as a result of net income of $149.2 million in 2004.
LIQUIDITY AND CAPITAL RESOURCES
The Company utilizes operating cash flows, operating lines of credit, and secured financing transactions to fund operations and student loan originations and acquisitions. In addition, in December 2003, the Company consummated an initial public offering of its Class A Common Stock that yielded the Company net proceeds of $163.7 million. Operating activities provided net cash of $241.1 million in 2004, an increase of $88.1 million from the net cash provided by operating activities of $153.0 million in 2003. Operating cash flows are driven by net income adjusted for various non-cash items such as the provision (recovery) for loan losses, depreciation and amortization, deferred income taxes, the derivative market value adjustment, non-cash compensation expense, income from equity method investments, and the gain on the sale of a fixed asset. These non-cash items resulted in an increase in cash provided by operating activities of $1.4 million in 2004 as compared to 2003. In addition, the special allowance yield adjustment received in 2004, reduced by the change in settlement costs on derivative instruments and related operating expenses and taxes, increased cash provided by operating activities in 2004 over 2003.
As of December 31, 2004, the Company had a $35.0 million operating line of credit and a $50.0 million commercial paper commitment under two separate facilities that expire in September 2005. In addition, EDULINX has a credit facility agreement with a Canadian financial institution for approximately $12.5 million ($15 million in Canadian dollars) that is cancelable by either party upon demand. The Company uses these facilities primarily for general operating purposes and had no borrowings under these facilities as of December 31, 2004. The Company believes these facilities, the growth in the cash flow from operating activities, and the initial public stock offering indicate a favorable trend in its available capital resources.
The Company's secured financing instruments include commercial paper lines, short-term student loan warehouse programs, variable-rate tax-exempt bonds, fixed-rate bonds, fixed-rate tax-exempt bonds, and various asset-backed securities. Of the $14.3 billion of debt outstanding as of December 31, 2004, $11.8 billion was issued under securitization transactions. In 2004, the Company completed four asset-backed securities transactions totaling $5.4 billion. The proceeds from the September 2004 asset-backed securities issuance of $2.0 billion were used to redeem $1.7 billion of outstanding student loan asset-backed auction rate notes. In addition, in February 2005, the Company completed a $1.3 billion asset-backed securities transaction. Depending on market conditions, the Company anticipates continuing to access the asset-backed securities market in 2005 and subsequent years. Securities issued in the securitization transactions are generally priced off a spread to LIBOR or set under an auction procedure. The student loans financed are generally priced on a spread to commercial paper or U.S. Treasury Bills.
30
The Company's warehouse facilities allow for expansion of liquidity and capacity for student loan growth and should provide adequate liquidity to fund the Company's student loan operations for the foreseeable future. As of December 31, 2004, the Company had a student loan warehousing capacity of $4.3 billion, of which $2.5 billion was outstanding, through 364-day commercial paper conduit programs. These conduit programs mature in 2005 through 2009; however, they must be renewed annually by underlying liquidity providers. Historically, the Company has been able to renew its commercial paper conduit programs, including the underlying liquidity agreements, and therefore does not believe the renewal of these contracts present a significant risk to its liquidity. Because the Company continues to grow its student loan portfolio, the Company increased its student loan warehousing capacity to $4.4 billion in February 2005.
The Company is limited in the amounts of funds that can be transferred from its subsidiaries through intercompany loans, advances, or cash dividends. These limitations result from the restrictions contained in trust indentures under debt financing arrangements to which the Company's education lending subsidiaries are parties. The Company does not believe these limitations will affect its operating cash needs. The amounts of cash and investments restricted in the respective reserve accounts of the education lending subsidiaries are shown on the balance sheets as restricted cash and investments.
The following table summarizes the Company's bonds and notes outstanding as of December 31, 2004:

                                                                           Interest rate
                                                                              range on
                                                 Carrying   Percent of        carrying
                                                  amount      total            amount         Final maturity
                                               -----------  ----------     --------------     --------------
                                                                    (dollars in thousands)
Variable-rate bonds and notes (a):
    Bond and notes based on indices.......... $  7,449,652        52.1 %    1.84% - 3.25%   11/25/09 - 01/25/41
    Bond and notes based on auction..........    3,590,920        25.1      1.70% - 2.55%   11/01/09 - 07/01/43
                                              -------------  ----------
      Total variable-rate bonds and notes....   11,040,572        77.2
Commerical paper and other...................    2,532,393        17.7      2.24% - 2.37%   05/13/05 - 09/02/09
Fixed-rate bonds and notes (a)...............      712,641         5.0      5.20% - 6.68%   05/01/05 - 05/01/29
Other borrowings.............................       15,000         0.1          6.00%            11/01/05
                                              -------------  ----------
    Total.................................... $ 14,300,606       100.0 %
                                              =============  ==========

--------------------------------

(a)     Issued in securitization transactions.	

Total unused commitments under various commercial paper, warehouse, and operating line of credit agreements totaled $1.9 billion as of December 31, 2004.
The Company is committed under noncancelable operating leases for certain office and warehouse space and equipment. The Company's contractual obligations as of December 31, 2004 were as follows:

                                             Less than                                 More
                                 Total         1 year  1 to 3 years   3 to 5 years  than 5 years
                               ------------ ---------- -------------  ------------  ------------
                                                    (dollars in thousands)
Bonds and notes payable....... $14,300,606  $2,292,443    $209,152       $799,888     $10,999,123
Operating lease obligations...      18,956       5,879       9,060          3,344             673
                               ------------ ----------  ----------    -----------   ------------
   Total...................... $14,319,562  $2,298,322    $218,212       $803,232     $10,999,796
                               ============ ==========  ==========    ===========   ============	

The Company has commitments with its branding partners and forward flow lenders which obligate the Company to purchase loans originated under specific criteria, although the branding partners and forward flow lenders are not obligated to provide the Company with a minimum amount of loans. Branding partners are from whom the Company acquires student loans and to whom the Company provides marketing and origination services. Forward flow lenders are from whom the Company acquires student loans and to whom the Company provides origination services. These commitments generally run for periods ranging from one to five years and are generally renewable. The Company was committed to extend credit or was obligated to purchase $265.5 million of student loans at current market rates at the respective sellers' requests under various agreements.
On December 1, 2004, the Company purchased EDULINX in a business combination for $7.0 million. An additional payment of approximately $6.3 million is to be paid by the Company if EDULINX obtains an extension or renewal of a significant customer servicing contract that currently expires in February 2006. This contingency payment is due following the date on which such extension or renewal period of the servicing contract commences.
31
 
STUDENT LOAN PORTFOLIO
The table below describes the components of the Company's loan portfolio:

                                                     As of December 31, 2004     As of December 31, 2003
                                                   ---------------------------  --------------------------
                                                       Dollars      Percent         Dollars     Percent
                                                   -------------- ------------  -------------- -----------
                                                                  (dollars in thousands)
Federally insured:
    Stafford...................................    $ 5,047,487         37.5 %   $ 4,900,249        46.9 %
    PLUS/SLS (a)...............................        252,910          1.9         249,217         2.4
    Consolidation..............................      7,908,292         58.7       5,073,081        48.5
Non-federally insured..........................         90,405          0.7          92,327         0.9
                                                   -------------  -----------  --------------  ----------
        Total..................................     13,299,094         98.8      10,314,874        98.7
Unamortized premiums and deferred origination
  costs........................................        169,992          1.3         156,594         1.5
Allowance for loan losses:
    Allowance - federally insured..............           (117)        (0.0)         (9,755)       (0.1)
    Allowance - non-federally insured..........         (7,155)        (0.1)         (6,271)       (0.1)
                                                   -------------  -----------  --------------  ----------
        Net....................................    $ 13,461,814        100.0 %  $10,455,442       100.0 %
                                                   =============  ===========  ==============  ==========
 ----------

     (a) Supplemental loans for students, or SLS, are the predecessor to
unsubsidized Stafford loans.	

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. An analysis of the Company's allowance for loan losses is presented in the following table:

                                                                                    Year ended December 31,
                                                                      -----------------------------------------------
                                                                           2004             2003            2002
                                                                      ---------------  --------------  --------------
                                                                                   (dollars in thousands)

Balance at beginning of year.......................................... $    16,026     $    12,000      $   10,242
Provision (recovery) for loan losses:
     Federally insured loans..........................................      (7,639)          3,835           2,957
     Non-federally insured loans......................................       7,110           7,640           2,630
                                                                      --------------  --------------  --------------
        Total provision (recovery) for loan losses....................        (529)         11,475           5,587
Charge-offs:
     Federally insured loans..........................................      (1,999)         (3,450)         (2,570)
     Non-federally insured loans......................................      (6,674)         (4,132)         (1,333)
                                                                      --------------  --------------  --------------
        Total charge-offs............................................       (8,673)         (7,582)         (3,903)
Recoveries, non-federally insured loans..............................          448             133              74
                                                                      --------------  --------------  --------------
Net charge-offs......................................................       (8,225)         (7,449)         (3,829)
                                                                      --------------  --------------  --------------
Balance at end of year...............................................  $     7,272     $    16,026      $   12,000
                                                                      ==============  ==============  ==============
Allocation of the allowance for loan losses:
     Federally insured loans........................................   $       117     $     9,755      $    9,370
     Non-federally insured loans....................................         7,155           6,271           2,630
                                                                      --------------  --------------  --------------
        Total allowance for loan losses.............................   $     7,272     $    16,026      $   12,000
                                                                      ==============  ==============  ==============

Net loan charge-offs as a percentage of average student loans.......         0.070 %         0.080 %         0.047 %
Total allowance as a percentage of average student loans............         0.062 %         0.172 %         0.147 %
Total allowance as a percentage of ending balance of student loans..         0.055 %         0.155 %         0.143 %
Non-federally insured allowance as a percentage of the ending
     balance of non-federally insured loans.........................         7.914 %         6.792 %         3.495 %
Average student loans...............................................   $11,809,663     $ 9,316,354      $8,171,898
Ending balance of student loans.....................................   $13,299,094     $10,314,874      $8,404,388
Ending balance of non-federally insured loans.......................   $    90,405     $    92,327      $   75,260	

In 2004, the Company's allowance and the provision for loan losses were each reduced by $9.4 million to account for the estimated effects of the Company's (and other service providers servicing the Company's student loans) Exceptional Performance designations.
32
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:

                                                 As of December 31, 2004      As of December 31, 2003
                                                --------------------------   ------------------------
                                                    Dollars       Percent       Dollars       Percent
                                                --------------   ---------   --------------  --------
                                                                (dollars in thousands)
Federally Insured Loans:
    Loans in-school/grace/deferment(1).........  $  3,584,260                 $ 2,941,228
    Loans in forebearance(2)...................     1,654,158                   1,362,335
    Loans in repayment status:
       Loans current...........................     7,142,808      89.6 %       5,244,281     88.6 %
       Loans delinquent 31-60 days(3)..........       338,434       4.3           279,435      4.7
       Loans delinquent 61-90 days(3)..........       154,477       1.9           130,339      2.2
       Loans delinquent 91 days or greater(4)..       334,552       4.2           264,929      4.5
                                                --------------   ---------   --------------  --------
         Total loans in repayment..............     7,970,271     100.0 %       5,918,984    100.0 %
                                                --------------   =========   --------------  ========
         Total federally insured loans.........  $ 13,208,689                $ 10,222,547
                                                ==============               ==============
Non-Federally Insured Loans:
    Loans in-school/grace/deferment(1).........  $     23,106                $     25,537
    Loans in forebearance(2)...................         2,110                      14,776
    Loans in repayment status:
       Loans current...........................        58,606      89.9 %          45,554     87.5 %
       Loans delinquent 31-60 days(3)..........         2,559       3.9             2,531      4.9
       Loans delinquent 61-90 days(3)..........         1,495       2.3             1,556      3.0
       Loans delinquent 91 days or greater(4)..         2,529       3.9             2,373      4.6
                                                --------------   ---------   --------------  --------
         Total loans in repayment..............        65,189     100.0 %          52,014    100.0 %
                                                --------------   =========   --------------  ========
         Total non-federally insured loans.....  $     90,405                 $    92,327
                                                ==============               ==============	

(1) 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.
(2) 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.
(3) 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.
(4) Loans delinquent 91 days or greater include loans in claim status, which are loans which have gone into default and have been submitted to the guaranty agency for FFELP loans, or the insurer for non-federally insured loans, to process the claim for payment.
During 2004, the Company reclassified FFELP loans and the related allowance that have been rejected for reimbursement by the guarantor to the non-federally insured loan portfolio, because these loans are effectively uninsured. In the above tables, the reclassification is reflected for all periods presented.
Origination and Acquisition
The Company's student loan portfolio increases through various channels, including originations through the direct channel and acquisitions through the branding partner channel, the forward flow channel, and spot purchases. The Company's portfolio also increases with the addition of portfolios acquired through business acquisitions.
One of the Company's primary objectives is to focus on originations through the direct channel and acquisitions through the branding partner channel. The Company has extensive and growing relationships with many large financial and educational institutions that are active in the education finance industry. The Company's branding relationships and forward flow relationships include Union Bank, an entity under common control with the Company, as well as many schools and national and regional financial institutions. Loss of a strong relationship, like that with a significant branding partner such as Union Bank, or with schools from which the Company directly or indirectly acquires a significant volume of student loans, could result in an adverse effect on the volume derived from the branding partner channel.
33
The table below sets forth the activity of loans originated or acquired through each of the Company's channels:

                                                              Year ended December 31,
                                                     -------------------------------------
                                                          2004         2003        2002
                                                     ------------ ------------ -----------
                                                              (dollars in thousands)
Beginning balance................................... $10,314,874   $ 8,404,388  $7,267,055
Direct channel:
    Consolidation loan originations.................   3,060,427     2,266,499     859,120
    Less consolidation of existing portfolio........  (1,282,100)   (1,160,000)   (682,383)
                                                     ------------- ------------- ---------
       Net consolidation loan originations..........   1,778,327     1,106,499     176,737
    Stafford/PLUS loan originations.................     279,885       236,855     224,827
Branding partner channel............................     989,867       808,843     521,023
Forward flow channel................................     780,803       602,777     577,603
Other channels......................................     250,609       338,040     483,213
                                                     ------------- ------------- ---------
    Total channel acquisitions......................   4,079,491     3,093,014   1,983,403
Loans acquired in business acquisition..............     136,138         --          --
Repayments, claims, capitalized interest, and other.  (1,231,409)   (1,182,528)   (846,070)
                                                     ------------- ------------- ---------
Ending balance...................................... $13,299,094   $10,314,874  $8,404,388
                                                      ============ ============= =========	

Student Loan Spread Analysis
Maintenance of the spread on assets is a key factor in maintaining and growing the Company's income. The following table analyzes the student loan spread on the Company's portfolio of student loans and represents the spread on assets earned in conjunction with the liabilities and derivative instruments used to fund the assets:

                                                               Year ended December 31,
                                                     --------------------------------------------
                                                           2004           2003            2002
                                                     -------------   --------------   -----------
Student loan yield...................................       6.55 %         5.01 %         5.91 %
Consolidation rebate fees............................      (0.58)         (0.44)         (0.31)
Premium and deferred origination costs amortization..      (0.60)         (0.74)         (0.67)
                                                     -------------   --------------   -----------
Student loan net yield...............................       5.37           3.83           4.93
Student loan cost of funds (a).......................      (2.25)         (1.91)         (2.67)
                                                     -------------   --------------   -----------
Student loan spread..................................       3.12           1.92           2.26
Variable-rate floor income...........................        --           (0.14)         (0.61)
Special allowance yield adjustment, net of
   settlements on derivatives (b)....................      (1.46)           --             --
                                                     -------------   --------------   -----------
Core student loan spread.............................       1.66 %         1.78 %         1.65 %
                                                     =============   ==============   ===========

Average balance of student loans (in thousands)......$11,809,663    $ 9,316,354    $ 8,171,898
Average balance of debt outstanding (in thousands)... 12,822,524     10,578,088      9,071,936	

(a) The student loan cost of funds includes the effects of the net settlement costs on the Company's derivative instruments of $34.1 million, $1.6 million, and $3.5 million in 2004, 2003, and 2002, respectively.
(b) The special allowance yield adjustment in 2004, which was approximately $203.5 million, represents the impact on net spread had loans earned at statutorily defined rates under a taxable financing. This special allowance yield adjustment has been reduced by the net settlements on derivative instruments that were used to hedge this loan portfolio earning the excess yield, which was $31.2 million in 2004.
The increase in lower yielding consolidation loans coupled with a slightly higher interest rate environment has caused some compression in the Company's student loan spread when excluding the special allowance yield adjustment, net of settlements on derivatives.
CRITICAL ACCOUNTING POLICIES
This Management's Discussion and Analysis of Financial Condition and Results of Operations discusses the Company's consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of income and expenses during the reporting periods. The Company bases its estimates and judgments on historical experience and on various other factors that the Company believes are reasonable under the circumstances. Actual results may differ from these estimates under varying assumptions or conditions. Note 2 of the consolidated financial statements, which are included in this Report, includes a summary of the significant accounting policies and methods used in the preparation of the consolidated financial statements.
34
On an on-going basis, management evaluates its estimates and judgments, particularly as they relate to accounting policies that management believes are most "critical" -- that is, they are most important to the portrayal of the Company's financial condition and results of operations and they require management's most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management has determined the only critical accounting policy is determining the level of the allowance for loan losses.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents management's estimate of probable losses on student loans. This evaluation process is subject to numerous estimates and judgments. 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.
The allowance for the federally insured loan portfolio is based on periodic evaluations of the Company's loan portfolios considering past experience, trends in student loan claims rejected for payment by guarantors, changes to federal student loan programs, current economic conditions, and other relevant factors. The federal government guarantees 98% of principal and interest of federally insured student loans, which limits the Company's loss exposure to 2% of the outstanding balance of the Company's federally insured portfolio.
Effective June 1, 2004, the Company was designated as an Exceptional Performer by the Department in recognition of its exceptional level of performance in servicing FFEL Program loans. As a result of this designation, the Company receives 100% reimbursement on all eligible FFEL Program default claims submitted for reimbursement during the 12-month period following the effective date of its designation. The Company is not subject to the 2% risk sharing loss for eligible claims submitted during this 12-month period. Only FFEL Program loans that are serviced by the Company, as well as loans owned by the Company and serviced by other service providers designated as Exceptional Performers by the Department, are subject to the 100% reimbursement. As of December 31, 2004, service providers designated as an Exceptional Performer serviced more than 99% of the Company's federally insured loans. Of this 99%, third parties serviced approximately 9%. The Company is entitled to receive this benefit as long as it and/or its other service providers continue to meet the required servicing standards published by the Department. Compliance with such standards is assessed on a quarterly basis.
In determining the adequacy of the allowance for loan losses on the non-federally insured loans, the Company considers several factors including:
loans in repayment versus those in a nonpaying status, months in repayment, delinquency status, type of program, and trends in defaults in the portfolio based on Company and industry data. The Company charges off these uninsured loans when the collection of principal and interest is 120 days past due.
The allowance for federally insured and non-federally insured loans is maintained at a level management believes is adequate to provide for estimated probable credit losses inherent in the loan portfolio. This evaluation is inherently subjective because it requires estimates that may be susceptible to significant changes.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 153, Exchanges of Nonmonetary Assets ("SFAS No. 153"). This Statement amends the guidance in Accounting Principles Board Opinion ("APB") No. 29, Accounting for Nonmonetary Transactions ("APB No. 29"). APB No. 29 provides an exception to the basic measurement principle (fair value) for exchanges of similar assets, requiring that some nonmonetary exchanges be recorded on a carryover basis. SFAS No. 153 eliminates the exception to fair value for exchanges of similar productive assets and replaces it with a general exception for exchange transactions that do not have commercial substance, that is, transactions that are not expected to result in significant changes in the cash flows of the reporting entity. The provisions of SFAS No. 153 are effective for exchanges of nonmonetary assets occurring in fiscal periods beginning after June 15, 2005. As of December 31, 2004, management believes that SFAS No. 153 will not have a significant effect on the financial position, results of operations, and cash flows of the Company.
In December 2004, the FASB revised SFAS No. 123 (revised 2004), Share-Based Payments ("SFAS No. 123R"). SFAS No. 123R eliminates the alternative to use the intrinsic value method of accounting under the provisions of APB No. 25, Accounting for Stock Issued to Employees ("APB No. 25") (generally resulting in recognition of no compensation expense) and instead requires a company to recognize in its financial statements the cost of employee services received in exchange for valuable equity instruments issued, and liabilities incurred, to employees in share-based payment transactions. The cost will be based on the grant-date fair value of the award and will be recognized over the period for which an employee is required to provide service in exchange for the award. For public entities that do not file as small business issuers, the provisions of the revised statement are to be applied prospectively for awards that are granted, modified, or settled in the first interim or annual period beginning after June 15, 2005. Because the Company does not issue share-based payments to employees that are accounted for under APB No. 25's intrinsic value method of accounting, management believes that SFAS No. 123R will not have an effect on the financial position, results of operations, and cash flows of the Company.
35
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company's internal control system was designed to provide reasonable assurance to the Company's management and board of directors regarding the preparation and fair presentation of published financial statements.
Management has assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2004, based on the criteria for effective internal control described in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2004.
Management has engaged KPMG LLP ("KPMG"), the independent registered public accounting firm that audited the consolidated financial statements included in this Annual Report on Form 10-K, to attest to and report on management's evaluation of the Company's internal control over financial reporting. KPMG's report is included herein.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Nelnet, Inc.:
We have audited management's assessment, included in the accompanying Management's Report on Internal Control over Financial Reporting, that Nelnet, Inc. maintained effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Nelnet, Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
36
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assessment that Nelnet, Inc. maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, Nelnet, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Nelnet, Inc. and subsidiaries as of December 31, 2004 and December 31, 2003, and the related consolidated statements of income, shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2004, and our report dated February 28, 2005 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP
Lincoln, Nebraska
February 28, 2005	

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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 the majority of its earnings from its student loan spread, the interest sensitivity of the balance sheet is a key profitability driver. The majority of student loans have variable-rate characteristics in certain interest rate environments. Some of the student loans include fixed-rate components depending upon the rate reset provisions, or, in the case of consolidation loans, are fixed at the weighted average interest rate of the underlying loans at the time of consolidation. The following table sets forth the Company's loan assets and debt instruments by rate characteristics:

                                        As of December 31, 2004  As of December 31, 2003
                                       -----------------------  -----------------------
                                          Dollars    Percent       Dollars     Percent
                                       ------------  ---------  ------------- ---------
                                                 (dollars in thousands)
Fixed-rate loan assets.................$ 5,559,748    41.8 %    $  5,532,497   53.6 %
Variable-rate loan assets............... 7,739,346    58.2         4,782,377   46.4
                                       ------------  ---------  ------------- ---------
   Total...............................$13,299,094   100.0 %    $ 10,314,874  100.0 %
                                       ============  =========  ============= =========

Fixed-rate debt instruments............$   712,641     5.0 %    $    927,694    8.2 %
Variable-rate debt instruments..........13,587,965    95.0        10,438,764   91.8
                                       ------------  ---------  ------------- ---------
   Total.............................. $14,300,606   100.0 %    $ 11,366,458  100.0 %
                                       ============  =========  ============= =========	

The following table shows the Company's student loan assets currently earning at a fixed-rate as of December 31, 2004:

                   Borrower/     Estimated
                    lender        variable         Current
 Fixed interest    weighted      conversion      balance of
  rate range     average yield    rate (a)    fixed rate assets
 --------------  -------------- ------------  ------------------
                                             (dollars in thousands)
   5.0 - 5.5%        5.13%           2.49%        $    89,727
   5.5 - 6.0         5.69            3.05             148,983
   6.0 - 6.5         6.21            3.57             293,269
   6.5 - 7.0         6.71            4.07             356,572
   7.0 - 8.0         7.52            4.88             311,288
     > 8.0           8.56            5.92             995,187
 9.5 floor yield     9.50            6.86           3,364,722
                                               ----------------
                                                  $ 5,559,748
                                               =================

---------------------	

(a) The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to variable rate.
Historically, the Company has followed a policy of funding the majority of its student loan portfolio with variable-rate debt. In a low interest rate environment, the FFELP loan portfolio yields excess income primarily due to the reduction in interest rates on the variable-rate liabilities that fund student loans at a fixed borrower rate and also due to consolidation loans earning interest at a fixed rate to the borrower. Therefore, absent utilizing derivative instruments, in a low interest rate environment, a rise in interest rates will have an adverse effect on earnings. In higher interest rate environments, where the interest rate rises above the borrower rate and the fixed-rate loans become variable rate and are effectively matched with variable-rate debt, the impact of rate fluctuations is substantially reduced.
The Company attempts to match the interest rate characteristics of pools of loan assets with debt instruments of substantially similar characteristics, particularly in rising interest rate environments. Due to the variability in duration of the Company's assets and varying market conditions, the Company does not attempt to perfectly match the interest rate characteristics of the entire loan portfolio with the underlying debt instruments. The Company has adopted a policy of periodically reviewing the mismatch related to the interest rate characteristics of its assets and liabilities and the Company's outlook as to current and future market conditions. Based on those factors, the Company will periodically use derivative instruments as part of its overall risk management strategy to manage risk arising from its fixed-rate and variable-rate financial instruments.
37
The following table summarizes the notional values and fair values of the Company's outstanding derivative instruments as of December 31, 2004:

                                            Notional amounts by product type
                                  ----------------------------------------------------------
                                                                            Weighted average
                                   Fixed/               Floating/           fixed rate on
                                  floating     Basis      fixed             fixed/floating
           Maturity               swaps (a)  swaps (b)   swaps (c)   Total       swaps
-------------------------------- ---------- ---------- ----------- -------- ----------------
                                                 (dollars in millions)
2005............................ $1,187      1,000         210       2,397       2.20%
2006............................    613        500          --       1,113        2.99
2007............................    512        --           --         512        3.42
2008............................    463        --           --         463        3.76
2009............................    312        --           --         312        4.01
2010............................  1,138        --           --       1,138        4.25
                                 --------   --------   ---------   ---------   --------
  Total.........................$ 4,225      1,500         210       5,935       3.32%
                                 ========   ========   =========   =========   ========
Fair value (d) (in thousands)...$(7,763)    (2,769)     (1,363)    (11,895)
                                 ========   ========   =========   =========	

(a) A fixed/floating swap is an interest rate swap in which the Company agrees to pay a fixed rate in exchange for a floating rate. The interest rate swap converts a portion of the Company's variable-rate debt (equal to the notional amount of the swap) to a fixed rate for a period of time, fixing the relative spread between a portion of the Company's student loan assets and the converted fixed-rate liability.
(b) A basis swap is an interest rate swap agreement in which the Company agrees to pay a floating rate in exchange for another floating rate, based upon different market indices. The Company has employed basis swaps to limit its sensitivity to dramatic fluctuations in the underlying indices used to price a portion of its variable-rate assets and variable-rate debt.
(c) A floating/fixed swap is an interest rate swap in which the Company agrees to pay a floating rate in exchange for a fixed rate. The interest rate swap converts a portion of the Company's fixed-rate debt (equal to the notional amount of the swap) to a floating rate for a period of time.
(d) Fair value is determined from market quotes from independent security brokers. Fair value indicates an estimated amount the Company would receive
(pay) if the contracts were cancelled or transferred to other parties.
Derivative instruments that are currently used as part of the Company's interest rate risk management strategy include interest rate swaps and basis swaps. The Company accounts for its derivative instruments in accordance with SFAS No. 133. SFAS No. 133 requires that changes in the fair value of derivative instruments be recognized currently in earnings unless specific hedge accounting criteria as specified by SFAS No. 133 are met. Management has structured all of the Company's derivative transactions with the intent that each is economically effective. However, the majority of the Company's derivative instruments do not qualify for hedge accounting under SFAS No. 133; consequently, the change in fair value of these derivative instruments is included in the Company's operating results. As of December 31, 2004, the Company accounted for one interest rate swap with a notional amount of $150 million as a cash flow hedge in accordance with SFAS No. 133. Gains and losses on the effective portion of this qualifying hedge are accumulated in other comprehensive income and reclassified to current period earnings over the period in which the stated hedged transactions impact earnings. Ineffectiveness is recorded to earnings through interest expense.
38
The following is a summary of the amounts included in derivative market value adjustment and net settlements on the consolidated income statements related to those derivative instruments that do not qualify for hedge accounting:

                                                     Year ended December 31,
                                                ------------------------------
                                                  2004      2003       2002
                                                --------- ---------  ---------
                                                    (dollars in thousands)

Change in fair value of derivative instruments..$(11,918) $(1,183)   $ 2,962
Settlements, net................................ (34,140)  (1,601)    (3,541)
                                                --------- ---------  ---------
Derivative market value adjustment and net
  settlements                                   $(46,058) $(2,784)   $  (579)
                                                ========= =========  =========	

The increase in the derivative market value adjustment and net settlements in 2004, in addition to the changes in interest rates and fluctuations in the forward yield curve, is the result of the Company entering into $3.7 billion in notional amount of derivatives in July 2004.
The following tables summarize the effect on the Company's earnings, based upon a sensitivity analysis performed by the Company assuming a hypothetical increase and decrease in interest rates of 100 basis points and an increase in interest rates of 200 basis points while funding spreads remain constant. The effect on earnings was performed on the Company's variable-rate assets and liabilities. The analysis includes the effects of the derivative instruments in existence during these periods.
As a result of the Company's interest rate management activities, primarily initiated in 2004, the Company expects the change in pre-tax net income resulting from 100 basis point and 200 basis point increases in interest rates will not result in a proportional decrease in net income.

                                                           Year ended December 31, 2004
                                          ------------------------------------------------------------------
                                          Change from decrease  Change from increase  Change from increase
                                           of 100 basis points   of 100 basis points   of 200 basis points
                                          ------------------    -------------------    -------------------
                                          Dollar    Percent      Dollar    Percent      Dollar    Percent
                                          --------  --------    ---------  --------    ---------  --------
Effect on earnings:                                   (dollars in thousands, except share data)
    Increase (decrease) in pre-tax
      net income before
      impact of derivative settlements...$  69,617      29.7 %  $ (36,312)    (15.5)%  $ (66,882)  (28.5)%
    Impact of derivative settlements.....  (60,177)    (25.7)      60,177      25.7      120,355    51.3
                                          --------  --------    ---------  --------    ---------  --------
    Increase in net income before taxes..$   9,440       4.0%    $ 23,865      10.2%   $ 53,473     22.8%
                                          ========  ========    =========  ========    =========  ========
    Increase in  basic and diluted
      earning per share..................$    0.11                  $0.28                $ 0.63
                                          ========              =========              =========

                                                          Year ended December 31, 2003
                                          ------------------------------------------------------------------
                                          Change from decrease  Change from increase  Change from increase
                                           of 100 basis points   of 100 basis points   of 200 basis points
                                          ------------------    -------------------    -------------------
                                          Dollar    Percent      Dollar    Percent      Dollar    Percent
                                          --------  --------    ---------  --------    ---------  --------
Effect on earnings:                                 (dollars in thousands, except share data)
    Increase (decrease) in pre-tax net
      income before impact of derivative
      settlements.........................$ 34,719      75.0.%  $ (18,256)   (39.4)%   $ (30,356)    (65.6)%
    Impact of derivative settlements......  (8,382)    (18.1)       6,007      13.0       13,202      28.5
                                          --------  --------    ---------  --------    ---------  --------
    Increase (decrease) in net income
      before taxes........................$ 26,337      56.9 %  $ (12,249)    (26.4)%  $ (17,154)    (37.1)%
                                          ========  ========    =========  ========    =========  ========
    Increase (decrease) in  basic and
      diluted earning per share...........$   0.37                  (0.17)                (0.24)
                                          ========              =========              =========

                                                          Year ended December 31, 2002
                                          ------------------------------------------------------------------
                                          Change from decrease  Change from increase  Change from increase
                                           of 100 basis points   of 100 basis points   of 200 basis points
                                          ------------------    -------------------    -------------------
                                          Dollar    Percent      Dollar    Percent      Dollar    Percent
                                          --------  --------    ---------  --------    ---------  --------
Effect on earnings:                                 (dollars in thousands, except share data)
    Increase (decrease) in pre-tax net
      income before impact of derivative
      settlements.........................$ 15,119      18.6 %  $ (11,553)    (14.2)%  $(20,236)   (24.9) %
    Impact of derivative settlements......    --        --           --         --        --         --
                                          --------  --------    ---------  --------    ---------  --------
    Increase (decrease) in net income
      before taxes....................... $ 15,119      18.6 %  $ (11,553)   (14.2)%   $(20,236)    (24.9) %
                                          ========  ========    =========  ========    =========  ========
    Increase (decrease) in  basic and
      diluted earning per share...........$   0.22.             $  (0.16)                 (0.29)
                                          ========              =========              =========	

39
The Company has historically provided information concerning the difference between volumes of assets and volumes of liabilities maturing or repricing during specific future time intervals (interest rate gap analysis). Management believes the table above provides a better perspective of the Company's interest rate risk.
FOREIGN CURRENCY EXCHANGE RISK
The Company purchased EDULINX in December 2004. EDULINX is a Canadian corporation that engages in servicing Canadian student loans. As a result of this acquisition, the Company is exposed to market risk related to fluctuations in foreign currency exchange rates between the U.S. and Canadian dollars. The Company has not entered into any foreign currency derivative instruments to hedge this risk. However, the Company does not believe fluctuations in foreign currency exchange rates will have a significant effect on the financial position, results of operations, or cash flows of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the consolidated financial statements listed under the heading "(a) 1. Consolidated Financial Statements" of Item 15 of this Report, which consolidated financial statements are incorporated into this Report by reference in response to this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
Under supervision and with the participation of certain members of the Company's management, including the co-chief executive officers and the chief financial officer, the Company completed an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) to the Securities Act). Based on this evaluation, the Company's co-chief executive officers and the chief financial officer believe that the disclosure controls and procedures were effective as of the end of the period covered by this Report with respect to timely communication to them and other members of management responsible for preparing periodic reports and material information required to be disclosed in this Report as it relates to the Company and its consolidated subsidiaries.
The effectiveness of the Company's or any system of disclosure controls and procedures is subject to certain limitations, including the exercise of judgment in designing, implementing, and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events, and the inability to eliminate misconduct completely. As a result, there can be no assurance that the Company's disclosure controls and procedures will prevent all errors or fraud or ensure that all material information will be made known to appropriate management in a timely fashion. By their nature, the Company's or any system of disclosure controls and procedures can provide only reasonable assurance regarding management's control objectives.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There was no change in the Company's internal control over financial reporting during the Company's last quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
During the fourth quarter of 2004, no information was required to be disclosed in a report on Form 8-K, but not reported.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information as to the directors and executive officers of the Company set forth under the captions "PROPOSAL 1--ELECTION OF DIRECTORS--Nominees" and "Executive Officers" in the Proxy Statement to be filed on Schedule 14A, no later than 120 days after the end of the Company's fiscal year with the SEC, relating to the Company's Annual Meeting of Shareholders scheduled to be held on May 26, 2005 (the "Proxy Statement") is incorporated into this Report by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "EXECUTIVE COMPENSATION" in the Proxy Statement is incorporated into this Report by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS, AND PRINCIPAL SHAREHOLDERS--Stock Ownership" in the Proxy Statement is incorporated into this Report by reference. There are no arrangements known to the Company, the operation of which may at a subsequent date result in a change in the control of the Company.
40
The following table summarizes, as of December 31, 2004, information about compensation plans under which equity securities are authorized for issuance.

Equity Compensation Plan Information

                           Number of shares    Weighted-average       Number of shares
                           to be issued upon    exercise price of     remaining available
                             exercise of          outstanding        for future issuance
                             outstanding      options, warrants,        under equity
                               options,           and rights         compensation plans
                            warrants, and                                (excluding
                                rights                              securities reflected
                                                                        in column (a))
       Plan category             (a)                  (b)                    (c)
  ----------------------- ------------------- --------------------  ---------------------

  Equity compensation
  plans approved by
  shareholders                     0                  $0                  2,054,797

  Equity compensation
  plans not approved by
  shareholders                     0                  $0                      0
                          ------------------- --------------------  ---------------------
  Total                            0                  $0                  2,054,797
                          =================== ====================  =====================	

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" in the Proxy Statement is incorporated into this Report by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information set forth under the caption "PROPOSAL 2--APPOINTMENT OF INDEPENDENT AUDITOR--Independent Accounting Fees and Services" in the Proxy Statement is incorporated into this Report by reference.
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1. Consolidated Financial Statements
The following consolidated financial statements of Nelnet, Inc. and its subsidiaries and the Report of Independent Registered Public Accounting Firm thereon are included in Item 8 above:

                                                                    Page
Report of Independent Registered Public Accounting Firm.............F-2
Consolidated Financial Statements for the years
ended December 31, 2004, 2003, and 2002:
  Consolidated Balance Sheets as of December 31, 2004 and 2003.......F-3
  Consolidated Statements of Income for the years ended
    December 31, 2004, 2003, and 2002................................F-4
  Consolidated Statements of Shareholders' Equity and Comprehensive
    Income for the years ended December 31, 2004, 2003, and 2002.....F-5
  Consolidated Statements of Cash Flows for the years ended
    December 31, 2004, 2003, and 2002................................F-6
  Notes to the Consolidated Financial Statements.....................F-7

2.  Financial Statement Schedules	

All schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
3. Exhibits
The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Report.
4. Appendix
Appendix A - Federal Family Education Loan Program
41
(b) Exhibits
EXHIBIT INDEX
Exhibit
No. Description
2.1 Plan of Reorganization, Plan of Merger and Merger Agreement, dated as of October 14, 1999, by and between Union Financial Services, Inc. and National Education Loan Network, Inc. Incorporated by reference to Exhibit 2.1 to the registrant's Registration Statement on Form S-1 (File No. 333-108070) (the "Form S-1 Registration Statement").
2.2 Articles of Merger certified by Union Financial Services, Inc., dated October 15, 1999. Incorporated by reference to Exhibit 2.2 to the registrant's Form S-1 Registration Statement.
2.3 Agreement and Plan of Reorganization, dated as of March 1, 2000, by and among UNIPAC Service Corporation, NelNet, Inc. (subsequently renamed National Education Loan Network, Inc.) and National Education Loan Network, Inc. Incorporated by reference to Exhibit 2.3 to the registrant's Form S-1 Registration Statement.
2.4 Plan of Merger, dated as of March 1, 2000, by and among NelNet, Inc. (subsequently renamed National Education Loan Network, Inc.), National Education Loan Network, Inc. and UNIPAC Service Corporation. Incorporated by reference to Exhibit 2.4 to the registrant's Form S-1 Registration Statement.
2.5 Articles of Merger certified by NelNet, Inc., dated March 1, 2000. Incorporated by reference to Exhibit 2.5 to the registrant's Form S-1 Registration Statement.
2.6 Letter Agreement relating to the purchase of the stock of InTuition Holdings, Inc., dated as of June 15, 2000, between NELnet, Inc. (subsequently renamed National Education Loan Network, Inc.) and Farmers & Merchants Investment Inc. Incorporated by reference to Exhibit 2.6 to the registrant's Form S-1 Registration Statement.
2.7 Transfer Agreement with Irrevocable Power of Attorney, dated as of June 28, 2001, by and between InTuition Development Holdings, LLC and InTuition Guarantee Services II, Inc. (which subsequently became Nelnet Guarantee Services Inc.) relating to the membership interests in InTuition Guarantee Services, LLC (which subsequently became GuaranTec LLP). Incorporated by reference to Exhibit 2.7 to the registrant's Form S-1 Registration Statement.
2.8 Master Stock Purchase Agreement, dated as of December 12, 2001, by and between EFS, Inc. and NELnet, Inc. (subsequently renamed National Education Loan Network, Inc.). Incorporated by reference to Exhibit 2.8 to the registrant's Form S-1 Registration Statement.
2.9 Stock Purchase Agreement, dated as of January 24, 2002, by and among NELnet, Inc. (subsequently renamed National Education Loan Network, Inc.) and Hilario Arguinchona. Incorporated by reference to Exhibit 2.9 to the registrant's Form S-1 Registration Statement.
2.10 Purchase Agreement, dated as of February 14, 2002, by and between InTuition Guarantee Services, LLC and NELnet, Inc. (subsequently renamed National Education Loan Network, Inc.). Incorporated by reference to Exhibit 2.10 to the registrant's Form S-1 Registration Statement.
2.11 Stock Purchase Agreement, dated May 1, 2002, by and among Nelnet Loan Services, Inc. (subsequently renamed Nelnet, Inc.) and Nelnet, Inc. (subsequently renamed National Education Loan Network, Inc.). Incorporated by reference to Exhibit 2.11 to the registrant's Form S-1 Registration Statement.
2.12 Stock Purchase Agreement, dated as of May 1, 2002, by and between Farmers & Merchants Investment Inc. and Nelnet Loan Services, Inc. (subsequently renamed Nelnet, Inc.). Incorporated by reference to Exhibit 2.12 to the registrant's Form S-1 Registration Statement.
2.13 Stock Purchase Agreement, dated May 2, 2002, by and among Packers Service Group, Inc. and Infovisa, Inc. Incorporated by reference to Exhibit 2.13 to the registrant's Form S-1 Registration Statement.
2.14 Stock Purchase Agreement, dated as of May 9, 2002, among Thomas Morrill, James Callier, Michael Cruskie, Dominic Rotondi, and Nelnet, Inc. (subsequently renamed National Education Loan Network, Inc.) concerning Charter Account Systems, Inc. Incorporated by reference to Exhibit 2.14 to the registrant's Form S-1 Registration Statement.
2.15 Senior Stock Purchase (Call) Option Agreement by and between NELnet, Inc. (subsequently renamed National Education Loan Network, Inc.) and Maine Educational Loan Marketing Corporation dated as of June 30, 2000. Incorporated by reference to Exhibit 2.15 to the registrant's Form S-1 Registration Statement.
2.16 Purchase Agreement, dated as of July 3, 2003, by and between Nelnet Loan Services, Inc. (subsequently renamed Nelnet, Inc.), Union Financial Services, Inc. and Packers Service Group, Inc. Incorporated by reference to Exhibit 2.16 to the registrant's Form S-1 Registration Statement.
2.17 Agreement for Purchase of LLC Membership Interest among David A.
Hoeft, Todd J. Wolfe, Tina D. Mercer, Premiere Credit of North America, LLC and Nelnet, Inc., dated as of January 28, 2004. Incorporated by reference to Exhibit 2.17 to the registrant's annual report for the year ended 2003, filed on Form 10-K.
3.1 Second Amended and Restated Articles of Incorporation of Nelnet, Inc. Incorporated by reference to Exhibit 3.1 to the registrant's Form S-1 Registration Statement.
3.2 Second Amended and Restated Bylaws of Nelnet, Inc. Incorporated by reference to Exhibit 3.2 to the registrant's Form S-1 Registration Statement.
3.3 Third Amended and Restated Bylaws of Nelnet, Inc. Incorporated by reference to Exhibit 3.1 to the registrant's current report on Form 8-K filed on November 18, 2004.
42

  4.1     Form of Class A Common Stock Certificate of Nelnet, Inc.
          Incorporated by reference to Exhibit 4.1 to the registrant's
          Form S-1 Registration Statement.
  4.2     Indenture of Trust by and between NELNET Student Loan
          Corporation-2 and Zions First National Bank, as Trustee, dated
          as of June 1, 2000. Incorporated by reference to Exhibit 4.2 to
          the registrant's Form S-1 Registration Statement.
  4.3     Series 2000 Supplemental Indenture of Trust by and between
          NELNET Student Loan Corporation-2 and Zions First National Bank,
          as Trustee, authorizing the issuance of $1,000,000,000 NELNET
          Student Loan Corporation-2 Taxable Student Loan Asset-Backed
          Notes Series 2000, dated as of June 1, 2000. Incorporated by
          reference to Exhibit 4.3 to the registrant's Form S-1
          Registration Statement.
  4.4     Indenture of Trust by and between Nelnet Student Loan Trust
          2002-1 and Zions First National Bank, as Trustee, dated as of
          May 1, 2002. Incorporated by reference to Exhibit 4.4 to the
          registrant's Form S-1 Registration Statement.
  4.5     Indenture of Trust by and between Nelnet Student Loan Trust
          2002-2 and Zions First National Bank, as Trustee, dated as of
          September 1, 2002. Incorporated by reference to Exhibit 4.5 to
          the registrant's Form S-1 Registration Statement.
  4.6     Indenture of Trust between Nelnet Student Loan Trust 2003-1 and
          Zions First National Bank, as Trustee, dated as of January 1,
          2003. Incorporated by reference to Exhibit 4.6 to the
          registrant's Form S-1 Registration Statement.
  4.7     Indenture of Trust by and among Nelnet Education Loan Funding,
          Inc., Wells Fargo Bank Minnesota, National Association, as
          Indenture Trustee, and Wells Fargo Bank Minnesota, National
          Association, as Eligible Lender Trustee, dated as of June 1,
          2003. Incorporated by reference to Exhibit 4.7 to the
          registrant's Form S-1 Registration Statement.
  4.8     Series 2003-1 Supplemental Indenture of Trust by and between
          Nelnet Education Loan Funding, Inc. and Wells Fargo Bank
          Minnesota, National Association, as Indenture Trustee,
          authorizing the issuance of $1,030,000,000 Nelnet Education Loan
          Funding, Inc. Student Loan Asset-Backed Notes Series 2003-1,
          dated as of June 1, 2003. Incorporated by reference to Exhibit
          4.8 to the registrant's Form S-1 Registration Statement.
  4.9     Option Agreement, dated as of January 24, 2002, by and between
          NELnet, Inc. (subsequently renamed National Education Loan
          Network, Inc.) and Hilario Arguinchona. Incorporated by
          reference to Exhibit 4.10 to the registrant's Form S-1
          Registration Statement.
  4.10    Registration Rights Agreement, dated as of December 16, 2003, by
          and among Nelnet, Inc. and the shareholders of Nelnet, Inc.
          signatory thereto. Incorporated by reference to Exhibit 4.11 to
          the registrant's Form S-1 Registration Statement.
  4.11    Indenture of Trust among Nelnet Education Loan Funding, Inc. and
          Wells Fargo Bank Minnesota, National Association, as Indenture
          Trustee and Eligible Lender Trustee, dated as of January 1,
          2004. Incorporated by reference to Exhibit 4.11 to the
          registrant's annual report for the year ended 2003, filed on
          Form 10-K.
  4.12    Trust Agreement, dated as of April 1, 2001, among NELNET Student
          Loan Corporation-1, as Depositor, MELMAC LLC, as Depositor,
          NELnet, Inc. (subsequently renamed National Education Loan
          Network, Inc.), as Administrator, The Chase Manhattan Bank, as
          Collateral Agent, Note Registrar and Note Paying Agent, and
          Wilmington Trust Company, as Trustee, Certificate Registrar and
          Certificate Paying Agent. Incorporated by reference to Exhibit
          10.59 to the registrant's Form S-1 Registration Statement.
   4.13   Trust Agreement, dated as of December 1, 2001, among EMT Corp.,
          as Depositor, NELnet, Inc. (subsequently renamed National
          Education Loan Network, Inc.), as Administrator, JPMorgan Chase
          Bank, as Collateral Agent, Note Registrar and Note Paying Agent,
          and Wilmington Trust Company, as Trustee, Certificate Registrar
          and Certificate Paying Agent. Incorporated by reference to
          Exhibit 10.60 to the registrant's Form S-1 Registration
          Statement.
  4.14    Indenture of Trust among Nelnet Education Loan Funding, Inc. and
          Wells Fargo Bank, National Association, as Indenture Trustee and
          Eligible Lender Trustee, dated as of April 1, 2004. Incorporated
          by reference to Exhibit 4.14 to the registrant's quarterly
          report for the period ended March 31, 2004, filed on Form 10-Q.
  4.15    Indenture of Trust, dated as of July 1, 2004, between Nelnet
          Student Loan Trust 2004-3 and Zions First National Bank, as
          eligible lender trustee and as indenture trustee. Incorporated
          by reference to Exhibit 4.15 to the registrant's quarterly
          report for the period ended June 30, 2004, filed on Form 10-Q.
  4.16    Indenture of Trust, dated as of September 1, 2004, between
          Nelnet Student Loan Trust 2004-4 and Zions First National Bank,
          as eligible lender trustee and as indenture trustee.
          Incorporated by reference to Exhibit 4.16 to the registrant's
          quarterly report for the period ended September 30, 2004, filed
          on Form 10-Q.
 4.17*    Indenture of Trust, dated as of February 1, 2005, by and
          between Nelnet Student Loan Trust 2005-1 and Zions First
          National Bank, as Trustee and Eligible Lender Trustee.
10.1      Agreement to Terminate Stockholders Agreement, dated as of
          August 4, 2003, by and among Nelnet Loan Services, Inc. (f/k/a
          UNIPAC Service Corporation) (subsequently renamed Nelnet,
          Inc.) and those stockholders party to the Stockholders
          Agreement dated as of March 2, 2000. Incorporated by reference
          to Exhibit 10.2 to the registrant's Form S-1 Registration
          Statement.

                                 43	

10.2      Warehouse Note Purchase and Security Agreement among
          NHELP-III, Inc., as the Issuer, Norwest Bank Minnesota,
          National Association, as the Trustee, Delaware Funding
          Corporation, as a Note Purchaser, Three Rivers Funding
          Corporation, as a Note Purchaser, Morgan Guaranty Trust
          Company of New York, as DFC Agent and Administrative Agent,
          and Mellon Bank, N.A., as TRFC Agent, dated as of September 1,
          1999. Incorporated by reference to Exhibit 10.10 to the
          registrant's Form S-1 Registration Statement.
10.3      First Amendment to Warehouse Note Purchase and Security
          Agreement among NHELP-III, Inc., as the Issuer, Wells Fargo
          Bank Minnesota, National Association, as the successor
          Trustee, Delaware Funding Corporation, as a Note Purchaser,
          Three Rivers Funding Corporation, as a Note Purchaser, Morgan
          Guaranty Trust Company of New York, as DFC Agent and
          Administrative Agent, and Mellon Bank, N.A., as TRFC Agent,
          dated as of September 1, 2000. Incorporated by reference to
          Exhibit 10.11 to the registrant's Form S-1 Registration
          Statement.
10.4      Second Amendment to Warehouse Note Purchase and Security
          Agreement among NHELP-III, Inc., as the Issuer, Wells Fargo
          Bank Minnesota, National Association, as the successor
          Trustee, Delaware Funding Corporation, as a Note Purchaser,
          Three Rivers Funding Corporation, as a Note Purchaser,
          JPMorgan Chase Bank, as DFC Agent and Administrative Agent,
          and Mellon Bank, N.A., as TRFC Agent, dated as of September
          12, 2002. Incorporated by reference to Exhibit 10.12 to the
          registrant's Form S-1 Registration Statement.
10.5      Amendment to Warehouse Note Purchase and Security Agreement,
          dated as of June 1, 2003, by and among NHELP-III, Inc., as the
          Issuer, Delaware Funding Corporation, as Note Purchaser, Three
          Rivers Funding Corporation, as Note Purchaser, JPMorgan Chase
          Bank (successor to Morgan Guaranty and Trust Company of New
          York), as DFC Agent and Administrative Agent, and Mellon Bank,
          N.A., as TRFC Agent. Incorporated by reference to Exhibit
          10.13 to the registrant's Form S-1 Registration Statement.
10.6      Warehouse Loan and Security Agreement among NELnet Student
          Loan Warehouse Corporation-1, as Borrower, Zions First
          National Bank, as Trustee, Thunder Bay Funding Inc., as
          Lender, and Royal Bank of Canada, as Facility Agent and
          Alternate Lender, dated as of February 1, 2002. Incorporated
          by reference to Exhibit 10.14 to the registrant's Form S-1
          Registration Statement.
10.7      Amended and Restated Warehouse Loan and Security Agreement
          among Nelnet Education Loan Funding, Inc., as Borrower, Wells
          Fargo Bank Minnesota, National Association, as Eligible Lender
          Trustee, Zions First National Bank, as Trustee, Thunder Bay
          Funding, Inc., as Lender, and Royal Bank of Canada, as
          Facility Agent and Alternate Lender, dated as of April 28,
          2003. Incorporated by reference to Exhibit 10.15 to the
          registrant's Form S-1 Registration Statement.
10.8      Warehouse Note Purchase and Security Agreement among Nelnet
          Education Loan Funding, as Borrower, Wells Fargo Bank
          Minnesota, National Association, as Trustee, Wells Fargo Bank
          Minnesota, National Association, as Eligible Lender Trustee,
          Quincy Capital Corporation, as Bank of America Conduit Lender,
          Bank of America, N.A., as Bank of America Alternate Lender,
          Bank of America, N.A., as Bank of America Facility Agent,
          Gemini Securitization Corp., as Deutsche Bank Conduit Lender,
          Deutsche Bank AG, New York Branch, as Deutsche Bank Alternate
          Lender, Deutsche Bank AG, New York Branch, as Deutsche Bank
          Facility Agent, Barton Capital Corporation, as Societe
          Generale Conduit Lender, Societe Generale, as Societe Generale
          Alternate Lender, Societe Generale, as Societe Generale
          Facility Agent, and Bank of America, N.A., as Administrative
          Agent, dated as of May 1, 2003. Incorporated by reference to
          Exhibit 10.16 to the registrant's Form S-1 Registration
          Statement.
10.9      Irrevocable Letter of Credit in the amount of $50,000,000,
          dated as of May 23, 2003, by and between Nelnet, Inc.
          (subsequently renamed National Education Loan Network, Inc.)
          and Bank of America, N.A. Incorporated by reference to Exhibit
          10.23 to the registrant's Form S-1 Registration Statement.
10.10     Continuing Guaranty, dated as of May 23, 2003, by and between
          Nelnet Loan Services, Inc. (subsequently renamed Nelnet, Inc.)
          and Bank of America, N.A. Incorporated by reference to Exhibit
          10.24 to the registrant's Form S-1 Registration Statement.
10.11     Agreement Between 5280 Solutions and Nelnet/Unipac, dated as
          of April 12, 2001. Incorporated by reference to Exhibit 10.25
          to the registrant's Form S-1 Registration Statement.
10.12+    Employment Contract, dated as of May 1, 2001, by and between
          NHELP, Inc. and Richard H. Pierce. Incorporated by reference to
          Exhibit 10.26 to the registrant's Form S-1 Registration
          Statement.
10.13     Marketing Expense Reimbursement Agreement, dated as of January
          1, 1999, by and between Union Bank and Trust Company and
          National Education Loan Network, Inc. Incorporated by
          reference to Exhibit 10.27 to the registrant's Form S-1
          Registration Statement.
10.14     First Amendment of Marketing Expense Reimbursement Agreement,
          dated as of April 1, 2001, by and between Union Bank and Trust
          Company and NELnet, Inc. (f/k/a National Education Loan
          Network, Inc.) (subsequently renamed National Education Loan
          Network, Inc.). Incorporated by reference to Exhibit 10.28 to
          the registrant's Form S-1 Registration Statement.
10.15     Second Amendment of Marketing Expense Reimbursement Agreement,
          dated as of December 21, 2001, by and between Union Bank and
          Trust Company and NELnet, Inc. (f/k/a National Education Loan
          Network, Inc.) (subsequently renamed National Education Loan
          Network, Inc.). Incorporated by reference to Exhibit 10.29 to
          the registrant's Form S-1 Registration Statement.
10.16     Amended and Restated Participation Agreement, dated as of June
          1, 2001, by and between NELnet, Inc. (subsequently renamed
          National Education Loan Network, Inc.) and Union Bank and Trust
          Company. Incorporated by reference to Exhibit 10.30 to the
          registrant's Form S-1 Registration Statement.

                                 44	

10.17     First Amendment of Amended and Restated Participation
          Agreement, dated as of December 19, 2001, by and between Union
          Bank and Trust Company and NELnet, Inc. (subsequently renamed
          National Education Loan Network, Inc.). Incorporated by
          reference to Exhibit 10.31 to the registrant's Form S-1
          Registration Statement.
10.18     Second Amendment of Amended and Restated Participation
          Agreement, dated as of December 1, 2002, by and between Union
          Bank and Trust Company and Nelnet, Inc. (f/k/a NELnet, Inc.)
          (subsequently renamed National Education Loan Network, Inc.).
          Incorporated by reference to Exhibit 10.32 to the registrant's
          Form S-1 Registration Statement.
10.19     Alternative Loan Participation Agreement, dated as of June 29,
          2001, by and between NELnet, Inc. (subsequently renamed National
          Education Loan Network, Inc.) and Union Bank and Trust Company.
          Incorporated by reference to Exhibit 10.33 to the registrant's
          Form S-1 Registration Statement.
10.20     Amended and Restated Agreement, dated as of January 1, 1999,
          by and between Union Bank and Trust Company and National
          Education Loan Network, Inc. Incorporated by reference to
          Exhibit 10.34 to the registrant's Form S-1 Registration
          Statement.
10.21     Guaranteed Purchase Agreement, dated as of March 19, 2001, by
          and between NELnet, Inc. (subsequently renamed National
          Education Loan Network, Inc.) and Union Bank and Trust Company.
          Incorporated by reference to Exhibit 10.36 to the registrant's
          Form S-1 Registration Statement.
10.22     First Amendment of Guaranteed Purchase Agreement, dated as of
          February 1, 2002, by and between NELnet, Inc. (subsequently
          renamed National Education Loan Network, Inc.) and Union Bank
          and Trust Company. Incorporated by reference to Exhibit 10.37 to
          the registrant's Form S-1 Registration Statement.
10.23     Second Amendment of Guaranteed Purchase Agreement, dated as of
          December 1, 2002, by and between Nelnet, Inc. (f/k/a/ NELnet,
          Inc.) (subsequently renamed National Education Loan Network,
          Inc.) and Union Bank and Trust Company. Incorporated by
          reference to Exhibit 10.38 to the registrant's Form S-1
          Registration Statement.
10.24     Agreement For Use of Revolving Purchase Facility, dated as of
          January 1, 1999, by and between Union Bank and Trust Company
          and National Education Loan Network, Inc. Incorporated by
          reference to Exhibit 10.78 to the registrant's Form S-1
          Registration Statement.
10.25+    Nelnet, Inc. Executive Officers' Bonus Plan. Incorporated by
          reference to Exhibit 10.79 to the registrant's Form S-1
          Registration Statement.
10.26+    Share Retention Policy. Incorporated by reference to Exhibit
          10.83 to the registrant's Form S-1 Registration Statement.
10.27+    Nelnet, Inc. Restricted Stock Plan. Incorporated by reference to
          Exhibit 4.12 to the registrant's Form S-1 Registration
          Statement.
10.28+    Nelnet, Inc. Directors Stock Compensation Plan. Incorporated by
          reference to Exhibit 4.13 to the registrant's Form S-1
          Registration Statement.
10.29+    Nelnet, Inc. Employee Share Purchase Plan. Incorporated by
          reference to Exhibit 4.14 to the registrant's Form S-1
          Registration Statement.
10.30     Operating Agreement of FirstMark Services, LLC, dated as of
          March 31, 2002. Incorporated by reference to Exhibit 10.84 to
          the registrant's Form S-1 Registration Statement.
10.31     Credit Agreement by and among Nelnet, Inc., National Education
          Loan Network, Inc., M&I Marshall Ilsley Bank, SunTrust Bank,
          First National Bank of Omaha, and Fifth Third Bank, Indiana,
          dated as of September 25, 2003. Incorporated by reference to
          Exhibit 10.85 to the registrant's Form S-1 Registration
          Statement.
10.32     Guaranty Agreement, by and among Charter Account Systems, Inc.,
          ClassCredit, Inc., EFS, Inc., EFS Services, Inc., GuaranTec LLP,
          Idaho Financial Associates, Inc., InTuition, Inc., National
          Higher Educational Loan Program, Inc., Nelnet Canada, Inc.,
          Nelnet Corporation (subsequently renamed Nelnet Corporate
          Services, Inc.), Nelnet Guarantee Services, Inc., Nelnet
          Marketing Solutions, Inc., Student Partner Services, Inc., UFS
          Securities, LLC and Shockley Financial Corp., dated as of
          September 25, 2003. Incorporated by reference to Exhibit 10.86
          to the registrant's Form S-1 Registration Statement.
10.33     Security Agreement, dated as of September 25, 2003, by and
          between Nelnet, Inc. and M&I Marshall & Ilsley Bank, as Agent.
          Incorporated by reference to Exhibit 10.87 to the registrant's
          Form S-1 Registration Statement.
10.34     Security Agreement, dated as of September 25, 2003, by and
          between National Education Loan Network, Inc. and M&I Marshall &
          Ilsley Bank, as Agent. Incorporated by reference to Exhibit
          10.88 to the registrant's Form S-1 Registration Statement.
10.35     Intercreditor Agreement, dated as of September 25, 2003, by
          and among M&I Marshall & Ilsley Bank, SunTrust Bank, First
          National Bank of Omaha, Fifth Third Bank, Indiana and Bank of
          America, N.A. Incorporated by reference to Exhibit 10.89 to
          the registrant's Form S-1 Registration Statement.
10.36     Letter Agreement by and between Nelnet Education Loan Funding,
          Inc. and Bank of America, N.A., dated as of June 25, 2003,
          relating to the increase of the Warehouse Note Purchase and
          Security Agreement dated as of May 1, 2003. Incorporated by
          reference to Exhibit 10.90 to the registrant's Form S-1
          Registration Statement.
10.37     Letter Agreement by and between Nelnet Education Loan Funding,
          Inc. and Deutsche Bank AG, New York Branch, dated as of June
          25, 2003, relating to the increase of the Warehouse Note
          Purchase and Security Agreement dated as of May 1, 2003.
          Incorporated by reference to Exhibit 10.91 to the registrant's
          Form S-1 Registration Statement.
10.38     Letter Agreement by and between Nelnet Education Loan Funding,
          Inc. and Societe Generale, dated as of June 25, 2003, relating
          to the increase of the Warehouse Note Purchase and Security
          Agreement dated as of May 1, 2003. Incorporated by reference
          to Exhibit 10.92 to the registrant's Form S-1 Registration
          Statement.	

45

10.39     Amendment to Application and Agreement for Standby Letter of
          Credit, Loan Purchase Agreements, and Standby Student Loan
          Purchase Agreements, dated effective October 21, 2003, by and
          among National Education Loan Network, Inc., Nelnet, Inc.,
          Nelnet Education Loan Funding, Inc., Union Bank and Trust
          Company, and Bank of America, N.A. Incorporated by reference
          to Exhibit 10.94 to the registrant's Form S-1 Registration
          Statement.
10.40     Letter Agreement between Nelnet Education Loan Funding, Inc.
          and Deutsche Bank AG, dated as of February 20, 2004.
          Incorporated by reference to Exhibit 10.56 to the registrant's
          annual report for the year ended 2003, filed on Form 10-K.
10.41     Letter Agreement between Nelnet Education Loan Funding, Inc.
          and Bank of America, N.A., dated as of February 20, 2004.
          Incorporated by reference to Exhibit 10.57 to the registrant's
          annual report for the year ended 2003, filed on Form 10-K.
10.42     Letter Agreement between Nelnet Education Loan Funding, Inc. and
          Societe Generale, dated as of February 20, 2004. Incorporated by
          reference to Exhibit 10.58 to the registrant's annual report for
          the year ended 2003, filed on Form 10-K.
10.43     Lease Assignment and Assumption Agreement between MES - Maine
          Education Services as assignor and Nelnet Corporate Services,
          Inc. as assignee, dated as of February 1, 2004. Incorporated
          by reference to Exhibit 10.59 to the registrant's annual
          report for the year ended 2003, filed on Form 10-K.
10.44     Operating Agreement for Premiere Credit of North America, LLC
          among Nelnet, Inc., Todd J. Wolfe, David A. Hoeft, and Tina D.
          Mercer, dated as of January 28, 2004. Incorporated by
          reference to Exhibit 10.60 to the registrant's annual report
          for the year ended 2003, filed on Form 10-K.
10.45     Third Amendment to Amended and Restated Participation
          Agreement between National Education Loan Network, Inc. and
          Union Bank and Trust Company, dated as of February 5, 2004.
          Incorporated by reference to Exhibit 10.61 to the registrant's
          annual report for the year ended 2003, filed on Form 10-K.
10.46     February 2004 Amendment to Application and Agreement for
          Standby Letter of Credit, Loan Purchase Agreements and Standby
          Student Loan Purchase Agreements, dated as of February 20,
          2004, among National Education Loan Network, Inc., Nelnet,
          Inc., Nelnet Education Loan Funding, Inc., Union Bank and
          Trust Company, and Bank of America, N.A. Incorporated by
          reference to Exhibit 10.62 to the registrant's annual report
          for the year ended 2003, filed on Form 10-K.
10.47     Amendment to Application and Agreement for Standby Letter of
          Credit, Loan Purchase Agreements, and Standby Student Loan
          Purchase Agreements, dated effective November 20, 2003, by and
          among National Education Loan Network, Inc., Nelnet, Inc.,
          Nelnet Education Loan Funding, Inc., Union Bank and Trust
          Company, and Bank of America, N.A. Incorporated by reference
          to Exhibit 10.63 to the registrant's annual report for the
          year ended 2003, filed on Form 10-K.
10.48     Amendment to Application and Agreement for Standby Letter of
          Credit, Loan Purchase Agreements, and Standby Student Loan
          Purchase Agreements, dated effective December 19, 2003, by and
          among National Education Loan Network, Inc., Nelnet, Inc.,
          Nelnet Education Loan Funding, Inc., Union Bank and Trust
          Company, and Bank of America, N.A. Incorporated by reference
          to Exhibit 10.64 to the registrant's annual report for the
          year ended 2003, filed on Form 10-K.
10.49     Agreement of Lease Renewal among Marianne B. Jardine, Trustee
          of National Education Loan of New England as assignee, dated
          as of June 1, 2002. Incorporated by reference to Exhibit 10.65
          to the registrant's annual report for the year ended 2003,
          filed on Form 10-K.
10.50     Amended and Restated Warehouse Note Purchase and Security
          Agreement, dated as of March 1, 2004, among NHELP-III, Inc.,
          Wells Fargo Bank, National Association as Trustee, Delaware
          Funding Company LLC, Park Avenue Receivables Company LLC,
          Three Rivers Funding Corporation, JPMorgan Chase Bank, and
          Mellon Bank, N.A. Incorporated by reference to Exhibit 10.66
          to the registrant's quarterly report for the period ended
          March 31, 2004, filed on Form 10-Q.
10.51     April 2004 Amendment to Application and Agreement for Standby
          Letter of Credit, Loan Purchase Agreements, and Standby
          Purchase Agreements, dated effective April 15, 2004, among
          Bank of America, N.A., Nelnet Education Loan Funding, Inc.,
          National Education Loan Network, Inc, Nelnet, Inc., and Union
          Bank and Trust Company. Incorporated by reference to Exhibit
          10.67 to the registrant's quarterly report for the period
          ended March 31, 2004, filed on Form 10-Q.
10.52     Loan Sale and Commitment Agreement among Union Bank and Trust
          Company and Student Loan Acquisition Authority of Arizona,
          dated as of April 1, 2002, relating to student loan sale
          terms. Incorporated by reference to Exhibit 10.68 to the
          registrant's quarterly report for the period ended March 31,
          2004, filed on Form 10-Q.
10.53     Letter Agreement among National Education Loan Network, Inc.,
          Student Loan Acquisition Authority of Arizona, LLC, and Union
          Bank and Trust Company, dated as of April 19, 2004, relating
          to student loan sale terms. Incorporated by reference to
          Exhibit 10.69 to the registrant's quarterly report for the
          period ended March 31, 2004, filed on Form 10-Q.
10.54     Marketing Agreement dated as of May 1, 2004, between Nelnet,
          Inc. and infiNET Integrated Solutions, Inc. Incorporated by
          reference to Exhibit 10.70 to the registrant's quarterly
          report for the period ended March 31, 2004, filed on Form
          10-Q.
10.55     Agreement to Extend Termination Date for the Warehouse Note
          Purchase and Security Agreement, dated as of May 1, 2004,
          among Nelnet Education Loan Funding, Inc., Bank of America,
          N.A., Deutsche Bank AG, New York Branch, and Societe Generale.
          Incorporated by reference to Exhibit 10.71 to the registrant's
          quarterly report for the period ended March 31, 2004, filed on
          Form 10-Q.	

46

      10.56     Stock Purchase Agreement, dated as of April 5, 2004, between
                National Education Loan Network, Inc. and infiNET Integrated
                Solutions, Inc. Incorporated by reference to Exhibit 10.72 to
                the registrant's quarterly report for the period ended March
                31, 2004, filed on Form 10-Q.
      10.57     Industrial Space Lease dated as of March 26, 2002, between CGA
                Investment Company LLC and infiNET Integrated Solutions, Inc.
                Incorporated by reference to Exhibit 10.73 to the registrant's
                quarterly report for the period ended March 31, 2004, filed on
                Form 10-Q.
      10.58     First Amendment to Lease dated as of February 18, 2003,
                between CGA Investment Company LLC and infiNET Integrated
                Solutions, Inc. Incorporated by reference to Exhibit 10.74 to
                the registrant's quarterly report for the period ended March
                31, 2004, filed on Form 10-Q.
      10.59     Second Amendment to Lease dated as of April 13, 2004, between
                CGA Investment Company LLC and infiNET Integrated Solutions,
                Inc. Incorporated by reference to Exhibit 10.75 to the
                registrant's quarterly report for the period ended March 31,
                2004, filed on Form 10-Q.
      10.60     Line of Credit Agreement dated as of June 15, 2004, between
                National Education Loan Network, Inc. and Premiere Credit of
                North America, LLC. Incorporated by reference to Exhibit 10.76
                to the registrant's quarterly report for the period ended June
                30, 2004, filed on Form 10-Q.
      10.61     Promissory Note dated as of June 15, 2004, and executed by
                Premiere Credit of North America, LLC, in favor of National
                Education Loan Network, Inc. Incorporated by reference to
                Exhibit 10.77 to the registrant's quarterly report for the
                period ended June 30, 2004, filed on Form 10-Q.
      10.62     Security Agreement dated as of June 15, 2004, between National
                Education Loan Network, Inc. and Premiere Credit of North
                America, LLC. Incorporated by reference to Exhibit 10.78 to
                the registrant's quarterly report for the period ended June
                30, 2004, filed on Form 10-Q.
      10.63     Real Estate Mortgage dated as of June 15, 2004, and executed
                by Premiere Credit of North America, LLC, in favor of National
                Education Loan Network, Inc. Incorporated by reference to
                Exhibit 10.79 to the registrant's quarterly report for the
                period ended June 30, 2004, filed on Form 10-Q.
      10.64     First Amendment to Amended and Restated Warehouse Note
                Purchase and Security Agreement dated as of June 29, 2004, by
                and among NHELP-III, Inc., Delaware Funding Company, LLC, Park
                Avenue Receivables Corporation, Three Rivers Funding
                Corporation, JPMorgan Chase Bank, and Mellon Bank, N.A.
                Incorporated by reference to Exhibit 10.80 to the registrant's
                quarterly report for the period ended June 30, 2004, filed on
                Form 10-Q.
      10.65     Amendment of Agreements dated as of February 4, 2005, by and
                between National Education Loan Network, Inc. and Union Bank
                and Trust Company. Incorporated by reference to Exhibit 10.1
                to the registrant's current report on Form 8-K on filed
                February 10, 2005.
      10.66*    Agreement to Purchase and Sell Partial Interest in Aircraft,
                dated as of September 27, 2004, among Nelnet Corporate Services,
                Inc., Crete Carrier Corporation, and Nebco Intermodal, Inc.
      10.67*    Aircraft Management Agreement, dated as of September 30, 2004,
                by and among Nelnet Corporate Services, Inc., Duncan Aviation,
                Inc., and Union Financial Services, Inc.
      10.68*    Aircraft Joint Ownership Agreement, dated as of September 30,
                2004, by and between Nelnet Corporate Services, Inc. and Union
                Financial Services, Inc.
      10.69*    Aircraft Sales Agreement, dated as of October 1, 2004, by and
                among Nelnet Corporate Services, Inc., Union Financial Services,
                Inc., and Mobek Investments, LLC.
      10.70*    Amendment No. 1 to Credit Agreement dated September 24, 2004, by
                and among Nelnet, Inc., National Education Loan Network, Inc.,
                M&I Marshall Ilsley Bank, SunTrust Bank, First National Bank of
                Omaha, and Fifth Third Bank.
      14.1*     Nelnet, Inc. Code of Ethics.
      14.2*     Nelnet Education Loan Funding, Inc. Code of Ethics.
      21.1*     Subsidiaries of Nelnet, Inc.
      23.1*     Consent of KPMG LLP, Independent Registered Public Accounting
                Firm.
      31.1*     Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
                of 2002 of Co-Chief Executive Officer Michael S. Dunlap.
      31.2*     Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
                of 2002 of Co-Chief Executive Officer Stephen F. Butterfield.
      31.3*     Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
                of 2002 of Chief Financial Officer Terry J. Heimes.
      32.**     Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
                Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

----------	

* Filed herewith ** Furnished herewith
+ Indicates a compensatory plan or arrangement contemplated by Item 15(a)
(3) of Form 10-K
47
 
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 16, 2005
NELNET, INC.

By:     /s/ MICHAEL S. DUNLAP
-------------------------------------------------
Name:  Michael S. Dunlap
Title: Chairman and Co-Chief Executive Officer
       (Co-Principal Executive Officer)	

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the dates indicated.

           Signature                       Title                    Date

    /s/ MICHAEL S. DUNLAP                Chairman and           March 16, 2005
--------------------------------   Co-Chief Executive Officer
      Michael S. Dunlap              (Co-Principal Executive
                                            Officer)

  /s/ STEPHEN F. BUTTERFIELD           Vice Chairman and        March 16, 2005
--------------------------------   Co-Chief Executive Officer
    Stephen F. Butterfield           (Co-Principal Executive
                                            Officer)

     /s/ TERRY J. HEIMES            Chief Financial Officer     March 16, 2005
--------------------------------  (Principal Financial Officer
       Terry J. Heimes                         and
                                  Principal Accounting Officer)

       /s/ DON R. BOUC                     Director             March 16, 2005
--------------------------------
         Don R. Bouc

      /s/ JAMES P. ABEL                    Director             March 16, 2005
--------------------------------
        James P. Abel

    /s/ THOMAS E. HENNING                  Director             March 16, 2005
--------------------------------
      Thomas E. Henning

      /s/ ARTURO MORENO                    Director             March 16, 2005
--------------------------------
        Arturo Moreno

    /s/ BRIAN J. O'CONNOR                  Director             March 16, 2005
--------------------------------
      Brian J. O'Connor

     /s/ MICHAEL REARDON                   Director             March 16, 2005
--------------------------------
       Michael Reardon

     /s/ JAMES H. VANHORN                  Director             March 16, 2005
--------------------------------
        James H. VanHorn	

48
NELNET, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements

                                                                           Page

Report of Independent Registered Public Accounting Firm                     F-2

Consolidated Balance Sheets as of December 31, 2004 and 2003                F-3

Consolidated Statements of Income for the years ended December 31, 2004,
    2003, and 2002                                                          F-4

Consolidated Statements of Shareholders' Equity and Comprehensive Income
    for the years ended December 31, 2004, 2003, and 2002                   F-5

Consolidated Statements of Cash Flows for the years ended December 31,
    2004, 2003, and 2002                                                    F-6

Notes to Consolidated Financial Statements                                  F-7	

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Nelnet, Inc.:
We have audited the accompanying consolidated balance sheets of Nelnet, Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income, shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2004. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nelnet, Inc. and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004 in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Nelnet, Inc.'s internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control--Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 28, 2005 expressed an unqualified opinion on management's assessment of, and the effective operation of, internal control over financial reporting.

/s/ KPMG LLP
Lincoln, Nebraska
February 28, 2005	

F-2

                          NELNET, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                           December 31, 2004 and 2003
                                                                             2004              2003
                                                                         --------------    -------------
                                                                     (Dollars in thousands, except share data)
Assets:
    Student loans receivable (net of allowance for
      loan losses of $7,272 in 2004 and $16,026 in 2003)               $ 13,461,814       10,455,442
    Cash and cash equivalents:
      Cash and cash equivalents - not held at a related party                 4,854          188,272
      Cash and cash equivalents - held at a related party                    35,135           10,151
                                                                       --------------    -------------
             Total cash and cash equivalents                                 39,989          198,423
    Restricted cash                                                         732,066          634,263
    Restricted investments                                                  281,829          180,688
    Restricted cash - due to loan program customers                         249,070          141,841
    Accrued interest receivable                                             251,104          196,633
    Accounts receivable, net                                                 27,156           17,289
    Goodwill                                                                  8,522            2,551
    Intangible assets, net                                                   11,987            9,079
    Furniture, equipment, and leasehold improvements, net                    29,870           19,138
    Other assets                                                             66,598           76,839
                                                                       --------------    -------------
             Total assets                                              $ 15,160,005       11,932,186
                                                                       ==============    =============

Liabilities:
    Bonds and notes payable                                            $ 14,300,606       11,366,458
    Accrued interest payable                                                 48,578           17,179
    Fair value of derivative instruments, net                                11,895              677
    Other liabilities                                                        93,681          100,542
    Due to loan program customers                                           249,070          141,841
                                                                       --------------    -------------
             Total liabilities                                           14,703,830       11,626,697
                                                                       --------------    -------------
Shareholders' equity:
    Preferred stock, $0.01 par value.
      Authorized 50,000,000 shares; no shares issued or outstanding            --                --
    Common stock:
      Class A, $0.01 par value.
        Authorized 600,000,000 shares; issued and outstanding
        39,687,037 shares in 2004 and 39,601,834 shares in 2003                 397              396
      Class B, convertible, $0.01 par value.
        Authorized 15,000,000 shares; issued and outstanding
        13,983,454 shares in 2004 and 14,023,454 shares in 2003                 140              140
    Additional paid-in capital                                              207,915          206,831
    Retained earnings                                                       247,064           97,885
    Unearned compensation                                                      (77)              --
    Accumulated other comprehensive income, net of taxes                        736              237
                                                                       --------------    -------------
             Total shareholders' equity                                     456,175          305,489

Commitments and contingencies
                                                                       --------------    -------------
             Total liabilities and shareholders' equity                $ 15,160,005       11,932,186
                                                                       ==============    =============
See accompanying notes to consolidated financial statements.	

F-3

                          NELNET, INC. AND SUBSIDIARIES
                        Consolidated Statements of Income
                  Years ended December 31, 2004, 2003, and 2002
                                                                      2004           2003           2002
                                                                  ------------   ------------   ------------
                                                                    (Dollars in thousands, except share data)
Interest income:
    Loan interest                                                  $ 635,014        356,815        403,016
    Investment interest                                               17,762         15,203         20,759
                                                                  ------------   ------------   ------------
      Total interest income                                          652,776        372,018        423,775
Interest expense:
    Interest on bonds and notes payable                              254,610        200,296        238,746
                                                                  ------------   ------------   ------------
      Net interest income                                            398,166        171,722        185,029
Less provision (recovery) for loan losses                               (529)        11,475          5,587
                                                                  ------------   ------------   ------------
      Net interest income after provision (recovery)
        for loan losses                                              398,695        160,247        179,442
                                                                  ------------   ------------   ------------
Other income:
    Loan servicing and other fee income                               98,661        102,959        105,160
    Software services and other income                                25,868         19,017         22,781
    Derivative market value adjustment and net settlements           (46,058)        (2,784)          (579)
                                                                  ------------   ------------   ------------
      Total other income                                              78,471        119,192        127,362
                                                                  ------------   ------------   ------------
Operating expenses:
    Salaries and benefits                                            133,667        124,273        106,874
    Other operating expenses:
      Depreciation and amortization                                   19,399         23,124         32,449
      Trustee and other debt related fees                             10,291         14,138         12,879
      Occupancy and communications                                    12,817         12,101         11,424
      Advertising and marketing                                       11,470         10,182         11,512
      Professional services                                           15,067          9,437          9,237
      Consulting fees and support services to related parties            --           3,519         12,800
      Postage and distribution                                        13,235         13,241         11,095
      Other                                                           26,805         23,135         22,693
                                                                  ------------   ------------   ------------
         Total other operating expenses                              109,084        108,877        124,089
                                                                  ------------   ------------   ------------
         Total operating expenses                                    242,751        233,150        230,963
                                                                  ------------   ------------   ------------
         Income before income taxes and minority interest            234,415         46,289         75,841
Income tax expense                                                    85,236         19,295         27,679
                                                                  ------------   ------------   ------------
         Income before minority interest                             149,179         26,994         48,162
Minority interest in subsidiary loss                                     --             109            376
                                                                  ------------   ------------   ------------
         Net income                                                $ 149,179         27,103         48,538
                                                                  ============   ============   ============
         Earnings per share, basic and diluted                     $    2.78           0.60           1.08
                                                                  ============   ============   ============
 See accompanying notes to consolidated financial statements.	

F-4

                                    NELNET, INC. AND SUBSIDIARIES
                                  Consolidated Statements of Shareholders'
                                         Equity and Comprehensive
                            Income Years ended December 31, 2004, 2003, and 2002
                                                                                                              Accumulated    Total
                 Preferred Common stock shares            Class A   Class B Additional                           other      share-
                   stock   -------------------  Preferred  common   common    paid-in  Retained   Unearned    comprehensive holders'
                  shares   Class A   Class B      stock    stock    stock    capital   earnings  compensation    income     equity
                  -------- --------- ---------    -------  -------  ------- ---------- --------  ------------ ------------  --------
                                                          (Dollars in thousands, except share data)
Balance as
of
December 31, 2001   --    30,947,834  14,023,454   $  --       309    140        37,499     25,238       --           --     63,186
Net income          --         --         --          --        --     --           --      48,538       --           --     48,538
Dividend
 distribution       --         --         --          --        --     --           --      (2,994)      --           --     (2,994)
Recapture of
  minority
  interest
  loss in
  excess of
  minority
  interest
  capital           --         --         --          --        --     --          392        --         --           --        392
                 -------- ---------- -----------   -------  -------  -------  ----------  --------  ----------  ----------  --------
Balance as of
December 31, 2002   --    30,947,834  14,023,454      --       309    140        37,891     70,782       --           --    109,122
 Comprehensive
 income:
  Net income        --         --         --          --        --      --           --     27,103       --           --     27,103
  Other
  comprehensive
  income,
  net of tax,
  related to
  cash
  flow hedge       --         --         --          --        --      --           --       --         --           237       237
                                                                                                                            --------
   Total
   comprehensive
   income                                                                                                                    27,340
Non-cash
compensation
expense            --         --         --          --        --      --        5,166       --          --          --       5,166
Issuance of
common stock       --       331,800      --          --         3      --          803       --          --          --         806
Issuance
of common stock
   in initial
   public offering,
   net of direct
   offering
   expenses of
   $16,600         --     8,586,800      --          --        86      --      163,612       --          --          --     163,698
Redemption of
common stock       --      (264,600)     --          --        (2)     --         (641)      --          --          --        (643)
                -------- ----------- ----------   -------  -------  -------  ----------  --------  ----------  -----------  --------
Balance as of
December 31, 2003  --    39,601,834  14,023,454      --       396     140      206,831     97,885        --          237    305,489
Comprehensive
income:
   Net income      --         --         --          --        --      --          --     149,179        --          --     149,179
   Other
    comprehensive
    income,
    net of tax,
    related to
    cash
    flow hedge     --         --         --          --        --      --          --        --           --         499        499
                                                                                                                            --------
     Total
     comprehensive
     income                                                                                                                 149,678
Issuance of
common stock,
net of
forfeitures       --        45,203       --         --         1      --        1,084       --           (77)       --        1,008
Conversion of
common stock      --        40,000     (40,000)     --        --      --           --       --           --         --         --
                -------- ----------- -----------   -------  -------  -------  ----------  --------  ----------  ----------  --------
Balance
as of
December 31, 2004 --    39,687,037  13,983,454   $  --       397      140     207,915    247,064         (77)       736     456,175
                ======== =========== ===========   =======  =======  =======  ==========  ========  ==========  ==========  ========	

See accompanying notes to consolidated financial statements.
F-5

                          NELNET, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                  Years ended December 31, 2004, 2003, and 2002
                                                                             2004         2003         2002
                                                                          -----------  -----------  ------------
                                                                                  (Dollars in thousands)
Net income                                                                $ 149,179       27,103        48,538
Adjustments to reconcile net income to net
    cash provided by operating activities,
    net of business acquisitions:
      Depreciation and amortization, including
        loan premiums and deferred origination costs                         96,725      101,375        93,864
      Derivative market value adjustment                                     11,918        1,183        (2,962)
      Ineffectiveness of cash flow hedge                                         89         (118)          --
      Non-cash compensation expense                                             696        5,166           --
      Gain on sale of fixed asset                                            (3,037)        --             --
      Income from equity method investments                                    (958)        (778)         (279)
      Minority interest in subsidiary loss                                     --           (109)         (376)
      Deferred income tax expense (benefit)                                  11,781       (3,197)       (8,475)
      Provision (recovery) for loan losses                                     (529)      11,475         5,587
      Decrease (increase) in accrued interest receivable                    (50,392)     (19,618)        3,619
      Decrease (increase) in accounts receivable                              1,332       (2,451)       918
      Decrease (increase) in other assets                                    20,127       (6,973)       (7,329)
      Increase (decrease) in accrued interest payable                        28,488       (3,072)         (894)
      Increase (decrease) in other liabilities                              (24,337)      43,013         1,999
                                                                          -----------  -----------  ------------
              Net cash provided by operating activities                     241,082      152,999       134,210
                                                                          -----------  -----------  ------------
Cash flows from investing activities:
      Originations, purchases, and consolidations
        of student loans, including loan premiums
        and deferred origination costs                                   (3,485,907)  (3,566,803)   (2,534,693)
      Purchases of student loans, including loan premiums,
        from a related party                                               (671,396)    (735,540)     (384,166)
      Net proceeds from student loan principal
        payments and loan consolidations                                  1,223,184    2,325,531     1,724,077
      Proceeds from sale of fixed asset                                       3,573         --             --
      Purchases of furniture, equipment, and leasehold improvements         (16,456)     (16,361)      (13,408)
      Decrease (increase) in restricted cash                                     61      (63,560)     (357,045)
      Purchases of restricted investments                                  (954,489)    (449,959)     (318,822)
      Proceeds from maturities of restricted investments                    853,348      442,610       267,089
      Purchase of equity method investments                                 (10,110)       --             --
      Distributions from equity method investments                              970        --             --
      Purchase of loan origination rights                                    (7,899)       --             --
      Business acquisitions, net of cash acquired                           (17,876)      (1,760)      (20,809)
                                                                         -----------  -----------  ------------
              Net cash used in investing activities                      (3,082,997)  (2,065,842)   (1,637,777)
                                                                         -----------  -----------  ------------
Cash flows from financing activities:
      Payments on bonds and notes payable                                (3,536,093)  (2,350,860)   (2,259,769)
      Proceeds from issuance of bonds and notes payable                   6,234,813    4,269,849     3,781,474
      Payment of debt issuance costs                                        (15,375)     (11,739)      (11,429)
      Dividend distribution                                                    --           --         (2,994)
      Redemption of common stock                                               --          (643)          --
      Net proceeds from issuance of common stock                                312      164,504          --
                                                                         -----------  -----------  ------------
              Net cash provided by financing activities                   2,683,657    2,071,111     1,507,282
                                                                         -----------  -----------  ------------
Effect of exchange rate fluctuations on cash                                   (176)       --             --
              Net (decrease) increase in cash and cash equivalents         (158,434)     158,268         3,715
Cash and cash equivalents, beginning of year                                198,423       40,155        36,440
                                                                         -----------  -----------  ------------
Cash and cash equivalents, end of year                                    $  39,989      198,423        40,155
                                                                         ===========  ===========  ============
Supplemental disclosures of cash flow information:
      Interest paid                                                       $ 216,275      190,615       222,528
                                                                         ===========  ===========  ============
      Income taxes paid, net of refunds                                   $  60,117       21,635        40,098
                                                                         ===========  ===========  ============

Supplemental disclosures of noncash operating, investing, and financing
  activities regarding acquisitions and the Company's cash flow hedge are
  contained in notes 4 and 14, respectively.	

See accompanying notes to consolidated financial statements.
F-6
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements December 31, 2004, 2003, and 2002
1. DESCRIPTION OF BUSINESS
Nelnet, Inc. and its subsidiaries ("Nelnet" or the "Company") is one of the leading education finance companies in the United States and is focused on providing quality student loan products and services to students and schools nationwide. The Company ranks among the nation's leaders in terms of total student loan assets.
The Company's business is comprised of three primary product and service offerings:
o ASSET MANAGEMENT, INCLUDING STUDENT LOAN ORIGINATIONS AND ACQUISITIONS. The Company provides student loan marketing, originations, acquisition, and portfolio management. The Company owns a large portfolio of student loan assets through a series of education lending subsidiaries. The education lending subsidiaries primarily invest in student loans, through an eligible lender trustee, made under Title IV of the Higher Education Act of 1965, as amended (the "Higher Education Act"). Certain subsidiaries also invest in non-federally insured student loans. The Company obtains loans through direct origination or through acquisition of loans. The Company also provides marketing, sales, managerial, and administrative support related to its asset generation activities.
Student loans beneficially owned by the education lending subsidiaries include those originated under the Federal Family Education Loan Program ("FFELP" or "FFEL Program"), including the Stafford Loan Program, the Parent Loan for Undergraduate Students ("PLUS") program, the Supplemental Loans for Students ("SLS") program, and loans that consolidate certain borrower obligations ("Consolidation"). Title to the student loans is held by eligible lender trustees under the Higher Education Act for the benefit of the education lending subsidiaries. The financed eligible loan borrowers are geographically located throughout the United States. The bonds and notes outstanding are payable primarily from interest and principal payments on the student loans, as specified in the resolutions authorizing the sale of the bonds and notes.
o STUDENT LOAN AND GUARANTEE SERVICING. The Company services its student loan portfolio and the portfolios of third parties. Servicing activities include loan origination activities, application processing, borrower updates, payment processing, due diligence procedures, and claim processing. These activities are performed internally for the Company's own portfolio, in addition to generating fee revenue when performed for third-party clients. As of December 31, 2004, the Company's U.S. operations serviced or provided complete outsourcing of servicing activities for $21.1 billion in student loans, including $11.9 billion of loans in its portfolio. In December 2004, the Company purchased EDULINX Canada Corporation ("EDULINX") and its wholly owned subsidiary, Tricura Canada, Inc. ("Tricura"). EDULINX is a Canadian corporation that engages in servicing Canadian student loans. As of December 31, 2004, EDULINX serviced $7.2 billion ($8.7 billion in Canadian dollars) in student loans.
The Company also provides servicing support to guaranty agencies, which includes system software, hardware and telecommunication support, borrower and loan updates, default aversion tracking services, claim processing services, and post-default collection services. As of December 31, 2004, the Company provided servicing support to agencies that guarantee more than $19 billion of FFELP loans.
o SERVICING SOFTWARE. The Company uses internally developed student loan servicing software and also provides this software to third-party student loan holders and servicers. As of December 31, 2004, the Company's software was used to service more than $50 billion in student loans, which included $29 billion serviced by third parties using the Company's software.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The Company owns the stock of various corporations that are engaged in the securitization of education finance assets. The Company's education lending subsidiaries are separate entities holding beneficial interests in eligible loans, subject to creditors with specific interests. The liabilities of the Company's education lending subsidiaries are not the obligations of the Company or any of its other subsidiaries and cannot be consolidated in the event of bankruptcy. The transfers of student loans to the eligible lender trusts do not qualify as sales under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, as the trusts continue to be under the effective control of the Company. All the financial activities and related assets and liabilities, including debt, of the securitizations are reflected in the Company's consolidated financial statements.
F-7
 
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
The entities accounted for under the equity method and the Company's ownership percentages as of December 31, 2004 and 2003 are summarized below:

                                     As of December 31,
                                      ----------------
                                       2004      2003
                                      ------   -------
5280 Solutions, Inc.                    50 %      50 %
FirstMark Services LLC                  50        50
Nelnet Mentor LLC                       50        50
Premiere Credit of North America, LLC   50        --
infiNET Integrated Solutions, Inc.      50        --	

As of December 31, 2004 and 2003, other assets in the accompanying consolidated balance sheets includes $11.7 million and $1.6 million, respectively, of investment in the entities accounted for under the equity method. Included in these balances is $8.0 million of excess cost that is not being amortized as of December 31, 2004. The Company would recognize a loss on this excess cost if there was a loss in value of any equity method investment that is other than a temporary decline. For the years ended December 31, 2004, 2003, and 2002, income from the equity method investments of approximately $958,000, $778,000, and $279,000, respectively, is included in software services and other income in the accompanying consolidated statements of income.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities, reported amounts of revenues and expenses, and other disclosures. Actual results could differ from those estimates.
STUDENT LOANS RECEIVABLE
Investments in student loans, including unamortized premiums and deferred origination costs, are recorded at cost, net of the allowance for loan losses. Student loans consist of federally insured student loans, non-federally insured student loans, and student loan participations.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents management's estimate of probable losses on student loans. This evaluation process is subject to numerous estimates and judgments. 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.
The allowance for the federally insured loan portfolio is based on periodic evaluations of the Company's loan portfolios considering past experience, trends in student loan claims rejected for payment by guarantors, changes to federal student loan programs, current economic conditions, and other relevant factors. The federal government guarantees 98% of principal and interest of federally insured student loans, which limits the Company's loss exposure to 2% of the outstanding balance of the Company's federally insured portfolio.
Effective June 1, 2004, the Company was designated as an Exceptional Performer by the U.S. Department of Education (the "Department") in recognition of its exceptional level of performance in servicing FFELP loans. As a result of this designation, the Company receives 100% reimbursement on all eligible FFELP default claims submitted for reimbursement during the 12-month period following the effective date of its designation. The Company is not subject to the 2% risk sharing loss for eligible claims submitted during this 12-month period. Only FFELP loans that are serviced by the Company, as well as loans owned by the Company and serviced by other service providers designated as Exceptional Performers by the Department, are subject to the 100% reimbursement. In 2004, the Company's allowance and the provision for loan losses were each reduced by $9.4 million to account for the estimated effects of the Exceptional Performance designations.
As of December 31, 2004, service providers designated as an Exceptional Performer serviced more than 99% of the Company's federally insured loans. Of this 99%, third parties serviced approximately 9%. The Company is entitled to receive this benefit as long as it and/or its other service providers continue to meet the required servicing standards published by the Department. Compliance with such standards is assessed on a quarterly basis. If the Company or a third party servicer were to lose its Exceptional Performance designation, either by the Department discontinuing the program or the Company or third party servicer not meeting the required servicing standards, loans serviced by the Company or third party would become subject to the 2% risk sharing loss for all claims submitted after any loss of the designation.
F-8
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
In determining the adequacy of the allowance for loan losses on the non-federally insured loans, the Company considers several factors including:
loans in repayment versus those in a nonpaying status, months in repayment, delinquency status, type of program, and trends in defaults in the portfolio based on Company and industry data. The Company places a non-federally insured loan on nonaccrual status and charges off these uninsured loans when the collection of principal and interest is 120 days past due.
The evaluation of the allowance for loan losses is inherently subjective, as it requires material estimates that may be subject to significant changes. The provision for loan losses reflects the activity for the applicable period and provides an allowance at a level that the Company's management believes is adequate to cover probable losses inherent in the loan portfolio.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers all investments with maturities when purchased of three months or less to be cash equivalents.
RESTRICTED CASH AND RESTRICTED INVESTMENTS
The Company's restricted cash and restricted investments are held by the trustees in various accounts, subject to use restrictions imposed by the trust indenture. The Company recognizes all restricted cash and restricted investments held by trustees on the consolidated balance sheets.
RESTRICTED CASH - DUE TO LOAN PROGRAM CUSTOMERS/DUE TO LOAN PROGRAM CUSTOMERS
As a servicer of student loans, the Company collects student loan remittances and subsequently disburses these remittances to the appropriate lending entities. In addition, the Company requests funding from lenders and subsequently disburses loan funds to borrowers and schools on behalf of borrowers. Cash collected for customers and the related liability are included in the accompanying consolidated balance sheets. Interest income earned, net of service charges, by the Company on this cash for the years ended December 31, 2004, 2003, and 2002 was approximately $1,017,000, $213,000, and $930,000, respectively.
EDULINX has several bank accounts used for the purpose of disbursing and collecting student loan funds on behalf of its customers. These funds are not the property of EDULINX, but rather are held in trust for the various stakeholders. Accordingly, they are not reflected on the accompanying consolidated balance sheets. As of December 31, 2004, the cumulative cash balance held in trust at EDULINX was $18.4 million.
GOODWILL AND INTANGIBLE ASSETS
Goodwill consists of the difference between the purchase price incurred in acquisitions using the purchase method of accounting and the fair value of the net assets acquired. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill is not amortized, but instead is assessed for impairment at least annually. During this assessment, management relies on a number of factors, including operating results, business plans, and anticipated future cash flows.
Intangible assets, consisting of lender relationships, loan origination rights, servicing system software, and other intellectual property, are being amortized on a straight-line basis over the expected periods to be benefited, ranging from 36 to 120 months.
FURNITURE, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
Furniture and equipment are carried at cost, net of accumulated depreciation. Maintenance and repairs are charged to expense as incurred, and major improvements, including leasehold improvements, are capitalized. Gains and losses from retirement of furniture, equipment, and leasehold improvements are included in determining net income. The Company uses accelerated and straight-line methods for recording depreciation and amortization. Accelerated methods are used for certain equipment and software when this method is believed to provide a better matching of income and expenses.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets, such as furniture, equipment, leasehold improvements, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
F-9
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
Goodwill and intangible assets not subject to amortization are tested annually for impairment. An impairment loss is recognized to the extent that the carrying amount exceeds the asset's estimated fair value.
There were no impairments of long-lived assets, goodwill, or intangible assets not subject to amortization in 2004, 2003, or 2002.
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL-USE
Certain direct development costs associated with internal-use software are capitalized, including external direct costs of services and payroll costs for employees devoting time to the software projects. These costs are included in furniture, equipment, and leasehold improvements and are amortized over a period of three years beginning when the asset is placed into service. During the years ended December 31, 2004 and 2003, the Company capitalized $4.3 million and $1.4 million, respectively, in costs related to internal-use software development. No costs were capitalized in 2002. Amortization of internal-use software was $0.5 million during the year ended December 31, 2004. There was no amortization of internal-use software in 2003 and 2002.
OTHER ASSETS
Other assets are recorded at cost or amortized cost and consist primarily of prepaid bond insurance, debt issuance costs, deferred tax assets, income taxes receivable, investments in entities accounted for under the equity method, and deposits. Prepaid bond insurance and debt issuance costs are amortized using the straight-line method and effective interest methods, respectively, over the estimated lives of the bonds and notes payable.
REVENUE RECOGNITION
Student Loan Income - The Company recognizes student loan income using the interest method, net of amortization of loan premiums and deferred origination costs. Loan income is recognized based on the expected yield of the loan after giving effect to borrower utilization of incentives for timely payment ("borrower benefits") and other yield adjustments. The effect of borrower benefits on student loan yield is based on borrowers who are eligible for the incentives. The interest is paid by the Department or the borrower, depending on the status of the loan at the time of the accrual. In addition, the Department makes quarterly interest subsidy payments on certain qualified FFELP loans until the student is required under the provisions of the Higher Education Act to begin repayment. Repayment of FFELP loans normally begins within six months after completion of the loan holder's course of study, leaving school, or ceasing to carry at least one-half the normal full-time academic load, as determined by the educational institution. Repayment of PLUS and Consolidation loans normally begins within 60 days from the date of loan disbursement, and repayment of SLS loans begins within one month after completion of course study, leaving school, or ceasing to carry at least the normal full-time academic load, as determined by the educational institution. Repayment of non-federally insured loans typically begins six months following a borrower's graduation from a qualified institution and the interest is either paid by the borrower or capitalized annually or at repayment.
The Department provides a special allowance to lenders participating in the FFEL Program. The special allowance is accrued using the interest method based upon the average rate established in the auction of 13-week Treasury Bills in the previous quarter relative to the yield of the student loan. Under certain circumstances, the special allowance is reduced by approximately one-half for loans that were originated or purchased from funds obtained from issuance of tax-exempt obligations, depending upon the issuance date of the obligation.
Loan premiums and deferred origination costs are amortized over the estimated lives of the related loans in accordance with SFAS No. 91, Accounting for Non-Refundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases. The Company periodically evaluates the assumptions used to estimate the life of the loans. The Company also pays the Department an annual 105 basis point rebate fee on Consolidation loans. The amortization of loan premiums and deferred origination costs and rebate fees incurred are netted against student loan income.
Loan and Guarantee Servicing Income - Loan and guarantee servicing fees are determined according to agreements with customers and are calculated based on the dollar value or number of loans serviced or amounts collected for each customer. Revenue is recognized when earned pursuant to applicable agreements, and when ultimate collection is assured. As of December 31, 2004 and 2003, the Company's U.S. operations serviced $21.1 billion and $18.7 billion, respectively, of loans, including $11.9 billion and $9.2 billion of Company-owned loans. As of December 31, 2004, the Company also serviced $7.2 billion ($8.7 billion in Canadian dollars) in student loans through its Canadian operations.
F-10
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
Software Services - The Company accounts for software revenues in accordance with the AICPA's Statement of Position 97-2, Software Revenue Recognition ("SOP 97-2"). SOP 97-2 provides guidance on when and in what amounts income should be recognized for licensing, selling, leasing, or otherwise marketing computer software. Income for contracts with customers that does not require significant production, modification, or customization of software is recognized when all the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, vendors fee is fixed and determinable, and collectibility is probable. Income paid on maintenance and enhancement agreements for services to be performed in subsequent periods is deferred and recognized in income over the life of the agreements.
MINORITY INTEREST
In 2003 and 2002, minority interest reflected the proportionate share of shareholders' equity and loss attributable to the minority shareholders of Student Partner Services. In 2003, the Company purchased the remaining minority interest of Student Partner Services.
The Company allocated its non-wholly owned subsidiary, Infovisa, Inc.'s ("Infovisa") income or loss proportionately between the Company's percentage interest and the remaining percentage minority interest. When losses applicable to the minority interest exceeded the minority interest in equity capital, such excess was charged against the Company's interest as a charge to retained earnings in the Company's shareholders' equity. When earnings were generated applicable to the minority interest, the Company's interest was credited through retained earnings to the extent of losses previously charged to retained earnings. For purposes of reporting on the Company, these changes are reflected in additional paid-in capital, as retained earnings are those of the Company. During 2002, Infovisa was sold to a related party and the minority interest loss was recaptured through additional paid-in capital at the date of sale.
DERIVATIVES AND HEDGING ACTIVITIES
The Company's derivatives and hedging activities are recorded in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of FASB Statement No. 133 ("SFAS No. 133"). These statements establish accounting and reporting standards for derivative instruments and hedging activities, as defined, including certain derivative instruments embedded in other contracts, and requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure them at fair value. The fair value of the Company's derivative instruments is determined from market quotes from independent security brokers.
The Company has entered into certain derivative instruments such as interest rate swaps, caps, and basis swaps as part of managing its interest rate risk. Interest rate swaps are used to exchange fixed and floating rate interest payment obligations, while caps are used to protect the Company's income statement from unfavorable movements in interest rates while allowing benefit from favorable movements. Basis swaps are used to convert variable-rate debt from one interest rate index to another to match the interest rate characteristics of the assets. The Company uses basis swaps to change the index of the LIBOR-based debt to better match the cash flows of student loan assets.
All derivative instruments that qualify for hedge accounting pursuant to SFAS No. 133 are recorded at fair value and classified either as a hedge of the fair value of a recognized asset or liability ("fair value hedge") or as a hedge of the variability of cash flows to be received or paid related to a recognized asset or liability of a forecasted transaction ("cash flow hedge"). For all hedging relationships, the Company formally documents the hedging relationship and its risk-management objective and strategy for undertaking the hedge, the hedging instrument, the items hedged, the nature of the risk being hedged, how the hedging instrument's effectiveness in offsetting the hedged risk will be assessed, and a description of the method of measuring effectiveness. This process includes linking all derivatives that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific forecasted transactions. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
F-11
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
Changes in the fair value of a derivative instrument that is highly effective and is designated and qualifies as a fair value hedge and the offsetting changes in the fair value of the hedged item are recorded in the income statement. Changes in the fair value of a derivative instrument that is highly effective and designated and qualifies as a cash flow hedge are recognized in other comprehensive income to the extent that the derivative is effective as a hedge, until earnings are affected by the variability in cash flows of the designated hedged item. The Company performs an assessment, both at inception of the hedge and on a quarterly basis thereafter, to determine whether these derivative instruments are highly effective in offsetting changes in the value of the hedged items. Any change in fair value resulting from hedge ineffectiveness is immediately recorded in the income statement.
The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item; the derivative expires or is sold, terminated, or exercised; the derivative is dedesignated as a hedging instrument, because it is unlikely that a forecasted transaction will occur; or management determines that designation of the derivative as a hedging instrument is no longer appropriate.
Changes in the fair value of derivative instruments that do not qualify for hedge accounting are reported in current period earnings.
Net settlement income (expense) on derivatives that do not qualify as hedges under SFAS No. 133 are included in the derivative market value adjustment on the income statement. As a result, the derivative market value adjustment includes both the unrealized changes in the fair value of the Company's derivatives, as well as the net settlements on those derivatives that do not qualify as hedges under SFAS No. 133.
TRANSLATION OF FOREIGN CURRENCY
The Company's foreign subsidiary, EDULINX, uses the Canadian dollar as its functional currency. The assets and liabilities of EDULINX are translated to U.S. dollars at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average exchange rate during the period. Translation gains or losses (net of tax) are reflected in the consolidated financial statements as a component of accumulated other comprehensive income. EDULINX was purchased in December 2004, thus, the translation gain was insignificant for the year ended December 31, 2004.
INCOME TAXES
Income taxes are recorded in accordance with SFAS No. 109, Accounting for Income Taxes ("SFAS No. 109"). The asset and liability approach underlying SFAS No. 109 requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and tax basis of the Company's assets and liabilities. To the extent the tax laws change, deferred tax assets and liabilities are adjusted in the period that the tax change is enacted.
Income tax expense includes deferred tax expense, which represents the net change in the deferred tax asset or liability balance during the year, plus any change made in the valuation allowance, and current tax expense, which represents the amount of tax currently payable to or receivable from a tax authority plus amounts for expected tax deficiencies (including both tax and interest).
In accordance with SFAS No. 5, Accounting for Contingencies, the Company records a reserve for expected controversies with the Internal Revenue Service and various state taxing authorities when it is deemed that deficiencies arising from such controversies are probable and reasonably estimable. This reserve includes both tax and interest on these deficiencies.
EARNINGS PER SHARE
The basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding for the periods presented. The weighted average number of shares for the years ended December 31, 2004, 2003, and 2002 were 53,648,605, 45,501,583, and 44,971,290, respectively. Nelnet had no common stock equivalents and no potentially dilutive common shares during the years presented.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the 2004 consolidated financial statement presentation.
F-12
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
3. RECENT DEVELOPMENTS
A portion of the Company's FFELP loan portfolio is comprised of loans that are currently or were financed prior to September 30, 2004 with tax-exempt obligations issued prior to October 1, 1993. Based upon provisions of the Higher Education Act and related interpretations by the Department, the Company is entitled to receive special allowance payments on these loans providing the Company with a 9.5% minimum rate of return (the "9.5% Floor"). In May 2003, the Company sought confirmation from the Department regarding whether it was allowed to receive these special allowance payments based on the 9.5% minimum rate of return. While pending satisfactory resolution of this issue with the Department, the Company deferred recognition of the interest income that was generated by these loans in excess of income based upon the standard special allowance rate. In June 2004, after consideration of certain clarifying information received in connection with the guidance it had sought, and based on written and verbal communications with the Department, the Company concluded that the earnings process had been completed related to the special allowance payments on these loans and recognized $124.3 million of deferred interest income in the second quarter of 2004. As of December 31, 2003, the amount of deferred excess interest income on these loans was $42.9 million and was included in other liabilities on the Company's consolidated balance sheet.
Following the Company's disclosures related to recognition of such income, Senator Edward M. Kennedy, by letter to the Secretary of Education dated August 26, 2004, requested information as to whether the Department had approved of the Company's receipt of the 9.5% Floor income and, if not, why the Department had not sought to recover claimed subsidies under the 9.5% Floor. By letter dated September 10, 2004, the Company furnished to the Department certain background information concerning the growth of the 9.5% Floor loans in its portfolio, which information had been requested by the Department. Senator Kennedy, in a second letter to the Securities and Exchange Commission ("SEC") dated September 21, 2004, requested that the SEC investigate the Company's activities related to the 9.5% Floor. More specifically, Senator Kennedy raised concerns about the Company's disclosures in connection with its decision to recognize the previously deferred income, and trading of Company securities by Company executives following such disclosures. On September 27, 2004, the Company voluntarily contacted the SEC to request a meeting with the SEC Staff. The Company's request was granted, and representatives of the Company met with representatives of the SEC Staff on October 12, 2004. Company representatives offered to provide to the SEC information that the SEC Staff wished to have relating to the issues raised in Senator Kennedy's letter. By letter dated October 14, 2004, the SEC Staff requested that, in connection with an informal investigation, the Company provide certain identified information. The Company has furnished to the SEC Staff the information it has requested and is fully cooperating with the SEC Staff in its informal investigation.
The Company continues to believe that the concerns expressed to the SEC by Senator Kennedy are entirely unfounded, but it is not appropriate or feasible to determine or predict the ultimate outcome of the SEC's informal investigation. The Company's costs related to the SEC's informal investigation are being expensed as incurred. Additional costs, if any, associated with an adverse outcome or resolution of that matter, in a manner that is currently indeterminate and inherently unpredictable, could adversely affect the Company's financial condition and results of operations. Although it is possible that an adverse outcome in certain circumstances could have a material adverse effect, based on information currently known by the Company's management, in its opinion, the outcome of such pending informal investigation is not likely to have such an effect.
4. ACQUISITIONS
The Company has positioned itself for growth by building a strong foundation through acquisitions. Although the Company's assets, loan portfolios, and fee-based revenues increase through such transactions, a key aspect of each transaction is its impact on the Company's prospective organic growth and the development of its integrated platform of services.
On June 30, 2001, the Company acquired 51% of the voting control of GuaranTec, LLP ("GuaranTec") for $2.6 million. On January 1, 2002, the Company acquired the remaining 49% of GuaranTec for $4.5 million from an entity under common control with the Company. The excess purchase price over the acquiree's carrying value was $3.0 million. As the 49% interest was acquired from an entity under common control, the excess purchase price was recorded as a dividend distribution in the consolidated statement of shareholders' equity in 2002.
On January 2, 2002, the Company acquired Idaho Financial Associates, Inc. ("IFA") for $17.0 million. The acquisition was accounted for under purchase accounting. The assets and liabilities of IFA were recorded at fair value. An intangible asset, representing servicing system software and other intellectual property, of $14.2 million was recorded and is being amortized over its estimated useful life of three years. The results of operations of IFA have been included in the consolidated financial statements since the date of acquisition.
F-13
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
On May 9, 2002, the Company acquired Charter Account Systems, Inc. ("Charter") for $6.8 million. The acquisition was accounted for under purchase accounting. The assets and liabilities of Charter were recorded at fair value. An intangible asset, representing servicing system software and other intellectual property, of $6.8 million was recorded and is being amortized over its estimated useful life of three years. The excess purchase price and acquisition costs over the fair value of the net identifiable assets acquired was $2.6 million and has been recognized as goodwill. The results of operations of Charter have been included in the consolidated financial statements since the date of acquisition.
The Company acquired IFA and Charter to provide student loan servicing software solutions to the student lending industry. The allocation of the purchase price for the IFA and Charter acquisitions is shown below (dollars in thousands):

Cash and investments                               $   2,972
Accounts receivable                                    1,390
Intangible assets                                     21,061
Excess cost over fair value of net assets acquired     2,551
Deferred revenue and other liabilities                (4,193)
                                                   ----------
              Total purchase price                  $ 23,781
                                                   ==========	

On August 7, 2003, the Company acquired Nelnet Capital, LLC ("Nelnet Capital") for $2.6 million from affiliated parties. The acquisition was accounted for under purchase accounting. The results of operations of Nelnet Capital have been included in the consolidated financial statements from the date of acquisition.
On January 28, 2004, the Company acquired 50% of the membership interests in Premiere Credit of North America, LLC ("Premiere"). Premiere is a collection services company that specializes in collection of educational debt. Total consideration paid by the Company for Premiere was $5.3 million, $2.3 million of which represents excess purchase price, which will not be amortized. Included in the Premiere purchase agreement is a "call" option, which expires six years after the purchase date, that allows the Company to purchase 100% ownership of Premiere at a price as determined in the agreement. In addition, Premiere has a "put" option, which expires five years after the purchase date, to require the Company to purchase 100% ownership of Premiere at a price as determined in the agreement. The Company is accounting for Premiere using the equity method of accounting. The investment in Premiere is included in other assets on the consolidated balance sheet.
On March 11, 2004, the Company acquired rights, title, and interest in certain assets of the Rhode Island Student Loan Authority ("RISLA"), including the right to originate student loans in RISLA's name without competition from RISLA for a term of 10 years. Total consideration paid by the Company for the rights to originate student loans was $7.9 million, which will be amortized over 10 years. These origination rights are included in intangible assets on the consolidated balance sheet. The Company also purchased certain assets, consisting primarily of furniture and equipment from RISLA for $0.3 million and a portfolio of federally insured loans with an aggregate outstanding balance of $175.1 million. The Company further agreed to provide administrative services in connection with certain of the indentures governing debt securities of RISLA for a 10-year period.
On April 19, 2004, the Company purchased 100% of SLAAA Acquisition Corp. ("SLAAA") and its wholly owned subsidiaries, Student Loan Acquisition Authority of Arizona LLC and SLAAA Management Company, for $11.1 million, including direct acquisition costs. SLAAA is a student loan secondary market. The excess of the purchase price and acquisition costs over the fair value of the net identifiable assets acquired was $6.0 million and has been recognized as goodwill. This acquisition was accounted for under purchase accounting and the results of operations have been included in the consolidated financial statements from the date of acquisition.
The allocation of the purchase price for SLAAA is shown below (dollars in thousands):

Cash and cash equivalents                            $     277
Restricted cash                                         97,864
Student loans and accrued interest                     146,173
Other assets                                               133
Excess cost over fair value of net assets acquired       5,971
Bonds and notes payable and accrued interest          (238,645)
Other liabilities                                         (667)
                                                     ----------
         Total purchase price                        $  11,106
                                                     ==========	

F-14
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
On April 20, 2004, the Company purchased 50% of the stock of infiNET Integrated Solutions, Inc. ("infiNET"). InfiNET provides customer-focused electronic transactions, information sharing, and account and bill presentment for colleges, universities, and healthcare organizations. Total consideration paid by the Company for infiNET was $4.9 million, which generated $5.7 million of excess purchase price that will not be amortized. The Company is accounting for infiNET using the equity method of accounting. The investment in infiNET is included in other assets on the consolidated balance sheet.
On December 1, 2004, the Company purchased 100% of EDULINX and its wholly owned subsidiary, Tricura, for $7.0 million. The purchase price is subject to change based on certain post-closing adjustments, as defined in the purchase agreement. In addition to the post-closing adjustments, an additional payment of approximately $6.3 million is to be paid by the Company if EDULINX obtains an extension or renewal of a significant customer servicing contract that currently expires in February 2006. This contingency payment is due following the date on which such extension or renewal period of the servicing contract commences. The acquisition was accounted for under purchase accounting and the results of operations have been included in the consolidated financial statements from the date of acquisition.
The purchase price allocation for EDULINX has not yet been finalized due to the acquisition occurring late in the fiscal year. The preliminary allocation of the purchase price for EDULINX is shown below (dollars in thousands):

Accounts receivable                                  $  11,273
Intangible assets                                        3,820
Furniture, equipment, and leasehold improvements         5,464
Other assets                                             1,180
Other liabilities                                      (14,690)
                                                      ---------
       Total purchase price                          $   7,047
                                                      =========	

The following unaudited pro forma information presents the combined results of the Company as though the 2004 acquisitions of EDULINX and SLAAA occurred on January 1, 2003. The pro forma financial information does not necessarily reflect the results of operations if the acquisitions had been in effect at the beginning of the period or that may be attained in the future.

                                                             Pro forma
                                                              year ended
                                                             December 31,
                                                      --------------------------
                                                          2004           2003
                                                      -------------   ----------
                                                         (Dollars in thousands)
                                                               (Unaudited)
Net interest income                                    $   398,930       176,408
Other income                                               122,636       165,213
Net income                                                 145,842        23,404
Weighted average shares outstanding, basic and diuted   53,648,605    45,501,583
Earnings per share, basic and diluted                  $      2.72          0.52	

The pro forma information presenting the combined operations of the Company as though the 2003 and 2002 acquisitions occurred on January 1, 2003 and January 1, 2002, respectively, is not significantly different than actual 2003 or 2002 results.
5. RECAPITALIZATION
Effective August 14, 2003, the shareholders of the Company approved amended and restated articles of incorporation. The amended and restated articles of incorporation effected a recapitalization of the Company whereby each share of Class A voting common stock and each share of Class B nonvoting common stock held by two principal shareholders and a related entity (the "Principal Shareholders") was converted into 210 shares of new Class B common stock, and each share of Class B nonvoting common stock (other than those owned by the Principal Shareholders) was converted into 210 shares of new Class A common stock. Also, effective with the conversion of the Class B shares to Class A
F-15
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
shares, certain former Class B shareholders converted their new Class B shares into new Class A shares. The new Class B common stock has ten votes per share, and the new Class A common stock has one vote per share. Each Class B share is convertible at any time at the holder's option into one Class A share. With the exception of the voting rights and the conversion feature, the Class A and Class B shares are identical in terms of other rights, including dividend and liquidation rights. The Company's shareholders' equity has been restated to reflect the new capital stock structure for all periods presented.
On December 11, 2003, the Company consummated an initial public offering. The Company sold 8,000,000 shares of Class A common stock at a price of $21 per share for net proceeds of $152.2 million. On December 22, 2003, the underwriters exercised their over-allotment option and purchased an additional 586,800 shares at $21 per share, which yielded net proceeds to the Company of $11.5 million.
In August 2004, a principal shareholder gifted 40,000 Class B shares of common stock to certain charitable organizations. Per the Company's articles of incorporation, these shares automatically converted to Class A shares upon transfer.
6. RESTRICTED INVESTMENTS
The Company's restricted investments are held by a trustee in various accounts subject to use restrictions and consist of guaranteed investment contracts, commercial banking deposits, and repurchase agreements, which are classified as held-to-maturity. Due to the characteristics of the investments, there is no available or active market for these types of financial instruments. These investments are guaranteed and are purchased and redeemed at par value, which equals their cost as of December 31, 2004 and 2003. The carrying value of these investments by contractual maturity is shown below:

                                    As of December 31,
                                  -----------------------
                                     2004         2003
                                  ----------   ----------
                                   (Dollars in thousands)
Over 1 year through 5 years      $   22,023        1,714
After 5 years through 10 years          --        30,038
After 10 years                      259,806      148,936
                                  ----------   ----------
                                 $  281,829      180,688
                                  ==========   ==========	

7. STUDENT LOANS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
Student loans receivable as of December 31, 2004 and 2003 consisted of the following:

                                                                   As of December 31,
                                                                -----------------------
                                                                    2004        2003
                                                                -----------  ----------
                                                                 (Dollars in thousands)
 Federally insured loans                                       $ 13,208,689   10,222,547
 Non-federally insured loans                                         90,405       92,327
                                                                -----------  ----------
                                                                 13,299,094  10,314,874
 Unamortized premiums and deferred origination costs                169,992      156,594
 Less allowance for loan losses - federally insured loans               117        9,755
 Less allowance for loan losses - non-federally insured loans         7,155        6,271
                                                                -----------  ----------
                                                               $ 13,461,814  10,455,442
                                                                ===========  ==========
Federally insured allowance as a percentage
  of ending balance of federally insured loans                        0.00%        0.10%
Non-federally insured allowance as a percentage
  of ending balance of non-federally insured loans                    7.91%        6.79%
Total allowance as a percentage of ending balance of total loans      0.05%        0.16%	

Federally insured loans may be made under the FFEL Program by certain lenders as defined by the Higher Education Act. These loans, including related accrued interest, are guaranteed at their maximum level permitted under the Higher Education Act by an authorized guaranty agency, which has a contract of reinsurance with the Department. The terms of the loans, which vary on an individual basis, generally provide for repayment in monthly installments of principal and interest over a period of up to 20 years. Interest rates on loans may be fixed or variable, dependent upon type, terms of loan agreements, and date of origination. Interest rates on loans currently range from 2.6% to 12.0% (the weighted average rate was 4.2% and 4.5% as of December 31, 2004 and 2003, respectively). Interest rates on variable-rate loans varies based on the average of the 91-day U.S. Treasury Bill rate.For FFELP loans, the education lending subsidiaries have entered into trust agreements in which unrelated financial institutions serve as the eligible lender trustees. As eligible lender trustees, the financial institutions act as the eligible lender in acquiring certain eligible student loans as an accommodation to the subsidiaries, which hold beneficial interests in the student loan assets as the beneficiaries of such trusts.
F-16
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
Substantially all FFELP loan principal and related accrued interest is guaranteed as defined by the Higher Education Act. These guarantees are made subject to the performance of certain loan servicing procedures stipulated by applicable regulations. If these due diligence procedures are not met, affected student loans may not be covered by the guarantees should the borrower default. The Company and its education lending subsidiaries retain and enforce recourse provisions against servicers and lenders under certain circumstances. Such student loans are subject to "cure" procedures and reinstatement of the guarantee under certain circumstances. Also, in accordance with the Student Loan Reform Act of 1993, student loans disbursed prior to October 1, 1993 are fully insured, and loans disbursed subsequent to October 1, 1993 are insured up to 98% of their principal amount and accrued interest, unless serviced by a servicer who has been designated as an Exceptional Performer by the Department, allowing these student loans to carry a 100% guarantee.
Student loans receivable also includes non-federally insured loans. The non-federally insured loan portfolio consists of privately insured and uninsured loans. The terms of the non-federally insured loans, which vary on an individual basis, generally provide for repayment in monthly installments of principal and interest over a period of up to 20 years. Interest rates on the loans will vary based on the average of the 91-day U.S. Treasury Bill or the prime rate. The uninsured loans are not covered by guarantees or collateral should the borrower default. The privately insured loans are insured for 90% of their principal amount and accrued interest.
During 2004, the Company reclassified FFELP loans, and the related allowance, that have been rejected for reimbursement by the guarantor to the non-federally insured loan portfolio, because these loans are effectively uninsured. In the previous table, the reclassification is reflected for all periods presented.
The Company has provided for an allowance for loan losses related to the non-federally insured loans and federally insured loans. Activity in the allowance for loan losses for the years ended December 31, 2004, 2003, and 2002 is shown below:

                                        2004        2003          2002
                                     ----------  -----------   ----------
                                           (Dollars in thousands)
Beginning balance                    $  16,026       12,000       10,242
Provision for loan losses                 (529)      11,475        5,587
Loans charged off, net of recoveries    (8,225)      (7,449)      (3,829)
                                     ----------  -----------   ----------
Ending balance                       $   7,272       16,026       12,000
                                     ==========  ===========   ==========	

8. GUARANTY AND INSURANCE AGENCIES
As of December 31, 2004, Nebraska Student Loan Program, Inc., Colorado Student Loan Program, United Student Aid Funds, Inc., California Student Aid Commission, and Tennessee Student Assistance Corporation were the primary guarantors of the student loans beneficially owned by the education lending subsidiaries. Management periodically reviews the financial condition of its guarantors and does not believe the level of concentration creates an unusual or unanticipated credit risk. In addition, management believes that based on amendments to the Higher Education Act, the security for and payment of any of the education lending subsidiaries' obligations would not be materially adversely affected as a result of legislative action or other failure to perform on its obligations on the part of any guaranty agency. The education lending subsidiaries, however, offer no absolute assurances to that effect.
An education lending subsidiary also has a student loan indemnification agreement with a private insurer, under which a portion of the private loans are insured. The agreement indemnifies the education lending subsidiary for 90% of losses incurred resulting from borrower default. Upon default, all rights of recovery are subrogated to a private insurer. As of December 31, 2004 and 2003, a private insurer insured 31% and 33%, respectively, of the non-federally insured loans owned by the Company.
F-17
 
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
9. INTANGIBLE ASSETS AND GOODWILL
Intangible assets as of December 31, 2004 and 2003 consist of the following:

                                                                          As of December 31,
                                                            Useful      ----------------------
                                                             life          2004       2003
                                                          ------------  ----------- ----------
                                                                         (Dollars in thousands)
Lender relationship and loan origination rights
  (net of accumulated amortization of $4,376 and
  $2,690, respectively)                                  36-120 months  $  7,505      1,292
Servicing systems software and other intellectual
  property (net of accumulated amortization of
  $20,294 and $13,273, respectively)                       36 months         766      7,787
Intangible assets - EDULINX (net of accumulated
    amortization of $61)                                   60 months       3,716          --
                                                                        ----------- ----------
                                                                        $ 11,987      9,079
                                                                        =========== ==========	

As discussed in note 4, the purchase price allocation for EDULINX is preliminary. The excess purchase price over net assets acquired is currently allocated to existing customer service contracts.
The Company recorded amortization expense on its intangible assets of $8.8 million, $12.8 million, and $22.2 million during the years ended December 31, 2004, 2003, and 2002, respectively. The Company will continue to amortize intangible assets over their remaining useful lives and estimates it will record amortization expense as follows (dollars in thousands):

2005               $      2,313
2006                      1,546
2007                      1,546
2008                      1,546
2009                      1,482
2010 and thereafter       3,554
                     ------------
                   $     11,987
                     ============	

The change in the carrying amount of goodwill for the years ended December 31, 2004 and 2003 was as follows:

                            2004        2003
                         ----------  ----------
                         (Dollars in thousands)
Beginning balance      $   2,551       2,551
Goodwill acquired          5,971         --
                         ----------  ----------
Ending balance         $   8,522       2,551
                         ==========  ==========	

F-18
 
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
10. FURNITURE, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
Furniture, equipment, and leasehold improvements as of December 31, 2004 and 2003 consist of the following:

                                                          As of December 31,
                                            Useful     -----------------------
                                             life         2004         2003
                                          -----------  -----------  ----------
                                                       (Dollars in thousands)
Computer equipment and software           2-7 years   $  43,873       39,418
Office furniture and equipment            3-10 years     13,730       11,794
Leasehold improvements                    1-10 years      7,987        6,073
                                                       -----------  ----------
                                                         65,590       57,285
Accumulated depreciation and amortization                35,720       38,147
                                                       -----------  ----------
                                                      $  29,870       19,138
                                                       ===========  ==========	

Depreciation and amortization expense for the years ended December 31, 2004, 2003, and 2002 related to furniture, equipment, and leasehold improvements was $10.6 million, $10.1 million, and $10.1 million, respectively.
11. BONDS AND NOTES PAYABLE
The education lending subsidiaries periodically issue bonds, commercial paper, short-term variable auction rate notes, taxable student loan asset-backed notes, and other credit facilities to finance the acquisition of student loans or to refinance existing debt. Most 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. The student loan interest margin ("SLIMS") notes are secured by the rights to residual cash flows from certain variable-rate bonds and notes and fixed-rate notes. Certain variable-rate bonds and notes and fixed-rate bonds of $1.0 billion and $1.2 billion as of December 31, 2004 and 2003, respectively, are secured by financial guaranty insurance policies issued by Municipal Bond Investors Assurance Corporation and Ambac Assurance Corporation.
The following table summarizes outstanding bonds and notes payable as of December 31, 2004 and 2003 by type of instrument:

                                                            As of December 31, 2004
                                                ------------------------------------------------
                                                  Carrying      Interest rate
                                                   amount          range        Final maturity
                                                ------------------------------------------------
                                                            (Dollars in thousands)
Variable-rate bonds and notes:
    Bonds and notes based on indices           $  7,449,652     1.84% - 3.25%   11/25/09 - 01/25/41
    Bonds and notes based on auction              3,590,920     1.70% - 2.55%   11/01/09 - 07/01/43
                                                 -----------
            Total variable-rate bonds and notes  11,040,572
Commercial paper and other                        2,532,393     2.24% - 2.37%   05/13/05 - 09/02/09
Fixed-rate bonds and notes                          712,641     5.20% - 6.68%   05/01/05 - 05/01/29
Other borrowings                                     15,000         6.00%           11/01/05
                                                -----------
                                               $ 14,300,606
                                                ===========	

F-19
 
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)

                                                            As of December 31, 2003
                                                ------------------------------------------------
                                                  Carrying      Interest rate
                                                   amount          range        Final maturity
                                                ------------------------------------------------
                                                            (Dollars in thousands)
Variable-rate bonds and notes:
    Bonds and notes based on indices           $  3,133,859     1.17% - 1.87%  05/01/07 - 01/25/37
    Bonds and notes based on auction              5,195,270     1.00% - 1.30%  11/01/09 - 07/01/43
                                                -------------
            Total variable-rate bonds and notes   8,329,129
Commercial paper and other                        2,051,738     1.11% - 1.15%  05/14/04 - 06/01/05
Fixed-rate bonds and notes                          927,694     5.50% - 6.68%  05/01/05 - 06/01/28
Other borrowings                                     57,897     1.30% - 6.00%  01/30/04 - 11/01/05
                                                -------------
                                               $ 11,366,458
                                                =============	

In January, April, July, and September 2004, the Company consummated debt offerings of student loan asset-backed notes of $1.0 billion, $1.0 billion, $1.4 billion, and $2.0 billion, respectively, with final maturity dates ranging from 2009 through 2041. The majority of notes issued in these transactions have variable interest rates based on a spread to LIBOR or reset under auction procedures. Included in the January 2004 issuance was $210.0 million of notes with a fixed interest rate that resets August 25, 2005. The Company entered into a derivative financial instrument to convert this fixed interest rate to a variable rate until the August 2005 reset date. The proceeds from the September 2004 debt offering were used to redeem $1.7 billion of the Company's student loan asset-backed auction rate notes.
In July 2004, the Company redeemed a portion of its SLIMS for $47.4 million, which included a call-premium. The call-premium of $1.9 million and write-off of the unamortized debt issuance costs of $0.7 million were expensed during the year ended December 31, 2004 and are included in other operating expenses and interest on bonds and notes payable, respectively, in the consolidated statement of income.
The Company has a $35 million operating line of credit and a $50 million commercial paper commitment under two separate facilities that expire in September 2005. As of December 31, 2004, there was no amount outstanding under these facilities. As of December 31, 2003, there was $12.7 million outstanding under these facilities, which bore interest at the current commercial paper rate plus 0.25% (weighted average rate of 1.40% as of December 31, 2003).
EDULINX has an unsecured credit facility agreement with a Canadian financial institution that is cancelable by either party upon demand. The agreement includes a general security agreement over the assets of EDULINX and its subsidiary and has a credit limit of approximately $12.5 million ($15.0 million in Canadian dollars). There was no amount outstanding on this line as of December 31, 2004.
In May and October 2002, the Company consummated debt offerings of student loan asset-backed notes of $1.0 billion and $1.2 billion, respectively. In connection with these debt offerings, the Company entered into agreements with certain investment banks pursuant to which the Company will pay the investment banks a fee equal in the aggregate to 0.01% and 0.0075% per annum of the principal balance of the May and October 2002 notes, respectively. These fees are for credit enhancements to the notes whereby the investment banks will provide liquidity advances to the Company in the instance of disintermediation in the spread between student loan interest rates and the notes' interest rates as defined in the agreement. The total amount paid by the Company under these agreements was approximately $115,000, $155,000, and $72,000 during the years ended December 31, 2004, 2003, and 2002, respectively.
F-20
 
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
Bonds and notes outstanding as of December 31, 2004 are due in varying amounts as shown below (dollars in thousands). The student loan warehouse lines are renewable annually by underlying liquidity providers; therefore, they are reflected as maturing in 2005.

2005                     $  2,292,443
2006                          115,434
2007                           93,718
2008                           76,800
2009                          723,088
2010 and thereafter        10,999,123
                          ------------
                         $ 14,300,606
                          ============	

Generally, bonds bearing interest at variable rates can be redeemed on any interest payment date at par plus accrued interest. Subject to certain provisions, all bonds and notes are subject to redemption prior to maturity at the option of certain education lending subsidiaries.
An education lending subsidiary has irrevocably escrowed funds to make the remaining principal and interest payments on previously issued bonds and notes. Accordingly, neither these obligations nor the escrowed funds are included on the accompanying consolidated balance sheets. As of December 31, 2004 and 2003, $23.9 million and $22.2 million, respectively, of defeased debt remained outstanding.
As of December 31, 2004 and 2003, certain education lending subsidiaries had various short-term borrowing agreements with a maximum aggregate stated amount of $4.3 billion and $2.8 billion, respectively. The unused commitments under these warehouse agreements were $1.8 billion and $708 million as of December 31, 2004 and 2003, respectively.
Certain bond resolutions contain, among other requirements, covenants relating to restrictions on additional indebtedness, limits as to direct and indirect administrative expenses, and maintaining certain financial ratios. Management believes the Company is in compliance with all covenants of the bond indentures and related credit agreements.
12. INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31, 2004, 2003, and 2002 consists of the following components:

                            2004       2003      2002
                          --------  ---------   ---------
  (Dollars in thousands)
Current:
    Federal              $ 67,616     20,742      33,204
    State                   5,106      1,750       2,950
                          --------  ---------   ---------
                           72,722     22,492      36,154
                          --------  ---------   ---------
Deferred:
    Federal                11,455     (2,982)     (7,717)
    State                   1,059       (215)       (758)
                          --------  ---------   ---------
                           12,514     (3,197)     (8,475)
                          --------  ---------   ---------
                         $ 85,236     19,295      27,679
                          ========  =========   =========	

F-21
 
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
The differences between the income tax provision computed at the statutory federal corporate tax rate and the financial statement provision for income taxes for the years ended December 31, 2004, 2003, and 2002 are shown below:

                                                 2004        2003       2002
                                               ----------  --------   --------

Tax expense at federal rate                      35.0    %   35.0      35.0
Increase (decrease) resulting from:
    State tax, net of federal income tax benefit  1.7         2.2       1.9
    Non-cash compensation expense                  --         3.9        --
    Other, net                                   (0.3)        0.6      (0.4)
                                               ----------  --------   --------
                                                 36.4    %   41.7      36.5
                                               ==========  ========   ========	

The Company's net deferred income tax liability or asset, which is included in other liabilities and other assets as of December 31, 2004 and 2003, respectively, consists of the following components:

                                                  As of December 31,
                                              ---------------------------
                                                   2004          2003
                                              -----------     -----------
                                               (Dollars in thousands)
Deferred tax liabilities:
    Loan origination services                   $  14,398         5,819
    Prepaid expenses                                1,668            --
    Certain equity method investments               1,182           161
    Depreciation                                    2,237           599
    Other                                             459           489
                                                -----------   ----------
              Deferred tax liabilities             19,944         7,068
                                                -----------   ----------
Deferred tax assets:
    Student loans                                   3,957        10,539
    Accrued expenses                                2,187         1,566
    Basis in swap contracts                         4,793           389
    Amortization                                    6,015         3,185
    Other                                           1,379         1,103
                                                -----------   ----------
              Deferred tax assets                  18,331        16,782
                                                -----------   ----------
              Net deferred income tax
                (liability) asset                $ (1,613)        9,714
                                                ===========   ==========	

No valuation allowance was considered necessary for the deferred tax assets as of December 31, 2004 and 2003. In assessing the realizability of the Company's deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected taxable income, carryback opportunities, and tax planning strategies in making the assessment of the amount of the valuation allowance.
As of December 31, 2004 and 2003, income taxes (payable) receivable of $(10.9) million and $1.7 million, respectively, are included in other liabilities and other assets on the consolidated balance sheets, respectively.
F-22
 
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table summarizes the fair values of the Company's financial instruments as of December 31, 2004 and 2003:

                                                         As of December 31,
                                      ---------------------------------------------------------
                                                    2004                      2003
                                      ----------------------------  ---------------------------
                                       Fair value   Carrying value  Fair value  Carrying value
                                      ------------  --------------  ------------ --------------
                                                      (Dollars in thousands)
Financial assets:
    Student loans receivable         $13,757,289      13,461,814     10,628,895   10,455,442
    Cash and cash equivalents             39,989          39,989        198,423      198,423
    Restricted cash                      732,066         732,066        634,263      634,263
    Restricted investments               281,829         281,829        180,668      180,688
    Restricted cash - due to loan
      program customers                  249,070         249,070        141,841      141,841
    Accrued interest receivable          251,104         251,104        196,633      196,633
Financial liabilities:
    Bonds and notes payable           14,331,925      14,300,606     11,417,810   11,366,458
    Accrued interest payable              48,578          48,578         17,179       17,179
    Due to loan program customers        249,070         249,070        141,841      141,841
    Derivative instruments                11,895          11,895            677          677	

CASH AND CASH EQUIVALENTS, RESTRICTED CASH - DUE TO LOAN PROGRAM CUSTOMERS, RESTRICTED CASH, ACCRUED INTEREST RECEIVABLE/PAYABLE, AND DUE TO LOAN PROGRAM CUSTOMERS
The carrying amount approximates fair value due to the variable rate of interest and/or the short maturities of these instruments.
STUDENT LOANS RECEIVABLE
The fair value of student loans receivable is estimated at amounts recently paid by the Company to acquire a similar portfolio of loans in the market.
RESTRICTED INVESTMENTS
Due to the characteristics of the investments, there is no available or active market for these types of financial instruments. These investments are guaranteed and are purchased and redeemed at par value, which equals their cost.
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.
DERIVATIVE INSTRUMENTS
The fair value of the derivative instruments, obtained from market quotes from independent security brokers, was the estimated net amount that would have been paid or received to terminate the respective agreements.
LIMITATIONS
The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. SFAS No. 107, Disclosures About Fair Value of Financial Instruments, excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements.
F-23
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
14. DERIVATIVE FINANCIAL INSTRUMENTS
The Company maintains an overall interest rate risk management strategy that incorporates the use of derivative instruments to minimize the economic effect of interest rate volatility. The Company's goal is to manage interest rate sensitivity by modifying the repricing or maturity characteristics of certain balance sheet assets and liabilities so that the net interest margin is not, on a material basis, adversely affected by movements in interest rates. The Company views this strategy as a prudent management of interest rate sensitivity. The Company accounts for derivative instruments under SFAS No. 133, which requires that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at its fair value. Management has structured all of the Company's derivative transactions with the intent that each is economically effective; however, the majority do not qualify for hedge accounting under SFAS No. 133.
By using derivative instruments, the Company is exposed to credit and market risk. If the counterparty fails to perform, credit risk is equal to the extent of the fair value gain in a derivative. When the fair value of a derivative contract is positive, this generally indicates that the counterparty owes the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, it has no credit risk. The Company minimizes the credit (or repayment) risk in derivative instruments by entering into transactions with high-quality counterparties that are reviewed periodically by the Company's risk committee. The Company also maintains a policy of requiring that all derivative contracts be governed by an International Swaps and Derivative Association Master Agreement.
Market risk is the adverse effect that a change in interest rates, or implied volatility rates, has on the value of a financial instrument. The Company manages market risk associated with interest rates by establishing and monitoring limits as to the types and degree of risk that may be undertaken.
The following table summarizes the notional values and fair values of the Company's outstanding derivative instruments as of December 31, 2004:

                                                               Weighted average
                          Fixed/              Floating/          fixed rate on
                          floating    Basis     fixed            fixed/floating
     Maturity              swaps (a) swaps (b) swaps (c)  Total       swaps
------------------------- --------- --------- --------- -------- -------------
                                     (Dollars in millions)
2005                     $ 1,187     1,000      210       2,397       2.20  %
2006                         613       500       --       1,113       2.99
2007                         512       --        --         512       3.42
2008                         463       --        --         463       3.76
2009                         312       --        --         312       4.01
2010                       1,138       --        --       1,138       4.25
                          -------- -------- --------   --------     ---------
         Total           $ 4,225     1,500      210       5,935       3.32 %
                          ======== ======== ========   ========     =========
Fair value (d)
(dollars in thousands)   $(7,763)   (2,769)  (1,363)    (11,895)
                          ======== ======== ========   ========

      ------------------------------------	

(a) A fixed/floating swap is an interest rate swap in which the Company agrees to pay a fixed rate in exchange for a floating rate. The interest rate swap converts a portion of the Company's variable-rate debt (equal to the notional amount of the swap) to a fixed rate for a period of time fixing the relative spread between a portion of the Company's student loan assets and the converted fixed-rate liability.
(b) A basis swap is an interest rate swap agreement in which the Company agrees to pay a floating rate in exchange for another floating rate, based upon different market indices. The Company has employed basis swaps to limit its sensitivity to dramatic fluctuations in the underlying indices used to price a portion of its variable-rate assets and variable-rate debt.
(c) A floating/fixed swap is an interest rate swap in which the Company agrees to pay a floating rate in exchange for a fixed rate. The interest rate swap converts a portion of the Company's fixed-rate debt (equal to the notional amount of the swap) to a floating rate for a period of time.
(d) Fair value is determined from market quotes from independent security brokers. Fair value indicates an estimated amount the Company would receive (pay) if the contracts were cancelled or transferred to other parties.
F-24
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
The Company accounts for derivative instruments under SFAS No. 133, which requires that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at its fair value. Management has structured all of the Company's derivative transactions with the intent that each is economically effective. As more fully described below, if certain criteria are met, derivative instruments are classified and accounted for by the Company as either fair value or cash flow hedges. If these criteria are not met, the derivative financial instruments are accounted for as trading.
FAIR VALUE HEDGES
As of December 31, 2004, there were no outstanding derivative instruments accounted for as fair value hedges.
CASH FLOW HEDGES
Cash flow hedges are generally used by the Company to hedge the exposure of variability in cash flows of a forecasted debt issuance. This strategy is used primarily to minimize the exposure to volatility from future interest rate changes. Gains and losses on the effective portion of a qualifying hedge are accumulated in other comprehensive income (net of tax) and reclassified to current period earnings over the period in which the stated hedged transactions impact earnings. Ineffectiveness is recorded immediately to earnings.
The Company accounts for one interest rate swap with a notional amount of $150 million that matures in September 2005 as a cash flow hedge. As of December 31, 2004 and 2003, the fair market value for this derivative was $1.2 million and $0.5 million, respectively. The following table shows the components of the change in accumulated other comprehensive income, net of tax, related to this interest rate swap for the years ended December 31, 2004 and 2003:

                                                        2004      2003
                                                     ---------  ---------
                                                     (Dollars in thousands)
Beginning balance                                    $    237        --

    Change in fair value of cash flow hedge               443        311
    Hedge ineffectiveness reclassified to earnings         56        (74)
                                                     ---------  ---------
       Total change in unrealized gain on derivative      499        237
                                                     ---------  ---------
Ending balance                                       $    736        237
                                                     =========  =========	

The deferred gains for this derivative accumulated in other comprehensive income that are expected to be reclassed to earnings during the next 12 months are not material to the consolidated financial statements.
TRADING ACTIVITIES
When instruments do not qualify as hedges under SFAS No. 133, they are accounted for as trading. All outstanding derivative instruments, with the one exception noted previously, are accounted for as trading. The change in fair value of trading derivative instruments is recorded in the consolidated statements of income at each reporting date. In addition, the net settlements on these derivatives are included with the derivative market value adjustment on the consolidated statements of income.
The following is a summary of the amounts included in derivative market value adjustment and net settlements on the consolidated income statements for the years ended December 31, 2004, 2003, and 2002:

                                                    2004       2003      2002
                                                 ----------  --------  --------
                                                      (Dollars in thousands)
Change in fair value of derivative instruments  $  (11,918)   (1,183)    2,962
Settlements, net                                   (34,140)   (1,601)   (3,541)
                                                 ----------  --------  --------

Derivative market value adjustment and
  net settlements                               $  (46,058)   (2,784)     (579)
                                                 ==========  ========  ========	

F-25
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
15. EMPLOYEE BENEFIT PLANS
DEFINED CONTRIBUTION PLANS
The Company has a 401(k) savings plan that covers substantially all of its U.S. employees. Employees may contribute up to 100% of their pre-tax salary, subject to IRS limitations. The Company made contributions to the plan of $2.1 million, $1.7 million, and $1.4 million during the years ended December 31, 2004, 2003, and 2002, respectively. Union Bank & Trust Company ("UB&T"), an entity under common control with the Company, serves as the trustee for the plan.
EFS, Inc., a wholly owned subsidiary of the Company, maintained two retirement plans which covered substantially all its employees. The first was a 401(k) savings plan and the second was a defined contribution pension plan, which is an employee stock ownership plan ("ESOP"). Upon acquisition by the Company, the ESOP sold its shares to the Company and distribution of the cash occurred in 2003. EFS, Inc. made contributions to the plan of approximately $208,000 for the year ended December 31, 2002. Effective April 1, 2002, employees participating in the EFS, Inc. 401(k) savings plan became eligible to participate in the Company's 401(k) plan.
EDULINX has a deferred profit sharing plan under which employees are entitled to benefits as a function of base salary, age, and years of service. Permanent full-time and permanent part-time employees may join the plan after 12 months of continuous service. For the period from December 1, 2004 to December 31, 2004, EDULINX made contributions to the plan of approximately $89,000.
EMPLOYEE SHARE PURCHASE PLAN
The Company has an employee share purchase plan pursuant to which employees are entitled to purchase common stock from payroll deductions at a 15% discount from market value. The employee share purchase plan is intended to enhance the Company's ability to attract and retain employees and to better enable such persons to participate in the Company's long-term success and growth.
A total of 1,000,000 Class A common stock shares are reserved for issuance under the employee share purchase plan, subject to equitable adjustment by the compensation committee in the event of stock dividends, recapitalizations, and other similar corporate events. All employees, other than those whose customary employment is 20 hours or less per week, who have been employed for at least six months, or another period determined by the Company's compensation committee not in excess of two years, are eligible to purchase Class A common stock under the plan. During the year ended December 31, 2004, the Company recognized compensation expense of approximately $150,000 in connection with issuing 18,844 shares under this plan.
RESTRICTED STOCK PLAN
The Company has a restricted stock plan that is intended to provide incentives to attract, retain, and motivate employees in order to achieve long-term growth and profitability objectives. The restricted stock plan provides for the grant to eligible employees of awards of restricted shares of Class A common stock. An aggregate of 1,000,000 shares of Class A common stock have been reserved for issuance under the restricted stock plan, subject to antidilution adjustments in the event of certain changes in capital structure.
On September 10, 2004, the Company issued 4,300 shares of its Class A common stock under the restricted stock plan. These shares vest at the end of two years. In December 2004, 350 shares of this issuance were forfeited. The unearned compensation of approximately $77,000 recorded in shareholders' equity on the consolidated balance sheet as of December 31, 2004 will be recognized as expense over the remaining vesting period. For the year ended December 31, 2004, the Company recognized compensation expense of approximately $17,000 related to shares issued under the restricted stock plan.
BOOK VALUE STOCK PLAN
In March 2003, the Company issued 331,800 shares of Class A common stock at a formula price based on book value to employees of the Company. Each new shareholder was required to sign a shareholder agreement that restricts the sale, assignment, pledge, or otherwise transfer of any interest in any of the shares of stock without obtaining the prior written consent of the holders of an aggregate of more than 50% of the Class A shareholders. The Company has the option to redeem the outstanding stock in the event of termination of employment, divorce, or change in control at the formula price based on book value at the redemption date.
The Company accounted for the stock issuance by applying the provisions of Emerging Issues Task Force ("EITF") 88-6, Book Value Stock Plans in an Initial Public Offering ("EITF 88-6"). Because the shareholder agreements did not provide any mechanism that converted the book value stock to market value stock upon completion of an initial public offering ("IPO"), the Company accounted for the transaction as book value stock that remains book value stock. The book value stock issued in March 2003 was presumed to have been issued in contemplation of the IPO and, thus, was subject to variable-plan accounting for actual changes in the book value of those shares from the date of issuance in accordance with the provisions of EITF 88-6.
F-26
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
Upon the consummation of the IPO, the shareholder agreements were terminated in accordance with an agreement entered into by all shareholders in August 2003. As a result, in the third quarter of 2003, the Company recognized a compensation charge of $5.2 million equal to the difference between the estimated IPO price (estimated fair value) of that number of shares and the total price paid by the employees.
DIRECTOR'S STOCK COMPENSATION PLAN
The Company has a share-based compensation plan for nonemployee directors pursuant to which nonemployee directors can elect to receive their annual retainer fees in the form of cash or Class A common stock. Up to 100,000 shares may be issued under the plan, subject to antidilution adjustments in the event of certain changes in capital structure. If a nonemployee director elects to receive Class A common stock, the number of shares of Class A common stock that will be awarded will be equal to the amount of the annual retainer fee otherwise payable in cash divided by 85% of the fair market value of a share of Class A common stock on the date the fee is payable. Nonemployee directors who choose to receive Class A common stock may also elect to defer receipt of the Class A common stock until termination of their service on the board of directors. Any dividends paid in respect of deferred shares during the deferral period will also be deferred in the form of additional shares and paid out at termination from the board of directors. The plan may be amended or terminated by the board of directors at any time, but no amendment or termination will adversely affect a nonemployee director's rights with respect to previously deferred shares without the consent of the nonemployee director.
On February 19, 2004, the Company issued 22,409 shares of its Class A common stock under the plan. These shares were issued in consideration for the board members' 2004 annual retainer fees. For the year ended December 31, 2004, the Company recognized approximately $529,000 of expense related to these shares.
NON-PENSION POST-RETIREMENT BENEFIT PLANS
EDULINX has non-pension post-retirement plans that consist of health care and life insurance plans. As of December 31, 2004, a liability related to these plans of $1.1 million is included in other liabilities on the accompanying consolidated balance sheets.
16. COMMITMENTS
The education lending subsidiaries acquire eligible loans on a regular basis from lending institutions as part of their normal business operations. As of December 31, 2004 and 2003, the education lending subsidiaries were committed to extend credit or to purchase up to $265.5 million and $287.4 million, respectively, in student loans at current market rates upon the sellers' request under various agreements. Commitments to extend credit are agreements to lend to a borrower as long as there is no violation of any condition established in the commitment agreement. Commitments generally have fixed expiration dates or other termination clauses.
The Company is committed under noncancelable operating leases for office and warehouse space and equipment. Total rental expense incurred by the Company for the years ended December 31, 2004, 2003, and 2002 was $7.2 million, $6.1 million, and $6.9 million, respectively. Minimum future rentals under noncancelable operating leases are shown below (dollars in thousands):

2005                       $ 5,879
2006                         4,904
2007                         4,156
2008                         2,075
2009                         1,269
2010 and thereafter            673
                           --------
                           $18,956
                           ========	

17. RELATED PARTIES
The Company serviced loans for UB&T, an entity under common control with the Company, of $469 million and $544 million as of December 31, 2004 and 2003, respectively. Income earned by the Company from servicing loans for UB&T for the years ended December 31, 2004, 2003, and 2002 was $5.4 million, $5.4 million, and $5.5 million, respectively. As of December 31, 2004 and 2003, accounts receivable includes $0.6 million and $1.1 million, respectively, from UB&T for loan servicing. The loan servicing terms with UB&T were similar to those terms with unrelated entities.
F-27
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
The Company participates in the Short-Term Federal Investment Trust ("STFIT") of the Student Loan Trust Division of UB&T, which is included in cash and cash equivalents held at a related party and restricted cash - due to loan program customers on the accompanying consolidated balance sheets. As of December 31, 2004 and 2003, the Company had approximately $245.9 million and $71.1 million, respectively, invested in the STFIT or deposited at UB&T in operating accounts, of which approximately $210.8 million and $60.9 million, respectively, is cash collected for customers. The Company's participation in the STFIT had similar terms and investment yields as those prevailing for other nonaffiliated customers. Interest income earned by the Company on the amounts invested in the STFIT for the years ended December 31, 2004, 2003, and 2002 was $1.6 million, $1.0 million, and $1.7 million, respectively.
During the years ended December 31, 2004, 2003, and 2002, the education lending subsidiaries purchased student loans of $657.8 million, $726.0 million, and $377.8 million, respectively, from UB&T. Premiums paid on these loans totaled $13.6 million, $9.5 million, and $6.4 million, respectively. The purchases from UB&T were made on terms similar to those made with unrelated entities. During the years ended December 31, 2004, 2003, and 2002, UB&T reimbursed the Company $0.9 million, $1.0 million, and $0.5 million, respectively, for student loan marketing services. The Company has sold to UB&T, as trustee, participation interests with balances of approximately $272.8 million and $223.4 million as of December 31, 2004 and 2003, respectively. During the years ended December 31, 2004 and 2003, UB&T reimbursed the Company $1.3 million and $0.5 million, respectively, and during the year ended December 31, 2002, the Company reimbursed UB&T $0.2 million for marketing services and fees related to the Nebraska College Savings Plan.
During the years ended December 31, 2004 and 2002, UB&T paid the Company marketing income of $0.5 million and $2.3 million, respectively, as a broker on a loan sale, which is included in software services and other income in the accompanying consolidated statements of income. No amount was paid during the year ended December 31, 2003.
The Company incurred a consulting management fee for services provided by an entity that is a minority stockholder of the Company. The Company incurred management fee expenses of $1.7 million and $1.8 million for the years ended December 31, 2003 and 2002, respectively. This agreement terminated in 2003.
In 2004, the Company recorded a one-time gain of $3.0 million related to the sale of a fixed asset to an entity, of which a principal shareholder is a director of the Company. The gain is included in software services and other income in the accompanying consolidated statement of income.
As of December 31, 2004, $510,000 was receivable from Nelnet Mentor LLC, an entity with 50% interest owned by the Company, and is included in other liabilities in the accompanying consolidated balance sheet.
Premiere, an entity with 50% interest owned by the Company, provides the Company with certain collection services. During the year ended December 31, 2004, the Company incurred collection fee expenses of approximately $121,000 for these services, which is included in other operating expenses in the accompanying consolidated statement of income. The Company also provided a $1.0 million operating line of credit to Premiere in June 2004 that is automatically renewable for 1 year terms. As of December 31, 2004, Premiere owed the Company approximately $879,000 under this line of credit, which is included in other assets in the accompanying consolidated balance sheet.
The Company has an agreement with 5280 Solutions, Inc. ("5280"), an entity with 50% voting interest owned by the Company, to provide certain software development and technology support services. During the years ended December 31, 2004, 2003, and 2002, the Company paid 5280 fees of $3.9 million, $3.2 million, and $6.1 million, respectively, for these services, which is included in salaries and benefits expense in the accompanying consolidated statements of income. As of December 31, 2004 and 2003, approximately $360,000 and $496,000, respectively, was payable to 5280 and is included in other liabilities in the accompanying consolidated balance sheets.
The Company has an agreement with FirstMark Services LLC ("FirstMark"), an entity with 50% voting interest owned by the Company, whereby FirstMark has agreed to provide subcontracting servicing functions on the Company's behalf with respect to private loan servicing. During the years ended December 31, 2004, 2003, and 2002, the Company paid FirstMark fees of $6.5 million, $5.5 million, and $4.6 million, respectively. The Company also provides a $2.5 million operating line of credit to FirstMark that is automatically renewable for 1 year terms. As of December 31, 2004, no amounts were owed under this line of credit. As of December 31, 2003, FirstMark owed the Company $565,000 under this line of credit, which is included in other assets in the accompanying consolidated balance sheet.
During the years ended December 31, 2003 and 2002, the Company paid Nelnet Capital $1.4 million each for services related to financings. All payments were made before the acquisition of Nelnet Capital. These payments have been recorded as debt issuance costs and are included in other assets in the accompanying consolidated balance sheets.
F-28
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
During the year ended December 31, 2002, the Company incurred consulting fees of $1.7 million for services provided by a related party through common ownership in connection with eligible loan purchases. This agreement terminated in 2003. In addition, during the years ended December 31, 2003 and 2002, the Company incurred consulting fees of $1.8 million and $2.4 million, respectively, for services provided by a significant shareholder. This agreement terminated in 2003.
18. CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
The following represents the condensed balance sheets as of December 31, 2004 and 2003 and condensed statements of income and cash flows for each of the years in the three-year period ended December 31, 2004 for Nelnet, Inc.
The Company is limited in the amount of funds that can be transferred to it by its subsidiaries through intercompany loans, advances, or cash dividends. These limitations relate to the restrictions by trust indentures under the education lending subsidiaries debt financing arrangements. The amounts of cash and investments restricted in the respective reserve accounts of the education lending subsidiaries are shown on the consolidated balance sheets as restricted cash and investments.
BALANCE SHEETS
 (Parent Company Only)

                                                           As of December 31,
                                                        ------------------------
                                                           2004         2003
                                                        -----------    ---------
                                                          (Dollars in thousands)
Assets:
    Cash and cash equivalents                           $    9,504      157,723
    Restricted cash                                         10,018         --
    Restricted cash - due to loan program customers        249,070      141,841
    Investment in subsidiaries                             413,136      135,035
    Accounts receivable                                     20,920       20,714
    Other assets                                             9,474       19,008
                                                        -----------    ---------
            Total assets                                $  712,122      474,321
                                                        ===========    =========
Liabilities:
    Notes payable                                       $     --         12,662
    Other liabilities                                        6,877       14,329
    Due to loan program customers                          249,070      141,841
                                                        -----------    ---------
             Total liabilities                             255,947      168,832
                                                        -----------    ---------
Shareholders' equity:
    Common stock                                               537          536
    Additional paid-in capital                             207,915      206,831
    Retained earnings                                      247,064       97,885
    Unearned compensation                                      (77)        --
    Accumulated other comprehensive income                     736          237
                                                        -----------    ---------
            Total shareholders' equity                     456,175      305,489
                                                        -----------    ---------
            Total liabilities and shareholders' equity  $  712,122      474,321
                                                        ===========    =========	

STATEMENTS OF INCOME
 (Parent Company Only)

                                                      Year ended December 31,
                                                  ------------------------------
                                                    2004       2003       2002
                                                  ---------  --------   --------
                                                       (Dollars in thousands)
Operating revenues                              $ 161,988    146,952     118,189
Derivative market value adjustment and
  net settlements                                 (39,705)      --           --
Operating expenses                                116,257    118,815     109,853
                                                  --------   --------   --------
              Net operating income                  6,026     28,137       8,336

Net interest income                                 1,505        740       1,515
Equity in earnings of subsidiaries                147,909     12,076      42,137
Income tax expense                                  6,261     13,850       3,450
                                                  --------   --------   --------
              Net income                        $ 149,179     27,103      48,538
                                                  ========   ========   ========	

F-29
 
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)

                               STATEMENTS OF CASH FLOWS
                                 (Parent Company Only)
                                                                 Year ended December 31,
                                                           ------------------------------------
                                                               2004        2003        2002
                                                           -----------   ----------  ----------
                                                                   (Dollars in thousands)
Cash flows from operating activities:
    Net income                                             $  149,179       27,103      48,538
    Adjustments to reconcile net income to net cash
       provided by operating activities,
       net of business acquisitions:
         Depreciation and amortization                            240          870      10,635
         Derivative market value adjustment                     5,679         --          --
         Ineffectiveness of cash flow hedge                        89         --          --
         Noncash compensation expense                             696        5,166        --
         Equity in earnings of subsidiaries                  (147,909)     (12,076)    (42,137)
         Income from equity method investment                      22           --        --
         Decrease in accounts receivable                         (206)        (563)     (6,564)
         Decrease (increase) in other assets                   14,697       10,277      (1,181)
         Increase (decrease) in other liabilities             (21,798)       1,617      (3,294)
                                                           -----------   ----------  ----------
              Net cash provided by operating activities           689       32,394       5,997
                                                           -----------   ----------  ----------
Cash flows from investing activities:
    Increase in restricted cash                               (10,018)       --          --
    Cash received on sale of subsidiary                         --           --          6,051
    Business acquisitions, net of cash acquired                 --          (1,760)     (1,776)
    Purchase of preferred stock of affiliate                    --           --        (10,000)
    Purchase of equity method investment                       (5,250)       --          --
    Capital contributions to/from subsidiary, net            (121,115)     (50,571)      --
                                                           -----------   ----------  ----------
              Net cash flows used in investing activities    (136,383)     (52,331)     (5,725)
                                                           -----------   ----------  ----------
Cash flows from financing activities:
    Payments on note payable                                  (12,662)       --
    Proceeds from issuance of note payable                       --         12,662       --
    Payment of debt issuance costs                               (175)       --          --
    Redemption of common stock                                   --           (643)      --
    Net proceeds from issuance of common stock                    312      164,504       --
                                                           -----------   ----------  ----------
              Net cash flows provided by (used in)
                 financing activities                         (12,525)     176,523       --
                                                           -----------   ----------  ----------
              Net increase (decrease) in cash and
                cash equivalents                             (148,219)     156,586         272
Cash and cash equivalents, beginning of year                  157,723        1,137         865
                                                           -----------   ----------  ----------
Cash and cash equivalents, end of year                     $    9,504      157,723       1,137
                                                           ===========   ==========  ==========
Supplemental cash flow information:
    Income taxes paid, net of refunds                      $   17,056       21,635       6,677
                                                           ===========   ==========  ==========
    Interest paid                                          $      570          124        --
                                                           ===========   ==========  ==========	

F-30
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
19. SEGMENT REPORTING
The Company is a vertically integrated education finance organization that has three operating segments as defined in SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS No. 131"), as follows: Asset Management, Student Loan and Guarantee Servicing, and Servicing Software. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Costs excluded from segment net income before taxes consist of unallocated corporate expenses, net of miscellaneous revenues. Thus, net income before taxes of the segments includes only the costs that are directly attributable to the operations of the individual segment.
The Asset Management segment includes the acquisition, management, and ownership of the student loan assets. Revenues are primarily generated from net interest income on the student loan assets. The Company generates student loan assets through direct origination or through acquisitions. The student loan assets are held in a series of education lending subsidiaries designed specifically for this purpose.
The Student Loan and Guarantee Servicing segment provides for the servicing of the Company's student loan portfolios and the portfolios of third parties and servicing provided to guaranty agencies. The student loan servicing activities include application processing, borrower updates, payment processing, due diligence procedures, and claim processing. These activities are performed internally for the Company's own portfolio in addition to generating fee revenue when performed for third-party clients. The guarantee servicing activities include providing systems software, hardware and telecommunications support, borrower and loan updates, default aversion tracking services, claim processing services, and post-default collection services to guaranty agencies.
The Servicing Software segment provides software licenses and maintenance associated with student loan software products.
Substantially all of the Company's revenues are earned from customers in the United States and no single customer accounts for a significant amount of any reportable segment's revenues. Intersegment revenues are charged by a segment to another segment that provides the product or service. The amount of intersegment revenue is based on comparable fees charged in the market.
Segment data is as follows:

                                               Student loan
                                       Asset   and guarantee Servicing  Total
                                    management   servicing   software  segments
                                    ----------  -----------  --------- --------
                                                (Dollars in thousands)
Year ended December 31, 2004:
    Net interest income             $ 396,095        1,377          7   397,479
    Other income (expense)            (40,056)      99,899      8,051    67,894
    Intersegment revenues                --         87,673      3,932    91,605
                                    ----------  ----------- ---------- ---------
             Total revenue            356,039      188,949     11,990   556,978
    Recovery for loan losses             (529)        --          --      (529)
    Depreciation and amortization       1,333          280      7,070     8,683
    Net income (loss) before taxes  $ 223,139       54,178     (2,286)  275,031
                                    ==========  =========== ========== =========	

F-31
 
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)

                                                  Student loan
                                         Asset    and guarantee  Servicing     Total
                                       management   servicing     software    segments
                                      -----------  -----------  ------------ -----------
                                                   (Dollars in thousands)
Year ended December 31, 2003:
    Net interest income               $  176,471          740            10     177,221
    Other income                             568      104,876         8,753     114,197
    Intersegment revenues                    --        65,596         2,708      68,304
                                      -----------  -----------  ------------ -----------
             Total revenue               177,039      171,212        11,471     359,722
    Provision for loan losses             11,475          --             --      11,475
    Depreciation and amortization          3,473          872         7,131      11,476
    Net income (loss) before taxes   $    51,611       34,775        (3,394)     82,992
                                      ===========  ===========  ============ ===========

                                                    Student loan
                                        Asset       and guarantee  Servicing      Total
                                      management     servicing      software    segments
                                      ------------  -------------  ---------- -----------
                                                    (Dollars in thousands)
Year ended December 31, 2002:
    Net interest income               $  184,796        1,427            42      186,265
    Other income                           3,278      102,888         5,387      111,553
    Intersegment revenues                    --        55,217         1,553       56,770
                                      -----------  -----------  ------------ ------------
             Total revenue               188,074      159,532         6,982      354,588
    Provision for loan losses              5,587         --             --         5,587
    Depreciation and amortization          3,473       12,428         6,358       22,259
    Net income (loss) before taxes    $   86,991       13,344        (9,129)      91,206
                                      ===========  ===========  ============ ============	

                                          2004         2003
                                      ------------  -----------
                                        (Dollars in thousands)
Segment total assets:
    Asset management                  $ 14,808,684   11,502,354
    Student loan and guarantee
     servicing                             334,181      334,965
    Servicing software                       5,934       12,508
                                      ------------- ------------
              Total segments          $ 15,148,799   11,849,827
                                      ============= ============	

Reconciliation of segment data to the consolidated financial statements is as follows.

                                                 2004         2003      2002
                                             -----------  ---------  ---------
                                                   (Dollars in thousands)
Total segment revenues                       $  556,978    359,722    354,588
Elimination of intersegment revenues            (91,605)   (68,304)   (56,770)
Corporate revenues (expenses), net               11,264       (504)    14,573
                                             -----------  ---------  ---------
              Total consolidated revenues    $  476,637    290,914    312,391
                                             ===========  =========  =========
Total net income before taxes of segments    $  275,031     82,992     91,206
Corporate expenses, net                         (40,616)   (36,703)   (15,365)
                                             -----------  ---------  ---------
              Total consolidated net
                income before taxes          $  234,415     46,289     75,841
                                             ===========  =========  =========	

F-32
 
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)

                                             2004            2003
                                          ------------   ------------
                                             (Dollars in thousands)
Total segment assets                     $ 15,148,799     11,849,827
Elimination of intercompany assets            (39,213)       (30,140)
Assets of other operating activities           50,419        101,058
Income tax receivable and net
  deferred tax asset                             --           11,441
                                          ------------   ------------
              Total consolidated assets  $ 15,160,005     11,932,186
                                          ============   ============	

Net corporate revenues included in the previous tables are from activities that are not related to the three identified operating segments, such as investment earnings and revenue for marketing services. The net corporate expenses include expenses for marketing and other unallocated support services. The net corporate revenues and expenses are not associated with an ongoing business activity as defined by SFAS No. 131 and, therefore, have not been included within the operating segments.
The assets held at the corporate level are not identified with any of the operating segments. Accordingly, these assets are included in the reconciliation of segment assets to total assets. These assets consist primarily of cash, investments, furniture, equipment, leasehold improvements, and other assets.
20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

                                                                       2004
                                                -------------------------------------------------
                                                   First        Second      Third        Fourth
                                                  quarter      quarter     quarter      quarter
                                                -----------  ----------- -----------  -----------
                                                            (Dollars in thousands)
Net interest income                             $   43,335      175,228      89,405      90,198
Less provision (recovery) for loan losses            3,115       (6,421)      2,300         477
                                                -----------  ----------- -----------  -----------
Net interest income after provision
  (recovery) for loan                               40,220      181,649      87,105      89,721
Derivative market value adjustment and
  net settlements                                   (3,741)       1,357     (56,214)     12,540
Other income                                        31,287       27,541      32,558      33,143
Operating expenses                                 (53,212)     (76,196)    (51,502)    (61,841)
Income tax expense                                  (5,433)     (49,098)     (4,310)    (26,395)
                                                -----------  ----------- -----------  -----------
Net income                                      $    9,121       85,253       7,637      47,168
                                                ===========  =========== ===========  ===========
Earnings per share, basic and diluted           $     0.17         1.59        0.14        0.88
                                                ===========  =========== ===========  ===========

                                                                      2003
                                               -------------------------------------------------
                                                 First        Second       Third       Fourth
                                                quarter      quarter      quarter      quarter
                                               ------------------------  -----------  ----------
                                                          (Dollars in thousands)
Net interest income                             $   42,258       45,190      40,981      43,293
Less provision for loan losses                       2,410        2,450       4,015       2,600
                                               -----------  -----------  -----------  ----------
Net interest income after provision for
  loan losses                                       39,848       42,740      36,966      40,693
Derivative market value adjustment and
  net settlements                                     --            --       (5,655)      2,871
Other income                                        30,477       28,871      31,652      30,976
Operating expenses                                 (55,234)     (57,445)    (62,269)    (58,202)
Income tax expense                                  (5,622)      (5,840)     (1,827)     (6,006)
Minority interest in net loss of subsidiary            109         --          --          --
                                               -----------  -----------  -----------  ----------
Net income (loss)                               $    9,578        8,326      (1,133)     10,332
                                               ===========  ===========  ===========  ==========
Earnings per share, basic and diluted           $     0.21         0.19       (0.03)       0.22
                                               ===========  ===========  ===========  ==========	

F-33
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
21. SUBSEQUENT EVENT
On February 4, 2005, the Company entered into an agreement to amend certain existing contracts with UB&T, an entity under common control with the Company. Under the agreement, UB&T agreed to sell to the Company, prior to March 1, 2005, a portfolio of guaranteed student loans with an aggregate outstanding balance of approximately $600 million. The Company agreed to pay the outstanding principal and accrued interest with respect to the student loans to be purchased, together with a one-time payment to UB&T in the amount of $20 million. UB&T also committed to transfer to the Company substantially all of the remaining balance of UB&T's origination rights in guaranteed student loans to be originated in the future, except for student loans previously committed for sale to others. UB&T will continue to originate student loans, and such guaranteed student loans not previously committed for sale to others are to be sold by UB&T to the Company in the future. UB&T also granted to the Company exclusive rights as marketing agent for student loans on behalf of UB&T.
F-34
APPENDIX A
THE FEDERAL FAMILY EDUCATION LOAN PROGRAM
The Federal Family Education Loan Program
The Higher Education Act of 1965, as amended (the "Higher Education Act") provides for a program of direct federal insurance for student loans as well as reinsurance of student loans guaranteed or insured by state agencies or private non-profit corporations.
The Higher Education Act currently authorizes certain student loans to be covered under the Federal Family Education Loan Program ("FFELP" or "FFEL Program") of the U.S. Department of Education (the "Department"). The 1998 Amendments to the Higher Education Act extended the authorization for the FFEL Program through September 30, 2004. In October 2004, Congress passed a one-year extension of the Higher Education Act through September 30, 2005. Congress has extended similar authorization dates in prior versions of the Higher Education Act. However, the current authorization dates may not again be extended and the other provisions of the Higher Education Act may not be continued in their present form.
Generally, a student is eligible for loans made under the FFEL Program only if he or she:
o has been accepted for enrollment or is enrolled in good standing at an eligible institution of higher education;
o is carrying or planning to carry at least one-half the normal full-time workload, as determined by the institution, for the course of study the student is pursuing;
o is not currently in default on any federal education loan; and
o meets other applicable requirements.
Eligible institutions include higher educational institutions and vocational schools that comply with specific federal regulations. Each loan is to be evidenced by an unsecured note.
The Higher Education Act also establishes maximum interest rates for each of the various types of loans. These rates vary not only among loan types, but also within loan types depending upon when the loan was made or when the borrower first obtained a loan under the FFEL Program. The Higher Education Act allows lesser rates of interest to be charged.
Regulations authorize the Department to limit, suspend or terminate lenders' participation in the FFEL Program, as well as to impose civil penalties, if lenders violate certain program regulations. The regulations also authorize the Department to impose penalties on the servicer and/or limit, suspend or terminate the servicer's eligibility to contract to service FFELP loans if the servicer fails to meet standards of financial responsibility or administrative capability included in the regulations or violates certain other FFELP requirements. The Department conducts frequent on-site audits of the Company's loan servicing activities. Guaranty agencies conduct similar audits on a regular basis. In addition, the Company engages independent third parties to conduct compliance reviews, as required by the Department, with respect to the Company's own student loan portfolio and the portfolios of the Company's third-party servicing clients.
Types of Loans
Four types of loans are currently available under the FFEL Program:
o Subsidized Stafford loans,
o Unsubsidized Stafford loans,
o PLUS loans, and
o Consolidation loans.
These loan types vary as to eligibility requirements, interest rates, repayment periods, loan limits and eligibility for interest subsidies and special allowance payments. Some of these loan types have had other names in the past. References to these various loan types include, where appropriate, their predecessors.
A-1
The primary loan under the FFEL Program is the subsidized Stafford loan. Students who are not eligible for subsidized Stafford loans based on their economic circumstances may be able to obtain unsubsidized Stafford loans. Parents of students may be able to obtain PLUS loans on behalf of their dependents. Consolidation loans are available to borrowers, with existing loans made under the FFEL Program and other federal programs, to consolidate repayment of the borrower's existing loans. Prior to July 1, 1994, the FFEL Program also offered SLS loans to graduate and professional students and independent undergraduate students and, under certain circumstances, dependent undergraduate students, to supplement their Stafford loans.
Subsidized Stafford Loans
General. Subsidized Stafford loans are eligible for insurance and reinsurance under the Higher Education Act if the eligible student to whom the loan is made has been accepted or is enrolled in good standing at an eligible institution of higher education or vocational school and is carrying at least one-half the normal full-time workload at that institution. Subsidized Stafford loans have limits as to the maximum amount which may be borrowed for an academic year and in the aggregate for both undergraduate and graduate/professional study. Both aggregate limitations exclude loans made under the SLS and PLUS programs. The Secretary of Education has discretion to raise these limits to accommodate students undertaking specialized training requiring exceptionally high costs of education.
Subsidized Stafford loans are made only to student borrowers who meet the needs tests provided in the Higher Education Act. Provisions addressing the implementation of needs analysis and the relationship between unmet need for financing and the availability of subsidized Stafford loan funding have been the subjects of frequent and extensive amendment in recent years. Further amendment to such provisions may materially affect the availability of subsidized Stafford loan funding to borrowers or the availability of subsidized Stafford loans for secondary market acquisition.
Interest rates for subsidized Stafford loans. For a Stafford loan made prior to July 1, 1994, the applicable interest rate for a borrower who, on the date the promissory note was signed, did not have an outstanding balance on a previous FFELP loan:
(1) is 7% per annum for a loan covering a period of instruction beginning before January 1, 1981;
(2) is 9% per annum for a loan covering a period of instruction beginning on or after January 1, 1981, but before September 13, 1983;
(3) is 8% per annum for a loan covering a period of instruction beginning on or after September 13, 1983, but before July 1, 1988;
(4) is 8% per annum for the period from the disbursement of the loan through the date which is 48 months after the loan enters repayment, for a loan made prior to October 1, 1992, covering a period of instruction beginning on or after July 1, 1988, and beginning on the first day of the 49th month shall be adjusted annually, and for any 12-month period commencing on a July 1 shall be equal to the bond equivalent rate of 91-day U.S. Treasury bills auctioned at the final auction prior to the preceding June 1, plus 3.25% per annum (but not to exceed 10% per annum); or
(5) for a loan made on or after October 1, 1992 shall be adjusted annually, and for any 12-month period commencing on a July 1 shall be equal to the bond equivalent rate of 91-day U.S. Treasury bills auctioned at the final auction prior to the preceding June 1, plus 3.1% per annum (but not to exceed 9% per annum).
For a Stafford loan made prior to July 1, 1994, the applicable interest rate for a borrower who, on the date the promissory note evidencing the loan was signed, had an outstanding balance on a previous loan made insured or guaranteed under the FFEL Program:
(6) for a loan made prior to July 23, 1992 is the applicable interest rate on the previous loan or, if the previous loan is not a Stafford loan, 8% per annum; or
(7) for a loan made on or after July 23, 1992 shall be adjusted annually, and for any twelve month period commencing on a July 1 shall be equal to the bond equivalent rate of 91-day U.S. Treasury bills auctioned at the final auction prior to the preceding June 1, plus 3.1% per annum but not to exceed:
A-2
o 7% per annum in the case of a Stafford loan made to a borrower who has a loan described in clause (1)above;
o 8% per annum in the case of:
-- a Stafford loan made to a borrower who has a loan described in clause
(3) above,
-- a Stafford loan which has not been in repayment for four years and which was made to a borrower who has a loan described in clause (4) above,
-- a Stafford loan for which the first disbursement was made prior to December 20, 1993 to a borrower whose previous loans do not include a Stafford loan or an unsubsidized Stafford loan;
o 9% per annum in the case of a Stafford loan made to a borrower who has a loan described in clauses (2) or (5) above or a Stafford loan for which the first disbursement was made on or after December 20, 1993 to a borrower whose previous loans do not include a Stafford loan or an unsubsidized Stafford loan; and
o 10% per annum in the case of a Stafford loan which has been in repayment for four years or more and which was made to a borrower who has a loan described in clause (4) above.
(8) The interest rate on all Stafford loans made on or after July 1, 1994, regardless of whether the borrower is a new borrower or a repeat borrower, is a variable rate. The interest rate on all Stafford loans made on or after July 1, 1994, but prior to July 1, 1995, shall be adjusted annually, and for any twelve month period commencing on a July 1 shall be equal to the bond equivalent rate of 91-day U.S. Treasury Bills auctioned at the final auction prior to the preceding June 1, plus 3.1% per annum, except that the interest rate shall not exceed 8.25% per annum.
(9) For any Stafford loan made on or after July 1, 1995, but prior to July 1, 1998, the interest rate is further reduced prior to the time the loan enters repayment and during any deferment periods. During deferment periods, the formula described in clause (8) above is applied, except that 2.5% is substituted for 3.1%, and the rate shall not exceed 8.25% per annum.
(10) For Stafford loans made on or after July 1, 1998 but before July 1, 2006, the applicable interest rate shall be adjusted annually, and for any twelve month period commencing on a July 1 shall be equal to the bond equivalent rate of 91-day U.S. Treasury bills auctioned at the final auction prior to the proceeding June 1, plus 1.7% per annum prior to the time the loan enters repayment and during any deferment periods, and 2.3% per annum during repayment, but not to exceed 8.25% per annum.
For loans the first disbursement of which is made on or after July 1, 2006, the applicable interest rate will be 6.8%. There can be no assurance that the interest rate provisions for these loans will not be further amended.
UNSUBSIDIZED STAFFORD LOANS
General. Unsubsidized Stafford loans were created by Congress in 1992 for students who do not qualify for subsidized Stafford loans due to parental and/or student income and assets in excess of permitted amounts. These students are entitled to borrow the difference between the Stafford loan maximum and their subsidized Stafford eligibility. The general requirements for unsubsidized Stafford loans are essentially the same as those for subsidized Stafford loans. The interest rate, the annual loan limits and the special allowance payment provisions of the unsubsidized Stafford loans are the same as the subsidized Stafford loans. However, the terms of the unsubsidized Stafford loans differ materially from subsidized Stafford loans in that the federal government will not make interest subsidy payments and the loan limitations are determined without respect to the expected family contribution. The borrower will be required to either pay interest from the time the loan is disbursed or capitalize the interest until repayment begins. Unsubsidized Stafford loans were not available before October 1, 1992. A student meeting the general eligibility requirements for a loan under the FFEL Program is eligible for an unsubsidized Stafford loan without regard to need.
Interest rates for unsubsidized Stafford loans. Unsubsidized Stafford loans are subject to the same interest rate provisions as subsidized Stafford loans.
PLUS Loans
General. PLUS loans are made only to borrowers who are parents and, under certain circumstances, spouses of remarried parents, of dependent undergraduate students. For PLUS loans made on or after July 1, 1993, the parent borrower must not have an adverse credit history as determined pursuant to criteria established by the Department. The basic provisions applicable to PLUS loans are similar to those of Stafford loans with respect to the involvement of guaranty agencies and the Secretary of Education in providing federal insurance and reinsurance on the loans. However, PLUS loans differ significantly, particularly from the subsidized Stafford loans, because federal interest subsidy payments are not available under the PLUS loan program and special allowance payments are more restricted.
A-3
Interest rates for PLUS loans. The applicable interest rate depends upon the date of issuance of the loan and the period of enrollment for which the loan is to apply. The applicable interest rate on a PLUS loan:
o made on or after January 1, 1981, but before October 1, 1981, is 9% per annum;
o made on or after October 1, 1981, but before November 1, 1982, is 14% per annum;
o made on or after November 1, 1982, but before July 1, 1987, is 12% per annum;
o made on or after July 1, 1987, but before October 1, 1992 shall be adjusted annually, and for any 12-month period beginning on July 1 shall be equal to the bond equivalent rate of 52-week U.S. Treasury bills auctioned at the final auction prior to the preceding June 1, plus 3.25% per annum (but not to exceed 12% per annum);
o made on or after October 1, 1992, but before July 1, 1994, shall be adjusted annually, and for any 12-month period beginning on July 1 shall be equal to the bond equivalent rate of 52-week U.S. Treasury bills auctioned at the final auction prior to the preceding June 1, plus 3.1% per annum (but not to exceed 10% per annum);
o made on or after July 1, 1994, but before July 1, 1998, is the same as that for a loan made on or after October 1, 1992, but before July 1, 1994, except that such rate shall not exceed 9% per annum;
o made on or after July 1, 1998, but before July 1, 2006, shall be adjusted annually, and for any 12-month period beginning on July 1 shall be equal to the bond equivalent rate of 91-day U.S. Treasury bills auctioned at the final auction prior to the preceding June 1, plus 3.1% per annum (but not to exceed 9% per annum); or
o the first disbursement of which is made on or after July 1, 2006 will be 7.9%.
For any 12-month period beginning on July 1, 2001 or any succeeding year, the weekly average 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the last calendar week before such June 26, will be substituted for the 52-week Treasury bill as the index for interest rate calculations.
SLS LOANS
General. SLS loans were limited to graduate or professional students, independent undergraduate students, and dependent undergraduate students, if the students' parents were unable to obtain a PLUS loan. Except for dependent undergraduate students, eligibility for SLS loans was determined without regard to need. SLS loans were similar to Stafford loans with respect to the involvement of guaranty agencies and the Secretary of Education in providing federal insurance and reinsurance on the loans. However, SLS loans differed significantly, particularly from subsidized Stafford loans, because federal interest subsidy payments were not available under the SLS loan program and special allowance payments were more restricted.
Interest rates for SLS loans. The applicable interest rates on SLS loans made prior to October 1, 1992 were identical to the applicable interest rates on PLUS loans made at the same time. For SLS loans made on or after October 1, 1992, the applicable interest rate was the same as the applicable interest rate on PLUS loans, except that the ceiling was 11% per annum instead of 10% per annum.
CONSOLIDATION LOANS
GENERAL. The Higher Education Act authorizes a program under which certain borrowers may consolidate their various federally insured education loans into a single loan insured and reinsured on a basis similar to Stafford loans. Consolidation loans may be obtained in an amount sufficient to pay outstanding principal, unpaid interest and late charges on federally insured or reinsured student loans incurred under the FFEL and Direct Loan Programs, including PLUS loans made to the consolidating borrower as well as loans made pursuant to the Perkins Loan Program (formally National Direct Student Loan Program), FISL, Nursing Student Loan, Health Education Assistance Loan, and Health Professions Student Loan Programs. To be eligible for a FFELP Consolidation loan, a borrower must:
o have outstanding indebtedness on student loans made under the FFEL Program and/or certain other federal student loan programs, and
o be in repayment status or in a grace period on loans that are to be consolidated.
A-4
Borrowers who are in default on loans that are to be consolidated must first make satisfactory arrangements to repay the loans to the respective holder(s), or must agree to repay the consolidating lender under an income-sensitive repayment arrangement in order to include the defaulted loans in the Consolidation loan. For applications received on or after January 1, 1993, borrowers may add additional loans to a Consolidation loan during the 180-day period following the origination of the Consolidation loan.
Consolidation loans for which the applications were received prior to January 1, 1993 required a minimum student loan indebtedness of $5,000. For Consolidation loans disbursed prior to July 1, 1994, the required minimum outstanding student loan indebtedness was $7,500. As of July 1, 1994, Consolidation loans are no longer subject to a minimum loan amount.
A married couple that agrees to be jointly and severally liable on a Consolidation loan, for which the application is received on or after January 1, 1993, may be treated as an individual for purposes of obtaining a Consolidation loan. .
Interest rates for Consolidation loans. A Consolidation loan made prior to July 1, 1994 bears interest at a rate equal to the weighted average of the interest rates on the loans retired, rounded to the nearest whole percent, but not less than 9% per annum. Except as described in the next sentence, a Consolidation loan made on or after July 1, 1994 bears interest at a rate equal to the weighted average of the interest rates on the loans retired, rounded upward to the nearest whole percent, but with no minimum rate. For a Consolidation loan for which the application is received by an eligible lender on or after November 13, 1997 and before October 1, 1998, the interest rate shall be adjusted annually, and for any twelve-month period commencing on a July 1 shall be equal to the bond equivalent rate of 91-day U.S. Treasury bills auctioned at the final auction prior to the preceding June 1, plus 3.1% per annum, but not to exceed 8.25% per annum. Notwithstanding these general interest rates, the portion, if any, of a Consolidation loan that repaid a loan made under title VII, Sections 700-721 of the Public Health Services Act, as amended, has a different variable interest rate. Such portion is adjusted on July 1 of each year, but is the sum of the average of the T-Bill Rates auctioned for the quarter ending on the preceding June 30, plus 3.0%, without any cap on the interest rate. Consolidation loans made on or after October 1, 1998 and before July 1, 2006 will bear interest at a per annum rate equal to the lesser of 8.25% or the weighted average of the interest rates on the loans being consolidated, rounded to the nearest higher 1/8 of 1%. Consolidation loans for which the application is received on or after July 1, 2006, will bear interest also at a rate per annum equal to the lesser of 8.25% or the weighted average of the interest rates on the loans being consolidated, rounded to the nearest higher 1/8 of 1%. For a discussion of required payments that reduce the return on Consolidation loans, see "Fees -- Rebate Fees on Consolidation Loans" in this Appendix.
MAXIMUM LOAN AMOUNTS
Each type of loan is subject to certain limits on the maximum principal amount, with respect to a given academic year and/or in the aggregate. Consolidation loans are currently limited only by the amount of eligible loans to be consolidated. PLUS loans are limited to the difference between the cost of attendance and the other aid available to the student. Stafford loans, subsidized and unsubsidized, are subject to both annual and aggregate limits according to the provisions of the Higher Education Act.
Loan limits for subsidized Stafford and unsubsidized Stafford loans. Subsidized and unsubsidized Stafford loans are generally treated as one loan type for loan limit purposes. A dependent student who has not successfully completed the first year of a program of undergraduate education may borrow up to $2,625 in an academic year. A dependent student who has successfully completed the first year, but who has not successfully completed the second year may borrow up to $3,500 in Stafford loans per academic year. A dependent undergraduate student who has successfully completed the first and second year, but who has not successfully completed the remainder of a program of undergraduate education, may borrow up to $5,500 per academic year. Independent undergraduate students are subject to the same limits as those applicable to dependent students, but are also eligible for additional unsubsidized Stafford loan amounts. Such amounts are increased by $4,000 for each of the first two years, and by $5,000 for third-, fourth-, and fifth-year students. For students enrolled in programs of less than an academic year in length, the limits are generally reduced in proportion to the amount by which the programs are less than one year in length.
A graduate or professional student may borrow up to $18,500 in an academic year where no more than $8,500 is representative of subsidized Stafford loan amounts. The maximum aggregate amount of Stafford loans, including that portion of a Consolidation loan used to repay such loans, which an undergraduate student may have outstanding is $46,000 where no more than $23,000 is representative of subsidized Stafford loan amounts. The maximum aggregate amount for a graduate and professional student, including loans for undergraduate education, is $138,500 with subsidized Stafford loan amounts comprising no more than $65,500 of the aggregate total. In some instances, schools may certify loan amounts in excess of the above limits, i.e., for certain health profession students.
A-5
With the enactment of the Higher Education Amendments of 1992, an undergraduate student who had not successfully completed the first and second year of a program of undergraduate education could borrow Stafford loans in amounts up to $2,625 in an academic year. An undergraduate student who had successfully completed the first and second year, but who had not successfully completed the remainder of a program of undergraduate education could borrow up to $4,000 per academic year. The maximum for graduate and professional students was $7,500 per academic year. The maximum aggregate amount of Stafford loans which a borrower could have outstanding, including that portion of a Consolidation loan used to repay such loans, was $17,250. The maximum aggregate amount for a graduate or professional student, including loans for undergraduate education, was $54,750.
Loan limits for PLUS loans. For PLUS loans made on or after July 1, 1993, the amounts of PLUS loans are limited only by the student's unmet need. Prior to that time PLUS loans were subject to limits similar to those of SLS loans applied with respect to each student on behalf of whom the parent borrowed.
Loan limits for SLS loans. A student who had not successfully completed the first and second year of a program of undergraduate education could borrow a SLS loan in an amount of up to $4,000. A student who had successfully completed the first and second year, but who had not successfully completed the remainder of a program of undergraduate education could borrow up to $5,000 per year. Graduate and professional students could borrow up to $10,000 per year. SLS loans were subject to an aggregate maximum of $23,000 ($73,000 for graduate and professional students). Prior to the 1992 changes, SLS loans were available in amounts of $4,000 per academic year, up to a $20,000 aggregate maximum. Prior to the 1986 changes, a graduate or professional student could borrow $3,000 of SLS loans per academic year, up to a $15,000 maximum, and an independent undergraduate student could borrow $2,500 of SLS loans per academic year minus the amount of all other FFELP loans to such student for such academic year, up to the maximum amount of all FFELP loans to that student of $12,500. In 1989, the amount of SLS loans for students enrolled in programs of less than an academic year in length were limited in a manner similar to the limits described above under Stafford Loans.
DISBURSEMENT REQUIREMENTS
The Higher Education Act now requires that virtually all Stafford loans and PLUS loans be disbursed by eligible lenders in at least two separate installments. The proceeds of a loan made to any undergraduate first-year student borrowing for the first time under the program must be delivered to the student no earlier than thirty days after the enrollment period begins, with few exceptions.
REPAYMENT
Repayment periods. Loans made under the FFEL Program, other than consolidation loans, must provide for repayment of principal in periodic installments over a period of not less than five nor more than ten years. After the 1998 Amendments, lenders were required to offer extended repayment schedules to new borrowers who accumulate outstanding FFELP loans of more than $30,000, in which case the repayment period may extend up to 25 years subject to certain minimum repayment amounts. A consolidation loan must be repaid during a period agreed to by the borrower and lender, subject to maximum repayment periods which vary depending upon the principal amount of the borrower's outstanding student loans, but may not be longer than 30 years. For consolidation loans for which the application was received prior to January 1, 1993, the repayment period could not exceed 25 years.
Repayment of principal on a Stafford loan does not commence while a student remains a qualified student, but generally begins upon expiration of the applicable grace period. Grace periods may be waived by borrowers. For Stafford loans for which the applicable rate of interest is 7% per annum, the repayment period commences not more than twelve months after the borrower ceases to pursue at least a half-time course of study. For other subsidized Stafford loans and unsubsidized Stafford loans, the repayment period commences not more than six months after the borrower ceases to pursue at least a half-time course of study.
In the case of SLS, PLUS and consolidation loans, the repayment period commences on the date of final disbursement of the loan, except that the borrower of a SLS loan who also has a Stafford loan may defer repayment of the SLS loan to coincide with the commencement of repayment of the subsidized Stafford or unsubsidized Stafford loan. During periods in which repayment of principal is required, payments of principal and interest must in general be made at a rate of not less than the greater of $600 per year or the interest that accrues during the year, except that a borrower and lender may agree to a lesser rate at any time before or during the repayment period. A borrower may agree, with concurrence of the lender, to repay the loan in less than five years with the right subsequently to extend his minimum repayment period to five years. Borrowers may accelerate, without penalty, the repayment of all or any part of the loan.
Income-sensitive repayment schedules. Since 1993, lenders of subsidized Stafford, unsubsidized Stafford, SLS, and consolidation loans have been required to offer borrowers the option of repaying in accordance with income-sensitive repayment schedules. In 2000, lenders were required to offer income-sensitive repayment schedules to PLUS borrowers as well. Use of income-sensitive repayment schedules may extend the ten-year maximum term for up to five years if the payment amount established from the borrower's income will not repay the loan within the applicable maximum repayment period. In addition, if the repayment schedule on a loan that has been converted to a variable interest rate does not provide for adjustments to the amount of the monthly installment payments, the ten-year maximum term may be extended for up to three years.
A-6
Deferment periods. No principal repayments need be made during certain periods of deferment prescribed by the Higher Education Act. For subsidized Stafford, unsubsidized Stafford, and SLS loans to a borrower who first obtained a loan which was disbursed before July 1, 1993, deferments are available:
o during a period not exceeding three years while the borrower is a member of the Armed Forces, an officer in the Commissioned Corps of the Public Health Service or, with respect to a borrower who first obtained a student loan disbursed on or after July 1, 1987, or a student loan to cover the cost of instruction for a period of enrollment beginning on or after July 1, 1987, an active duty member of the National Oceanic and Atmospheric Administration Corps;
o during a period not in excess of three years while the borrower is a volunteer under the Peace Corps Act;
o during a period not in excess of three years while the borrower is a full-time paid volunteer under the Domestic Volunteer Act of 1973;
o during a period not exceeding three years while the borrower is a full-time paid volunteer for an organization which is exempt from taxation under Section 501(c)(3) of the Code;
o during a period not exceeding two years while the borrower is serving an internship necessary to receive professional recognition required to begin professional practice or service, or a qualified internship or residency program;
o during a period not exceeding three years while the borrower is temporarily totally disabled, as established by sworn affidavit of a qualified physician, or while the borrower is unable to secure employment by reason of the care required by a dependent who is so disabled;
o during a period not to exceed twenty-four months while the borrower is seeking and unable to find full-time employment;
o during any period that the borrower is pursuing a full-time course of study at an eligible institution (or, with respect to a borrower who first obtained a student loan disbursed on or after July 1, 1987, or a student loan to cover the cost of instruction for a period of enrollment beginning on or after July 1, 1987, is pursuing at least a half-time course of study), or is pursuing a course of study pursuant to a graduate fellowship program or a rehabilitation training program for disabled individuals approved by the Secretary of Education;
o during a period, not in excess of 6 months, while the borrower is on parental leave; and
o only with respect to a borrower who first obtained a student loan disbursed on or after July 1, 1987, or a student loan to cover the cost of instruction for a period of enrollment beginning on or after July 1, 1987, during a period not in excess of three years while the borrower is a full-time teacher in a public or nonprofit private elementary or secondary school in a "teacher shortage area" (as prescribed by the Secretary of Education), and during a period not in excess of 12 months for mothers, with preschool age children, who are entering or re-entering the work force and who are compensated at a rate not exceeding $1 per hour in excess of the federal minimum wage.
For loans to a borrower who first obtains a loan on or after July 1, 1993, deferments are available:
o during any period that the borrower is pursuing at least a half-time course of study at an eligible institution or a course of study pursuant to a graduate fellowship program or rehabilitation training program approved by the Secretary of Education;
o during a period not exceeding three years while the borrower is seeking and unable to find full-time employment; and
o during a period not in excess of three years for any reason which the lender determines, in accordance with regulations under the Higher Education Act, has caused or will cause the borrower economic hardship. Economic hardship includes working full time and earning an amount not in excess of the greater of the minimum wage or the poverty line for a family of two. Additional categories of economic hardship are based on the relationship between a borrower's educational debt burden and his or her income.
Prior to the 1992 changes, only certain of the deferment periods described above were available to PLUS loan borrowers, and only certain deferment periods were available to consolidation loan borrowers. Prior to the 1986 changes, PLUS loan borrowers were not entitled to certain deferment periods. Deferment periods extend the maximum repayment term.
A-7
Forbearance period. The Higher Education Act also provides for periods of forbearance during which the borrower, in case of temporary financial hardship, may postpone any payments. A borrower is entitled to forbearance for a period not to exceed three years while the borrower's debt burden under Title IV of the Higher Education Act (which includes the FFEL Program) equals or exceeds 20% of the borrower's gross income, and also is entitled to forbearance while he or she is serving in a qualifying medical or dental internship program or in a "national service position" under the National and Community Service Trust Act of 1993. In addition, mandatory administrative forbearances are provided in exceptional circumstances such as a local or national emergency or military mobilization, or when the geographical area in which the borrower or endorser resides has been designated a disaster area by the President of the United States or Mexico, the Prime Minister of Canada, or by the governor of a state. In other circumstances, forbearance is at the lender's option. Forbearance also extends the maximum repayment term.
Interest payments during grace, deferment and forbearance periods. The Secretary of Education makes interest payments on behalf of the borrower of certain eligible loans while the borrower is in school and during grace and deferment periods. Interest that accrues during forbearance periods and, if the loan is not eligible for interest subsidy payments, while the borrower is in school and during the grace and deferment periods, may be paid monthly or quarterly or capitalized not more frequently than quarterly.
FEES
Guarantee fee. A guaranty agency is authorized to charge a premium, or guarantee fee, of up to 1% of the principal amount of the loan, which must be deducted proportionately from each disbursement of the proceeds of the loan to the borrower. Guarantee fees may not currently be charged to borrowers of consolidation loans. However, borrowers may be charged an insurance fee to cover the costs of increased or extended liability with respect to consolidation loans. For loans made prior to July 1, 1994, the maximum guarantee fee was 3% of the principal amount of the loan, but no such guarantee fee was authorized to be charged with respect to unsubsidized Stafford loans.
Origination fee. An eligible lender is authorized to charge the borrower of a subsidized Stafford loan or unsubsidized Stafford loan an origination fee in an amount not to exceed 3% of the principal amount of the loan, and is required to charge the borrower of a PLUS loan an origination fee in the amount of 3% of the principal amount of the loan. These fees must be deducted proportionately from each disbursement of the loan proceeds to the borrower. These fees are not retained by the lender, but must be passed on to the Secretary of Education.
Lender fee. The lender of any loan under the FFEL Program made on or after October 1, 1993 is required to pay to the Secretary of Education a fee equal to 0.5% of the principal amount of such loan.
Rebate fee on Consolidation Loans. The holder of any consolidation loan made on or after October 1, 1993 is required to pay to the Secretary of Education a monthly fee equal to 0.0875% (1.05% per annum) of the principal amount of, and accrued interest on the consolidation loan. For loans made pursuant to applications received on or after October 1, 1998, and on or before January 31, 1999 the fee was reduced to 0.62%.
INTEREST SUBSIDY PAYMENTS
Interest subsidy payments are interest payments paid with respect to an eligible loan before the time that the loan enters repayment and during deferment periods. The Secretary of Education and the guaranty agencies enter into interest subsidy agreements whereby the Secretary of Education agrees to pay interest subsidy payments to the holders of eligible guaranteed loans for the benefit of students meeting certain requirements, subject to the holders' compliance with all requirements of the Higher Education Act. Subsidized Stafford loans are eligible for interest subsidy payments. Consolidation loans for which the application was received on or after January 1, 1993, are eligible for interest subsidy payments; however, any portion of the consolidation loan attributable to underlying Health Education Assistance Loans (HEAL) is not subsidized. Consolidation loans made from applications received on or after August 10, 1993 are eligible for interest subsidy payments only if all underlying loans consolidated are subsidized Stafford loans. Consolidation loans for which the application is received by an eligible lender on or after November 13, 1997, are eligible for interest subsidy payments on that portion of the Consolidation loan that repays subsidized FFELP and Federal Direct Loan Program loans. In addition, to be eligible for interest subsidy payments, guaranteed loans must be made by an eligible lender under the applicable guaranty agency's guarantee program, and must meet requirements prescribed by the rules and regulations promulgated under the Higher Education Act.
The Secretary of Education makes interest subsidy payments quarterly on behalf of the borrower to the holder of a guaranteed loan in a total amount equal to the interest which accrues on the unpaid principal amount prior to the commencement of the repayment period of the loan or during any deferment period. A borrower may elect to forego interest subsidy payments, in which case the borrower is required to make interest payments.
A-8
SPECIAL ALLOWANCE PAYMENTS
The Higher Education Act provides for special allowance payments to be made by the Secretary of Education to eligible lenders. The rates for special allowance payments are based on formulas that differ according to the type of loan, the date the loan was originally made or insured and the type of funds used to finance the loan (taxable or tax-exempt).
Subsidized and unsubsidized Stafford loans. The effective formulas for special allowance payment rates for Stafford and unsubsidized Stafford loans are summarized in the following chart. The T-Bill Rate mentioned in the chart refers to the average of the bond equivalent yield of the 91-day Treasury bills auctioned during the preceding quarter.

         Date of Loans                          Annualized SAP Rate
-----------------------------    ----------------------------------
On or after October 1, 1981..    T-Bill Rate less Applicable Interest Rate + 3.5%
On or after November 16, 1986    T-Bill Rate less Applicable Interest Rate + 3.25%
On or after October 1, 1992..    T-Bill Rate less Applicable Interest Rate + 3.1%
On or after July 1, 1995.....    T-Bill Rate less Applicable Interest Rate + 3.1%(1)
On or after July 1, 1998.....    T-Bill Rate less Applicable Interest Rate + 2.8%(2)
On or after January 1, 2000
  before July 1, 2003........    3 Month Commercial Paper Rate less Applicable(3)
                                 Interest Rate + 2.34%	

(1) Substitute 2.5% in this formula while loans are in-school, grace or deferment status.
(2) Substitute 2.2% in this formula while such loans are in-school, grace or deferment status.
(3) Substitute 1.74% in this formula while such loans are in-school, grace or deferment status.
Federal PLUS, SLS and consolidation loans. The formula for special allowance payments on PLUS, SLS and Consolidation loans are as follows:

       Date of Loans                     Annualized SAP Rate
--------------------------   -------------------------------
On or after October 1, 1992  T-Bill Rate less Applicable Interest Rate + 3.1%
On or after January 1, 2000  3 Month Commercial Paper Rate less
                             Applicable Interest Rate + 2.64%	

For PLUS and SLS loans made prior to July 1, 1994 and PLUS loans made on or after July 1, 1998,which bear interest at rates adjusted annually, special allowance payments are made only in years during which the interest rate ceiling on such loans operates to reduce the rate that would otherwise apply based upon the applicable formula. See "Interest rates for PLUS loans" and "Interest rates for SLS loans" in this Appendix. Special allowance payments are paid with respect to PLUS loans made on or after October 1, 1992 only if the rate that would otherwise apply exceeds 10% per annum. For PLUS loans made after July 1, 1998 and before July 1, 2006, special allowance is paid only if the sum of the 91-day Treasury bill rate determined at an auction held on June 1 of each year plus 3.1% exceeds 9.0%. For PLUS loans first disbursed on or after July 1, 2006, special allowance is paid for such loans in any 12-month period beginning on July 1 and ending on June 30 only if the sum of the average of the bond equivalent rates of the quotes of the 3-month commercial paper rate for the last calendar week ending on or before such July 1 plus 2.64% exceeds 9.0%. The portion, if any, of a consolidation loan that repaid a loan made under Title VII, Sections 700-721 of the Public Health Services Act, as amended, is ineligible for special allowance payments.
Special allowance payments for loans financed by tax-exempt bonds. The effective formulas for special allowance payment rates for Stafford Loans and unsubsidized Stafford Loans differ depending on whether loans to borrowers were acquired or originated with the proceeds of tax-exempt obligations. The formula for special allowance payments for loans financed with the proceeds of tax-exempt obligations originally issued prior to October 1, 1993 is:
T Bill Rate less Applicable Interest Rate + 3.5%

2
provided that the special allowance applicable to the loans may not be less than 9 1/2% less the Applicable Interest Rate. Loans acquired or originated with the proceeds of tax-exempt obligations originally issued on or after October 1, 1993 receive special allowance payments made on other loans. Beginning on October 1, 2004 and ending on December 31, 2005, any new loans acquired or originated using the proceeds of tax-exempt obligations originally issued prior to October 1,1993, if either the underlying bonds are refunded or loans are refinanced, receive special allowance payments made on other loans.
A-9
Adjustments to special allowance payments. Special allowance payments and interest subsidy payments are reduced by the amount which the lender is authorized or required to charge as an origination fee. The Higher Education Act provides that if special allowance payments or interest subsidy payments have not been made within 30 days after the Secretary of Education receives an accurate, timely and complete request therefore, the special allowance payable to such holder shall be increased by an amount equal to the daily interest accruing on the special allowance and interest subsidy payments due the holder.
DESCRIPTION OF THE GUARANTY AGENCIES
The following discussion relates to guaranty agencies under the FFELP.
A guaranty agency guarantees loans made to students or parents of students by lending institutions such as banks, credit unions, savings and loan associations, certain schools, pension funds and insurance companies. A guaranty agency generally purchases defaulted student loans which it has guaranteed with its reserve fund. A lender may submit a default claim to the guaranty agency after the student loan has been delinquent for at least 270 days. The default claim package must include all information and documentation required under the FFELP regulations and the guaranty agency's policies and procedures.
In general, a guaranty agency's reserve fund has been funded principally by administrative cost allowances paid by the Secretary of Education, guarantee fees paid by lenders, investment income on moneys in the reserve fund, and a portion of the moneys collected from borrowers on guaranteed loans that have been reimbursed by the Secretary of Education to cover the guaranty agency's administrative expenses.
Various changes to the Higher Education Act have adversely affected the receipt of revenues by the guaranty agencies and their ability to maintain their reserve funds at previous levels, and may adversely affect their ability to meet their guarantee obligations. These changes include:
o the reduction in reinsurance payments from the Secretary of Education because of reduced reimbursement percentages;
o the reduction in maximum permitted guarantee fees from 3% to 1% for loans made on or after July 1, 1994;
o the replacement of the administrative cost allowance with a student loan processing and issuance fee equal to 65 basis points (40 basis points for loans made on or after October 1, 1993) paid at the time a loan is guaranteed, and an account maintenance fee of 12 basis points (10 basis points for fiscal years 2001-2003) paid annually on outstanding guaranteed student loans;
o the reduction in supplemental preclaims assistance payments from the Secretary of Education; and
o the reduction in retention by a guaranty agency of collections on defaulted loans from 27% to 24% (23% beginning on October 1, 2003).
Additionally, the adequacy of a guaranty agency's reserve fund to meet its guarantee obligations with respect to existing student loans depends, in significant part, on its ability to collect revenues generated by new loan guarantees. The William D. Ford Federal Direct Loan Program ("FDL Program") discussed below may adversely affect the volume of new loan guarantees. Future legislation may make additional changes to the Higher Education Act that would significantly affect the revenues received by guaranty agencies and the structure of the guaranty agency program.
The Higher Education Act gives the Secretary of Education various oversight powers over guaranty agencies. These include requiring a guaranty agency to maintain its reserve fund at a certain required level and taking various actions relating to a guaranty agency if its administrative and financial condition jeopardizes its ability to meet its obligations. These actions include, among others, providing advances to the guaranty agency, terminating the guaranty agency's federal reimbursement contracts, assuming responsibility for all functions of the guaranty agency, and transferring the guaranty agency's guarantees to another guaranty agency or assuming such guarantees. The Higher Education Act provides that a guaranty agency's reserve fund shall be considered to be the property of the United States to be used in the operation of the FFEL Program or the Direct Loan Program, and, under certain circumstances, the Secretary of Education may demand payment of amounts in the reserve fund.
The 1998 Amendments mandate the recall of guaranty agency reserve funds by the Secretary of Education amounting to $85 million in fiscal year 2002, $82.5 million in fiscal year 2006, and $82.5 million in fiscal year 2007. However, certain minimum reserve levels are protected from recall, and under the 1998 Amendments, guaranty agency reserve funds were restructured to provide guaranty agencies with additional flexibility in choosing how to spend certain funds they receive. The new recall of reserves for guaranty agencies increases the risk that resources available to guaranty agencies to meet their guarantee obligation will be significantly reduced. Relevant federal laws, including the Higher Education Act, may be further changed in a manner that may adversely affect the ability of a guaranty agency to meet its guarantee obligations.
A-10
Under the Higher Education Act, if the Department has determined that a guaranty agency is unable to meet its insurance obligations, the holders of loans guaranteed by such guaranty agency must submit claims directly to the Department, and the Department is required to pay the full guarantee payment due with respect thereto in accordance with guarantee claims processing standards no more stringent than those applied by the guaranty agency.
There are no assurances as to the Secretary of Education's actions if a guaranty agency encounters administrative or financial difficulties or that the Secretary of Education will not demand that a guaranty agency transfer additional portions or all of its reserve fund to the Secretary of Education.
Federal Agreements
General. A guaranty agency's right to receive federal reimbursements for various guarantee claims paid by such guaranty agency is governed by the Higher Education Act and various contracts entered into between guaranty agencies and the Secretary of Education. Each guaranty agency and the Secretary of Education have entered into federal reimbursement contracts pursuant to the Higher Education Act, which provide for the guaranty agency to receive reimbursement of a percentage of insurance payments that the guaranty agency makes to eligible lenders with respect to loans guaranteed by the guaranty agency prior to the termination of the federal reimbursement contracts or the expiration of the authority of the Higher Education Act. The federal reimbursement contracts provide for termination under certain circumstances and also provide for certain actions short of termination by the Secretary of Education to protect the federal interest.
In addition to guarantee benefits, qualified student loans acquired under the FFEL Program benefit from certain federal subsidies. Each guaranty agency and the Secretary of Education have entered into an Interest Subsidy Agreement under the Higher Education Act which entitles the holders of eligible loans guaranteed by the guaranty agency to receive interest subsidy payments from the Secretary of Education on behalf of certain students while the student is in school, during a six to twelve month grace period after the student leaves school, and during certain deferment periods, subject to the holders' compliance with all requirements of the Higher Education Act.
United States Courts of Appeals have held that the federal government, through subsequent legislation, has the right unilaterally to amend the contracts between the Secretary of Education and the guaranty agencies described herein. Amendments to the Higher Education Act in 1986, 1987, 1992, 1993, and 1998, respectively:
o abrogated certain rights of guaranty agencies under contracts with the Secretary of Education relating to the repayment of certain advances from the Secretary of Education,
o authorized the Secretary of Education to withhold reimbursement payments otherwise due to certain guaranty agencies until specified amounts of such guaranty agencies' reserves had been eliminated,
o added new reserve level requirements for guaranty agencies and authorized the Secretary of Education to terminate the Federal Reimbursement Contracts under circumstances that did not previously warrant such termination,
o expanded the Secretary of Education's authority to terminate such contracts and to seize guaranty agencies' reserves, and
o mandated the additional recall of guaranty agency reserve funds.
FEDERAL INSURANCE AND REIMBURSEMENT OF GUARANTY AGENCIES
Effect of annual claims rate. With respect to loans made prior to October 1, 1993, the Secretary of Education currently agrees to reimburse the guaranty agency for up to 100% of the amounts paid on claims made by lenders, as discussed in the formula described below, so long as the eligible lender has properly serviced such loan. The amount of reimbursement is lower for loans originated after October 1, 1993, as described below. Depending on the claims rate experience of a guaranty agency, such reimbursement may be reduced as discussed in the formula described below. The Secretary of Education also agrees to repay 100% of the unpaid principal plus applicable accrued interest expended by a guaranty agency in discharging its guarantee obligation as a result of the bankruptcy, death, or total and permanent disability of a borrower, or in the case of a PLUS loan, the death of the student on behalf of whom the loan was borrowed, or in certain circumstances, as a result of school closures, which reimbursements are not to be included in the calculations of the guaranty agency's claims rate experience for the purpose of federal reimbursement under the Federal Reimbursement Contracts.
A-11
The formula used for loans initially disbursed prior to October 1, 1993 is summarized below:

  Claims Rate          Federal Payment
---------------  -------------------------
0% up to 5%..    100%
5% up to 9%..    100% of claims up to 5%; 90% of
                 claims 5% and over
9% and over..    100% of claims up to 5%; 90% of
                 claims 5% and over, up to 9%; 80%
                 of claims 9% and over	

The claims experience is not accumulated from year to year, but is determined solely on the basis of claims in any one federal fiscal year compared with the original principal amount of loans in repayment at the beginning of that year.
The 1993 Amendments reduce the reimbursement amounts described above, effective for loans initially disbursed on or after October 1, 1993 as follows:
100% reimbursement is reduced to 98%, 90% reimbursement is reduced to 88%, and 80% reimbursement is reduced to 78%, subject to certain limited exceptions. The 1998 Amendments further reduce the federal reimbursement amounts from 98% to 95%, 88% to 85%, and 78% to 75% respectively, for student loans first disbursed on or after October 1, 1998.
The reduced reinsurance for federal guaranty agencies increases the risk that resources available to guaranty agencies to meet their guarantee obligation will be significantly reduced.
Reimbursement. The original principal amount of loans guaranteed by a guaranty agency which are in repayment for purposes of computing reimbursement payments to a guaranty agency means the original principal amount of all loans guaranteed by a guaranty agency less:
o the original principal amount of such loans that have been fully repaid, and
o the original amount of such loans for which the first principal installment payment has not become due.
Guaranty agencies with default rates below 5% are required to pay the Secretary of Education annual fees equivalent to 0.51% of new loans guaranteed, while all other such agencies must pay a 0.5% fee. The Secretary of Education may withhold reimbursement payments if a guaranty agency makes a material misrepresentation or fails to comply with the terms of its agreements with the Secretary of Education or applicable federal law.
Under the guarantee agreements, if a payment on a FFELP loan guaranteed by a guaranty agency is received after reimbursement by the Secretary of Education, the guaranty agency is entitled to receive an equitable share of the payment.
Any originator of any student loan guaranteed by a guaranty agency is required to discount from the proceeds of the loan at the time of disbursement, and pay to the guaranty agency, an insurance premium which may not exceed that permitted under the Higher Education Act.
Under present practice, after the Secretary of Education reimburses a guaranty agency for a default claim paid on a guaranteed loan, the guaranty agency continues to seek repayment from the borrower. The guaranty agency returns to the Secretary of Education payments that it receives from a borrower after deducting and retaining: a percentage amount equal to the complement of the reimbursement percentage in effect at the time the loan was reimbursed, and an amount equal to 24% of such payments for certain administrative costs. The Secretary of Education may, however, require the assignment to the Secretary of defaulted guaranteed loans, in which event no further collections activity need be undertaken by the guaranty agency, and no amount of any recoveries shall be paid to the guaranty agency.
A guaranty agency may enter into an addendum to its Interest Subsidy Agreement that allows the guaranty agency to refer to the Secretary of Education certain defaulted guaranteed loans. Such loans are then reported to the IRS to "offset" any tax refunds which may be due any defaulted borrower. To the extent that the guaranty agency has originally received less than 100% reimbursement from the Secretary of Education with respect to such a referred loan, the guaranty agency will not recover any amounts subsequently collected by the federal government which are attributable to that portion of the defaulted loan for which the guaranty agency has not been reimbursed.
A-12
Rehabilitation of defaulted loans. Under the Higher Education Act, the Secretary of Education is authorized to enter into an agreement with a guaranty agency pursuant to which the guaranty agency shall sell defaulted loans that are eligible for rehabilitation to an eligible lender. The guaranty agency shall repay the Secretary of Education an amount equal to 81.5% of the then current principal balance of such loan, multiplied by the reimbursement percentage in effect at the time the loan was reimbursed. The amount of such repayment shall be deducted from the amount of federal reimbursement payments for the fiscal year in which such repayment occurs, for purposes of determining the reimbursement rate for that fiscal year.
For a loan to be eligible for rehabilitation, the guaranty agency must have received consecutive payments for 12 months of amounts owed on such loan. Upon rehabilitation, a loan is eligible for all the benefits under the Higher Education Act for which it would have been eligible had no default occurred (except that a borrower's loan may only be rehabilitated once).
Eligibility for federal reimbursement. To be eligible for federal reimbursement payments, guaranteed loans must be made by an eligible lender under the applicable guaranty agency's guarantee program, which must meet requirements prescribed by the rules and regulations promulgated under the Higher Education Act, including the borrower eligibility, loan amount, disbursement, interest rate, repayment period and guarantee fee provisions described herein and the other requirements set forth in the Higher Education Act.
Prior to the 1998 Amendments, a FFELP loan was considered to be in default for purposes of the Higher Education Act when the borrower failed to make an installment payment when due, or to comply with the other terms of the loan, and if the failure persists for 180 days in the case of a loan repayable in monthly installments or for 240 days in the case of a loan repayable in less frequent installments. Under the 1998 Amendments, the delinquency period required for a student loan to be declared in default is increased from 180 days to 270 days for loans payable in monthly installments on which the first day of delinquency occurs on or after the date of enactment of the 1998 Amendments and from 240 days to 330 days for a loan payable less frequently than monthly on which the delinquency occurs after the date of enactment of the 1998 Amendments.
The guaranty agency must pay the lender for the defaulted loan prior to submitting a claim to the Secretary of Education for reimbursement. The guaranty agency must submit a reimbursement claim to the Secretary of Education within 45 days after it has paid the lender's default claim. As a prerequisite to entitlement to payment on the guarantee by the guaranty agency, and in turn payment of reimbursement by the Secretary of Education, the lender must have exercised reasonable care and diligence in making, servicing and collecting the guaranteed loan. Generally, these procedures require:
o that completed loan applications be processed;
o a determination of whether an applicant is an eligible borrower attending an eligible institution under the Higher Education Act;
o the borrower's responsibilities under the loan be explained to him or her;
o the promissory note evidencing the loan be executed by the borrower; and
o that the loan proceeds be disbursed by the lender in a specified manner.
After the loan is made, the lender must establish repayment terms with the borrower, properly administer deferments and forbearances and credit the borrower for payments made. If a borrower becomes delinquent in repaying a loan, a lender must perform certain collection procedures, primarily telephone calls, demand letters, skip tracing procedures and requesting assistance from the applicable guaranty agency, that vary depending upon the length of time a loan is delinquent.
DIRECT LOANS
The Student Loan Reform Act of 1993 authorized a program of "direct loans," to be originated by schools with funds provided by the Secretary of Education. Under the FDL Program, the Secretary of Education is directed to enter into agreements with schools, or origination agents in lieu of schools, to disburse loans with funds provided by the Secretary of Education. Participation in the program by schools is voluntary. The goals set forth in the 1993 Amendments call for the direct loan program to constitute 5% of the total volume of loans made under the FFEL Program and the FDL Program for academic year 1994-1995, 40% for academic year 1995-1996, 50% for academic years 1996-1997 and 1997-1998 and 60% for academic year 1998-1999. No provision is made for the size of the FDL Program thereafter. Based upon information released by the General Accounting Office, participation by schools in the FDL Program has not been sufficient to meet the goals for the 1995-1996 or 1996-1997 academic years. The 1998 Amendments removed references to the "phase-in" of the FDL Program, including restrictions on annual limits for FDL Program volume and the Secretary's authority to select additional institutions to achieve balanced school representation.
A-13
The loan terms are generally the same under the FDL Program as under the FFEL Program, though more flexible repayment provisions are available under the FDL Program. At the discretion of the Secretary of Education, students attending schools that participate in the FDL Program (and their parents) may still be eligible for participation in the FFEL Program, though no borrower could obtain loans under both programs for the same period of enrollment.
It is difficult to predict the impact of the FDL Program. There is no way to accurately predict the number of schools that will participate in future years, or, if the Secretary authorizes students attending participating schools to continue to be eligible for FFEL Program loans, how many students will seek loans under the FDL Program instead of the FFEL Program. In addition, it is impossible to predict whether future legislation will eliminate, limit or expand the FDL Program or the FFEL Program.
A-14
 
EXHIBIT 4.17
INDENTURE OF TRUST
by and between
NELNET STUDENT LOAN TRUST 2005-1
and
ZIONS FIRST NATIONAL BANK,
as Trustee and as Eligible Lender Trustee
Dated as of February 1, 2005
 
NELNET STUDENT LOAN TRUST 2005-1
Reconciliation and tie between Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") and Indenture of Trust, dated as of February 1, 2005.

          Trust Indenture Act Section                  Indenture Section
Section 310(a)(1)                                             7.23
310(a)(2)                                                     7.23
310(b)                                                        7.23, 7.09
Section 311(a)                                                7.08
311(b)                                                        7.08
Section 312(b)                                                9.16
312(c)                                                        9.16
Section 313(a)                                                4.15
313(b)                                                        4.15
313(c)                                                        4.15, 8.04
Section 314(a)(1)                                             4.15
314(a)(2)                                                     4.15
314(a)(3)                                                     4.15
314(a)(4)                                                     4.16
314(c)                                                        2.02, 5.07
314(d)(1)                                                     5.07
Section 315(b)                                                8.04
Section 317(a)(1)                                             4.17, 6.10
317(a)(2)                                                     7.24
Section 318(a)                                                9.09
318(c)                                                        9.09

--------------------
NOTE:  This  reconciliation  and tie shall not, for any  purpose,  be deemed to
be a part of the Indenture.	

Attention should also be directed to Section 318(c) of the Trust Indenture Act, which provides that the provisions of Sections 310 to and including 317 of the Trust Indenture Act are a part of and govern every qualified indenture, whether or not physically contained therein.
 
ARTICLE I
DEFINITIONS AND USE OF PHRASES.................................................3
ARTICLE II
NOTE DETAILS AND FORM OF NOTES

Section 2.01.     Note Details................................................25
Section 2.02.     Execution, Authentication and Delivery of Notes.............25
Section 2.03.     Registration, Transfer and Exchange of Notes; Persons
                  Treated as Registered Owners................................26
Section 2.04.     Lost, Stolen, Destroyed and Mutilated Notes.................26
Section 2.05.     Trustee's Authentication Certificate........................27
Section 2.06.     Cancellation and Destruction of Notes by the Trustee........27
Section 2.07.     Temporary Notes.............................................27
Section 2.08.     Issuance of Notes...........................................27
Section 2.09.     Definitive Notes............................................28
Section 2.10.     Payment of Principal and Interest...........................28	

ARTICLE III
PARITY AND PRIORITY OF LIEN; OTHER OBLIGATIONS;
AND DERIVATIVE PRODUCTS

Section 3.01.     Parity and Priority of Lien.................................29
Section 3.02.     Other Obligations...........................................29
Section 3.03.     Derivative Products; Counterparty Payments; Issuer
                  Derivative Payments.........................................30	

ARTICLE IV
PROVISIONS APPLICABLE TO THE NOTES; DUTIES OF THE ISSUER

Section 4.01.     Payment of Principal and Interest...........................30
Section 4.02.     Covenants as to Additional Conveyances......................30
Section 4.03.     Further Covenants of the Issuer.............................30
Section 4.04.     Enforcement of Master Servicing Agreement and
                  Subservicing Agreements.....................................32
Section 4.05.     Procedures for Transfer of Funds............................33
Section 4.06.     Additional Covenants with Respect to the Higher
                  Education Act...............................................33
Section 4.07.     Financed Eligible Loans; Collections Thereof; Assignment
                  Thereof.....................................................35
Section 4.08.     Appointment of Agents, Direction to Trustee, Etc............35
Section 4.09.     Capacity to Sue.............................................35
Section 4.10.     Continued Existence; Successor to Issuer....................35
Section 4.11.     Amendment of Student Loan Purchase Agreements...............36
Section 4.12.     Representations; Negative Covenants.........................36
Section 4.13.     Additional Covenants........................................41
Section 4.14.     Providing of Notice.........................................42
Section 4.15.     Certain Reports.............................................43
Section 4.16.     Statement as to Compliance..................................44
Section 4.17.     Representations of the Issuer Regarding the Trustee's
                  Security Interest...........................................44
Section 4.18.     Further Covenants of the Issuer Regarding the Trustee's
                  Security Interest...........................................45
Section 4.19.     Borrower Incentive Programs.................................46	

ARTICLE V
FUNDS

Section 5.01.     Creation and Continuation of Funds and Accounts.............46
Section 5.02.     Acquisition Fund............................................46
Section 5.03.     Capitalized Interest Fund...................................47
Section 5.04.     Collection Fund.............................................48
Section 5.05.     Reserve Fund................................................50
Section 5.06.     Investment of Funds Held by Trustee.........................51
Section 5.07.     Release.....................................................52	

ARTICLE VI
DEFAULTS AND REMEDIES

Section 6.01.     Events of Default Defined...................................53
Section 6.02.     Remedy on Default; Possession of Trust Estate...............54
Section 6.03.     Remedies on Default; Advice of Counsel......................55
Section 6.04.     Remedies on Default; Sale of Trust Estate...................55
Section 6.05.     Appointment of Receiver.....................................56
Section 6.06.     Restoration of Position.....................................57
Section 6.07.     Application of Sale Proceeds................................57
Section 6.08.     Acceleration of Maturity; Rescission and Annulment..........57
Section 6.09.     Remedies Not Exclusive......................................58
Section 6.10.     Collection of Indebtedness and Suits for Enforcement
                  by Trustee..................................................58
Section 6.11.     Direction of Trustee........................................58
Section 6.12.     Right to Enforce in Trustee.................................59
Section 6.13.     Physical Possession of Obligations Not Required.............59
Section 6.14.     Waivers of Events of Default................................60	

ARTICLE VII
THE TRUSTEE

Section 7.01.     Acceptance of Trust.........................................60
Section 7.02.     Recitals of Others..........................................61
Section 7.03.     As to Filing of Indenture...................................61
Section 7.04.     Trustee May Act Through Agents..............................61
Section 7.05.     Indemnification of Trustee..................................61
Section 7.06.     Trustee's Right to Reliance.................................62
Section 7.07.     Compensation of Trustee.....................................63
Section 7.08.     Creditor Relationships......................................63
Section 7.09.     Resignation of Trustee......................................64
Section 7.10.     Removal of Trustee..........................................64
Section 7.11.     Successor Trustee...........................................64
Section 7.12.     Manner of Vesting Title in Trustee..........................65
Section 7.13.     Additional Covenants by the Trustee to Conform to the
                  Higher Education Act........................................65
Section 7.14.     Right of Inspection.........................................66

                                        ii	

Section 7.15.     Limitation with Respect to Examination of Reports...........66
Section 7.16.     Servicing Agreements........................................66
Section 7.17.     Additional Covenants of Trustee.............................66
Section 7.18.     Notices to Rating Agencies..................................66
Section 7.19.     Merger of the Trustee.......................................67
Section 7.20.     Receipt of Funds from Master Servicer or a Subservicer......67
Section 7.21.     Special Circumstances Leading to Resignation of Trustee.....67
Section 7.22.     Survival of Trustee's Rights to Receive Compensation,
                  Reimbursement and Indemnification...........................68
Section 7.23.     Corporate Trustee Required; Eligibility; Conflicting
                  Interests...................................................68
Section 7.24.     Trustee May File Proofs of Claim............................68
Section 7.25.     No Petition.................................................69	

ARTICLE VIII
SUPPLEMENTAL INDENTURES

Section 8.01.     Supplemental Indentures Not Requiring Consent of
                  Registered Owners...........................................69
Section 8.02.     Supplemental Indentures Requiring Consent of Registered
                  Owners......................................................70
Section 8.03.     Additional Limitation on Modification of Indenture..........71
Section 8.04.     Notice of Defaults..........................................71
Section 8.05.     Conformity with the Trust Indenture Act.....................71	

ARTICLE IX
GENERAL PROVISIONS

Section 9.01.     Notices.....................................................72
Section 9.02.     Covenants Bind Issuer.......................................73
Section 9.03.     Lien Created................................................73
Section 9.04.     Severability of Lien........................................73
Section 9.05.     Consent of Registered Owners Binds Successors...............73
Section 9.06.     Nonliability of Persons; No General Obligation..............74
Section 9.07.     Nonpresentment of Notes or Interest Checks..................74
Section 9.08.     Security Agreement..........................................74
Section 9.09.     Laws Governing..............................................74
Section 9.10.     Severability................................................74
Section 9.11.     Exhibits....................................................74
Section 9.12.     Non-Business Days...........................................75
Section 9.13.     Parties Interested Herein...................................75
Section 9.14.     Obligations Are Limited Obligations.........................75
Section 9.15.     Limitations on Counterparty Rights..........................75
Section 9.16.     Disclosure of Names and Addresses of Registered Owners......75
Section 9.17.     Aggregate Principal Amount of Obligations...................76
Section 9.18.     Financed Eligible Loans.....................................76
Section 9.19.     Concerning the Delaware Trustee.............................76	

iii
 
ARTICLE X
PAYMENT AND CANCELLATION OF NOTES AND SATISFACTION OF INDENTURE

Section 10.01.    Trust Irrevocable...........................................76
Section 10.02.    Satisfaction of Indenture...................................76
Section 10.03.    Optional Purchase of All Financed Eligible Loans............78
Section 10.04.    Auction of Financed Eligible Loans..........................78
Section 10.05.    Cancellation of Paid Notes..................................79

EXHIBIT A         ELIGIBLE LOAN ACQUISITION CERTIFICATE
EXHIBIT B-1       FORM OF CLASS A-1 NOTE
EXHIBIT B-2       FORM OF CLASS A-2 NOTE
EXHIBIT B-3       FORM OF CLASS A-3 NOTE
EXHIBIT B-4       FORM OF CLASS A-4 NOTE
EXHIBIT B-5       FORM OF CLASS A-5 NOTE
EXHIBIT B-6       FORM OF CLASS B NOTE
EXHIBIT C         FORM OF ADMINISTRATOR'S MONTHLY SERVICING PAYMENT DATE
                  CERTIFICATE
EXHIBIT D         FORM OF ADMINISTRATOR'S QUARTERLY DISTRIBUTION DATE
                  CERTIFICATE	

iv
INDENTURE OF TRUST
THIS INDENTURE OF TRUST, dated as of February 1, 2005 (this "Indenture"), is by and between NELNET STUDENT LOAN TRUST 2005-1 (the "Issuer"), a statutory trust duly organized and existing under the laws of the State of Delaware (the "State"), and ZIONS FIRST NATIONAL BANK, a national banking association duly organized and operating under the laws of the United States of America, as trustee hereunder (together with its successors, the "Trustee") and as eligible lender trustee (together with its successors, the "Eligible Lender Trustee") under the Eligible Lender Trust Agreement (all capitalized terms used in these preambles, recitals and granting clauses shall have the same meanings assigned thereto in Article I hereof);
W I T N E S S E T H :
WHEREAS, the Issuer represents that it is duly created as a statutory trust under the laws of the State and that by proper action has duly authorized the execution and delivery of this Indenture, which Indenture provides for the payment of student loan asset-backed notes (the "Notes") and the payments to any Counterparty (as defined herein); and
WHEREAS, this Indenture is subject to the provisions of the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), that are deemed to be incorporated into this Indenture and shall, to the extent applicable, be governed by such provisions; and
WHEREAS, the Trustee has agreed to accept the trusts herein created upon the terms herein set forth; and
WHEREAS, it is hereby agreed between the parties hereto, the Registered Owners of the Notes (the Registered Owners evidencing their consent by their acceptance of the Notes) and any Counterparty (the Counterparty evidencing its consent by its execution and delivery of a Derivative Product (as defined herein)) that in the performance of any of the agreements of the Issuer herein contained, any obligation it may thereby incur for the payment of money shall not be general debt on its part, but shall be secured by and payable solely from the Trust Estate, payable in such order of preference and priority as provided herein;
NOW, THEREFORE, the Issuer, and as appropriate the Eligible Lender Trustee, in consideration of the premises and acceptance by the Trustee of the trusts herein created, of the purchase and acceptance of the Notes by the Registered Owners thereof, of the execution and delivery of any Derivative Product by a Counterparty and the Issuer and the acknowledgement thereof by the Trustee, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, do hereby GRANT, CONVEY, PLEDGE, TRANSFER, ASSIGN AND DELIVER to the Trustee, for the benefit of the Registered Owners of the Notes and any Counterparty (to secure the payment of any and all amounts which may from time to time become due and owing to a Counterparty pursuant to any Derivative Product), all of the moneys, rights and properties described in the granting clauses A through F below (the "Trust Estate"), as follows:
1
GRANTING CLAUSE A
The Available Funds and Accounts (other than moneys released from the lien of the Trust Estate as provided herein);
GRANTING CLAUSE B
All moneys and investments held in the Funds and Accounts created under
Section 5.01 hereof, including all proceeds thereof and all income thereon;
GRANTING CLAUSE C
The Financed Eligible Loans (other than Financed Eligible Loans released from the lien of the Trust Estate as provided herein) and all obligations of the obligors thereunder including all moneys accrued and paid thereunder on or after the Cutoff Date;
GRANTING CLAUSE D
The rights of the Issuer and/or the Eligible Lender Trustee in and to the Eligible Lender Trust Agreement, the Master Servicing Agreement, any Subservicing Agreement, the Student Loan Purchase Agreements, the Administration Agreement, the Custodian Agreements and the Guarantee Agreements as the same relate to the Financed Eligible Loans;
GRANTING CLAUSE E
The rights of the Issuer in and to any Derivative Product; provided, however, that this Granting Clause E shall not be for the benefit of a Counterparty with respect to its Derivative Product; and
GRANTING CLAUSE F
All proceeds from any property described in these Granting Clauses and any and all other property, rights and interests of every kind or description that from time to time hereafter is granted, conveyed, pledged, transferred, assigned or delivered to the Trustee as additional security hereunder.
TO HAVE AND TO HOLD the Trust Estate, whether now owned or held or hereafter acquired, unto the Trustee and its successors or assigns;
IN TRUST NEVERTHELESS, upon the terms and trusts herein set forth for the equal and proportionate benefit and security of all present and future Registered Owners of the Notes, without preference of any Note over any other, except as provided herein, and for enforcement of the payment of the Notes in accordance with their terms, and all other sums payable hereunder (including payments due and payable to any Counterparty) or on the Notes, and for the performance of and compliance with the obligations, covenants and conditions of this Indenture, as if all the Notes and other Obligations (as defined herein) at any time Outstanding had been executed and delivered simultaneously with the execution and delivery of this Indenture;
2
PROVIDED, HOWEVER, that if the Issuer, its successors or assigns, shall well and truly pay, or cause to be paid, the principal of the Notes and the interest due and to become due thereon, or provide fully for payment thereof as herein provided, at the times and in the manner mentioned in the Notes according to the true intent and meaning thereof, and shall make all required payments into the Funds as required under Article V hereof, or shall provide, as permitted hereby, for the payment thereof by depositing with the Trustee sums sufficient to pay or to provide for payment of the entire amount due and to become so due as herein provided (including payments due and payable to any Counterparty), then this Indenture (other than Sections 4.13, 4.14 (for a period of 90 days) and 7.05 hereof) and the rights hereby granted shall cease, terminate and be void; otherwise, this Indenture shall be and remain in full force and effect;
NOW, THEREFORE, it is mutually covenanted and agreed as follows:
ARTICLE I
DEFINITIONS AND USE OF PHRASES
Capitalized terms used herein and not otherwise defined shall have the meanings set forth below unless the context clearly requires otherwise:
"Account" shall mean any of the accounts created and established within any Fund pursuant to this Indenture.
"Acquisition Fund" shall mean the Fund by that name created in Section 5.01(a) hereof and further described in Section 5.02 hereof, including any Accounts and Subaccounts created therein.
"Adjusted Pool Balance" shall mean, for any Quarterly Distribution Date as determined by the Administrator, (a) if the Pool Balance as of the last day of the related Collection Period is greater than 40% of the Initial Pool Balance, the sum of such Pool Balance, the Specified Reserve Fund Balance for that Quarterly Distribution Date and any amounts on deposit in the Capitalized Interest Fund; or (b) if the Pool Balance as of the last day of the related Collection Period is less than or equal to 40% of the Initial Pool Balance, that Pool Balance.
"Administration Agreement" shall mean the Administration Agreement, dated as of February 1, 2005, among the Issuer, the Administrator, the Trustee and the Delaware Trustee, as supplemented and amended.
"Administration Fee" shall mean an amount equal to [0.18%] per annum, based on the aggregate principal amount of the Pool Balance at any time, as determined by the Administrator; provided, however, that if the Financed Eligible Loans are not optionally purchased pursuant to Section 10.03 hereof and the Financial Eligible Loans are not sold on the Trust Auction Date pursuant to
Section 10.04 hereof, the Administration Fee shall be reduced to an amount equal to [0.05%] per annum, based on the aggregate principal amount of the Pool Balance at any time, as determined by the Administrator.
3
"Administrator" shall mean National Education Loan Network, Inc. in its capacity as administrator of the Issuer and the Financed Eligible Loans, or any successor thereto in accordance with the Administration Agreement.
"Affiliate" shall mean, with respect to any specified Person, any other Person controlling or controlled by or under common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Authorized Representative" shall mean, when used with reference to the Issuer, any Person duly authorized by the Trust Agreement to act on the Issuer's behalf.
"Available Funds" shall mean, with respect to a Quarterly Distribution Date or any related Monthly Servicing Payment Date, the sum of the following amounts received to the extent not previously distributed: (a) all collections received by the Master Servicer or any Subservicer on the Financed Eligible Loans (including late fees received by the Master Servicer or any Subservicer with respect to the Financed Eligible Loans and payments from any Guaranty Agency received with respect to the Financed Eligible Loans but net of (i) any collections in respect of principal on the Financed Eligible Loans applied by the Issuer to repurchase guaranteed loans from the Guaranty Agencies or the Master Servicer or any Subservicer in accordance with its Guarantee Agreement, the Master Servicing Agreement or the related Subservicing Agreement, as applicable; (ii) amounts required by the Higher Education Act to be paid to the Department (including, but not limited to, rebate fees owed with respect to consolidation loans) or to be repaid to borrowers (whether or not in the form of a principal reduction of the applicable Financed Eligible Loan), with respect to the Financed Eligible Loans; and (iii) any proceeds used to purchase Eligible Loans which constitute "add-on consolidation loans"); (b) any Interest Benefit Payments and Special Allowance Payments received by the Trustee with respect to Financed Eligible Loans; (c) all Liquidation Proceeds from any Financed Eligible Loans which became Liquidated Financed Eligible Loans in accordance with the related Master Servicer or Subservicer's customary servicing procedures, and all other moneys collected with respect to any Liquidated Financed Eligible Loan which was written off, net of the sum of any amounts expended by the Master Servicer or related Subservicer in connection with such liquidation and any amounts required by law to be remitted to the obligor on such Liquidated Financed Eligible Loan; (d) the aggregate Purchase Amounts received for Financed Eligible Loans repurchased by the Seller or purchased by the Master Servicer or a Subservicer or for serial loans sold to another eligible lender pursuant to the Master Servicing Agreement or the related Subservicing Agreement; (e) the aggregate amounts, if any, received from the Seller, the Master Servicer or any Subservicer, as the case may be, as reimbursement of non-guaranteed interest amounts, or lost Interest Benefit Payments and Special Allowance Payments, with respect to the Financed Eligible Loans pursuant to a Student Loan Purchase Agreement, the Master Servicing Agreement or a Subservicing Agreement, respectively; (f) other amounts received by the Master Servicer or a Subservicer pursuant to its role as Master Servicer or Subservicer under the Master Servicing Agreement or the related Subservicing Agreement, respectively, and payable to the Issuer in connection therewith; (g) all interest earned or gain realized from the investment of amounts in any Fund or Account; and (h) any
4
payments received under the Derivative Products from the Counterparties in respect of such Quarterly Distribution Date. "Available Funds" shall be determined pursuant to the terms of this definition by the Administrator and reported to the Trustee. Amounts described in clause (a)(i), (ii) and (iii) hereof shall be paid by the Trustee upon receipt of a written direction from the Administrator. The Trustee may conclusively rely on such determinations without further duty to review or examine such information.
"Basic Documents" shall mean the Trust Agreement, this Indenture, the Master Servicing Agreement, any Subservicing Agreement, the Administration Agreement, the Student Loan Purchase Agreements, the Custodian Agreements, the Guarantee Agreements, the Eligible Lender Trust Agreement, the Derivative Products and other documents and certificates delivered in connection with any thereof.
"Business Day" shall mean (a) for purposes of calculating LIBOR, any day on which banks in New York, New York and London, England are open for the transaction of international business; and (b) for all other purposes, any day other than a Saturday, Sunday, holiday or other day on which the New York Stock Exchange or banks located in New York, New York or the city in which the principal office of the Trustee is located, are authorized or permitted by law or executive order to close.
"Capitalized Interest Fund" shall mean the Fund by that name created in
Section 5.01(b) hereof and further described in Section 5.03 hereof.
"Carryover Servicing Fees" shall have the meaning assigned to such term in the Master Servicing Agreement.
"Certificate of Insurance" shall mean any Certificate evidencing that a Financed Eligible Loan is Insured pursuant to a Contract of Insurance.
"Certificate of Trust" shall mean the certificate filed with the Secretary of State of the State establishing the Issuer under Delaware law.
"Class A Noteholder" shall mean the Person in whose name a Class A Note is registered in the Note registration books of the Trustee.
"Class A Noteholders' Interest Distribution Amount" shall mean, on any Quarterly Distribution Date for any class of Class A Notes, the Class A-1 Noteholders' Interest Distribution Amount, the Class A-2 Noteholders' Interest Distribution Amount, the Class A-3 Noteholders' Interest Distribution Amount, the Class A-4 Noteholders' Interest Distribution Amount or the Class A-5 Noteholders' Interest Distribution Amount, as applicable, in each case to the extent payable on such Quarterly Distribution Date.
"Class A Notes" shall mean, collectively, the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes and the Class A-5 Notes secured on a senior priority to the Class B Obligations.
"Class A Obligations" shall mean Class A Notes and the Derivative Products, the priority of payment of which is equal with that of Class A Notes.
5
"Class A Percentage" shall mean, for any Quarterly Distribution Date, 100% less the Class B Percentage.
"Class A Principal Distribution Amount" shall mean, for any Quarterly Distribution Date, the product of the Principal Distribution Amount and the Class A Percentage.
"Class A-1 Maturity Date" shall mean the April, 2011 Quarterly Distribution Date.
"Class A-1 Note Interest Shortfall" shall mean, with respect to any Quarterly Distribution Date, the excess, if any, of (a) the Class A-1 Noteholders' Interest Distribution Amount on the immediately preceding Quarterly Distribution Date over (b) the amount of interest actually distributed to the Class A-1 Noteholders on such preceding Quarterly Distribution Date, plus interest on the amount of such excess interest due to the Class A-1 Noteholders, to the extent permitted by law, at the interest rate borne by the Class A-1 Notes from such immediately preceding Quarterly Distribution Date to the current Quarterly Distribution Date, as determined by the Administrator.
"Class A-1 Noteholder" shall mean the Person in whose name a Class A-1 Note is registered in the Note registration books maintained by the Trustee.
"Class A-1 Noteholders' Interest Distribution Amount" shall mean, with respect to any Quarterly Distribution Date, the sum of (a) the amount of interest accrued at the Class A-1 Rate for the related Interest Accrual Period on the Outstanding Amount of the Class A-1 Notes immediately prior to such Quarterly Distribution Date; and (b) the Class A-1 Note Interest Shortfall for such Quarterly Distribution Date, as based on the actual number of days in such Interest Accrual Period divided by 360 and rounding the resultant figure to the fifth decimal place, as determined by the Administrator.
"Class A-1 Notes" shall mean the $187,000,000 Student Loan Asset-Backed Notes, Senior Class A-1 issued by the Issuer pursuant to this Indenture, substantially in the form of Exhibit B-1 hereto.
"Class A-1 Rate" shall mean, for any Interest Accrual Period, other than the first Interest Accrual Period, the applicable Three-Month LIBOR, [minus] ____%, as determined by the Administrator. For the first Interest Accrual Period, the Class A-1 Rate shall be determined by reference to the following formula:
x + [__/__ * (y-x)] [minus] ____%, as determined by the Administrator.
where:
x = Five-Month LIBOR, and
y = Six-Month LIBOR.
"Class A-2 Maturity Date" shall mean the January, 2015 Quarterly Distribution Date.
6
"Class A-2 Note Interest Shortfall" shall mean, with respect to any Quarterly Distribution Date, the excess, if any, of (a) the Class A-2 Noteholders' Interest Distribution Amount on the immediately preceding Quarterly Distribution Date over (b) the amount of interest actually distributed to the Class A-2 Noteholders on such preceding Quarterly Distribution Date, plus interest on the amount of such excess interest due to the Class A-2 Noteholders, to the extent permitted by law, at the interest rate borne by the Class A-2 Notes from such immediately preceding Quarterly Distribution Date to the current Quarterly Distribution Date, as determined by the Administrator.
"Class A-2 Noteholder" shall mean the Person in whose name a Class A-2 Note is registered in the Note registration books maintained by the Trustee.
"Class A-2 Noteholders' Interest Distribution Amount" shall mean, with respect to any Quarterly Distribution Date, the sum of (a) the amount of interest accrued at the Class A-2 Rate for the related Interest Accrual Period on the Outstanding Amount of the Class A-2 Notes immediately prior to such Quarterly Distribution Date; and (b) the Class A-2 Note Interest Shortfall for such Quarterly Distribution Date, as based on the actual number of days in such Interest Accrual Period divided by 360 and rounding the resultant figure to the fifth decimal place, as determined by the Administrator.
"Class A-2 Notes" shall mean the $300,000,000 Student Loan Asset-Backed Notes, Senior Class A-2 issued by the Issuer pursuant to this Indenture, substantially in the form of Exhibit B-2 hereto.
"Class A-2 Rate" shall mean, for any Interest Accrual Period, other than the first Interest Accrual Period, the applicable Three-Month LIBOR, plus ____%, as determined by the Administrator. For the first Interest Accrual Period, the Class A-2 Rate shall be determined by reference to the following formula:
x + [__/__ * (y-x)] plus ____%, as determined by the Administrator.
where:
x = Five-Month LIBOR, and
y = Six-Month LIBOR.
"Class A-3 Maturity Date" shall mean the October, 2016 Quarterly Distribution Date.
"Class A-3 Note Interest Shortfall" shall mean, with respect to any Quarterly Distribution Date, the excess, if any, of (a) the Class A-3 Noteholders' Interest Distribution Amount on the immediately preceding Quarterly Distribution Date over (b) the amount of interest actually distributed to the Class A-3 Noteholders on such preceding Quarterly Distribution Date, plus interest on the amount of such excess interest due to the Class A-3 Noteholders, to the extent permitted by law, at the interest rate borne by the Class A-3 Notes from such immediately preceding Quarterly Distribution Date to the current Quarterly Distribution Date, as determined by the Administrator.
7
"Class A-3 Noteholder" shall mean the Person in whose name a Class A-3 Note is registered in the Note registration books maintained by the Trustee.
"Class A-3 Noteholders' Interest Distribution Amount" shall mean, with respect to any Quarterly Distribution Date, the sum of (a) the amount of interest accrued at the Class A-3 Rate for the related Interest Accrual Period on the Outstanding Amount of the Class A-3 Notes immediately prior to such Quarterly Distribution Date; and (b) the Class A-3 Note Interest Shortfall for such Quarterly Distribution Date, as based on the actual number of days in such Interest Accrual Period divided by 360 and rounding the resultant figure to the fifth decimal place, as determined by the Administrator.
"Class A-3 Notes" shall mean $142,000,000 Student Loan Asset-Backed Notes, Senior Class A-3 issued by the Issuer pursuant to this Indenture, substantially in the form of Exhibit B-3 hereto.
"Class A-3 Rate" shall mean, for any Interest Accrual Period, other than the first Interest Accrual Period, the applicable Three-Month LIBOR, plus ____%, as determined by the Administrator. For the first Interest Accrual Period, the Class A-3 Rate shall be determined by reference to the following formula:
x + [__/__ * (y-x)] plus ____%, as determined by the Administrator.
where:
x = Five-Month LIBOR, and
y = Six-Month LIBOR.
"Class A-4 Maturity Date" shall mean the October, 2020 Quarterly Distribution Date.
"Class A-4 Note Interest Shortfall" shall mean, with respect to any Quarterly Distribution Date, the excess, if any, of (a) the Class A-4 Noteholders' Interest Distribution Amount on the immediately preceding Quarterly Distribution Date over (b) the amount of interest actually distributed to the Class A-4 Noteholders on such preceding Quarterly Distribution Date, plus interest on the amount of such excess interest due to the Class A-4 Noteholders, to the extent permitted by law, at the interest rate borne by the Class A-4 Notes from such immediately preceding Quarterly Distribution Date to the current Quarterly Distribution Date, as determined by the Administrator.
"Class A-4 Noteholder" shall mean the Person in whose name a Class A-4 Note is registered in the Note registration books maintained by the Trustee.
"Class A-4 Noteholders' Interest Distribution Amount" shall mean, with respect to any Quarterly Distribution Date, the sum of (a) the amount of interest accrued at the Class A-4 Rate for the related Interest Accrual Period on the Outstanding Amount of the Class A-4 Notes immediately prior to such Quarterly Distribution Date; and (b) the Class A-4 Note Interest Shortfall for such Quarterly Distribution Date, as based on the actual number of days in such Interest Accrual Period divided by 360 and rounding the resultant figure to the fifth decimal place, as determined by the Administrator.
8
"Class A-4 Notes" shall mean the $244,000,000 Student Loan Asset-Backed Notes, Senior Class A-4 issued by the Issuer pursuant to this Indenture, substantially in the form of Exhibit B-4.
"Class A-4 Rate" shall mean, for any Interest Accrual Period, other than the first Interest Accrual Period, the applicable Three-Month LIBOR, plus ____%, as determined by the Administrator. For the first Accrual Period, the Class A-4 Rate shall be determined by reference to the following formula:
x + [__/__ * (y-x)] plus ____%, as determined by the Administrator.
where:
x = Five-Month LIBOR, and
y = Six-Month LIBOR.
"Class A-5 Maturity Date" shall mean the October, 2033 Quarterly Distribution Date.
"Class A-5 Note Interest Shortfall" shall mean, with respect to any Quarterly Distribution Date, the excess, if any, of (a) the Class A-5 Noteholders' Interest Distribution Amount on the immediately preceding Quarterly Distribution Date over (b) the amount of interest actually distributed to the Class A-5 Noteholders on such preceding Quarterly Distribution Date, plus interest on the amount of such excess interest due to the Class A-5 Noteholders, to the extent permitted by law, at the interest rate borne by the Class A-5 Notes from such immediately preceding Quarterly Distribution Date to the current Quarterly Distribution Date, as determined by the Administrator.
"Class A-5 Noteholder" shall mean the Person in whose name a Class A-5 Note is registered in the Note registration books maintained by the Trustee.
"Class A-5 Noteholders' Interest Distribution Amount" shall mean, with respect to any Quarterly Distribution Date, the sum of (a) the amount of interest accrued at the Class A-5 Rate for the related Interest Accrual Period on the Outstanding Amount of the Class A-5 Notes immediately prior to such Quarterly Distribution Date; and (b) the Class A-5 Note Interest Shortfall for such Quarterly Distribution Date, as based on the actual number of days in such Interest Accrual Period divided by 360 and rounding the resultant figure to the fifth decimal place, as determined by the Administrator.
"Class A-5 Notes" shall mean the $356,000,000 Student Loan Asset-Backed Notes, Senior Class A-5 issued by the Issuer pursuant to this Indenture, substantially in the form of Exhibit B-5.
9
"Class A-5 Rate" shall mean, for any Interest Accrual Period, other than the first Interest Accrual Period, the applicable Three-Month LIBOR, plus ____%, as determined by the Administrator. For the first Accrual Period, the Class A-5 Rate shall be determined by reference to the following formula:
x + [__/__ * (y-x)] plus ____%, as determined by the Administrator.
where:
x = Five-Month LIBOR, and
y = Six-Month LIBOR.
"Class B Maturity Date" shall mean the October, 2038 Quarterly Distribution Date.
"Class B Note Interest Shortfall" shall mean, with respect to any Quarterly Distribution Date, the excess, if any, of (a) the Class B Noteholders' Interest Distribution Amount on the immediately preceding Quarterly Distribution Date over (b) the amount of interest actually distributed to the Class B Noteholders on such preceding Quarterly Distribution Date, plus interest on the amount of such excess interest due to the Class B Noteholders, to the extent permitted by law, at the interest rate borne by the Class B Notes from such immediately preceding Quarterly Distribution Date to the current Quarterly Distribution Date, as determined by the Administrator.
"Class B Noteholder" shall mean the Person in whose name a Class B Note is registered in the Note registration books maintained by the Trustee.
"Class B Noteholders' Interest Distribution Amount" shall mean, with respect to any Quarterly Distribution Date, the sum of (a) the amount of interest accrued at the Class B Rate for the related Interest Accrual Period on the Outstanding Amount of the Class B Notes immediately prior to such Quarterly Distribution Date; and (b) the Class B Note Interest Shortfall for such Quarterly Distribution Date, as based on the actual number of days in such Interest Accrual Period divided by 360 and rounding the resultant figure to the fifth decimal place, as determined by the Administrator.
"Class B Notes" shall mean the $38,000,000 Student Loan Asset-Backed Notes, Subordinate Class B issued by the Issuer pursuant to this Indenture, substantially in the form of Exhibit B-6 hereto.
"Class B Obligations" shall mean Class B Notes.
"Class B Percentage" shall mean, for any Quarterly Distribution Date,
(a) prior to the Stepdown Date or with respect to any Quarterly Distribution Date on which a Trigger Event is in effect, zero; or (b) on and after the Stepdown Date and provided that no Trigger Event is in effect, a fraction expressed as a percentage, the numerator of which is the aggregate Outstanding Amount of the Class B Notes and the denominator of which is the aggregate Outstanding Amount of all Notes, in each case determined on the Determination Date by the Administrator for that Quarterly Distribution Date.
10
"Class B Principal Distribution Amount" shall mean, for any Quarterly Distribution Date, the product of the Principal Distribution Amount and the Class B Percentage.
"Class B Rate" shall mean, for any Interest Accrual Period, other than the first Interest Accrual Period, the applicable Three-Month LIBOR, plus ____%, as determined by the Administrator. For the first Interest Accrual Period, the Class B Rate shall be determined by reference to the following formula:
x + [__/__ * (y-x)] plus ____%, as determined by the Administrator.
where:
x = Five-Month LIBOR, and
y = Six-Month LIBOR.
"Clearing Agency" shall mean an organization registered as a "clearing agency" pursuant to Section 17A of the Exchange Act. The initial Clearing Agency shall be The Depository Trust Company and the initial nominee for the Clearing Agency shall be Cede & Co.
"Clearing Agency Participant" shall mean a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with the Clearing Agency.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. Each reference to a section of the Code herein shall be deemed to include the United States Treasury Regulations, including applicable temporary and proposed regulations, relating to such section which are applicable to the Notes or the use of the proceeds thereof. A reference to any specific section of the Code shall be deemed also to be a reference to the comparable provisions of any enactment which supersedes or replaces the Code thereunder from time to time.
"Collection Fund" shall mean the Fund by that name created in Section 5.01(c) hereof and further described in Section 5.05 hereof.
"Collection Period" shall mean, with respect to the first Quarterly Distribution Date, the period beginning on February 1, 2005 and ending on June 30, 2005, and with respect to each subsequent Quarterly Distribution Date, the Collection Period means the three calendar months immediately following the end of the previous Collection Period, beginning July 1, 2005.
"Commission" shall mean the Securities and Exchange Commission.
"Contract of Insurance" shall mean the contract of insurance between the Eligible Lender and the Secretary.
"Counterparty" shall mean the counterparties to any Derivative Product entered into pursuant to Section 3.03 hereof.
11
"Counterparty Payments" shall mean any payment to be made to, or for the benefit of, the Issuer under a Derivative Product.
"Custodian Agreement" shall mean, collectively, the custodian agreements with the Master Servicer and any Subservicer or other custodian or bailee related to Financed Eligible Loans.
"Cutoff Date" shall mean (i) with respect to the initial pool of Financed Eligible Loans, January 31, 2005; and (ii) with respect to subsequently acquired Eligible Loans, the date on which such loans are transferred to the Trust.
"Date of Issuance" shall mean February 23, 2005.
"Delaware Trustee" shall mean Wilmington Trust Company, a Delaware banking corporation, solely in its capacity as the trustee of the Issuer under the Trust Agreement.
"Delaware Trustee Fee" shall mean an amount equal to [$5,500] per annum, payable on each January Quarterly Distribution Date, beginning on the January 2006 Quarterly Distribution Date.
"Department" shall mean the United States Department of Education, an agency of the Federal government.
"Derivative Product" shall mean any Derivative Product entered into subsequent to the Date of Issuance subject to the provisions of Section 3.03 hereof.
"Derivative Value" shall mean the value of a Derivative Product, if any, to the Counterparty, provided that such value is defined and calculated in substantially the same manner as amounts are defined and calculated pursuant to the applicable provisions of an ISDA Master Agreement.
"Determination Date" shall mean, with respect to any Distribution Date or the Monthly Servicing Payment Date, as applicable, the fourth Business Day preceding such Distribution Date or Monthly Servicing Payment Date.
"Eligible Lender" shall mean (i) Zions First National Bank, in its capacity as eligible lender trustee under the terms of the Eligible Lender Trust Agreement, and (ii) any "eligible lender," as defined in the Higher Education Act, and which has received an eligible lender designation from the Secretary with respect to Eligible Loans made under the Higher Education Act.
"Eligible Lender Trust Agreement" shall mean the Eligible Lender Trust Agreement, dated as of February 1, 2005, between the Issuer and Zions First National Bank, as eligible lender trustee, as amended from time to time.
"Eligible Loan" shall mean any loan made to finance post-secondary education that is made under the Higher Education Act, provided that if, after any reauthorization or amendment of the Higher Education Act, loans authorized thereunder, including, without limitation, their benefits, any provisions, or the servicing thereof, are materially different from loans so authorized prior to such reauthorization or amendment, such loans authorized after such reauthorization or amendment shall not constitute Eligible Loans unless a Rating Confirmation is obtained.
12
"Eligible Loan Acquisition Certificate" shall mean a certificate signed by an Authorized Representative of the Issuer in substantially the form attached as Exhibit A hereto.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.
"Event of Bankruptcy" shall mean (a) the Issuer shall have commenced a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall have made a general assignment for the benefit of creditors, or shall have declared a moratorium with respect to its debts or shall have failed generally to pay its debts as they become due, or shall have taken any action to authorize any of the foregoing; or (b) an involuntary case or other proceeding shall have been commenced against the Issuer seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property provided such action or proceeding is not dismissed within 60 days.
"Event of Default" shall have the meaning specified in Article VI hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Financed" or "Financing" when used with respect to Eligible Loans, shall mean or refer to Eligible Loans (a) acquired by the Issuer with balances in the Acquisition Fund or otherwise deposited in or accounted for in the Acquisition Fund or otherwise constituting a part of the Trust Estate and (b) Eligible Loans substituted or exchanged for Financed Eligible Loans, but does not include Eligible Loans released from the lien of this Indenture and sold or transferred, to the extent permitted by this Indenture.
"Fiscal Year" shall mean the fiscal year of the Issuer (initially January 1 to December 31) as otherwise established from time to time.
"Fitch" shall mean Fitch Inc., its successors and assigns.
"Five-Month LIBOR," see "Three-Month LIBOR" below.
"Funds" shall mean each of the Funds created pursuant to Section 5.01 hereof.
"Guarantee" or "Guaranteed" shall mean, with respect to an Eligible Loan, the insurance or guarantee by a Guaranty Agency pursuant to such Guaranty Agency's Guarantee Agreement of the maximum percentage of the principal of and accrued interest on such Eligible Loan allowed by the terms of the Higher
13
Education Act with respect to such Eligible Loan at the time it was originated and the coverage of such Eligible Loan by the federal reimbursement contracts, providing, among other things, for reimbursement to such Guaranty Agency for payments made by it on defaulted Eligible Loans insured or guaranteed by such Guaranty Agency of at least the minimum reimbursement allowed by the Higher Education Act with respect to a particular Eligible Loan.
"Guarantee Agreements" shall mean a guaranty or lender agreement between the Trustee or the Eligible Lender Trustee and any Guaranty Agency, and any amendments thereto.
"Guaranty Agency" shall mean any entity authorized to guarantee student loans under the Higher Education Act and with which the Trustee or the Eligible Lender Trustee maintains a Guarantee Agreement.
"Higher Education Act" shall mean the Higher Education Act of 1965, as amended or supplemented from time to time, or any successor federal act and all regulations, directives, bulletins and guidelines promulgated from time to time thereunder.
"Highest Priority Obligations" shall mean at any time when Class A Obligations are Outstanding, the Class A Obligations, and at any time when no Class A Obligations are Outstanding, the Class B Obligations.
"Indenture" shall mean this Indenture of Trust, including all supplements and amendments hereto.
"Independent" shall mean, when used with respect to any specified Person, that the Person (a) is in fact independent of the Issuer, any other obligor upon the Notes, the Seller and any Affiliate of any of the foregoing Persons; (b) does not have any direct financial interest or any material indirect financial interest in the Issuer, any such other obligor, the Seller or any Affiliate of any of the foregoing Persons; and (c) is not connected with the Issuer, any such other obligor, the Seller or any Affiliate of any of the foregoing Persons as an officer, employee, promoter, underwriter, placement agent, trustee, partner, director or person performing similar functions.
"Independent Certificate" shall mean a certificate or opinion to be delivered to the Trustee under the circumstances described in, and otherwise complying with, the applicable requirements of this Indenture, made by an Independent appraiser or other expert appointed by an Issuer Order and approved by the Trustee in the exercise of reasonable care, and such opinion or certificate shall state that the signer has read the definition of "Independent" in this Indenture and that the signer is Independent within the meaning thereof.
"Index Maturity" shall mean (i) for Three-Month LIBOR, three months,
(ii) for Five-Month LIBOR, five months and (iii) for Six-Month LIBOR, six months.
"Initial Pool Balance" shall mean the Pool Balance as of the Cutoff Date, which is $_____________.
"Insurance" or "Insured" or "Insuring" shall mean, with respect to an Eligible Loan, the insuring by the Secretary (as evidenced by a Certificate of Insurance or other document or certification issued under the provisions of the Higher Education Act) under the Higher Education Act of 100% of the principal of and accrued interest on such Eligible Loan.
14
"Interest Accrual Period" shall mean, initially, the period commencing on the Date of Issuance to but not including July 25, 2005, and thereafter, with respect to each Quarterly Distribution Date, the period beginning on the prior Quarterly Distribution Date and ending on the day immediately preceding such Quarterly Distribution Date.
"Interest Benefit Payment" shall mean an interest payment on Eligible Loans received pursuant to the Higher Education Act and an agreement with the federal government, or any similar payments.
"Investment Agreement" shall mean, collectively, (i) the Investment Agreement dated February 1, 2005, between the Trustee and ___________ and (ii) any other investment agreement approved by the Rating Agencies. The issuance by the Rating Agencies of the ratings on the Notes on the Date of Issuance shall serve as the Rating Confirmation required with respect to the Investment Agreement set forth in clause (i) above.
"Investment Securities" shall mean:
(a) direct obligations of, or obligations on which the timely payment of the principal of and interest on which are unconditionally and fully guaranteed by, the United States of America;
(b) interest-bearing time or demand deposits, certificates of deposit or other similar banking arrangements with a maturity of 12 months or less with any bank, trust company, national banking association or other depository institution, including those of the Trustee, provided that, at the time of deposit or purchase such depository institution has commercial paper which is rated "A-1+" by S&P and "F1" or higher by Fitch and has the required ratings from Moody's corresponding to the duration of such investment set forth below;
(c) interest-bearing time or demand deposits, certificates of deposit or other similar banking arrangements with a maturity of 24 months or less, but more than 12 months, with any bank, trust company, national banking association or other depository institution, including those of the Trustee and any of its affiliates, provided that, at the time of deposit or purchase such depository institution has senior debt rated "A" or higher by S&P and "A" or higher by Fitch, if commercial paper is outstanding, commercial paper which is rated "A-1+" by S&P and "F1" or higher by Fitch and has the required ratings from Moody's corresponding to the duration of such investment set forth below;
(d) interest-bearing time or demand deposits, certificates of deposit or other similar banking arrangements with a maturity of more than 24 months with any bank, trust company, national banking association or other depository institution, including those of the Trustee and any of its affiliates, provided that, at the time of deposit or purchase such depository institution has senior debt rated "AA" or higher by S&P and "AA" or higher by Fitch, if commercial paper is outstanding, commercial paper which is rated "A-1+" by S&P, "P-1" by Moody's and "F1" or higher by Fitch and has the required ratings from Moody's corresponding to the duration of such investment set forth below;
15
(e) bonds, debentures, notes or other evidences of indebtedness issued or guaranteed by any of the following agencies: Federal Farm Credit Banks, Federal Home Loan Mortgage Corporation; the Export-Import Bank of the United States; the Federal National Mortgage Association; the Farmers Home Administration; Federal Home Loan Banks provided such obligation is rated "AAA" by S&P, "Aaa" by Moody's and "AAA" by Fitch; or any agency or instrumentality of the United States of America which shall be established for the purposes of acquiring the obligations of any of the foregoing or otherwise providing financing therefor;
(f) repurchase agreements and reverse repurchase agreements, other than overnight repurchase agreements and overnight reverse repurchase agreements, with banks, including the Trustee and any of its affiliates, which are members of the Federal Deposit Insurance Corporation or firms which are members of the Securities Investors Protection Corporation, in each case whose outstanding, unsecured debt securities are rated no lower than two subcategories below the highest rating on any series of Outstanding Notes by S&P and Fitch, if commercial paper is outstanding, commercial paper which is rated "A-1+" by S&P and "F1" or higher by Fitch and has the required ratings from Moody's corresponding to the duration of such investment set forth below;
(g) overnight repurchase agreements and overnight reverse repurchase agreements at least 101% collateralized by securities described in subparagraph (a) of this definition and with a counterparty, including the Trustee and any of its affiliates, that has senior debt rated "AA" or higher by S&P and "A" or higher by Fitch, if commercial paper is outstanding, commercial paper which is rated "A-1+" by S&P and "F1" or higher by Fitch and has the required ratings from Moody's corresponding to the duration of such investment set forth below, or a counterparty approved in writing by S&P, Moody's and Fitch, respectively;
(h) investment agreements or guaranteed investment contracts, which may be entered into by and among the Issuer and/or the Trustee and any bank, bank holding company, corporation or any other financial institution, including the Trustee and any of its affiliates, whose outstanding (i) commercial paper is rated "A-1+" by S&P and "F1" or higher by Fitch for agreements or contracts with a maturity of 12 months or less and has the required ratings from Moody's corresponding to the duration of such investment set forth below; (ii) unsecured long-term debt is rated no lower than two subcategories below the highest rating on any series of Outstanding Notes by S&P and Fitch and, if commercial paper is outstanding, commercial paper which is rated "A-1+" by S&P and "F1" or higher by Fitch for agreements or contracts with a maturity of 24 months or less, but more than 12 months and has the required ratings from Moody's corresponding to the duration of such investment set forth below, or (iii) unsecured long-term debt which is rated no lower than two subcategories below the highest rating on any series of Outstanding Notes by S&P and Fitch and, if commercial paper is outstanding, commercial paper which is rated "A-1+" by S&P and "F1" or higher by Fitch for agreements or contracts with a maturity of more than 24 months and has the required ratings from Moody's corresponding to the duration of such investment set forth below, or, in each case, by an insurance company whose claims-paying ability is so rated;
16
(i) "tax exempt bonds" as defined in Section 150(a)(6) of the Code, other than "specified private activity bonds" as defined in
Section 57(a)(5)(C) of the Code, that are rated in the highest category by S&P and Fitch for long-term or short-term debt or shares of a so-called money market or mutual fund rated "AAAm/AAAm-G" or higher by S&P, and "AA/F1+" or higher by Fitch and has the required ratings from Moody's corresponding to the duration of such investment set forth below, that do not constitute "investment property" within the meaning of Section 148(b)(2) of the Code, provided that the fund has all of its assets invested in obligations of such rating quality;
(j) commercial paper, including that of the Trustee and any of its affiliates, which is rated in the single highest classification, "A-1+" by S&P and "F1" or higher by Fitch and has the required ratings from Moody's corresponding to the duration of such investment set forth below, and which matures not more than 270 days after the date of purchase;
(k) investments in a money market fund rated at least "AAAm" or "AAAm-G" by S&P, "Aaa" by Moody's and "AA" or "F1" or higher by Fitch, including funds for which the Trustee or an affiliate thereof acts as investment advisor or provides other similar services for a fee;
(l) any Investment Agreement; and
(m) any other investment with a Rating Confirmation from each Rating Agency.
Each Investment Security or the provider of such Investment Security
(other than those described in paragraphs (a), (e) and (k) of this definition)
shall have the following Moody's long-term and or short-term ratings corresponding to the duration of such investment:

  Maximum Maturity                Minimum Ratings
  ----------------                ---------------

One Month                       "A2" or "Prime-1"
Three Months                    "A1" and "Prime-1"
Six Months                      "Aa3" and "Prime-1"
Greater than Six Months         "Aaa" and "Prime-1"	

"ISDA Master Agreement" shall mean the ISDA Master Agreement, copyright 1992, as amended from time to time, and as in effect with respect to any Derivative Product.
"Issuer" shall mean Nelnet Student Loan Trust 2005-1, a statutory trust organized and existing under the laws of the State, and any successor thereto.
"Issuer Derivative Payment" shall mean any payment required to be made by or on behalf of the Issuer due to a Counterparty pursuant to a Derivative Product.
17
"Issuer Order" shall mean a written order signed in the name of the Issuer by an Authorized Representative.
"LIBOR" shall mean Three-Month LIBOR, Five-Month LIBOR or Six-Month LIBOR, as applicable.
"LIBOR Determination Date" shall mean, for each Interest Accrual Period, the second Business Day before the beginning of that Interest Accrual Period.
"Liquidated Financed Eligible Loan" shall mean any defaulted Financed Eligible Loan liquidated by the Master Servicer or a Subservicer (which shall not include any Financed Eligible Loan on which payments are received from a Guaranty Agency) or which such Master Servicer or Subservicer has, after using all reasonable efforts to realize upon such Financed Eligible Loan, determined to charge off.
"Liquidation Proceeds" shall mean, with respect to any Liquidated Financed Eligible Loan which became a Liquidated Financed Eligible Loan during the current Collection Period in accordance with the Master Servicer or a Subservicer's customary servicing procedures, the moneys collected in respect of the liquidation thereof from whatever source, other than moneys collected with respect to any Liquidated Financed Eligible Loan which was written off in prior Collection Periods or during the current Collection Period, net of the sum of any amounts expended by such Master Servicer or Subservicer in connection with such liquidation and any amounts required by law to be remitted to the obligor on such Liquidated Financed Eligible Loan.
"Master Promissory Note" shall mean a Master Promissory Note in the form mandated by Section 432(m)(1) of the Higher Education Act, as added by Public Law No: 105-244 ss. 427, 112 Stat. 1702 (1998), as amended by Public Law No:
106-554 (enacted December 21, 2000) and as codified in 20 U.S.C. ss. 1082(m)(1).
"Master Servicer" shall mean National Education Loan Network, Inc. and any other master servicer or successor master servicer selected by the Issuer, including an affiliate of the Issuer, so long as the Issuer obtains a Rating Confirmation as to each such other master servicer.
"Master Servicing Agreement" shall mean (a) the Master Servicing Agreement, dated as of February 1, 2005, among the Issuer, the Depositor, the Administrator and the Master Servicer, and (b) any replacement master servicing agreement among the Issuer, the Administrator and any other Master Servicer.
"Maturity" when used with respect to any Note, shall mean the date on which the principal thereof becomes due and payable as therein or herein provided, whether at its Note Final Maturity Date, by earlier prepayment or purchase, by declaration of acceleration, or otherwise.
"Minimum Purchase Amount" shall mean, on any Quarterly Distribution Date, an amount that would be sufficient to (a) reduce the Outstanding Amount of each class of Notes on such Quarterly Distribution Date to zero; (b) pay to the respective Registered Owners the Class A Noteholders' Interest Distribution Amount and the Class B Noteholders' Interest Distribution Amount payable on such Quarterly Distribution Date; (c) pay any Servicing Fees and Carryover Servicing Fees, Trustee Fees and Delaware Trustee Fees due and owing; and (d) pay any Issuer Derivative Payments due and owing.
18
"Monthly Servicing Payment Date" shall mean the twenty-fifth day of each calendar month or, if such day is not a Business Day, the immediately succeeding Business Day, commencing on March 25, 2005.
"Moody's" shall mean Moody's Investors Service, Inc., its successors and assigns.
"MPN Loan" shall mean a loan originated pursuant to the Federal Family Education Loan Program and the Higher Education Act and evidenced by a Master Promissory Note.
"Noteholder" shall mean, (a) with respect to a book-entry Note, the Person who is the owner of such book-entry Note, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an indirect participant, in each case in accordance with the rules of such Clearing Agency); and (b) with respect to Notes held in definitive form pursuant to
Section 2.09 hereof, the Person in whose name a Note is registered in the Note registration books of the Trustee.
"Note Final Maturity Date" for a class of Notes shall mean the Class A-1 Maturity Date, the Class A-2 Maturity Date, the Class A-3 Maturity Date, the Class A-4 Maturity Date, the Class A-5 Maturity Date or the Class B Maturity Date, as applicable.
"Notes" shall mean, collectively, the Class A Notes and the Class B Notes.
"Obligations" shall mean, collectively, the Class A Obligations and the Class B Obligations.
"Opinion of Counsel" shall mean (a) with respect to the Issuer one or more written opinions of counsel who may, except as otherwise expressly provided in the Indenture, be employees of or counsel to the Delaware Trustee, the Issuer the Seller or an Affiliate of the Seller and who shall be satisfactory to the Trustee, and which opinion or opinions shall be addressed to the Trustee, as trustee, shall comply with any applicable requirements of the Trust Indenture Act and shall be in form and substance satisfactory to the Trustee; and (b) with respect to the Seller, the Administrator, the Master Servicer or a Subservicer, one or more written opinions of counsel who may be an employee of or counsel to the Seller, the Administrator, the Master Servicer or a Subservicer, which counsel shall be acceptable to the Trustee and the Delaware Trustee.
"Optional Purchase Date" shall have the meaning set forth in Section 10.03 hereof.
"Outstanding" shall mean, when used in connection with any Note, a Note which has been executed and delivered pursuant to this Indenture which at such time remains unpaid as to principal or interest, excluding Notes which have been replaced pursuant to Section 2.03 or 2.04 hereof and when used in connection with a Derivative Product, a Derivative Product which has not expired or been terminated, unless provision has been made for such payment pursuant to Section 10.02 hereof.
19
"Outstanding Amount" shall mean the aggregate principal amount of all Notes Outstanding at the date of determination or, if the context so requires, the aggregate principal amount of one or more classes of Class A Notes or Class B Notes Outstanding at the date of determination.
"Person" shall mean an individual, corporation, partnership, joint venture, association, joint stock company, trust, limited liability company, unincorporated organization or government or agency, or political subdivision thereof.
"Pool Balance" shall mean as of any date the aggregate principal balance of the Financed Eligible Loans on such date (including accrued interest thereon to the extent such interest is expected to be capitalized), after giving effect to the following, without duplication: (a) all payments received by the Issuer through such date from or on behalf of obligors on such Financed Eligible Loans;
(b) all Purchase Amounts on Financed Eligible Loans received by the Issuer through such date from the Seller, the Master Servicer or a Subservicer; (c) all Liquidation Proceeds and Realized Loss on Financed Eligible Loans liquidated through such date; (d) the aggregate amount of adjustments to balances of Financed Eligible Loans permitted to be effected by the Master Servicer or a Servicer under the Master Servicing Agreement or its related Subservicing Agreement, if any, recorded through such date; and (e) the aggregate amount by which reimbursements by Guarantee Agencies of the unpaid principal balance of defaulted Financed Eligible Loans through such date are reduced from 100% to 98% or other applicable percentage, as required by the risk sharing provisions of the Higher Education Act. The Pool Balance shall be calculated by the Administrator and certified to the Trustee, upon which the Trustee may conclusively rely with no duty to further examine or determine such information.
"Principal Distribution Amount" shall mean, as determined by the Administrator, (a) with respect to the initial Quarterly Distribution Date, the amount by which the sum of the Outstanding Amount of the Notes exceeds the Adjusted Pool Balance as of the last day of the initial Collection Period; and
(b) with respect to each subsequent Quarterly Distribution Date, the excess of
(i) the Adjusted Pool Balance as of the last day of the Collection Period preceding the related Collection Period, less (ii) the Adjusted Pool Balance as of the last day of the related Collection Period, plus the amount, if any, of the Principal Distribution Amount due on the prior Quarterly Distribution Date that was not paid. Further, on the Note Final Maturity Date for a class of Notes, the Principal Distribution Amount on that date also shall include the amount needed to reduce the Outstanding Amount of such class of Notes to zero.
"Principal Office" shall mean the principal office of the party indicated, as set forth in Section 9.01 hereof or elsewhere in this Indenture.
"Priority Termination Payment" shall mean, with respect to a Derivative Product, any termination payment payable by the Issuer under such Derivative Product relating to an early termination of such Derivative Product by the Counterparty, as the non-defaulting party, following (i) a monthly payment default by the Issuer thereunder, (ii) the occurrence of an Event of Default specified in Section 6.01(d) hereof or (iii) the Trustee's taking any action hereunder to liquidate the Trust Estate following an Event of Default and acceleration of the Notes pursuant to Section 6.04 hereof.
20
"Program" shall mean the Sponsor's program for the origination and the purchase of Eligible Loans, as the same may be modified from time to time.
"Purchase Amount" with respect to any Financed Eligible Loan shall mean the amount required to prepay in full such Financed Eligible Loan under the terms thereof including all accrued interest thereon and any unamortized premium, it being acknowledged that any accrued and unpaid Interest Subsidy Payments or Special Allowance Payments will continue to be payable to the Trustee and constitute part of the Trust Estate.
"Quarterly Distribution Date" shall mean the 25th day of January, April, July and October, or, if such day is not a Business Day, the immediately succeeding Business Day, commencing on July 25, 2005.
"Rating" shall mean one of the rating categories of Fitch, Moody's and S&P or any other Rating Agency, provided Fitch, Moody's and S&P or any other Rating Agency, as the case may be, is currently rating the Notes.
"Rating Agency" shall mean each of Fitch, Moody's and S&P and their successors and assigns or any other rating agency requested by the Issuer to maintain a Rating on any of the Notes.
"Rating Confirmation" shall mean a letter from each Rating Agency then providing a Rating for any of the Notes, confirming that a proposed action, failure to act, or other event specified therein will not, in and of itself, result in a downgrade of any of the Ratings then applicable to the Notes, or cause any Rating Agency to suspend, withdraw or qualify the Ratings then applicable to the Notes.
"Realized Loss" shall mean the excess of the principal balance (including any interest that had been or had been expected to be capitalized) of any Liquidated Financed Eligible Loan over Liquidation Proceeds with respect to such Financed Eligible Loan to the extent allocable to principal (including any interest that had been or had been expected to be capitalized).
"Record Date" shall mean, with respect to a Distribution Date, the close of business on the day preceding such Distribution Date.
"Reference Banks" shall mean, with respect to a determination of LIBOR for any Interest Accrual Period by the Administrator, four major banks in the London interbank market selected by the Administrator.
"Registered Owner" shall mean any Noteholder, and, with respect to a Derivative Product, any Counterparty, unless the context otherwise requires.
"Regulations" shall mean the Regulations promulgated from time to time by the Secretary or any Guaranty Agency guaranteeing Financed Eligible Loans.
21
"Reserve Fund" shall mean the Fund by that name created in Section 5.01(d) hereof and further described in Section 5.05 hereof, including any Accounts and Subaccounts created therein.
"S&P" shall mean Standard & Poor's Ratings Group, a Division of The McGraw-Hill Companies, Inc., its successors and assigns.
"Secretary" shall mean the Secretary of the United States Department of Education or any successor to the pertinent functions thereof under the Higher Education Act.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Depository" or "Depository" shall mean The Depository Trust Company and its successors and assigns or if, (a) the then Securities Depository resigns from its functions as depository of the Notes or (b) the Issuer discontinues use of the Securities Depository, any other securities depository which agrees to follow the procedures required to be followed by a securities depository in connection with the Notes and which is selected by the Issuer with the consent of the Trustee.
"Seller" shall mean Nelnet Student Loan Funding, LLC, and its successors and assigns.
"Servicer's Report" shall mean the servicer reports to be furnished to the Issuer by the Master Servicer or a Subservicer pursuant to the Master Servicing Agreement or its related Subservicing Agreement.
"Servicing Fee" shall mean the fees and expenses due to the Master Servicer and any Subservicer under the terms of the Master Servicing Agreement or its related Subservicing Agreement and the fees and expenses due to any custodian under the terms of a Custodian Agreement.
"Six-Month LIBOR," see "Three-Month LIBOR" below.
"Special Allowance Payments" shall mean the special allowance payments authorized to be made by the Secretary by Section 438 of the Higher Education Act, or similar allowances, if any, authorized from time to time by federal law or regulation.
"Specified Reserve Fund Balance" shall mean, with respect to any Quarterly Distribution Date, the greater of (a) 0.25% of the Pool Balance as of the close of business on the last day of the related Collection Period; and (b) 0.150% of the Initial Pool Balance, provided that in no event will such balance exceed the sum of the Outstanding Amount of the Notes and provided further, that such Specified Reserve Fund Balance may be reduced with a Rating Confirmation.
"Sponsor" shall mean Nelnet Student Loan Funding, LLC, and its successors and assigns and any other Person or Persons as may become a Sponsor pursuant to the terms of the Trust Agreement.
"State" shall mean the State of Delaware.
22
"Stepdown Date" shall mean the earlier to occur of (a) the Quarterly Distribution Date in January of 2011 and (b) the first date on which all of the Class A Notes are no longer Outstanding.
"Student Loan Purchase Agreement" shall mean, collectively, (a) the Loan Purchase Agreement, dated as of February 1, 2005, between the Issuer and the Seller and (b) each additional student loan purchase agreement entered into between the Issuer and the Seller for the purchase of Eligible Loans which constitute "add-on consolidation loans."
"Subaccount" shall mean any of the subaccounts which may be created and established within any Account by this Indenture.
"Subservicer" shall mean Nelnet, Inc., ACS Education Services, Inc., Great Lakes Educational Loan Services, Inc. and any other additional subservicer or successor subservicer selected by the Issuer, including an affiliate of the Issuer, so long as the Issuer obtains a Rating Confirmation as to each such other subservicer.
"Subservicing Agreement" shall mean (a) the Nelnet, Inc. Subservicing Agreement, dated as of February 1, 2005, between the Master Servicer and Nelnet, Inc., as subservicer, (b) the Servicing Agreement, dated as of September 1, 2003, between Nelnet, Inc. and ACS Education Services, Inc., as subservicer, (c) the Servicing Agreement, dated as of September 30, 1998, between NHELP-III, Inc. and Great Lakes Educational Loan Services, Inc., as amended to include the eligible lender number for Nelnet Student Loan Trust 2005-1 by a letter amendment, dated September 23, 2004, and (d) any subservicing agreement between the Master Servicer and any other Subservicer.
"Supplemental Indenture" shall mean an agreement supplemental hereto executed pursuant to Article VIII hereof.
"Telerate Page 3750" shall mean the display page so designated on the Telerate Service (or such other page as may replace that page on that service for the purpose of displaying comparable rates or prices).
"Termination Payment" shall mean, with respect to a Derivative Product, any termination payment payable by the Issuer under such Derivative Product relating to an early termination of such Derivative Product by the Counterparty, as the non-affected party or non-defaulting party, after the occurrence of a termination event or event of default specified in such Derivative Product, including any Priority Termination Payment.
"Three-Month LIBOR," "Five-Month LIBOR" or "Six-Month LIBOR" shall mean, with respect to any Interest Accrual Period, the London interbank offered rate for deposits in U.S. dollars having the applicable Index Maturity as it appears on Telerate Page 3750 as of 11:00 a.m., London time, on the related LIBOR Determination Date as determined by the Administrator. If this rate does not appear on Telerate Page 3750, the rate for that day will be determined on the basis of the rates at which deposits in U.S. dollars, having the index maturity and in a principal amount of not less than U.S. $1,000,000, are offered at approximately 11:00 a.m., London time, on that LIBOR Determination Date, to prime banks in the London interbank market by the Reference Banks. The
23
Administrator or the Trustee, as applicable, will request the principal London office of each Reference Bank to provide a quotation of its rate. If the Reference Banks provide at least two quotations, the rate for that day will be the arithmetic mean of the quotations. If the Reference Banks provide fewer than two quotations, the rate for that day will be the arithmetic mean of the rates quoted by major banks in New York City, selected by the Administrator or the Trustee, as applicable, at approximately 11:00 a.m., New York time, on that LIBOR Determination Date, for loans in U.S. dollars to leading European banks having the Index Maturity and in a principal amount of not less than U.S. $1,000,000. If the banks selected as described above are not providing quotations, Three-Month LIBOR, Five-Month LIBOR or Six-Month LIBOR, as the case may be, in effect for the applicable Interest Accrual Period will be Three-Month LIBOR, Five-Month LIBOR or Six-Month LIBOR, as the case may be, in effect for the previous Interest Accrual Period.
"Trigger Event" shall mean, on any Quarterly Distribution Date while any of the Class A Notes are Outstanding, that (a) the Outstanding Amount of the Notes, after giving effect to distributions to be made on that Quarterly Distribution Date, would exceed the Adjusted Pool Balance as of the end of the related Collection Period or (b) the Financed Eligible Loans have not been sold pursuant to Section 10.03 or 10.04 hereof.
"Trust Agreement" shall mean the Trust Agreement, dated as of January 1, 2005, by and between the Sponsor and the Delaware Trustee, as may be amended pursuant to the terms thereof.
"Trust Auction Date" shall have the meaning set forth in Section 10.04 hereof.
"Trust Estate" shall mean the property described as such in the granting clauses hereto.
"Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as amended, and as in force at the date as of which this Indenture was executed, except as provided in Section 8.05 hereof.
"Trustee" shall mean Zions First National Bank, acting in its capacity as Trustee under this Indenture, or any successor trustee designated pursuant to this Indenture.
"Trustee Fee" shall mean an amount equal to the annual amount set forth in the Trustee Fee Letter, dated February 1, 2005. Such fee shall be in satisfaction of the Trustee's compensation as trustee under this Indenture and as eligible lender trustee under the Eligible Lender Trust Agreement.
"Value" on any calculation date when required under this Indenture shall mean the value of the Trust Estate calculated by the Issuer with respect to clause (a) and by the Trustee with respect to clauses (b) and (c) as follows:
(a) with respect to any Eligible Loan owned by the Issuer as of the calculation date, the unpaid principal amount thereof plus any accrued but unpaid interest, Interest Benefit Payments and Special Allowance Payments;
24
(b) with respect to any funds of the Issuer held under this Indenture and on deposit in any commercial bank or as to any banker's acceptance or repurchase agreement or investment contract, the amount thereof plus accrued but unpaid interest; and
(c) with respect to any Investment Securities, the par value thereof, plus accrued but unpaid interest.
Words importing the masculine gender include the feminine gender, and words importing the feminine gender include the masculine gender. Words importing persons include firms, associations and corporations. Words importing the singular number include the plural number and vice versa. Additional terms are defined in the body of this Indenture.
ARTICLE II
NOTE DETAILS AND FORM OF NOTES
Section 2.01. Note Details. The Notes, together with the Trustee's certificate of authentication, shall be in substantially the forms set forth in Exhibit B hereto, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may, consistently herewith, be determined by the officers executing the Notes, as evidenced by their execution of the Notes. Any portion of the text of any Note may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Note.
The definitive Notes shall be typewritten, printed, lithographed or engraved or produced by any combination of these methods (with or without steel engraved borders), all as determined by the Authorized Representatives executing such Notes, as evidenced by their execution of such Notes.
Each Note shall be dated the date of its authentication. The terms of the Notes set forth in Exhibit B hereto are part of the terms of this Indenture.
Section 2.02. Execution, Authentication and Delivery of Notes. The Notes shall be executed in the name and on behalf of the Issuer by the manual or facsimile signature of an Authorized Representative. Any Note may be signed (manually or by facsimile) or attested on behalf of the Issuer by any person who, at the date of such act, shall hold the proper office or position, notwithstanding that at the date of authentication, issuance or delivery, such person may have ceased to hold such office or position.
The Trustee shall upon Issuer Order authenticate and deliver Notes for original issue in an aggregate principal amount of $1,267,000,000. The aggregate principal amount of Notes outstanding at any time may not exceed such amount except as provided in Section 2.04 hereof.
Each Note shall be dated the date of its authentication. The Notes shall be issuable as registered Notes in minimum denominations of $5,000 and in integral multiples of $1,000 in excess thereof (the "Authorized Denominations").
25
No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Note a certificate of authentication substantially in the form provided for in Section 2.05 hereof. Section 2.03. Registration, Transfer and Exchange of Notes; Persons Treated as Registered Owners. The Issuer shall cause books for the registration and for the transfer of the Notes as provided in this Indenture to be kept by the Trustee which is hereby appointed the transfer agent of the Issuer for the Notes. Notwithstanding such appointment and with the prior written consent of the Issuer, the Trustee is hereby authorized to make any arrangements with other institutions which it deems necessary or desirable in order that such institutions may perform the duties of transfer agent for the Notes. Upon surrender for transfer of any Note at the Principal Office of the Trustee, duly endorsed for transfer or accompanied by an assignment duly executed by the Registered Owner or his attorney duly authorized in writing, the Issuer shall execute and the Trustee shall authenticate and deliver in the name of the transferee or transferees a new fully registered Note or Notes of the same interest rate and for a like class and aggregate principal amount of the same maturity.
Notes may be exchanged at the Principal Office of the Trustee for a like aggregate principal amount of fully registered Notes of the same class, interest rate and maturity in Authorized Denominations. The Issuer shall execute and the Trustee shall authenticate and deliver Notes which the Registered Owner making the exchange is entitled to receive, bearing numbers not contemporaneously outstanding. The execution by the Issuer of any fully registered Note of any Authorized Denomination shall constitute full and due authorization of such denomination and the Trustee shall thereby be authorized to authenticate and deliver such fully registered Note.
As to any Note, the person in whose name the same shall be registered shall be deemed and regarded as the absolute owner thereof for all purposes, and payment of either principal or interest on any fully registered Note shall be made only to or upon the written order of the Registered Owner thereof or his legal representative but such registration may be changed as hereinabove provided. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Note to the extent of the sum or sums paid.
Each Registered Owner and each transferee of a Note shall be deemed to represent and warrant that either (a) it is not acquiring the Note directly or indirectly for, or on behalf of, an ERISA plan or any entity whose underlying assets are deemed to be plan assets of such ERISA plan; or (b)(i) the acquisition and holding of the Notes will not result in a nonexempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or similar law and (ii) if the Notes are subsequently deemed to be "plan assets" pursuant to the regulations set forth at 29 C.F.R. ss. 2510.3-101, it will promptly dispose of the Notes.
The Trustee shall require the payment by any Registered Owner requesting exchange or transfer of any tax or other governmental charge required to be paid with respect to such exchange or transfer. The applicant for any such transfer or exchange may be required to pay all taxes and governmental charges in connection with such transfer or exchange, other than exchanges pursuant to
Section 2.07 hereof.
26
Section 2.04. Lost, Stolen, Destroyed and Mutilated Notes. Upon receipt by the Trustee of evidence satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note and, in the case of a lost, stolen or destroyed Note, of indemnity satisfactory to it, and upon surrender and cancellation of the Note, if mutilated, (a) the Issuer shall execute, and the Trustee shall authenticate and deliver, a replacement Note of the same interest rate, maturity and denomination in lieu of such lost, stolen, destroyed or mutilated Note or (b) if such lost, stolen, destroyed or mutilated Note shall have matured within 15 days be due and payable, in lieu of executing and delivering a new Note as aforesaid, the Issuer may pay such Note. Any such new Note shall bear a number not contemporaneously outstanding. The applicant for any such new Note may be required to pay all taxes and governmental charges and all expenses and charges of the Issuer and of the Trustee in connection with the issuance of such Note. All Notes shall be held and owned upon the express condition that, to the extent permitted by law, the foregoing conditions are exclusive with respect to the replacement and payment of mutilated, destroyed, lost or stolen Notes, negotiable instruments or other securities.
Section 2.05. Trustee's Authentication Certificate. The Trustee's authentication certificate upon any Notes shall be substantially in the form attached to the Notes. No Note shall be secured hereby or entitled to the benefit hereof, or shall be valid or obligatory for any purpose, unless a certificate of authentication, substantially in such form, has been duly executed by the Trustee; and such certificate of the Trustee upon any Note shall be conclusive evidence and the only competent evidence that such Note has been authenticated and delivered hereunder. The Trustee's certificate of authentication shall be deemed to have been duly executed by it if manually signed by an authorized officer or signatory of the Trustee, but it shall not be necessary that the same person sign the certificate of authentication on all of the Notes issued hereunder.
Section 2.06. Cancellation and Destruction of Notes by the Trustee. Whenever any Outstanding Notes shall be delivered to the Trustee for the cancellation thereof pursuant to this Indenture, upon payment of the principal amount and interest represented thereby, or for replacement pursuant to Section 2.03 hereof, such Notes shall be promptly cancelled and, within a reasonable time, cremated or otherwise destroyed by the Trustee and counterparts of a certificate of destruction evidencing such cremation or other destruction shall be furnished by the Trustee to the Issuer.
Section 2.07. Temporary Notes. Pending the preparation of definitive Notes, the Issuer may execute and the Trustee shall authenticate and deliver temporary Notes. Temporary Notes shall be issuable as fully registered Notes without coupons, of any denomination, and substantially in the form of the definitive Notes but with such omissions, insertions and variations as may be appropriate for temporary Notes, all as may be determined by the Issuer. Every temporary Note shall be executed by the Issuer and be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with like effect, as the definitive Notes. As promptly as practicable the Issuer shall execute and shall furnish definitive Notes and thereupon temporary Notes may be surrendered in exchange therefor without charge at the principal office of the Trustee, and the Trustee shall authenticate and deliver in exchange for such temporary Notes a like aggregate principal amount of definitive Notes. Until so exchanged the temporary Notes shall be entitled to the same benefits under this Indenture as definitive Notes.
27
Section 2.08. Issuance of Notes. The Issuer shall have the authority, upon complying with the provisions of this Article, to issue and deliver the Notes which shall be secured by the Trust Estate. In addition, the Issuer may enter into any Derivative Products it deems necessary or desirable with respect to any or all of the Notes.
Section 2.09. Definitive Notes. If (a) the Administrator advises the Trustee in writing that the Clearing Agency is no longer willing or able to discharge its responsibilities with respect to the Notes, and the Administrator is unable to locate a successor; (b) the Administrator at its option, with the consent of the applicable Clearing Agency Participants, advises the Trustee in writing that it elects to terminate the book-entry system through the Clearing Agency; or (c) after the occurrence of an Event of Default, or a default by the Master Servicer, a Subservicer or the Administrator under the Master Servicing Agreement, its related Servicing Agreement or the Administration Agreement, respectively, Noteholders representing beneficial interests aggregating at least a majority of the Outstanding Amount of the Notes advise the Clearing Agency (which shall then notify the Trustee) in writing that the continuation of a book-entry system through the Clearing Agency is no longer in the best interests of the Noteholders and the applicable Clearing Agency Participants consent to the termination of the book-entry system through the Clearing Agency, then the Trustee shall cause the Clearing Agency to notify all Noteholders, through the Clearing Agency, of the occurrence of any such event and of the availability of definitive Notes to Noteholders requesting the same. Upon surrender to the Trustee of the typewritten Notes representing the book-entry Notes by the Clearing Agency, accompanied by registration instructions, the Issuer shall execute and the Trustee shall authenticate the definitive Notes in accordance with the instructions of the Clearing Agency. Neither the Issuer nor the Trustee shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of definitive Notes, the Trustee shall recognize the holders of the definitive Notes as Registered Owners.
Section 2.10. Payment of Principal and Interest.
(a) The Notes shall accrue interest as provided in the forms of Class A-1 Notes, Class A-2 Notes, Class A-3 Notes, Class A-4 Notes, Class A-5 Notes and the Class B Notes set forth in Exhibits B-1, B-2, B-3, B-4, B-5 and B-6, respectively, hereto. Such interest shall be payable with respect to each class of Notes on each Quarterly Distribution Date as specified in Section 5.04(c) hereof, subject to
Section 4.01 hereof. Any installment of interest or principal, if any, payable on any Note which is punctually paid or duly provided for by the Issuer on the Quarterly Distribution Date shall be paid to the Person in whose name such Note is registered on the Record Date by check mailed first-class, postage prepaid to such Person's address as it appears on the records of the Trustee on such Record Date, except that, unless definitive Notes have been issued pursuant to Section 2.09 hereof, with respect to Notes registered on the Record Date in the name of the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.), payment shall be made by wire transfer in immediately available funds to the account designated by such nominee and except for the final installment of principal payable with respect to such Note on a Quarterly Distribution Date or on the Note Final Maturity Date for such Note which shall be payable as provided below. The amount of interest distributable to Noteholders of the Notes for each $1,000 in principal amount will be calculated by applying the applicable interest rate for the interest accrual period to the principal amount of $1,000, multiplying that product by the actual number of days in the interest accrual period divided by 360, and rounding the resulting percentage figure to the fifth decimal point.
28
(b) The principal of each Note shall be payable in installments on each Quarterly Distribution Date as provided in Section 5.04(c) hereof. Notwithstanding the foregoing, the entire unpaid principal amount of each class of the Notes shall be due and payable, if not previously paid, on the Note Final Maturity Date for such class of Notes and on the date on which an Event of Default shall have occurred and be continuing if the Trustee or the Registered Owners of the Notes representing not less than a majority of the Outstanding Amount of the Notes have declared the Notes to be immediately due and payable in the manner provided in Section 6.02 hereof. The Trustee shall notify the Person in whose name a Note is registered at the close of business on the Record Date preceding the Quarterly Distribution Date on which the Issuer expects that the final installment of principal of and interest on such Note will be paid. Such notice shall be mailed or transmitted by facsimile prior to such final Quarterly Distribution Date and shall specify that such final installment will be payable only upon presentation and surrender of such Note and shall specify the place where such Note may be presented and surrendered for payment of such installment.
ARTICLE III
PARITY AND PRIORITY OF LIEN; OTHER OBLIGATIONS;
AND DERIVATIVE PRODUCTS
Section 3.01. Parity and Priority of Lien. The provisions, covenants and agreements herein set forth to be performed by or on behalf of the Issuer shall be for the equal benefit, protection and security of the Registered Owners of any and all of the Obligations, all of which, shall be of equal rank without preference, priority or distinction of any of the Obligations over any other thereof, except as expressly provided in this Indenture with respect to certain payment and other priorities.
Section 3.02. Other Obligations. The Available Funds and other moneys, Financed Eligible Loans, securities, evidences of indebtedness, interests, rights and properties pledged under this Indenture are and will be owned by the Issuer free and clear of any pledge, lien, charge or encumbrance thereon or with respect thereto prior to, of equal rank with or subordinate to the respective pledges created by this Indenture, except as otherwise expressly provided herein, and all action on the part of the Issuer to that end has been duly and validly taken. If any Financed Eligible Loan is found to have been subject to a lien at the time such Financed Eligible Loan was acquired, the Issuer shall cause such lien to be released, shall purchase such Financed Eligible Loan from the Trust Estate for a purchase price equal to its principal amount plus any unamortized premium, if any, and interest accrued thereon or shall replace such Financed Eligible Loan with another Eligible Loan with substantially identical characteristics which replacement Eligible Loan shall be free and clear of liens at the time of such replacement. Except as otherwise provided herein, the Issuer shall not create or voluntarily permit to be created any debt, lien or charge on the Financed Eligible Loans which would be on a parity with, subordinate to, or prior to the lien of this Indenture; shall not do or omit to do or suffer to be
29
done or omitted to be done any matter or things whatsoever whereby the lien of this Indenture or the priority of such lien for the Obligations hereby secured might or could be lost or impaired; and will pay or cause to be paid or will make adequate provisions for the satisfaction and discharge of all lawful claims and demands which if unpaid might by law be given precedence to or any equality with this Indenture as a lien or charge upon the Financed Eligible Loans; provided, however, that nothing in this Section shall require the Issuer to pay, discharge or make provision for any such lien, charge, claim or demand so long as the validity thereof shall be by it in good faith contested, unless thereby, in the opinion of the Trustee, the same will endanger the security for the Obligations; and provided further that any subordinate lien hereon (i.e., subordinate to the lien securing the Class A Obligations and the Class B Obligations) shall be entitled to no payment from the Trust Estate, nor may any remedy be exercised with respect to such subordinate lien against the Trust Estate until all Obligations have been paid or deemed paid hereunder.
Section 3.03. Derivative Products; Counterparty Payments; Issuer Derivative Payments. The Issuer hereby authorizes and directs the Trustee to acknowledge and agree to any Derivative Product hereafter entered into by the Issuer and a Counterparty under which (a) the Issuer may be required to make, from time to time, payments to a Counterparty and (b) the Trustee may receive, from time to time, Counterparty Payments for the account of the Issuer. No Derivative Product shall be entered into subsequent to the Date of Issuance unless the Trustee shall have received a Rating Confirmation from each Rating Agency that such Derivative Product will not adversely affect the Rating on any of the Notes.
ARTICLE IV
PROVISIONS APPLICABLE TO THE NOTES;
DUTIES OF THE ISSUER
Section 4.01. Payment of Principal and Interest. The Issuer covenants that it will promptly pay, but solely from the Trust Estate, the principal of and interest, if any, on each and every Obligation issued under the provisions of this Indenture at the places, on the dates and in the manner specified herein and in said Obligations according to the true intent and meaning thereof. The Obligations shall be and are hereby declared to be payable from and equally secured, except as specifically provided in this Indenture with respect to certain payment and other priorities, by an irrevocable first lien on and pledge of the properties constituting the Trust Estate, subject to the application thereof as permitted by this Indenture, but in no event shall the Registered Owners or any Counterparty have any right to possession or control of any Financed Eligible Loans, which shall be held only by the Trustee or its agent or bailee.
Section 4.02. Covenants as to Additional Conveyances. At any and all times, the Issuer will duly execute, acknowledge and deliver, or will cause to be done, executed and delivered, all and every such further acts, conveyances, transfers and assurances in law as the Trustee shall reasonably require for the better conveying, transferring and pledging and confirming unto the Trustee, all and singular, the properties constituting the Trust Estate hereby transferred and pledged, or intended so to be transferred and pledged.
30
Section 4.03. Further Covenants of the Issuer.
(a) The Issuer will cause financing statements and continuation statements with respect thereto at all times to be filed in the office of the Secretary of State of the State and any other jurisdiction necessary to perfect and maintain the security interest granted by the Issuer hereunder.
(b) The Issuer will duly and punctually keep, observe and perform each and every term, covenant and condition on its part to be kept, observed and performed, contained in this Indenture and the other agreements to which the Issuer is a party pursuant to the transactions contemplated herein, including but not limited to the Basic Documents to which it is a party, the Guarantee Agreements and the Certificate of Insurance, and will punctually perform all duties required by the Trust Agreement and the laws of the State.
(c) The Issuer shall be operated on the basis of its Fiscal Year.
(d) The Issuer shall cause to be kept full and proper books of records and accounts, in which full, true and proper entries will be made of all dealings, business and affairs of the Issuer which relate to the Notes and any Derivative Product.
(e) The Issuer, upon written request of the Trustee, will permit at all reasonable times the Trustee or its agents, accountants and attorneys, to examine and inspect the property, books of account, records, reports and other data relating to the Financed Eligible Loans, and will furnish the Trustee such other information as it may reasonably request. The Trustee shall be under no duty to make any such examination unless requested in writing to do so by the Registered Owners of 66% in collective aggregate principal amount of the Notes at the time Outstanding, and unless such Registered Owners shall have offered the Trustee security and indemnity satisfactory to it against any costs, expenses and liabilities which might be incurred thereby.
(f) The Issuer shall cause an annual audit to be made by an independent auditing firm of national reputation and file one copy thereof with the Trustee and each Rating Agency within 150 days of the close of each Fiscal Year. The Trustee shall be under no obligation to review or otherwise analyze such audit.
(g) The Issuer covenants that all Financed Eligible Loans upon receipt thereof shall be delivered to the Trustee or its agent or bailee to be held pursuant to this Indenture and pursuant to the Master Servicing Agreement, a Subservicing Agreement or a Custodian Agreement.
(h) Notwithstanding anything to the contrary contained herein, except upon the occurrence and during the continuance of an Event of Default hereunder, the Issuer hereby expressly reserves and retains the privilege to receive and, subject to the terms and provisions of this Indenture, to keep or dispose of, claim, bring suits upon or otherwise exercise, enforce or realize upon its rights and interest in and to the Financed Eligible Loans and the proceeds and collections therefrom, and neither the Trustee nor any Registered Owner shall in any manner be or
31
be deemed to be an indispensable party to the exercise of any such privilege, claim or suit and the Trustee shall be under no obligation whatsoever to exercise any such privilege, claim or suit; provided, however, that the Trustee shall have and retain possession or control of the Financed Eligible Loans pursuant to Section 5.02 hereof (which Financed Eligible Loans may be held by the Trustee's agent or bailee) so long as such loans are subject to the lien of this Indenture.
(i) The Issuer shall notify the Trustee and each Rating Agency in writing prior to entering into any Derivative Product.
Section 4.04. Enforcement of Master Servicing Agreement and Subservicing Agreements. The Issuer shall comply with, shall require the Master Servicer to comply with and shall cause the Master Servicer to require the Subservicers to comply with the following whether or not the Issuer is otherwise in default under this Indenture:
(a) cause to be diligently enforced and taken all reasonable steps, actions and proceedings necessary for the enforcement of all terms, covenants and conditions of the Master Servicing Agreement and all Subservicing Agreements, including the prompt payment of all amounts due the Issuer thereunder, including, without limitation, all principal and interest payments, and Guarantee payments which relate to any Financed Eligible Loans and cause the Master Servicer and each Subservicer to specify whether payments received by it represent principal or interest;
(b) not permit the release of the obligations of the Master Servicer and any Subservicer under the Master Servicing Agreement and any Subservicing Agreement except in conjunction with amendments or modifications permitted by paragraph (h) below;
(c) at all times, to the extent permitted by law, cause to be defended, enforced, preserved and protected the rights and privileges of the Issuer, the Trustee and the Registered Owners under or with respect to the Master Servicing Agreement and each Subservicing Agreement;
(d) at its own expense, the Issuer shall duly and punctually perform and observe each of its obligations to the Master Servicer or a Subservicer under the Master Servicing Agreement or its related Subservicing Agreement in accordance with the terms thereof;
(e) the Issuer agrees to give the Trustee and each Rating Agency prompt written notice of each default on the part of the Master Servicer or a Subservicer of its obligations under the Master Servicing Agreement or its related Subservicing Agreement coming to the Issuer's attention;
(f) the Issuer shall not waive any default by the Master Servicer or a Subservicer under the Master Servicing Agreement or its related Subservicing Agreement without the written consent of the Trustee and the giving of written notice to each Rating Agency;
32
(g) the Issuer shall cause the Master Servicer and each Subservicer to deliver to the Trustee and the Issuer, on or before March 30 of each year, beginning with March 30, 2006, a certificate stating that (i) a review of the activities of the Master Servicer and each Subservicer during the preceding calendar year and of its performance under the Master Servicing Agreement and its related Subservicing Agreement has been made under the supervision of the officer signing such certificate and (ii) to the best of such officers' knowledge, based on such review, the Master Servicer and such Subservicer has fulfilled all its obligations under the Master Servicing Agreement and its related Subservicing Agreement throughout such year, or, there has been a default in the fulfillment of any such obligation, specifying each such default known to such officer and the nature and stature thereof. The Issuer shall send copies of such annual certificate of the Master Servicer and each Subservicer to each Rating Agency; and
(h) not consent or agree to or permit any amendment or modification of the Master Servicing Agreement or any Subservicing Agreement which will in any manner materially adversely affect the rights or security of the Registered Owners. The Issuer and the Trustee shall be entitled to receive and rely upon an opinion of counsel that any such amendment or modification will not materially adversely affect the rights or security of the Registered Owners.
Section 4.05. Procedures for Transfer of Funds. In any instance where this Indenture requires a transfer of funds or money from one Fund to another, a transfer of ownership in investments or an undivided interest therein may be made in any manner agreeable to the Issuer and the Trustee, and in the calculation of the amount transferred, interest on the investment which has or will accrue before the date the money is needed in the fund to which the transfer is made shall not be taken into account or considered as money on hand at the time of such transfer.
Section 4.06. Additional Covenants with Respect to the Higher Education Act. The Issuer covenants that it will cause the Trustee to be, or replace the Trustee with, an Eligible Lender under the Higher Education Act, that it will acquire or cause to be acquired Eligible Loans originated and held only by an Eligible Lender and that it will not dispose of or deliver any Financed Eligible Loans or any security interest in any such Financed Eligible Loans to any party who is not an Eligible Lender so long as the Higher Education Act or Regulations adopted thereunder require an Eligible Lender to be the owner or holder of Guaranteed Eligible Loans; provided, however, that nothing above shall prevent the Issuer from delivering the Eligible Loans to the Master Servicer, a Subservicer or a Guaranty Agency. The Registered Owners of the Notes shall not in any circumstances be deemed to be the owner or holder of the Guaranteed Eligible Loans.
The Issuer, or the Administrator on behalf of the Issuer, shall be responsible for each of the following actions with respect to the Higher Education Act:
(a) the Issuer, or the Administrator on behalf of the Issuer, shall be responsible for dealing with the Secretary with respect to the rights, benefits and obligations under the Certificates of Insurance, and the Issuer shall be responsible for dealing with the Guaranty Agencies with respect to the rights, benefits and obligations under the Guarantee Agreements with respect to the Financed Eligible Loans;
33
(b) the Issuer, or the Administrator on behalf of the Issuer, shall cause to be diligently enforced, and shall cause to be taken all reasonable steps, actions and proceedings necessary or appropriate for the enforcement of all terms, covenants and conditions of all Financed Eligible Loans and agreements in connection therewith, including the prompt payment of all principal and interest payments and all other amounts due thereunder;
(c) the Issuer, or the Administrator on behalf of the Issuer, shall cause the Financed Eligible Loans to be serviced by entering into the Master Servicing Agreement or other agreement with the Master Servicer for the collection of payments made for, and the administration of the accounts of, the Financed Eligible Loans;
(d) the Issuer, or the Administrator on behalf of the Issuer, shall comply, and shall cause all of its officers, directors, employees and agents to comply, with the provisions of the Higher Education Act and any regulations or rulings thereunder, with respect to the Financed Eligible Loans;
(e) the Issuer, or the Administrator on behalf of the Issuer, shall cause all Available Funds, including the benefits of the Guarantee Agreements, the Interest Benefit Payments and the Special Allowance Payments, to flow to the Trustee. The Trustee shall have no liability for actions taken at the direction of the Issuer or the Administrator, except for negligence or willful misconduct in the performance of its express duties hereunder. The Trustee shall have no obligation to administer, service or collect the loans in the Trust Estate or to maintain or monitor the administration, servicing or collection of such loans; and
(f) the Issuer, or the Administrator on behalf of the Issuer, shall cause each Financed Eligible Loan evidenced by a Master Promissory Note in the form mandated by Section 432(m)(1) of the Higher Education Act to be acquired pursuant to a Student Loan Purchase Agreement with the Seller containing language similar to the following:
"The Seller hereby represents and warrants that the Seller is transferring all of its right title and interest in the MPN Loan to the Trustee, that it has not assigned any interest in such MPN Loan (other than security interests that have been released or ownership interests that the Seller has reacquired) to any person other than the Trustee, and that no prior holder of the MPN Loan has assigned any interest in such MPN Loan (other than security interests that have been released or ownership interests that such prior holder has reacquired) to any Person other than a predecessor in title to the Seller. The Seller hereby covenants that the Seller shall not attempt to transfer to any other Person any interest in any MPN Loan assigned hereunder. The Seller hereby authorizes the Trustee to file a UCC-1 financing statement identifying the Seller as debtor and the Trustee as secured party and describing the MPN Loan sold pursuant to this Agreement. The preparation or filing of such UCC-1 financing statement is solely for additional protection of the Trustee's interest in the MPN Loans and shall not be deemed to contradict the express intent of the Seller and the Trustee that the transfer of MPN Loans under this Agreement is an absolute assignment of such MPN Loans and is not a transfer of such MPN Loans as security for a debt."
34
The Trustee shall not be deemed to be the designated agent for the purposes of this Section unless it has agreed in writing to be such agent.
Section 4.07. Financed Eligible Loans; Collections Thereof; Assignment Thereof. The Issuer, through the Master Servicer and one or more Subservicers, shall diligently collect all principal and interest payments on all Financed Eligible Loans, and all Interest Benefit Payments, insurance, guarantee and default claims and Special Allowance Payments which relate to such Financed Eligible Loans; provided, however, the Issuer may offer interest rate reductions with respect to the Financed Eligible Loans which result in rates of interest not less than those shown in the cash flow analyses provided to each Rating Agency on the Date of Issuance, and provided further that such rates of interest may be further reduced if a Rating Confirmation is obtained, based on new cash flow analyses containing such assumptions as the Issuer shall reasonably determine. The Issuer shall cause the filing and assignment of such claims (prior to the timely filing deadline for such claims under the Regulations) by the Master Servicer or the appropriate Subservicer. The Issuer will comply with the Higher Education Act and Regulations which apply to the Program and to such Financed Eligible Loans.
Section 4.08. Appointment of Agents, Direction to Trustee, Etc. The Issuer shall employ and appoint all employees, agents, consultants and attorneys which it may consider necessary. No member of the board of directors or officer of the Administrator, either singly or collectively, shall be personally liable for any act or omission not willfully fraudulent or mala fide. The Issuer hereby directs the Trustee to enter into this Indenture, the Administration Agreement, the Custodian Agreements and the Investment Agreements. The Issuer hereby directs the Eligible Lender Trustee to enter into this Indenture, the Guarantee Agreements and the Eligible Lender Trust Agreement.
Section 4.09. Capacity to Sue. The Issuer shall have the power and capacity to sue and to be sued on matters arising out of or relating to the financing of the Financed Eligible Loans.
Section 4.10. Continued Existence; Successor to Issuer. The Issuer agrees that it will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights and franchises as a Delaware statutory trust, except as otherwise permitted by this Section. The Issuer further agrees that it will not (a) sell, transfer or otherwise dispose of all or substantially all, of its assets (except Financed Eligible Loans if such sale, transfer or disposition will discharge this Indenture in accordance with Article X hereof); (b) consolidate with or merge into another entity; or (c) permit one or more other entities to consolidate with or merge into it. The preceding restrictions in clauses (a), (b) and (c) above shall not apply to a transaction if the transferee or the surviving or resulting entity, if other than the Issuer, by proper written instrument for the benefit of the Trustee, irrevocably and unconditionally assumes the obligation to perform and observe the agreements and obligations of the Issuer under this Indenture.
35
If a transfer is made as provided in this Section, the provisions of this Section shall continue in full force and effect and no further transfer shall be made except in compliance with the provisions of this Section.
Section 4.11. Amendment of Student Loan Purchase Agreements. The Issuer shall notify the Trustee in writing of any proposed amendments to any existing Student Loan Purchase Agreement. No such amendment shall become effective unless and until the Trustee consents thereto in writing. The consent of the Trustee shall not be unreasonably withheld and shall not be withheld if the Trustee receives an opinion of counsel acceptable to it that such an amendment is required by the Higher Education Act and is not materially prejudicial to the Registered Owners.
Section 4.12. Representations; Negative Covenants.
(a) The Issuer hereby makes the following representations and warranties to the Trustee on which the Trustee relies in authenticating the Notes and on which the Registered Owners have relied in purchasing the Notes. Such representations and warranties shall survive the transfer and assignment of the Trust Estate to the Trustee.
(i) Organization and Good Standing. The Issuer is duly organized and validly existing under the laws of the State, and has the power to own its assets and to transact the business in which it presently engages.
(ii) Due Qualification. The Issuer is duly qualified to do business and is in good standing, and has obtained all material necessary licenses and approvals, in all jurisdictions where the failure to be so qualified, have such good standing or have such licenses or approvals would have a material adverse effect on the Issuer's business and operations or in which the actions as required by this Indenture require or will require such qualification.
(iii) Authorization. The Issuer has the power, authority and legal right to create and issue the Notes, to execute, deliver and perform this Indenture and to grant the Trust Estate to the Trustee and the creation and issuance of the Notes, execution, delivery and performance of this Indenture and grant of the Trust Estate to the Trustee have been duly authorized by the Issuer by all necessary statutory trust action.
(iv) Binding Obligation. This Indenture, assuming due authorization, execution and delivery by the Trustee, the Notes in the hands of the Registered Owners thereof and the Issuer Derivative Payments constitute legal, valid and binding obligations of the Issuer enforceable against the Issuer in accordance with their terms, except that (A) such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws (whether statutory, regulatory or decisional) now or hereafter in effect relating to creditors' rights generally and (B) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to certain equitable defenses and to the discretion of the court before which any proceeding therefor may be brought, whether a proceeding at law or in equity.
36
(v) No Violation. The consummation of the transactions contemplated by this Indenture and the fulfillment of the terms hereof do not conflict with, result in any breach of any of the terms and provisions of or constitute (with or without notice, lapse of time or both) a default under the organizational documents of the Issuer, or any material indenture, agreement, mortgage, deed of trust or other instrument to which the Issuer is a party or by which it is bound, or result in the creation or imposition of any lien upon any of its material properties pursuant to the terms of any such indenture, agreement, mortgage, deed of trust or other instrument, other than this Indenture, nor violate any law or any order, rule or regulation applicable to the Issuer of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Issuer or any of its properties.
(vi) No Proceedings. There are no proceedings, injunctions, writs, restraining orders or investigations to which the Issuer or any of its affiliates is a party pending, or, to the best of its knowledge, threatened, before any court, regulatory body, administrative agency or other tribunal or governmental instrumentality (A) asserting the invalidity of this Indenture, (B) seeking to prevent the issuance of any Notes or the consummation of any of the transactions contemplated by this Indenture or (C) seeking any determination or ruling that might materially and adversely affect the performance by the Issuer of its obligations under, or the validity or enforceability of this Indenture.
(vii) Approvals. All approvals, authorizations, consents, orders or other actions of any person, corporation or other organization, or of any court, governmental agency or body or official, required on the part of the Issuer in connection with the execution and delivery of this Indenture have been taken or obtained on or prior to the Date of Issuance.
(viii) Place of Business. The Issuer's place of business and chief executive office is located in Wilmington, Delaware and the Issuer has had no other chief executive office.
(ix) Tax and Accounting Treatment. The Issuer intends to treat the transactions contemplated by the Student Loan Purchase Agreements as an absolute transfer rather than as a pledge of the Financed Eligible Loans from the Seller for federal income tax and financial accounting purposes and the Issuer (through the Eligible Lender Trustee) will be treated as the owner of the Financed Eligible Loans for all purposes. The Issuer further intends to treat the Notes as its indebtedness for federal income tax and financial accounting purposes.
(x) Taxes. The Issuer has filed (or caused to be filed) all federal, state, county, local and foreign income, franchise and other tax returns required to be filed by it through the date hereof, and has paid all taxes reflected as due thereon.
37
There is no pending dispute with any taxing authority that, if determined adversely to the Issuer, would result in the assertion by any taxing authority of any material tax deficiency, and the Issuer has no knowledge of a proposed liability for any tax year to be imposed upon such entity's properties or assets for which there is not an adequate reserve reflected in such entity's current financial statements.
(xi) Legal Name. The legal name of the Issuer is "Nelnet Student Loan Trust 2005-1" and has not changed since its inception. The Issuer has no trade names, fictitious names, assumed names or "dba's" under which it conducts its business and has made no filing in respect of any such name.
(xii) Business Purpose. The Issuer has acquired the Financed Eligible Loans conveyed to it under a Student Loan Purchase Agreement for a bona fide business purpose and has undertaken the transactions contemplated herein as principal rather than as an agent of any other Person. The Issuer has no subsidiaries, has adopted and operated consistently with all requirements for statutory trusts under the laws of the State with respect to its operations and has engaged in no other activities other than those specified in this Indenture and the Student Loan Purchase Agreements and in accordance with the transactions contemplated herein and therein.
(xiii) Compliance with Laws. The Issuer is in compliance with all applicable laws and regulations with respect to the conduct of its business and has obtained and maintains all permits, licenses and other approvals as are necessary for the conduct of its operations.
(xiv) Valid Business Reasons; No Fraudulent Transfers. The transactions contemplated by this Indenture are in the ordinary course of the Issuer's business and the Issuer has valid business reasons for granting the Trust Estate pursuant to this Indenture. At the time of each such grant: (A) the Issuer granted the Trust Estate to the Trustee without any intent to hinder, delay or defraud any current or future creditor of the Issuer; (B) the Issuer was not insolvent and did not become insolvent as a result of any such grant; (C) the Issuer was not engaged and was not about to engage in any business or transaction for which any property remaining with such entity was an unreasonably small capital or for which the remaining assets of such entity are unreasonably small in relation to the business of such entity or the transaction; (D) the Issuer did not intend to incur, and did not believe or should not have reasonably believed, that it would incur, debts beyond its ability to pay as they become due; and (E) the consideration received by the Issuer for the grant of the Trust Estate was reasonably equivalent to the value of the related grant.
(xv) No Management of Affairs of Seller. The Issuer is not and will not be involved in the day-to-day management of the Seller, the Administrator, the Sponsor or any affiliate.
38
(xvi) No Transfers with Seller or Affiliates. Other than the acquisition of assets and the transfer of any Notes pursuant to this Indenture, the Issuer does not engage in and will not engage in any transactions with the Seller and affiliates, except as provided herein with respect to the Administration Agreement or the payment of distributions to the Sponsor.
(xvii) Ability to Perform. There has been no material impairment in the ability of the Issuer to perform its obligations under this Indenture.
(xviii) Financial Condition. No material adverse change has occurred in the Issuer's financial status since the date of its formation.
(xix) Event of Default. No Event of Default has occurred and no event has occurred that, with the giving of notice, the passage of time, or both, would become an Event of Default.
(xx) Acquisition of Financed Eligible Loans Legal. The Issuer has complied with all applicable federal, state and local laws and regulations in connection with its acquisition of the Financed Eligible Loans from the Seller.
(xxi) No Material Misstatements or Omissions. No information, certificate of an officer, statement furnished in writing or report delivered to the Trustee, the Master Servicer, a Subservicer or any Registered Owner by the Issuer contains any untrue statement of a material fact or omits a material fact necessary to make such information, certificate, statement or report not misleading.
(b) The Issuer will not:
(i) sell, transfer, exchange or otherwise dispose of any portion of the Trust Estate except as expressly permitted by this Indenture;
(ii) claim any credit on, or make any deduction from, the principal amount of any of the Notes by reason of the payment of any taxes levied or assessed upon any portion of the Trust Estate;
(iii) except as otherwise provided herein, dissolve or liquidate in whole or in part, except with the prior written consent of the Trustee, and to the extent Notes remain Outstanding, approval of the Registered Owners and a Rating Confirmation;
(iv) permit the validity or effectiveness of this Indenture, any Supplement or any grant hereunder to be impaired, or permit the lien of this Indenture to be amended, hypothecated, subordinated, terminated or discharged, or permit any Person to be released from any covenants or obligations under this Indenture, except as may be expressly permitted hereby;
39
(v) except as otherwise provided herein, permit any lien, charge, security interest, mortgage or other encumbrance (other than the lien of this Indenture) to be created on or extend to or otherwise arise upon or burden the Trust Estate or any part thereof or any interest therein or the proceeds thereof;
(vi) permit the lien of this Indenture not to constitute a valid first priority, perfected security interest in the Trust Estate;
(vii) incur or assume any indebtedness or guarantee any indebtedness of any Person whether secured by any Financed Eligible Loans under this Indenture or otherwise, except for such obligations as may be incurred by the Issuer in connection with the issuance of the Notes pursuant to this Indenture and unsecured trade payables in the ordinary course of its business;
(viii) operate such that it would be consolidated with its Sponsor or any other affiliate and its separate existence disregarded in any federal or state proceeding;
(ix) act as agent of the Seller or, except as provided in its Student Loan Purchase Agreement, allow the Seller to act as its agent;
(x) allow the Seller or the Sponsor or any other affiliate to pay its expenses, guarantee its obligations or advance funds to it for payment of expenses; or
(xi) consent to the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings of or relating to the Issuer or of or relating to all or substantially all of its property, or a decree or order of a court or agency or supervisory authority having jurisdiction in the premises for the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered against the Issuer; or the Issuer shall not consent to the appointment of a receiver, conservator or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities, voluntary liquidation or similar proceedings of or relating to the Issuer or of or relating to all or substantially all of its property; or admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of any applicable insolvency, bankruptcy or reorganization statute, make an assignment for the benefit of its creditors or voluntarily suspend payment of its obligations.
(c) The Issuer makes the following representations and warranties as to the Trust Estate which is granted to the Trustee hereunder on such date, on which the Trustee relies in accepting the Trust Estate. Such representations and warranties shall survive the grant of the Trust Estate to the Trustee pursuant to this Indenture:
(i) Financed Eligible Loans. Each Financed Eligible Loan acquired by the Issuer shall constitute an Eligible Loan and contain the characteristics found in a Student Loan Purchase Agreement. Notwithstanding the definition of "Eligible Loans" herein, the Issuer covenants that no more than 20% of each purchase of Eligible Loans will be made up of Eligible Loans delinquent by more than 30 days.
40
(ii) Grant. It is the intention of the Issuer that the transfer herein contemplated constitutes a grant of the Financed Eligible Loans to the Trustee.
(iii) All Filings Made. All filings (including, without limitation, UCC filings) necessary in any jurisdiction to give the Trustee a first priority perfected ownership and security interest in the Trust Estate, including the Financed Eligible Loans, have been made no later than the Date of Issuance and copies of the file-stamped financing statements shall be delivered to the Trustee within five Business Days of receipt by the Issuer or its agent from the appropriate secretary of state. The Issuer has not caused, suffered or permitted any lien, pledges, offsets, defenses, claims, counterclaims, charges or security interest with respect to the Financed Eligible Loans (other than the security interest created in favor of the Trustee) to be created.
(iv) Transfer Not Subject to Bulk Transfer Act. Each grant of the Financed Eligible Loans by the Issuer pursuant to this Indenture is not subject to the bulk transfer act or any similar statutory provisions in effect in any applicable jurisdiction.
(v) No Transfer Taxes Due. Each grant of the Financed Eligible Loans (including all payments due or to become due thereunder) by the Issuer pursuant to this Indenture is not subject to and will not result in any tax, fee or governmental charge payable by the Issuer or the Seller to any federal, state or local government.
Section 4.13. Additional Covenants. So long as any of the Notes are Outstanding:
(a) The Issuer shall not engage in any business or activity other than in connection with the activities contemplated hereby and in the Student Loan Purchase Agreements, and in connection with the issuance of Notes.
(b) The Issuer shall not consolidate or merge with or into any other entity or convey or transfer its properties and assets substantially as an entirety to any entity except as otherwise provided herein.
(c) The funds and other assets of the Issuer shall not be commingled with those of any other individual, corporation, estate, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government, or any agency or political subdivision thereof.
(d) The Issuer shall not be, become or hold itself out as being liable for the debts of any other party.
(e) The Issuer shall not form, or cause to be formed, any subsidiaries.
41
(f) The Issuer shall act solely in its own name and through its duly authorized officers or agents in the conduct of its business, and shall conduct its business so as not to mislead others as to the identity of the entity with which they are concerned.
(g) The Issuer shall maintain its records and books of account and shall not commingle its records and books of account with the records and books of account of any other Person. The books of the Issuer may be kept (subject to any provision contained in the statutes) inside or outside the State at such place or places as may be designated from time to time by the provisions of the Trust Agreement.
(h) All actions of the Issuer shall be taken by an Authorized Representative.
(i) The Issuer shall not amend, alter, change or repeal any provision contained in this Section without (i) the prior written consent of the Trustee and (ii) a Rating Confirmation from each Rating Agency rating any Notes Outstanding (a copy of which shall be provided to the Trustee) that such amendment, alteration, change or repeal will have no adverse effect on the rating assigned to the Notes.
(j) The Issuer shall not amend its Certificate of Trust or its Trust Agreement without first obtaining the prior written consent of each Rating Agency.
(k) All audited financial statements of the Issuer that are consolidated with those of any affiliate thereof will contain detailed notes clearly stating that (i) all of the Issuer's assets are owned by the Issuer, and (ii) the Issuer is a separate entity with creditors who have received ownership and/or security interests in the Issuer's assets.
(l) The Issuer will strictly observe legal formalities in its dealings with the Seller, the Sponsor or any affiliate thereof, and funds or other assets of the Issuer will not be commingled with those of the Seller, the Sponsor or any other affiliate thereof. The Issuer shall not maintain joint bank accounts or other depository accounts to which the Seller, the Sponsor or any other affiliate has independent access. None of the Issuer's funds will at any time be pooled with any funds of the Seller, the Sponsor or any other affiliate.
(m) The Issuer will maintain an arm's length relationship with the Seller (and any affiliate). Any Person that renders or otherwise furnishes services to the Issuer will be compensated by the Issuer at market rates for such services it renders or otherwise furnishes to the Issuer except as otherwise provided in this Indenture. Except as contemplated in this Indenture, the Student Loan Purchase Agreements, the Master Servicing Agreement or a Subservicing Agreement, the Issuer will not hold itself out to be responsible for the debts of the Seller, the Sponsor or the decisions or actions respecting the daily business and affairs of the Seller or the Sponsor.
Section 4.14. Providing of Notice. The Issuer, upon learning of any failure on its part to observe or perform in any material respect any covenant, representation or warranty of the Issuer set forth in this Indenture or the Student Loan Purchase Agreements, or of any failure on the part of the Seller to observe or perform in any material respect any covenant, representation or warranty of the Seller set forth in the Student Loan Purchase Agreements, shall promptly notify the Trustee, the Master Servicer, the appropriate Subservicer and each Rating Agency of such failure.
42
Section 4.15. Certain Reports.
(a) The Issuer will:
(i) file with the Trustee, within 15 days after the Issuer is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Issuer may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act;
(ii) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Issuer with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and
(iii) transmit by mail to the Registered Owners of Notes, within 30 days after the filing thereof with the Trustee, in the manner and to the extent provided in Section 313(c) of the Trust Indenture Act, such summaries of any information, documents and reports required to be filed by the Issuer pursuant to subsections (a) and (b) of this Section as may be required by rules and regulations prescribed from time to time by the Commission.
(b) The Trustee shall mail to each Registered Owner, within 60 days after each December 31 beginning with the December 31 following the date of this Indenture, a brief report as of such December 31 that complies with Section 313(a) of the Trust Indenture Act if required by said section. The Trustee shall also comply with Section 313(b) of the Trust Indenture Act. A copy of each such report required pursuant to
Section 313(a) or (b) of the Trust Indenture Act shall, at the time of such transaction to Registered Owners, be filed by the Trustee with the Commission and with each securities exchange, if any, upon which the Notes are listed, provided that the Issuer has previously notified the Trustee of such listing.
(c) Not later than the fourth Business Day preceding each Quarterly Distribution Date, the Administrator will prepare and provide a certificate in the form of Exhibit D hereto (the "Administrator's Quarterly Distribution Date Certificate"), or containing such information as the Commission may from time to time by rules or regulations prescribe, to the Trustee. The Trustee shall provide a copy of any Administrator's Quarterly Distribution Date Certificate to any Noteholder who requests such in writing.
(d) The Trustee may conclusively rely and accept such reports from the Issuer as fulfilling the requirements of this Section, with no further duty to know, determine or examine such reports or comply with the prescribed timing, rules and regulations of the Commission.
43
Section 4.16. Statement as to Compliance. The Issuer will deliver to the Trustee, within 120 days after the end of each fiscal year, a brief certificate from an Authorized Representative including (a) a current list of the Authorized Representatives, and (b) a statement indicating whether or not to the knowledge of the signers thereof the Issuer is in compliance with all conditions and covenants under this Indenture and, in the event of any noncompliance, specifying such noncompliance and the nature and status thereof. For purposes of this Section, such compliance shall be determined without regard to any period of grace or requirement of notice under this Indenture.
Section 4.17. Representations of the Issuer Regarding the Trustee's Security Interest. The Issuer hereby represents and warrants for the benefit of the Trustee and the Registered Owners as follows:
(a) This Indenture creates a valid and continuing security interest (as defined in the applicable Uniform Commercial Code in effect in the States of Colorado, Delaware, Nebraska and Utah) in the Financed Eligible Loans in favor of the Trustee, which security interest is prior to all other liens, charges, security interests, mortgages or other encumbrances, and is enforceable as such as against creditors of and purchasers from Issuer.
(b) The Higher Education Act deems the Financed Eligible Loans to constitute accounts within the meaning of the applicable UCC as in effect in the State of Delaware for the purposes of perfecting a security interest in the Financed Eligible Loans.
(c) The Issuer (or the Eligible Lender Trustee on behalf of the Issuer) owns and has good and marketable title to the Financed Eligible Loans free and clear of any lien, charge, security interest, mortgage or other encumbrance, claim or encumbrance of any Person, other that those granted pursuant to this Indenture.
(d) For sale of loan participations, swaps and other "payment intangibles" (within the meaning of the applicable UCC), the Issuer has received all consents and approvals required by the terms of the Financed Eligible Loans to the sale of the Financed Eligible Loans hereunder to the Trustee.
(e) The Issuer has caused or will have caused, within ten days, the filing of all appropriate financing statements in the proper filing office in the appropriate jurisdictions under applicable law in order to perfect the security interest in the Financed Eligible Loans granted to the Trustee hereunder.
(f) The Issuer has received a written acknowledgment from the Master Servicer and each Subservicer (as custodian for the Trustee) that the Master Servicer or such Subservicer is holding executed copies of the promissory notes and master promissory notes that constitute or evidence the Financed Eligible Loans for which it is acting as Master Servicer or Subservicer, and that the Master Servicer or such Subservicer is holding such solely on behalf and for the benefit of the Trustee.
44
(g) Other than the security interest granted to the Trustee pursuant to this Indenture, the Issuer has not pledged, assigned, sold, granted a security interest in, or otherwise conveyed any of the Financed Eligible Loans. The Issuer has not authorized the filing of and is not aware of any financing statements against the Issuer that include a description of collateral covering the Financed Eligible Loans other than any financing statement relating to the security interest granted to the Trustee hereunder or that has been terminated. The Issuer is not aware of any judgment or tax lien filings against the Issuer.
Section 4.18. Further Covenants of the Issuer Regarding the Trustee's Security Interest. The Issuer hereby covenants for the benefit of the Trustee and the Registered Owners as follows:
(a) The representations and warranties set forth in Section 4.17 hereof shall survive the termination of this Indenture.
(b) The Trustee shall not waive any of the representations and warranties set forth in Section 4.17 hereof.
(c) The Issuer shall take all steps necessary, and shall cause the Master Servicer and Subservicers, if any, to take all steps necessary and appropriate, to maintain the perfection and priority of the Trustee's security interest in the Financed Eligible Loans.
45
Section 4.19. Borrower Incentive Programs. The Issuer presently offers borrower incentive programs on the Financed Eligible Loans. If any such incentive programs, or any other borrower incentive programs offered by the Issuer in the future which are not required by the Higher Education Act, are in effect for any Financed Eligible Loans on any Quarterly Distribution Date on which the Outstanding Amount of the Notes exceeds 100% of the Value of the Trust Estate, or such other percentage upon the receipt of a Rating Confirmation, the Issuer shall either (i) contribute funds to the Collection Fund in an amount equal to the interest that otherwise would have been paid on such Financed Eligible Loans in the absence of the borrower incentive programs since the preceding Quarterly Distribution Date or (ii) notify the Master Servicer to instruct the Subservicers to terminate the borrower incentive programs for those Financed Eligible Loans. If the Master Servicer or a Subservicer is notified to terminate the borrower incentive programs for the Financed Eligible Loans being serviced by such Master Servicer or the Subservicer, such Master Servicer or Subservicer may choose to contribute funds to the Collection Fund in an amount equal to the interest that otherwise would have been paid on such Financed Eligible Loans in the absence of the borrower incentive programs on the Financed Eligible Loans being serviced by such Master Servicer or Subservicer in lieu of terminating the borrower incentive programs for those Financed Eligible Loans. The Issuer shall notify the Rating Agencies if the Issuer, the Master Servicer or a Subservicer contributes any additional amounts pursuant to this Section or if any of the borrower incentive programs are terminated.
ARTICLE V
FUNDS
Section 5.01. Creation and Continuation of Funds and Accounts. There are hereby created and established the following Funds to be held and maintained by the Trustee for the benefit of the Registered Owners:
(a) Acquisition Fund;
(b) Capitalized Interest Fund;
(c) Collection Fund; and
(d) Reserve Fund.
The Trustee is hereby authorized for the purpose of facilitating the administration of the Trust Estate and for the administration of any Notes issued hereunder to create further Accounts or Subaccounts in any of the various Funds and Accounts established hereunder which are deemed necessary or desirable.
Section 5.02. Acquisition Fund. There shall be deposited into the Acquisition Fund moneys from proceeds of the Notes in an amount equal to $1,225,502,800.00. Financed Eligible Loans shall be held by the Trustee or its agent or bailee (including the Master Servicer or a Subservicer) and shall be pledged to the Trust Estate and held as a part of the Acquisition Fund.
46
Moneys on deposit in the Acquisition Fund shall be used (a) upon Issuer Order, to pay costs of issuance of the Notes, including the costs related to the purchase of one or more Derivative Products, if any, and (b) upon receipt by the Trustee of an Eligible Loan Acquisition Certificate, to acquire Eligible Loans at a price not in excess of 100% of the outstanding principal balance of such Eligible Loans, plus accrued interest. Any such Issuer Order or Eligible Loan Acquisition Certificate shall state that such proposed use of moneys in the Acquisition Fund is in compliance with the provisions of this Indenture. Any moneys remaining in the Acquisition Fund on March 31, 2005 shall be transferred to the Collection Fund on April 1, 2005.
While the Issuer will be the beneficial owner of the Financed Eligible Loans, it is understood and agreed that the Eligible Lender Trustee will be the legal owner thereof and the Trustee will have a security interest in the Financed Eligible Loans for and on behalf of the Registered Owners. In the case of a single Financed Eligible Loan evidenced by a separate note, each such note will be held in the name of the Trustee for the account of the Issuer, for the benefit of the Registered Owners. In the case of a Financed Eligible Loan evidenced by a Master Promissory Note, the Issuer shall cause the holder of the original Master Promissory Note to indicate by book entry on its books and records that the Issuer is the beneficial owner of the Loan and that the Trustee is the legal owner and has a security interest in the Financed Eligible Loan for the benefit of the Registered Owners.
Except (i) as provided in Sections 5.07, 10.03 and 10.04 hereof, (ii) for consolidation or serialization purposes, (iii) for transfers to a Guaranty Agency, (iv) for transfers to the Master Servicer or a Subservicer pursuant to its repurchase obligation under the applicable Master Servicing Agreement or Subservicing Agreement, (v) for transfers to a Seller pursuant to its repurchase obligation under its Student Loan Purchase Agreement or (vi) when the Issuer does not have sufficient moneys in the Collection Fund to fund any required "add-on consolidation loan" (in which case the Issuer may sell the Financed Eligible Loan to which such required "add-on consolidation loan" relates), Financed Eligible Loans shall not be sold, transferred or otherwise disposed of by the Issuer through the Trustee free from the lien of this Indenture while any of the Class A Notes are Outstanding. In addition, if necessary for administrative purposes or if requested by the borrower corresponding to such Financed Eligible Loan, the Issuer may substitute another Eligible Loan for an existing Financed Eligible Loans if the substituted Eligible Loan has characteristics (including principal amount, maturity date and interest rate) which are substantially similar to the characteristics of the substituted Financed Eligible Loan, and the collective amount of all such substitutions does not exceed $1,000,000. The Issuer hereby certifies, upon which the Trustee may conclusively rely, that any Financed Eligible Loan sold pursuant to this Indenture shall not be sold for a price less than the Purchase Amount of such Financed Eligible Loan. The Issuer hereby certifies, upon which the Trustee may conclusively rely, that any Financed Eligible Loan substituted pursuant to this Indenture shall have characteristics (including principal amount, maturity date and interest rate) which are substantially similar to the characteristics of the substituted Financed Eligible Loan, and the collective amount of all such substitutions does not exceed $1,000,000. The Issuer shall provide notice to Moody's, if the principal amount of Financed Eligible Loans sold pursuant to this Indenture exceeds 10% of the Initial Pool Balance.
47
Section 5.03. Capitalized Interest Fund. There shall be deposited into the Capitalized Interest Fund moneys from proceeds of the Notes in an amount equal to $8,000,000.
On each Monthly Servicing Payment Date or Quarterly Distribution Date, to the extent there are insufficient Available Funds in the Collection Fund to make one or more of the transfers required by Sections 5.04(b) (other than funding "add-on consolidation loans" or repurchasing student loans from the Master Servicer, any Subservicer or any Guaranty Agency as described in clause
(a)(i) and (iii) of the definition of Available Funds) and 5.04(c)(i) through
(iv) and (viii) hereof, then the Administrator shall instruct the Trustee in writing to withdraw from the Capitalized Interest Fund on such Monthly Servicing Payment Date or Quarterly Distribution Date, as the case may be, an amount equal to such deficiency and to deposit such amount in the Collection Fund. On the Quarterly Distribution Date in April of 2006, the Trustee shall transfer any remaining amounts on deposit in the Capitalized Interest Fund to the Collection Fund.
Section 5.04. Collection Fund.
(a) Deposits to Collection Fund. There shall be deposited to the Collection Fund (i) moneys from proceeds of the Notes in an amount equal to $365,681.00, (ii) all Available Funds, and all other moneys and investments derived from assets on deposit in and transfers from the Capitalized Interest Fund (as described in Section 5.03 hereof) and the Reserve Fund (as described in Section 5.05 hereof), (iii) all Counterparty Payments, (iv) amounts deposited pursuant to Sections 10.03 and 10.04 hereof and (v) any other amounts deposited thereto upon receipt of an Issuer Order. Moneys on deposit in the Collection Fund shall be used to make the payments described below. The Trustee may conclusively rely on all written instructions of the Administrator described in this Indenture with no further duty to examine or determine the information contained in any Administrator's Certificate or Issuer Order.
(b) Payments on Monthly Servicing Payment Dates. The Administrator shall instruct the Trustee in writing no later than the fourth Business Day preceding each Monthly Servicing Payment Date that is not a Quarterly Distribution Date (based on the information contained in a certificate of the Administrator (in the form set forth as Exhibit C hereto) and the related Servicer's Report, if applicable) to distribute to the Master Servicer, on such Monthly Servicing Payment Date, from and to the extent of the Available Funds on deposit in the Collection Fund (including any amounts transferred from the Capitalized Interest Fund pursuant to Section 5.03 hereof and the Reserve Fund pursuant to Section 5.05(b) and (c) hereof), the Servicing Fees due with respect to the preceding calendar month, and the Trustee shall comply with such instructions. Upon written direction from the Administrator to the Trustee, moneys in the Collection Fund shall be used on any date to pay, when due, fees and expenses insofar as the same relate to Financed Eligible Loans and other fees and expenses with respect to the Trust Estate the payment of which is not otherwise provided for in subsection
(c) of this Section, but including amounts described in clause (a)(i),
(ii) and (iii) of the definition of Available Funds.
48
(c) Payments on Quarterly Distribution Dates. The Administrator shall instruct the Trustee in writing no later than the fourth Business Day preceding each Quarterly Distribution Date (based on the information contained in a certificate of the Administrator (in the form set forth as Exhibit D hereto) and the related Servicer's Report, if applicable) to make the following deposits and distributions from Available Funds in the Collection Fund (including any amounts transferred from the Capitalized Interest Fund pursuant to Section 5.03 hereof and the Reserve Fund pursuant to Section 5.05(b) and (c) hereof) to the Persons or to the account specified below on such Quarterly Distribution Date, in the following order of priority, and the Trustee shall comply with such instructions:
(i) to pay to the Master Servicer, the Trustee and the Delaware Trustee, pro rata, based on amounts owed to each such party, without preference or priority of any kind, the Servicing Fee (to the extent remaining unpaid following the Monthly Servicing Payment Date), the Trustee Fee and the Delaware Trustee Fee, respectively, due on such Quarterly Distribution Date, in each case, together with such fees remaining unpaid from prior Quarterly Distribution Dates (and, in the case of the Servicing Fees, prior Monthly Servicing Payment Dates);
(ii) to pay to the Administrator, the Administration Fee due on such Quarterly Distribution Date and all unpaid Administration Fees from prior Quarterly Distribution Dates;
(iii) to pay (A) to the Class A Noteholders of each class, the portion of the Class A Noteholders' Interest Distribution Amount payable to such class on such Quarterly Distribution Date and (B) to the Counterparty, any Issuer Derivative Payments owed to such Counterparty on such Quarterly Distribution Date (excluding Termination Payments other than Priority Termination Payments), pro rata, based on amounts owed to each such party, without preference or priority of any kind;
(iv) to pay to the Class B Noteholders, the Class B Noteholders' Interest Distribution Amount;
(v) to the Sponsor, an amount equal to the unpaid interest accrued on the Financed Eligible Loans subsequent to the Cutoff Date but prior to the Date of Issuance, until such amount has been paid in full;
(vi) to the Class A Noteholders, the Class A Principal Distribution Amount in the following order:
(A) to pay to the Class A-1 Noteholders until the Class A-1 Notes have been paid in full;
(B) to pay to the Class A-2 Noteholders until the Class A-2 Notes have been paid in full;
49
(C) to pay to the Class A-3 Noteholders until the Class A-3 Notes have been paid in full;
(D) to pay to the Class A-4 Noteholders until the Class A-4 Notes have been paid in full; and
(E) to pay to the Class A-5 Noteholders until the Class A-5 Notes have been paid in full;
(vii) on and after the Stepdown Date, and provided that no Trigger Event is in effect on such Quarterly Distribution Date, to the Class B Noteholders, the Class B Principal Distribution Amount;
(viii) to deposit to the Reserve Fund, the amount, if any, necessary to reinstate the balance of the Reserve Fund up to the Specified Reserve Fund Balance;
(ix) to pay to the Master Servicer, the aggregate unpaid amount of any Carryover Servicing Fee, if any;
(x) to pay to the Counterparties, pro rata, without preference or priority of any kind, any accrued and unpaid Termination Payments due to each such Counterparty under the applicable Derivative Product;
(xi) in the event the Financed Eligible Loans are not sold pursuant to Sections 10.03 or 10.04 hereof, to pay as an accelerated payment of principal balance of the Notes then Outstanding, to the Noteholders in the same order and priority as is set forth in Sections 5.04(c)(vi)(A) through (E) and 5.04(c)(vii) hereof until the principal amount of the Notes is paid in full; and
(xii) subject to the remaining provisions of this Section, to pay to the Sponsor any remaining funds.
Amounts properly distributed to the Sponsor pursuant to paragraph
(xii) shall be deemed released from the Trust Estate and the security interest therein granted to the Trustee, and the Sponsor shall in no event thereafter be required to refund any such distributed amounts.
The amounts paid to the Trustee and the Delaware Trustee (but not the Master Servicer) pursuant to clause (i) above and the Administration Fee pursuant to clause (ii) above, shall not in any one Fiscal Year exceed the amount designated therefor in the cash flows provided to each Rating Agency on each Date of Issuance, unless the Issuer, after furnishing each Rating Agency with revised cash flows, shall have received a Rating Confirmation.
(d) Optional Redemption From Sale of Financed Eligible Loans. The Notes shall be subject to redemption from the proceeds of a sale of Financed Eligible Loans in accordance with Section 10.03 or 10.04 hereof on any Quarterly Distribution Date.
50
Section 5.05. Reserve Fund.
(a) On the Date of Issuance, the Trustee shall deposit $3,131,520 into the Reserve Fund. Thereafter, the Trustee shall transfer to the Reserve Fund from the Collection Fund all amounts designated for transfer thereto pursuant to Section 5.04(c)(viii) hereof.
(b) On each Monthly Servicing Payment Date or Quarterly Distribution Date, to the extent there are insufficient Available Funds in the Collection Fund to make one or more of the transfers required by Sections 5.04(b) (other than funding "add-on consolidation loans" or repurchasing student loans from the Master Servicer, any Subservicer or any Guaranty Agency as described in clause (a)(i) and (iii) of the definition of Available Funds) and 5.04(c)(i) through (c)(iv) hereof, then the Administrator shall instruct the Trustee in writing to withdraw from the Reserve Fund on such Monthly Servicing Payment Date or Quarterly Distribution Date, as the case may be, an amount equal to such deficiency and to deposit such amount in the Collection Fund to the extent moneys are not available to make such transfers from the Capitalized Interest Fund pursuant to Section 5.03 hereof. Additionally, if on the Note Final Maturity Date for a class of Notes, and after giving effect to the distribution of the Available Funds on such Note Final Maturity Date, the principal amount of such class of Notes will not be reduced to zero, the Administrator shall instruct the Trustee in writing to withdraw from the Reserve Fund on such Note Final Maturity Date an amount equal to the amount needed to reduce the principal amount of such class of Notes to zero and to deposit such amount in the Collection Fund for application to payment of the Outstanding Amount of such class of Notes.
(c) After giving effect to subsection (b) of this Section, if the amount on deposit in the Reserve Fund on any Quarterly Distribution Date is greater than the Specified Reserve Fund Balance for such Quarterly Distribution Date, the Administrator shall instruct the Trustee in writing to withdraw from the Reserve Fund on such Quarterly Distribution Date an amount equal to such excess and to deposit such amount in the Collection Fund.
(d) On the final Quarterly Distribution Date upon termination of the trust and following the payment in full of the Outstanding Amount of the Notes and of all other amounts (other than unpaid Issuer Derivative Payments and Carryover Servicing Fees) owing or to be distributed hereunder to Noteholders, the Trustee, the Master Servicer, the Administrator, the Delaware Trustee or the Counterparties (excluding Termination Payments other than Priority Termination Payments), to the extent that Available Funds on such date are insufficient to make the following payments, amounts remaining in the Reserve Fund shall be used first to pay any unpaid Issuer Derivative Payments and second to pay any Carryover Servicing Fees. Any amount remaining on deposit in the Reserve Fund after such payments have been made shall be distributed to the Sponsor. The Sponsor shall in no event be required to refund any amounts properly distributed pursuant to this subsection (d).
51
(e) Anything in this Section to the contrary notwithstanding, if the market value of securities and cash in the Reserve Fund is on any Quarterly Distribution Date sufficient to pay the remaining principal amount of and interest accrued on the Notes, and to pay any unpaid Issuer Derivative Payments and Carryover Servicing Fee, such amount will be so applied on such Quarterly Distribution Date and the Administrator shall instruct the Trustee in writing to make such payments.
Section 5.06. Investment of Funds Held by Trustee. The Trustee is hereby directed to enter into the Investment Agreements. In addition, the Trustee shall invest money held for the credit of any Fund or Account or Subaccount held by the Trustee hereunder as directed in writing (or orally, confirmed in writing) by an Authorized Representative of the Issuer, to the fullest extent practicable and reasonable, in Investment Securities which shall mature or be redeemed at the option of the holder prior to the respective dates when the money held for the credit of such Fund or Account will be required for the purposes intended. In the absence of any such direction and to the extent practicable, the Trustee shall invest amounts held hereunder in those Investment Securities described in clause (k) of the definition of the Investment Securities. All such investments shall be held by (or by any custodian on behalf of) the Trustee for the benefit of the Issuer; provided that on the Business Day preceding each Quarterly Distribution Date and Monthly Servicing Payment Date all interest and other investment income collected (net of losses and investment expenses) on funds on deposit therein shall be deposited into the Collection Fund and shall be deemed to constitute a portion of the Available Funds for such Quarterly Distribution Date. The Trustee and the Issuer hereby agree that unless an Event of Default shall have occurred hereunder, the Issuer acting by and through an Authorized Representative shall be entitled to, and shall, provide written direction or oral direction confirmed in writing to the Trustee with respect to any discretionary acts required or permitted of the Trustee under any Investment Securities and the Trustee shall not take such discretionary acts without such written direction.
The Investment Securities purchased shall be held by the Trustee and shall be deemed at all times to be part of such Fund or Account or Subaccounts or combination thereof, and the Trustee shall inform the Issuer of the details of all such investments. Upon direction in writing (or orally, confirmed in writing) from an Authorized Representative of the Issuer, the Trustee shall use its best efforts to sell at the best price obtainable, or present for redemption, any Investment Securities purchased by it as an investment whenever it shall be necessary to provide money to meet any payment from the applicable Fund. The Trustee shall advise the Issuer in writing, on or before the fifteenth day of each calendar month (or such later date as reasonably consented to by the Issuer), of all investments held for the credit of each Fund in its custody under the provisions of this Indenture as of the end of the preceding month and the value thereof, and shall list any investments which were sold or liquidated for less than the par value thereof, plus accrued but unpaid interest at the time thereof.
Money in any Fund constituting a part of the Trust Estate may be pooled for the purpose of making investments and may be used to pay accrued interest on Investment Securities purchased. The Trustee and its affiliates may act as principal or agent in the acquisition or disposition of any Investment Securities.
52
Notwithstanding the foregoing, the Trustee shall not be responsible or liable for any losses on investments made by it hereunder or for keeping all Funds held by it, fully invested at all times, its only responsibility being to comply with the investment instructions of the Issuer or its designee in a non-negligent manner.
The Issuer acknowledges that to the extent the regulations of the Comptroller of the Currency or other applicable regulatory agency grant the Issuer the right to receive brokerage confirmations of security transactions, the Issuer waives receipt of such confirmations.
Section 5.07. Release.
(a) The Trustee shall, upon Issuer Order and subject to the provisions of this Indenture, take all actions reasonably necessary to effect the release of any Financed Eligible Loans from the lien of this Indenture to the extent the terms hereof permit the sale, disposition or transfer of such Financed Eligible Loans.
(b) Subject to the payment of its fees and expenses pursuant to Sections 7.05 and 7.07 hereof, the Trustee may, and when required by the provisions of this Indenture shall, execute instruments to release property from the lien of this Indenture, or convey the Trustee's interest in the same, in a manner and under circumstances that are not inconsistent with the provisions of this Indenture. No party relying upon an instrument executed by the Trustee as provided in this Article shall be bound to ascertain the Trustee's authority, inquire into the satisfaction of any conditions precedent or see to the application of any moneys.
(c) The Trustee shall, at such time as there are no Notes Outstanding and all sums due the Trustee pursuant to Sections 7.05 and 7.07 hereof and all amounts payable to the Master Servicer, each Subservicer, the Administrator, the Delaware Trustee and the Counterparties have been paid, release any remaining portion of the Trust Estate that secured the Notes from the lien of this Indenture and release to the Issuer or any other Person entitled thereto any funds then on deposit in the Funds and Accounts. The Trustee shall release property from the lien of this Indenture pursuant to this subsection (c) only upon receipt of an Issuer Order, an Opinion of Counsel and (if required by the Trust Indenture Act) Independent Certificates in accordance with Sections 314(c) and 314(d)(1) of the Trust Indenture Act.
(d) Subject to the provisions of this Indenture, the Trustee shall release property from the lien of this Indenture only upon receipt of an Issuer Order, an Opinion of Counsel and Independent Certificates in accordance with Sections 314(c) and 314(d)(1) of the Trust Indenture Act or an Opinion of Counsel in lieu of such Independent Certificates to the effect that the Trust Indenture Act does not require any such Independent Certificates.
(e) Each Registered Owner, by the acceptance of a Note, acknowledges that from time to time the Trustee shall release the lien of this Indenture on any Financed Eligible Loan to be sold to (i) the Seller in accordance with the Student Loan Purchase Agreement; (ii) the Master Servicer or a Subservicer in accordance with the Master Servicing Agreement or the applicable Subservicing Agreement; and (iii) another eligible lender holding one or more serial loans with respect to such Financed Eligible Loan, in accordance with the Master Servicing Agreement or the applicable Subservicing Agreement, and each Registered Owner, by the acceptance of a Note, consents to any such release.
53
ARTICLE VI
DEFAULTS AND REMEDIES
Section 6.01. Events of Default Defined. For the purpose of this Indenture, the following events are hereby defined as, and are declared to be, "Events of Default":
(a) default in the due and punctual payment of any interest on any Note when the same becomes due and payable, and such default shall continue for a period of five (5) days; provided, however, that a default in the due and punctual payment of any interest on any Class B Note shall not be an Event of Default if any Class A Notes are Outstanding;
(b) default in the due and punctual payment of the principal of any Note when the same becomes due and payable on the related Note Final Maturity Date; provided, however, that a default in the due and punctual payment of principal on any Class B Note shall not be an Event of Default if any Class A Notes are Outstanding;
(c) default in the performance or observance of any other of the covenants, agreements or conditions on the part of the Issuer to be kept, observed and performed contained in this Indenture or in the Notes, and continuation of such default for a period of 90 days after written notice thereof by the Trustee to the Issuer; and
(d) the occurrence of an Event of Bankruptcy.
Any notice herein provided to be given to the Issuer with respect to any default shall be deemed sufficiently given if sent by registered mail with postage prepaid to the Person to be notified, addressed to such Person at the post office address as shown in Section 9.01 hereof or such other address as may hereafter be given as the principal office of the Issuer in writing to the Trustee by an Authorized Representative of the Issuer. The Trustee may give any such notice in its discretion and shall give such notice if requested to do so in writing by the Registered Owners of at least 51% of the collective aggregate principal amount of the Highest Priority Obligations at the time Outstanding.
Section 6.02. Remedy on Default; Possession of Trust Estate. Subject to Sections 6.08, 7.05 and 7.07 hereof, upon the happening and continuance of any Event of Default, the Trustee or by its attorneys or agents may enter into and upon and take possession of such portion of the Trust Estate as shall be in the custody of others, and all property comprising the Trust Estate, and each and every part thereof, and exclude the Issuer and its agents, servants and employees wholly therefrom, and have, hold, use, operate, manage, and control the same and each and every part thereof, and in the name of the Issuer or otherwise, as they shall deem best, conduct the business thereof and exercise the privileges pertaining thereto and all the rights and powers of the Issuer and use all of the then existing Trust Estate for that purpose, and collect and receive all charges, income and Available Funds of the same and of every part thereof, and after deducting therefrom all expenses incurred hereunder and all other proper outlays herein authorized, and all payments which may be made as just and reasonable compensation for its own services, and for the services of its attorneys, agents, and assistants, the Trustee shall apply the rest and residue of the money received by the Trustee as follows:
54
FIRST, to the Trustee and the Delaware Trustee, any Trustee Fee and any Delaware Trustee Fee, respectively due and owing;
SECOND, to the Master Servicer, any Servicing Fees, due and remaining unpaid;
THIRD, pro rata, to (i) the Counterparties, pro rata, without preference or priority of any kind, in proportion to their respective entitlements under the applicable Derivative Products (excluding all Termination Payments other than Priority Termination Payments) and (ii) to the Class A Noteholders of each class for amounts due and unpaid on each such class of Class A Notes for interest, pro rata, without preference or priority of any kind, according to the amounts due and payable on each such class of Class A Notes for such interest;
FOURTH, to Class A Noteholders for amounts due and unpaid on the Class A Notes for principal, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal;
FIFTH, to the Class B Noteholders for amounts due and unpaid on the Class B Notes for interest, pro rata without preference or priority of any kind, according to the amounts due and payable on the Notes for such interest;
SIXTH, to the Class B Noteholders for amounts due and unpaid on the Class B Notes for principal, pro rata without preference or priority of any kind, according to the amounts due and payable on the Class B Notes for principal;
SEVENTH, to the Counterparties, in proportion to the respective entitlements under the applicable Derivative Product Agreement without preference or priority of any kind, for any Termination Payments due and any other unpaid Issuer Derivative Payments;
EIGHTH, to the Master Servicer, for any unpaid Carryover Servicing Fees; and
NINTH, to the Issuer, for distribution in accordance with the terms of the Administration Agreement and the Trust Agreement.
The Trustee may fix a record date and payment date for any payment to Registered Owners pursuant to this Section. At least 15 days before such record date, the Trustee shall mail to each Registered Owner and the Issuer a notice that states the record date, the payment date and the amount to be paid.
55
Section 6.03. Remedies on Default; Advice of Counsel. Upon the happening of any Event of Default, the Trustee may proceed to protect and enforce the rights of the Trustee and the Registered Owners in such manner as counsel for the Trustee may advise, whether for the specific performance of any covenant, condition, agreement or undertaking herein contained, or in aid of the execution of any power herein granted, or for the enforcement of such other appropriate legal or equitable remedies as, in the opinion of such counsel, may be more effectual to protect and enforce the rights aforesaid.
Section 6.04. Remedies on Default; Sale of Trust Estate. Upon the happening of any Event of Default and if the principal of all of the Outstanding Obligations shall have been declared due and payable, then and in every such case, and irrespective of whether other remedies authorized shall have been pursued in whole or in part, the Trustee may sell, with or without entry, to the highest bidder the Trust Estate, and all right, title, interest, claim and demand thereto and the right of redemption thereof, at any such place or places, and at such time or times and upon such notice and terms as may be required by law. Upon such sale the Trustee may make and deliver to the purchaser or purchasers a good and sufficient assignment or conveyance for the same, which sale shall be a perpetual bar both at law and in equity against the Issuer and all Persons claiming such properties. No purchaser at any sale shall be bound to see to the application of the purchase money or to inquire as to the authorization, necessity, expediency or regularity of any such sale. The Trustee is hereby irrevocably appointed the true and lawful attorney-in-fact of the Issuer, in its name and stead, to make and execute all bills of sale, instruments of assignment and transfer and such other documents of transfer as may be necessary or advisable in connection with a sale of all or part of the Trust Estate, but the Issuer, if so requested by the Trustee, shall ratify and confirm any sale or sales by executing and delivering to the Trustee or to such purchaser or purchasers all such instruments as may be necessary, or in the judgment of the Trustee, proper for the purpose which may be designated in such request. In addition, the Trustee may proceed to protect and enforce the rights of the Trustee and the Registered Owners of the Obligations in such manner as counsel for the Trustee may advise, whether for the specific performance of any covenant, condition, agreement or undertaking herein contained, or in aid of the execution of any power herein granted, or for the enforcement of such other appropriate legal or equitable remedies as may in the opinion of such counsel, be more effectual to protect and enforce the rights aforesaid. The Indenture Trustee shall take any such action or actions if requested to do so in writing by the Registered Owners of at least a majority of the principal amount of the Highest Priority Obligations at the time Outstanding.
Notwithstanding the foregoing, the Indenture Trustee is prohibited from selling the Financed Eligible Loans following an Event of Default, other than a default in the payment of any principal or interest on any Note, unless:
(a) The Registered Owners of all of the Highest Priority Obligations at the time Outstanding consent to such a sale;
(b) The proceeds of such a sale will be sufficient to discharge all the Outstanding Obligations pursuant to Article X hereof at the date of such a sale; or
56
(c) The Issuer, or the Administrator on behalf of the Issuer, determines that the collections on the Financed Eligible Loans would not be sufficient on an ongoing basis to make all payments on such Obligations as such payments would have become due if such Obligations had not been declared due and payable, and the Indenture Trustee obtains the consent of the Registered Owners of at least 66-2/3% of the aggregate principal amount of the Highest Priority Obligations at the time Outstanding.
Such a sale shall also require the consent of all the Registered Owners of the Class B Notes unless the proceeds of such a sale would be sufficient to discharge the Class B Notes pursuant to Article X hereof at the date of such a sale.
Section 6.05. Appointment of Receiver. In case an Event of Default occurs, and if all of the Outstanding Obligations shall have been declared due and payable and in case any judicial proceedings are commenced to enforce any right of the Trustee or of the Registered Owners under this Indenture or otherwise, then as a matter of right, the Trustee shall be entitled to the appointment of a receiver of the Trust Estate and of the earnings, income or revenue, rents, issues and profits thereof with such powers as the court making such appointments may confer.
Section 6.06. Restoration of Position. In case the Trustee shall have proceeded to enforce any rights under this Indenture by sale or otherwise, and such proceedings shall have been discontinued, or shall have been determined adversely to the Trustee, then and in every such case to the extent not inconsistent with such adverse decree, the Issuer, the Trustee and the Registered Owners shall be restored to their former respective positions and the rights hereunder in respect to the Trust Estate, and all rights, remedies and powers of the Trustee and of the Registered Owners shall continue as though no such proceeding had been taken.
Section 6.07. Application of Sale Proceeds. The proceeds of any sale of the Trust Estate, together with any funds at the time held by the Trustee and not otherwise appropriated, shall be applied by the Trustee as set forth in
Section 6.02 hereof, and then to the Issuer or whomsoever shall be lawfully entitled thereto.
Section 6.08. Acceleration of Maturity; Rescission and Annulment. If an Event of Default should occur and be continuing, then and in every such case the Trustee or the Registered Owners of Obligations representing not less than a majority of the Outstanding Amount of the Highest Priority Obligations may declare all the Outstanding Obligations to be immediately due and payable, by a notice in writing to the Issuer (and to the Trustee if given by Registered Owners), and upon any such declaration the unpaid principal amount of such Outstanding Obligations, together with accrued and unpaid interest thereon through the date of acceleration, shall become immediately due and payable, subject, however, to Section 6.04 hereof.
At any time after such declaration of acceleration of maturity has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Registered Owners of Obligations representing a majority of the collective aggregate principal amount of the Highest Priority Obligations then Outstanding, by written notice to the Issuer and the Trustee, may rescind and annul such declaration and its consequences if:
57
(a) the Issuer has paid or deposited with the Trustee a sum sufficient to pay:
(i) all payments of principal of and interest on all Obligations and all other amounts that would then be due hereunder or upon such Obligations if the Event of Default giving rise to such acceleration had not occurred; and
(ii) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, the Master Servicer, any Subservicer, the Delaware Trustee and their agents and counsel; and
(b) all Events of Default, other than the nonpayment of the principal of the Obligations that has become due solely by such acceleration, have been cured or waived as provided in Section 6.14 hereof.
No such rescission shall affect any subsequent default or impair any right consequent thereto.
Section 6.09. Remedies Not Exclusive. The remedies herein conferred upon or reserved to the Trustee or the Registered Owners of Obligations are not intended to be exclusive of any other remedy, but each remedy herein provided shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing, and every power and remedy hereby given to the Trustee or to the Registered Owners of Obligations, or any supplement hereto, may be exercised from time to time as often as may be deemed expedient. No delay or omission of the Trustee or of any Registered Owner of Obligations to exercise any power or right arising from any default hereunder shall impair any such right or power or shall be construed to be a waiver of any such default or to be acquiescence therein.
Section 6.10. Collection of Indebtedness and Suits for Enforcement by Trustee. The Issuer covenants that if:
(a) default is made in the payment of any installment of interest, if any, on any Notes when such interest becomes due and payable and such default continues for a period of five (5) days; or
(b) default is made in the payment of the principal of (or premium, if any, on) any Notes at its Note Final Maturity Date,
then the Issuer will, upon demand of the Trustee, pay to the Trustee, for the benefit of the Registered Owners, the whole amount then due and payable on such Notes for principal (and premium, if any) and interest, with interest upon any overdue principal (and premium, if any) and, to the extent that payment of such interest shall be legally enforceable, upon any overdue installments of interest, if any, at the rate or rates borne by or provided for in such Notes, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, fees, expenses, disbursements and advances of the Trustee and its agents and counsel.
58
If the Issuer fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as Trustee of an express trust, may upon receiving indemnification satisfactory to the Trustee institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree, and may enforce the same against the Issuer or any other obligor upon such Notes of such class and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Issuer or any other obligor upon such Notes, wherever situated.
If an Event of Default with respect to Notes occurs and is continuing, the Trustee may, after being indemnified to its satisfaction and in its discretion, proceed to protect and enforce its rights and the rights of the Registered Owners of Notes by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.
Section 6.11. Direction of Trustee. Upon the happening of any Event of Default, the Registered Owners of at least 51% of the collective aggregate principal amount of the Highest Priority Obligations then Outstanding, shall have the right by an instrument or instruments in writing delivered to the Trustee to direct and control the Trustee as to the method of taking any and all proceedings for any sale of any or all of the Trust Estate, or for the appointment of a receiver, if permitted by law, and may at any time cause any proceedings authorized by the terms hereof to be so taken or to be discontinued or delayed; provided, however, that such Registered Owners shall not be entitled to cause the Trustee to take any proceedings which in the Trustee's opinion would be unjustly prejudicial to non-assenting Registered Owners of Obligations, but the Trustee shall be entitled to assume that the action requested by the Registered Owners of at least 51% of the collective aggregate principal amount of the Highest Priority Obligations then Outstanding will not be prejudicial to any non-assenting Registered Owners unless the Registered Owners of more than 50% of the collective aggregate principal amount of the non-assenting Registered Owners of such Obligations, in writing, show the Trustee how they will be prejudiced. Provided, however, that anything in this Indenture to the contrary notwithstanding, the Registered Owners of a majority of the collective aggregate principal amount of the Highest Priority Obligations then Outstanding together with the Registered Owners of a majority of the collective aggregate principal amount of all other Obligations then Outstanding shall have the right, at any time, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of this Indenture, or for the appointment of a receiver or any other proceedings hereunder, provided that such direction shall not be otherwise than in accordance with the provisions of law and of this Indenture. The provisions of this Section shall be expressly subject to the provisions of Sections 7.01(c), 7.05 and 7.07 hereof.
Section 6.12. Right to Enforce in Trustee. No Registered Owner of any Obligation shall have any right as such Registered Owner to institute any suit, action or proceedings for the enforcement of the provisions of this Indenture or for the execution of any trust hereunder or for the appointment of a receiver or for any other remedy hereunder, all rights of action hereunder being vested exclusively in the Trustee, unless and until such Registered Owner shall have previously given to the Trustee written notice of a default hereunder, and of
59
the continuance thereof, and also unless the Registered Owners of the requisite principal amount of the Obligations then Outstanding shall have made written request upon the Trustee and the Trustee shall have been afforded reasonable opportunity to institute such action, suit or proceeding in its own name, and unless the Trustee shall have been offered indemnity and security satisfactory to it against the costs, expenses and liabilities to be incurred therein or thereby, which offer of indemnity shall be an express condition precedent hereunder to any obligation of the Trustee to take any such action hereunder, and the Trustee for 30 days after receipt of such notification, request and offer of indemnity, shall have failed to institute any such action, suit or proceeding. It is understood and intended that no one or more Registered Owners of the Obligations shall have the right in any manner whatever by his or their action to affect, disturb or prejudice the lien of this Indenture or to enforce any right hereunder except in the manner herein provided and for the equal benefit of the Registered Owners of not less than a majority of the collective aggregate principal amount of the Obligations then Outstanding.
Section 6.13. Physical Possession of Obligations Not Required. In any suit or action by the Trustee arising under this Indenture or on all or any of the Obligations issued hereunder, or any supplement hereto, the Trustee shall not be required to produce such Obligations, but shall be entitled in all things to maintain such suit or action without their production.
Section 6.14. Waivers of Events of Default. The Trustee may in its discretion waive any Event of Default hereunder and its consequences and rescind any declaration of acceleration of Obligations, and shall do so upon the written request of the Registered Owners of at least a majority of the collective aggregate principal amount of the Highest Priority Obligations then Outstanding; provided, however, that there shall not be waived (a) any Event of Default in the payment of the principal of or premium on any Outstanding Obligations at the date of maturity thereof, or any default in the payment when due of the interest on any such Obligations, unless prior to such waiver or rescission, all arrears of interest or all arrears of payments of principal and all expenses of the Trustee, in connection with such default shall have been paid or provided for; or (b) any default in the payment of amounts set forth in Sections 7.05 and 7.07 hereof. In case of any such waiver or rescission, or in case any proceedings taken by the Trustee on account of any such default shall have been discontinued or abandoned or determined adversely to the Trustee, then and in every such case the Issuer, the Trustee and the Registered Owners of Obligations shall be restored to their former positions and rights hereunder respectively, but no such waiver or rescission shall extend to or affect any subsequent or other default, or impair any rights or remedies consequent thereon. The Trustee shall give written notice to each Rating Agency of any waiver of an Event of Default pursuant to this Section.
ARTICLE VII
THE TRUSTEE
Section 7.01. Acceptance of Trust. The Trustee hereby accepts the trusts imposed upon it by this Indenture, and agrees to perform said trusts, but only upon and subject to the following terms and conditions:
60
(a) Except during the continuance of an Event of Default,
(i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform as to form with the requirements of this Indenture and whether or not they contain the statements required under this Indenture.
(b) In case an Event of Default has occurred and is continuing, the Trustee, in exercising the rights and powers vested in it by this Indenture, shall use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.
(c) Before taking any action hereunder requested by Registered Owners, the Trustee may require that it be furnished an indemnity bond or other indemnity and security satisfactory to it by the Registered Owners, as applicable, for the reimbursement of all expenses to which it may be put and to protect it against all liability.
Section 7.02. Recitals of Others. The recitals, statements and representations set forth herein and in the Notes shall be taken as the statements of the Issuer, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the title of the Issuer in the Trust Estate or as to the security afforded thereby and hereby, or as to the validity or sufficiency of this Indenture or of the Notes issued hereunder, and the Trustee shall incur no responsibility in respect of such matters.
Section 7.03. As to Filing of Indenture. The Trustee shall be under no duty (a) to file or record, or cause to be filed or recorded, this Indenture or any instrument supplemental hereto, (b) to procure any further order or additional instruments of further assurance, (c) to see to the delivery to it of any personal property intended to be mortgaged or pledged hereunder or thereunder, (d) to do any act which may be suitable to be done for the better maintenance of the lien or security hereof (other than the filing of any continuation (but not initial) statements), or (e) to give notice of the existence of such lien, or for extending or supplementing the same or to see that any rights to the Trust Estate and Funds intended now or hereafter to be transferred in trust hereunder are subject to the lien hereof. The Trustee shall not be liable for failure of the Issuer to pay any tax or taxes in respect of such property, or any part thereof, or the income therefrom or otherwise, nor shall the Trustee be under any duty in respect of any tax which may be assessed against it or the Registered Owners in respect of such property or pledged to the Trust Estate. The Trustee agrees to prepare, request that the Issuer execute (if such execution is necessary for any such filing) and file in a timely manner (if received from the Issuer in a timely manner) with any necessary execution by the Issuer, the continuation statements referred to herein; provided, that the
61
Trustee shall have no responsibility for the sufficiency, adequacy or priority of any initial filing and in the absence of written notice to the contrary by the Issuer or other Authorized Representative, may rely and shall be protected in relying on all information and exhibits in such initial filings for the purposes of any continuation statements.
Section 7.04. Trustee May Act Through Agents. The Trustee may execute any of the trusts or powers hereof and perform any duty hereunder, either itself or by or through its attorneys, agents or employees, and it shall not be answerable or accountable for any default, neglect or misconduct of any such attorneys, agents or employees, if reasonable care has been exercised in the appointment, supervision and monitoring of the work performed. All reasonable costs incurred by the Trustee and all reasonable compensation to all such persons as may reasonably be employed in connection with the trusts hereof shall be paid by the Issuer.
Section 7.05. Indemnification of Trustee. Other than with respect to its duties to make payment on the Obligations when due, and its duty to pursue the remedy of acceleration as provided in Sections 6.02 and 6.08 hereof, for each of which no additional security or indemnity may be required, the Trustee shall be under no obligation or duty to perform any act at the request of Registered Owners or to institute or defend any suit in respect thereof unless properly indemnified and provided with security to its satisfaction as provided in
Section 7.01(c) hereof. The Trustee shall not be required to take notice, or be deemed to have knowledge, of any default or Event of Default of the Issuer hereunder and may conclusively assume that there has been no such default or Event of Default (other than an Event of Default described in Section 6.01(a) or
(b) hereof) unless and until it shall have been specifically notified in writing at the address in Section 9.01 hereof of such default or Event of Default by (a) the Registered Owners of the required percentages in principal amount of the Obligations then Outstanding hereinabove specified or (b) an Authorized Representative of the Issuer. However, the Trustee may begin suit, or appear in and defend suit, execute any of the trusts hereby created, enforce any of its rights or powers hereunder, or do anything else in its judgment proper to be done by it as Trustee, without assurance of reimbursement or indemnity, and in such case the Trustee shall be reimbursed or indemnified by the Registered Owners requesting such action, if any, or the Issuer in all other cases, for all fees, costs and expenses, liabilities, outlays and counsel fees and other reasonable disbursements properly incurred in connection therewith, unless such costs and expenses, liabilities, outlays and attorneys' fees and other reasonable disbursements properly incurred in connection therewith are adjudicated to have resulted from the negligence or willful misconduct of the Trustee. In furtherance and not in limitation of this Section, the Trustee shall not be liable for, and shall be held harmless by the Issuer from, following any Issuer Orders, instructions or other directions upon which the Trustee is authorized to rely pursuant to this Indenture or any other agreement to which it is a party. If the Issuer or the Registered Owners, as appropriate, shall fail to make such reimbursement or indemnification, the Trustee may reimburse itself from any money in its possession under the provisions of this Indenture, subject only to the prior lien of the Notes for the payment of the principal thereof, premium, if any, and interest thereon from the Collection Fund. None of the provisions contained in this Indenture or any other agreement to which it is a party shall require the Trustee to act or to expend or risk its own funds or otherwise incur individual financial liability in the performance of any of its duties or in the exercise of any of its rights or powers if the Registered Owners shall not have offered security and indemnity acceptable to it or if it shall have reasonable grounds for believing that prompt repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
62
The Issuer agrees to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expenses incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder arising from the Trust Estate. The Issuer agrees to indemnify and hold harmless the Trustee against any and all claims, demands, suits, actions or other proceedings and all liabilities, costs and expenses whatsoever caused by any untrue statement or misleading statement or alleged untrue statement or alleged misleading statement of a material fact contained in any offering document distributed in connection with the issuance of the Notes or caused by any omission or alleged omission from such offering document of any material fact required to be stated therein or necessary in order to make the statements made therein in the light of the circumstances under which they were made, not misleading.
Section 7.06. Trustee's Right to Reliance. The Trustee shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, appraisal, opinion, report or document of the Issuer, the Master Servicer or a Subservicer or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with experts and with counsel (who may but need not be counsel for the Issuer, the Trustee, or for a Registered Owner), and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered, and in respect of any determination made by it hereunder in good faith and in accordance with the opinion of such counsel.
Whenever in the administration hereof the Trustee shall reasonably deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon a certificate signed by an Authorized Representative of the Issuer or an authorized officer of the Administrator, the Master Servicer or a Subservicer.
The Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it hereby; provided, however, that the Trustee shall be liable for its negligence or willful misconduct in taking such action.
The Trustee is authorized to enter into agreements with other Persons, in its capacity as Trustee, in order to carry out or implement the terms and provisions of this Indenture. The Trustee shall not be liable with respect to any action taken, suffered or omitted to be taken in good faith in accordance with this Indenture or any other transaction document or at the direction of the Registered Owners evidencing the appropriate percentage of the aggregate principal amount of the Outstanding Notes relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture or any other transaction document.
63
Section 7.07. Compensation of Trustee. Except as otherwise expressly provided herein, all advances, counsel fees (including without limitation allocated fees of in-house counsel) and other expenses reasonably made or incurred by the Trustee in and about the execution and administration of the trust hereby created and reasonable compensation to the Trustee for its services in the premises shall be paid by the Issuer. The compensation of the Trustee shall not be limited to or by any provision of law in regard to the compensation of trustees of an express trust. The Trustee shall not change the Trustee Fee without giving the Issuer and each Rating Agency at least 90 days' written notice prior to the beginning of a Fiscal Year. If not paid by the Issuer, the Trustee shall have a lien against all money held pursuant to this Indenture, subject only to the prior lien of the Obligations against the money and investments in the Collection Fund for the payment of the principal thereof, premium, if any, and interest thereon, for such reasonable compensation, expenses, advances and counsel fees incurred in and about the execution of the trusts hereby created and the exercise and performance of the powers and duties of the Trustee hereunder and the cost and expense incurred in defending against any liability in the premises of any character whatsoever (unless such liability is adjudicated to have resulted from the negligence or willful misconduct of the Trustee).
Section 7.08. Creditor Relationships. The Trustee shall comply with
Section 311(a) of the Trust Indenture Act, excluding any creditor relationship listed in Section 311(b) of the Trust Indenture Act. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the Trust Indenture Act to the extent indicated therein. The Trustee may act as depository for, and permit any of its officers or directors to act as a member of, or act in any other capacity in respect to, any committee formed to protect the rights of the Registered Owners or to effect or aid in any reorganization growing out of the enforcement of the Notes or of this Indenture, whether or not any such committee shall represent the Registered Owners of more than 60% of the collective aggregate principal amount of the Outstanding Obligations.
Section 7.09. Resignation of Trustee. The Trustee and any successor to the Trustee may resign and be discharged from the trust created by this Indenture by giving to the Issuer notice in writing which notice shall specify the date on which such resignation is to take effect; provided, however, that such resignation shall only take effect on the day specified in such notice if a successor Trustee shall have been appointed pursuant to Section 7.11 hereof (and is qualified to be the Trustee under the requirements of Section 7.11 hereof). If no successor Trustee has been appointed by the date specified or within a period of 90 days from the receipt of the notice by the Issuer, whichever period is the longer, the Trustee may (a) appoint a temporary successor Trustee having the qualifications provided in Section 7.11 hereof or (b) request a court of competent jurisdiction to (i) require the Issuer to appoint a successor, as provided in Section 7.11 hereof, within three days of the receipt of citation or notice by the court, or (ii) appoint a Trustee having the qualifications provided in Section 7.11 hereof. In no event may the resignation of the Trustee be effective until a qualified successor Trustee shall have been selected and appointed. In the event a temporary successor Trustee is appointed pursuant to clause (a) above, the Issuer may remove such temporary successor Trustee and appoint a successor thereto pursuant to Section 7.11 hereof.
Section 7.10. Removal of Trustee. The Trustee or any successor Trustee may be removed (a) at any time by the Registered Owners of a majority of the collective aggregate principal amount of the Highest Priority Obligations then Outstanding, (b) by the Issuer for cause or upon the sale or other disposition
64
of the Trustee or its corporate trust functions or (c) by the Issuer without cause so long as no Event of Default exists or has existed within the last 30 days, upon payment to the Trustee so removed of all money then due to it hereunder and appointment of a successor thereto by the Issuer and acceptance thereof by said successor. One copy of any such order of removal shall be filed with the Delaware Trustee and the other with the Trustee so removed.
In the event a Trustee (or successor Trustee) is removed, by any person or for any reason permitted hereunder, such removal shall not become effective until (a) in the case of removal by the Registered Owners, such Registered Owners by instrument or concurrent instruments in writing (signed and acknowledged by such Registered Owners or their attorneys-in-fact) filed with the Trustee removed have appointed a successor Trustee or otherwise the Issuer shall have appointed a successor, and (b) the successor Trustee has accepted appointment as such.
Section 7.11. Successor Trustee. In case at any time the Trustee or any successor Trustee shall resign, be dissolved, or otherwise shall be disqualified to act or be incapable of acting, or in case control of the Trustee or of any successor Trustee or of its officers shall be taken over by any public officer or officers, a successor Trustee may be appointed by the Issuer by an instrument in writing duly authorized by the Issuer. In the case of any such appointment by the Issuer of a successor to the Trustee, the Issuer shall forthwith cause notice thereof to be mailed to the Registered Owners of the Notes at the address of each Registered Owner appearing on the note registration books maintained by the Trustee, as registrar.
Every successor Trustee appointed by the Registered Owners, by a court of competent jurisdiction, or by the Issuer shall be a bank or trust company in good standing, organized and doing business under the laws of the United States or of a state therein, which has a reported capital and surplus of not less than $50,000,000, be authorized under the law to exercise corporate trust powers, be subject to supervision or examination by a federal or state authority, and be an Eligible Lender so long as such designation is necessary to maintain guarantees and federal benefits under the Higher Education Act with respect to the Financed Eligible Loans originated under the Higher Education Act.
Section 7.12. Manner of Vesting Title in Trustee. Any successor Trustee appointed hereunder shall execute, acknowledge and deliver to its predecessor Trustee, and also to the Issuer, an instrument accepting such appointment hereunder, and thereupon such successor Trustee, without any further act, deed or conveyance shall become fully vested with all the estate, properties, rights, powers, trusts, duties and obligations of its predecessors in trust hereunder (except that the predecessor Trustee shall continue to have the benefits to indemnification hereunder together with the successor Trustee), with like effect as if originally named as Trustee herein; but the Trustee ceasing to act shall nevertheless, on the written request of an Authorized Representative of the Issuer, or an authorized officer of the successor Trustee, execute, acknowledge and deliver such instruments of conveyance and further assurance and do such other things as may reasonably be required for more fully and certainly vesting and confirming in such successor Trustee all the right, title and interest of the Trustee which it succeeds, in and to the Trust Estate and such rights, powers, trusts, duties and obligations, and the Trustee ceasing to act also, upon like request, pay over, assign and deliver to the successor Trustee any money or other property or rights subject to the lien of this Indenture, including any pledged securities which may then be in its possession. Should any deed or instrument in writing from the Issuer be required by the successor
65
Trustee for more fully and certainly vesting in and confirming to such new Trustee such estate, properties, rights, powers and duties, any and all such deeds and instruments in writing shall on request be executed, acknowledged and delivered by the Issuer.
In case any of the Notes to be issued hereunder shall have been authenticated but not delivered, any successor Trustee may adopt the certificate of authentication of the Trustee or of any successor to the Trustee; and in case any of the Notes shall not have been authenticated, any successor to the Trustee may authenticate such Notes in its own name; and in all such cases such certificate shall have the full force which it has anywhere in the Notes or in this Indenture.
Section 7.13. Additional Covenants by the Trustee to Conform to the Higher Education Act. The Trustee covenants that it will at all times be an Eligible Lender under the Higher Education Act so long as such designation is necessary, as determined by the Issuer, to maintain the guarantees and federal benefits under the Higher Education Act with respect to the Financed Eligible Loans, that it will acquire Eligible Loans originated under the Higher Education Act in its capacity as an Eligible Lender and that it will not knowingly dispose of or deliver any Financed Eligible Loans originated under the Higher Education Act or any security interest in any such Financed Eligible Loans to any party who is not an Eligible Lender so long as the Higher Education Act or Regulations adopted thereunder require an Eligible Lender to be the owner or holder of such Financed Eligible Loans; provided, however, that nothing above shall prevent the Trustee from delivering the Eligible Loans to the Master Servicer, a Subservicer or a Guaranty Agency.
Section 7.14. Right of Inspection. A Registered Owner shall be permitted at reasonable times during regular business hours and in accordance with reasonable regulations prescribed by the Trustee to examine at the principal office of the Trustee a copy of any report or instrument theretofore filed with the Trustee relating to the condition of the Trust Estate.
Section 7.15. Limitation with Respect to Examination of Reports. Except as provided in this Indenture, the Trustee shall be under no duty to examine any report or statement or other document required or permitted to be filed with it by the Issuer.
Section 7.16. Servicing Agreements. The Trustee acknowledges the receipt of copies of the Master Servicing Agreement and Subservicing Agreements described in Section 4.04 hereof.
Section 7.17. Additional Covenants of Trustee. The Trustee, by the execution hereof, covenants, represents and agrees that:
(a) it will not exercise any of the rights, duties or privileges under this Indenture in such manner as would cause the Eligible Loans held or acquired under the terms hereof to be transferred, assigned or pledged as security to any person or entity other than as permitted by this Indenture; and
(b) it will comply with the Higher Education Act and the Regulations and will, upon written notice from an Authorized Representative of the Issuer, the Secretary or the Guaranty Agency, use its reasonable efforts to cause this Indenture to be amended (in accordance with Section 8.01 hereof) if the Higher Education Act or Regulations are hereafter amended so as to be contrary to the terms of this Indenture.
66
Section 7.18. Notices to Rating Agencies. It shall be the duty of the Issuer to notify each Rating Agency then rating any of the Notes of (a) any amendment, change, expiration, extension or renewal of this Indenture, (b) prepayment or defeasance of all the Notes, (c) any change in the Trustee or (d) any other information reasonably required to be reported to each Rating Agency under any Supplemental Indenture; provided, however, the provisions of this
Section do not apply when such documents have been previously supplied to such Rating Agency and the Trustee has received written evidence to such effect, all as may be required by this Indenture. All notices required to be forwarded to the Rating Agencies under this Section shall be sent in writing at the following addresses:
Via electronic delivery to Servicer_reports@sandp.com For any information not available in electronic format:
Standard & Poor's Ratings Services a Division of the McGraw-Hill Companies, Inc. 55 Water Street, 41st Floor
New York, New York 10041-0003
Attention: ABS Surveillance Group
Fitch, Inc.
One State Street Plaza
New York, New York 10004
Attention: ABS Surveillance
Moody's Investors Service
99 Church Street
New York, New York 10007
Attention: ABS Monitoring Group
The Trustee also acknowledges that each Rating Agency's periodic review for maintenance of a Rating on any class of the Notes may involve discussions and/or meetings with representatives of the Trustee at mutually agreeable times and places.
Section 7.19. Merger of the Trustee. Any corporation into which the Trustee may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Indenture, without the execution or filing of any paper of any further act on the part of any other parties hereto.
Section 7.20. Receipt of Funds from Master Servicer or a Subservicer. The Trustee shall not be accountable or responsible in any manner whatsoever for any action of the Issuer, the Administrator, the depository bank of any funds of
67
the Issuer, or the Master Servicer or a Subservicer while such Master Servicer or Subservicer is acting as bailee or agent of the Trustee with respect to the Eligible Loans for actions taken in compliance with any instruction or direction given to the Trustee, or for the application of funds or moneys by the Master Servicer or a Subservicer until such time as funds are received by the Trustee.
Section 7.21. Special Circumstances Leading to Resignation of Trustee. Because the Trustee serves as trustee hereunder for Obligations of different priorities, it is possible that circumstances may arise which will cause the Trustee to resign from its position as trustee for one or more of the Obligations. In the event that the Trustee makes a determination that it should so resign, due to the occurrence of an Event of Default or potential default hereunder, or otherwise, the Issuer may permit such resignation as to one or more of the Obligations or request the Trustee's resignation as to all Obligations, as the Issuer may elect. If the Issuer should determine that a conflict of interest has arisen as to the trusteeship of any of the Obligations, it may authorize and execute a Supplemental Indenture with one or more successor Trustees, under which the administration of certain of the Obligations would be separated from the administration of the other Obligations.
Section 7.22. Survival of Trustee's Rights to Receive Compensation, Reimbursement and Indemnification. The Trustee's rights to receive compensation, reimbursement and indemnification of money due and owing hereunder at the time of the Trustee's resignation or removal shall survive the Trustee's resignation or removal.
Section 7.23. Corporate Trustee Required; Eligibility; Conflicting Interests. There shall at all times be a Trustee hereunder which shall be eligible to act as Trustee under Section 310(a)(1) of the Trust Indenture Act and shall have a combined capital and surplus of at least $50,000,000. If such corporation publishes reports of condition at least annually, pursuant to law or the requirements of federal, state, territorial or District of Columbia supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. Neither the Issuer nor any Person directly or indirectly controlling or controlled by, or under common control with, the Issuer shall serve as Trustee.
Section 7.24. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Issuer or any other obligor upon the Notes or the property of the Issuer or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Notes of any class shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Issuer for the payment of overdue principal, premium, if any, or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount, or such lesser amount as may be provided for in the Notes, of principal (and premium, if any) and interest, if any, owing and unpaid in respect of the Notes and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable fees, compensation, expenses, disbursements and advances of the Trustee and its agents and counsel) and of the Registered Owners allowed in such judicial proceeding; and
68
(b) to collect and receive any money or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Registered Owner of Notes to make such payments to the Trustee, and if the Trustee shall consent to the making of such payments directly to the Registered Owners, to pay to the Trustee any amount due to it for the reasonable fees, compensation, expenses, disbursements and advances of the Trustee and any predecessor Trustee, their agents and counsel, and any other amounts due the Trustee or any predecessor Trustee.
Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Registered Owner of a Note any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Registered Owner thereof, or to authorize the Trustee to vote in respect of the claim of any Registered Owner of a Note in any such proceeding.
In any proceedings brought by the Trustee (and also any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party), the Trustee shall be held to represent all the Registered Owners of the Notes, and it shall not be necessary to make any Registered Owners of the Notes parties to any such proceedings.
Section 7.25. No Petition. The Trustee will not at any time institute against the Issuer any bankruptcy proceeding under any United States federal or State bankruptcy or similar law in connection with any obligations of the Issuer under this Indenture.
ARTICLE VIII
SUPPLEMENTAL INDENTURES
Section 8.01. Supplemental Indentures Not Requiring Consent of Registered Owners. The Issuer and the Trustee may, without the consent of or notice to any of the Registered Owners of any Obligations enter into any indenture or indentures supplemental to this Indenture for any one or more of the following purposes:
(a) to cure any ambiguity or formal defect or omission in this Indenture;
(b) to grant to or confer upon the Trustee for the benefit of the Registered Owners any additional benefits, rights, remedies, powers or authorities that may lawfully be granted to or conferred upon the Registered Owners or the Trustee;
(c) to subject to this Indenture additional revenues, properties or collateral;
69
(d) to modify, amend or supplement this Indenture or any indenture supplemental hereto in such manner as to permit the qualification hereof and thereof under the Trust Indenture Act of 1939 or any similar federal statute hereafter in effect or to permit the qualification of the Notes for sale under the securities laws of the United States of America or of any of the states of the United States of America, and, if they so determine, to add to this Indenture or any indenture supplemental hereto such other terms, conditions and provisions as may be permitted by said Trust Indenture Act of 1939 or similar federal statute;
(e) to evidence the appointment of a separate or co-Trustee or a co-registrar or transfer agent or the succession of a new Trustee hereunder, or any additional or substitute Guaranty Agency, the Master Servicer or a Subservicer;
(f) to add such provisions to or to amend such provisions of this Indenture as may be necessary or desirable to assure implementation of the Program in conformance with the Higher Education Act if along with such Supplemental Indenture there is filed an opinion of counsel to the effect that the addition or amendment of such provisions will in no way impair the existing security of the Registered Owners of any Outstanding Obligations;
(g) to make any change as shall be necessary in order to obtain and maintain for any of the Notes an investment grade Rating from a nationally recognized rating service, which changes, in the opinion of the Trustee are not to the prejudice of the Registered Owner of any of the Obligations;
(h) to make any changes necessary to comply with the Higher Education Act, the Regulations or the Code and the regulations promulgated thereunder;
(i) to make the terms and provisions of this Indenture, including the lien and security interest granted herein, applicable to a Derivative Product, and to modify this Indenture with respect to any particular Derivative Product;
(j) to create any additional Funds or Accounts or Subaccounts under this Indenture deemed by the Trustee to be necessary or desirable;
(k) to make any other change with a Rating Confirmation; or
(l) to make any other change which, in the judgment of the Trustee is not to the material prejudice of the Registered Owners of any Obligations;
provided, however, that nothing in this Section shall permit, or be construed as permitting, any modification of the trusts, powers, rights, duties, remedies, immunities and privileges of the Trustee without the prior written approval of the Trustee, which approval shall be evidenced by execution of a Supplemental Indenture.
Section 8.02. Supplemental Indentures Requiring Consent of Registered Owners. Exclusive of Supplemental Indentures covered by Section 8.01 hereof and subject to the terms and provisions contained in this Section, and not
70
otherwise, the Registered Owners of not less than a majority of the collective aggregate principal amount of the Obligations then Outstanding shall have the right, from time to time, to consent to and approve the execution by the Issuer and the Trustee of such other indenture or indentures supplemental hereto as shall be deemed necessary and desirable by the Trustee for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in this Indenture or in any Supplemental Indenture; provided, however, that nothing in this Section shall permit, or be construed as permitting (a) without the consent of the Registered Owners of all then Outstanding Obligations, (i) an extension of the maturity date of the principal of or the interest on any Obligation, or (ii) a reduction in the principal amount of any Obligation or the rate of interest thereon, or (iii) a privilege or priority of any Obligation or Obligations over any other Obligation or Obligations except as otherwise provided herein, or (iv) a reduction in the aggregate principal amount of the Obligations required for consent to such Supplemental Indenture, or (v) the creation of any lien other than a lien ratably securing all of the Obligations at any time Outstanding hereunder except as otherwise provided herein; or (b) any modification of the trusts, powers, rights, obligations, duties, remedies, immunities and privileges of the Trustee without the prior written approval of the Trustee.
If at any time the Issuer shall request the Trustee to enter into any such Supplemental Indenture for any of the purposes of this Section, the Trustee shall, upon being satisfactorily indemnified with respect to expenses, cause notice of the proposed execution of such Supplemental Indenture to be mailed by registered or certified mail to each Registered Owner of an Obligation at the address shown on the registration books or listed in any Derivative Product. Such notice (which shall be prepared by the Issuer) shall briefly set forth the nature of the proposed Supplemental Indenture and shall state that copies thereof are on file at the principal corporate trust office of the Trustee for inspection by all Registered Owners. If, within 60 days, or such longer period as shall be prescribed by the Issuer, following the mailing of such notice, the Registered Owners of not less than a majority of the collective aggregate principal amount of the Obligations Outstanding at the time of the execution of any such Supplemental Indenture shall have consented in writing to and approved the execution thereof as herein provided, no Registered Owner of any Obligation shall have any right to object to any of the terms and provisions contained therein, or the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the Trustee or the Issuer from executing the same or from taking any action pursuant to the provisions thereof. Upon the execution of any such Supplemental Indenture as in this Section permitted and provided, this Indenture shall be and be deemed to be modified and amended in accordance therewith.
Section 8.03. Additional Limitation on Modification of Indenture. None of the provisions of this Indenture (including Sections 8.01 and 8.02 hereof) shall permit an amendment to the provisions of the Indenture which permits the transfer of all or part of the Financed Eligible Loans originated under the Higher Education Act or granting of a security interest therein to any Person other than an Eligible Lender, the Master Servicer or a Subservicer, unless the Higher Education Act or Regulations are hereafter modified so as to permit the same. The Trustee may request an opinion of counsel to the effect that an amendment or supplement to this Indenture was adopted in conformance with this Indenture.
71
Section 8.04. Notice of Defaults. Within 90 days after the occurrence of any default hereunder with respect to the Notes, the Trustee shall transmit in the manner and to the extent provided in Section 313(c) of the Trust Indenture Act, notice of such default hereunder known to the Trustee, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of (or premium, if any) or interest with respect to any Note, or in the payment of any sinking fund installment with respect to the Notes, the Trustee shall be protected in withholding such notice if and so long as an authorized officer of the Trustee in good faith determines that the withholding of such notice is in the interest of the Registered Owners of the Notes. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to the Notes.
Section 8.05. Conformity with the Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect.
ARTICLE IX
GENERAL PROVISIONS
Section 9.01. Notices. Any notice, request or other instrument required by this Indenture to be signed or executed by the Registered Owners of Obligations may be executed by the execution of any number of concurrent instruments of similar tenor, and may be signed or executed by such Registered Owners of Obligations in person or by agent appointed in writing. As a condition for acting thereunder the Trustee may demand proof of the execution of any such instrument and of the fact that any person claiming to be the owner of any of said Obligations is such owner and may further require the actual deposit of such Obligation or Obligations with the Trustee. The fact and date of the execution of such instrument may be proved by the certificate of any officer in any jurisdiction who by the laws thereof is authorized to take acknowledgments of deeds within such jurisdiction, that the person signing such instrument acknowledged before him the execution thereof, or may be proved by any affidavit of a witness to such execution sworn to before such officer.
The amount of Notes held by any person executing such instrument as a Registered Owner of Notes and the fact, amount and numbers of the Notes held by such person and the date of his holding the same may be proved by a certificate executed by any responsible trust company, bank, banker or other depository in a form approved by the Trustee, showing that at the date therein mentioned such person had on deposit with such depository the Notes described in such certificate; provided, however, that at all times the Trustee may require the actual deposit of such Note or Notes with the Trustee.
All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, telecopy, electronic communication, facsimile or similar writing) at the following addresses, and each address shall constitute each party's respective "Principal Office" for purposes of this Indenture:
72
If intended for the Issuer:
Nelnet Student Loan Trust 2005-1 c/o Wilmington Trust Company, Delaware Trustee Rodney Square North
1100 North Market Street
Wilmington, DE 19890
Attention: Corporate Trust Administration Telephone: (302) 651-1000 Facsimile: (302) 636-4140
With a copy to the Administrator:
National Education Loan Network, Inc.
121 South 13th Street, Suite 201
Lincoln, NE 68505
Attention: Terry J. Heimes Telephone: (402) 458-2303 Facsimile: (402) 458-2399
If intended for the Trustee:
Zions First National Bank 717 Seventeenth Street, Suite 301 Denver, CO 80202
Attention: Corporate Trust Department Telephone: (720) 947-7475 Facsimile: (720) 947-7480
Any party may change the address to which subsequent notices to such party are to be sent, or of its Principal Office, by notice to the others, delivered by hand or received by telex or facsimile or registered first-class mail, postage prepaid. Each such notice, request or other communication shall be effective when delivered by hand or received by facsimile or registered first-class mail, postage prepaid.
Section 9.02. Covenants Bind Issuer. The covenants, agreements, conditions, promises, and undertakings in this Indenture shall extend to and be binding upon the successors and assigns of the Issuer, and all of the covenants hereof shall bind such successors and assigns, and each of them, jointly and severally. All the covenants, conditions and provisions hereof shall be held to be for the sole and exclusive benefit of the parties hereto and their successors and assigns and of the Registered Owners from time to time of the Obligations.
No extension of time of payment of any of the Obligations shall operate to release or discharge the Issuer, it being agreed that the liability of the Issuer, to the extent permitted by law, shall continue until all of the Obligations are paid in full, notwithstanding any transfer of Financed Eligible Loans or extension of time for payment.
73
Section 9.03. Lien Created. This Indenture shall operate effectually as
(a) a grant of lien on and security interest in, and (b) an assignment of, the Trust Estate.
Section 9.04. Severability of Lien. If the lien of this Indenture shall be or shall ever become ineffectual, invalid or unenforceable against any part of the Trust Estate, which is not subject to the lien, because of want of power or title in the Issuer, the inclusion of any such part shall not in any way affect or invalidate the pledge and lien hereof against such part of the Trust Estate as to which the Issuer in fact had the right to pledge.
Section 9.05. Consent of Registered Owners Binds Successors. Any request or consent of the Registered Owner of any Obligations given for any of the purposes of this Indenture shall bind all future Registered Owners of the same Obligation or any Obligations issued in exchange therefor or in substitution thereof in respect of anything done or suffered by the Issuer or the Trustee in pursuance of such request or consent.
Section 9.06. Nonliability of Persons; No General Obligation. It is hereby expressly made a condition of this Indenture that any agreements, covenants or representations herein contained or contained in the Notes do not and shall never constitute or give rise to a personal or pecuniary liability or charge against the organizers, officers, employees, agents or trustees or the Administrator of the Issuer, or against the general credit of the Issuer, and in the event of a breach of any such agreement, covenant or representation, no personal or pecuniary liability or charge payable directly or indirectly from the general revenues of the Issuer shall arise therefrom. Nothing contained in this Section, however, shall relieve the Issuer from the observance and performance of the several covenants and agreements on its part herein contained.
Section 9.07. Nonpresentment of Notes or Interest Checks. Should any of the Notes or interest checks not be presented for payment when due, the Trustee shall retain from any money transferred to it for the purpose of paying the Notes or interest checks so due, for the benefit of the Registered Owners thereof, a sum of money sufficient to pay such Notes or interest checks when the same are presented by the Registered Owners thereof for payment. Such money shall not be required to be invested. All liability of the Issuer to the Registered Owners of such Notes or interest checks and all rights of such Registered Owners against the Issuer under the Notes or interest checks or under this Indenture shall thereupon cease and determine, and the sole right of such Registered Owners shall thereafter be against such deposit. If any Note or interest check shall not be presented for payment within the period of two years following its payment or prepayment date, the Trustee shall return to the Issuer the money theretofore held by it for payment of such Note or interest check, and such Note or interest check shall (subject to the defense of any applicable statute of limitation) thereafter be an unsecured obligation of the Issuer. The Trustee's responsibility for any such money shall cease upon remittance thereof to the Issuer.
Section 9.08. Security Agreement. This Indenture constitutes a Financing Statement and a Security Agreement under the Delaware Uniform Commercial Code and the Utah Uniform Commercial Code.
74
Section 9.09. Laws Governing. It is the intent of the parties hereto that this Indenture shall in all respects be governed by the laws of the State of New York. This Indenture is subject to the provisions of the Trust Indenture Act that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions.
Section 9.10. Severability. If any covenant, agreement, waiver, or part thereof in this Indenture contained be forbidden by any pertinent law or under any pertinent law be effective to render this Indenture invalid or unenforceable or to impair the lien hereof, then each such covenant, agreement, waiver, or part thereof shall itself be and is hereby declared to be wholly ineffective, and this Indenture shall be construed as if the same were not included herein.
Section 9.11. Exhibits. The terms of the Schedules and Exhibits, if any, attached to this Indenture are incorporated herein in all particulars.
Section 9.12. Non-Business Days. Except as may otherwise be provided herein, if the date for making payment of any amount hereunder or on any Note, or if the date for taking any action hereunder, is not a Business Day, then such payment can be made without accruing further interest or action can be taken on the next succeeding Business Day, with the same force and effect as if such payment were made when due or action taken on such required date.
Section 9.13. Parties Interested Herein. Nothing in this Indenture expressed or implied is intended or shall be construed to confer upon, or to give to, any person or entity, other than the Trustee, the Delaware Trustee, the paying agent, if any, and the Registered Owners of the Obligations, any right, remedy or claim under or by reason of this Indenture or any covenant, condition or stipulation hereof, and all covenants, stipulations, promises and agreements in this Indenture contained by and on behalf of the Issuer shall be for the sole and exclusive benefit of the Trustee, the paying agent, if any, and the Registered Owners of the Obligations.
Section 9.14. Obligations Are Limited Obligations. The Notes and the obligations of the Issuer contained in this Indenture are special, limited obligations of the Issuer, secured by and payable solely from the Trust Estate herein provided. The Issuer shall not be obligated to pay the Notes, the interest thereon, or any other obligation created by or arising from this Indenture from any other source.
Section 9.15. Limitations on Counterparty Rights. No Counterparty which shall be in default under any Derivative Product with the Issuer shall have any of the rights granted to a Counterparty or as the Registered Owner of an Obligation hereunder. A Counterparty which is in default under any Derivative Product shall however, continue to maintain all obligations undertaken by it under the terms of its Derivative Product. No Counterparty shall have any consent or voting rights under this Indenture, or any rights to instruct the Trustee to take, or refrain from taking, any action hereunder except upon satisfaction of the Rating Confirmation.
Section 9.16. Disclosure of Names and Addresses of Registered Owners.
(a) Registered Owners may communicate pursuant to Section 312(b) of the Trust Indenture Act with other Registered Owners with respect to their rights under this Indenture or under the Notes. Upon receipt by the Trustee of any request by three or more Registered Owners or by one or more holders of Notes evidencing not less than 25% of the Outstanding
75
Amount of the Notes to receive a copy of the current list of Registered Owners (whether or not made pursuant to Section 312(b) of the Trust Indenture Act), the Trustee shall promptly notify the Issuer thereof by providing to the Issuer a copy of such request and a copy of the list of Registered Owners produced in response thereto.
(b) Registered Owners of Notes, by receiving and holding the same, agree with the Issuer and the Trustee that neither the Issuer nor the Trustee nor any Securities Depository shall be held accountable by reason of the disclosure of any information as to the names and addresses of the Registered Owners of Notes in accordance with Section 312 of the Trust Indenture Act, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 312(b) of the Trust Indenture Act.
Section 9.17. Aggregate Principal Amount of Obligations. Whenever in this Indenture reference is made to the aggregate principal amount of any Obligations, such phrase shall mean, at any time, the principal amount of any Notes and the Derivative Value of any Derivative Product.
Section 9.18. Financed Eligible Loans. The Issuer expects to acquire Eligible Loans and to transfer Eligible Loans to the Trustee, in accordance with this Indenture, which Eligible Loans, upon becoming subject to the lien of this Indenture, constitute Financed Eligible Loans, as defined herein. If for any reason a Financed Eligible Loan does not constitute an Eligible Loan, or ceases to constitute an Eligible Loan, such loan shall continue to be subject to the lien of this Indenture as a Financed Eligible Loan.
Section 9.19. Concerning the Delaware Trustee. It is expressly understood and agreed by the parties to this Indenture and the Registered Owners that (a) this Indenture is executed and delivered by the Delaware Trustee not in its individual or personal capacity but solely in its capacity as Delaware Trustee under the Trust Agreement on behalf of the Issuer, in the exercise of the powers and authority conferred and vested in it as Delaware Trustee under the Trust Agreement, subject to the protections, indemnities and limitations from liability afforded to the Delaware Trustee thereunder; (b) the representations, warranties, covenants, undertakings, agreements and obligations by the Delaware Trustee are made and intended not as personal representations, warranties, covenants, undertakings, agreements and obligations by Wilmington Trust Company, but are made and intended for the purpose of only binding the Trust Estate, as defined in the Trust Agreement, and the Issuer; (c) nothing contained herein shall be construed as creating any liability on Wilmington Trust Company, individually or personally, to perform any expressed or implied covenant, duty or obligation of any kind whatsoever contained herein; and (d) under no circumstances shall Wilmington Trust Company, be personally liable for the payment of any fees, costs, indebtedness or expenses of any kind whatsoever or be personally liable for the breach or failure of any obligation, representation, agreement, warranty or covenant whatsoever made or undertaken by the Delaware Trustee or Issuer hereunder.
76
ARTICLE X
PAYMENT AND CANCELLATION OF NOTES
AND SATISFACTION OF INDENTURE
Section 10.01. Trust Irrevocable. The trust created by the terms and provisions of this Indenture is irrevocable until the indebtedness secured hereby (the Notes and interest thereon) and all Issuer Derivative Payments are fully paid or provision made for its payment as provided in this Article.
Section 10.02. Satisfaction of Indenture.
(a) If the Issuer shall pay, or cause to be paid, or there shall otherwise be paid (i) to the Registered Owners of the Notes, the principal of and interest on the Notes, at the times and in the manner stipulated in this Indenture; and (ii) to each Counterparty, all Issuer Derivative Payments then due, then the pledge of the Trust Estate, and all covenants, agreements and other obligations of the Issuer to the Registered Owners of Notes shall thereupon cease, terminate and become void and be discharged and satisfied. In such event, the Trustee shall execute and deliver to the Issuer all such instruments as may be desirable to evidence such discharge and satisfaction, and the Trustee shall pay over or deliver all money held by it under this Indenture to the party entitled to receive the same under this Indenture. If the Issuer shall pay or cause to be paid, or there shall otherwise be paid, to the Registered Owners of any Outstanding Notes the principal of and interest on such Notes and to each Counterparty all Counterparty Payments then due, at the times and in the manner stipulated in this Indenture and in the Derivative Product, such Notes and each Counterparty shall cease to be entitled to any lien, benefit or security under this Indenture, and all covenants, agreements and obligations of the Issuer to the Registered Owners thereof and each Counterparty shall thereupon cease, terminate and become void and be discharged and satisfied.
(b) Notes or interest installments shall be deemed to have been paid within the meaning of Section 10.02(a) hereof if money for the payment thereof has been set aside and is being held in trust by the Trustee at the Note Final Maturity Date or earlier prepayment date thereof. Any Outstanding Note shall, prior to the Note Final Maturity Date or earlier prepayment thereof, be deemed to have been paid within the meaning and with the effect expressed in Section 10.02(a) hereof if
(i) such Note is to be prepaid on any date prior to its Note Final Maturity Date and (ii) the Issuer shall have given notice of prepayment as provided herein on said date, there shall have been deposited with the Trustee either money (fully insured by the Federal Deposit Insurance Issuer or fully collateralized by Governmental Obligations) in an amount which shall be sufficient, or Governmental Obligations (including any Governmental Obligations issued or held in book-entry form on the books of the Department of Treasury of the United States of America) the principal of and the interest on which when due will provide money which, together with the money, if any, deposited with the Trustee at the same time, shall be sufficient, to pay when due the principal of and interest to become due on such Note on and prior to the prepayment date or Note Final Maturity Date thereof, as the case may be. Notwithstanding
77
anything herein to the contrary, however, no such deposit shall have the effect specified in this subsection (b) if made during the existence of an Event of Default, unless made with respect to all of the Notes then Outstanding. Neither Governmental Obligations nor money deposited with the Trustee pursuant to this subsection (b) nor principal or interest payments on any such Governmental Obligations shall be withdrawn or used for any purpose other than, and shall be held irrevocably in trust in an escrow account for, the payment of the principal of and interest on such Notes. Any cash received from such principal of and interest on such Governmental Obligations deposited with the Trustee, if not needed for such purpose, shall, to the extent practicable, be reinvested in Governmental Obligations maturing at times and in amounts sufficient to pay when due the principal of and interest on such Notes on and prior to such prepayment date or Note Final Maturity Date thereof, as the case may be, and interest earned from such reinvestments shall be paid over to the Issuer, as received by the Trustee, free and clear of any trust, lien or pledge. Any payment for Governmental Obligations purchased for the purpose of reinvesting cash as aforesaid shall be made only against delivery of such Governmental Obligations. For the purposes of this Section, "Governmental Obligations" shall mean and include only non-callable direct obligations of the Department of the Treasury of the United States of America or portions thereof (including interest or principal portions thereof), and such Governmental Obligations shall be of such amounts, maturities and interest payment dates and bear such interest as will, without further investment or reinvestment of either the principal amount thereof or the interest earnings therefrom, be sufficient to make the payments required herein, and which obligations have been deposited in an escrow account which is irrevocably pledged as security for the Notes. Such term shall not include mutual funds and unit investment trusts.
(c) Any Issuer Derivative Payments are deemed to have been paid and the applicable Derivative Product terminated when payment of all Issuer Derivative Payments due and payable to each Counterparty under its respective Derivative Product have been made or duly provided for to the satisfaction of each Counterparty and the respective Derivative Product has been terminated.
(d) In no event shall the Trustee deliver over to the Issuer any Financed Eligible Loans originated under the Higher Education Act unless the Issuer is an Eligible Lender, if the Higher Education Act or Regulations then in effect require the owner or holder of such Financed Eligible Loans to be an Eligible Lender.
(e) The provisions of this Section are applicable to the Notes and the Issuer Derivative Payments.
Section 10.03. Optional Purchase of All Financed Eligible Loans. The Administrator shall certify to and notify the Sponsor and the Trustee in writing, within 15 days after the last Business Day of each Collection Period in which the then outstanding Pool Balance is 12% or less of the Initial Pool Balance, of the percentage that the then outstanding Pool Balance bears to the Initial Pool Balance. The Sponsor shall have the option to purchase all of the Financed Eligible Loans on the earlier of (a) the January, 2020 Quarterly Distribution Date and (b) date that is the tenth (10th) Business Day preceding the Quarterly Distribution Date next succeeding the date on which the then
78
outstanding Pool Balance is 10% or less of the Initial Pool Balance (each, an "Optional Purchase Date"). To exercise the option described in this Section, the Sponsor shall deposit in the Collection Fund on the Optional Purchase Date, an amount equal to the aggregate Purchase Amount for the Financed Eligible Loans and the related rights with respect thereto, plus the appraised value of any such other property held in the Trust Estate other than the Funds and Accounts, such value to be determined by an appraiser mutually agreed upon by the Sponsor and the Trustee; provided, however, that the Sponsor may not effect such purchase if such aggregate Purchase Amounts do not equal or exceed the Minimum Purchase Amount.
Section 10.04. Auction of Financed Eligible Loans. If the Sponsor does not exercise its option to purchase Financed Eligible Loans pursuant to Section 10.03 hereof, the Trustee (or its designated agent) shall, promptly after the Business Day next succeeding the Optional Purchase Date, offer for sale Financed Eligible Loans in an amount sufficient to redeem all Notes Outstanding on such Quarterly Distribution Date, and any such sale shall be consummated on or before such Quarterly Distribution Date (the "Trust Auction Date"). Nelnet, Inc. or its Affiliates may bid to purchase the Financed Eligible Loans. The Trustee shall provide written notice to the Sponsor of any such offer for sale at least three Business Days in advance of the Trust Auction Date. If at least two independent bids are received, the Trustee (or its designated agent) shall solicit and resolicit new bids from all participating bidders until only one bid remains or the remaining bidders decline to resubmit bids. The Trustee shall accept the highest of the remaining bids if it is equal to or in excess of both (i) the Minimum Purchase Amount and (ii) the fair market value of such Financed Eligible Loans as of the end of the Collection Period immediately preceding the Trust Auction Date. If at least two bids are not received or the highest bid after the resolicitation process is completed is not equal to or in excess of the higher of the amounts described in the preceding sentences, the Trustee shall not consummate such sale. The Trustee may consult, and, at the direction of the Sponsor, shall consult, with a financial advisor, including an underwriter of the Notes or the Administrator, to determine if the fair market value of the Financed Eligible Loans has been offered. The proceeds of any such sale shall be deposited to the Collection Fund and applied to the redemption of all Notes Outstanding in accordance with Section 5.04(d) hereof. Unless requested by the Administrator, if the sale is not completed, the Trustee may, but will not be obligated to, solicit bids for sale of the Financed Eligible Loans with respect to future Quarterly Distribution Dates upon terms similar to those described above. The Trustee shall be obligated to make such solicitations, however, if requested to do so by the Administrator. Notice of the prepayment of any Obligations resulting from a purchase of the Financed Eligible Loans on the Optional Purchase Date or the auction of the Financed Eligible Loans on the Trust Auction Date, shall be given by the Trustee to the Registered Owners by first-class mail within five Business Days of such Optional Purchase Date or Trust Auction Date.
Section 10.05. Cancellation of Paid Notes. Any Notes which have been paid or purchased by the Issuer, mutilated Notes replaced by new Notes, and any temporary Note for which definitive Notes have been delivered shall (unless otherwise directed by the Issuer by Issuer Order) forthwith be cancelled by the Trustee and, except for temporary Notes, returned to the Issuer.
[Remainder of This Page Intentionally Left Blank]
79
IN WITNESS WHEREOF, the Issuer has caused this Indenture to be executed in its organizational name and behalf by its Delaware Trustee, and the Trustee, to evidence its acceptance of the trusts hereby created, has caused this Indenture to be executed in its organizational name and behalf, all in multiple counterparts, each of which shall be deemed an original, and the Issuer and the Trustee have caused this Indenture to be dated as of the date herein above first shown.
NELNET STUDENT LOAN TRUST 2005-1,
 a Delaware statutory trust
By: WILMINGTON TRUST COMPANY, not in its
 individual capacity or personal capacity
but solely in its capacity as Delaware
Trustee
By

Name       /s/ Joann A. Rozell
     -----------------------------------------
Title
      ----------------------------------------	

ZIONS FIRST NATIONAL BANK, as Trustee

By       /s/ David W. Bata
   -------------------------------------------
    David W. Bata, Vice President	

Acknowledged and accepted as to clause "C" of the Granting Clauses as of the day and year first written above:
ZIONS FIRST NATIONAL BANK, as Eligible Lender Trustee

By      /s/ David W. Bata
   -------------------------------------------
    David W. Bata, Vice President	

80
A-2
EXHIBIT A
ELIGIBLE LOAN ACQUISITION CERTIFICATE
This Eligible Loan Acquisition Certificate is submitted pursuant to the provisions of Section 5.02 of the Indenture of Trust, dated as of February 1, 2005, as amended (the "Indenture"), between Nelnet Student Loan Trust 2005-1 (the "Issuer") and Zions First National Bank, as Trustee. All capitalized terms used in this Certificate and not otherwise defined herein shall have the same meanings given to such terms in the Indenture. In your capacity as Trustee, you are hereby authorized and requested to disburse to _________________ (the "Seller") the sum of $__________ (or, in the case of an exchange, the Eligible Loans listed in Exhibit A hereto) for the acquisition of Eligible Loans. With respect to the Eligible Loans so to be acquired, the Issuer hereby certifies as follows:
1. The Eligible Loans to be acquired are those specified in Schedule A attached hereto (the "Acquired Eligible Loans"). The remaining unpaid principal amount of each Acquired Eligible Loan is as shown on such Schedule A.
2. The amount to be disbursed pursuant to this Certificate does not exceed the amount permitted by Section 5.02 of the Indenture, plus accrued interest.
3. Each Acquired Eligible Loan is an Eligible Loan authorized so to be acquired by the Indenture.
4. The following items have been received and are being retained, on your behalf, by the Issuer, the Master Servicer or a Subservicer):
(a) a copy of the Student Loan Purchase Agreement(s) between the Issuer and the Eligible Lender with respect to the Acquired Eligible Loans (original copy maintained on file with the Issuer on behalf of the Trustee);
(b) with respect to each Insured Loan included among the Acquired Eligible Loans, the Certificate of Insurance relating thereto;
(c) with respect to each Guaranteed Loan included among the Acquired Eligible Loans, a certified copy of the Guarantee Agreement relating thereto;
(d) an opinion of counsel to the Issuer specifying each action necessary to perfect a security interest in all Eligible Loans to be acquired by the Issuer pursuant to the Student Loan Purchase Agreements in favor of the Trustee in the manner provided for by the provisions of 20 U.S.C. ss. 1087-2(d)(3) or 20 U.S.C. ss. 1082(m)(1)(D)(iv), as applicable, (you are authorized to rely on the advice of a single blanket opinion of counsel to the Issuer until such time as the Issuer shall provide any amended opinion to you); and
(e) instruments duly assigning the Acquired Eligible Loans to the Trustee.
5. The Issuer is not, on the date hereof, in default under the Indenture or in the performance of any of its covenants and agreements made in the Student Loan Purchase Agreement(s) relating to the Acquired Eligible Loans, and, to the best knowledge of the Issuer, the Eligible Lender is not in default under the Student Loan Purchase Agreement applicable to the Acquired Eligible Loans. The Issuer is not aware of any default existing on the date hereof under any of the other documents referred to in paragraph 4 hereof, nor of any circumstances which would reasonably prevent reliance upon the opinion of counsel referred to in paragraph 4(d) hereof.
6. All of the conditions specified in the Student Loan Purchase Agreement(s) applicable to the Acquired Eligible Loans and the Indenture for the acquisition of the Acquired Eligible Loans and the disbursement hereby authorized and requested have been satisfied; provided that the Issuer may waive the requirement of receiving an opinion of counsel from the counsel to the Lender.
7. If a Financed Eligible Loan is being sold in exchange for an Acquired Eligible Loan, the final expected maturity date of such Acquired Eligible Loan shall be substantially similar to that of the Financed Eligible Loan being sold and such sale and exchange shall not adversely affect the ability of the Trust Estate to make timely principal and interest payments on its Obligations.
8. With respect to all Acquired Eligible Loans which are Insured, Insurance is in effect with respect thereto, and with respect to all Acquired Eligible Loans which are Guaranteed, the Guarantee Agreement is in effect with respect thereto.
9. The Issuer is not in default in the performance of any of its covenants and agreements made in any Contract of Insurance or the Guarantee Agreement applicable to the Acquired Eligible Loans.
10. The proposed use of moneys in the Acquisition Fund is in compliance with the provisions of the Indenture.
11. The undersigned is authorized to sign and submit this Certificate on behalf of the Issuer.
12. Eligible Loans are being acquired at a price which permits the results of the cash flow analyses provided to the Rating Agencies on the Date of Issuance and as revised/amended to be sustained.
WITNESS my hand this _____ day of ___________.
NELNET STUDENT LOAN TRUST 2005-1
By
 Name
Title

A-2
EXHIBIT B-1
FORM OF CLASS A-1 NOTE
Unless this Note is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Issuer (as defined below) or its agent for registration of transfer, exchange or payment, and any Note issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.

        THE PRINCIPAL OF THIS NOTE IS PAYABLE AS SET FORTH HEREIN. ACCORDINGLY,
THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE
AMOUNT SHOWN ON THE FACE HEREOF. THIS NOTE IS NOT GUARANTEED OR INSURED BY ANY
GOVERNMENTAL AGENCY.

                        NELNET STUDENT LOAN TRUST 2005-1
                         STUDENT LOAN ASSET-BACKED NOTES
                            SENIOR CLASS A-1 (LIBOR)

REGISTERED NO. R-__                                                 REGISTERED $

   Date of Issuance            Maturity Date       CUSIP No.        ISIN No.
   February 23, 2005           April 25, 2011     64031Q BM 2     US64031 QBM24

PRINCIPAL SUM:        **DOLLARS**	

REGISTERED OWNER: **CEDE & CO.**
Nelnet Student Loan Trust 2005-1, a statutory trust organized and existing under the laws of the State of Delaware (herein referred to as the "Issuer"), for value received, hereby promises to pay to CEDE & CO., or registered assigns, on each Quarterly Distribution Date the principal sum equal to the applicable Class A-1 Noteholder's Principal Distribution Amount for such Quarterly Distribution Date, as described in the Indenture of Trust, dated as of February 1, 2005, between the Issuer (by Wilmington Trust Company, in its capacity as Delaware Trustee) and Zions First National Bank, a national banking association, as eligible lender trustee and indenture trustee (the "Trustee") (capitalized terms used but not defined herein being defined in Article I of the Indenture, which also contains rules as to usage that shall be applicable herein); provided, however, that the entire unpaid principal amount of this Note shall be due and payable on the Maturity Date specified above (the "Class A-1 Maturity Date").
The Issuer shall pay interest on this Note at the rate per annum equal to the Class A-1 Rate (as defined herein), on each Quarterly Distribution Date until the principal of this Note is paid or made available for payment, on the principal amount of this Note outstanding on the preceding Quarterly Distribution Date or the Date of Issuance in the case of the first Quarterly Distribution Date (after giving effect to all payments of principal made on the preceding Quarterly Distribution Date), subject to certain limitations contained
in the Indenture. Interest on this Note shall accrue from and including the preceding Quarterly Distribution Date (or, in the case of the first Interest Accrual Period, the Date of Issuance) to but excluding the following Quarterly Distribution Date (each an "Interest Accrual Period"). Interest shall be calculated on the basis of the actual number of days elapsed in each Interest Accrual Period divided by 360 and rounding the resultant figure to the fifth decimal point. Such principal of and interest on this Note shall be paid in the manner specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. All payments made by the Issuer with respect to this Note shall be applied first to interest due and payable on this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this Note.
Unless the certificate of authentication hereon has been executed by the Trustee whose name appears below by manual signature, this Note shall not be entitled to any benefit under the Indenture referred to on the reverse hereof, or be valid or obligatory for any purpose.
B-1-2
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed, manually or in facsimile, as of the date set forth below.
NELNET STUDENT LOAN TRUST 2005-1
By WILMINGTON TRUST COMPANY, not
 in its individual capacity
but solely as Delaware
Trustee under the Trust
Agreement,
By
 Authorized Signatory
Date: ________ __, ____
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the within-mentioned Indenture.
ZIONS FIRST NATIONAL BANK, not in its
 individual capacity but solely as Trustee,
By
 Authorized Signatory
Date: ________ __, ____
B-1-3
This Note is one of a duly authorized issue of Notes of the Issuer, designated as its Student Loan Asset-Backed Notes, Senior Class A-1 (the "Class A-1 Notes"), which, together with the Issuer's Student Loan Asset-Backed Notes, Senior Class A-2, A-3, A-4 and A-5 (together with the Class A-1 Notes, the "Class A Notes") and the Issuer's Student Loan Asset-Backed Notes, Subordinate Class B (the "Class B Notes" and, together with the Class A Notes, the "Notes"), are issued under and secured by the Indenture, to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights and obligations thereunder of the Issuer, the Trustee and the Registered Owners. The Notes are subject to all terms of the Indenture.
The Class A-1 Notes are and will be secured by the Trust Estate pledged as security therefor as provided in the Indenture. The Class A Notes are senior to the Class B Notes as and to the extent provided in the Indenture. The Class A Notes are, except for certain Termination Payments that are not Priority Termination Payments, issued on a parity with any Derivative Products entered into by the Issuer with a Counterparty, pursuant to which the Issuer will, from time to time, owe Issuer Derivative Payments, and will, from time to time, be owed Counterparty Payments.
Principal of the Class A-1 Notes shall be payable on each Quarterly Distribution Date in an amount equal to the Class A-1 Noteholder's Principal Distribution Amount for such Quarterly Distribution Date. "Quarterly Distribution Date" means the twenty-fifth (25th) day of each January, April, July and October or, if any such date is not a Business Day, the immediately succeeding Business Day, commencing July 25, 2005.
As described on the face hereof, the entire unpaid principal amount of this Note shall be due and payable on the Class A-1 Maturity Date. Notwithstanding the foregoing, the entire unpaid principal amount of the Notes shall be due and payable on the date on which (a) an Event of Default shall have occurred and be continuing and (b) either the Trustee or the Registered Owners of Obligations representing not less than a majority of the Outstanding Amount of the Highest Priority Obligations shall have declared the Notes to be immediately due and payable in the manner provided in the Indenture.
The Notes are subject to redemption from the proceeds of a sale of Financed Eligible Loans in accordance with Section 10.03 or 10.04 of the Indenture on any Quarterly Distribution Date on of after (a) the January, 2020 Quarterly Distribution Date and (b) the Quarterly Distribution Date next succeeding the date on which the then outstanding Pool Balance is 10% or less of the Initial Pool Balance (all as defined in the Indenture).
Interest on the Class A-1 Notes shall be payable on each Quarterly Distribution Date on the principal amount outstanding of the Class A-1 Notes until the principal amount thereof is paid in full, at a rate per annum equal to the Class A-1 Rate. The "Class A-1 Rate" for each Interest Accrual Period, other than the first Interest Accrual Period, shall be equal to the applicable Three-Month LIBOR, [minus] ____%. The "Class A-1 Rate" for the first Interest Accrual Period shall be determined by reference to the following formula: x +
[__/__ * (y-x)] (where: x = Five-Month LIBOR, and y = Six-Month LIBOR), [minus] ____%, as determined by the Administrator.
B-1-4
Payments of interest on this Note on each Quarterly Distribution Date, together with the installment of principal, if any, to the extent not in full payment of this Note, shall be paid to the Person in whose name such Note is registered on the Record Date by check mailed first-class, postage prepaid to such Person's address as it appears on the records of the Trustee on such Record Date, except that, unless definitive Notes have been issued pursuant to the Indenture, with respect to Notes registered on the Record Date in the name of the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.), payment shall be made by wire transfer in immediately available funds to the account designated by such nominee. If funds are expected to be available, as provided in the Indenture, for payment in full of the then remaining unpaid principal amount of this Note on a Quarterly Distribution Date, then the Trustee shall notify the Person in whose name a Note is registered at the close of business on the Record Date preceding the Quarterly Distribution Date on which the Issuer expects that the final installment of principal of and interest on such Note will be paid. Such notice shall be mailed or transmitted by facsimile prior to such final Quarterly Distribution Date and shall specify that such final installment will be payable only upon presentation and surrender of such Note and shall specify the place where such Note may be presented and surrendered for payment of such installment.
As provided in the Indenture and subject to certain limitations set forth therein, the transfer of this Note may be registered upon the records of the Trustee upon surrender for transfer of any Note at the Principal Office of the Trustee, duly endorsed for transfer or accompanied by an assignment duly executed by the Registered Owner or his attorney duly authorized in writing, and thereupon the Issuer shall execute and the Trustee shall authenticate and deliver in the name of the transferee or transferees a new fully registered Note or Notes of the same interest rate and for a like class and aggregate principal amount of the same maturity.
As to any Note, the person in whose name the same shall be registered shall be deemed and regarded as the absolute owner thereof for all purposes, and payment of either principal or interest on any fully registered Note shall be made only to or upon the written order of the Registered Owner thereof or his legal representative but such registration may be changed as provided in the Indenture. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Note to the extent of the sum or sums paid.
Each Registered Owner and each transferee of a Note shall be deemed to represent and warrant that either (a) it is not acquiring the Note directly or indirectly for, or on behalf of, an ERISA plan or any entity whose underlying assets are deemed to be plan assets of such ERISA plan; or (b)(i) the acquisition and holding of the Notes will not result in a nonexempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or similar law and (ii) if the Notes are subsequently deemed to be "plan assets" pursuant to the regulations set forth at 29 C.F.R. ss. 2510.3-101, it will promptly dispose of the Notes.
The Trustee shall require the payment by any Registered Owner requesting exchange or transfer of any tax or other governmental charge required to be paid with respect to such exchange or transfer. The applicant for any such transfer or exchange may be required to pay all taxes and governmental charges in connection with such transfer or exchange, other than exchanges pursuant to the Indenture.
B-1-5
The term "Issuer" as used in this Note includes any successor to the Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances, to merge or consolidate, subject to the rights of the Trustee and the Registered Owners under the Indenture.
The Notes are issuable only in registered form in denominations as provided in the Indenture, subject to certain limitations therein set forth.
This Note shall be construed in accordance with the laws of the State of New York, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and interest on this Note at the times, place and rate, and in the coin or currency, herein prescribed.
B-1-6
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto

(name and address of assignee)

the within Note and all rights thereunder, and hereby irrevocably constitutes and appoints

attorney, to transfer said Note on the books kept for registration thereof, with full power of substitution in the premises.

Dated:

By *

Name
Title
Signature Guaranteed:
By * *NOTICE: Signature(s) should
be guaranteed by a guarantor
institution participating in the
Securities Transfer Agents
Medallion Program or in such
other guarantee program
acceptable to the Trustee. The
Assignor's signature to this
assignment must correspond with
the name as it appears upon the
face of the within note in every
particular without alteration or
any change whatever.
B-1-7
EXHIBIT B-2
FORM OF CLASS A-2 NOTE
Unless this Note is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Issuer (as defined below) or its agent for registration of transfer, exchange or payment, and any Note issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.
THE PRINCIPAL OF THIS NOTE IS PAYABLE AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THIS NOTE IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY.
NELNET STUDENT LOAN TRUST 2005-1
STUDENT LOAN ASSET-BACKED NOTES
SENIOR CLASS A-2 (LIBOR)
REGISTERED NO. R-__ REGISTERED $__________

   Date of Issuance            Maturity Date        CUSIP No.        ISIN No.
   February 23, 2005          January 26, 2015     64031Q BN 0     US64031 QBN07

PRINCIPAL SUM:        **DOLLARS**
REGISTERED OWNER:     **CEDE & CO.**	

Nelnet Student Loan Trust 2005-1, a statutory trust organized and existing under the laws of the State of Delaware (herein referred to as the "Issuer"), for value received, hereby promises to pay to CEDE & CO., or registered assigns, on each Quarterly Distribution Date the principal sum equal to the Class A-2 Noteholder's Principal Distribution Amount for such Quarterly Distribution Date, as described in the Indenture of Trust, dated as of February 1, 2005, between the Issuer (by Wilmington Trust Company, in its capacity as Delaware Trustee) and Zions First National Bank, a national banking association, as eligible lender trustee and indenture trustee (the "Trustee") (capitalized terms used but not defined herein being defined in Article I of the Indenture, which also contains rules as to usage that shall be applicable herein); provided, however, that the entire unpaid principal amount of this Note shall be due and payable on the Maturity Date specified above (the "Class A-2 Maturity Date").
The Issuer shall pay interest on this Note at the rate per annum equal to the Class A-2 Rate (as defined herein), on each Quarterly Distribution Date until the principal of this Note is paid or made available for payment, on the principal amount of this Note outstanding on the preceding Quarterly Distribution Date or the Date of Issuance in the case of the first Quarterly Distribution Date (after giving effect to all payments of principal made on the
preceding Quarterly Distribution Date), subject to certain limitations contained in the Indenture. Interest on this Note shall accrue from and including the preceding Quarterly Distribution Date (or, in the case of the first Interest Accrual Period, the Date of Issuance) to but excluding the following Quarterly Distribution Date (each an "Interest Accrual Period"). Interest shall be calculated on the basis of the actual number of days elapsed in each Interest Accrual Period divided by 360 and rounding the resultant figure to the fifth decimal point. Such principal of and interest on this Note shall be paid in the manner specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. All payments made by the Issuer with respect to this Note shall be applied first to interest due and payable on this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this Note.
Unless the certificate of authentication hereon has been executed by the Trustee whose name appears below by manual signature, this Note shall not be entitled to any benefit under the Indenture referred to on the reverse hereof, or be valid or obligatory for any purpose.
B-2-2
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed, manually or in facsimile, as of the date set forth below.
NELNET STUDENT LOAN TRUST 2005-1
By WILMINGTON TRUST COMPANY, not
 in its individual capacity
but solely as Delaware
Trustee under the Trust
Agreement,
By
 Authorized Signatory
Date: __________ __, ____
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the within-mentioned Indenture.
ZIONS FIRST NATIONAL BANK, not in its
 individual capacity but solely as Trustee,
By
 Authorized Signatory
Date: __________ __, ____
B-2-3
This Note is one of a duly authorized issue of Notes of the Issuer, designated as its Student Loan Asset-Backed Notes, Senior Class A-2 (the "Class A-2 Notes"), which, together with the Issuer's Student Loan Asset-Backed Notes, Senior Class A-1, Class A-3, Class A-4 and Class A-5 (together with the Class A-2 Notes, the "Class A Notes") and the Issuer's Student Loan Asset-Backed Notes, Subordinate Class B (the "Class B Notes" and, together with the Class A Notes, the "Notes"), are issued under and secured by the Indenture, to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights and obligations thereunder of the Issuer, the Trustee and the Registered Owners. The Notes are subject to all terms of the Indenture.
The Class A-2 Notes are and will be secured by the Trust Estate pledged as security therefor as provided in the Indenture. The Class A Notes are senior to the Class B Notes as and to the extent provided in the Indenture. The Class A Notes are, except for certain Termination Payments that are not Priority Termination Payments, issued on a parity with any Derivative Products entered into by the Issuer with a Counterparty, pursuant to which the Issuer will, from time to time, owe Issuer Derivative Payments, and will, from time to time, be owed Counterparty Payments.
Principal of the Class A-2 Notes shall be payable on each Quarterly Distribution Date in an amount equal to the Class A-2 Noteholder's Principal Distribution Amount for such Quarterly Distribution Date. "Quarterly Distribution Date" means the twenty-fifth (25th) day of each January, April, July and October or, if any such date is not a Business Day, the immediately succeeding Business Day, commencing July 25, 2005.
As described on the face hereof, the entire unpaid principal amount of this Note shall be due and payable on the Class A-2 Maturity Date. Notwithstanding the foregoing, the entire unpaid principal amount of the Notes shall be due and payable on the date on which (a) an Event of Default shall have occurred and be continuing and (b) either the Trustee or the Registered Owners of Obligations representing not less than a majority of the Outstanding Amount of the Highest Priority Obligations shall have declared the Notes to be immediately due and payable in the manner provided in the Indenture.
The Notes are subject to redemption from the proceeds of a sale of Financed Eligible Loans in accordance with Section 10.03 or 10.04 of the Indenture on any Quarterly Distribution Date on of after (a) the January, 2020 Quarterly Distribution Date and (b) the Quarterly Distribution Date next succeeding the date on which the then outstanding Pool Balance is 10% or less of the Initial Pool Balance (all as defined in the Indenture).
Interest on the Class A-2 Notes shall be payable on each Quarterly Distribution Date on the principal amount outstanding of the Class A-2 Notes until the principal amount thereof is paid in full, at a rate per annum equal to the Class A-2 Rate. The "Class A-2 Rate" for each Interest Accrual Period, other than the first Interest Accrual Period, shall be equal to the applicable Three-Month LIBOR, plus ____%. The "Class A-2 Rate" for the first Interest Accrual Period shall be determined by reference to the following formula: x +
[__/__ * (y-x)] (where: x = Five-Month LIBOR, and y = Six-Month LIBOR), plus ____%, as determined by the Administrator.
B-2-4
Payments of interest on this Note on each Quarterly Distribution Date, together with the installment of principal, if any, to the extent not in full payment of this Note, shall be paid to the Person in whose name such Note is registered on the Record Date by check mailed first-class, postage prepaid to such Person's address as it appears on the records of the Trustee on such Record Date, except that, unless definitive Notes have been issued pursuant to the Indenture, with respect to Notes registered on the Record Date in the name of the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.), payment shall be made by wire transfer in immediately available funds to the account designated by such nominee. If funds are expected to be available, as provided in the Indenture, for payment in full of the then remaining unpaid principal amount of this Note on a Quarterly Distribution Date, then the Trustee shall notify the Person in whose name a Note is registered at the close of business on the Record Date preceding the Quarterly Distribution Date on which the Issuer expects that the final installment of principal of and interest on such Note will be paid. Such notice shall be mailed or transmitted by facsimile prior to such final Quarterly Distribution Date and shall specify that such final installment will be payable only upon presentation and surrender of such Note and shall specify the place where such Note may be presented and surrendered for payment of such installment.
As provided in the Indenture and subject to certain limitations set forth therein, the transfer of this Note may be registered upon the records of the Trustee upon surrender for transfer of any Note at the Principal Office of the Trustee, duly endorsed for transfer or accompanied by an assignment duly executed by the Registered Owner or his attorney duly authorized in writing, and thereupon the Issuer shall execute and the Trustee shall authenticate and deliver in the name of the transferee or transferees a new fully registered Note or Notes of the same interest rate and for a like class and aggregate principal amount of the same maturity.
As to any Note, the person in whose name the same shall be registered shall be deemed and regarded as the absolute owner thereof for all purposes, and payment of either principal or interest on any fully registered Note shall be made only to or upon the written order of the Registered Owner thereof or his legal representative but such registration may be changed as provided in the Indenture. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Note to the extent of the sum or sums paid.
Each Registered Owner and each transferee of a Note shall be deemed to represent and warrant that either (a) it is not acquiring the Note directly or indirectly for, or on behalf of, an ERISA plan or any entity whose underlying assets are deemed to be plan assets of such ERISA plan; or (b)(i) the acquisition and holding of the Notes will not result in a nonexempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or similar law and (ii) if the Notes are subsequently deemed to be "plan assets" pursuant to the regulations set forth at 29 C.F.R. ss. 2510.3-101, it will promptly dispose of the Notes.
The Trustee shall require the payment by any Registered Owner requesting exchange or transfer of any tax or other governmental charge required to be paid with respect to such exchange or transfer. The applicant for any such transfer or exchange may be required to pay all taxes and governmental charges in connection with such transfer or exchange, other than exchanges pursuant to the Indenture.
B-2-5
The term "Issuer" as used in this Note includes any successor to the Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances, to merge or consolidate, subject to the rights of the Trustee and the Registered Owners under the Indenture.
The Notes are issuable only in registered form in denominations as provided in the Indenture, subject to certain limitations therein set forth.
This Note shall be construed in accordance with the laws of the State of New York, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and interest on this Note at the times, place and rate, and in the coin or currency, herein prescribed.
B-2-6
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto

(name and address of assignee)

the within Note and all rights thereunder, and hereby irrevocably constitutes and appoints

attorney, to transfer said Note on the books kept for registration thereof, with full power of substitution in the premises.

Dated:

By *

Name
Title
Signature Guaranteed:
By * *NOTICE: Signature(s) should
be guaranteed by a guarantor
institution participating in the
Securities Transfer Agents
Medallion Program or in such
other guarantee program
acceptable to the Trustee. The
Assignor's signature to this
assignment must correspond with
the name as it appears upon the
face of the within note in every
particular without alteration or
any change whatever.
B-2-7
EXHIBIT B-3
FORM OF CLASS A-3 NOTE
Unless this Note is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Issuer (as defined below) or its agent for registration of transfer, exchange or payment, and any Note issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.
THE PRINCIPAL OF THIS NOTE IS PAYABLE AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THIS NOTE IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY.
NELNET STUDENT LOAN TRUST 2005-1
STUDENT LOAN ASSET-BACKED NOTES
SENIOR CLASS A-3 (LIBOR)
REGISTERED NO. R-__ REGISTERED $__________

   Date of Issuance            Maturity Date       CUSIP No.          ISIN No.
   February 23, 2005          October 25, 2016    64031Q BP 5      US64031 QBP54

PRINCIPAL SUM:               **DOLLARS**
REGISTERED OWNER:     **CEDE & CO.**	

Nelnet Student Loan Trust 2005-1, a statutory trust organized and existing under the laws of the State of Delaware (herein referred to as the "Issuer"), for value received, hereby promises to pay to CEDE & CO., or registered assigns, on each Quarterly Distribution Date the principal sum equal to the Class A-3 Noteholder's Principal Distribution Amount for such Quarterly Distribution Date, as described in the Indenture of Trust, dated as of February 1, 2005, between the Issuer (by Wilmington Trust Company, in its capacity as Delaware Trustee) and Zions First National Bank, a national banking association, as eligible lender trustee and indenture trustee (the "Trustee") (capitalized terms used but not defined herein being defined in Article I of the Indenture, which also contains rules as to usage that shall be applicable herein); provided, however, that the entire unpaid principal amount of this Note shall be due and payable on the Maturity Date specified above (the "Class A-3 Maturity Date").
The Issuer shall pay interest on this Note at the rate per annum equal to the Class A-3 Rate (as defined herein), on each Quarterly Distribution Date until the principal of this Note is paid or made available for payment, on the principal amount of this Note outstanding on the preceding Quarterly Distribution Date or the Date of Issuance in the case of the first Quarterly Distribution Date (after giving effect to all payments of principal made on the preceding Quarterly Distribution Date), subject to certain limitations contained
in the Indenture. Interest on this Note shall accrue from and including the preceding Quarterly Distribution Date (or, in the case of the first Interest Accrual Period, the Date of Issuance) to but excluding the following Quarterly Distribution Date (each an "Interest Accrual Period"). Interest shall be calculated on the basis of the actual number of days elapsed in each Interest Accrual Period divided by 360 and rounding the resultant figure to the fifth decimal point. Such principal of and interest on this Note shall be paid in the manner specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. All payments made by the Issuer with respect to this Note shall be applied first to interest due and payable on this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this Note.
Unless the certificate of authentication hereon has been executed by the Trustee whose name appears below by manual signature, this Note shall not be entitled to any benefit under the Indenture referred to on the reverse hereof, or be valid or obligatory for any purpose.
B-3-2
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed, manually or in facsimile, as of the date set forth below.
NELNET STUDENT LOAN TRUST 2005-1
By WILMINGTON TRUST COMPANY, not
 in its individual capacity
but solely as Delaware
Trustee under the Trust
Agreement,
By
 Authorized Signatory
Date: __________ __, ____
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the within-mentioned Indenture.
ZIONS FIRST NATIONAL BANK, not in its
 individual capacity but solely as Trustee,
By
 Authorized Signatory
Date: __________ __, ____
B-3-3
This Note is one of a duly authorized issue of Notes of the Issuer, designated as its Student Loan Asset-Backed Notes, Senior Class A-3 (the "Class A-3 Notes"), which, together with the Issuer's Student Loan Asset-Backed Notes, Senior Class A-1, Class A-2, Class A-4 and Class A-5 (together with the Class A-3 Notes, the "Class A Notes") and the Issuer's Student Loan Asset-Backed Notes, Class B (the "Class B Notes" and, together with the Class A Notes, the "Notes"), are issued under and secured by the Indenture, to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights and obligations thereunder of the Issuer, the Trustee and the Registered Owners. The Notes are subject to all terms of the Indenture.
The Class A-3 Notes are and will be secured by the Trust Estate pledged as security therefor as provided in the Indenture. The Class A Notes are senior to the Class B Notes as and to the extent provided in the Indenture. The Class A Notes are, except for certain Termination Payments that are not Priority Termination Payments, issued on a parity with any Derivative Products entered into by the Issuer with a Counterparty, pursuant to which the Issuer will, from time to time, owe Issuer Derivative Payments, and will, from time to time, be owed Counterparty Payments.
Principal of the Class A-3 Notes shall be payable on each Quarterly Distribution Date in an amount equal to the Class A-3 Noteholder's Principal Distribution Amount for such Quarterly Distribution Date. "Quarterly Distribution Date" means the twenty-fifth (25th) day of each January, April, July and October or, if any such date is not a Business Day, the immediately succeeding Business Day, commencing July 25, 2005.
As described on the face hereof, the entire unpaid principal amount of this Note shall be due and payable on the Class A-3 Maturity Date. Notwithstanding the foregoing, the entire unpaid principal amount of the Notes shall be due and payable on the date on which (a) an Event of Default shall have occurred and be continuing and (b) either the Trustee or the Registered Owners of Obligations representing not less than a majority of the Outstanding Amount of the Highest Priority Obligations shall have declared the Notes to be immediately due and payable in the manner provided in the Indenture.
The Notes are subject to redemption from the proceeds of a sale of Financed Eligible Loans in accordance with Section 10.03 or 10.04 of the Indenture on any Quarterly Distribution Date on of after (a) the January, 2020 Quarterly Distribution Date and (b) the Quarterly Distribution Date next succeeding the date on which the then outstanding Pool Balance is 10% or less of the Initial Pool Balance (all as defined in the Indenture).
Interest on the Class A-3 Notes shall be payable on each Quarterly Distribution Date on the principal amount outstanding of the Class A-3 Notes until the principal amount thereof is paid in full, at a rate per annum equal to the Class A-3 Rate. The "Class A-3 Rate" for each Interest Accrual Period, other than the first Interest Accrual Period, shall be equal to the applicable Three-Month LIBOR, plus ____%. The "Class A-3 Rate" for the first Interest Accrual Period shall be determined by reference to the following formula: x +
[__/__ * (y-x)] (where: x = Five-Month LIBOR, and y = Six-Month LIBOR), plus ____%, as determined by the Administrator.
B-3-4
Payments of interest on this Note on each Quarterly Distribution Date, together with the installment of principal, if any, to the extent not in full payment of this Note, shall be paid to the Person in whose name such Note is registered on the Record Date by check mailed first-class, postage prepaid to such Person's address as it appears on the records of the Trustee on such Record Date, except that, unless definitive Notes have been issued pursuant to the Indenture, with respect to Notes registered on the Record Date in the name of the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.), payment shall be made by wire transfer in immediately available funds to the account designated by such nominee. If funds are expected to be available, as provided in the Indenture, for payment in full of the then remaining unpaid principal amount of this Note on a Quarterly Distribution Date, then the Trustee shall notify the Person in whose name a Note is registered at the close of business on the Record Date preceding the Quarterly Distribution Date on which the Issuer expects that the final installment of principal of and interest on such Note will be paid. Such notice shall be mailed or transmitted by facsimile prior to such final Quarterly Distribution Date and shall specify that such final installment will be payable only upon presentation and surrender of such Note and shall specify the place where such Note may be presented and surrendered for payment of such installment.
As provided in the Indenture and subject to certain limitations set forth therein, the transfer of this Note may be registered upon the records of the Trustee upon surrender for transfer of any Note at the Principal Office of the Trustee, duly endorsed for transfer or accompanied by an assignment duly executed by the Registered Owner or his attorney duly authorized in writing, and thereupon the Issuer shall execute and the Trustee shall authenticate and deliver in the name of the transferee or transferees a new fully registered Note or Notes of the same interest rate and for a like class and aggregate principal amount of the same maturity.
As to any Note, the person in whose name the same shall be registered shall be deemed and regarded as the absolute owner thereof for all purposes, and payment of either principal or interest on any fully registered Note shall be made only to or upon the written order of the Registered Owner thereof or his legal representative but such registration may be changed as provided in the Indenture. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Note to the extent of the sum or sums paid.
Each Registered Owner and each transferee of a Note shall be deemed to represent and warrant that either (a) it is not acquiring the Note directly or indirectly for, or on behalf of, an ERISA plan or any entity whose underlying assets are deemed to be plan assets of such ERISA plan; or (b)(i) the acquisition and holding of the Notes will not result in a nonexempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or similar law and (ii) if the Notes are subsequently deemed to be "plan assets" pursuant to the regulations set forth at 29 C.F.R. ss. 2510.3-101, it will promptly dispose of the Notes.
The Trustee shall require the payment by any Registered Owner requesting exchange or transfer of any tax or other governmental charge required to be paid with respect to such exchange or transfer. The applicant for any such transfer or exchange may be required to pay all taxes and governmental charges in connection with such transfer or exchange, other than exchanges pursuant to the Indenture.
B-3-5
The term "Issuer" as used in this Note includes any successor to the Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances, to merge or consolidate, subject to the rights of the Trustee and the Registered Owners under the Indenture.
The Notes are issuable only in registered form in denominations as provided in the Indenture, subject to certain limitations therein set forth.
This Note shall be construed in accordance with the laws of the State of New York, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and interest on this Note at the times, place and rate, and in the coin or currency, herein prescribed.
B-3-6
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto

(name and address of assignee)

the within Note and all rights thereunder, and hereby irrevocably constitutes and appoints

attorney, to transfer said Note on the books kept for registration thereof, with full power of substitution in the premises.

Dated:

By *

Name
Title
Signature Guaranteed:
By * *NOTICE: Signature(s) should
be guaranteed by a guarantor
institution participating in the
Securities Transfer Agents
Medallion Program or in such
other guarantee program
acceptable to the Trustee. The
Assignor's signature to this
assignment must correspond with
the name as it appears upon the
face of the within note in every
particular without alteration or
any change whatever.
B-3-7
EXHIBIT B-4
FORM OF CLASS A-4 NOTE
Unless this Note is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Issuer (as defined below) or its agent for registration of transfer, exchange or payment, and any Note issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.
THE PRINCIPAL OF THIS NOTE IS PAYABLE AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THIS NOTE IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY.
NELNET STUDENT LOAN TRUST 2005-1
STUDENT LOAN ASSET-BACKED NOTES
SENIOR CLASS A-4 (LIBOR)
REGISTERED NO. R-__ REGISTERED $__________

   Date of Issuance            Maturity Date       CUSIP No.        ISIN No.
   February 23, 2005          October 26, 2020    64031Q BQ 3     US64031 QBQ38

PRINCIPAL SUM:               **DOLLARS**
REGISTERED OWNER:     **CEDE & CO.**	

Nelnet Student Loan Trust 2005-1, a statutory trust organized and existing under the laws of the State of Delaware (herein referred to as the "Issuer"), for value received, hereby promises to pay to CEDE & CO., or registered assigns, on each Quarterly Distribution Date the principal sum equal to the Class A-4 Noteholder's Principal Distribution Amount for such Quarterly Distribution Date, as described in the Indenture of Trust, dated as of February 1, 2005, between the Issuer (by Wilmington Trust Company, in its capacity as Delaware Trustee) and Zions First National Bank, a national banking association, as eligible lender trustee and indenture trustee (the "Trustee") (capitalized terms used but not defined herein being defined in Article I of the Indenture, which also contains rules as to usage that shall be applicable herein); provided, however, that the entire unpaid principal amount of this Note shall be due and payable on the Maturity Date specified above (the "Class A-4 Maturity Date").
The Issuer shall pay interest on this Note at the rate per annum equal to the Class A-4 Rate (as defined herein), on each Quarterly Distribution Date until the principal of this Note is paid or made available for payment, on the principal amount of this Note outstanding on the preceding Quarterly Distribution Date or the Date of Issuance in the case of the first Quarterly Distribution Date (after giving effect to all payments of principal made on the preceding Quarterly Distribution Date), subject to certain limitations contained
in the Indenture. Interest on this Note shall accrue from and including the preceding Quarterly Distribution Date (or, in the case of the first Interest Accrual Period, the Date of Issuance) to but excluding the following Quarterly Distribution Date (each an "Interest Accrual Period"). Interest shall be calculated on the basis of the actual number of days elapsed in each Interest Accrual Period divided by 360 and rounding the resultant figure to the fifth decimal point. Such principal of and interest on this Note shall be paid in the manner specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. All payments made by the Issuer with respect to this Note shall be applied first to interest due and payable on this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this Note.
Unless the certificate of authentication hereon has been executed by the Trustee whose name appears below by manual signature, this Note shall not be entitled to any benefit under the Indenture referred to on the reverse hereof, or be valid or obligatory for any purpose.
B-4-2
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed, manually or in facsimile, as of the date set forth below.
NELNET STUDENT LOAN TRUST 2005-1
By WILMINGTON TRUST COMPANY, not
 in its individual capacity
but solely as Delaware
Trustee under the Trust
Agreement,
By
 Authorized Signatory
Date: __________ __, ____
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the within-mentioned Indenture.
ZIONS FIRST NATIONAL BANK, not in its
 individual capacity but solely as Trustee,
By
 Authorized Signatory
Date: __________ __, ____
B-4-3
This Note is one of a duly authorized issue of Notes of the Issuer, designated as its Student Loan Asset-Backed Notes, Senior Class A-4 (the "Class A-4 Notes"), which, together with the Issuer's Student Loan Asset-Backed Notes, Senior Class A-1, Class A-2, Class A-3 and Class A-5 (together with the Class A-4 Notes, the "Class A Notes") and the Issuer's Student Loan Asset-Backed Notes, Subordinate Class B (the "Class B Notes" and, together with the Class A Notes, the "Notes"), are issued under and secured by the Indenture, to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights and obligations thereunder of the Issuer, the Trustee and the Registered Owners. The Notes are subject to all terms of the Indenture.
The Class A-4 Notes are and will be secured by the Trust Estate pledged as security therefor as provided in the Indenture. The Class A Notes (the "Class A Notes") are senior to the Class B Notes as and to the extent provided in the Indenture. The Class A Notes are, except for certain Termination Payments that are not Priority Termination Payments, issued on a parity with any Derivative Products entered into by the Issuer with a Counterparty, pursuant to which the Issuer will, from time to time, owe Issuer Derivative Payments, and will, from time to time, be owed Counterparty Payments.
Principal of the Class A-4 Notes shall be payable on each Quarterly Distribution Date in an amount equal to the Class A-4 Noteholder's Principal Distribution Amount for such Quarterly Distribution Date. "Quarterly Distribution Date" means the twenty-fifth (25th) day of each January, April, July and October or, if any such date is not a Business Day, the immediately succeeding Business Day, commencing July 25, 2005.
As described on the face hereof, the entire unpaid principal amount of this Note shall be due and payable on the Class A-4 Maturity Date. Notwithstanding the foregoing, the entire unpaid principal amount of the Notes shall be due and payable on the date on which (a) an Event of Default shall have occurred and be continuing and (b) either the Trustee or the Registered Owners of Obligations representing not less than a majority of the Outstanding Amount of the Highest Priority Obligations shall have declared the Notes to be immediately due and payable in the manner provided in the Indenture.
The Notes are subject to redemption from the proceeds of a sale of Financed Eligible Loans in accordance with Section 10.03 or 10.04 of the Indenture on any Quarterly Distribution Date on of after (a) the January, 2020 Quarterly Distribution Date and (b) the Quarterly Distribution Date next succeeding the date on which the then outstanding Pool Balance is 10% or less of the Initial Pool Balance (all as defined in the Indenture).
Interest on the Class A-4 Notes shall be payable on each Quarterly Distribution Date on the principal amount outstanding of the Class A-4 Notes until the principal amount thereof is paid in full, at a rate per annum equal to the Class A-4 Rate. The "Class A-4 Rate" for each Interest Accrual Period, other than the first Interest Accrual Period, shall be equal to the applicable Three-Month LIBOR, plus ____%. The "Class A-4 Rate" for the first Interest Accrual Period shall be determined by reference to the following formula: x +
[__/__ * (y-x)] (where: x = Five-Month LIBOR, and y = Six-Month LIBOR), plus ____%, as determined by the Administrator.
B-4-4
Payments of interest on this Note on each Quarterly Distribution Date, together with the installment of principal, if any, to the extent not in full payment of this Note, shall be paid to the Person in whose name such Note is registered on the Record Date by check mailed first-class, postage prepaid to such Person's address as it appears on the records of the Trustee on such Record Date, except that, unless definitive Notes have been issued pursuant to the Indenture, with respect to Notes registered on the Record Date in the name of the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.), payment shall be made by wire transfer in immediately available funds to the account designated by such nominee. If funds are expected to be available, as provided in the Indenture, for payment in full of the then remaining unpaid principal amount of this Note on a Quarterly Distribution Date, then the Trustee shall notify the Person in whose name a Note is registered at the close of business on the Record Date preceding the Quarterly Distribution Date on which the Issuer expects that the final installment of principal of and interest on such Note will be paid. Such notice shall be mailed or transmitted by facsimile prior to such final Quarterly Distribution Date and shall specify that such final installment will be payable only upon presentation and surrender of such Note and shall specify the place where such Note may be presented and surrendered for payment of such installment.
As provided in the Indenture and subject to certain limitations set forth therein, the transfer of this Note may be registered upon the records of the Trustee upon surrender for transfer of any Note at the Principal Office of the Trustee, duly endorsed for transfer or accompanied by an assignment duly executed by the Registered Owner or his attorney duly authorized in writing, and thereupon the Issuer shall execute and the Trustee shall authenticate and deliver in the name of the transferee or transferees a new fully registered Note or Notes of the same interest rate and for a like class and aggregate principal amount of the same maturity.
As to any Note, the person in whose name the same shall be registered shall be deemed and regarded as the absolute owner thereof for all purposes, and payment of either principal or interest on any fully registered Note shall be made only to or upon the written order of the Registered Owner thereof or his legal representative but such registration may be changed as provided in the Indenture. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Note to the extent of the sum or sums paid.
Each Registered Owner and each transferee of a Note shall be deemed to represent and warrant that either (a) it is not acquiring the Note directly or indirectly for, or on behalf of, an ERISA plan or any entity whose underlying assets are deemed to be plan assets of such ERISA plan; or (b)(i) the acquisition and holding of the Notes will not result in a nonexempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or similar law and (ii) if the Notes are subsequently deemed to be "plan assets" pursuant to the regulations set forth at 29 C.F.R. ss. 2510.3-101, it will promptly dispose of the Notes.
The Trustee shall require the payment by any Registered Owner requesting exchange or transfer of any tax or other governmental charge required to be paid with respect to such exchange or transfer. The applicant for any such transfer or exchange may be required to pay all taxes and governmental charges in connection with such transfer or exchange, other than exchanges pursuant to the Indenture.
B-4-5
The term "Issuer" as used in this Note includes any successor to the Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances, to merge or consolidate, subject to the rights of the Trustee and the Registered Owners under the Indenture.
The Notes are issuable only in registered form in denominations as provided in the Indenture, subject to certain limitations therein set forth.
This Note shall be construed in accordance with the laws of the State of New York, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and interest on this Note at the times, place and rate, and in the coin or currency, herein prescribed.
B-4-6
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto

(name and address of assignee)

the within Note and all rights thereunder, and hereby irrevocably constitutes and appoints

attorney, to transfer said Note on the books kept for registration thereof, with full power of substitution in the premises.

Dated:

By *

Name
Title
Signature Guaranteed:
By * *NOTICE: Signature(s) should
be guaranteed by a guarantor
institution participating in the
Securities Transfer Agents
Medallion Program or in such
other guarantee program
acceptable to the Trustee. The
Assignor's signature to this
assignment must correspond with
the name as it appears upon the
face of the within note in every
particular without alteration or
any change whatever.
B-4-7
EXHIBIT B-5
FORM OF CLASS A-5 NOTE
Unless this Note is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Issuer (as defined below) or its agent for registration of transfer, exchange or payment, and any Note issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.
THE PRINCIPAL OF THIS NOTE IS PAYABLE AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THIS NOTE IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY.
NELNET STUDENT LOAN TRUST 2005-1
STUDENT LOAN ASSET-BACKED NOTES
SENIOR CLASS A-5 (LIBOR)
REGISTERED NO. R-__ REGISTERED $__________

   Date of Issuance            Maturity Date         CUSIP No.        ISIN No.
   February 23, 2005          October 25, 2033      64031Q BR     US64031 QBR11

PRINCIPAL SUM:        **DOLLARS**
REGISTERED OWNER:     **CEDE & CO.**	

Nelnet Student Loan Trust 2005-1, a statutory trust organized and existing under the laws of the State of Delaware (herein referred to as the "Issuer"), for value received, hereby promises to pay to CEDE & CO., or registered assigns, on each Quarterly Distribution Date the principal sum equal to the Class A-5 Noteholder's Principal Distribution Amount for such Quarterly Distribution Date, as described in the Indenture of Trust, dated as of February 1, 2005, between the Issuer (by Wilmington Trust Company, in its capacity as Delaware Trustee) and Zions First National Bank, a national banking association, as eligible lender trustee and indenture trustee (the "Trustee") (capitalized terms used but not defined herein being defined in Article I of the Indenture, which also contains rules as to usage that shall be applicable herein); provided, however, that the entire unpaid principal amount of this Note shall be due and payable on the Maturity Date specified above (the "Class A-5 Maturity Date").
The Issuer shall pay interest on this Note at the rate per annum equal to the Class A-5 Rate (as defined herein), on each Quarterly Distribution Date until the principal of this Note is paid or made available for payment, on the principal amount of this Note outstanding on the preceding Quarterly Distribution Date or the Date of Issuance in the case of the first Quarterly Distribution Date (after giving effect to all payments of principal made on the preceding Quarterly Distribution Date), subject to certain limitations contained
in the Indenture. Interest on this Note shall accrue from and including the preceding Quarterly Distribution Date (or, in the case of the first Interest Accrual Period, the Date of Issuance) to but excluding the following Quarterly Distribution Date (each an "Interest Accrual Period"). Interest shall be calculated on the basis of the actual number of days elapsed in each Interest Accrual Period divided by 360 and rounding the resultant figure to the fifth decimal point. Such principal of and interest on this Note shall be paid in the manner specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. All payments made by the Issuer with respect to this Note shall be applied first to interest due and payable on this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this Note.
Unless the certificate of authentication hereon has been executed by the Trustee whose name appears below by manual signature, this Note shall not be entitled to any benefit under the Indenture referred to on the reverse hereof, or be valid or obligatory for any purpose.
B-5-2
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed, manually or in facsimile, as of the date set forth below.
NELNET STUDENT LOAN TRUST 2005-1
By WILMINGTON TRUST COMPANY, not
 in its individual capacity
but solely as Delaware
Trustee under the Trust
Agreement
By
 Authorized Signatory
Date: __________ __, ____
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the within-mentioned Indenture.
ZIONS FIRST NATIONAL BANK, not in its
 individual capacity but solely as Trustee,
By
 Authorized Signatory
Date: __________ __, ____
B-5-3
This Note is one of a duly authorized issue of Notes of the Issuer, designated as its Student Loan Asset-Backed Notes, Class A-5 (the "Class A-5 Notes"), which, together with the Issuer's Student Loan Asset-Backed Notes, Class A-1, Class A-2, Class A-3 and Class A-4 (together with the Class A-5 Notes, the "Class A Notes") and the Issuer's Student Loan Asset-Backed Notes, Class B (the "Class B Notes" and, together with the Class A Notes, the "Notes"), are issued under and secured by the Indenture, to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights and obligations thereunder of the Issuer, the Trustee and the Registered Owners. The Notes are subject to all terms of the Indenture.
The Class A-5 Notes are and will be secured by the Trust Estate pledged as security therefor as provided in the Indenture. The Class A Notes (the "Class A Notes") are senior to the Class B Notes as and to the extent provided in the Indenture. The Class A Notes are, except for certain Termination Payments that are not Priority Termination Payments, issued on a parity with any Derivative Products entered into by the Issuer with a Counterparty, pursuant to which the Issuer will, from time to time, owe Issuer Derivative Payments, and will, from time to time, be owed Counterparty Payments.
Principal of the Class A-5 Notes shall be payable on each Quarterly Distribution Date in an amount equal to the Class A-5 Noteholder's Principal Distribution Amount for such Quarterly Distribution Date. "Quarterly Distribution Date" means the twenty-fifth (25th) day of each January, April, July and October or, if any such date is not a Business Day, the immediately succeeding Business Day, commencing July 25, 2005.
As described on the face hereof, the entire unpaid principal amount of this Note shall be due and payable on the Class A-5 Maturity Date. Notwithstanding the foregoing, the entire unpaid principal amount of the Notes shall be due and payable on the date on which (a) an Event of Default shall have occurred and be continuing and (b) either the Trustee or the Registered Owners of Obligations representing not less than a majority of the Outstanding Amount of the Highest Priority Obligations shall have declared the Notes to be immediately due and payable in the manner provided in the Indenture.
The Notes are subject to redemption from the proceeds of a sale of Financed Eligible Loans in accordance with Section 10.03 or 10.04 of the Indenture on any Quarterly Distribution Date on of after (a) the January, 2020 Quarterly Distribution Date and (b) the Quarterly Distribution Date next succeeding the date on which the then outstanding Pool Balance is 10% or less of the Initial Pool Balance (all as defined in the Indenture).
Interest on the Class A-5 Notes shall be payable on each Quarterly Distribution Date on the principal amount outstanding of the Class A-5 Notes until the principal amount thereof is paid in full, at a rate per annum equal to the Class A-5 Rate. The "Class A-5 Rate" for each Interest Accrual Period, other than the first Interest Accrual Period, shall be equal to the applicable Three-Month LIBOR, plus ____%. The "Class A-5 Rate" for the first Interest Accrual Period shall be determined by reference to the following formula: x +
[__/__ * (y-x)] (where: x = Five-Month LIBOR, and y = Six-Month LIBOR), plus ____%, as determined by the Administrator.
B-5-4
Payments of interest on this Note on each Quarterly Distribution Date, together with the installment of principal, if any, to the extent not in full payment of this Note, shall be paid to the Person in whose name such Note is registered on the Record Date by check mailed first-class, postage prepaid to such Person's address as it appears on the records of the Trustee on such Record Date, except that, unless definitive Notes have been issued pursuant to the Indenture, with respect to Notes registered on the Record Date in the name of the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.), payment shall be made by wire transfer in immediately available funds to the account designated by such nominee. If funds are expected to be available, as provided in the Indenture, for payment in full of the then remaining unpaid principal amount of this Note on a Quarterly Distribution Date, then the Trustee shall notify the Person in whose name a Note is registered at the close of business on the Record Date preceding the Quarterly Distribution Date on which the Issuer expects that the final installment of principal of and interest on such Note will be paid. Such notice shall be mailed or transmitted by facsimile prior to such final Quarterly Distribution Date and shall specify that such final installment will be payable only upon presentation and surrender of such Note and shall specify the place where such Note may be presented and surrendered for payment of such installment.
As provided in the Indenture and subject to certain limitations set forth therein, the transfer of this Note may be registered upon the records of the Trustee upon surrender for transfer of any Note at the Principal Office of the Trustee, duly endorsed for transfer or accompanied by an assignment duly executed by the Registered Owner or his attorney duly authorized in writing, and thereupon the Issuer shall execute and the Trustee shall authenticate and deliver in the name of the transferee or transferees a new fully registered Note or Notes of the same interest rate and for a like class and aggregate principal amount of the same maturity.
As to any Note, the person in whose name the same shall be registered shall be deemed and regarded as the absolute owner thereof for all purposes, and payment of either principal or interest on any fully registered Note shall be made only to or upon the written order of the Registered Owner thereof or his legal representative but such registration may be changed as provided in the Indenture. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Note to the extent of the sum or sums paid.
Each Registered Owner and each transferee of a Note shall be deemed to represent and warrant that either (a) it is not acquiring the Note directly or indirectly for, or on behalf of, an ERISA plan or any entity whose underlying assets are deemed to be plan assets of such ERISA plan; or (b)(i) the acquisition and holding of the Notes will not result in a nonexempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or similar law and (ii) if the Notes are subsequently deemed to be "plan assets" pursuant to the regulations set forth at 29 C.F.R. ss. 2510.3-101, it will promptly dispose of the Notes.
The Trustee shall require the payment by any Registered Owner requesting exchange or transfer of any tax or other governmental charge required to be paid with respect to such exchange or transfer. The applicant for any such transfer or exchange may be required to pay all taxes and governmental charges in connection with such transfer or exchange, other than exchanges pursuant to the Indenture.
B-5-5
The term "Issuer" as used in this Note includes any successor to the Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances, to merge or consolidate, subject to the rights of the Trustee and the Registered Owners under the Indenture.
The Notes are issuable only in registered form in denominations as provided in the Indenture, subject to certain limitations therein set forth.
This Note shall be construed in accordance with the laws of the State of New York, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and interest on this Note at the times, place and rate, and in the coin or currency, herein prescribed.
B-5-6
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto

(name and address of assignee)

the within Note and all rights thereunder, and hereby irrevocably constitutes and appoints

attorney, to transfer said Note on the books kept for registration thereof, with full power of substitution in the premises.

Dated:

By *

Name
Title
Signature Guaranteed:
By * *NOTICE: Signature(s) should
be guaranteed by a guarantor
institution participating in the
Securities Transfer Agents
Medallion Program or in such
other guarantee program
acceptable to the Trustee. The
Assignor's signature to this
assignment must correspond with
the name as it appears upon the
face of the within note in every
particular without alteration or
any change whatever.
B-5-7
EXHIBIT B-6
FORM OF CLASS B NOTE
Unless this Note is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Issuer (as defined below) or its agent for registration of transfer, exchange or payment, and any Note issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.
THE PRINCIPAL OF THIS NOTE IS PAYABLE AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THIS NOTE IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY.
NELNET STUDENT LOAN TRUST 2005-1
STUDENT LOAN ASSET-BACKED NOTES
SUBORDINATE CLASS B (LIBOR)
REGISTERED NO. R-__ REGISTERED $__________

   Date of Issuance            Maturity Date        CUSIP No.         ISIN No.
   February 23, 2005          October 25, 2038     64031Q BS 9     US64031 QBS93

PRINCIPAL SUM:        **DOLLARS**
REGISTERED OWNER:     **CEDE & CO.**	

Nelnet Student Loan Trust 2005-1, a statutory trust organized and existing under the laws of the State of Delaware (herein referred to as the "Issuer"), for value received, hereby promises to pay to CEDE & CO., or registered assigns, on each Quarterly Distribution Date the principal sum equal to the applicable Class B Noteholder's Principal Distribution Amount for such Quarterly Distribution Date, as described in the Indenture of Trust, dated as of February 1, 2005, between the Issuer (by Wilmington Trust Company, in its capacity as Delaware Trustee) and Zions First National Bank, a national banking association, as eligible lender trustee and indenture trustee (the "Trustee") (capitalized terms used but not defined herein being defined in Article I of the Indenture, which also contains rules as to usage that shall be applicable herein); provided, however, that the entire unpaid principal amount of this Note shall be due and payable on the Maturity Date specified above (the "Class B Maturity Date").
The Issuer shall pay interest on this Note at the rate per annum equal to the Class B Rate (as defined on the reverse hereof), on each Quarterly Distribution Date until the principal of this Note is paid or made available for payment, on the principal amount of this Note outstanding on the preceding Quarterly Distribution Date or the Date of Issuance in the case of the first Quarterly Distribution Date (after giving effect to all payments of principal made on the preceding Quarterly Distribution Date), subject to certain
limitations contained in the Indenture. Interest on this Note shall accrue from and including the preceding Quarterly Distribution Date (or, in the case of the first Interest Accrual Period, the Date of Issuance) to but excluding the following Quarterly Distribution Date (each an "Interest Accrual Period"). Interest shall be calculated on the basis of the actual number of days elapsed in each Interest Accrual Period divided by 360 and rounding the resultant figure to the fifth decimal point. Such principal of and interest on this Note shall be paid in the manner specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. All payments made by the Issuer with respect to this Note shall be applied first to interest due and payable on this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this Note.
Unless the certificate of authentication hereon has been executed by the Trustee whose name appears below by manual signature, this Note shall not be entitled to any benefit under the Indenture referred to on the reverse hereof, or be valid or obligatory for any purpose.
B-6-2
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed, manually or in facsimile, as of the date set forth below.
NELNET STUDENT LOAN TRUST 2005-1
By WILMINGTON TRUST COMPANY, not
 in its individual capacity
but solely as Delaware
Trustee under the Trust
Agreement,
By
 Authorized Signatory
Date: __________ __, ____
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the within-mentioned Indenture.
ZIONS FIRST NATIONAL BANK, not in its
 individual capacity but solely as Trustee,
By
 Authorized Signatory
Date: __________ __, ____
B-6-3
This Note is one of a duly authorized issue of Notes of the Issuer, designated as its Student Loan Asset-Backed Notes, Subordinate Class B (the "Class B Notes"), which, together with the Issuer's Student Loan Asset-Backed Notes, Senior Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5 (collectively, the "Class A Notes" and, together with the Class B Notes, the "Notes"), are issued under and secured by the Indenture, to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights and obligations thereunder of the Issuer, the Trustee and the Registered Owners. The Notes are subject to all terms of the Indenture.
The Class B Notes are and will be secured by the Trust Estate pledged as security therefor as provided in the Indenture. The Class A Notes are senior to the Class B Notes as and to the extent provided in the Indenture. The Class A Notes are, except for certain Termination Payments that are not Priority Termination Payments, issued on a parity with any Derivative Products entered into by the Issuer with a Counterparty, pursuant to which the Issuer will, from time to time, owe Issuer Derivative Payments, and will, from time to time, be owed Counterparty Payments.
Principal of the Class B Notes shall be payable on each Quarterly Distribution Date in an amount equal to the Class B Noteholder's Principal Distribution Amount for such Quarterly Distribution Date. "Quarterly Distribution Date" means the twenty-fifth (25th) day of each January, April, July and October or, if any such date is not a Business Day, the immediately succeeding Business Day, commencing July 25, 2005.
As described on the face hereof, the entire unpaid principal amount of this Note shall be due and payable on the Class B Maturity Date. Notwithstanding the foregoing, the entire unpaid principal amount of the Notes shall be due and payable on the date on which (a) an Event of Default shall have occurred and be continuing and (b) either the Trustee or the Registered Owners of Obligations representing not less than a majority of the Outstanding Amount of the Highest Priority Obligations shall have declared the Notes to be immediately due and payable in the manner provided in the Indenture.
The Notes are subject to redemption from the proceeds of a sale of Financed Eligible Loans in accordance with Section 10.03 or 10.04 of the Indenture on any Quarterly Distribution Date on of after (a) the January, 2020 Quarterly Distribution Date and (b) the Quarterly Distribution Date next succeeding the date on which the then outstanding Pool Balance is 10% or less of the Initial Pool Balance (all as defined in the Indenture).
Interest on the Class B Notes shall be payable on each Quarterly Distribution Date on the principal amount outstanding of the Class B Notes until the principal amount thereof is paid in full, at a rate per annum equal to the Class B Rate. The "Class B Rate" for each Interest Accrual Period, other than the first Interest Accrual Period, shall be equal to the applicable Three-Month LIBOR, plus ____%. The "Class B Rate" for the first Interest Accrual Period shall be determined by reference to the following formula: x + [__/__ * (y-x)] (where: x = Five-Month LIBOR, and y = Six-Month LIBOR), plus ____%, as determined by the Administrator.
B-6-4
Payments of interest on this Note on each Quarterly Distribution Date, together with the installment of principal, if any, to the extent not in full payment of this Note, shall be paid to the Person in whose name such Note is registered on the Record Date by check mailed first-class, postage prepaid to such Person's address as it appears on the records of the Trustee on such Record Date, except that, unless definitive Notes have been issued pursuant to the Indenture, with respect to Notes registered on the Record Date in the name of the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.), payment shall be made by wire transfer in immediately available funds to the account designated by such nominee. If funds are expected to be available, as provided in the Indenture, for payment in full of the then remaining unpaid principal amount of this Note on a Quarterly Distribution Date, then the Trustee shall notify the Person in whose name a Note is registered at the close of business on the Record Date preceding the Quarterly Distribution Date on which the Issuer expects that the final installment of principal of and interest on such Note will be paid. Such notice shall be mailed or transmitted by facsimile prior to such final Quarterly Distribution Date and shall specify that such final installment will be payable only upon presentation and surrender of such Note and shall specify the place where such Note may be presented and surrendered for payment of such installment.
As provided in the Indenture and subject to certain limitations set forth therein, the transfer of this Note may be registered upon the records of the Trustee upon surrender for transfer of any Note at the Principal Office of the Trustee, duly endorsed for transfer or accompanied by an assignment duly executed by the Registered Owner or his attorney duly authorized in writing, and thereupon the Issuer shall execute and the Trustee shall authenticate and deliver in the name of the transferee or transferees a new fully registered Note or Notes of the same interest rate and for a like class and aggregate principal amount of the same maturity.
As to any Note, the person in whose name the same shall be registered shall be deemed and regarded as the absolute owner thereof for all purposes, and payment of either principal or interest on any fully registered Note shall be made only to or upon the written order of the Registered Owner thereof or his legal representative but such registration may be changed as provided in the Indenture. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Note to the extent of the sum or sums paid.
Each Registered Owner and each transferee of a Note shall be deemed to represent and warrant that either (a) it is not acquiring the Note directly or indirectly for, or on behalf of, an ERISA plan or any entity whose underlying assets are deemed to be plan assets of such ERISA plan; or (b)(i) the acquisition and holding of the Notes will not result in a nonexempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or similar law and (ii) if the Notes are subsequently deemed to be "plan assets" pursuant to the regulations set forth at 29 C.F.R. ss. 2510.3-101, it will promptly dispose of the Notes.
The Trustee shall require the payment by any Registered Owner requesting exchange or transfer of any tax or other governmental charge required to be paid with respect to such exchange or transfer. The applicant for any such transfer or exchange may be required to pay all taxes and governmental charges in connection with such transfer or exchange, other than exchanges pursuant to the Indenture.
B-6-5
The term "Issuer" as used in this Note includes any successor to the Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances, to merge or consolidate, subject to the rights of the Trustee and the Registered Owners under the Indenture.
The Notes are issuable only in registered form in denominations as provided in the Indenture, subject to certain limitations therein set forth.
This Note shall be construed in accordance with the laws of the State of New York, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and interest on this Note at the times, place and rate, and in the coin or currency, herein prescribed.
B-6-6
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto

(name and address of assignee)

the within Note and all rights thereunder, and hereby irrevocably constitutes and appoints

attorney, to transfer said Note on the books kept for registration thereof, with full power of substitution in the premises.

Dated:

By *

Name
Title
Signature Guaranteed:
By * *NOTICE: Signature(s) should
be guaranteed by a guarantor
institution participating in the
Securities Transfer Agents
Medallion Program or in such
other guarantee program
acceptable to the Trustee. The
Assignor's signature to this
assignment must correspond with
the name as it appears upon the
face of the within note in every
particular without alteration or
any change whatever.
B-6-7
EXHIBIT C
FORM OF ADMINISTRATOR'S MONTHLY
SERVICING PAYMENT DATE CERTIFICATE
This Administrator's Monthly Servicing Payment Date Certificate (the "Certificate") is being provided by National Education Loan Network, Inc., as Administrator (the "Administrator") to Nelnet Student Loan Trust 2005-1 (the "Issuer") pursuant to Section 5.04(b) of the Indenture of Trust, dated as of February 1, 2005 (the "Indenture"), between the Issuer and Zions First National Bank (the "Trustee"). All capitalized terms used in this Certificate and not otherwise defined shall have the same meanings as assigned to such terms in the Indenture.
Pursuant to this Certificate, the Administrator hereby directs the Trustee to distribute to the Master Servicer, by 3:00 p.m. (New York time) on __________ __, ____ (the "Monthly Servicing Payment Date"), from and to the extent of the Available Funds on deposit in the Collection Fund, $__________ Servicing Fee due with respect to the preceding calendar month.
The Available Funds on this Monthly Servicing Payment Date is equal to $__________.
The Administrator hereby certifies that the information herein is true and accurate in all material respects, is in compliance with the provisions of the Indenture and that the Trustee may conclusively rely on this Certificate with no further duty to examine or determine the information contained herein.
IN WITNESS WHEREOF, the Administrator has caused this Certificate to be duly executed and delivered as of the date written below.
NATIONAL EDUCATION LOAN NETWORK, INC., as
Administrator
By
 Authorized Signatory
[DATE]
EXHIBIT D
FORM OF ADMINISTRATOR'S QUARTERLY
DISTRIBUTION DATE CERTIFICATE
This Administrator's Quarterly Distribution Date Certificate (the "Certificate") is being provided by National Education Loan Network, Inc., as Administrator (the "Administrator") to Nelnet Student Loan Trust 2005-1 (the "Issuer") pursuant to Section 5.04(c) of the Indenture of Trust, dated as of February 1, 2005 (the "Indenture"), between the Issuer and Zions First National Bank, as eligible lender trustee and as trustee (the "Trustee"). All capitalized terms used in this Certificate and not otherwise defined shall have the same meanings as assigned to such terms in the Indenture.
Pursuant to this Certificate, the Administrator hereby directs the Trustee to make the following deposits and distributions to the Persons or to the account specified below by 3:00 p.m. (New York time) on __________ __, _____ (the "Quarterly Distribution Date"), to the extent of (x) the amount of Available Funds in the Collection Fund, (y) the amount transferred from the Reserve Fund pursuant to Section 5.05(b), (c) and (d) of the Indenture and (z) the amount transferred from the Capitalized Interest Fund pursuant to Section 5.03 of the Indenture. The Trustee shall make the following deposits and distributions in the following order of priority, and the Trustee shall comply with such instructions:

(i)     (a)The Servicing Fee to the Master Servicer,                             $
                                                                                 ----------------
        (b)The Trustee Fee to the Trustee, and                                   $
                                                                                 ----------------
        (c)The Delaware Trustee Fee to the Delaware Trustee,                     $
                                                                                 ----------------

        payments described in (a) through (c) above to be made ratably, without
        preference or priority of any kind, due on the Quarterly Distribution
        Date in each case with such fees remaining unpaid from prior Quarterly
        Distribution Dates (or as applicable from prior Monthly Service Payment
        Dates);
(ii)    (a)The Administration Fee to the Administrator                           $
                                                                                 ----------------
        (b)Any unpaid Administration Fees, if any, from prior Distribution       $
           Dates to the Administrator due on the Distribution Date;              ----------------

(iii) (a)The Interest Distribution Amount to the Class A-1 Noteholders, $
                                                                                 ----------------
           The Interest Distribution Amount to the Class A-2 Noteholders,        $
                                                                                 ----------------
           The Interest Distribution Amount to the Class A-3 Noteholders,        $
                                                                                 ----------------
           The Interest Distribution Amount to the Class A-4 Noteholders, and    $
                                                                                 ----------------
           The Interest Distribution Amount to the Class A-5 Noteholders, and    $
                                                                                 ----------------
        (b)Issuer Derivative Payments (excluding Termination Payments other      $
           than Priority Termination Payments) to the Counterparties, pro        ----------------
           rata, without preference or priority of any kind, according to the
           amounts payable to each such party;

(iv)    The Interest Distribution Amount to the Class B Noteholders;             $
                                                                                 ----------------
(v)     An amount equal to the unpaid interest accrued on the Financed Student   $
        Loans subsequent to the Cutoff Date but prior to the Date of Issuance,   ----------------
        until such amount has been paid in full, to the Sponsor;

(vi)    The Class A Principal Distribution Amount to the Class A-1 Noteholders   $
        (until paid in full);                                                    ----------------

(vii)   The Class A Principal Distribution Amount to the Class A-2 Noteholders   $
        (until paid in full);                                                    ----------------

(viii)  The Class A Principal Distribution Amount to the Class A-3 Noteholders   $
        (until paid in full);                                                    ----------------

(ix)    The Class A Principal Distribution Amount to the Class A-4 Noteholders   $
        (until paid in full);                                                    ----------------

                                      D-2	

(x)     The Class A Principal Distribution Amount to the Class A-5 Noteholders   $
        (until paid in full);                                                    ----------------

(xi)    On and after the Stepdown Date (no Trigger Event is in effect), the      $
        Class B Principal Distribution Amount to the Class B Noteholders         ----------------
        (until paid in full);

(xii)   Amounts to be deposited to the Reserve Fund necessary to reinstate the   $
        balance of the Reserve Fund up to the Specified Reserve Fund Balance;    ----------------

(xiii)  Amounts due to the Master Servicer representing the aggregate unpaid     $
        amount of the Carryover Servicing Fee;                                   ----------------

(xiv)   Amounts due to the Counterparties, pro rata, without preference or       $
        priority (representing any accrued and unpaid Termination Payments due   ----------------
        under any Derivative Product Payments);

(xv)    If the Financed Eligible Loans have not been sold pursuant to            $
        Section 10.03 or 10.04 of the Indenture, amounts payable to the          ----------------
        Noteholders of the Notes as an accelerated payment of principal
        balance on the Notes pursuant to Section 5.04; and

(xvi)   remaining amounts to the Sponsor.                                        $
                                                                                 ----------------
        Total Distributions                                                      $
                                                                                 ----------------
        The Available Funds on this Quarterly Distribution Date (Collection      $
        Acct. and Reserve Fund Excess)                                           ----------------	

Pursuant to this Certificate, if applicable, the Administrator further hereby directs the Trustee to withdraw from (a) the Capitalized Interest Fund for deposit to the Collection Fund (i) an amount equal to $__________, representing the amount of insufficient Available Funds in the Collection Account to make the transfers required by Sections 5.04(b) (other than funding "add-on consolidation loans" or repurchasing student loans from the Master Servicer, any Subservicer or any Guaranty Agency) and 5.04(c)(i) through (iv) and (viii) of the Indenture and (ii) an amount equal to $__________, representing the remaining amount on deposit in the Capitalized Interest Fund on the __________, ____ Quarterly Distribution Date and (b) the Reserve Fund for deposit to the Collection Fund to the extent moneys are not available to make the transfers from the Capitalized Interest Fund, (i) an amount equal to $__________, representing the amount of insufficient Available Funds in the Collection Account to make the transfers required by Sections 5.04(b) (other than funding "add-on consolidation loans" or repurchasing student loans from the Master Servicer, any Subservicer or any Guaranty Agency) and 5.04(c)(i) through 5.04(c)(iv) of the Indenture, and (ii) an amount equal to $__________, representing the amount on deposit in the Reserve Fund in excess of the Specified Reserve Fund Balance.
D-3
The Administrator hereby certifies that the information herein is true and accurate in all material respects, is in compliance with the provisions of the Indenture and that the Trustee may conclusively rely on this Certificate with no further duty to examine or determine the information contained herein.
IN WITNESS WHEREOF, the Administrator has caused this Certificate to be duly executed and delivered as of the date written below.
NATIONAL EDUCATION LOAN NETWORK, INC.,
as Administrator
By

Authorized Signatory Date

D-4
 
EXHIBIT 10.66
AGREEMENT TO PURCHASE AND SELL PARTIAL INTEREST IN AIRCRAFT
THIS AGREEMENT TO PURCHASE AND SELL PARTIAL INTEREST IN AIRCRAFT (the "AGREEMENT") is made and entered into as of this 27th day of September, 2004, by and between Nelnet Corporate Services, Inc., f/k/a Nelnet Corporation (herein referred to as "Seller"), and Crete Carrier Corporation ("Crete Carrier") and Nebco Intermodal, Inc. ("Nebco"), (Crete Carrier and Nebco being referred to herein individually as a "Purchaser" and collectively as the "Purchasers"), with respect to That certain Cessna Citation Excel model aircraft, Serial No. 560-5270, Reg No. N300DA (the "Aircraft")
NOW, THEREFORE, in consideration of the mutual covenants hereafter contained, the parties hereto agree as follows:
1. Sale of Seller's Interest in Aircraft. Seller hereby agrees to sell, assign, transfer and deliver to Purchasers and Purchasers hereby severally agree to purchase from the Seller, under and pursuant to the terms and conditions hereafter set forth, Seller's undivided aggregate 45% ownership interest in the above referenced Aircraft in the following proportion: (i) an undivided 30% interest in the Aircraft shall be transferred to Crete Carrier, and (ii) an undivided 15% in the Aircraft shall be transferred to Nebco.
2. Purchase Price. The purchase price for the portion of Seller's ownership interest in the Aircraft purchased by Crete Carrier shall be Two Million, Three Hundred Eighty Two Thousand, One Hundred Seventeen Dollars ($2,382,117.00). The purchase price for the portion of Seller's ownership interest in the Aircraft purchase by Nebco shall be One Million, One Hundred Ninety One Thousand, Fifty Eight Dollars ($1,191,058.00).
3. No Encumbrance. The Seller's interest in the Aircraft shall be transferred to Purchasers free and clear of all security interests, liens or encumbrances of any nature whatsoever.
4. Closing. The Closing shall be set to occur no later than 2 business days after execution of this AGREEMENT. Closing shall take place as evidenced by executing and filing an FAA Aircraft Bill of Sale (AC Form 8050-2) with the FAA Aircraft Registry on behalf of Purchaser, and wire transfering the Purchase Price to Seller or its designated Qualified Intermediary, per their written instructions, and by delivery to the respective Purchasers of a Bill of Sale in the form attached hereto as Exhibit A.
5. Risk of Loss. Risk of loss, damage, or destruction of the Seller's interest in the Aircraft shall pass from Seller to Purchasers upon Closing of the sale of Seller's interest in the Aircraft.
6. Representations. Seller represents and warrants that it is the sole owner of an undivided 45% interest in the Aircraft, that it has good and merchantable title to an undivided 45% interst in the Aircraft, and that Seller's interest in the Aircraft will be transferred to the respective Purchasers free and clear of all security interests, liens, claims, and encumbrances whatsoever. Seller further represents and warrants that it has no knowledge of any defect or deficiency with respect to the Aircraft.
EXCEPT FOR THE WARRANTY OF TITLE EXPRESSLY SET FORTH HEREIN, "SELLER" MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE REGARDING THE "AIRCRAFT", WHICH ARE DELIVERED HEREUNDER IN AN "AS IS, WHERE IS" CONDITION. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, "SELLER" DISCLAIMS ALL OTHER WARRANTIES, GUARANTEES OR LIABILITIES, WHETHER EXPRESS OR IMPLIED OR STATUTORY, SUCH AS THE CONDITION OF THE "AIRCRAFT" AIRWORTHINESS, DESIGN, QUALITY OF WORKMANSHIP OR MATERIALS, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
7. BROKER'S COMMISSION. Seller and Purchasers each represent and warrant to the other that they have taken no action which would obligate the other parties or give rise to a valid claim for a broker's fee in connection with this transaction and each party agrees to indemnify and forever hold the other harmless from and against any claims for brokers' compensations, fees, or commissions arising out of the indemnifying party's actions.
8. TAXES. Purchasers shall pay, and shall indemnify and hold the Seller harmless from all sales, use, property, ad valorem, value added, or other similar taxes, fees, or other charges of any nature (excluding taxes on net or gross income or gain realized by the Seller) together with any penalties, fines, or interest thereon which may be assessed or levied by the U.S. Government or other U.S. taxing authority as a result of the Purchasers' acquiring Seller's interest in the Aircraft. Seller shall be responsible for any taxes, fees, or charges assessed against the Aircraft prior to Closing and shall indemnify and hold Purchasers harmless from these taxes.
9. PRIOR AGREEMENTS. This AGREEMENT sets forth the entire contract between the parties and supersedes all previous communications, representations, or agreements, whether oral or written, between the parties with respect to the sale and purchase of Seller's interest in the Aircraft. The parties agree that the Aircraft Joint Ownership Agreement dated as of August 22, 2002 (the "Ownership Agreement") between Seller and Purchasers is hereby amended to delete Seller as a party thereto, and to transfer Seller's rights and obligations pursuant to the Ownership Agreement to Purchasers in the same proportion as Seller's ownership interest in the Aircraft is being transferred (30% to Crete Carrier and 15% to Nebco). The Purchasers further acknowledge that Seller has fully satisfied its obligations under the Ownership Agreement and the Seller shall have no further duties or obligations in connection with the Ownership Agreement. Purchasers shall severally assume all of Seller's obligations under the Ownership Agreement arising after the Closing of the sale pursuant to this AGREEMENT in the same proportion as Seller's ownership interest in the Aircraft is being transferred hereunder. Purchasers shall use best efforts in good faith to terminate or amend the Aircraft Management Agreement dated as of August 22, 2002 (the "Management Agreement") between Duncan Aviation, Inc. ("Duncan"), Purchasers and Seller, so as to remove Seller as a party to such Management Agreement, and that Purchasers hereby severally assume all of Seller's obligations under the Management Agreement arising after the Closing of the sale pursuant to this AGREEMENT in the same proportion as Seller's ownership interest in the Aircraft is being transferred hereunder . Purchasers agrees to indemnify and hold harmless Seller for any claim of Duncan under the Management Agreement arising on or after the date of Closing.
10. AMENDMENTS. This AGREEMENT may be amended only by a written instrument executed by all parties.
11. AUTHORIZATION. Seller and Purchaser each warrant to the other that the execution, delivery, and performance of this AGREEMENT has been authorized and approved by all required corporate action, and the parties executing this document warrant their authority to so bind the respective parties.
12. COUNTERPARTS. This AGREEMENT may be executed in two or more counterparts, each of which shall be deemed an original and shall be effective when executed by both parties.
13. GOVERNING LAW. This contract shall be deemed to have been made, executed under and governed by the law of the State of Nebraska.
2
14. 1031 EXCHANGE. Seller and/or Purchasers may structure the transaction herein contemplated as the receipt of replacement property pursuant to a like-kind exchange under the provisions of Section 1031 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder (the "Regulations"). It is expressly acknowledged that Seller and/or Purchasers may assign its rights in this AGREEMENT to a qualified intermediary as defined in the Regulations ("Qualified Intermediary") and at Closing, at the request of Purchasers or the Qualified Intermediary, Seller will transfer title to the Aircraft to Purchasers, the Qualified Intermediary or to an "Exchange Accommodation Titleholder" as defined in Revenue Procedure 2000-37, 2000-2 C.B. 38. Any assignment of this AGREEMENT shall be in writing and notification of the assignment shall be given to Seller and/or Purchasers in writing at or before Closing. Seller and/or Purchasers will cooperate with Seller and/or Purchasers if requested by Seller and/or Purchasers to structure the transaction in such manner, and will execute any documents that Seller and/or Purchasers may be reasonably requested to sign that are consistent with this AGREEMENT, provided Seller and/or Purchasers incur no additional cost or expense and are held harmless against any liability arising because of the intended like-kind exchange or any challenge to or failure of this transaction to qualify for such treatment. The conclusion of such like-kind exchange shall not be a condition precedent to the conclusion of this AGREEMENT, or payment for the Seller's interest in the Aircraft.
IN WITNESS WHEREOF, the parties hereto have executed this AGREEMENT TO PURCHASE AND SELL PARTIAL INTEREST IN AIRCRAFT by their duly authorized representative, the day and year first above written.
Nelnet Corporate Servcies, Inc., f/k/a Crete Carrier Corporation Nelnet Corporation

By:  /s/ Terry J. Heimes__                         By:    /s/ Tonn M. Ostergard
     ---------------------                                ---------------------

     Chief Financial Officer                              President
     -----------------------                              ------------------
     Name and Title                                       Name and Title	

Nebco Intermodal, Inc.

By:   /s/ Stan Malz
   --------------------------

   --------------------------
   Name and Title	

EXHIBIT A.
WARRANTY BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS:
That Nelnet Corporate Services, Inc., f/k/a Nelnet Corporation ("SELLER"), in consideration of the sum of ONE DOLLAR ($1.00) and other good and valuable consideration paid to it by Crete Carrier Corporation and Nebco Intermodal, Inc. (collectively, the "Purchaser"), the receipt of which is hereby acknowledged, hereby sells, grants, transfers and delivers to Purchaser, its successors and assigns all of SELLER's undivided 45% right, title and interest in and to the airframe described as Cessna Citation Excel Serial Number 560-5270, together with the engines installed thereon, together also with all equipment, components, appliances, parts, instruments, avionics, appurtenances, accessories, furnishings and other equipment of whatever nature installed in or attached to the airframe or the engines ("Components"), together also with all loose equipment and documents in the airframe and spare parts associated with the airframe, engines or components, together with all repair or maintenance agreements or programs relating to the airframe, engines or components, all pursuant to that Agreement to Purchase and Sell Partial Interest in Aircraft dated as of September ___, 2004 (collectively, the "Aircraft").
That SELLER hereby warrants to PURCHASER, its successors and assigns that it is the holder of title to an undivided 45% interest in the Aircraft and has the right to sell the same as aforesaid and that this Bill of Sale conveys to PURCHASER good and marketable title to an undivided 45% interest in the Aircraft, free and clear of all security interests, liens, claims, charges and encumbrances of any nature whatsoever, and that SELLER will warrant and defend such an undivided 45% interst in title forever against all claims and demands whatsoever.
That SELLER agrees and acknowledges that the terms and conditions of this Bill of Sale shall survive the delivery of this Bill of Sale and the recording of this or any Federal Aviation Administration Bill of Sale.
IN WITNESS WHEREOF, SELLER has caused this Bill of Sale to be signed by its duly authorized officer this ________ day of ______________________, 2004.
Nelnet Corporate Services, Inc., f/k/a Nelnet Corporation
By:____________________________
Its:____________________________
 
EXHIBIT 10.67
AIRCRAFT MANAGEMENT AGREEMENT
THIS AIRCRAFT MANAGEMENT AGREEMENT (the "Agreement") is made and entered into as of the 30th day of September, 2004, by and between DUNCAN AVIATION, INC. ("Duncan") and Nelnet Corporate Services, Inc. ("Nelnet") and Union Financial Services, Inc. ("UFS") (Nelnet and UFS being sometimes referred to herein individually as a "Joint Owner" and collectively as the "Joint Owners") and is made with reference to the following:
A. Joint Owners are the owners, as tenants in common, of that certain Cessna Citation VI aircraft, Serial No. 650-0232, Registration No. N711LV (the "Aircraft").
B. Joint Owners have agreed pursuant to the terms of an Aircraft Joint Ownership Agreement (the "Joint Ownership Agreement") of even date herewith executed amount them to engage the services of Duncan to manage the Aircraft.
C. Duncan is desirous of managing the use, maintenance and all other matters pertaining to the Aircraft on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual agreements contained herein, and intending to be legally bound hereby, the parties agree as follows:
1. Joint Owners hereby engage Duncan, and Duncan hereby agrees, to manage the Aircraft for the benefit of the Joint Owners. Duncan hereby accepts possession of the Aircraft from the Joint Owners for the purposes set forth herein.
2. Duncan hereby agrees to manage, maintain and operate the Aircraft for the benefit of the Joint Owners with all due reasonable care and in accordance with applicable insurance coverage and within the standards and guidelines established by the Federal Aviation Administration (the "FAA") and to comply with all laws, ordinances or regulations relating to the use, operation and maintenance of the Aircraft. Duncan will permit the Aircraft to be used only as contemplated by the manufacturer thereof as specified in the owner's manual and other technical materials regarding the Aircraft provided by the manufacturer.
3. Throughout the term of this Agreement, Duncan will (a) inspect, maintain, service, repair, overhaul and test the Aircraft by duly competent personnel, in accordance with FAA approved maintenance and preventive repair programs therefore, as required to keep the Aircraft airworthy and in good operating condition; (b) maintain all records, logs and other materials required by the FAA to be maintained in respect of the Aircraft and make the same available for Joint Owners' inspection; and (c) comply with all laws of every jurisdiction in which the Aircraft may be operated and with all rules of the FAA and any other governmental body exercising jurisdiction over the Aircraft, and shall maintain the Aircraft in proper condition for operation under such laws and rules including, without limitation, all manufacturer's recommended maintenance.
1
4. (a) Duncan hereby agrees to provide and make available to Joint Owners, professionally qualified pilots who are familiar with and licensed to operate the Aircraft and who meet and maintain the requirements of any insurance policy covering the Aircraft. Such pilots shall be reasonably acceptable to the Joint Owners.
(b) Joint Owners hereby direct Duncan, and Duncan hereby agrees, to make all necessary take-off, flight and landing arrangements for flights operated by Joint Owners. Duncan will pay for and bill the Joint Owner on whose behalf the flight is conducted, and such Joint Owner shall be liable for and agrees to pay for, all flight operating expenses relating to such flight including but not limited to fuel, travel and lodging expenses for the crew, hangar and tie-down costs, landing fees, in-flight food and beverages. Fuel purchased at a Duncan facility shall be charged for at 80% of Duncan's then current standard fuel rate. Joint Owners shall, at reasonable times, have the right to inspect Duncan's records with respect to the Aircraft (including, without limitation, all maintenance records).
5. Duncan shall provide suitable hangar facilities for the Aircraft at the Lincoln, Nebraska Municipal Airport which facilities shall be reasonably acceptable to the Joint Owners.
6. (a) Joint Owners hereby direct and Duncan hereby agrees to arrange for, obtain and keep in force during the term of this Agreement, the following insurance coverages with insurers of recognized reputation, responsibility and having at least an A.M. Best rating of "A" or better:
(1) aircraft physical damage insurance with no deductible with respect to the Aircraft, against loss, theft or damage, extended coverage with respect to any engines or parts while removed from the Aircraft, for not less than the current fair market value of the Aircraft naming the Joint Owners as named insureds and as loss payees with losses payable as their respective interests may appear in the event of an actual or constructive total loss.
(2) passenger and third party liability insurance for the Aircraft in an amount not less than One Hundred Million Dollars ($100,000,000.00) combined single limit liability coverage and shall cause each Joint Owner to be named insureds thereunder.
(b) Copies of such policies and certificates of insurance shall be furnished to each Joint Owner upon request. Such insurance shall be maintained by Duncan in full force and effect throughout the term hereof and the insurer shall provide each Joint Owner with thirty (30) days advance written notice of cancellation or material alteration.
2
7. Duncan will provide assistance to and consult with Joint Owners in all matters regarding the Aircraft including, but not limited to:
(a) FAA and manufacturer's correspondence and directives;
(b) Enforcement of warranty claims;
(c) Enforcement, litigation and settlement of insurance matters; and
(d) Parts replacement, services and maintenance arrangements.
8. As compensation for the services to be provided by Duncan hereunder, Joint Owners hereby agree to pay a Monthly Management Fee to Duncan in the amount of $17,902.00 per month commencing on October 1, 2004. The Monthly Management Fee shall be Duncan`s full compensation for the salaries, benefits and payroll taxes of the pilots of the Aircraft, the cost of providing hull and liability insurance on the Aircraft, pilot training, navigation and weather services, hangar rent and for providing management and scheduling services hereunder. Each Joint Owner's pro-rata portion of the monthly Management Fee shall be due and payable to Duncan in advance not later than the 10th day of each month. The Monthly Management Fee is subject to adjustment by mutual agreement of the parties to reflect the then current cost of providing the services covered thereby.
9. As compensation for the cost of providing repair and maintenance services hereunder, each Joint Owner hereby agrees to pay Duncan such Joint Owner's pro-rata portion of the cost of maintaining and repairing the Aircraft and its components. Determination of a Joint Owner's pro-rata portion of repair and maintenance costs will be determined on the basis of the Joint Owner's cumulative Actual Use Percentage determined in accordance with the Joint Ownership Agreement as of the date the work is performed.
10. Duncan shall have the exclusive right to schedule use of the Aircraft among the Joint Owners in accordance with the following criteria:
(a) Use will be scheduled on a "first-come, first served" basis, subject, however, to the provisions of subsection (e) of this Section 10.
(b) Each Joint Owner will be entitled to use the Aircraft for the following number of flight hours (the "Allocated Flight Hours") during each twelve-month period commencing with the date of this Agreement:
Nelnet 300 hours
UFS 100 hours
(c) Allocated Flight Hours not utilized during any twelve-month period may not be carried over to subsequent periods.
3
(d) A Joint Owner's use of the Aircraft will be deemed to commence at the time the Aircraft takes off and will terminate when the Aircraft lands at the destination Airport unless the Joint Owner requires the Aircraft to lay-over, in which case use of the Aircraft will terminate when the Joint Owner releases the Aircraft. In addition, one-tenth (1/10) of an hour shall be added to each take-off and landing to account for taxi time. Each such hour of use of the Aircraft (including such one-tenth (1/10) hour for each take-off and landing) and rounded to the nearest one-tenth (1/10) of an hour is referred to herein as a "Flight Hour". Flight Hours for one-way trips shall include, as applicable, the time required to position the Aircraft from Lincoln, Nebraska to the point of origin or to return the Aircraft to Lincoln, Nebraska from the point of destination. Notwithstanding the foregoing, each Joint Owner agrees that each day it uses the Aircraft (including lay-over days) shall be deemed to be a minimum of one and one-half (1.5) Flight Hours.
(e) Subject to the Aircraft's availability for use by another Joint Owner for such Joint Owner's Allocated Flight Hours, a Joint Owner may make reasonable use of the Aircraft for more than the Joint Owner's annual Allocated Flight Hours. For purposes of calculating the Joint Owner's proportion of the Aircraft's airframe and maintenance expenses in accordance with the terms of this Agreement, each Flight Hour, or portion thereof, in excess of the Joint Owner's Allocated Flight Hours during any year shall be multiplied by a factor of 1.1.
11. This Agreement is effective as of the date first written above and will continue in effect until cancelled by Duncan or by the Joint Owners holding a majority of the Ownership Percentages upon not less than thirty (30) days prior written notice.
12. Joint Owners acknowledge and agree that Duncan shall have no liability for delay or failure to furnish the Aircraft and pilots pursuant to this Agreement when such failure is caused by government regulation or authority, war, civil commotion, strikes or labor disputes, weather condition, Acts of God or as the result of maintenance or repair activities. Joint Owners and Duncan further agree that when, in the reasonable view of the Joint Owner, Duncan or the pilots of the Aircraft, safety may be compromised, the Joint Owner, Duncan or the pilots may terminate a flight, refuse to commence a flight, or take other action necessitated by such safety considerations without liability for loss, injury, damage or delay.
13. Joint Owners acknowledge and agree that it is their responsibility to ensure that operations of the Aircraft conducted on behalf of the Joint Owners are not subject to the provisions of Part 135 of the Federal Aviation Regulations. Each Joint Owner severally agrees that it will indemnify, defend and hold Duncan harmless from any liability, cost or expense, including cost of defense, arising out of fines, penalties or other administrative sanctions imposed on or threatened or assessed against Duncan as a result of the failure of such Joint Owner to comply with this obligation.
4
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above.

Duncan Aviation, Inc.                      Nelnet Corporate Services, Inc.

By:/s/ Rene Cardona                        By:  /s/ Terry J. Heimes
      ---------------------------               ------------------------------

Title:                                     Title:  Chief Financial Officer
      ---------------------------               ------------------------------	

Union Financial Services, Inc.

By: /s/ Michael S. Dunlap
      ---------------------------

Title:
      ---------------------------	

5
 
EXHIBIT 10.68
AIRCRAFT JOINT OWNERSHIP AGREEMENT
THIS AIRCRAFT JOINT OWNERSHIP AGREEMENT (the "Agreement") is made and entered into as of the 30th day of September, 2004, by and between Nelnet Corporate Services, Inc. ("Nelnet"), and Union Financial Services, Inc. ("UFS") (Nelnet and UFS being referred to herein individually as a "Joint Owner" and collectively as the "Joint Owners") and is made with reference to the following:
A. Joint Owners are the registered joint owners, as tenants in common in the proportions provided for herein, of that certain Cessna Citation VI model aircraft, Serial No. 650-0232_, U.S. Registration No. N711LV (the "Aircraft").
B. Joint Owners wish to enter into an agreement pursuant to the provisions of Section 91.501 of the Federal Aviation Regulations for the use, operation and maintenance of the Aircraft and for the allocation of the costs associated therewith.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants contained herein, and intending to be legally bound hereby, the parties agree as follows:
1. JOINT OWNERSHIP.
(a) ALLOCATION. Notwithstanding the designation of any Joint Owner as a registered joint owner of the Aircraft on the records of the Federal Aviation Administration, the parties agree that all of their respective rights and obligations with respect to the Aircraft shall be determined solely and entirely by the terms of this Agreement. Each of the Joint Owners is the owner, as a tenant in common, of the following undivided interest in the Aircraft (such interest being referred to herein as the "Ownership Percentage"):
Nelnet 74.753%
UFS 25.247%
(b) RIGHTS TO AIRCRAFT. Joint Owners hereby acknowledge that, upon consummation of the Aircraft Sales Agreement dated as of October 1, 2004 (the "Purchase Agreement") between Mobek Investments, LLC as seller and the Joint Owners as purchasers, the Joint Owners will, to the extent of their respective Ownership Percentages own the Aircraft, free and clear of any lien, security interest or encumbrance of any nature. Nelnet and UFS hereby accept and assume (to the extent of their respective Ownership Percentages) the duties, burdens, obligations and liabilities contained in the terms of the Purchase Agreement. Nelnet and UFS shall each pay to Mobek Investments, LLC their respective Ownership Percentages of the purchase price to be paid for the Aircraft pursuant to the Purchase Agreement. Each of the Joint Owners shall be registered as joint owners of the Aircraft on the records of the Federal Aviation Administration. Each of the Joint Owners represents that the Purchase Agreement is in full force and effect and that neither of the Joint Owners is in default on any of its duties or obligations contained therein.
1
2. RELATIONSHIP OF PARTIES. The relationship among the parties is as tenants in common of a chattel (the Aircraft). Notwithstanding the foregoing, each Joint Owner waives any right it may have to demand the partition, or sale for partition, of the Aircraft under any law of the State of Nebraska, or any other jurisdiction, and hereby agrees that the sole means by which a Joint Owner may divest itself of its interest in the Aircraft is as provided for in Section 10 hereof. No partnership, joint venture or other relationship between the parties whereby any party may be held liable for the acts or omissions of any other party is intended or created by this Agreement or by virtue of the designation of any party as a registered joint owner of the Aircraft. Each Joint Owner shall be entitled to its pro rata share (based on its Ownership Percentage) of the depreciation, gain, loss or deduction with respect to the Aircraft and shall be severally liable for all costs and expenses chargeable to such Joint Owner under the Management Agreement (as defined herein) and incurred with respect to the Aircraft.
3. MANAGEMENT AGREEMENT. Each Joint Owner agrees that it will enter into an agreement with Duncan Aviation, Inc. ("Duncan") to operate and manage the Aircraft on the Joint Owners' behalf (the "Management Agreement"). Each Joint Owner shall perform their respective obligations pursuant to the Management Agreement during the term of this Agreement. Each Joint Owner hereby acknowledges that, in order to provide each Joint Owner with sufficient use of the Aircraft, no Joint Owner shall be entitled to utilize the Aircraft in excess of such Joint Owner's Allocated Flight Hours (as defined in Section 5(b) hereof) during any given year, except to the extent provided for herein or in the Management Agreement. Each Joint Owner further acknowledges that in the event any Joint Owner fails to utilize its Allocated Flight Hours during any year hereunder, such Joint Owner will be deemed to have waived its rights to such hours thereafter.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS. Each Joint Owner represents, warrants and covenants to the other Joint Owners that the:
(a) Joint Owner is, and for so long as this Agreement remains in effect will be, a citizen of the United States as described in 49 U.S.C. ss. 40101, et seq., as amended;
(b) Joint Owner will not utilize the Aircraft for any illegal purposes or for purposes of providing transportation of passengers or cargo in air commerce for compensation or hire except as permitted under Section 91.501 of the Federal Aviation Regulations;
(c) Joint Owner shall not operate the Aircraft unless appropriate insurance coverage, as detailed in the Management Agreement, is in effect.
5. SCHEDULING. Duncan shall have the exclusive right to schedule use of the Aircraft in accordance with the following criteria:
(a) Use will be scheduled among the Joint Owners, on a "first-come, first served" basis.
2
(b) Each Joint Owner will be entitled to use the Aircraft for the following number of flight hours (the "Allocated Flight Hours") during each twelve-month period commencing with the date of this Agreement:
Nelnet 300 hours
UFS 100 hours
Allocated Flight Hours not utilized during any twelve-month period may not be carried over to subsequent periods.
Use of the Aircraft shall be deemed to commence at the time the Aircraft takes off and shall terminate when the Aircraft lands at the destination Airport. In addition, one tenth (1/10) of an hour shall be added to each take-off and landing to account for taxi time. Each such hour of use of the Aircraft (including such one-tenth (1/10) hour for each take-off and landing) and rounded to the nearest one-tenth (1/10) of an hour is referred to herein as a "Flight Hour". Flight Hours for one-way trips shall include, as applicable, the time required to return the Aircraft from the point of destination to Lincoln, Nebraska or the time required to position the Aircraft from Lincoln, Nebraska to the point of origin. Notwithstanding the foregoing, each Joint Owner agrees that each day it uses the Aircraft (whether the Aircraft is flown on that day or not) shall be deemed to be a minimum of one and one-half (1.5) Flight Hours.
(c) Subject to the Aircraft's availability for use by another Joint Owner for its number of Allocated Flight Hours, a Joint Owner may make reasonable use of the Aircraft for more than the Joint Owner's annual Allocated Flight Hours. For purposes of calculating a Joint Owner's proportion of the Aircraft's airframe and engine maintenance expenses in accordance with the terms of the Management Agreement, each Flight Hour in excess of the Joint Owner's Allocated Flight Hours per year shall be multiplied by a factor of 1.1 (the "Additional Hours Factor"). In the event any Joint Owner uses the Aircraft for more than one hundred ten percent (110%) of its annual Allocated Flight Hours, the Joint Owners will consider an equitable adjustment to the Additional Hours Factor to reflect such additional use.
6. OPERATING COST ALLOCATION. The Joint Owners will share the costs of operating the Aircraft as follows:
(a) MONTHLY FIXED COST PAYMENT. The Joint Owners will each make a monthly fixed cost payment to Duncan as provided for in the Management Agreement. It is agreed and understood that the proportion of the total monthly fixed costs initially paid by each Joint Owner is based on the Joint Owner's respective Ownership Percentages. If any Joint Owner uses the Aircraft for more than one hundred ten percent (110%) of its annual Allocated Flight Hours, as soon as practicable after October 1 of each year, commencing with October 1, 2005, the Joint Owners will determine the percentage of each Joint Owner's actual use of the Aircraft during the 12-month period ending on September 30 of such year (the "Actual Use Percentage"). For purposes of calculating the Actual Use Percentage, all Flight Hours in excess of the Joint Owner's Allocated Flight Hours for such 12-month period shall be multiplied by the Additional Hours Factor. If the Actual Use Percentages are different than the Ownership Percentages, the amount of the total monthly fixed cost payments made during such 12-month period will be adjusted among the Joint Owners on the basis of the Actual Use Percentages.
3
(b) MAINTENANCE, REPAIR AND REFURBISHMENT COSTS. Each Joint Owner will be responsible and liable for its pro-rata portion (based on the Joint Owner's cumulative Actual Use Percentage determined as of the date the work is performed) of the cost of maintaining, repairing and refurbishing the Aircraft and its components.
(c) FUEL AND OUT OF POCKET COSTS. Each Joint Owner will be responsible and liable to Duncan for the cost of fuel and other consumables in connection with all flight hours charged to such Joint Owner and for all out-of-pocket expenses incurred by Duncan in connection with the Joint Owner's use of the Aircraft such as, but not limited to, catering, landing fees and crew expenses.
(d) PERSONAL PROPERTY TAX. Each Joint Owner will be responsible and liable for, and will indemnify, defend and hold the other Joint Owners harmless from liability for, personal property taxes assessed on such Joint Owner's interest in the Aircraft.
7. INSURANCE. Each Joint Owner shall, pursuant to the Management Agreement, cause Duncan to provide and keep in force a policy or policies of liability insurance covering Aircraft operations with coverage limits of not less than $100,000,000 per occurrence, single limit bodily injury and property damage, including passengers. Each Joint Owner will be endorsed as an additional insured under such policies. Each Joint Owner shall, pursuant to the Management Agreement, cause Duncan to obtain hull insurance coverage on the Aircraft in an amount equal to the value of the Aircraft.
8. MAINTENANCE AND REPAIR. Each Joint Owner shall, pursuant to the Management Agreement, cause Duncan to be responsible for maintaining the Aircraft in a serviceable and airworthy condition in accordance with applicable regulations, requirements and directives. Joint Owners shall not be entitled to any abatement of their fixed cost payment obligation by reason of the unavailability of the Aircraft due to the performance of any repair or maintenance activities.
9 TAXES. Each Joint Owner will be responsible for, and will indemnify and hold the other Joint Owner's harmless from liability for, any excise, sales or similar taxes (including interest and penalties) assessed as the result of the ownership or use of the Aircraft by such Joint Owner.
10. ALIENATION OF OWNERSHIP INTEREST.
(a) Each Joint Owner hereby covenants and agrees that, except as specifically authorized herein or by agreement of the Joint Owners holding a majority of the Ownership Percentages, it will not voluntarily encumber, sell, transfer, assign or otherwise convey, directly or indirectly, any portion of its interest in the Aircraft to anyone other than a current Joint Owner and that any attempt to do so will be void and of no force or effect.
4
(b) In the event a Joint Owner wishes to voluntarily sell or otherwise transfer all (but not less than all) of its interest in the Aircraft to someone other than a current Joint Owner, such Joint Owner (the "Selling Joint Owner") shall notify the other Joint Owner (the "Buying Joint Owner") in writing of its intent. In such event, the Buying Joint Owner shall have the right, but not the obligation, for a period of thirty (30) days following receipt of such notice to purchase (for cash or its equivalent) the interest of the Selling Joint Owner in the Aircraft for an amount equal to the Selling Joint Owner's pro rata portion (determined on the basis of its Ownership Percentage) of the Aircraft's then current fair market value as determined by mutual agreement. If the Buying Joint Owner and the Selling Joint Owner are unable to agree on the Aircraft's fair market value within thirty (30) days, fair market value will be determined by three (3) qualified appraisers of used aircraft, one of whom shall be designated by the Selling Joint Owner, one by the Buying Joint Owner and one by the two appraisers selected by the Joint Owners. In the event the Buying Joint Owner do not exercise such right in connection with a proposed voluntary sale or transfer, the interest of the Selling Joint Owner may be transferred to a third party provided, however, that such purchaser or transferee, as a condition of the sale or transfer, shall execute this Agreement and the Management Agreement and become fully subject to the terms thereof.
(c) In the event of any change in the ownership of the controlling interest in a Joint Owner or in the event of an attempted involuntary sale or transfer of the interest of any Joint Owner (in either case, the "Selling Joint Owner") in the Aircraft, whether directly or indirectly, the other Joint Owner (the "Buying Joint Owner") shall have the right, but not the obligation, for a period of thirty (30) days following receipt of notice of such change in ownership or attempted involuntary sale or transfer to purchase (for cash or its equivalent) the interest of the Selling Joint Owner in the Aircraft for an amount equal to the Selling Joint Owner's pro rata portion (determined on the basis of its Ownership Percentages) of the Aircraft's then current fair market value as determined by mutual agreement. If the Buying Joint Owner and the Selling Joint Owner are unable to agree on the Aircraft's fair market value within thirty (30) days, fair market value will be determined by three (3) qualified appraisers of used aircraft, one of whom shall be designated by the Selling Joint Owner, one by the Buying Joint Owner and one by the two appraisers selected by the Joint Owners. In the event the Buying Joint Owner do not exercise such right in connection with a proposed involuntary sale, the interest of the Selling Joint Owner may be sold to a third party provided, however, that such purchaser or transferee, as a condition of the sale or transfer, shall execute this Agreement and the Management Agreement and become fully subject to the terms thereof.
11. TERM AND TERMINATION. This Agreement is effective as of the date first written above and will continue in effect for a period of five (5) years from such date. At the end of such five (5) year period, UFS shall have the right to require Nelnet to purchase UFS's interest in the Aircraft for an amount equal to UFS's pro rata portion (determined on the basis of its Ownership Percentage) of the Aircraft's then current fair market value as determined by mutual agreement. If the parties are unable to agree on the Aircraft's fair market value within thirty (30) days, fair market value will be determined by three (3) qualified appraisers of used aircraft, one of whom shall be designated by Nelnet, one by UFS and one by the two appraisers selected by the Joint Owners. If the term of this Agreement is not extended by agreement of the Joint Owners, the Joint Owners shall cause Duncan, as agent for the Joint Owners, to sell the Aircraft in a commercially reasonable manner as soon as practicable after the end of such 5-year period. The net proceeds from such sale will be distributed to each Joint Owner in proportion to their Ownership Percentages. The good faith decision of Duncan regarding the terms and conditions of such sale shall be conclusive and binding on each of the Joint Owners.
5
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

Nelnet, Inc.                           Union Financial Services, Inc.

By: /s/ Terry J. Heimes                By: /s/ Michael S. Dunlap
    ---------------------------            -----------------------------

Its:  Chief Financial Officer          Its:
     --------------------------            --------------------------------	

6
  
EXHIBIT 10.69
AIRCRAFT SALES AGREEMENT
THIS AIRCRAFT SALES AGREEMENT (the "AGREEMENT") is made and entered into as of this 1st day of October, 2004, by and between Nelnet Corporate Services, Inc., 121 South 13th Street, Suite 201, Lincoln, Nebraska 68508, and Union Financial Services, Inc. (herein collectively referred to as "Purchaser"), and Mobek Investments, LLC, 2501 Expedition Court, Sioux City, Iowa 51111, (herein referred to as "Seller"), with respect to the following Aircraft and Engines (collectively, the "Aircraft") as represented per Exhibit A. attached hereto.

MANUFACTURER                               Cessna Aircraft Company
MODEL                                      Citation VI
SERIAL NUMBER.                             650-0232
REGISTRATION NUMBER                        N711LV
ENGINES SERIAL NUMBERS                     P-108115 / P-108128	

NOW, THEREFORE, in consideration of the mutual covenants hereafter contained, the parties hereto agree as follows:
1. Seller hereby agrees to sell, assign, transfer and deliver to Purchaser and Purchaser hereby agrees to purchase from the Seller, under and pursuant to the terms and conditions hereafter set forth, the above referenced Aircraft.
2. The Purchase Price is agreed upon by the parties to be Four Million Eight Hundred Thousand US Dollars ($4,800,000.00USD).
3. The Purchaser has remitted a refundable deposit in the amount of $100,000.00 USD, (One Hundred Thousand U. S. Dollars), to Insured Aircraft Title Service (herein after referred to as "IATS") at 4848 Southwest 36th Street, Oklahoma City, OK, 73179, Attn: Mr. Kirk Woford,
(800)654-4882, as Escrow Agent.
4. This Agreement is subject to a Test Flight and Prepurchase Inspection, to be performed at Duncan Aviation, Lincoln, NE, to start on or about September 21, 2004. Seller at its expense will deliver the Aircraft to Duncan Aviation, Lincoln, NE. The Prepurchase Inspection shall be at Purchaser's sole expense, and shall be comprised of an industry standard Pre-purchase Inspection, including but not limited to engine boroscope, windshield thickness check, under potty area check for corrosion, fuel leak check, pressurization check, etc. All such inspections are hereby approved by the Seller. Acceptance or rejection of the Aircraft shall be at the sole discretion of the Purchaser. Purchaser shall advise both Seller and Escrow Agent of the results of the Prepurchase Inspection within 24 hours after its completion. The Prepurchase Inspection facility shall provide Purchaser with a list of discrepancies noted. The Purchaser and its representative reserve the right to perform a Post Prepurchase Inspection Test Flight (PPITF) if the Prepurchase Inspection Facility determines that a discrepancy or multiple discrepancies noted during the Prepurchase Inspection warrant that a PPITF be performed. If the PPITF is performed, it is not to exceed two hours in duration, and the cost of the fuel and MSP expenses are to be paid by the Purchaser. Aircraft shall remain in the care and custody and be flown by the Seller's pilot (as PIC) during the PPITF. Purchaser and Seller shall execute Exhibit B, Notification of Results of Aircraft Prepurchase Inspection, on the later of (i) within 24 hours following the completion of the Prepurchase Inspection and (ii) October 1, 2004.
(a) Rejection. Upon receipt of notification from Purchaser that the Prepurchase Inspection has been completed and that the Aircraft has been rejected, Seller shall cause the Escrow Agent to immediately refund, in full, the deposit to Purchaser (minus fuel and MSP expense incurred by Seller to return the aircraft to its base airport in Sioux City, IA), and this Agreement will be terminated.
(b) Acceptance. Upon receipt by the Escrow Agent of notification from Purchaser that the Prepurchase Inspection has been completed and that the Aircraft has been accepted, subject to Seller at its expense repairing the discrepancies noted, Purchaser and Seller shall execute Exhibit B, Aircraft Acceptance/Rejection Form, the deposit will become non refundable, except as provided herein, and should Purchaser thereafter fail to complete the purchase, unless such failure is the result of Seller's failure to perform or the breach of Seller's obligations or warranties, the Seller shall be entitled to receive the escrow deposit as its sole and exclusive remedy as liquidated damages in satisfaction of any and all claims and in lieu of any other damages or remedies. The aggregate cost of correcting the discrepancies set forth in Exhibit B shall reduce the Purchase Price by the amount of such cost.
5. The Purchaser and its representative shall be permitted to perform a Post Prepurchase Inspection Test Flight, if required, as per Paragraph 4 above, not to exceed two hours in duration, upon the conclusion of the Prepurchase Inspection and the repair of noted discrepancies, to determine that the Aircraft conforms to the delivery requirements per Paragraph 6 below. Seller shall correct, at Seller's sole expense, any airworthiness discrepancies which may be noted during the PPITF prior to closing and delivery to Purchaser. The cost of the fuel and MSP expenses are to be paid by the Purchaser. Aircraft shall remain in the care and custody and be flown by the Seller's pilot (as PIC) during the PPITF. SIC must meet open pilot warranty of Sellers Insurance Co.
6. The Aircraft will be delivered free and clear of all security interests, liens or encumbrances of any nature whatsoever to Purchaser in Lincoln, Nebraska, with a US FAA Certificate of Airworthiness, in an airworthy condition, with: all systems operating normally and meeting manufacturers specifications; no damage history or corrosion history which requires or has required a repair that has entailed the completion of an FAA Form 337; 8110-3, or Cessna Engineering Repair Order through delivery, all Airworthiness Directives and Mandatory Service Bulletins complied with, complete, continuous, up-to-date set of original aircraft and engine logbooks; loose equipment; a paid in full and transferable MSP engine program; and fully in compliance with current maintenance and inspection requirements per the US Federal Aviation Administration (FAA) and the Manufacturers approved maintenance program with all required time and calendar actions completed through closing without deferment or extension, or increased frequency of any inspections, whether cycles, calendar, or hours; and recommendations thereof.
7. The Closing and Delivery shall be set to occur no later than 2 business days after the Aircraft has been returned to service as per this agreement, and the Purchaser has conducted the PPITF, if required, as per Paragraph 4 above. Prior to Closing, Seller will forward to IATS all document(s) necessary or required to convey a clear, free and marketable title to the "Aircraft", to include but not be limited to a Bill of Sale, FAA Form 8050-2, Warranty Bill of Sale (as per Exhibit C), and applicable Lien Release(s), the Purchaser will make, through escrow, a final payment in full for the Aircraft in the amount of $4,700,000.00 US. Dollars. Delivery shall take place as evidenced by executing Appendix 1, Aircraft Delivery Receipt, and being sent via facsimile to IATS, IATS will then proceed to simultaneously file the Bill of Sale and Lien release with the FAA Registry on behalf of Purchaser, and wire transfer the Purchase Price to Seller, per their written instructions, and send Purchaser via overnight mail the Warranty Bill of Sale.
8. With Seller's full and complete compliance with the terms and conditions contained herein and with written notification that the Aircraft is ready for delivery, should the Purchaser fail to close for any reason other than provided for herein, then, Seller may retain the deposit of $100,000.00, as its sole and exclusive remedy as liquidated damages in satisfaction of any and all claims and in lieu of any other damages or remedies. If Seller fails to provide the Aircraft pursuant to the terms and conditions herein and not close for any reason, Seller shall immediately refund the deposit to Purchaser, and reimburse Purchaser the cost of the Prepurchase Inspection.
2
9. Seller shall not disclose the price or terms of this AGREEMENT to third parties except as required to complete the purchase, or as may be required by law.
10. Risk of loss, damage, or destruction of the Aircraft shall pass from Seller to Purchaser upon Delivery and Closing of the sale of the Aircraft.
11. Seller represents and warrants that it is the sole owner of the Aircraft, that it has good and merchantable title to the Aircraft, and that the Aircraft upon delivery will be free and clear of all security interests, liens, claims, and encumbrances whatsoever. Seller further represents and warrants that it has no knowledge of any defect or deficiency with respect to the Aircraft and that all records maintained with respect thereto are true, accurate and complete.
12. EXCEPT FOR THE WARRANTY OF TITLE EXPRESSLY SET FORTH HEREIN, "SELLER" MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE REGARDING THE "AIRCRAFT" OR RECORDS, WHICH ARE DELIVERED HEREUNDER IN AN "AS IS, WHERE IS" CONDITION. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, "SELLER" DISCLAIMS ALL OTHER WARRANTIES, GUARANTEES OR LIABILITIES, WHETHER EXPRESS OR IMPLIED OR STATUTORY, SUCH AS THE CONDITION OF THE "AIRCRAFT" OR RECORDS AIRWORTHINESS, DESIGN, QUALITY OF WORKMANSHIP OR MATERIALS, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
13. Seller shall not be liable for any failure to perform under this agreement due to force majeure which shall include accidents, acts of God, fire, explosion, riot, looting, civil commotion, failure of machinery or plant, shortages of materials, restrictions by government or any competent authority or any other similar circumstances of whatsoever kind and howsoever caused beyond control of Seller. If, due to force majeure, Seller is unable to deliver the Aircraft as provided herein, IATS shall return the deposit, in which event this agreement shall terminate and be of no further force and effect.
14. Seller and Purchaser each represent and warrant to the other that they have taken no action which would obligate the other party to a valid claim for a broker's fee in connection with this transaction and each party agrees to indemnify and forever hold the other harmless from and against any claims for brokers' compensations, fees, or commissions arising out of the indemnifying party's actions. Seller has engaged Jeteffect, Inc. as its broker in this transaction and Seller is solely responsible for fees and commissions charged by such broker. Purchaser has engaged Duncan Aviation, Inc. as its broker in this transaction and Purchaser is solely responsible for fees and commissions charged by such broker.
15. To the extent that any manufacturer's warranties, express or implied, are still in effect with respect to the Aircraft (other than warranties which by their terms are unassignable or which would be extinguished by their assignment), Seller hereby assigns such warranties to the Purchaser at the time of delivery.
16. Purchaser shall pay, and shall indemnify and hold the Seller harmless from all sales, use, property, ad valorem, value added, or other similar taxes, fees, or other charges of any nature (excluding taxes on net or gross income or gain realized by the Seller) together with any penalties, fines, or interest thereon which may be assessed or levied by the U.S. Government or other U.S. taxing authority as a result of the Purchaser's acquiring the Aircraft. Seller shall be responsible for any taxes, fees, or charges assessed against the aircraft prior to delivery and shall indemnify and hold Purchaser harmless from these taxes.
3
17. Seller agrees to sign and deliver to Purchaser at Closing a Nebraska Resale or Exempt Certificate Form 13 to be filed with the Nebraska State Department of Revenue and any other document reasonably requested by Purchaser in order to exempt this transaction from Nebraska sales tax. This provision shall not affect Purchaser's responsibilities under
Section 16 hereof. 18. Seller and Purchaser shall split 50/50 all escrow fees associated with this transaction.
19. This AGREEMENT sets forth the entire contract between the parties and supersedes all previous communications, representations, or agreements, whether oral or written, between the parties with respect to the sale and purchase of the Aircraft.
20. This AGREEMENT may be amended only by a written instrument executed by both parties.
21. Seller and Purchaser each warrant to the other that the execution, delivery, and performance of this AGREEMENT has been authorized and approved by all required corporate action, and the parties executing this document warrant their authority to so bind the respective parties.
22. This AGREEMENT may be executed in two or more counterparts, each of which shall be deemed an original and shall be effective when executed by both parties.
23. This contract shall be deemed to have been made, executed under and governed by the law of the State of Nebraska, USA.
24. Seller and/or Purchaser may structure the transaction herein contemplated as the receipt of replacement property pursuant to a like-kind exchange under the provisions of Section 1031 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder (the "Regulations"). It is expressly acknowledged that Seller and/or Purchaser may assign its rights in this AGREEMENT to a qualified intermediary as defined in the Regulations ("Qualified Intermediary") and at Closing, at the request of Purchaser or the Qualified Intermediary, Seller will transfer title to the Aircraft to Purchaser, the Qualified Intermediary or to an "Exchange Accommodation Titleholder" as defined in Revenue Procedure 2000-37, 2000-2 C.B. 38. Any assignment of this AGREEMENT shall be in writing and notification of the assignment shall be given to Seller and/or Purchaser in writing at or before Closing. Seller and/or Purchaser will cooperate with Seller and/or Purchaser if requested by Seller and/or Purchaser to structure the transaction in such manner, and will execute any documents that Seller and/or Purchaser may be reasonably requested to sign that are consistent with this AGREEMENT, provided Seller and/or Purchaser incurs no additional cost or expense and is held harmless against any liability arising because of the intended like-kind exchange or any challenge to or failure of this transaction to qualify for such treatment. The conclusion of such like-kind exchange shall not be a condition precedent to the conclusion of this AGREEMENT, the acceptance of the Aircraft or payment for the Aircraft.
4
IN WITNESS WHEREOF, the parties hereto have executed this AIRCRAFT SALES AGREEMENT by their duly authorized representative, the day and year first above written.

Nelnet Corporate Services, Inc.               Mobek Investments, LLC.

By:  /s/ Terry J. Heimes                      By:  /s/ Greg Deman
   --------------------------                 -----------------------------
   Chief Financial Officer
   --------------------------                 -----------------------------
Name and Title                                 Name and Title

Union Financial Services, Inc.

By:  /s/ Michael S. Dunlap
     -----------------------

-----------------------
Name and Title	

5
 
EXHIBIT A.
1993 CITATION VI
SERIAL NUMBER: 650-0232 REGISTRATION: N711LV
AIRFRAME & ENGINES
AIRFRAME TOTAL TIME: 3300 HOURS
LANDINGS: 2300
ENG MODEL: TFE-731-3C-100S ON MSP
APU: SUNDSTRAND PATS INSTALLATION
RVSM CERTIFIED

AVIONICS

F/DIR: HONEYWELL SPZ 650                    COMPASS: DUAL HONEYWELL C-14D
EFIS: FIVE TUBE 5"x5" W/MFD                 RMI: DUAL COLLINS RMI 36
AUTOPILOT: HONEYWELL SPZ 650                RADIO ALT: COLLINS ALT 55B
COMMS: DUAL COLLINS PROLINE VHF 22B RADAR: SPERRY PRIMUS 650
NAVS: DUAL COLLINS PROLINE VIR 32A          FMS: DUAL GLOBAL GNS-XLS
ADF: DUAL COLLINS PROLINE ADF 462           CVR: SUNDSTRAND 557
DME: DUAL COLLINS PROLINE DME 42            COLLINS PROLINE TDR 94D
HF: KING KHF 950                            TCAS-II
ALTIMETER: HONEYWELL SPZ 650                HONEYWELL SAT/TAS/TAT SYSTEM	

INTERIOR: New 9/1/2000- interior is fireblocked. Tan leather AMP seats w/corporate tailoring, storage drawers and seat back pockets. Cabinetry is in a light Burlwood and the carpet is a tan cut pile. Six individual passenger seats in a center club configuration and forward R/H two-place couch for eight passenger seating. RH, forward, 16.5" closet, two executive and two slim-line tables, special LH forward refreshment center. Special aft vanity with closet, toilet and dividers with sliding doors. Auxiliary passenger seat with (belted toilet), for ninth passenger.
EXTERIOR: New 9/1/2000- overall snow white with black/gold/grape stripes.
NOTES: Phase 5 completed February 2003, Sundstrand APU (PAT's installation), B&D cabin display, fuel quantity totalizer, dual 40 amp batteries, 76 cubic ft. oxygen system, EROS oxygen masks, RVSM compliant, CESSNA Pro Parts.
ALL SPECIFICATIONS SUBJECT TO VERIFICATION UPON INSPECTION
AIRCRAFT SUBJECT TO PRIOR SALE, OR WITHDRAWAL FROM MARKET
6
EXHIBIT B
NOTIFICATION OF RESULTS OF AIRCRAFT PREPURCHASE INSPECTION
Pursuant to the provisions of the Aircraft Sales Agreement dated October 1, 2004 (the "Agreement"), between Mobek Investments, LLC ("Seller"), Union Financial Services, Inc. and Nelnet Corporate Services, Inc. (collectively, the "Purchaser"), Seller is hereby notified that Purchaser has performed its

pre-purchase inspection of Cessna Citation VI s/n 650-0232 (N711LV), at Duncan
Aviation, Inc., Lincoln, NE, and has (initial whichever box is applicable):

        [ ]    REJECTED THE AIRCRAFT. Upon Escrow Agent's receipt from
               Purchaser of this Exhibit B, Escrow Agent shall immediately
               refund to Purchaser the full amount of the deposit, (minus the
               fuel and MSP expense incurred by Seller to return Aircraft back
               to Sioux City, IA.) The Agreement is terminated.	

[ ] ACCEPTED THE AIRCRAFT. Escrow Agent will be notified and Purchaser's deposit from this point on is to be held on a non-refundable basis, unless Seller fails to perform or Seller breaches its obligations or warranties.
[ ] ACCEPTED THE AIRCRAFT, SUBJECT TO SELLER'S AGREEMENT TO
CORRECT THE AIRWORTHINESS DISCREPANCIES LISTED BELOW. Upon Seller executing below, agreeing to repair the airworthiness discrepancies listed below, Purchaser will notify Escrow Agent and Purchaser's deposit from this point on is to be held on a non-refundable basis, unless Seller fails to perform or Seller breaches its obligations or warranties.
List of Discrepancies to be Corrected:
(1)__(See List Attached)_________________

Dated:___________   Nelnet Corporate Services, Inc.   Union Financial Services,
Inc.

                    ______________________________    __________________________

                    ______________________________    __________________________

                           Name & Title                      Name & Title	

Seller hereby agrees to the conditions set forth above and agrees to correct the airworthiness discrepancies listed herein, at Seller's expense.
Dated:_______________ Mobek Investments, LLC

Name & Title

7
Exhibit C
WARRANTY BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS:
That Mobek Investments, LLC. ("SELLER"), in consideration of the sum of ONE DOLLAR ($1.00) and other good and valuable consideration paid to it by Nelnet Corporate Services, Inc. and Union Financial Services, Inc. (collectively, the "Purchaser"), the receipt of which is hereby acknowledged, hereby sells, grants, transfers and delivers to Purchaser, its successors and assigns all of SELLER's right, title and interest in and to the airframe described as Cessna Citation VI Serial Number 650-0232, together with the engines installed thereon, described as Honeywell TFE-731-3C-100S, Serial Numbers P-1081158 and P-108128, together also with all equipment, components, appliances, parts, instruments, avionics, appurtenances, accessories, furnishings and other equipment of whatever nature installed in or attached to the airframe or the engines ("Components"), together also with all loose equipment and documents in the airframe and spare parts associated with the airframe, engines or components, together with all repair or maintenance agreements or programs relating to the airframe, engines or components, all pursuant to that Aircraft Purchase Agreement dated as of October 1, 2004 (collectively, the "Aircraft").
That SELLER hereby warrants to PURCHASER, its successors and assigns that it is the holder of title to the Aircraft and has the right to sell the same as aforesaid and that this Bill of Sale conveys to PURCHASER good and marketable title to the Aircraft, free and clear of all security interests, liens, claims, charges and encumbrances of any nature whatsoever, and that SELLER will warrant and defend such title forever against all claims and demands whatsoever.
That SELLER agrees and acknowledges that the terms and conditions of this Bill of Sale shall survive the delivery of the Aircraft and the delivery and recording of this or any Federal Aviation Administration Bill of Sale.
IN WITNESS WHEREOF, SELLER has caused this Warranty Bill of Sale to be signed by its duly authorized officer this ________ day of ______________________, 2004.
Mobek Investments, LLC
By:____________________________
Its:____________________________
8
 
Appendix 1
AIRCRAFT DELIVERY RECEIPT
Acknowledgment is made that the following Aircraft:

MANUFACTURER                        Cessna Aircraft Company
MODEL                               Citation VI
SERIAL NUMBER.                      650-0232
REGISTRATION NUMBER                 N711LV
ENGINES SERIAL NUMBERS              Honeywell (P-108115 / P-108128)	

is hereby delivered to Purchaser at: Lincoln, NE this _____ day of ________, 2004 and that the Aircraft fully meets the terms and conditions of the AIRCRAFT SALES AGREEMENT dated, October 1, 2004, and fully complies with the representations therein.
Seller has delivered said Aircraft to Purchaser this date and has collected no State or Local Taxes. Purchaser is solely responsible for any present or future taxes or duties that may be levied on Purchaser in connection with the sale of said "Aircraft".

Nelnet Corporate Services, Inc.                Mobek Investments, LLC

-----------------------------                  -----------------------------

-----------------------------                  -----------------------------
Name and Title                                 Name and Title	

Union Financial Services, Inc.
By:

Name and Title

9
ADDENDUM TO AIRCRAFT SALES AGREEMENT
Mobek Investment, LLC, ("Seller"), and Nelnet Corporate Services, Inc. and Union Financial Services, Inc. ("Purchaser") hereby agree that Purchaser has per the Aircraft Purchase Agreement signed by Seller on September 29, 2004, and signed by Purchaser on September 29, 2004, had Duncan Aviation, Inc., Lincoln, NE, perform a Pre-Purchase Inspection of the Aircraft (Cessna Aircraft Company,

Cessna Citation VI s/n 650-0232, N711LV), and the Pre-Purchase Inspection has
been completed.

Purchaser hereby agrees to waive the Seller agreeing to repair at Seller's
expense the Airworthy Discrepancies noted during the Prepurchase Inspection
agreed upon in Exhibit B in exchange for a reduction in the Purchase Price of
the Aircraft by the amount of $21,000.00 ($21,000 Thousand U.S. Dollars). The
Purchase Price now being $4,779,000.00 (Four Million Seven Hundred Seventy Nine
Thousand U. S. Dollars). All other terms and conditions to both Purchaser and
Seller shall still be in effect.

Purchaser:                                  Seller:
Nelnet Corporate Services, Inc.                    Mobek Investments, LLC

By: /s/ Terry J. Heimes                     By: /s/ Greg Deman
   ----------------------------                 ---------------------------

Union Financial Services, Inc.

By: /s/ Michael S. Dunlap
    --------------------------	

10
 
EXHIBIT 10.70
AMENDMENT NO. 1 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT (this "Amendment"), entered into as of September 24, 2004, is by and among NELNET, INC. ("NELNET"), a corporation duly organized and validly existing under the laws of the State of Nebraska and formerly known as Nelnet Loan Services, Inc., NATIONAL EDUCATION LOAN NETWORK, INC. ("NETWORK"), a corporation duly organized and validly existing under the laws of the State of Nevada and formerly known as Nelnet, Inc. (NETWORK and NELNET, herein individually a "Borrower" and collectively "Borrowers"), and M&I MARSHALL & ILSLEY BANK ("M&I"), SUNTRUST BANK, FIRST NATIONAL BANK OF OMAHA and FIFTH THIRD BANK (individually "Bank" and collectively the "Banks") and M&I, in its capacity as agent for the Banks (the "Agent").
W I T N E S S E T H:
WHEREAS, the Borrowers, the Agent and the Banks are parties to that certain Credit Agreement dated as of September 25, 2003 (the "Credit Agreement"), pursuant to which the Banks have agreed to make certain loans to the Borrower upon the terms and subject to the conditions set forth therein; and
WHEREAS, the Borrowers have issued to the Banks their CP Notes (the "Existing CP Notes"), each dated September 25, 2003, in the aggregate principal amount of $35,000,000 and their Revolving Notes (the "Revolving Notes"), each dated September 25, 2003, in the aggregate principal amount of $35,000,000; and
WHEREAS, as of the date of this Amendment there are no outstanding Loans under the Credit Agreement; and
WHEREAS, the Borrowers have requested that the Agent and the Banks modify the terms and conditions of the Credit Agreement, including to: (a) extend the term of this Agreement to September 23, 2005; (b) increase the aggregate CP Commitment, (c) amend the Applicable Rate, (d) amend certain covenants of the Borrowers, and (e) make certain other modifications to the Credit Agreement; and
WHEREAS, the Agent and the Banks are agreeable to such modifications on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the terms and conditions contained herein, the parties hereto hereby agree as follows:
1. DEFINITIONS. All capitalized terms used and not otherwise defined herein shall have the meanings given to such terms by the Credit Agreement.
2. COMMERCIAL PAPER FACILITY. The Borrowers request that the aggregate commitment of the Banks to make CP Loans pursuant to Article II of the Credit Agreement be increased to an aggregate CP Commitment of $50,000,000, allocated among the Banks as set forth in Exhibit A hereto. Any loans made pursuant any Bank's CP Commitment shall be evidenced by the new CP Note of the Borrowers in favor of such Bank in the form of Exhibit B annexed hereto (each a "New CP Note" and, collectively, the "New CP Notes") to be dated September 24, 2004. The New CP Notes shall be issued in the aggregate principal amount of $50,000,000 in substitution for and replacement of, but not as a novation of, the Existing CP Notes, and shall be executed by the Borrowers and delivered to the Banks against return of the Existing CP Notes to the Borrowers.
3. AMENDMENTS TO CREDIT AGREEMENT. Upon satisfaction of the conditions set forth in Section 6 below and effective as of the date hereof, the Credit Agreement shall be amended as follows:
a. All references to the Credit Agreement in the Credit Agreement and in any of the Notes or Loan Documents shall refer to the Credit Agreement as amended hereby.
b. All references in the Credit Agreement to the CP Notes issued thereunder and the Loans evidenced thereby shall refer to the New CP Notes issued hereunder and the Loans evidenced thereby.
c. The following definitions shall be added to Section A of the Credit Agreement, reading as follows:
"Amendment No. 1" means that certain Amendment No. 1 to Credit Agreement, dated as of September 24, 2004, among the Borrowers, the Agent and the Banks.
"Amendment No. 1 Closing Date" means September 24, 2004.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations issued thereunder.
d. The definition of "Consolidated Tangible Net Worth" set forth in Section A of the Credit Agreement shall be amended by replacing the reference in clause (b) thereof to "December 31, 2002" with a reference to "December 31, 2003" and by amending clause (d) thereof in its entirety to read as follows:
minus (d) the amount of deferred income tax assets;
e. The definition of "Funded Debt" set forth in Section A of the Credit Agreement shall be amended in its entirety to read as follows:
2
"Funded Debt" means, at the time of determination, all the Debt of Borrowers and the Regular Subsidiaries under this Agreement, including the Revolving Credit Facility under Article I, outstanding Commercial Paper and CP Loans under Article II, and all other Debt of any Borrower or Regular Subsidiary, measured on a consolidated basis, that has actually been funded and is outstanding at such time, whether or not such amount is due or payable at such time.
f. The definition of "Maturity Date" set forth in Section A of the Credit Agreement shall be amended in its entirety to read as follows:
"Maturity Date" means September 23, 2005 (364 days from the Amendment No. 1 Closing Date).
g. The definition of "Permissible Withdrawal Amount" set forth in Section A of the Credit Agreement shall be amended in its entirety to read as follows:
"Permissible Withdrawal Amount" means, with respect to any Asset Securitization as of a date of determination, the amount of assets which have been withdrawn under the terms of the Securitization Documents relating to that Asset Securitization during the four fiscal quarters then ending from the funds securing the securities backed by such assets and held by or on behalf of the trustee or other collateral agent for such securities; provided, however, that the Permissible Withdrawal Amount shall not include any amounts permitted to be withdrawn under the terms of such Securitization Documents only for limited purposes relating to such Asset Securitization, including the payment of debt service, administrative expenses, servicing fees and expenses, and other fees and expenses directly related to that Asset Securitization and the securities backed by such assets.
h. The definition of "Termination Date" set forth in
Section A of the Credit Agreement shall be amended to delete the reference to Section 2.1 and insert in its place a reference to Section 1.1.
i. The second sentence of Section 3.3 of the Credit Agreement shall be amended to read in its entirety as follows:
The term "Applicable Rate" means the Adjusted Libor Rate plus one and three quarters percent (1.75%) per annum.
j. Section 3.10 of the Credit Agreement shall be amended in its entirety to read as follows:
Section 3.10. Facility Fee.
3
Borrowers agree, jointly and severally, to pay to the Agent for the pro rata benefit of the Banks a facility fee calculated at a per annum rate equal to one-quarter of one percent (0.25%): (i) for the period from and including the Closing Date through the Termination Date, on the amount of the Revolving Commitment, payable in arrears on the Quarterly Payment Dates (prorated for the first quarter if less than a full quarter) and on the Termination Date and (ii) for the period from and including the Amendment No. 1 Closing Date through the Maturity Date, on the amount of the CP Commitment, payable in advance on the Amendment No. 1 Closing Date.
k. Section 7.1(a) of the Credit Agreement shall be amended to insert the following proviso at the end thereof:
provided, however, that for any annual period for which NELNET is required, pursuant to the Exchange Act, to file an annual report on Form 10-K with the Securities and Exchange Commission, the requirements of this
Section 7.1(a) will be deemed satisfied if the Borrowers provide a copy of the report so filed within the time such report is required to be filed with the Securities and Exchange Commission;
l. Section 7.1(b) of the Credit Agreement shall be amended to insert the following proviso at the end thereof:
provided, however, that for any quarterly period for which NELNET is required, pursuant to the Exchange Act, to file a quarterly report on Form 10-Q with the Securities and Exchange Commission, the requirements of this Section 7.1(b) will be deemed satisfied if the Borrowers provide a copy of the report so filed within the time such report is required to be filed with the Securities and Exchange Commission;
m. Section 8.1 of the Credit Agreement shall be amended to:
i. remove "and" at the end of subsection (i);
ii. replace "." with "; and" at the end of subsection (j); and
iii. add a new subsection (k) reading in its entirety as follows:
(k) Other unsecured Debt in an aggregate amount outstanding from time to time not to exceed the lesser of (i) 50% of the Consolidated Tangible Net Worth of Borrowers and their Subsidiaries as of the most recent date for which financial statements are then required to have been delivered and (ii) $185,000,000; provided that
(u) the Borrowers shall have provided 30 days advance written notice to the Agent of their intention to incur any such Debt, (w) the Borrower shall have provided prior to the incurrence of such Debt a certificate signed by an appropriate officer of each Borrower demonstrating compliance with this subsection (k) and compliance with the financial covenants set forth in Article IX of this Agreement on a pro forma basis, after giving effect to the proposed incurrence of Debt, as of the most recent date for which financial statements are then required to have been delivered, (x) the Agent and the Banks shall be satisfied that such incurrence of Debt will not result in a downgrade in the Standard & Poor's Rating Group's rating of the unsecured long-term debt of the Borrowers and their Subsidiaries, (y) the terms and conditions of each instrument, document and agreement evidencing or governing such Debt shall be no more restrictive than the terms and conditions of the Loan Documents, and (z) no Default or Event of Default shall have occurred and be continuing or would result therefrom.
4
n. Section 8.4 of the Credit Agreement shall be amended by replacing the proviso therein with the following:
PROVIDED, HOWEVER, that if no Default exists or would result after giving pro forma effect thereto, (a) Parent may declare and pay dividends on account of its Equity Interests and (b) Parent may redeem, purchase, retire, or otherwise acquire its Equity Interests, provided that the aggregate amount paid by Parent for the redemption, purchase, retirement or other acquisition of its Equity Interests, plus the aggregate amount of the prepayments made under the permissions of Section 8.10 during any twelve-month period ending during the term of this Agreement, shall not exceed an aggregate amount equal to One Million Dollars ($1,000,000).
o. Section 8.5(i)(ii) of the Credit Agreement shall be amended in its entirety to read as follows:
(ii) Consideration. Either (a) the consideration, regardless of form, including assumption of debt, given by the purchaser in connection with the transaction, shall not exceed, when aggregated with all other transactions under this subsection during the preceding 12 months, 15% of the Consolidated Tangible Net Worth of Borrowers and their Subsidiaries as of the most recent date for which financial statements are then required to have been delivered or (b) no Loan Obligations are outstanding hereunder; provided, however, that purchases of portfolios of Student Loans in the normal course of business, without any payment of goodwill, going concern value or the like shall not be counted for purposes of the 15% limit;
p. Section 8.10 of the Credit Agreement shall be amended in its entirety to read as follows:
Section 8.10. Prepayment or Payment of Debt.
5
Neither Borrower shall prepay, and shall not permit any Regular Subsidiary to prepay, any Debt, except (i) the Obligations and (ii) if no Default exists or would result therefrom, Borrowers and their respective Regular Subsidiaries may pay any Debt if the aggregate amount of the payment made under the permissions of this Section 8.10 during any twelve-month period ending during the term of this Agreement, plus the aggregate amount paid by Borrowers for the redemption, purchase, retirement or other acquisition of its Equity Interests under the permissions of Section 8.4 during such twelve-month period, shall not exceed an aggregate amount equal to One Million Dollars ($1,000,000). In addition, provided that Borrowers deliver a certificate to Banks certifying that no Default or Event of Default exists.
q. Section 9.1 of the Credit Agreement shall be amended in its entirety to read as follows:
Section 9.1. Consolidated Tangible Net Worth.
Borrowers and their Subsidiaries will at all times maintain Consolidated Tangible Net Worth in an amount not less than the sum of (a) Two Hundred Fifty Million Dollars ($250,000,000) plus (b) seventy-five percent (75%) of the positive Consolidated Net Income of Borrowers and their Subsidiaries for each fiscal quarter to have completely elapsed since December 31, 2003.
r. Section 9.4 of the Credit Agreement shall be amended in its entirety to read as follows:
Section 9.4. Minimum Loan Loss Reserve to Total Student Loans.
At the end of each fiscal quarter beginning with the quarter ended September 30, 2004, Borrowers and their Subsidiaries will maintain a Loan Loss Reserve of at least 0.040% of Total Student Loans.
s. Exhibit D to the Credit Agreement (Compliance Certificate) shall be amended in its entirety such that it is replaced by Exhibit C to this Amendment.
t. Exhibit H to the Credit Agreement (Schedule of Banks) shall be amended in its entirety such that it is replaced by Exhibit A to this Amendment.
u. Schedule 6.14 to the Credit Agreement (Subsidiaries) shall be amended in its entirety such that it is replaced by Exhibit D to this Amendment.
4. Conditions: Notwithstanding the foregoing, this Amendment shall not become effective unless and until (x) this Amendment has been approved in writing by the Borrowers, the Agent and the Banks; and (y) the Borrowers shall have delivered each of the following to the Agent, in form and substance satisfactory to the Agent and the Banks:
a. Resolutions of the Board of Directors of each Borrower and each Obligated Party certified by its Secretary or an Assistant Secretary which authorize its execution, delivery, and performance of the Amendment and the New CP Notes or the Guaranty, as applicable;
6
b. A certificate of incumbency for each Borrower and each Obligated Party certified by its Secretary or an Assistant Secretary certifying the name of each of its officers (i) who is authorized to sign the Amendment and the New CP Notes to which it is or is to be a party (including the certificates contemplated herein) together with specimen signatures of each such officer and (ii) who will, until replaced by other officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with the Amendment, the Credit Agreement and the transactions contemplated hereby and thereby;
c. The certificate of incorporation of each Borrower and each Obligated Party certified by the Secretary of State of the state of its incorporation and dated a current date;
d. The bylaws of each Borrower and each Obligated Party certified by its Secretary or an Assistant Secretary;
e. Certificates of the appropriate government officials of the state of incorporation of each Borrower and each Obligated Party as to their respective existence, authority to do business and good standing, as applicable, in such states, each dated a current date;
f. The New CP Notes executed by each Borrower;
g. A favorable opinion of legal counsel to Borrowers and the Obligated Parties as to such matters as the Bank may reasonably request;
h. The Acknowledgment of Guarantors attached hereto, executed by each party to the Guaranty;
i. A Subsidiary Joinder Agreement, in the form attached hereto as Exhibit E, executed by any Regular Subsidiary of either Borrower that is not currently party to the Guaranty.
j. Payment to the Agent of a fee pursuant to the fee letter between the Borrowers and the Agent;
k. Payment to the Agent of the $125,000 facility fee for the CP Commitment pursuant to Section 3.10(ii);
l. Payment of all other fees and expenses payable by the Borrowers pursuant to the Credit Agreement as amended hereby; and
m. Such other documents as the Agent or its counsel may reasonably request.
5. OTHER FACILITIES. Each of the Borrowers represents and warrants to the Agent and the Banks that each of the Bank of America Facility and the F&M Facility has been terminated and paid in full and that there is no F&M Replacement Facility in effect.
7
6. REPRESENTATIONS AND WARRANTIES. Each of the Borrowers repeats and reaffirms the representations and warranties set forth in Article VI of the Credit Agreement, except to the extent that such representations and warranties relate solely to an earlier date. Each of the Borrowers also represents and warrants that the execution, delivery and performance of this Amendment, and the documents required herein, are within the corporate powers of such Borrower, have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the shareholders such Borrower; (ii) violate any provision of the articles of incorporation or by-laws of such Borrower or of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to such Borrower or any subsidiary of such Borrower; (iii) require the consent or approval of, or filing a registration with, any governmental body, agency or authority; or (iv) result in any breach of or constitute a default under, or result in the imposition of any lien, charge or encumbrance upon any property of such Borrower or any subsidiary of such Borrower pursuant to, any indenture or other agreement or instrument under which such Borrower or any subsidiary of such Borrower is a party or by which it or its properties may be bound or affected. This Amendment constitutes legal, valid and binding obligations of each Borrower enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy or similar laws affecting the enforceability of creditors' rights generally.
7. OBLIGATIONS ENFORCEABLE, ETC. Each Borrower acknowledges and agrees that its obligations under the Credit Agreement and the Notes are not subject to any offset, defense or counterclaim assertable by such Borrower and that the Credit Agreement, the Notes and the Loan Documents are valid, binding and fully enforceable according to their respective terms. Except as expressly provided above, the Credit Agreement and the Loan Documents shall remain in full force and effect, and this Amendment shall not release, discharge or satisfy any present or future debts, obligations or liabilities to the Agent and the Banks of either Borrower or of any debtor, guarantor or other person or entity liable for payment or performance of any of such debts, obligations or liabilities of either Borrower, or any security interest, lien or other collateral or security for any of such debts, obligations or liabilities of either Borrower or such debtors, guarantors, or other persons or entities, or waive any default, and the Agent and the Banks expressly reserve all of their rights and remedies with respect to each Borrower and all such debtors, guarantors or other persons or entities, and all such security interests, liens and other collateral and security. This is an amendment and not a novation. Without limiting the generality of the foregoing, all present and future debts, obligations and liabilities of the Borrowers under the Credit Agreement, as amended, are and shall continue to be secured by the Security Agreements given by the Borrowers, and shall continue to be guaranteed by the Guaranty given by the Guarantors.
8. FEES AND EXPENSES. Each Borrower shall be responsible for the payment of all fees and out-of-pocket disbursements incurred by the Agent in connection with the preparation, execution and delivery of this Amendment. Each Borrower further acknowledges and agrees that such Borrower is and shall be responsible for the payment of other fees, expenses, costs and charges arising under or relating to the Loan Agreement, as amended hereby, and the Loan Documents, as set forth in Section 11.1 of the Credit Agreement.
8
9. LIMITATION OF LIABILITY. None of the Agent, the Banks, or any Affiliate, officer, director, employee, attorney, or agent thereof, shall have any liability with respect to, and each Borrower and each Obligated Party hereby waives, releases, and agrees not to sue any of them upon, any claim for any special, indirect, incidental, consequential, exemplary or punitive damages suffered or incurred by either Borrower or any Obligated Party in connection with, arising out of, or in any way related to, this Amendment, the Credit Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Amendment, the Credit Agreement or any of the other Loan Documents.
10. SURVIVAL. All representations and warranties made or deemed made in this Amendment in any document, statement, or certificate furnished in connection with this Amendment shall survive the execution and delivery of this Agreement and the making of the Loans under the Credit Agreement, and no investigation by the Banks or any closing shall affect the representations and warranties or the right of the Banks to rely upon them.
11. ENTIRE AGREEMENT. THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES THERETO.
12. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Wisconsin and applicable laws of the United States of America. BORROWERS AND EACH OBLIGATED PARTY HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS SITTING IN MILWAUKEE COUNTY, WISCONSIN, FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AMENDMENT, ANY LOAN DOCUMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BORROWERS AND EACH OBLIGATED PARTY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH BORROWER AND EACH OBLIGATED PARTY AGREES THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED OR DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF SECTION
11.13 OF THE CREDIT AGREEMENT. NOTHING IN THIS AMENDMENT OR ANY LOAN DOCUMENT SHALL AFFECT THE RIGHT OF THE AGENT OR THE BANKS TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE AGENT OR THE BANKS TO BRING ANY ACTION OR PROCEEDING AGAINST EITHER BORROWER OR ANY OBLIGATED PARTY OR WITH RESPECT TO ANY OF THEIR RESPECTIVE PROPERTIES IN COURTS IN OTHER JURISDICTION. ANY ACTION OR PROCEEDING BY EITHER BORROWER OR ANY OBLIGATED PARTY AGAINST THE AGENT OR THE BANKS SHALL BE BROUGHT ONLY IN A FEDERAL COURT LOCATED IN MILWAUKEE COUNTY, WISCONSIN.
9
13. COUNTERPARTS. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement.
14. SEVERABILITY. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision held to be invalid or illegal.
15. CONSTRUCTION. Each Borrower, each Obligated Party, and the Banks acknowledge that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Amendment and the New CP Notes with its legal counsel and that this Amendment and the New CP Notes shall be construed as if jointly drafted by the parties hereto.
16. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO AND EACH OBLIGATED PARTY HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AMENDMENT, ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR THE ACTIONS OF THE AGENT OR ANY BANK IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT HEREOF OR THEREOF.
17. MISCELLANEOUS. This Amendment is solely for the benefit of the parties hereto and their permitted successors and assigns. No other person or entity shall have any rights under, or because of the existence of, this Amendment.
10
IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year first above written.
NELNET, INC.

By:        /s/ Terry J. Heimes
    ------------------------------------
    Its:
          ------------------------------	

NATIONAL EDUCATION LOAN NETWORK, INC.

By:        /s/ Terry J. Heimes
    ------------------------------------
    Its:
          ------------------------------	

M&I MARSHALL & ILSLEY BANK, for itself and as Agent

By:        /s/ PD Koepl
    ------------------------------------
    Its:   Senior Vice President
    ------------------------------------

And:       /s/ Brendan Moran
    ------------------------------------
    Its:   Assistant Vice President
    ------------------------------------	

SUNTRUST BANK

By:        /s/ Dawn Dorsey
    ------------------------------------
    Its:   Vice President
          ------------------------------	

FIRST NATIONAL BANK OF OMAHA

By:        /s/ Brock Taylor
    ------------------------------------
    Its:   Officer
          ------------------------------	

FIFTH THIRD BANK

By:        /s/ Mike Mendenhall
    ------------------------------------
    Its:   Corporate Banking Officer
    ------------------------------------	

11
ACKNOWLEDGEMENT OF GUARANTORS
The undersigned Guarantors hereby consent to the foregoing Amendment No. 1 to Credit Agreement (the "AMENDMENT"), and agree that their Guaranty Agreement dated September 25, 2003 in favor of the Agent for the benefit of the Secured Parties (the "Guaranty"), and all collateral or security therefor, shall remain in full force and effect notwithstanding the amendments made above and that the references to the "Credit Agreement" in the Guaranty shall refer to the Credit Agreement as amended by the Amendment.
Dated September 24, 2004.
CHARTER ACCOUNT SYSTEMS, INC.
CLASSCREDIT, INC.
EFS, INC.
EFS SERVICES, INC.
GUARANTEC, LLP
IDAHO FINANCIAL ASSOCIATES, INC.
INTUITION, INC.
NATIONAL HIGHER EDUCATIONAL
LOAN PROGRAM, INC.
NELNET CANADA, INC.
NELNET CORPORATE SERVICES, INC.
 (f/k/a Nelnet Corporation)

NELNET GUARANTEE SERVICES, INC.
NELNET MARKETING SOLUTIONS, INC.
STUDENT PARTNER SERVICES, INC.
UFS SECURITIES, LLC

By:        /s/ Terry J. Heimes
    ------------------------------------
    Their:     Chief Financial Officer
            ----------------------------	

SHOCKLEY FINANCIAL CORP.

By:        /s/ Mark Portz
    ------------------------------------
    Its:   President
          ------------------------------	

12

                                                          EXHIBIT A

                                                       SCHEDULE OF BANKS

                                                                           Commercial  Commercial
                                                   Revolving   Revolving     Paper        Paper      Total         Total
                                                  Commitment  Percentage   Commitment  Percentage  Commitment    Commitment
        Bank             Address for Notice         Amount     Interest      Amount     Interest     Amount      Percentage
-------------------  -------------------------   ------------ ----------- ------------ ---------- ------------  -----------
M&I Marshall &       770 North Water Street      $17,500,000       50%    $17,500,000      35%    $35,000,000       41.2%
Ilsley Bank          Milwaukee, WI  53202

First National Bank  1620 Dodge Street, Stop      $7,500,000     21.4%    $12,500,000      25%    $20,000,000       23.5%
of Omaha             1196
                     Omaha, NE  68197

SunTrust Bank        76 South Laura Street,       $5,000,000     14.3%    $10,000,000      20%    $15,000,000      17.65%
                     20th Floor
                     Jacksonville, FL  32202

Fifth Third Bank     38 Fountain Square Plaza     $5,000,000     14.3%    $10,000,000      20%    $15,000,000      17.65%
                     MD 109046
                     Indianapolis, IN  46204

        Total                                    $35,000,000      100%    $50,000,000     100%    $85,000,000        100%	

13
EXHIBIT B
PROMISSORY NOTE
COMMERCIAL PAPER LOANS
$__________ September __, 2004
FOR VALUE RECEIVED, the undersigned, NELNET, INC. and NATIONAL EDUCATION LOAN NETWORK, INC. ("Borrowers"), hereby, jointly and severally, promise to pay to the order of ________________________ (the "Bank"), at the Principal Office (defined in the Credit Agreement referred to below), in lawful money of the United States of America and in immediately available funds, the principal amount of _______________ Million Dollars ($__________) or such lesser amount as shall equal the aggregate unpaid principal amount of the CP Loans made by the Bank to Borrowers under the Credit Agreement referred to below, on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Loan, at such office, in like money and funds, for the period commencing on the date of such Loan until such Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement.
Borrowers hereby authorize the Bank to record in its records the amount of each Loan made to Borrowers by the Bank and all payments of principal in respect to each such Loan, which records shall, in the absence of manifest error, be conclusive as to the outstanding principal amount of all such Loans; provided, however, that the failure to make such records with respect to any such Loan or payment shall not limit or otherwise affect the obligations of Borrowers under the Credit Agreement or this Note.
This Note is one of the CP Notes referred to in the Credit Agreement dated as of September 25, 2003, among Borrowers, the Bank, M&I Marshall & Ilsley Bank, as Agent (the "Agent"), and certain other Lenders, as amended by Amendment No. 1 to Credit Agreement, dated as of September 24, 2004, among Borrowers, the Bank, the Agent, and certain other Lenders (such Credit Agreement, as the same may be further amended or otherwise modified from time to time, being referred to herein as the "Credit Agreement"), and evidences Loans made by the Bank thereunder. The Credit Agreement, among other things, contains provisions for acceleration of the maturity of this Note upon the happening of certain stated events and for prepayments of CP Loans prior to the maturity of this Note upon the terms and conditions specified in the Credit Agreement. Capitalized terms used in this Note have the respective meanings assigned to them in the Credit Agreement.
14
This Note shall be governed by and construed in accordance with the laws of the State of Wisconsin and the applicable laws of the United States of America. This Note is performable in Milwaukee County, Wisconsin. Borrowers and each surety, guarantor, endorser, and other party ever liable for payment of any sums of money payable on this Note jointly and severally waive notice, presentment, demand for payment, protest, notice of protest and non-payment or dishonor, notice of acceleration, notice of intent to accelerate, notice of intent to demand, diligence in collecting, grace, and all other formalities of any kind except for those specifically provided for in the Credit Agreement, and consent to all extensions without notice for any period or periods of time and partial payments, before or after maturity, and any impairment of any collateral securing this Note, all without prejudice to the holder. The holder shall similarly have the right to deal in any way, at any time, with one or more of the foregoing parties without notice to any other party, and to grant any such party any extensions of time for payment of any of said indebtedness, or to release or substitute any such party or part or all of the collateral securing this Note, or to grant any other indulgences or forbearances whatsoever, without notice to any other party and without in any way affecting the personal liability of any party hereunder.
NELNET, INC.
By:

Name:

Authorized Officer
NATIONAL EDUCATION LOAN NETWORK, INC.
By:

Name:

Authorized Officer

15
EXHIBIT C
Compliance Certificate
16
COMPLIANCE CERTIFICATE
 for the
quarter ending ________ __, ____
To: M&I Marshall & Ilsley Bank
777 North Water Street
Milwaukee, Wisconsin 53202
Attention: _______________
Ladies and Gentlemen:
This Compliance Certificate (the "Certificate") is being delivered pursuant to Section 7.1(e) of that certain Credit Agreement dated as of September 25, 2003 (as amended, the "Agreement"), among NELNET, INC., NATIONAL EDUCATION LOAN NETWORK, INC. (together, the "Borrowers"), and M&I Marshall & Ilsley Bank, SunTrust Bank, First National Bank of Omaha and Fifth Third Bank (the "Banks"). All capitalized terms, unless otherwise defined herein, shall have the same meanings as in the Credit Agreement. All the calculations set forth below shall be made pursuant to the terms of the Credit Agreement.
The undersigned, a financial officer of Borrowers authorized under certified resolutions delivered to the Banks, in his capacity as such financial officer and not in his individual capacity, does hereby certify to the Bank that:

------ ---------------------------------------------------------------------- ------ --------- -------
1.     DEFAULT.
------ ---------------------------------------------------------------------- ------ --------- -------
       No Default exists under this Agreement, or, if a Default exists, I have
       described on the attached Exhibit "A "the nature thereof and the steps
       taken or proposed to remedy such Default.
------ -----------------------------------------------------------------------------------------------
                                                                                         Compliance
------ ----------------------------------------------------------------------------- -----------------
2.     SECTION 7.1 - Reporting Requirements.
------ ----------------------------------------------------------------------------- ----- ----- -----
                   (a)  Annual audited financial statements of Borrowers on a
                        consolidated and consolidating basis within
                        90 days after the end of each fiscal year end or 10-K
                        (together with Compliance Certificate).                       Yes    No   N/A
------ ---- ------ ---- ------------------------------------------------------------ ----- ----- -----
                   (b)  Quarterly unaudited financial statements of Borrowers
                        and their respective Subsidiaries on a
                        consolidated and consolidating basis within 45 days
                        after each fiscal quarter end or 10-Q (together with
                        Compliance Certificate).                                      Yes    No   N/A
------ ---- ------ ---- ------------------------------------------------------------ ----- ----- -----
                   (c)  Report listing Permissible Withdrawal Amounts and SLIMS
                        Commitment Amounts.                                           Yes    No   N/A
------ ---- ------ ---- ------------------------------------------------------------ ----- ----- -----
                   (d)  Annual Forecast                                               Yes    No   N/A
------ ---- ------ ---- ------------------------------------------------------------ ----- ----- -----
                   (e)  Report on Borrowers' and Subsidiaries' Student Loan
                        portfolio within 45 days after each fiscal quarter ends.      Yes    No   N/A
------ ---- ------ ---- ------------------------------------------------------------ ----- ----- -----
                   (f)  Annual audit report, SAS 70 report, servicer attestation
                        reports and lender attestation report.                        Yes    No   N/A
------ ---- ------ ---- ------------------------------------------------------------ ----- ----- -----
                   (g)  Student Loan and DOE and Guaranty Agency audit reports
                        within 45 days after each fiscal quarter ends.                Yes    No   N/A
------ ---- ------ ---- ------------------------------------------------------------ ----- ----- -----
                   (h)  Other                                                         Yes    No   N/A
------ ---- ------ ---- ------------------------------------------------------------ ----- ----- -----

                                       17	

3.     SECTION 7.12 -Servicing Performance.
------ ----------------------------------------------------------------------------- ----- ----- -----
       Has the guarantee applicable to any Student Loans owned or by either
       Borrower or any Subsidiary been reduced below 98%?                             Yes    No
------ ----------------------------------------------------------------------------- ----- ----- -----
4.     SECTION 8.5 - Investments.
------ ----------------------------------------------------------------------------- ----- ----- -----
                   (a)  Basket of loans to officers, directors,           $ 100,000
                        agents and employees
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (b)  Actual outstanding principal amount of loans      $ ______
                        to officers etc.
------ ---- ------ ---- ------------------------------------------------------------ ----- ----- -----
                   (c) Total Acquisitions during period [Describe]
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (d)  Other investments pursuant to Section 8.5(k)
                        made in previous periods                           $ ______
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (e)  Other Investments in Subject Period [specify]      $ ______
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (f)  Sum of (c) minus (d) plus (e) plus (f)             $ ______
 ------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (g)  5% of Borrowers' consolidated net assets at        $ ______
                        book value
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (h)  Is (g) greater than (f)?                                      Yes    No
------ ---- ------ ---- ------------------------------------------------------------ ----- ----- -----

5.     SECTION 9.1 - Consolidated Tangible Net Worth.
------ ----------------------------------------------------------------------------- ----- ----- -----
                   (a) Beginning Consolidated Tangible Net Worth. $250,000,000
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (b) 75% of Borrowers' and Subsidiaries positive
                        GAAP consolidated net income (for each             $ ______
                        completed fiscal quarter since December 31,
                        2003)
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (c)  Required Consolidated Net Worth (the sum of        $ ______
                        (a) plus (b))
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (d) Actual Consolidated Tangible Net Worth as of quarter end:
------ ---- ------ ---- ------------------------------------------------------------ ----- ----- -----
                        (i)  Stockholders equity                           $ ______
------ ---- ----------- ----------------------------------------------- ------------ ----- ----- -----
                        (ii) Increase in stockholder's equity due          $ ______
                         to write-up
------ ---- ----------- ----------------------------------------------- ------------ ----- ----- -----
                        (iii) Intangibles                                  $ ______
------ ---------------- ----------------------------------------------- ------------ ----- ----- -----
                        (iv) Deferred income tax assets                    $ ______
------ ---------------- ----------------------------------------------- ------------ ----- ----- -----
                        (v)  Securities not marketable                     $ ______
------ ---------------- ----------------------------------------------- ------------ ----- ----- -----
                        (vi) Cash held in sinking fund or other            $ ______
                             similar fund
------ ---------------- ----------------------------------------------- ------------ ----- ----- -----
                        (vii) Shares of capital stock                      $ ______
------ ---------------- ----------------------------------------------- ------------ ----- ----- -----
                        (viii) Minority interests                          $ ______
------ ---------------- ----------------------------------------------- ------------ ----- ----- -----
                        (ix)  Sum of (ii) through (viii)                   $ ______
------ ---------------- ----------------------------------------------- ------------ ----- ----- -----
                        (x)  (i) minus (ix)                                $ ______
------ ---------------- ----------------------------------------------- ------------ ----- ----- -----
                   (e) Is (x) greater than (c)?                                       Yes    No
------ ----------------------------------------------------------------------------- ----- ----- -----
6.     SECTION 9.2 - Maximum Leverage Ratio.
------ ----------------------------------------------------------------------------- ----- ----- -----
       1.               Calculation of Funded Debt
------ ---- ----------- ----------------------------------------------- ------------ ----- ----- -----
                   (a)  Revolving Loans plus interest                      $ ______
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (b)  Commercial Paper outstanding                       $ ______
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (c)  CP Loans plus interest                             $ ______
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (d)  Other funded Debt, including interest              $ ______
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (e)  Funded Debt (Sum of (a) through (d))               $ ______
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----

                                       18	

------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
       2.               Calculation of Leverage Denominator
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----

------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
            2.1         Calculation of Adjusted EBTDA
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (a)  Borrowers and Regular Subsidiaries' EBTDA (as      $ ______
                        described on Schedule 1)
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (b)  Pro Forma EBTDA as Prior Target or                 $ ______
                        attributable to Prior Target Assets (as
                        described on Schedule 2)
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (c)  Prior Company or Prior Asset EBTDA (as             $ ______
                        detailed on Schedule 3)
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (d)  Amount paid under participation agreements         $ ______
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (e)  Other adjustments approved by Agreement            $ ______
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (f)  Adjusted EBTDA sum of (a) and (b) minus (c)        $ ______
                        and (f) and plus or minus (e)
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----

------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
            2.2         Calculation of SLIMS Difference
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----

------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (a)  Permissible Withdrawal Amount for each Asset       $ ______
                        Securitization
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                                                                           $ ------
------ ---- ----------- ----------------------------------------------- ------------ ----- ----- -----
                                                                           $ ------
------ ---- ----------- ----------------------------------------------- ------------ ----- ----- -----
                                                                           $ ------
------ ---- ----------- ----------------------------------------------- ------------ ----- ----- -----
                   (b)  Aggregate Permissible Withdrawal Amount sum of     $ ______
                        all items in (a)
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (c)  SLIMS Commitment Amount for each Asset             $ ______
                        Securitization described in (a) representing       $ ______
                        sum of (1) required payments, (2) amounts          $ ______
                        required to be transferred and (3) pledged or      $ ______
                        secured amounts
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (d)  Aggregate SLIMS Commitment Amount sum of all       $ ______
                        items in (c)
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (e)  SLIMS Difference [if (b) - (d) is negative         $ ______
                        number, enter 0]
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
            2.3         Calculation of Leverage Denominator
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----

------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (a)  Sum of 2.1(f) and 2.2(e)                           $ ______
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
            2.4         Calculation of ratios
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----

------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (a)  Line 1(e) / 2.3 (a)                                $ ______
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (b)  Maximum ratio                                     2.25 to 1
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (c)  Is line 2.4(b) less than 2.4(a)?                              Yes    No
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
7.     MINIMUM LOAN LOSS RESERVE TO TOTAL STUDENT LOANS
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (a)  Total Student Loans                                $ ______
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (b)  Reserves for bad loans                             $ ______
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (c)  Minimum % required                                   0.040%
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (d)  (b) / (a) times 100 (to convert to %)
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----
                   (e) Is (d) greater than (c)?                                       Yes   No
------ ---- ------ ---- ----------------------------------------------- ------------ ----- ----- -----

                                       19	

8.     ATTACHED SCHEDULES
------ -----------------------------------------------------------------------------------------------
       Attached hereto as schedules are the calculations supporting the
       computations set forth above in this Certificate. All information
       contained herein and on the attached schedules is true and correct.
------ -----------------------------------------------------------------------------------------------
9.     FINANCIAL STATEMENTS.
------ -----------------------------------------------------------------------------------------------
       The financial statements attached hereto were prepared in accordance with
       GAAP and fairly present (subject to year end audit adjustments) the
       financial conditions and the results of the operations of the Persons
       reflected thereon, at the date and for the periods indicated therein.
------ -----------------------------------------------------------------------------------------------
10.    CONFLICT.
------ -----------------------------------------------------------------------------------------------
       In the event of any conflict between this compliance certificate and the
       Credit Agreement, the Credit Agreement shall control.
------ -----------------------------------------------------------------------------------------------

               IN WITNESS WHEREOF, the undersigned has executed this Certificate effective this _____
day of ________, ____.	

BORROWERS:
NELNET, INC.
By:

Name:

Authorized Officer
NATIONAL EDUCATION LOAN NETWORK, INC.
By:

Name:

Authorized Officer

20
Schedule 1 to Compliance Certificate
BORROWERS' EBTDA
CONSOLIDATED NET INCOME OF BORROWERS AND REGULAR SUBSIDIARIES
(a) GAAP consolidated net income $_________
(b) Income of others not received $_________
(c) Investments to fund deficits or loss $_________
(d) Income subject to restrictions $_________
(e) Income of a Target for periods prior to Acquisition $_________
(f) Gains realized upon the sale or refinancing of assets $_________
(g) Increases in book value of assets acquired $_________
(h) Other extraordinary, non recurring, non-operating or non-cash gains $_________
(i) Sum of (b) through (h) $_________
(j) Line (a) minus line (i) $_________
(k) Plus provisions for tax $_________
(1) Less benefit from tax $_________
(m) Plus amortization $_________
(n) Plus depreciation $_________
(o) Minus other non-cash credits $_________
(p) Plus interest and admin on SLIMS 2 and 3 $_________
(p) Borrowers' and the Regular Subsidiaries' EBTDA: (j) plus (k),
(m), (n) and (p) and less (l) and (o) $_________
21
Schedule 2 to Compliance Certificate
Prior Target and Asset EBTDA
22
Schedule 3 to Compliance Certificate
Prior Company EBTDA
23
EXHIBIT D
Subsidiaries
24
EXHIBIT E
Subsidiary Joinder Agreement
25
SUBSIDIARY JOINDER AGREEMENT
This SUBSIDIARY JOINDER AGREEMENT (the "Agreement") dated as of September 24, 2004 is executed by the undersigned (each an "Obligated Party") for the benefit of M&I MARSHALL AND ILSLEY BANK, as agent for itself and the other Secured Parties, in connection with that certain Credit Agreement dated September 25, 2003, among NELNET, INC., NATIONAL EDUCATION LOAN NETWORK, INC.
(together the "Borrowers") and M&I MARSHALL & ILSLEY BANK, SUNTRUST BANK, FIRST NATIONAL BANK OF OMAHA and FIFTH THIRD BANK (formerly known as Fifth Third Bank, Indiana) (the "Banks"), as amended by that certain Amendment No. 1 to Credit Agreement dated as of September 24, 2004 (as modified to date, and as it may be further modified from time to time, the "Credit Agreement", and capitalized terms not otherwise defined herein being used herein as defined in the Credit Agreement).
Each Obligated Party is a newly formed or newly acquired Subsidiary (but not a Special Purpose Vehicle) and is required to execute this Agreement pursuant to the Credit Agreement.
NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Obligated Party hereby agrees as follows:
Each Obligated Party hereby assumes all the obligations of a "Guarantor" under the Guaranty and agrees that it is a "Guarantor" and bound as a "Guarantor" under the terms of the Guaranty as if it had been an original signatory thereto. In accordance with the forgoing and for valuable consideration, the receipt and adequacy of which are hereby acknowledged, each Obligated Party irrevocably and unconditionally guarantees to the Agent and the Secured Parties the full and prompt payment and performance of the Guaranteed Indebtedness (as defined in the Guaranty) upon the terms and conditions set forth in the Guaranty.
This Agreement shall be deemed to be part of, and a modification to, the Guaranty and shall be governed by all the terms and provisions of the Guaranty, which terms are incorporated herein by reference, are ratified and confirmed and shall continue in full force and effect as valid and binding agreements of each Obligated Party enforceable against such Obligated Party. Each Obligated Party hereby waives notice of the Agent's or any Secured Party's acceptance of this Agreement.
[Signature page follows]
26
IN WITNESS WHEREOF, each Obligated Party has executed this Agreement as of the day and year first written above.
Obligated Party:
NATIONAL EDUCATION LOAN OF NEW ENGLAND, INC.

By:        /s/ Terry J. Heimes
    ------------------------------------
    Name:  Terry J. Heimes
          ------------------------------
    Title: Chief Financial Officer
           -----------------------------	

BST HOLDINGS, INC.

By:        /s/ Terry J. Heimes
    ------------------------------------
    Name:  Terry J. Heimes
          ------------------------------
    Title: Chief Financial Officer
           -----------------------------	

27
 
EXHIBIT 14.1
Nelnet, Inc.
Code of Business Conduct and Ethics
for Directors, Officers and Employees
GENERAL STATEMENT OF POLICY
It is the policy of Nelnet, Inc. (the "Company") and its affiliated companies that the conduct of every director, officer and employee while acting on behalf of the Company be based upon the highest ethical standards and compliance with the law. This Code of Business Conduct and Ethics affirms the policy of the Company and is a guideline to:
o promote honest and ethical conduct that reflects positively on the Company;
o maintain a corporate climate in which the integrity and dignity of each individual is valued;
o assure compliance with laws, rules and regulations that govern the Company's business activities; and
o assure the proper use of the Company's assets.
This Code does not specifically address every potential form of unacceptable conduct, and it is expected that directors, officers and employees will exercise good judgment in compliance with the principles set out in this Code. Each director, officer and employee has a duty to avoid any circumstance that would violate the letter or spirit of this Code.
FAIR DEALING
Each director, officer and employee should endeavor to deal honestly and ethically with the Company's directors, officers, employees, auditors, advisors, customers, suppliers and competitors while engaged in business on behalf of the Company. Non-compliance with this Code or the law or other unethical or dishonest business practices while acting on behalf of the Company are forbidden and may result in disciplinary action, including termination.
PROPER USE OF COMPANY ASSETS
Company assets should be used only for the legitimate business purposes of the Company. Directors, officers and employees are prohibited from using Company assets, confidential or proprietary information or position for personal gain.
1
COMPLIANCE WITH LAWS, RULES AND REGULATIONS
Any transaction undertaken in the name of the Company that would violate the laws, rules or regulations of any country or its political subdivisions in which the Company conducts business is prohibited. Particular attention is directed to the laws, rules and regulations relating to discrimination, securities, antitrust, civil rights, transactions with foreign officials, safety and the environment. If any uncertainty arises as to whether a course of action is within the letter and spirit of the law, advice should be obtained from the Company's General Counsel or his designee.
Observing the law is a minimum requirement. The Company's Code envisions a level of ethical business conduct well above the minimum required by law.
1. DISCRIMINATION AND HARASSMENT
The Company is committed to providing a workplace free of discrimination and harassment based on race, color, religion, age, gender, national origin, disability, veteran status, or any other basis prohibited by applicable law. Similarly, offensive or hostile working conditions created by such harassment or discrimination will not be tolerated. Each director, officer and employee has a duty while acting on behalf of the Company to refrain from engaging in conduct that constitutes discrimination or harassment.
An officer or employee should promptly report any discrimination or harassment or any complaint of discrimination or harassment to the Head of Human Resources or to corporate legal. Additional information regarding discrimination and harassment may be found in the employee policy manual.
2. INSIDER TRADING
Directors, officers or employees in possession of material information about the Company must abstain from trading in its securities until such information is generally and publicly available by means of a press release or other public filing. Such material "inside information" might include earnings estimates, stock and dividend activity, changes of control or management, pending mergers, sales, acquisitions, reserves numbers or other significant business information or developments. Providing such inside information to others who then trade on it is also strictly prohibited. Trading on inside information is also a violation of federal securities law.
POLITICAL CONTRIBUTIONS
Corporate funds, credit, property or services may not be used (directly or indirectly) to support any political party or candidate for public office, or to support or oppose any ballot measure, without the prior approval of the Board. Although directors, officers and employees are encouraged to support political parties and candidates with their personal efforts and money, the Company will not reimburse or subsidize them in any way for such political participation.
2
CONFIDENTIAL INFORMATION
Directors, officers and employees may become aware of non-public information regarding actual or potential customers, suppliers or commercial transactions of the Company, or of nonpublic technical information pertaining to the operations or potential operations of the Company. Such confidential and proprietary information is the exclusive property of the Company and each director, officer and employee is bound to keep such information in strictest confidence, except when disclosure is authorized by an officer of the Company or legally mandated. Furthermore, such information is to be used solely for Company purposes and never for the private gain of a director, officer or employee (or any member of his or her immediate family), or any third party.
Special care is required regarding the public release of information concerning the Company's business, strategies, activities and plans, the disclosure of which could influence investors trading in the Company's securities. All media contact and public statements and discussions of Company business should be coordinated with the Head of Marketing Communications and should only be made by spokespersons who have been authorized by an officer of the Company.
CONFLICTS OF INTEREST
1. GENERAL
Generally, a conflict exists when the personal interests or activities of a director, officer or employee (or members of their immediate family) may influence the exercise of his or her independent judgment in the performance of one or more duties to the Company. Even the appearance of a conflict of interest may be as damaging as an actual conflict and should be avoided. Directors, officers and employees should not enter into any transaction or engage in any practice (directly or indirectly) that would tend to influence him or her to act in any manner other than in the best interests of the Company. Directors, officers and employees (or members of their immediate family) also should not exercise discretionary authority or make or influence any recommendation or decision on behalf of the Company that would result in an undisclosed personal financial benefit to such director, officer or employee (or to members of his or her immediate family).
3
It is not a conflict of interest for a director, officer or employee or members of their immediate family to obtain services from persons or entities who also provide services to the Company, including legal, accounting or brokerage services, loans from banks or insurance from insurance companies, at rates customary for similarly situated customers. Furthermore, no relationship involving an employee or non-executive officer that is disclosed to and affirmatively determined by corporate legal to be immaterial and no relationship involving an executive officer or director that is disclosed to and affirmatively determined by the Board of Directors to be immaterial (and no action incidentally benefiting any such employee, officer or director as a result of such relationship) shall be deemed a conflict of interest within the meaning of this Code.
2. GIFTS, GRATUITIES AND OTHER BENEFITS
No officer or employee shall (directly or indirectly) offer or give any gift, "kickback" or other improper payment or consideration to any customer, supplier, government official or employee, or any other person in consideration for assistance or influence concerning any transaction or potential transaction involving the Company.
No officer or employee, or member of his or her immediate family, shall (directly or indirectly) solicit, accept or retain any gift, entertainment, trip, discount, service or other benefit from any organization or person doing business or competing with the Company, other than (i) modest gifts or entertainment as part of normal business courtesy and hospitality that would not influence, and would not reasonably appear to be capable of influencing, such officer or employee to act in any manner not in the best interest of the Company or (ii) acceptance of a nominal benefit that has been disclosed to and approved by the officer's or employee's supervisor.
Written approval by an officer of the Company shall be required for any gift, entertainment, trip, discount, service, or other benefit from an organization or person doing business with or competing with the Company which exceeds $250 in value (or such lesser value as may be determined through written notice by an Officer of the Company for a Department or Division under his or her supervision). A copy of such written approval shall be provided to corporate legal.
CORPORATE OPPORTUNITIES
Directors, officers and employees are prohibited from taking for themselves personally (or for members of their immediate family) any opportunity that may be of interest to the Company that is discovered through the use of corporate property, information or position unless such opportunity is first offered to the Company and the Company affirmative determines not to pursue it.
4
OTHER ORGANIZATIONS
Each officer and employee is expected to devote his or her full time and efforts during normal working hours to the service of the Company. No officer or employee shall engage in any business or secondary employment that interferes with his or her obligations and responsibilities to the Company.
No officer or employee of the Company may serve on the board of directors of any corporation not owned or controlled by the Company, other than a nonprofit, charitable, religious, civic or educational organization, without the prior written approval of one of the Company's Co-Chief Executive Officers, or, for the Co-Chief Executive Officers, without the prior approval of the Company's Board of Directors.
Unless disclosed to and approved by the co-chief executives, no officer or employee or any member of their immediate families may directly or indirectly have a financial interest (whether as an investor, lender, employee or other service provider) in any company that is selling supplies, furnishing services or otherwise doing business or competing with the Company. This provision does not apply to an officer or employee or members of their immediate family owning the securities of a publicly traded entity as long as such ownership represents less than five percent (5%) of the outstanding securities.
EMPLOYMENT OF FAMILY MEMBERS AND EMPLOYEE RELATIONSHIPS
The Company does not prohibit spouses, parents, children and other persons related by blood or marriage from working for the Company simultaneously. However, all such employees must be hired by disinterested personnel strictly on the basis of merit and without regard to family relationships. Reporting relationships between family members are to be avoided to the maximum extent possible, to eliminate even the appearance of possible favoritism based on family ties. For these reasons, employees should disclose to the Company the names and current job titles of all family members who work directly or indirectly for the Company.
The Company continually strives to promote positive and productive working relationships between its employees and to fully comply with the letter and spirit of all laws prohibiting discrimination and sexual harassment. While the Company does not wish to unduly interfere with the private lives of its employees, some limitations on personal relationships in the workplace are necessary in order to prevent actual or perceived favoritism, problems with supervision, security and morale and possible claims of discrimination or harassment. For these reasons, an employee may not engage in romantic or sexual encounters or relationships with any other employee with whom he or she is in a supervisory or reporting relationship. This includes the immediate supervisor, any upper level supervisor (that is, anyone up the supervisory chain), any person to whom the employee directly or indirectly reports, anyone who evaluates the employee and any person whose input is regularly sought for the evaluation of an employee.
5
The Company recognizes the importance of developing close working relationships among employees and this policy is not intended to prohibit friendships that naturally develop in a work setting or social interaction among employees.
If two employees become subject to the restrictions of this policy after they are hired, one or both of the employees must seek a transfer or reassignment that eliminates the reporting or supervisory relationship. The decision as to which of the individuals will remain within the department and/or with the Company must be made by the two employees within three (3) months. If no decision has been made during this time, the Company may take whatever action it determines to be appropriate, including transfers, reassignments or termination of one or both of the employees.
ACCOUNTING AND REPORTING
Every officer and employee is required to follow the Company's accounting policies, including the business expense policies. All accounting records should accurately reflect and describe corporate transactions. The recordation of such data must not be falsified or altered in any way to conceal or distort assets, liabilities, revenues, expenses or the nature of the activity. The Company's accounting policies may be obtained from the Company's head of accounting.
All public disclosures made by the Company, including disclosures in reports and documents filed with or submitted to the Securities and Exchange Commission, shall be accurate and complete in all material respects. Each director, officer and employee is expected to carefully consider all inquiries from the Company related to the Company's public disclosure requirements and promptly supply complete and accurate responses.
If any officer or employee has any questions or concerns about any of the Company's public disclosures, he or she should immediately contact the Company's head of marketing communications.
COMPLIANCE AND ENFORCEMENT
Questions of interpretation or application of this Code with respect to a particular situation should be addressed to corporate legal or its designees. Such requests may be made in writing or orally and will be handled discretely.
Compliance with this Code is a condition of employment for each officer and employee. Conduct contrary to this Code is outside of the scope of employment. Employees are encouraged to talk to supervisors, Human Resource Department representatives or an officer of the Company when in doubt about the best course of action in a particular situation.
6
ANY SUSPECTED VIOLATION OF APPLICABLE LAWS, RULES OR REGULATIONS OR THIS CODE, INCLUDING ANY TRANSACTION OR RELATIONSHIP THAT REASONABLY COULD BE EXPECTED TO GIVE RISE TO A CONFLICT OF INTEREST, SHOULD BE REPORTED PROMPTLY TO CORPORATE LEGAL OR ITS DESIGNEE, WITHOUT REGARD TO THE USUAL LINES OF REPORTING.
NO ADVERSE ACTION WILL BE TAKEN AGAINST ANY EMPLOYEE FOR MAKING A COMPLAINT OR DISCLOSING INFORMATION IN GOOD FAITH, AND ANY OFFICER OR EMPLOYEE WHO RETALIATES IN ANY WAY AGAINST AN EMPLOYEE WHO IN GOOD FAITH REPORTS ANY VIOLATION OR SUSPECTED VIOLATION OF THE CODE OF CONDUCT WILL BE SUBJECT TO DISCIPLINARY ACTION, INCLUDING TERMINATION.
ANY VIOLATION OF THIS CODE OF CONDUCT WILL BE GROUNDS FOR IMMEDIATE
DISCIPLINARY ACTION INCLUDING TERMINATION.
AMENDMENT, MODIFICATION AND WAIVER
Any amendment or modification of this Code must be approved by the Company's Board of Directors. Any waiver of this Code for non-executive officers or employees may be granted by a co-Chief Executive Officer. Any waiver of this Code for directors or executive officers may be granted only by the Board of Directors or a duly authorized committee of the Board of Directors, subject to the disclosure and other provisions of the Securities Exchange Act of 1934, the rules promulgated thereunder and the applicable rules of the New York Stock Exchange.
7
 
Exhibit 14.2
Nelnet Education Loan Funding, Inc Code of Business Conduct and Ethics for Directors and Officers
GENERAL STATEMENT OF POLICY
It is the policy of Nelnet Education Loan Funding, Inc. (the "Company") that the conduct of every Director and officer while acting on behalf of the Company be based upon the highest ethical standards and compliance with the law. This Code of Business Conduct and Ethics affirms the policy of the Company and is a guideline to:
o promote honest and ethical conduct that reflects positively on the Company;
o maintain a corporate climate in which the integrity and dignity of each individual is valued;
o assure compliance with laws, rules and regulations that govern the Company's business activities; and
o assure the proper use of the Company's assets.
This Code does not specifically address every potential form of unacceptable conduct, and it is expected that Directors and officers will exercise good judgment in compliance with the principles set out in this Code. Each Director and officer has a duty to avoid any circumstance that would violate the letter or spirit of this Code.
FAIR DEALING
Each Director and officer should endeavor to deal honestly and ethically with the Company's Directors, officers, auditors, advisors, customers, suppliers and competitors while engaged in business on behalf of the Company. Non-compliance with this Code or the law or other unethical or dishonest business practices while acting on behalf of the Company are forbidden and may result in disciplinary action, including termination.
PROPER USE OF COMPANY ASSETS
Company assets should be used only for the legitimate business purposes of the Company. Directors and officers are prohibited from using Company assets, confidential or proprietary information or position for personal gain.
COMPLIANCE WITH LAWS, RULES AND REGULATIONS
Any transaction undertaken in the name of the Company that would violate the laws, rules or regulations of any country or its political subdivisions in which the Company conducts business is prohibited. Particular attention is directed to the laws, rules and regulations relating to discrimination, securities, antitrust, civil rights, transactions with foreign officials, safety and the environment. If any uncertainty arises as to whether a course of action is within the letter and spirit of the law, advice should be obtained from the Company's General Counsel or his designee.
Observing the law is a minimum requirement. The Company's Code envisions a level of ethical business conduct well above the minimum required by law.
1
1. DISCRIMINATION AND HARASSMENT
The Company is committed to providing a workplace free of discrimination and harassment based on race, color, religion, age, gender, national origin, disability, veteran status, or any other basis prohibited by applicable law. Similarly, offensive or hostile working conditions created by such harassment or discrimination will not be tolerated. Each Director and officer has a duty while acting on behalf of the Company to refrain from engaging in conduct that constitutes discrimination or harassment. An officer should promptly report any discrimination or harassment or any complaint of discrimination or harassment to the Company's president and to the head of human resources of Nelnet, Inc. ("Nelnet") or corporate legal. Additional information regarding discrimination and harassment may be found in Nelnet's employee policy manual.
2. INSIDER TRADING
Directors and officers in possession of material information about the Company or Nelnet must abstain from trading in securities of Nelnet until such information is generally and publicly available by means of a press release or other public filing. Such material "inside information" might include earnings estimates, stock and dividend activity, changes of control or management, pending mergers, sales, acquisitions, reserves numbers or other significant business information or developments. Providing such inside information to others who then trade on it is also strictly prohibited. Trading on inside information is also a violation of federal securities law.
POLITICAL CONTRIBUTIONS
Corporate funds, credit, property or services may not be used (directly or indirectly) to support any political party or candidate for public office, or to support or oppose any ballot measure, without the prior approval of the Board of Directors. Although Directors and officers are encouraged to support political parties and candidates with their personal efforts and money, the Company will not reimburse or subsidize them in any way for such political participation.
CONFIDENTIAL INFORMATION
Directors and officers may become aware of non-public information regarding actual or potential customers, suppliers or commercial transactions of the Company, or of nonpublic technical information pertaining to the operations or potential operations of the Company. Such confidential and proprietary information is the exclusive property of the Company and each Director and officer is bound to keep such information in strictest confidence, except when disclosure is authorized by an officer of the Company or legally mandated. Furthermore, such information is to be used solely for Company purposes and never for the private gain of a Director and officer (or any member of his or her immediate family), or any third party.
Special care is required regarding the public release of information concerning the Company's business, strategies, activities and plans, the disclosure of which could influence investors trading in the Company's securities. All media contact and public statements and discussions of Company business should be coordinated with the Nelnet's head of marketing communications and should only be made by spokespersons who have been authorized by an officer of the Company.
2
CONFLICTS OF INTEREST
1. GENERAL
Generally, a conflict exists when the personal interests or activities of a Director and officer (or members of their immediate family) may influence the exercise of his or her independent judgment in the performance of one or more duties to the Company. Even the appearance of a conflict of interest may be as damaging as an actual conflict and should be avoided. Directors and officers should not enter into any transaction or engage in any practice (directly or indirectly) that would tend to influence him or her to act in any manner other than in the best interests of the Company. Directors and officers (or members of their immediate family) also should not exercise discretionary authority or make or influence any recommendation or decision on behalf of the Company that would result in an undisclosed personal financial benefit to such Director and officer (or to members of his or her immediate family).
It is not a conflict of interest for a Director and officer (or to members of their immediate family) to obtain services from persons or entities who also provide services to the Company, including legal, accounting or brokerage services, loans from banks or insurance from insurance companies, at rates customary for similarly situated customers. Furthermore, no relationship involving an executive officer or Director that is disclosed to and affirmatively determined by the Board of Directors to be immaterial (and no action incidentally benefiting any such officer or Director as a result of such relationship) shall be deemed a conflict of interest within the meaning of this Code.
2. GIFTS, GRATUITIES AND OTHER BENEFITS
No officer or Director shall (directly or indirectly) offer or give any gift, "kickback" or other improper payment or consideration to any customer, supplier or government official, or any other person in consideration for assistance or influence concerning any transaction or potential transaction involving the Company.
No officer or Director, or member of his or her immediate family, shall (directly or indirectly) solicit, accept or retain any gift, entertainment, trip, discount, service or other benefit from any organization or person doing business or competing with the Company, other than (i) modest gifts or entertainment as part of normal business courtesy and hospitality that would not influence, and would not reasonably appear to be capable of influencing, such officer or Director to act in any manner not in the best interest of the Company or (ii) acceptance of a nominal benefit that has been disclosed.
Written approval by an officer or Director of the Company shall be required for any gift, entertainment, trip, discount, service, or other benefit from an organization or person doing business with or competing with the Company which exceeds $250 in value (or such lesser value as may be determined through written notice by an Officer of the Company for a Department or Division under his or her supervision). A copy of such written approval shall be provided to Nelnet corporate legal.
3
CORPORATE OPPORTUNITIES
Directors and officers are prohibited from taking for themselves personally (or for members of their immediate family) any opportunity that may be of interest to the Company that is discovered through the use of corporate property, information or position unless such opportunity is first offered to the Company and the Company affirmative determines not to pursue it.
OTHER ORGANIZATIONS
Each officer is expected to devote his or her full time and efforts during normal working hours to the service of the Company or its affiliates. No officer shall engage in any business or secondary employment that interferes with his or her obligations and responsibilities to the Company or its affiliates.
No officer of the Company may serve on the Board of Directors of any corporation not owned or controlled by or under common control with the Company or Nelnet, other than a nonprofit, charitable, religious, civic or educational organization, without the prior written approval of one of the president of the Company.
Unless disclosed to and approved by the president of the Company, no officer (or any member of their immediate families) may directly or indirectly have a financial interest (whether as an investor, lender or other service provider) in any company that is selling supplies, furnishing services or otherwise doing business or competing with the Company. This provision does not apply to an officer (or members of their immediate family) owning the securities of a publicly traded entity as long as such ownership represents less than five percent (5%) of the outstanding securities.
ACCOUNTING AND REPORTING
Every officer is required to follow the Company's accounting policies, including the business expense policies. All accounting records should accurately reflect and describe corporate transactions. The recordation of such data must not be falsified or altered in any way to conceal or distort assets, liabilities, revenues, expenses or the nature of the activity. The Company's accounting policies may be obtained from the Nelnet's head of accounting.
All public disclosures made by the Company, including disclosures in reports and documents filed with or submitted to the Securities and Exchange Commission, shall be accurate and complete in all material respects. Each Director and officer is expected to carefully consider all inquiries from the Company related to the the Company's public disclosure requirements and promptly supply complete and accurate responses.
If any officer has any questions or concerns about any of the Company's public disclosures, he or she should immediately contact the president of the Company.
COMPLIANCE AND ENFORCEMENT
Questions of interpretation or application of this Code with respect to a particular situation should be addressed to the Company's corporate legal or its designees. Such requests may be made in writing or orally and will be handled discretely.
4
ANY SUSPECTED VIOLATION OF APPLICABLE LAWS, RULES OR REGULATIONS OR THIS CODE, INCLUDING ANY TRANSACTION OR RELATIONSHIP THAT REASONABLY COULD BE EXPECTED TO GIVE RISE TO A CONFLICT OF INTEREST, SHOULD BE REPORTED PROMPTLY TO CORPORATE LEGAL OR ITS DESIGNEE, WITHOUT REGARD TO THE USUAL LINES OF REPORTING.
NO ADVERSE ACTION WILL BE TAKEN AGAINST ANY OFFICER FOR MAKING A COMPLAINT OR DISCLOSING INFORMATION IN GOOD FAITH, AND ANY OFFICER WHO RETALIATES IN ANY WAY AGAINST AN INDIVIDUAL WHO IN GOOD FAITH REPORTS ANY VIOLATION OR SUSPECTED VIOLATION OF THE CODE OF CONDUCT WILL BE SUBJECT TO DISCIPLINARY ACTION, INCLUDING TERMINATION.
ANY VIOLATION OF THIS CODE OF CONDUCT WILL BE GROUNDS FOR IMMEDIATE DISCIPLINARY ACTION INCLUDING TERMINATION.
AMENDMENT, MODIFICATION AND WAIVER
Any amendment or modification of this Code must be approved by the Company's Board of Directors. Any waiver of this Code for officers may be granted only by the Board of Directors or a duly authorized committee of the Board of Directors, subject to the disclosure and other provisions of the Securities Exchange Act of 1934, the rules promulgated there under.
5
 
EXHIBIT 21.1
List of Direct and Indirect Subsidiaries of Nelnet, Inc.
Direct Subsidiaries:
 National Education Loan Network, Inc. (organized in Nevada) Nelnet Capital LLC (organized in Nebraska) Premiere Credit of North America LLC (organized in Indiana)

Indirect Subsidiaries:
 Nelnet Corporate Services, Inc. (organized in Nevada) Nelnet Guarantee Services, Inc. (organized in Florida) Idaho Financial Associates, Inc. (organized in Idaho) Nelnet Marketing Solutions, Inc. (organized in Florida) National Higher Education Loan Program, Inc. (organized in Nebraska) Charter Account Systems, Inc. (organized in New York) 5280 Solutions, Inc. (organized in Colorado) FirstMark Services, LLC (organized in Colorado) Student Partner Services, Inc. (organized in Nebraska) GuaranTec, LLP (organized in Florida)
ClassCredit, Inc. (organized in Florida) InTuition, Inc. (organized in Florida)
EFS Finance Co. (organized in Indiana)
NELnet Student Loan Warehouse Corporation-1 (organized in Nevada) Nelnet Student Loan Funding Management Corporation (organized in Nevada) Nelnet Student Loan Funding, LLC (organized in Delaware) NELNET Student Loan Corporation-1 (organized in Nevada) NELNET Student Loan Corporation-2 (organized in Nevada) NHELP-I, Inc. (organized in Nevada)
NHELP-II Inc. (organized in Nevada)
NHELP-II, LLC (organized in Nevada)
NHELP-III, Inc. (organized in Nevada)
EMT Corp. (organized in Indiana)
NELnet Private Student Loan Corporation-1 (organized in Nevada) Nelnet Education Loan Funding, Inc. (f/k/a NEBHELP, INC.)(organized in Nebraska) MELMAC, Inc. (organized in Nevada)
MELMAC Enterprises, Inc. (organized in Nevada) MELMAC, LLC (organized in Delaware)
Nelnet Mentor, LLC (organized in Nebraska) National Education Loan of New England, Inc. (organized in Rhode Island) infiNET Integrated Solutions, Inc. (organized in Illinois) Student Loan Acquisition Authority of Arizona, LLC (organized in Delaware) SLAAA Acquisition Corp. (organized in Nebraska) SLAAA Management Company (organized in Nebraska) Shockley Financial Corp. (organized in Colorado) BST Holdings, Inc. (organized in Rhode Island) EDULINX Canada Corporation (organized in Canada) TriCura Canada Inc. (organized in Canada)
 
EXHIBIT 23.1
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S CONSENT
The Board of Directors
Nelnet, Inc.
We consent to the incorporation by reference in the Registration Statement No. 333-112374, on Form S-8 of Nelnet, Inc. of our reports dated February 28, 2005, with respect to the consolidated balance sheets of Nelnet, Inc. as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2004, with respect to management's assessment of the effectiveness of internal control over financial reporting as of December 31, 2004 and with respect to the effectiveness of internal control over financial reporting as of December 31, 2004, included herein.

/s/ KPMG LLP
Lincoln, Nebraska
March 16, 2005	

EXHIBIT 31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Michael S. Dunlap, certify that:
1. I have reviewed this annual report on Form 10-K of Nelnet, Inc. and subsidiaries (the "Company");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  March 16, 2005                /s/ Michael S. Dunlap
                                     ---------------------------------------
                                     Michael S. Dunlap
                                     Chairman and Co-Chief Executive Officer	

EXHIBIT 31.2
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Stephen F. Butterfield, certify that:
1. I have reviewed this annual report on Form 10-K of Nelnet, Inc. and subsidiaries (the "Company");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  March 16, 2005           /s/ Stephen F. Butterfield
                                ---------------------------------------
                                Stephen F. Butterfield
                                Vice Chairman and Co-Chief Executive Officer	

EXHIBIT 31.3
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Terry J. Heimes, certify that:
1. I have reviewed this annual report on Form 10-K of Nelnet, Inc. and subsidiaries (the "Company");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  March 16, 2005               /s/ Terry J. Heimes
                                    ---------------------------------------
                                    Terry J. Heimes
                                    Chief Financial Officer
                                    Principal Financial Officer and
                                    Principal Accounting Officer	

EXHIBIT 32
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of Nelnet, Inc. and subsidiaries (the "Company") on Form 10-K for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we certify pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  March 16, 2005                By:    /s/ Michael S. Dunlap
                                     -------------------------------------------

                                     Name: Michael S. Dunlap
                                     Title:  Chairman and Co-Chief Executive
                                             Officer

                                     By:    /s/ Stephen F. Butterfield
                                     -------------------------------------------

                                     Name: Stephen F. Butterfield
                                     Title: Vice-Chairman and Co-Chief Executive
                                            Officer

                                     By:   /s/ Terry J. Heimes
                                     -------------------------------------------

                                     Name: Terry J. Heimes
                                     Title: Chief Financial Officer