UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
						
	(Mark One)	
☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
	 For the fiscal year ended December 31, 2021	
	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 or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)	
121 South 13th Street, Suite 100			
Lincoln,	Nebraska	68508	
(Address of principal executive offices)	 (Zip Code)	
Registrant’s telephone number, including area code: (402) 458-2370
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
									
Title of each class	Trading Symbol	Name of each exchange on which registered	
Class A Common Stock, Par Value $0.01 per Share	NNI	New York Stock Exchange	
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.            Accelerated filer ☐
Large accelerated filer ☒                    Smaller reporting company ☐
Non-accelerated filer ☐                    Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐   No ☒
The aggregate market value of the registrant’s voting common stock held by non-affiliates of the registrant on June 30, 2021 (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 $75.23 per share, was $1,468,829,489. The registrant’s Class B Common Stock is not listed for public trading on any exchange or market system, but shares of Class B Common Stock are convertible into shares of Class A Common Stock at any time on a share-for-share basis. For purposes of this calculation, shares of common stock beneficially owned by any director or executive officer of the registrant or by any person who beneficially owns greater than 10 percent of the Class A Common Stock or who is otherwise believed by the registrant to be in a control position have been excluded, since such persons may be deemed to be affiliates of the registrant. This determination of affiliate status is not conclusive for other purposes.
As of January 31, 2022, there were 27,101,036 and 10,674,892 shares of Class A Common Stock and Class B Common Stock, par value $0.01 per share, outstanding, respectively (excluding 11,305,731 shares of Class A Common Stock held by wholly owned subsidiaries).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement to be filed for its 2022 Annual Meeting of Shareholders, scheduled to be held May 19, 2022, are incorporated by reference into Part III of this Form 10-K.
Auditor Name: KPMG LLP             Auditor Location: Lincoln, Nebraska            Auditor Firm ID: 185

NELNET, INC.
FORM 10-K
TABLE OF CONTENTS
December 31, 2021

	Forward-Looking and Cautionary Statements	2	
				
PART I	
				
	Item 1.	Business	4	
	Item 1A.	Risk Factors	21	
	Item 1B.	Unresolved Staff Comments	36	
	Item 2.	Properties	36	
	Item 3.	Legal Proceedings	36	
	Item 4.	Mine Safety Disclosures	36	
				
PART II	
				
	Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	36	
	Item 6.	[Reserved]	38	
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	38	
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	69	
	Item 8.	Financial Statements and Supplementary Data	73	
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	73	
	Item 9A.	Controls and Procedures	73	
	Item 9B.	Other Information	74	
	Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	74	
				
PART III	
				
	Item 10.	Directors, Executive Officers, and Corporate Governance	75	
	Item 11.	Executive Compensation	75	
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	75	
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	75	
	Item 14.	Principal Accountant Fees and Services	75	
				
PART IV	
				
	Item 15.	Exhibits and Financial Statement Schedules	76	
	Item 16.	Form 10-K Summary	82	
				
	Signatures	83	
				
	Appendix A	Description of The Federal Family Education Loan Program	A-1	

FORWARD-LOOKING AND CAUTIONARY STATEMENTS
This report contains forward-looking statements and information that are based on management's current expectations as of the date of this document. Statements that are not historical facts, including statements about the Company's plans and expectations for future financial condition, results of operations or economic performance, or that address management's plans and objectives for future operations, and statements that assume or are dependent upon future events, are forward-looking statements. The words “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” “scheduled,” “should,” “will,” “would,” and similar expressions, as well as statements in future tense, are intended to identify forward-looking statements.
The forward-looking statements are based on assumptions and analyses made by management in light of management's experience and its perception of historical trends, current conditions, expected future developments, and other factors that management believes are appropriate under the circumstances. These statements are subject to known and unknown risks, uncertainties, assumptions, and other factors that may cause the actual results and performance to be materially different from any future results or performance expressed or implied by such forward-looking statements. These factors include, among others, the risks and uncertainties set forth in “Risk Factors” and elsewhere in this report, and include such risks and uncertainties as:
•risks and uncertainties related to the severity, magnitude, and duration of the coronavirus disease 2019 (“COVID-19”) pandemic, including changes in the macroeconomic environment and consumer behavior, restrictions on business, educational, individual, or travel activities intended to combat the pandemic, and volatility in market conditions resulting from the pandemic, including interest rates, the value of equities, and other financial assets;
•risks related to the ability to successfully maintain and increase allocated volumes of student loans serviced by the Company under existing and any future servicing contracts with the U.S. Department of Education (the "Department"), which current contracts accounted for 29 percent of the Company's revenue in 2021, risks to the Company related to the Department's initiatives to procure new contracts for federal student loan servicing, including the pending and uncertain nature of the Department's procurement process, risks that the Company may not be successful in obtaining any of such potential new contracts, and risks related to the Company's ability to comply with agreements with third-party customers for the servicing of Federal Direct Loan Program, Federal Family Education Loan Program (the "FFEL Program" or "FFELP"), private education, and consumer loans;
•loan portfolio risks such as interest rate basis and repricing risk resulting from the fact that the interest rate characteristics of the student loan assets do not match the interest rate characteristics of the funding for those assets, the risk of loss of floor income on certain student loans originated under the FFEL Program, risks related to the use of derivatives to manage exposure to interest rate fluctuations, uncertainties regarding the expected benefits from purchased securitized and unsecuritized FFELP, private education, and consumer loans, or investment interests therein, and initiatives to purchase additional FFELP, private education, and consumer loans, and risks from changes in levels of loan prepayment or default rates;
•financing and liquidity risks, including risks of changes in the general interest rate environment, including the availability of any relevant money market index rate such as LIBOR or the relationship between the relevant money market index rate and the rate at which the Company's assets and liabilities are priced, and changes in the securitization and other financing markets for loans, including adverse changes resulting from unanticipated repayment trends on student loans in the Company's securitization trusts that could accelerate or delay repayment of the associated bonds, which may increase the costs or limit the availability of financings necessary to purchase, refinance, or continue to hold student loans;
•risks from changes in the terms of education loans and in the educational credit and services markets resulting from changes in applicable laws, regulations, and government programs and budgets, such as changes resulting from the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and the expected decline over time in FFELP loan interest income due to the discontinuation of new FFELP loan originations in 2010 and potential government initiatives or proposals to consolidate existing FFELP loans to the Federal Direct Loan Program, otherwise encourage or allow FFELP loans to be refinanced with Federal Direct Loan Program loans, and/or create additional loan forgiveness or broad debt cancellation programs;
•risks related to a breach of or failure in the Company's operational or information systems or infrastructure, or those of third-party vendors, including cybersecurity risks related to a disclosure of confidential loan borrower and other customer information, the potential disruption of the Company's systems or those of third-party vendors or customers, and/or the potential damage to the Company's reputation resulting from cyber-breaches;
•uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations;
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•risks and uncertainties of the expected benefits from the November 2020 launch of Nelnet Bank operations, including the ability to successfully conduct banking operations and achieve expected market penetration;
•risks related to the expected benefits to the Company and to ALLO Communications LLC (referred to collectively with its holding company ALLO Holdings, LLC as “ALLO”) from the recapitalization and additional funding for ALLO and the Company’s continuing investment in ALLO, and risks related to investments in solar projects, including risks of not being able to realize tax credits which remain subject to recapture by taxing authorities;
•risks and uncertainties related to other initiatives to pursue additional strategic investments (and anticipated income therefrom), acquisitions, and other activities, such as the transactions associated with the sale by Wells Fargo of its private education loan portfolio for which the Company was selected as the new servicer (including risks associated with errors that occasionally occur in converting loan servicing portfolio acquisitions to a new servicing platform, and uncertainties associated with expected income from the joint venture that purchased the Wells Fargo portfolio), including activities that are intended to diversify the Company both within and outside of its historical core education-related businesses;
•risks and uncertainties associated with climate change, including extreme weather events and related natural disasters, which could result in increased loan portfolio credit risks and other asset and operational risks, as well as risks and uncertainties associated with efforts to address climate change; and
•risks and uncertainties associated with litigation matters and with maintaining compliance with the extensive regulatory requirements applicable to the Company's businesses, reputational and other risks, including the risk of increased regulatory costs resulting from the politicization of student loan servicing, potential changes to corporate tax rates, and uncertainties inherent in the estimates and assumptions about future events that management is required to make in the preparation of the Company's consolidated financial statements.
All forward-looking statements contained in this report are qualified by these cautionary statements and are made only as of the date of this document. Although the Company may from time to time voluntarily update or revise its prior forward-looking statements to reflect actual results or changes in the Company's expectations, the Company disclaims any commitment to do so except as required by law. In this report, unless the context indicates otherwise, references to "Nelnet," "the Company," "we," "our," and "us" refer to Nelnet, Inc. and its subsidiaries.
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PART I.
ITEM 1. BUSINESS
Overview
Nelnet is a diverse, innovative company with a purpose to serve others and a vision to make dreams possible. The largest operating businesses engage in loan servicing and education technology, services, and payment processing, and the Company also has a significant investment in communications. A significant portion of the Company's revenue is net interest income earned on a portfolio of federally insured student loans. The Company also makes investments to further diversify both within and outside of its historical core education-related businesses including, but not limited to, investments in early-stage and emerging growth companies, real estate, and renewable energy (solar). Substantially all revenue from external customers is earned, and all long-lived assets are located, in the United States.
The Company was formed as a Nebraska corporation in 1978 to service federal student loans for two local banks. The Company built on this initial foundation as a servicer to become a leading originator, holder, and servicer of federal student loans, principally consisting of loans originated under the Federal Family Education Loan Program. A detailed description of the FFEL Program is included in Appendix A to this report.
The Health Care and Education Reconciliation Act of 2010 (the “Reconciliation Act of 2010”) discontinued new loan originations under the FFEL Program, effective July 1, 2010, and requires all new federal student loan originations be made directly by the Department through the Federal Direct Loan Program. This law does not alter or affect the terms and conditions of existing FFELP loans.
As a result of the Reconciliation Act of 2010, the Company no longer originates FFELP loans. However, a significant portion of the Company's income continues to be derived from its existing FFELP student loan portfolio. As of December 31, 2021, the Company had a $17.2 billion FFELP loan portfolio that management anticipates will amortize over the next approximately 15 years and has a weighted average remaining life of approximately 8 years. Interest income on the Company's existing FFELP loan portfolio will decline over time as the portfolio is paid down. Since all FFELP loans will eventually run off, a key objective of the Company is to reposition itself for the post-FFELP environment.
To reduce its reliance on interest income from FFELP loans, the Company has expanded its services and products. This expansion has been accomplished through internal growth and innovation as well as business and certain investment acquisitions. The Company is also actively expanding its private education and consumer loan portfolios, and in November 2020 launched Nelnet Bank (as further explained below). In addition, the Company has been servicing federally owned student loans for the Department since 2009.
Operating Segments
The Company earns net interest income on its loan portfolio, consisting primarily of FFELP loans, in its Asset Generation and Management operating segment. This segment is expected to generate a stable net interest margin and significant amounts of cash as the FFELP portfolio amortizes. In addition, the Company earns fee-based revenue through its Loan Servicing and Systems and Education Technology, Services, and Payment Processing operating segments.
Further, the Company earned communications revenue through ALLO, formerly a majority-owned subsidiary of the Company prior to a recapitalization of ALLO, resulting in the deconsolidation of ALLO from the Company’s financial statements on December 21, 2020. The recapitalization of ALLO was not considered a strategic shift in the Company’s involvement with ALLO, and ALLO’s results of operations, prior to the deconsolidation, are presented by the Company as a reportable operating segment. See note 2, “ALLO Recapitalization” in the accompanying notes to consolidated financial statements included in this report for a description of ALLO’s recapitalization and the Company’s continued involvement.
On November 2, 2020, the Company obtained final approval for federal deposit insurance from the Federal Deposit Insurance Corporation (“FDIC”) and for a bank charter from the Utah Department of Financial Institutions (“UDFI”) in connection with the establishment of Nelnet Bank, and Nelnet Bank launched operations. Nelnet Bank’s operations are presented by the Company as a reportable operating segment.
The Company’s reportable operating segments are summarized below. Business activities and operating segments that are not reportable are combined and included in "Corporate and Other Activities." Corporate and Other Activities also includes income earned on the majority of the Company’s investments and interest expense incurred on unsecured and other corporate related debt transactions.
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Loan Servicing and Systems (“LSS”)
•Referred to as Nelnet Diversified Services (“NDS”)
•Focuses on student and consumer loan origination services and servicing, loan origination and servicing-related technology solutions, and outsourcing business services
•Includes the brands Nelnet Diversified Solutions, Nelnet Loan Servicing, Nelnet Servicing, Great Lakes Educational Loan Services, Inc. (“Great Lakes”), Firstmark Services, GreatNet, Nelnet Renewable Energy, and Nelnet Government Services
Education Technology, Services, and Payment Processing (“ETS&PP”)
•Referred to as Nelnet Business Services (“NBS”)
•NBS provides education services, payment technology, and community management solutions for K-12 schools, higher education institutions, churches, and businesses in the United States and internationally
•Includes the divisions of FACTS, Nelnet Campus Commerce, PaymentSpring, Nelnet Community Engagement, and Nelnet International
Communications
•Includes the operations of ALLO prior to the deconsolidation of ALLO on December 21, 2020
•Focuses on providing fiber optic service directly to homes and businesses for internet, telephone, and television services
Asset Generation and Management (“AGM”)
•Also referred to as Nelnet Financial Services
•Includes the acquisition and management of student and other loan assets
Nelnet Bank
•Internet Utah-chartered industrial bank focused on the private education loan marketplace
A more detailed description of each of the Company's reportable operating segments and Corporate and Other Activities is provided below.
Loan Servicing and Systems
The primary service offerings of this operating segment include:
•Servicing federally-owned student loans for the Department
•Servicing FFELP loans
•Originating and servicing private education and consumer loans
•Backup servicing for FFELP, private education, and consumer loans
•Providing student loan servicing software and other information technology products and services
•Customer acquisition, management services, and backup servicing for community solar developers
•Providing outsourced services including call center, processing, and technology services
As of December 31, 2021, the Company serviced $529.0 billion of loans for 16.4 million borrowers. See Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) - “Loan Servicing and Systems Operating Segment - Results of Operations - Loan Servicing Volumes” for additional information related to the Company's servicing volume.
Servicing federally-owned student loans for the Department
Nelnet Servicing, LLC (“Nelnet Servicing”), a subsidiary of the Company, and Great Lakes, acquired by the Company in February 2018, are two of the current seven private sector entities that have student loan servicing contracts with the Department to service loans that include Federal Direct Loan Program loans originated directly by the Department and FFEL Program loans purchased by the Department. As of December 31, 2021, Nelnet Servicing was servicing $215.8 billion of student loans for 6.4 million borrowers under its contract, and Great Lakes was servicing $262.6 billion of student loans for 7.8 million borrowers under its contract. Under the servicing contracts, Nelnet Servicing and Great Lakes earn a monthly fee from the Department for each unique borrower they service on behalf of the Department. The Department is the Company's largest customer, representing 29 percent of the Company's revenue and 69 percent of the LSS operating segment’s revenue in 2021.
Nelnet Servicing's and Great Lakes' student loan servicing contracts with the Department are scheduled to expire on December 14, 2023. In 2017, the Department initiated a contract procurement process referred to as the Next Generation Financial
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Services Environment ("NextGen") for a new framework for the servicing of all student loans owned by the Department. The Consolidated Appropriations Act, 2021 contains provisions directing certain aspects of the NextGen process, including that any new federal student loan servicing environment is required to provide for the participation of multiple student loan servicers and the allocation of borrower accounts to eligible student loan servicers based on performance. The Company cannot predict the timing, nature, or ultimate outcome of NextGen or any other contract procurement process by the Department.
In July 2021, the Pennsylvania Higher Education Assistance Agency ("PHEAA"), a servicer for the Department, announced that it will exit the federal student loan servicing business. PHEAA notified the Department it would not be accepting a long-term extension of its student loan servicing contract beyond what was needed to ensure a smooth transition for borrowers. In November 2021, PHEAA and the Department agreed to a short-term extension that will expire in December 2022. All applicable student loans serviced by PHEAA will be transferred to successor servicers prior to the end of this contract extension. At the time of its announcement, PHEAA serviced approximately 8.5 million borrowers under its contract. A portion of the PHEAA servicing volume has been and will be transitioned prior to May 1, 2022, which is the date on which the suspension of federal student loan payments under the CARES Act is scheduled to expire. Approximately 850,000 PHEAA borrowers have been transitioned to Nelnet Servicing’s platform as of the date of this filing (of which approximately 603,000 were converted prior to December 31, 2021). The Company anticipates additional PHEAA volume to be transitioned to its platform during the remainder of 2022, but cannot currently estimate the number of additional borrowers that will be transferred and/or the timing of such transfers.
In addition, the New Hampshire Higher Education Association Foundation Network (“Granite State”) exited the federal student loan servicing business in 2021. Granite State’s servicing volume of approximately 1.3 million borrowers was transitioned to Edfinancial Services, LLC ("Edfinancial"), a current servicer for the Department, during the third and fourth quarters of 2021. Edfinancial utilizes Nelnet Servicing's platform to service their loans for the Department, as did Granite State prior to its exit.
The Department currently allocates new loan volume among its servicers based on certain performance metrics that measure the satisfaction among separate customer groups, including borrowers and Department personnel who work with the servicers. The metrics also measure the success of keeping borrowers in an on-time repayment status and helping borrowers avoid default. Under the most recent publicly announced performance metrics used by the Department for the quarterly periods January 1, 2021 through June 30, 2021, Great Lakes’ and Nelnet Servicing’s overall rankings among the remaining six go-forward servicers for the Department (which excludes PHEAA) were third and fifth, respectively. Based on these results, Great Lakes’ and Nelnet Servicing’s allocation of new student loan servicing volumes beginning September 1, 2021 are 18 percent and 12 percent, respectively.
Servicing contract amendments entered into with the Department in September 2021 to extend the contracts through December 14, 2023, also amended the methodology for performance measurements and new loan volume allocations, in part by reflecting additional service level performance metrics under which, along with portfolio performance metrics, the Department will evaluate each servicer and make new loan volume allocations on a quarterly basis.
Incremental revenue components earned by Nelnet Servicing or Great Lakes from the Department (in addition to loan servicing revenues) include:
•Administration of the Total and Permanent Disability (TPD) Discharge program. Nelnet Servicing processes applications for the TPD discharge program and is responsible for discharge, monitoring, and servicing TPD loans. Individuals who are totally and permanently disabled may qualify for a discharge of their federal student loans, and the Company processes applications under the program and receives a fee from the Department on a per application basis, as well as a monthly servicing fee during the monitoring period. Nelnet Servicing is the exclusive provider of this service to the Department.
•Origination of consolidation loans. The Department outsources the origination of consolidation loans whereby each of the servicers receive Federal Direct Loan consolidation origination volume based on borrower choice. The Department pays the Company a fee for each completed consolidation loan application it processes. Nelnet Servicing and Great Lakes each service the consolidation volume it originates.
Servicing FFELP loans
NDS services the Company's FFELP student loan portfolio and the portfolios of third parties. The loan servicing activities include loan conversion activities, application processing, borrower updates, customer service, payment processing, due diligence procedures, funds management reconciliations, and claim processing. These activities are performed internally for the Company's portfolio, in addition to generating external fee revenue when performed for third-party clients.

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The Company uses proprietary systems to manage the servicing process. These systems provide for automated compliance with most of the federal student loan regulations adopted under Title IV of the Higher Education Act of 1965, as amended (the “Higher Education Act”).
The Company serviced FFELP loans on behalf of 120 third-party servicing customers as of December 31, 2021. The Company's FFELP servicing customers include national and regional banks, credit unions, and various state and nonprofit secondary markets. The majority of the Company's external FFELP loan servicing activities are performed under “life of loan” contracts, which essentially provide that as long as the applicable loan exists, the Company shall be the sole servicer of that loan; however, the agreement may contain “deconversion” provisions where, for a fee, the lender may move the loan to another servicer.
The discontinuation of new FFELP loan originations in July 2010 has caused and will continue to cause FFELP servicing revenue to decline as these loan portfolios are paid down. However, the Company believes there may be opportunities to service additional FFELP loan portfolios from current FFELP participants as the program winds down.
Originating and servicing private education and consumer loans
NDS conducts origination and servicing activities for private education and consumer loans. Private education loans are non-federal private credit loans made to students or their family; as such, the loans are not issued or guaranteed by the federal government. These loans are used primarily to bridge the gap between the cost of higher education and the amount funded through financial aid, federal loans, or the borrowers' personal resources. Although similar in terms of activities and functions as FFELP loan servicing (e.g., application processing, disbursement processing, payment processing, customer service, statement distribution, and reporting), private education loan servicing activities are not required to comply with provisions of the Higher Education Act and may be more customized to individual client requirements.
The Company has invested and currently plans to continue to invest in modernizing key technologies and services to position its consumer loan servicing business for the long-term, expanding services to include personal loan products and other consumer installment assets. The Company is in the process of a complete modernization of its private education and consumer loan origination and repayment servicing systems. Improvements in systems will allow for diversified products to be both originated and serviced with secure, state-of-the-art application and servicing platforms to drive growth for the Company's client partners. Presenting a very wide market opportunity of new entrants and existing players, consumer lending is currently expected to be a growth area. In both backup servicing and full servicing partnerships, the Company is a valuable resource for consumer lenders and asset holders as it allows for leveraged economies of scale, high compliance, and secure service to client partners.
In December of 2020, Wells Fargo announced the sale of its approximately $10.0 billion portfolio of private education student loans representing approximately 445,000 borrowers. In conjunction with the sale, the Company was selected as servicer of the portfolio. During March 2021, approximately 261,000 borrowers were converted to the Company's servicing platform, with the vast majority of the remaining borrowers converted in the second quarter of 2021.
As of December 31, 2021, NDS serviced private education and consumer loans on behalf of 37 third-party servicing customers.
Backup servicing for FFELP, private education, and consumer loans
NDS offers protection against unexpected business failure, or any event that stretches a third party service provider’s resources beyond its capability to perform essential services, through backup servicing. Backup servicing for loan asset owners, investors, financiers, and other stakeholders is a way to safeguard assets and mitigate financial risk, generally in conjunction with a structured long-term financing of the assets (like an asset-backed securitization).
NDS’s backup service provides a trigger response plan with pre-built system profiles that remain on standby, ready to be utilized if a contracted asset manager or service provider cannot perform its duties. The Company performs testing and maintenance against the loan transfer process each month with backup clients and certifies compliance. For a monthly fee, these arrangements require a 30 to 90 day notice from a triggering event to transfer the customer's servicing volume to the Company's platform and becoming a full servicing customer. NDS offers backup servicing for FFEL, private education, and consumer loan programs that leverages existing servicing systems and full service experience. NDS provides backup servicing arrangements to assist 18 entities for more than 13 million borrowers.
Providing student loan servicing software and other information technology products and services
NDS provides data center services, student loan servicing software for servicing private education and federal loans, guaranty servicing software, and consulting and professional services to support the technology platforms. These proprietary software
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systems are used internally by the Company and/or licensed to third-party student loan holders and servicers. These software systems have been adapted so they can be offered as hosted servicing software solutions that can be used by third parties for guaranty servicing and to service various types of student loans, including Federal Direct Loan Program and FFEL Program loans. The Company earns a monthly fee from its remote hosting customers for each loan or unique borrower on the Company's platform, with a minimum monthly charge for most contracts. As of December 31, 2021, 4.8 million borrowers were hosted on the Company's hosted servicing software solution platforms, including 4.6 million borrowers who were serviced by entities that have contracts to service loans for the Department. As of December 31, 2020, 6.6 million borrowers were hosted on the Company’s platforms. In January 2021, a contract with Great Lakes’ former parent company expired that resulted in a reduction of 2.3 million borrowers.
Customer acquisition, management services, and backup servicing for community solar developers
NDS, under the brand Nelnet Renewable Energy, works with solar developers and financiers to provide marketing, sales, and customer engagement services to meet key milestones before solar projects are interconnected to the grid and provide the subsequent operational support for the term of the subscriber agreement, including addressing incoming inquiries, verifying eligibility, billing, payment processing, and reconciliation. The Company earns a one-time fee for subscriber acquisition and a recurring fee for subscriber management. Additionally, NDS provides backup servicing capabilities to solar developers and financiers, which provides assurances that projects will still be serviced in the event the primary servicer’s situation changes.
Providing outsourced services including call center, processing, technology, and marketing services
NDS provides business process outsourcing primarily specializing in contact center management. The contact center solutions and services include taking inbound calls, helping with outreach campaigns and sales, and interacting with customers through multi-channels. Processing services include application processing and verification, payment processing, credit dispute, and account management services. NDS also outsources technology expertise and capacity to supplement development needs in organizations.
Competition
The Company's scalable servicing platform allows it to provide compliant, efficient, and reliable service at a low cost, giving the Company a competitive advantage over others in the industry. In contrast to its competitors, the Company has segmented its private education loan servicing on a distinct platform, created specifically to meet the needs of private education student loan borrowers, their family, the school they attend, and the lenders who serve them. This ensures access to specialized teams with a dedicated focus on servicing these borrowers.
Seven entities, including Nelnet Servicing and Great Lakes, are currently servicers of federally-owned loans. Upon completion of the exit of PHEAA from the federal student loan servicing business, six servicers will remain on a go-forward basis. NDS currently licenses its hosted servicing software to two of the eventual remaining six servicers for the Department.
NDS is one of the leaders in the development of servicing software for guaranty agencies, consumer and private education loan programs, the Federal Direct Loan Program, and FFELP student loans. Many student loan lenders and servicers utilize the Company's software either directly or indirectly. NDS believes the investments it has made to scale its systems and to create a secure infrastructure to support the Department's servicing volume and requirements increase its competitive advantage as a long-term partner in the loan servicing market.
Education Technology, Services, and Payment Processing
NBS is a service and technology company that operates as the following divisions:
•FACTS
•Nelnet Campus Commerce
•PaymentSpring
•Nelnet Community Engagement
•Nelnet International
The majority of this segment’s customers are located in the United States; however, the Company also provides services and technology as part of its Nelnet International division in Australia, New Zealand, and Southeast Asia, and currently believes there are opportunities to increase its customer base and revenues internationally.
See the MD&A - “Education Technology, Services, and Payment Processing Operating Segment - Results of Operations” for an overview of the seasonality of the business in this operating segment.
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A more detailed description of each NBS division is provided below. For a presentation of NBS revenue disaggregated by service offering into tuition payment plan services revenue, payment processing revenue, and education technology and services revenue, see the MD&A - “Education Technology, Services, and Payment Processing Operating Segment - Results of Operations - Summary and Comparison of Operating Results - Education technology, services, and payment processing revenue.” In the discussion below, revenues from the described products and services are included in education technology and services revenue in such presentation, unless specifically indicated otherwise.
FACTS
NBS uses the FACTS brand in the K-12 private and faith-based markets. FACTS provides solutions that elevate the K-12 experience for school administrators, teachers, and families. FACTS solutions include the following categories:
•Financial Management
•Administration
•Enrollment and Communications
•Advancement
•Education Development
FACTS provides services for almost 11,000 K-12 schools and serves over 4 million students and families. FACTS generated $185 million and $142 million in revenue for the years ended December 31, 2021 and 2020, respectively.
Financial Management - FACTS is the market leader in education financial management services, including tuition payment plans and financial needs assessment (grant and aid). K-12 educational institutions contract with the Company to administer tuition payment plans that allow families to make recurring payments generally over six to 12 months. The Company earns tuition payment plan services revenue by collecting a fee from either the institution or the payer to administer the plan. Additionally, the Company may earn revenue for payment processing fees when families make tuition payments. The Company's grant and aid assessment service helps K-12 schools evaluate and determine the amount of financial aid to disburse to the families it serves. The Company earns service revenue by charging a fee for grant and aid applications processed.
Administration - The Company’s school administration solutions include FACTS Student Information System (“SIS”), Family App, and Parent Alert. FACTS SIS automates the flow of information between school administrators, teachers, and parents and includes administrative processes such as scheduling, cafeteria management, attendance, and grade book management. The Company’s information systems software is sold as a subscription service to schools. The Company also offers a streamlined, social, and fully integrated learning management system to enhance classroom instruction for both teachers and students. FACTS Family App provides families with mobile access to the information they need and Parent Alert allows for instant communication with families when needed.
Enrollment and Communications – The Company’s enrollment and communications tools are used by schools to enhance and streamline admissions and communications efforts. FACTS Application & Enrollment provides a paperless experience for the admissions office and provides schools with real-time information as applications and enrollment forms are completed. The Company earns a fee per completed application and/or enrollment form. FACTS School Site is a website content management system for schools to promote and share information with current and prospective families. FACTS solutions in this area allow for better overall connection between admissions, enrollment, and marketing.
The combination of the Company’s financial management, administration, and enrollment and communications products has significantly increased the value of the Company’s offerings in this area, allowing the Company to deliver a comprehensive suite of solutions to schools.
Advancement - The Company's advancement solution, FACTS Giving, is a comprehensive donation platform that streamlines donor communications, organizes donor information, and provides access to data analysis and reporting. FACTS Giving pairs with other FACTS solutions like SIS, School Site, and Family App. FACTS Giving simplifies incoming donations through appeal pages and online registration for virtual school events. FACTS Giving features also include text-to-give functionality, options to manage specific fundraising projects or year-long campaigns, and real-time reports to analyze fundraising efforts. The Company earns subscription fees and payment processing revenues for these services.
Education Development - FACTS Education Solutions provides customized professional development and coaching services for teachers and school leaders as well as instructional services for students experiencing academic challenges. These services provide continuous advanced learning and professional development while helping private schools identify and attain equitable participation in Title I and Title II federal education programs. FACTS Education Solutions also offers an innovative technology product that aids in both teacher and student evaluation.
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Nelnet Campus Commerce
NBS uses the Nelnet Campus Commerce brand to offer payment technologies for a smarter campus to higher education institutions. Nelnet Campus Commerce offers the following solutions:
•Tuition Management
•Integrated Commerce
The Company provides service for more than 1,150 colleges and universities worldwide and serves over 7 million students and families. Nelnet Campus Commerce generated $99 million and $97 million in revenue for the years ended December 31, 2021 and 2020, respectively.
Tuition Management - Higher education institutions contract with the Company to administer tuition payment plans that allow the student and family to make recurring payments on either a semester or annual basis. The Company earns tuition payment plan services revenue by collecting a fee from either the student or family to administer the plan. Additionally, the Company may earn payment processing revenue when families make tuition payments.
Nelnet Billing & Payments allows schools to send automated bills for tuition and fees, housing, parking, and other campus service offerings and allows students to safely make online payments from anywhere. Nelnet Refunds helps schools stay compliant with federal refund regulations and allows students choice in their refund method. The Company earns hosting fees, per transaction fees, and credit card processing fees for its Nelnet Billing & Payments and Nelnet Refunds products. Credit card processing fees are included in payment processing revenue.
Integrated Commerce – Nelnet Campus Commerce integrated commerce solutions help schools maintain revenue sources across campus including in-person payments, online shopping experiences, and a mobile app. Nelnet Storefront provides online stores for departments across campus with consolidated views and management by the business office. Nelnet Cashiering allows higher education institutions to manage all in-person payments on campus. Students can receive in-app messages, make payments on their phone, and use a digital student ID with the Company’s Nelnet Campus Key product. The Company earns hosting fees, per transaction fees, and credit card processing fees for its integrated commerce solutions. Credit card processing fees are included in payment processing revenue.
PaymentSpring
NBS uses the PaymentSpring brand to provide secure payment processing technology. PaymentSpring supports and provides payment processing services, including credit card and electronic transfers, to the other divisions of NBS in addition to other industries and software platforms across the United States. PaymentSpring offers mobile, in-person, and online solutions for customers to collect, process, and view credit card and Automated Clearing House (“ACH”) payments. PaymentSpring services are Payment Card Industry (“PCI”) compliant. PaymentSpring earns payment processing revenues through fees for credit card and ACH transactions. PaymentSpring generated $43 million and $39 million in revenue for the years ended December 31, 2021 and 2020, respectively.
Nelnet Community Engagement
NBS uses the Nelnet Community Engagement (“NCE”) brand to provide faith community engagement, giving management, and learning management services and technologies. NCE serves customers in the technology, nonprofit, religious, health care, and professional services industries and is the newest division within NBS. NCE generated $6 million and $2 million in revenue for the years ended December 31, 2021 and 2020, respectively, and offers the following solutions:
•Faith Community Engagement
•Giving Management
•Learning Management
Faith Community Engagement – NCE services and technologies enable church leaders and members to easily engage and communicate with each other. Faith Community Engagement product features include a customizable mobile app, text messaging, forms and registrations, and other digital tools to strengthen communication and engagement. Additional solutions provide content management services including bulletin, news articles, and event calendars, as well as customized websites that provide on-demand support and automated communication to keep members engaged through newsletters and social media. The Company earns subscription fees and content creation fees for these services.
Giving Management – Giving Management products connect organizations with partners, donors, and volunteers to make personalized giving simple. Giving management administrative features provide a dashboard, customizable receipts, pledge
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management, and real-time reporting. Donors have options to give using the product's mobile app, text messaging, or passcode and can be one-time or recurring gifts. The Company earns subscription fees and payment processing revenues for these services.
Learning Management – NCE offers comprehensive solutions that use innovations such as extended enterprise, social collaborations, and gamification to expand capabilities and engage and motivate learners. Live and online training and certification is managed with simplified reporting, tracking, and record maintenance. NCE technologies allow customers to update certificate programs or create new custom learning programs to meet emerging needs. The Company earns subscription fees and content creation fees for these services. Additionally, a fee may be earned from learners completing course offerings.
Nelnet International
NBS uses the brand Nelnet International to serve customers in the education, local government, and health care space to build future-focused agile businesses. Nelnet International products include service and technology that align with the similarly named products categories for FACTS and Nelnet Campus Commerce. Nelnet International products include:
•Integrated Commerce
•Financial Management
•Administration
Integrated Commerce – Nelnet International’s Xetta platform provides commerce payment solutions to its customers. Xetta captures and centralizes financial information across organizations and integrates with core business systems to simplify workflows, expand payment capabilities, streamline reconciliation, reduce security and compliance risk, and provide reporting and analytics. The Company earns subscription and consulting fees for the utilization of the Xetta platform.
Financial Management – Tuition payment plans and other financial management services are provided to customers internationally using the FACTS brand and service platforms. Refer to “Financial Management” under the FACTS division for additional information.
Administration – PCSchool is a cloud-based school management platform that provides administrative, information management, financial management, and communication functions for K-12 schools in Australia and New Zealand. Outside of Australia and New Zealand, Nelnet International provides administration products under the FACTS brand. The technology and services provided are consistent with the “Administration” products described under the FACTS division. The Company earns subscription fees and per transaction revenues for providing these services.
Nelnet International provides its services and technology to schools in more than 50 countries, with the largest concentrations in Australia, New Zealand, and the Asia-Pacific region. Nelnet International generated $7 million and $6 million in revenue for the years ended December 31, 2021 and 2020, respectively.
Competition
The Company is the largest provider of tuition management and financial needs assessment services to the private and faith-based K-12 market in the United States. Competitors include financial institutions, tuition management providers, financial needs assessment providers, accounting firms, and a myriad of software companies.
In the higher education market, the Company targets business offices at colleges and universities. In this market, the primary competition is from a relatively small number of campus commerce and tuition payment providers, as well as solutions developed in-house by colleges and universities.
The Company's principal competitive advantages are (i) the customer service it provides to institutions and consumers, (ii) the technology provided with the Company's service, and (iii) the Company's ability to integrate its technology with the institution clients and their third-party service providers. The Company believes its clients select products primarily based on technology features, functionality, and the ability to integrate with other systems, but price and service also impact the selection process.
Communications
The Company provided communication services through ALLO, a former majority-owned subsidiary, until a recapitalization and additional funding for ALLO resulted in a deconsolidation of ALLO from the Company’s consolidated financial statements in the fourth quarter of 2020. The Company continues to hold a significant investment in ALLO. See note 2 of the notes to consolidated financial statements included in this report for additional information related to the ALLO recapitalization. ALLO’s results of operations, prior to deconsolidation, are presented by the Company as a reportable operating segment.
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ALLO derives its revenue primarily from the sale of telecommunication services, including internet, telephone, and television services, to business, governmental, and residential customers in Nebraska and Colorado, and specializes in high-speed internet and broadband services available through its all-fiber network. ALLO plans to continue to increase market share and revenue in its existing markets and plans to expand to additional communities. ALLO has announced plans to serve customers in Arizona and is currently seeking regulatory approval to do so. As of December 31, 2021, ALLO currently serves, is in the process of building their network in, and has announced they will build in a total of 26 communities. The total households in these communities is approximately 325,000. As of December 31, 2021, ALLO served almost 73,000 residential customers and had more than 34,000 business lines.
Asset Generation and Management
AGM includes the acquisition, management, and ownership of the Company's loan assets (excluding loan assets held by Nelnet Bank). Loans consist of federally insured student loans (originated under the FFEL Program), private education loans, and consumer loans. Substantially all of AGM’s loan portfolio (98.0 percent as of December 31, 2021) is federally insured. As of December 31, 2021, AGM's loan portfolio was $17.4 billion. The Company generates a substantial portion of its earnings from the spread, referred to as “loan spread,” between the yield it receives on its loan portfolio and the associated costs to finance such portfolio. See the MD&A - "Asset Generation and Management Operating Segment - Results of Operations - Loan Spread Analysis,” for further details related to loan spread. The loan assets are held in a series of lending subsidiaries and associated securitization trusts designed specifically for this purpose. In addition to the loan spread earned on its portfolio, all costs and activity associated with managing the portfolio, such as servicing of the assets and debt maintenance, are included in this segment.
AGM's portfolio of federally insured student loans is subject to minimal credit risk, as these loans are guaranteed by the Department at levels ranging from 97 percent to 100 percent. The Higher Education Act regulates every aspect of the federally insured student loan program, including certain communications with borrowers, loan originations, and default aversion. Failure to service a student loan properly could jeopardize the guarantee on federal student loans. In the case of death, disability, or bankruptcy of the borrower, the guarantee covers 100 percent of the loan's principal and accrued interest. FFELP loans are guaranteed by state agencies or nonprofit companies designated as guarantors, with the Department providing reinsurance to the guarantor. Guarantors are responsible for performing certain functions necessary to ensure the program's soundness and accountability. Generally, the guarantor is responsible for ensuring that loans are serviced in compliance with the requirements of the Higher Education Act. When a borrower defaults on a FFELP loan, AGM submits a claim to the guarantor, who provides reimbursements of principal and accrued interest, subject to the applicable risk share percentage.
Origination and acquisition
The Reconciliation Act of 2010 discontinued originations of new FFELP loans, effective July 1, 2010. However, the Company believes there may be ongoing opportunities to continue to purchase FFELP loan portfolios from current FFELP participants looking to exit or adjust their FFELP businesses. For example, the Company purchased a total of $904.1 million of FFELP student loans from various third parties during 2021. However, since all FFELP loans will eventually pay off, a key objective of the Company over the last several years is to reposition itself for the post-FFELP environment. As such, the Company is actively acquiring private education and consumer loans and currently plans to expand these portfolios. During 2021, the Company purchased $89.3 million of private education loans and $81.9 million of consumer loans.
AGM's competition for the purchase of FFELP, private education, and consumer loan portfolios includes banks, hedge funds, and other finance companies.
Interest rate risk management
Since the Company generates a significant portion of its earnings from its 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 income and net income. The effects on the Company's results of operations as a result of the changing interest rate environments are further outlined in the MD&A - "Asset Generation and Management Operating Segment - Results of Operations - Loan Spread Analysis" and in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk - AGM Operating Segment.”
Nelnet Bank
Nelnet Bank is a Utah-chartered, FDIC-insured industrial bank headquartered in Salt Lake City, Utah. Nelnet Bank is governed by a board of directors, a majority of the members of which are independent of the Company. Nelnet Bank was formed November 2, 2020, and is a wholly-owned subsidiary of the Company. Nelnet Bank was funded by the Company with an initial capital contribution of $100.0 million, consisting of $55.9 million of cash and $44.1 million of student loan asset-backed
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securities. As a consolidated subsidiary of the Company, the Bank’s assets, liabilities, results of operations, and cash flows are reflected in the Company’s consolidated financial statements, and the industrial bank charter allows the Company to maintain its other diversified business offerings.
Nelnet Bank serves and plans to serve a niche market, with a concentration in the private education and unsecured consumer loan markets. Currently, Nelnet Bank offers refinance private education loan options to borrowers that have higher priced private education and/or federal student loan debt. Throughout Nelnet Bank’s three-year de novo period, Nelnet Bank plans to continue to launch products focused on helping students achieve their dreams, with the origination of in-school private education loans, K-12 education loans offered to families attending private primary and secondary schools in the United States, and unsecured consumer loans, primarily refinance loans, for consumers to consolidate credit card and other general-purpose debt. Nelnet Bank extends consumer loans to borrowers in all 50 states plus the District of Columbia. As of December 31, 2021, Nelnet Bank’s loan portfolio was $257.9 million. Nelnet Bank currently plans to offer its in-school private education loan product to students attending higher education institutions by the second quarter of 2022 for the 2022-2023 academic school year.
Nelnet Bank’s deposits are interest-bearing and consist of brokered certificates of deposit (CDs), retail and other savings deposits and CDs, and intercompany deposits. Retail and other deposits include savings deposits from 529 College Savings and Health Savings plans and commercial and institutional CDs. Union Bank and Trust Company (“Union Bank”), a related party, is the program manager for the College Savings plans. The intercompany deposits are deposits from the Company and its subsidiaries and include a pledged deposit of $40.0 million from Nelnet, Inc. (parent company), as required under a Capital and Liquidity Maintenance Agreement with the FDIC, deposits required for intercompany transactions, operating deposits, and NBS custodial deposits consisting of tuition payments collected which are subsequently remitted to the appropriate school. As of December 31, 2021, Nelnet Bank had $425.4 million of deposits.
As a Utah-chartered industrial bank, Nelnet Bank is able to fulfill its mission of being a steady and stable supplier of education credit. The Bank’s goal is to meet underserved needs in the United States for reliable education financing. The Company’s strong history within, and understanding of, the education industry will afford Nelnet Bank access to more families participating in education nationwide.
Corporate and Other Activities
Other business activities and operating segments that are not reportable are combined and included in Corporate and Other Activities. Corporate and Other Activities include the following items:
•The operating results of Whitetail Rock Capital Management, LLC (“WRCM”), the Company's SEC-registered investment advisor subsidiary
•The results of the majority of the Company’s investment activities, including early-stage and emerging growth companies, real estate, and renewable energy (solar)
•Interest expense incurred on unsecured and certain other corporate related debt transactions
•Other product and service offerings that are not considered reportable operating segments
Corporate and Other Activities also include certain corporate activities and overhead functions related to executive management, internal audit, human resources, accounting, legal, enterprise risk management, information technology, occupancy, and marketing. These costs are allocated to each operating segment based on estimated use of such activities and services.
Whitetail Rock Capital Management, LLC
As of December 31, 2021, WRCM had $2.6 billion in assets under management for third-party customers, consisting of student loan asset-backed securities ($2.0 billion) and Nelnet stock ($0.6 billion) - primarily shares of Class B common stock. WRCM earns annual management fees of 10 basis points to 25 basis points for asset-backed securities under management and a share of the gains from the sale of securities or securities being called prior to the full contractual maturity for which it provides advisory services. WRCM earns annual management fees of five basis points for Nelnet stock under management. During 2021, WRCM earned $4.2 million in management fees and generated $3.6 million in performance fees.
Investments
The Company makes investments to further diversify itself both within and outside of its historical core education-related businesses, including investments in early-stage and emerging growth companies, real estate, renewable energy resources (solar projects), and various equity and student loan and other asset backed securities. As of December 31, 2021, the Company has a
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$1.6 billion portfolio of investments. See note 7 in the notes to consolidated financial statements for additional detail of the Company’s investments, including a summary of holdings.
Early-Stage and Emerging Growth (Venture Capital) Investments
The Company has invested in early-stage, emerging growth companies and various funds. As of December 31, 2021, the Company has investments in 76 entities and funds and the carrying value of such investments was $225.4 million. The largest investment in the Company’s venture capital portfolio is Hudl. As of December 31, 2021, the carrying value of the Company’s investment in Hudl was $133.9 million. Hudl is a leading sports performance analysis company, and their software provides more than 200,000 teams across 40 sports and in 150 countries the insights to be more competitive. David S. Graff, a member of the Company’s board of directors, is a co-founder, the chief executive officer, and a director of Hudl.
Real Estate
As of December 31, 2021, the Company has 33 real estate investments across the United States with a carrying value of $47.2 million. Included in the Company’s real estate portfolio is the development of commercial properties in the Midwest, and particularly in Lincoln, Nebraska, where the Company is headquartered. The local investments include projects for the development of properties in Lincoln’s east downtown Telegraph District, where a new facility for the Company’s student loan servicing operations is located, and projects in Lincoln’s Haymarket District, including the new headquarters of Hudl. The Company is also a tenant at Hudl's headquarters.
Solar
As of December 31, 2021, the Company has invested a total of $168.7 million (which excludes $59.2 million syndicated to third-party investors) in tax equity investments in renewable energy solar partnerships to support the development and operations of solar projects throughout the country. These investments provide a federal income tax credit under the Internal Revenue Code, currently at 26 percent (for projects commencing construction in 2020-2022) and 30 percent (for projects commencing construction prior to 2020) of the eligible project cost, with the tax credit available when the project is placed-in-service. The Company is then allowed to reduce its tax estimates paid to the U.S. Treasury based on the credits earned. In addition to the credits, the Company structures the investments to receive quarterly distributions of cash from the operating earnings of the solar project for a period of at least five years (so the tax credits are not recaptured). After that period, the contractual agreements typically provide for the Company’s interest in the projects to be purchased in an exit at the fair market value of the discounted forecasted future cash flows allocable to the Company. Given the expected timing of cash flows, experience the Company has in underwriting these assets, and beneficial impact to the climate, the Company believes these investments are a great fit within its capital deployment initiatives.
These investments are structured such that a significant proportion of the cash distributions and tax items (including the income tax credit) are allocated back to the Company within the first eighteen months of the investment capital contribution, in order to achieve a target after tax return. The cash distributions to the Company are then structured to flatten until exit, typically between years five and six. Given the unique arrangement in which investors share in the profits and losses of the solar investment with cash and tax benefit allocations among the partners changing over the life of the project, the accounting guidance calls for the use of the Hypothetical Liquidation at Book Value (“HLBV”) method, which can result in non-linear GAAP income/loss allocation results. Under this method, a balance sheet approach is utilized to determine what each investor would hypothetically receive at each balance sheet date under the liquidation provisions of the contractual agreements, assuming the net assets of the funding structures were liquidated at their recorded amounts determined in accordance with GAAP. As the investor receives a majority of this return through the income tax credit and higher cash distributions at the beginning of the investment, as of the first period of the hypothetical liquidation, the investor’s remaining net claim on assets is relatively low compared to the initial cash contributed. This difference between the initial cash contributions and the first period’s ending net claim on assets through the hypothetical liquidation causes significant GAAP losses on the investment to be recognized through the income statement within the initial periods of the investment. After the carrying value of the investment on the balance sheet is written down to the hypothetical liquidation amount, subsequent year’s earnings are expected to align with and reflect the operating profits or losses of the investment. The Company realizes that application of the HLBV method to its solar investments has a variable impact on its periodic earnings that in the early years is not reflective of the expected long-term economics of the investments. Given the significant amount of investments made in the last couple of years and the associated ramp-up period, the Company recognized a $3.0 million and $33.6 million pre-tax loss attributable to its interests in these investments in 2021 and 2020, respectively, under the HLBV method. These pre-tax loss amounts in 2021 and 2020 exclude $7.1 million and $3.8 million, respectively, of losses attributable to third-party investors that are included in “net loss attributable to noncontrolling interests” on the Company’s consolidated statements of income. As these investments mature and perform as forecasted, the Company expects to recoup that loss and realize additional income between now and the sale of each of its interests, likely 60 to 72 months from the date the project is placed in service. Thus, the Company expects the economic
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gain from these investments to be realized in its future earnings, but, due to the hypothetical liquidation valuations as of the balance sheet dates during the intended investment horizon, the HLBV method results in some volatility in the Company’s consolidated periodic earnings results.
Regulation and Supervision
The Company's operating segments and industry partners are heavily regulated by federal and state government regulatory agencies. The following provides a summary of the more significant existing and proposed legislation and regulations affecting the Company. A failure to comply with these laws and regulations could subject the Company to substantial fines, penalties, and remedial and other costs, restrictions on business, and the loss of business. Regulations and supervision can change rapidly, and changes could alter the Company's business plans and increase the Company's operating expenses as new or additional regulatory compliance requirements are addressed.
Loan Servicing and Systems
NDS, which services Federal Direct Loan Program, FFELP, and private education and consumer loans, is subject to federal and state consumer protection, privacy, and related laws and regulations. Some of the more significant federal laws and regulations include:
•The Higher Education Act, which establishes financial responsibility and administrative capability requirements that govern all third-party servicers of federally insured student loans
•The Telephone Consumer Protection Act (“TCPA”), which governs communication methods that may be used to contact customers
•The Truth-In-Lending Act (“TILA”) and Regulation Z, which govern disclosures of credit terms to consumer borrowers
•The Fair Credit Reporting Act (“FCRA”) and Regulation V, which govern the use and provision of information to consumer reporting agencies
•The Equal Credit Opportunity Act (“ECOA”) and Regulation B, which prohibit discrimination on the basis of race, creed, or other prohibited factors in extending credit
•The Servicemembers Civil Relief Act (“SCRA”), which applies to all debts incurred prior to commencement of active military service and limits the amount of interest, including certain fees or charges that are related to the obligation or liability
•The Military Lending Act (“MLA”), which protects active-duty members of the military, their spouses, and their dependents from certain lending practices
•The Electronic Funds Transfer Act (“EFTA”) and Regulation E, which protect individual consumers engaged in electronic fund transfers (“EFTs”)
•The Gramm-Leach-Bliley Act (“GLBA”) and Regulation P, which govern a financial institution’s treatment of nonpublic personal information about consumers and require that an institution, under certain circumstances, notify consumers about its privacy policies and practices
•The General Data Protection Regulation (“GDPR”), a European Union (“EU”) regulation which places specific requirements on businesses that collect and process personal data of individuals residing in the EU, and provides for significant fines and other penalties for non-compliance
•The California Consumer Privacy Act (“CCPA”) and California Privacy Rights Act (“CPRA”), which enhances the privacy rights and consumer protection for residents of California
•The CARES Act, which provides temporary relief measures through May 1, 2022 for federal student loans held by the Department, as a result of the COVID-19 pandemic
•Laws prohibiting unfair, deceptive, or abusive acts or practices (“UDAAP”)
•Various laws, regulations, and standards that govern government contractors
As a student loan servicer for the federal government and for financial institutions, including the Company’s FFELP student loan portfolio, the Company is subject to the Higher Education Act (“HEA”) and related laws, rules, regulations, and policies. The HEA regulates every aspect of the federally insured student loan program. Failure to comply with the HEA could result in fines, the loss of the insurance and related federal guarantees on affected FFELP loans, expenses required to cure servicing deficiencies, suspension or termination of the right to participate as a FFELP servicer, negative publicity, and potential legal claims. The Company has designed its servicing operations to comply with the HEA, and it regularly monitors the Company's operations to maintain compliance. While the HEA is required to be reviewed and reauthorized by Congress every five years, Congress has not reauthorized the HEA since 2008, choosing to temporarily extend the HEA each year since 2013 while Congress works on the next reauthorization. The Company continuously monitors for potential changes to the HEA and evaluates possible impacts to its business operations.
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Under the TCPA, plaintiffs may seek actual monetary loss or damages of $500 per violation, and courts may treble the damage award for willful or knowing violations. In addition, TCPA lawsuits have asserted putative class action claims.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) established the Consumer Financial Protection Bureau (“CFPB”), which has broad authority to regulate a wide range of consumer financial products and services. The Company's student loan servicing business is subject to CFPB oversight authority.
In 2015, the CFPB conducted a public inquiry into student loan servicing practices throughout the industry and issued a report discussing public comments submitted in response to the inquiry and suggesting a framework to improve borrower outcomes and reduce defaults, including the creation of consistent, industry-wide standards for the entire servicing market.
The CFPB has authority to draft new regulations implementing federal consumer financial protection laws, to enforce those laws and regulations, and to conduct examinations and investigations of the Company's operations to determine compliance. The CFPB’s authority includes the ability to assess financial penalties and fines and provide for restitution to consumers if it determines there have been violations of consumer financial protection laws. The CFPB also provides consumer financial education, tracks consumer complaints, requests data from industry participants, and promotes the availability of financial services to underserved consumers and communities. The CFPB has authority to prevent unfair, deceptive, or abusive acts or practices and to ensure that all consumers have access to fair, transparent, and competitive markets for consumer financial products and services. The CFPB’s scrutiny of financial services has impacted industry participants’ approach to their services, including how the Company interacts with consumers.
The Dodd-Frank Act empowers state attorneys general and state regulators to bring civil actions to remedy violations of state law. Most states also have statutes that prohibit unfair and deceptive practices. To the extent states enact requirements that differ from federal standards or state officials and courts adopt interpretations of federal consumer laws that differ from those adopted by the CFPB under the Dodd-Frank Act, the Company's ability to offer the same products and services to consumers nationwide may be limited.
As a third-party service provider to financial institutions, the Company is subject to periodic examination by the Federal Financial Institutions Examination Council (“FFIEC”). FFIEC is a formal interagency body of the U.S. government empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions by the Federal Reserve Banks, the FDIC, and the CFPB, and to make recommendations to promote uniformity in the supervision of financial institutions.
Several states have enacted laws regulating and monitoring the activity of student loan servicers. Some of these laws stipulate additional licensing fees which increase the Company’s cost of doing business. Where the Company has obtained licenses, state licensing statutes may impose a variety of requirements and restrictions on the Company. In addition, these statutes may also subject the Company to the supervisory and examination authority of state regulators in certain cases, and the Company will be subject to and experience exams by state regulators. If the Company is found to not have complied with applicable laws, regulations, or requirements, it could: (i) lose one or more of its licenses or authorizations, (ii) become subject to a consent order or administrative enforcement action, (iii) face lawsuits (including class action lawsuits), sanctions, or penalties, or (iv) be in breach of certain contracts, which may void or cancel such contracts. The Company anticipates additional states adopting similar laws.
Education Technology, Services, and Payment Processing
NBS provides tuition management services and school information software for K-12 schools and tuition management services and payment processing solutions for higher education institutions. The Company also provides payment technologies and payment services for software platforms, businesses, and nonprofits beyond the K-12 and higher education space. As a service provider that takes payment instructions from institutions and their constituents and sends them to bank partners, the Company is directly or indirectly subject to a variety of federal and state laws and regulations. The Company's contracts with clients and bank partners require the Company to comply with these laws and regulations.
The Company's payment processing services are subject to the EFTA and Regulation E, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of debit cards and certain other electronic banking services. The Company assists bank partners with fulfilling their compliance obligations pursuant to these requirements.
The Company's payment processing services are also subject to the National Automated Clearing House Association (“NACHA”) requirements, which include operating rules and sound risk management procedures to govern the use of the ACH Network. These rules are used to ensure that the ACH Network is efficient, reliable, and secure for its members. Because the ACH Network uses a batch process, the importance of proper submissions by NACHA members is magnified. The Company is
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also impacted by laws and regulations that affect the bankcard industry. The Company is registered with Visa, MasterCard, American Express, and the Discover Network as a service provider and is subject to their respective rules.
The Company's higher education institution clients are subject to the Family Educational Rights and Privacy Act (“FERPA”), which protects the privacy of student education records. These clients disclose certain non-directory information concerning their students to the Company, including contact information, student identification numbers, and the amount of students’ credit balances pursuant to one or more exceptions under FERPA. Additionally, as the Company is indirectly subject to FERPA, it may not permit the transfer of any personally identifiable information to another party other than in a manner in which an educational institution may properly disclose it. A breach of this prohibition could result in a five-year suspension of the Company's access to the related client’s records. The Company may also be subject to similar state laws and regulations that restrict higher education institutions from disclosing certain personally identifiable student information.
Some of the Company's K-12 and higher education institution clients choose to charge convenience fees to students, parents, or other payers who make online payments using a credit or debit card. Laws and regulations related to such fees vary from state to state and certain states have laws that to varying degrees prohibit the imposition of a surcharge on a cardholder who elects to use a credit or debit card in lieu of cash, check, or other means.
The Company's contracts with higher education institution clients also require the Company to comply with regulations promulgated by the Department regarding the handling of student financial aid funds received by institutions on behalf of their students under Title IV of the Higher Education Act. These regulations are designed to ensure students have convenient access to their Title IV funds, do not incur unreasonable fees, and are not led to believe they must open a financial account to receive such funds.
Asset Generation and Management
The Dodd-Frank Act created a comprehensive regulatory framework for derivatives transactions, with regulatory authority allocated among the Commodity Futures Trading Commission (“CFTC”), other prudential regulators, and the SEC. This framework, among other things, subjects certain swap participants to capital and margin requirements, recordkeeping, and business conduct standards and imposes registration and regulation of swap dealers and major swap participants. Even when a securitization trust qualifies for an exemption, many of the Company's derivative counterparties are subject to capital, margin, and business conduct requirements; therefore, the Company may be impacted. When securitization trusts do not qualify for an exemption, the Company may be unable to enter into new swaps to hedge interest rate risk or the costs associated with such swaps may increase. With respect to existing securitization trusts, an inability to amend, novate, or otherwise materially modify existing swap contracts could result in a downgrade of outstanding asset-backed securities. As a result, the Company's business, ability to access the capital markets for financing, and costs may be impacted by these regulations.
Nelnet Bank
Nelnet Bank is a Utah industrial bank that is regulated by the FDIC and the UDFI. As an originator of private education loans, and a purchaser and owner of federally insured student loans, Nelnet Bank is subject to federal and state consumer protection, privacy, and related laws and regulations. In addition to having to comply with the majority of laws and regulations addressed in the Loan Servicing and Systems section, there are additional laws and regulations Nelnet Bank must follow. Some of the more significant laws and regulations applicable to Nelnet Bank include:
•Regulation W and Federal Reserve Act Sections 23A and 23B - Designed to prevent losses to a bank resulting from affiliate engagement and transfer of a bank’s federal deposit insurance safety net to an affiliate
•Community Reinvestment Act - Encourages depository institutions to help meet the credit needs of the communities in which they operate
•Federal Trade Commission (“FTC”) Act - Prevents unfair or deceptive acts or practices and ensures consumer privacy (including the Telephone Sales Rule, FTC Guides Concerning the Use of Endorsements and Testimonials in Advertising, and FTC Policy Statement Regarding Advertising Substantiation)
•Regulation O - Places limits and conditions on credit extensions that a bank can offer to its executive officers, principal shareholders, directors, and related interests
•Right to Financial Privacy Act - Establishes specific procedures that government authorities must follow when requesting a customer’s financial records from a bank or other financial institution
Regulation D, the Truth in Savings Act (reserve requirements), and Regulation DD (disclosure of deposit terms to customers) will be applicable to Nelnet Bank once consumer deposit products are launched, which is tentatively scheduled for 2023.
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Corporate
Governmental bodies in the United States and abroad have adopted, or are considering the adoption of, laws and regulations restricting the transfer and requiring the safeguarding of nonpublic personal information. For example, in the United States, the Company and its financial institution clients are, respectively, subject to the FTC’s and the federal banking regulators’ privacy and information safeguarding requirements under the GLBA. The GLBA requires financial institutions to periodically disclose their privacy policies and practices relating to sharing such information and enables customers to opt out of the Company’s ability to share information with unaffiliated third parties under certain circumstances. Other federal and state laws and regulations impact the Company’s ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or to contact customers with marketing offers. The GLBA also requires financial institutions to implement a comprehensive information security program that includes administrative, technical, and physical safeguards to ensure the security and confidentiality of customer records and information. These security and privacy policies and procedures for the protection of personal and confidential information are in effect across all businesses and geographic locations. Federal law also makes it a criminal offense, except in limited circumstances, to obtain or attempt to obtain customer information of a financial nature by fraudulent or deceptive means. Data privacy and data protection are areas of increasing state legislative focus. For example, the CCPA, which became effective on January 1, 2020, applies to for-profit businesses that conduct business in California and meet certain revenue or data collection thresholds. The CCPA gives consumers the right to request disclosure of information collected about them, and whether that information has been sold or shared with others, the right to request deletion of personal information (subject to certain exceptions), the right to opt out of the sale of the consumer’s personal information, and the right not to be discriminated against for exercising these rights. The CCPA contains several exemptions, including an exemption applicable to information that is collected, processed, sold, or disclosed pursuant to the GLBA. In addition, the CPRA, which amends and expands upon the CCPA, will become effective January 1, 2023. Further, similar laws may be adopted by other states where the Company does business. The federal government may also pass data privacy or data protection legislation. In addition, in the EU, privacy law is governed by the GDPR, which contains extensive compliance obligations and provides for substantial penalties for non-compliance.
Intellectual Property
The Company owns numerous trademarks and service marks (“Marks”) to identify its various products and services. As of December 31, 2021, the Company had 92 registered Marks. The Company actively asserts its rights to these Marks when it believes 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. 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, and has also actively asserted its rights thereunder in situations during which the Company believes its claims may be infringed upon. The Company owns many copyright-protected works, including its various computer system codes and displays, websites, and marketing materials. 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 improperly disclose the software products. The Company also has adopted internal procedures designed to protect the Company's intellectual property.
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 (referred to by the Company as “associates”) are trained in the fundamentals of intellectual property, intellectual property protection, and infringement issues. The Company's associates are also required to sign agreements requiring, among other things, confidentiality of trade secrets, assignment of inventions, and non-solicitation of other associates post-termination. Consultants, suppliers, and other business partners are also required to sign nondisclosure agreements to protect the Company's proprietary rights.
Human Capital Resources
The Company’s associates are critical to its success, and the executive team puts significant focus on human capital resources. In addition, the executive team regularly updates the Company’s board of directors and its committees on the operation and status of human capital trends and activities. Key areas of focus for the Company include:
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Headcount data
Total associate headcount by reportable segment as of December 31, 2021 follows:

	Number		Percent of total	
NDS	4,892		61.2 	%	
NBS	2,370		29.7 		
Nelnet Bank	23		0.3 		
AGM	11		0.1 		
Corporate and other	692		8.7 		
 	7,988		100.0 	%	
None of the Company’s associates are covered by collective bargaining agreements. The Company is not involved in any material disputes with any of its associates, and the Company believes that relations with its associates are good.
Employee recruitment, engagement, and retention
The Company works diligently to attract the best talent from a diverse range of sources to meet the current and future demands of its businesses, and has established relationships with trade schools, universities, professional associations, and industry groups to proactively attract talent. In 2021, the Company hired approximately 4,400 new associates, including approximately 800 temporary associates who are contracted workers who perform a job for only a short amount of time.
In 2021, the Company conducted an associate culture survey using a leading outside firm that specializes in employee engagement. Ninety-one percent of the Company’s associates participated in the survey, 11 points above the survey provider’s industry benchmark. There were many questions, but the overarching goal of the survey was to determine overall associate engagement through understanding how associates feel about working for the Company and if associates would recommend the Company as a great place to work. The results of the survey were an overall engagement score of 80 out of 100, which was five points above the survey provider’s industry benchmark, and one point above last year’s survey engagement score. The Company’s management team collected all the feedback and is focusing on making associate-suggested changes to become an even better place to work.
For 2021, associate voluntary turnover was approximately 28 percent, an 8 percentage point increase from 2020. The average associate has over six years of service.
Diversity and inclusion
The Company embraces diversity among its associates, including their unique backgrounds, experiences, and talents, and the Company strives to cultivate a culture and vision that supports and enhances its ability to recruit, develop, and retain diverse talent at every level. The Company demonstrates its commitment to diversity, equity, and inclusion at the highest levels of the Company. The Company’s independent directors (seven in total) include three women.
As of December 31, 2021, the Company’s workforce was approximately 66 percent women, an increase from 57 percent as of December 31, 2020. People of color, as defined by the U.S. Equal Employment Opportunity Commission's EEO-1 race and ethnicity categories for the U.S., represented approximately 27 percent of the Company’s workforce (based on associate self-identification), an increase from 20 percent as of December 31, 2020. The Company is making progress in the number of women and people of color working in leadership positions (defined by the Company as an associate with one or more direct reports) across the organization. As of December 31, 2021, women and people of color held 52 percent and 10 percent of leadership positions in the Company, respectively, an increase from 50 percent and 8 percent, respectively, as of December 31, 2020. The Company has acknowledged that people of color are underrepresented in leadership positions at Nelnet and is committed to have its workforce reflect the diversity in its communities.
To further Nelnet’s objective of creating an inspiring work environment and furthering associate development, the Company developed and launched the Nelnet Diversity, Equity, and Inclusion Council (the “Council”), sponsored by the Chief Executive Officer and the Executive Director of People Services. This Council of 28 members represents locations, functions, and business segments across the entire Company. Its top priorities include:
•Implementing a comprehensive diversity and inclusion learning and development plan to build awareness and drive inclusive behaviors;
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•Developing the Company’s diversity pipeline through recruiting, hiring, developing, mentoring, and retaining diverse top talent; and
•Promoting a work environment that enables associates to feel safe to express their ideas and perspectives and feel they belong.
During 2020, the Council partnered with Nelnet University, the Company’s learning and development program for associates, to launch a robust mentoring program. The program is available to all associates, prioritizing mentorships for associates from underrepresented racial and ethnic groups. Associates participating in this program are partnered with tenured Nelnet leaders for guidance, support, and coaching. The Council has also provided training sessions for all associates on cultural competence and unconscious bias. In addition, the Company has changed new hire recruiting methods and strategies to increase pools of minority, women, veteran, and disabled candidates, and has created other programs focused on race and gender to increase diversity throughout the Company. The Company also revised its scholarship program for the children of its associates to better recognize minority and low-income students. In addition, the Company was named on the following three Forbes listings: Best Employer for Women, Best Employer for Diversity, and Best in State Employer.
Talent, development, and training
The Company’s talent strategy is focused on attracting the best talent from a diverse range of sources, recognizing and rewarding associates for their performance, and continually developing, engaging, and retaining associates.
The Company is committed to the continued development of its people. Strategic talent reviews and succession planning occur on a planned cadence annually across all business areas. The executive team convenes meetings with senior leadership and the board of directors to review top enterprise talent. The Company continues to provide opportunities for associates to grow their careers internally, with over 70 percent of open management positions filled internally during 2021.
The Company provides a variety of professional, technical, and leadership training courses to help its associates grow in their current roles and build new skills. The Company emphasizes individual development planning as part of its annual goal setting process, and offers mentoring programs, along with change management and project management upskilling opportunities. The Company has leadership development resources for all leaders across the organization and continues to build tools for leaders to develop their teams on the job and in roles to create new opportunities to learn and grow.
Training is provided in a number of formats to accommodate the learner’s style, location, and technological knowledge and access, including instructor-led courses and hundreds of online courses in the Company’s learning management system. The Company also offers tuition assistance to associates for degree programs, non-degree seeking individual classes, or certificate programs that are related to areas of business at Nelnet. During 2021, the Company paid almost $380,000 in tuition assistance for its associates. During 2021, the Company partnered with Nebraska Dev Lab and Galvanize to offer two groups of technology-driven associates a modern coding education through the Company’s first ever Coding Academy. Everyone who participated in the rigorous program passed the program and gained valuable current information technology skills.
Competitive pay, benefits, wellness, and safety
The general compensation philosophy of the Company, as an organization that values the long-term success of its shareholders, customers, and associates, is that the Company will pay fair, competitive, and equitable compensation designed to encourage focus on the long-term performance objectives of the Company and is differentiated based on both the individual’s performance and the performance of his or her respective business segment. In carrying out this philosophy, the Company structures its overall compensation framework with the general objectives of encouraging ownership, savings, wellness, productivity, and innovation. In addition, total compensation is intended to be market competitive compared to select industry surveys, internally consistent, and aligned with the philosophy of a performance-based organization. The Company provides a comprehensive benefits package, opportunities for retirement savings, and a robust wellness program. The holistic wellness program focuses on four pillars: personal, professional, physical, and financial well-being.
In response to the COVID-19 pandemic, the Company has implemented and continues to implement safety measures in all its facilities. The Company has implemented adjustments to its operations designed to keep associates safe and comply with federal and local guidelines, including those regarding masks, social distancing, and any applicable vaccine mandates. Since March 2020, a vast majority of associates continue to work from their home. However, all non-remote associates currently have the choice to work in the office, at home, or a hybrid of both.
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Culture, values, and ethics
The Company believes acting ethically and responsibly is the right thing to do, and embraces core values of open, honest communication in work environments. The Company also believes that it must do its part to improve the world for current and future generations, and as part of this philosophy the Company contributes time, talent, and resources to strengthen the communities where the Company does business. The Company’s associates participate in many initiatives focused on supporting their communities both financially and with their time.
Ethics are deeply embedded in the Company’s values and business processes. The Company has a Code of Ethics and Conduct that includes the Company’s core values and guiding principles for which every associate is empowered to achieve. The Company regularly reinforces its commitment to ethics and integrity in associate communications, in its everyday actions, and in processes and controls. As part of the Company’s ongoing efforts to ensure its associates conduct business with the highest levels of ethics and integrity, the Company has compliance training programs. The Company also maintains an Ask Ethics email through which associates can raise concerns they may have about business behavior they do not feel comfortable discussing personally with managers or human resources personnel. In addition, the Company maintains a separate anonymous portal for any associate concerns about the Company's financial reporting, internal controls, and related matters.
Available Information
The Company's internet website address is www.nelnet.com, and the Company's investor relations website address is www.nelnetinvestors.com. Copies of the Company's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports are available on the Company's investor relations website free of charge as soon as reasonably practicable after such reports are filed with or furnished to the SEC. The Company routinely posts important information for investors on its investor relations website.
The Company has adopted a Code of Ethics and Conduct that applies to directors, officers, and associates, including the Company's principal executive officer and its principal financial and accounting officer, and has posted such Code of Ethics and Conduct on its investor relations website. Amendments to and waivers granted with respect to the Company's Code of Ethics and Conduct relating to its executive officers and directors, which are required to be disclosed pursuant to applicable securities laws and stock exchange rules and regulations, will also be posted on its investor relations website. The Company's Corporate Governance Guidelines, Audit Committee Charter, People Development and Compensation Committee Charter, Nominating and Corporate Governance Committee Charter, Risk and Finance Committee Charter, and Compliance Committee Charter are also posted on its investor relations website.
Information on the Company's websites is not incorporated by reference into this report and should not be considered part of this report.

ITEM 1A.  RISK FACTORS
We are subject to risks including, but not limited to, strategic, market, liquidity, credit, regulatory, technology, operational, security, and other business risks such as reputation damage related to negative publicity and dependencies on key personnel, customers, vendors, and systems. This section discusses material risk factors that could adversely affect our financial results and condition and the value of, and return on, an investment in us. Although this section attempts to highlight key risk factors, other risks may emerge at any time, and we cannot predict all risks or estimate the extent to which they may affect us. These risk factors should be read in conjunction with the other information included in this report.
Loan Portfolio
Our loan portfolio is subject to certain risks related to interest rates, and the derivatives we use to manage interest rate risks, prepayment risk, and credit risk, each of which could reduce the expected cash flows and earnings on our portfolio.
Interest rate risk - basis and repricing risk
We are exposed to interest rate risk in the form of basis risk and repricing risk because the interest rate characteristics of our loan assets do not always match the interest rate characteristics of the funding for those assets.
We fund the majority of our FFELP student loan assets with one-month or three-month LIBOR indexed floating rate securities. Meanwhile, the interest earned on our FFELP student loan assets is indexed to one-month LIBOR, three-month commercial paper, and Treasury bill rates. The differing interest rate characteristics of our loan assets versus the liabilities funding these assets result in basis risk, which impacts the excess spread earned on our loans. We also face repricing risk due to the timing of the interest rate resets on our liabilities, which may occur as infrequently as once a quarter, in contrast to the timing of the
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interest rate resets on our assets, which generally occur daily. In a declining interest rate environment, this may cause our variable student loan spread to compress, while in a rising interest rate environment, it may cause the variable spread to increase.
As of December 31, 2021, our AGM operating segment had $15.9 billion, $0.6 billion, and $0.5 billion of FFELP loans indexed to the one-month LIBOR, three-month commercial paper, and three-month Treasury bill rate, respectively, all of which reset daily, and $5.4 billion of debt indexed to three-month LIBOR, which resets quarterly, and $10.5 billion of debt indexed to one-month LIBOR, which resets monthly. While these indices are all short term in nature with rate movements that are highly correlated over a longer period of time, the indices' historically high level of correlation may be disrupted in the future due to capital market dislocations or other factors not within our control. In such circumstances, our earnings could be adversely affected to a material extent.

We have entered into basis swaps to hedge our basis and repricing risk, under which we receive three-month LIBOR set discretely in advance and pay one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps").
Interest rate risk - loss of floor income
FFELP loans originated prior to April 1, 2006 generally earn interest at the higher of the borrower rate, which is fixed over a period of time, or a floating rate based on the Special Allowance Payments ("SAP") formula set by the Department. The SAP rate is based on an applicable index plus a fixed spread that depends on loan type, origination date, and repayment status. We generally finance our student loan portfolio with variable rate debt. In low and/or certain declining interest rate environments, when the fixed borrower rate is higher than the SAP rate, these student loans earn at a fixed rate while the interest on the variable rate debt typically continues to reflect the low and/or declining interest rates. In these interest rate environments, we may earn additional spread income that we refer to as floor income.
Depending on the type of loan and when it originated, the borrower rate is either fixed to term or is reset to an annual rate each July 1. As a result, for loans where the borrower rate is fixed to term, we may earn floor income for an extended period of time, which we refer to as fixed rate floor income, and for those loans where the borrower rate is reset annually on July 1, we may earn floor income to the next reset date, which we refer to as variable rate floor income.
For the year ended December 31, 2021, we earned $122.9 million of fixed rate floor income, which reflects $19.7 million of net settlements paid related to derivatives used to hedge loans earning fixed rate floor income. Absent the use of derivative instruments, a rise in interest rates will reduce the amount of floor income received and this will have an impact on earnings due to interest margin compression caused by increased financing costs, until such time as the federally insured loans earn interest at a variable rate in accordance with their SAP formulas. In higher interest rate environments, where the interest rate rises above the borrower rate and fixed rate loans effectively convert to variable rate loans, the impact of the rate fluctuations is reduced.
Interest rate risk - use of derivatives
We utilize derivative instruments to manage interest rate sensitivity. See note 6 of the notes to consolidated financial statements included in this report for additional information on derivatives used by us to manage interest rate risk. Our derivative instruments are intended as economic hedges but do not qualify for hedge accounting; consequently, the change in fair value, called the “mark-to-market,” of these derivative instruments is included in our operating results. Changes or shifts in the forward yield curve can and have significantly impacted the valuation of our derivatives, and in turn can and have impacted our results of operations.
Developing an effective strategy for dealing with movements in interest rates is complex, and no strategy can completely insulate us from risks associated with such fluctuations. Because many of our derivatives are not balance guaranteed to a particular pool of student loans and we may not elect to fully hedge our risk on a notional and/or duration basis, we are subject to the risk of being under or over hedged, which could result in material losses. In addition, our interest rate risk management activities could expose us to substantial mark-to-market losses if interest rates move in a materially different way than was expected based on the environment when the derivatives were entered into. As a result, our economic hedging activities may not effectively manage our interest rate sensitivity or have the desired beneficial impact on our results of operations or financial condition.
Since June 10, 2013, the CFTC has required over-the-counter derivative transactions to be executed through an exchange or central clearinghouse. Clearing is a process by which a third-party, the clearinghouse, steps in between the original counterparties and guarantees the performance of both, by requiring that each post substantial amounts of liquid collateral on an initial (initial margin) and mark-to-market (variation margin) basis to cover the clearinghouse's potential future exposure in the event of default. The clearing requirements require us to post substantial amounts of liquid collateral when executing new
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derivative instruments, which could negatively impact our liquidity and capital resources and may prevent or limit us from utilizing derivative instruments to manage interest rate sensitivity and risks.
Interest rate movements have an impact on the amount of payments we are required to settle with our clearinghouse on a daily basis. We attempt to manage market risk associated with interest rates by establishing and monitoring limits as to the types and degree of risk that may be undertaken. However, if interest rates move materially and negatively impact the fair value of our derivative portfolio, the replacement of LIBOR as a benchmark rate as discussed below has significant adverse impacts on our derivatives, or if we enter into additional derivatives in which the fair value of such derivatives becomes negative, we could be required to pay a significant amount of variation margin to our clearinghouse. These payments, if significant, could negatively impact our liquidity and capital resources.
Based on our interest rate swaps outstanding as of December 31, 2021, if the forward interest rate curve was 50 basis points lower for the remaining duration of these derivatives, we would have been required to pay approximately $64.6 million in additional variation margin. In addition, if the forward basis curve between one-month and three-month LIBOR experienced a ten-basis point reduction in spread for the remaining duration of our 1:3 Basis Swaps (in which we pay one-month LIBOR and receive three-month LIBOR), we would have been required to pay approximately $12.9 million in additional variation margin.
In addition, some of our variable rate debt is floored at zero percent, while the floating side of our fixed rate derivatives hedging the debt are not floored. If one-month LIBOR were to fall below zero percent, we may experience losses. The scope of these losses would depend on three factors - the notional amount of the fixed rate derivative portfolio, the extent to which one-month LIBOR is below zero percent, and the amount of time it remained there.
Interest rate risk - replacement of LIBOR as a benchmark rate
As of December 31, 2021, the interest earned on a principal amount of $15.9 billion of our FFELP student loan assets held by the AGM operating segment was indexed to the one-month LIBOR, and the interest paid on a principal amount of $15.9 billion of our FFELP student loan asset-backed debt securities was indexed to one-month or three-month LIBOR. In addition, our derivative financial instrument transactions used to manage LIBOR interest rate risks are indexed to LIBOR.
In March 2021, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that all LIBOR tenors relevant to us will cease to be published or will no longer be representative after June 30, 2023. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a committee convened by the Federal Reserve that includes major market participants, has identified the Secured Overnight Financing Rate (“SOFR”), calculated based on overnight repurchase agreements backed by U.S. Treasury securities, as its preferred alternative rate for LIBOR. There are significant differences between LIBOR and SOFR, such as LIBOR being an unsecured lending rate while SOFR is a secured lending rate, and SOFR being an overnight rate while LIBOR reflects term rates at different maturities. Accordingly, there are uncertainties as to the transition process and broad acceptance of SOFR as the primary alternative to LIBOR, including what effect it would have on the value of LIBOR-based securities, financial contracts, and variable rate loans.
Although the indentures for student loan asset-backed debt securities issued in our most recent LIBOR-indexed securitization transactions include new interest rate determination fallback provisions emerging in the market for new issuances of LIBOR-indexed debt securities, many of the contracts for our existing LIBOR-indexed assets, liabilities, and derivative instruments from historical transactions do not include provisions that contemplated the possibility of a permanent discontinuation of LIBOR and clearly specified a method for transitioning from LIBOR to an alternative benchmark rate, and it is not yet known how the market in general, specific counterparties in particular, the courts, or regulators will address the significant complexities and uncertainties involved in the transition away from LIBOR to an alternative benchmark rate. Specifically, the Department has not yet indicated any market transition away from the current LIBOR framework for paying special allowance payments to holders of FFELP assets. As a result, we cannot predict the impact that the transition from LIBOR to an alternative benchmark rate will have on our existing LIBOR-indexed assets, liabilities, and derivative instruments, but such impact could have material adverse effects on the value, performance, and related cash flows of such LIBOR-indexed items, including our funding costs, net interest income, loan and other asset values, and asset-liability management strategies. In particular, such transition could:
•adversely affect the interest rates paid or received on, the income and expenses associated with, and the pricing and value of our LIBOR-based assets and liabilities, which include the majority of our FFELP student loan assets and FFELP student loan asset-backed debt securities issued to fund those assets, as well as the majority of our derivative financial instruments we use to manage LIBOR-based interest rate risks associated with such FFELP student loan-related assets and liabilities;
•result in uncertainty or differences in the calculation of the applicable interest rate or payment amounts on our LIBOR-based assets and liabilities depending on the terms of the governing instruments, which in turn could result in disputes,
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litigation, or other actions with counterparties regarding the interpretation and enforceability of certain fallback language in LIBOR-based securities and contracts, and the potential renegotiation of previous contracts;
•make future asset-backed securitizations more difficult to complete or more expensive until LIBOR or alternative benchmark rate uncertainties are resolved; and
•result in basis risk if the alternative benchmark rate on our loan assets does not match the alternative benchmark rate for the funding for those assets.
In April 2021, the State of New York enacted legislation to address certain contracts that are governed by New York law, refer to LIBOR as a benchmark reference rate, and do not have effective fallback provisions once the applicable LIBOR rate is discontinued. The legislation provides a statutory remedy by automatically replacing LIBOR with the “recommended benchmark replacement,” which is expected to be SOFR, and for a contract that has a “determining person” (a trustee, a calculation agent or the like), replacing LIBOR with the recommended benchmark replacement as selected by the determining person. The majority of our student loan asset-backed securitization indentures that do not have fallback provisions are governed by New York law, and thus are covered by this legislation. Parties remain free to agree on a different alternative benchmark rate, and we have and will continue to work with our asset-backed securitization investors to amend transaction documents to address the discontinuation of LIBOR.
In addition, a transition away from LIBOR to an alternative benchmark rate or rates may impact our existing transaction data, systems, operations, pricing, and risk management processes, and require significant efforts to transition to or develop appropriate systems and analytics to reflect a new benchmark rate environment. There can be no assurance that such efforts will successfully mitigate the financial and operational risks associated with a transition away from LIBOR.
Prepayment risk
Higher rates of prepayments of student loans, including consolidations by the Department through the Federal Direct Loan Program or private refinancing programs, would reduce our interest income.
Pursuant to the Higher Education Act, borrowers may prepay loans made under the FFEL Program at any time without penalty. Prepayments may result from consolidations of student loans by the Department through the Federal Direct Loan Program or by a lending institution through a private education or unsecured consumer loan, which historically tend to occur more frequently in low interest rate environments; from borrower defaults on federally insured loans, which will result in the receipt of a guaranty payment; and from voluntary full or partial prepayments; among other things.
Legislative and executive action risk exists as Congress and the President evaluate economic stimulus packages and proposals to reauthorize the Higher Education Act. If the federal government and the Department initiate additional loan forgiveness or cancellation, other repayment options or plans, consolidation loan programs, or further extend the suspension of borrower payments under the CARES Act, such initiatives could further increase prepayments and reduce interest income and could also reduce servicing fees. Future laws, executive actions, or other policy statements may encourage or force consolidation, create additional income-based repayment or debt forgiveness programs, create broad debt cancellation programs, or establish other policies and programs that impact prepayments on education loans. Even if a broad debt cancellation program only applied to student loans held by the Department, such program could result in a significant increase in consolidations of FFELP loans to Federal Direct Loan Program loans and a corresponding increase in prepayments with respect to our FFELP loan portfolio. For example, the Department recently announced a set of policy changes and released proposed negotiated rulemaking materials relating to the Public Service Loan Forgiveness program under its Federal Direct Loan Program, which may result in an increase in consolidations of FFELP loans into Federal Direct Loan Program loans held by the Department (which results in the loans no longer being on our balance sheet). While implementation of the policy changes and final new regulations are unknown at this time, individually or collectively, they may cause higher than anticipated prepayment rates on our portfolio of loans. Some variability in prepayment levels is expected, although extraordinary or extended increases in prepayment rates could have a materially adverse effect on our revenues, cash flows, profitability, and business outlook, and, as a result, could materially, adversely affect our business, financial condition, and results of operations.
We cannot predict how or what programs or policies will be impacted by any actions that the Administration, Congress, or the federal government may take.
Credit risk
Future losses due to defaults on loans held by us present credit risk which could adversely affect our earnings. Our estimated allowance for loan losses is based on periodic evaluations of the credit risk in our loan portfolios, including the consideration of the following factors (as applicable), for each of our loan portfolios: loans in repayment versus those in nonpaying status;
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delinquency status; type of private education or consumer loan program; trends in defaults in the portfolio based on internal and industry data; past experience; trends in federally insured student loan claims rejected for payment by guarantors; changes to federal student loan programs; current macroeconomic factors, including unemployment rates, gross domestic product, and consumer price index; and other relevant qualitative factors.
The vast majority (97.1 percent) of our student loan portfolio is federally guaranteed. The federal government currently guarantees 97 percent of the principal and interest on federally insured student loans disbursed on and after July 1, 2006 (and 98 percent for those loans disbursed on and after October 1, 1993 and prior to July 1, 2006), which limits our loss exposure on the outstanding balance of our federally insured portfolio. Federally insured student loans disbursed prior to October 1, 1993 are fully insured for both principal and interest. Our private education and consumer loans are unsecured, with neither a government nor a private insurance guarantee. Accordingly, we bear the full risk of loss on these loans if the borrower and co-borrower, if applicable, default. We are actively expanding our acquisition of private education and consumer loan portfolios, which increases our exposure to credit risk.
If future defaults on loans held by us are higher than anticipated, which could result from a variety of factors such as downturns in the economy, regulatory or operational changes, and other unforeseen future trends, or actual performance is significantly worse than currently estimated, our estimate of the allowance for loan losses and the related provision for loan losses in our statements of income would be materially affected.
Our loan portfolio and other assets and operations could suffer adverse consequences to the extent that natural disasters, widespread health crises similar to the COVID-19 pandemic, terrorist activities, or international hostilities affect the financial markets or the economy in general or in any particular region.
Natural disasters, widespread health crises similar to the COVID-19 pandemic, terrorist activities, or international hostilities affecting the financial markets or the economy in general or in any particular region could lead, for example, to an increase in loan delinquencies, borrower bankruptcies, or defaults that could result in higher levels of nonperforming assets, net charge-offs, and provisions for credit losses, as well as have adverse effects on our other assets and business operations. Our ability to mitigate the adverse consequences of such occurrences is in part dependent on the quality of our resiliency planning, and our ability, if any, to anticipate the nature of any such event that occurs. The adverse impact of natural disasters, widespread health crises, terrorist activities, or international hostilities also could be increased to the extent that there is a lack of preparedness on the part of national or regional emergency responders or on the part of other organizations and businesses that we transact with, particularly those that we depend upon, but have no control over.
Liquidity and Funding
The current maturities of our loan warehouse financing facilities do not match the maturities of the related funded loans, and we may not be able to modify and/or find alternative funding related to the loan collateral in these facilities prior to their expiration.
The majority of our portfolio of student loans is funded through asset-backed securitizations that are structured to substantially match the maturities of the funded assets, and there are minimal liquidity issues related to these facilities. We also have loans funded in shorter term warehouse facilities. The current maturities of the warehouse facilities do not match the maturity of the related funded assets. Therefore, we will need to modify and/or find alternative funding related to the loan collateral in these facilities prior to their expiration.
We have a FFELP warehouse facility as described in note 5 of the notes to consolidated financial statements included in this report. The FFELP warehouse facility has an aggregate maximum financing amount of $60 million and liquidity provisions through May 23, 2022. In the event we are unable to renew the liquidity provisions for this facility, the facility would become a term facility at a stepped-up cost, with no additional student loans being eligible for financing, and we would be required to refinance the existing loans in the facility by the final maturity date in May 2023. The FFELP warehouse facility also contains financial covenants relating to levels of our consolidated net worth, ratio of recourse indebtedness to adjusted EBITDA, and unencumbered cash. Any noncompliance with these covenants could result in a requirement for the immediate repayment of any outstanding borrowings under the facility. As of December 31, 2021, $5.0 million was outstanding under the FFELP warehouse facility and $0.3 million was advanced as equity support.
We also have a private education loan warehouse facility that has an aggregate maximum financing amount available of $175.0 million, liquidity provisions through June 30, 2022, and a final maturity date of June 30, 2023. As of December 31, 2021, $107.0 million was outstanding and $11.8 million was advanced as equity support under this warehouse facility.
If we are unable to obtain cost-effective funding alternatives for the loans in the warehouse facilities prior to the facilities' maturities, our cost of funds could increase, adversely affecting our results of operations. If we cannot find funding alternatives, we would lose our collateral, including the loan assets and cash advances, related to these facilities.
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We are subject to economic and market fluctuations related to our investments.
We currently invest a substantial portion of our excess cash in student loan asset-backed securities and other investments that are subject to market fluctuations. The fair value of these investments was $1.0 billion as of December 31, 2021, including $907.2 million in student loan asset-backed securities. The student loan asset-backed securities earn a floating interest rate and carry expected returns of approximately LIBOR + 75-250 basis points to maturity. While we expect our overall student loan asset-backed securities to have few credit issues if held to maturity, they do have limited liquidity, and we could incur a significant loss if the investments were sold prior to maturity at an amount less than the original purchase price.
We will need to extend or refinance repurchase agreements funding the purchase of certain private education loan asset-backed securities that we are required to retain as sponsor of the underlying securitizations, since the current maturities of the agreements do not match the required holding period for the related investments and we are required to pay additional equity support in the event the fair value of the securities subject to the repurchase agreements becomes less than the original purchase price of such securities.
During 2021, we sponsored four asset-backed securitization transactions to permanently finance a total of $8.7 billion of the private education loans sold by Wells Fargo. For further information about these transactions, see the MD&A – “Overview – Recent Transactions/Developments – 2021 Transactions Related to the Private Education Loan Portfolio Sold by Wells Fargo.” As sponsor, we are required to provide a certain level of risk retention, and we have purchased bonds issued in such securitizations to satisfy this requirement. The bonds purchased to satisfy the risk retention requirement are reflected on our consolidated balance sheet as "investments" and as of December 31, 2021, the fair value of these bonds was $412.6 million. We must retain these investment securities until the latest of (i) two years from the closing date of the securitization, (ii) the date the aggregate outstanding principal balance of the loans in the securitization is 33% or less of the initial loan balance, and (iii) the date the aggregate outstanding principal balance of the bonds is 33% or less of the aggregate initial outstanding principal balance of the bonds, at which time we can sell the investment securities (bonds) to a third party. We entered into repurchase agreements with third parties, the proceeds of which were used to purchase a portion of the asset-backed investments, and such investments serve as collateral on the repurchase obligations.
As of December 31, 2021, $483.8 million was outstanding on our repurchase agreements, of which $313.2 million was borrowed to fund the private education loan securitization bonds subject to our risk retention requirements. The repurchase agreements have various maturity dates between May 27, 2022 and December 20, 2023, but are subject to early termination upon required notice provided by us or the applicable counterparty prior to the maturity dates. We are required to pay additional equity support in the event the fair value of the securities subject to the repurchase agreements becomes less than the original purchase price of such securities.
The current maturities of the repurchase agreements do not match the required holding period for, or the maturity of, the related funded assets. Therefore, we will need to continue to extend the maturities of the repurchase agreements and/or find alternative funding related to the investment securities collateral funded by these repurchase agreements prior to their expiration.
Operations
Risks associated with our operations, as further discussed below, include those related to the importance of maintaining scale by retaining existing customers and attracting new business opportunities, our information technology systems and potential security and privacy breaches, and our ability to manage performance related to regulatory requirements.
Our largest fee-based customer, the Department of Education, represented 29 percent of our revenue in 2021. Failure to extend the Department contracts or obtain new Department contracts in the Department's NextGen or other procurement processes, our inability to consistently surpass competitor performance metrics, or unfavorable contract modifications or interpretations, could significantly lower servicing revenue and hinder future service opportunities.
Our subsidiaries Nelnet Servicing and Great Lakes are two of the current seven private sector entities that have student loan servicing contracts with the Department to service loans that include Federal Direct Loan Program loans originated directly by the Department and FFEL Program loans purchased by the Department. As of December 31, 2021, Nelnet Servicing was servicing $215.8 billion of student loans for 6.4 million borrowers under its contract, and Great Lakes was servicing $262.6 billion of student loans for 7.8 million borrowers under its contract. For the year ended December 31, 2021, we recognized $360.8 million in revenue from the Department under these contracts, which represented 29 percent of our revenue.
Nelnet Servicing's and Great Lakes' student loan servicing contracts with the Department are scheduled to expire on December 14, 2023. In 2017, the Department initiated a contract procurement process referred to as the Next Generation Financial Services Environment ("NextGen") for a new framework for the servicing of all student loans owned by the Department. The Consolidated Appropriations Act, 2021 contains provisions directing certain aspects of the NextGen process, including that any
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new federal student loan servicing environment is required to provide for the participation of multiple student loan servicers and the allocation of borrower accounts to eligible student loan servicers based on performance.
In the event that our servicing contracts are not extended beyond the current expiration date, or we are not chosen as a subsequent servicer, loan servicing revenue would decrease significantly. There are significant risks to us and uncertainties regarding the current Department contracts and potential future Department contracts, including the pending and uncertain nature of the NextGen contract procurement process and the Department's prior awards of new NextGen contracts to other service providers; risks that we may not be successful in obtaining any new contracts with the Department; and risks and uncertainties as to the terms and requirements under a potential new contract or contracts with the Department. We cannot predict the timing, nature, or ultimate outcome of the NextGen or any other contract procurement process by the Department.
New loan volume is currently allocated among the Department servicers based on certain performance metrics established by the Department and compared among all loan servicers. The amount of future allocations of new loan volume could be negatively impacted if we are unable to consistently surpass comparable competitor and/or other performance metrics.
In the event the current or any future Department servicing contracts become subject to unfavorable modifications or interpretations by the Department, loan servicing revenue could decrease significantly, performance penalties could be assessed, and/or operating costs to perform the contracts could increase significantly.
Additionally, we are partially dependent on the existing Department contracts to broaden servicing operations with the Department, other federal and state agencies, and commercial clients. The size and importance of these contracts provide us the scale and infrastructure needed to profitably expand into new business opportunities. Failure to extend the Department contracts beyond the current expiration date, or obtain new Department contracts, could significantly hinder future opportunities, as well as result in potential restructuring charges that may be necessary to re-align our cost structure with our servicing operations.
The COVID-19 pandemic has adversely impacted our results of operations, and either directly or indirectly through impacts on economic conditions or government policy could adversely impact our results of operations, businesses, financial condition, and/or cash flows going forward.
The COVID-19 pandemic has caused significant disruption to the U.S. and world economies and extreme volatility in the U.S. and world markets. These effects have adversely impacted our results of operations and, if these effects result in sustained economic stress, they could have a material adverse impact on us in a number of ways, including but not limited to, talent acquisition and retention, wage inflation and cost of service delivery, lower higher education school enrollments, rising interest rates due to market conditions or government policy or stimulus, loan performance (where individual student and consumer borrowers experience financial hardship), and performance levels and impacts of vaccine requirements on our workforce and work environment (work from home). Although certain business and economic conditions have improved since the pandemic began, significant uncertainties remain, including with respect to the effectiveness of vaccines against existing and new variant strains of the COVID-19 virus which could be vaccine resistant, the potential impacts of variations in vaccination rates among different geographical areas and demographic segments, vaccine mandates, booster vaccines, and the potential impacts of potential additional future spikes in infection rates including through breakthrough infections among the fully vaccinated.
COVID-19 materially disrupted business operations across many sectors, initially resulting in periods of significantly higher levels of unemployment and underemployment, and more recently resulting in inflation associated with supply chain disruptions, a constrained labor market, supply, and extensive government stimulus programs initiated in efforts to counteract the economic disruptions from the pandemic. As a result, many student and consumer borrowers have experienced or may continue to experience financial hardship, making it difficult to meet loan payment obligations without assistance, which has had previous adverse effects and could have future adverse effects on the performance of our loan portfolio.
Our net interest income and profitability have been and could further be negatively affected by volatility in interest rates caused by uncertainties stemming from COVID-19. Higher income volatility from changes in interest rates and spreads to benchmark indices has caused and could cause a loss of net interest income and adverse changes in current fair value measurements of our assets and liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition. For example, the Federal Reserve has recently signaled that it may begin to raise its target interest rate beginning in the first half of 2022 as a way of addressing the inflationary effects of the extensive pandemic-related government stimulus programs, and an increase in interest rate levels generally results in a reduction of floor income we receive on certain FFELP loans.
A vast majority of our employees continue to work from home, either full-time or dividing their workdays between working from home and working in the office as we have offered employees flexibility in the amount of time they work in offices that were reopened in 2021. Unanticipated issues arising from handling personal, confidential, and other information in a work-
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from-home environment could lead to greater risks for us, including cybersecurity and privacy risks. In addition, recent labor market constraints have resulted in wage inflation and higher voluntary turnover rates, which in turn have led to increases in compensation costs to attract and retain talent. Further, in September 2021, the President issued an executive order that would require certain COVID-19 precautions for government contractors, including mandatory employee vaccinations. These requirements would apply to us as a student loan servicer for the Department, but are currently stayed pending the outcome of ongoing litigation. Any implementation of vaccination mandates applicable to our employees could result in workplace disruptions, employee attrition, and difficulty securing future talent needs in an increasingly competitive job market.
The CARES Act suspended federal student loan payments and interest accruals on all loans owned by the Department beginning as of March 13, 2020, and this suspension has been extended through May 1, 2022. As a result of this suspension, we receive a reduced level of servicing revenue per borrower from the Department. In addition, revenue from the Department for originating consolidation loans has been adversely impacted because of borrowers receiving relief on their existing loans, thus not initiating a consolidation. If the suspension period is extended further, more borrowers may consolidate their FFELP loans to the Federal Direct Loan Program, which could further increase prepayments on our loan portfolio and reduce our interest income and servicing fees. We currently anticipate the above revenues will continue to be negatively impacted while student loan payments and interest accruals are suspended.
The extent to which the COVID-19 pandemic continues to impact us will depend on many factors which are uncertain and beyond our control, including: the duration and ultimate severity of the pandemic; further public health and economic dislocations and constraints resulting from the pandemic; government actions in response to the pandemic, including any further actions to suspend, reduce or cancel payment obligations for loan borrowers; and the impacts of the pandemic on the U.S. and world economies. However, the impacts of the COVID-19 pandemic, or any other pandemic, on our businesses could be material and adverse. To the extent the COVID-19 pandemic continues to adversely affect broader economic conditions and/or adversely affects us, it may also have the effect of increasing the likelihood and/or magnitude of other risks described in this report.
Climate change manifesting as physical or transition risks could have a material adverse impact on our operations, vendors, and customers.
Our businesses, and the activities of our vendors and customers, could be impacted by climate change. Climate change could manifest as a financial risk to us either through changes in the physical climate or from the process of transitioning to a low-carbon economy, including changes in climate policy or in the regulation of businesses with respect to risks posed by climate change. Climate-related physical risks may include altered distribution and intensity of rainfall, prolonged droughts or flooding, increased frequency and severity of wildfires, hurricanes, and tornadoes, rising sea levels, and a rising heat index. In addition to possible changes in climate policy and regulation, potential transition risks may include economic and other changes engendered by the development of low-carbon technological advances (e.g., electric vehicles and renewable energy) and/or changes in consumer and business preferences toward low-carbon goods and services. These climate-related physical risks and transition risks could have a financial impact on us, and our vendors and customers, including declines in asset values; cost increases; reduced availability of insurance; reduced demand for certain goods and services; increased loan delinquencies, bankruptcies, events of default, and force majeure events; increased interruptions to business operations and services; adverse supply chain impacts; and negative consequences to business models, and the need to make changes in response to those consequences.
A failure of our operating systems or infrastructure could disrupt our businesses, cause significant losses, result in regulatory action, and damage our reputation.
We operate many different businesses in diverse markets and depend on the efficient and uninterrupted operation of our computer network systems, software, datacenters, cloud services providers, telecommunications systems, and the rest of our operating systems and infrastructure to process and monitor large numbers of daily transactions in compliance with contractual, legal, regulatory, and our own standards. Such systems and infrastructure could be disrupted because of a cyberattack, spikes in transaction volume, power outages, telecommunications failures, process breakdowns, degradation or loss of internet or website availability, natural disasters, political or social unrest, and terrorist acts. A significant adverse incident could damage our reputation and credibility, lead to customer dissatisfaction and loss of customers or revenue, and result in regulatory action, in addition to increased costs to service our customers and protect our network. Such an event could also result in large expenditures to repair or replace the damaged properties, networks, or information systems or to protect them from similar events in the future. System redundancy may be ineffective or inadequate, and our business continuity plans may not be sufficient for all eventualities. Any significant loss of customers or revenue, or significant increase in costs of serving those customers, could adversely affect our growth, financial condition, and results of operations.
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Operating system and infrastructure risks continue to increase in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to support and process customer transactions, the increased number and complexity of transactions being processed, changes to the way we do business due to the COVID-19 pandemic (like increased instances of employees working from home and/or using personal computing devices), and the increased sophistication and activities of organized crime, hackers, terrorists, activists, nation state threat actors, and other external parties. In addition, to access our services and products, our customers may use personal smartphones, tablet computers, and other mobile devices that are beyond our control systems.
Malicious and abusive activities, such as the dissemination of computer viruses, worms, and other destructive or disruptive software, internal and external threats, computer hacking, social engineering, denial of service attacks, ransomware or ransom demands to not expose confidential data or vulnerabilities in systems, and other malicious activities have become more common. These activities could have material adverse consequences on our network and our customers, including degradation of service, excessive call volume, and damage to our or our customers' equipment and data. Although to date we have not experienced a material loss relating to cyberattacks or system outage, there can be no assurance that we will not suffer such losses in the future or that there is not a current threat that remains undetected at this time. Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, and the size and scale of our services.
We could also incur material losses resulting from the risk of unauthorized access to our computer systems, the execution of unauthorized transactions by employees, errors relating to transaction processing and technology, breaches of the internal control system and compliance requirements, and failures to properly execute business continuation and disaster recovery plans. In the event of a breakdown in the internal control system, improper operation of systems, or unauthorized employee actions, we could suffer material financial loss, potential legal actions, fines, or civil monetary penalties that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to potential negative publicity and damage to our reputation.
As a result of the above risks, we continue to develop and enhance our training, controls, processes, and practices designed to protect, monitor, and restore our systems, computers, software, data, and networks from attack, damage, or unauthorized access, and this remains a priority for us, each of our business segments, and our Board of Directors. Even though we maintain technology and telecommunication, professional services, media, network security, privacy, injury, and liability insurance coverage to offset costs related to a cyberattack, information security breach, or extended system outage, this insurance coverage may not cover all costs of such incidents.
A security breach of our information technology systems could result in material financial losses and legal exposure, and damage to our reputation.
Our operations rely on the secure processing, storage and transmission of personal, confidential and other sensitive information in our information technology systems, including customer, personnel, and vendor data. Although we devote significant resources to maintain and regularly upgrade our systems and processes that are designed to protect the security of our systems, software, and networks and to protect the confidentiality, integrity and availability of information belonging to us and our customers, we experience increasingly numerous and more sophisticated attacks on our systems, and our cybersecurity measures may not be entirely effective.
We may not be able to anticipate or to implement effective preventive measures against all types of security breaches, because the techniques used change frequently, generally increase in sophistication, often are not recognized until launched, sometimes go undetected even when successful, and result in cybersecurity attacks originating from a wide variety of sources, including organized crime, hackers, terrorists, activists, hostile foreign governments, and other external parties. Those parties may also attempt to fraudulently induce employees, customers, or other users of our systems to disclose sensitive information to gain access to our data or that of our customers, such as through “phishing” schemes. These risks may increase in the future as we continue to increase our mobile and internet-based product offerings and expand our internal usage of web-based products and applications. In addition, our customers often use their own devices, such as computers, smart phones, and tablet computers, to make payments and manage their accounts. We have limited ability to assure the safety and security of our customers’ transactions to the extent they are using their own devices, which could be subject to similar threats. A penetration or circumvention of our information security systems, or the intentional or unintentional disclosure, alteration or destruction by an authorized user of confidential information necessary for our operations, could result in serious negative consequences for us. These consequences may include violations of applicable privacy and other laws; financial loss to us or to our customers; loss of confidence in our cybersecurity measures; customer dissatisfaction; significant litigation exposure; regulatory fines, penalties or intervention; reimbursement or other compensatory costs; additional compliance costs; significant disruption of our business operations; and harm to our reputation.
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In addition, we routinely transmit, receive, and process large volumes of personal, confidential, and proprietary information through third parties. Although we work to ensure that third parties with which we do business maintain information security systems and processes, those measures may not be entirely effective, and an information security breach of a third-party system may not be revealed to us in a timely manner, which could compromise our ability to respond effectively. An interception, misuse or mishandling of personal, confidential, or proprietary information being processed, sent to or received from a third party could result in material adverse legal liability, regulatory actions, disruptions, and reputational harm with respect to our businesses.
We and our third-party vendors have experienced, and could experience in the future, cyber-attacks and information security breaches. Although to date none of these attacks or breaches has individually or in the aggregate resulted in a security incident with a material adverse effect on our results of operations, financial condition, or businesses, there can be no assurance that we will not suffer material adverse effects in the future or that there is not a significant current threat that remains undetected at this time.
We must adapt to rapid technological change. If we are unable to take advantage of technological developments or our software products experience quality problems and development delays, we may experience a decline in the demand for our products and services.
Our long-term operating results depend substantially upon our ability to continually enhance, develop, introduce, and market new products and services. We must continually and cost-effectively maintain and improve our information technology systems and infrastructure in order to successfully deliver competitive and cost-effective products and services to our customers. The widespread adoption of new technologies and market demands could require substantial expenditures to enhance system infrastructure and existing products and services. If we fail to enhance and scale our systems and operational infrastructure or products and services, our operating segments may lose their competitive advantage and this could adversely affect financial and operating results.
We require skilled technology and security workers to maintain, secure, and improve our information technology systems and infrastructure. Talent availability, increased demand and competition for skilled workers across the technology sector may impact our ability to maintain adequate technology and security staffing levels. If we are unable to retain existing talent, or recruit and hire new talent when needed, we may be unable to quickly adopt new technologies, or maintain and improve our technology systems and infrastructure.
Our products and services are based on sophisticated software and computing systems that often encounter development delays, and the underlying software may contain undetected bugs or other defects that interfere with its intended operation. Quality problems with our software products, with transferring between systems or with errors or delays in our processing of electronic transactions, could result in additional development costs, diversion of technical and other resources from our other development efforts, loss of credibility with current or potential clients, harm to our reputation, or exposure to liability claims.
We rely on third parties for a wide array of services for our customers, and to meet our contractual obligations. The failure of a third party with which we work could adversely affect our business performance and reputation.
We rely on third parties for a wide array of critical operational services, technology, datacenter hosting facilities, cloud computing platforms, and software. We also rely upon data from external sources to maintain our proprietary databases, including data from customers, business partners, and various government sources.
Our third-party service providers may be vulnerable to damage or interruption from earthquakes, floods, fires, power loss, cyberattacks, telecommunications failures, supply chain disruptions, acts of terrorism, and similar events. They may also be subject to break-ins, sabotage, intentional acts of vandalism, and similar misconduct, as well as local administrative actions, changes to legal or permitting requirements, and litigation to stop, limit, or delay operations. If a third-party service provider experiences an outage, or our services are disrupted, we may temporarily lose the ability to conduct certain business activities, which could impact our ability to serve our customers and meet our contractual, legal, or regulatory compliance obligations. Our businesses would also be harmed if our customers and potential customers believe our services are unreliable. Even though we have selected the third parties with which we do business carefully and have disaster recovery and business continuity arrangements, our services could be interrupted. Some of our third-party service providers may engage vendors of their own as they provide services or technology solutions for our operations, which introduces the same risks that these “fourth parties” could be the source of operational failures.
Third parties that facilitate our business activities, including exchanges, clearinghouses, payment networks, or financial intermediaries, could also be sources of operational risks to our businesses, including with respect to breakdowns or failures of their systems, misconduct by their employees, or cyberattacks that could affect their ability to deliver a product or service to us
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or result in the loss or compromise of our information or the information of our customers. Our ability to implement backup systems or other safeguards with respect to third-party systems is limited. Furthermore, an attack on, or failure of, a third-party system may not be revealed to us in a timely manner, which could compromise our ability to respond effectively.
Our reliance on Amazon Web Services to deliver cloud computing services is significant, and any disruptions with our use of Amazon Web Services could adversely impact our business and operations.
Amazon Web Services ("AWS") provides infrastructure and software services for a significant amount of our technology products and services. As we continue to modernize our systems, the level of dependence on AWS' cloud services will grow. We also rely on AWS for our system backups and archive storage, and a substantial amount of our users' information and confidential business information is stored in the AWS cloud environment. Given that we contract with many third-party service providers and utilize third-party software applications that are also dependent on AWS, the stability and availability of AWS is critical to our business.
AWS' operations and facilities are susceptible to service interruptions and damage, and we have limited control over the AWS operations and facilities that support our business. We have implemented contingency plans for disaster recovery and business continuity but are limited in our ability to move quickly off AWS to another cloud service provider. Any disruption of or interference with our use of AWS could adversely impact our operations and our business. Any negative publicity arising from these disruptions could also harm our reputation and brand.
We must satisfy certain requirements necessary to maintain the federal guarantees of our federally insured loans and the federally insured loans that we service for third parties, and we may incur penalties or lose our guarantees if we fail to meet these requirements.
As of December 31, 2021, we serviced $26.9 billion of FFELP loans that maintained a federal guarantee, of which $14.6 billion and $12.3 billion were owned by us and third-party entities, respectively. We must meet various requirements in order to maintain the federal guarantee on federally insured loans, which is conditional based on compliance with origination, servicing, and collection policies set by the Department and guaranty agencies. If we misinterpret Department guidance, or incorrectly apply the Higher Education Act, the Department could determine that we are not in compliance. Federally insured loans that are not originated, disbursed, or serviced in accordance with the Department's and guaranty agency regulations may risk partial or complete loss of the guarantee. If we experience a high rate of servicing deficiencies (including any deficiencies resulting from the conversion of loans from one servicing platform to another, errors in the loan origination process, establishment of the borrower's repayment status, and due diligence or claim filing processes), it could result in the loan guarantee being revoked or denied. In most cases we have the opportunity to cure these deficiencies by following a prescribed cure process which usually involves obtaining the borrower's reaffirmation of the debt. However, not all deficiencies can be cured.
A guaranty agency may also assess an interest penalty upon claim payment if the deficiency does not result in a loan rejection. These interest penalties are not subject to cure provisions and are typically related to isolated instances of due diligence deficiencies. Additionally, we may become ineligible for special allowance payment benefits from the time of the first deficiency leading to the loan rejection through the date that the loan is cured.
As FFELP loan holders, servicers, and guaranty agencies exit the loan program and consolidation within the industry takes place, this increases the complexity of servicing and claim filing due to the amount of loan servicing and loan guaranty transfers and the opportunity for errors at the time a claim is filed.
Failure to comply with federal and guarantor regulations may result in fines, penalties, the loss of the insurance and related federal guarantees on affected FFELP loans, the loss of special allowance payment benefits, expenses required to cure servicing deficiencies, suspension or termination of the right to participate as a FFELP servicer, negative publicity, and potential legal claims, including potential claims by our servicing customers if they lose the federal guarantee on loans that we service for them. If we are subjected to significant fines, or loss of insurance or guarantees on a material number of FFELP loans, or if we lose our ability to service FFELP loans, it could have a material, negative impact on our business, financial condition, or results of operations.
Our servicing contracts with the Department of Education expose us to additional risks inherent in government contracts and our third-party FFELP loan servicing business is subject to additional risks inherent in government programs.
The Federal government could engage in a prolonged debate linking the federal deficit, debt ceiling, government shutdown, and other budget issues. If U.S. lawmakers in the future fail to reach agreement on these issues, the federal government could stop or delay payment on its obligations. Further, legislation to address the federal deficit and spending could impose proposals that would adversely affect the FFEL and Federal Direct Loan Programs' servicing businesses.
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We contract with the Department to administer loans held by the Department in both the FFEL and Federal Direct Loan Programs, we own a portfolio of FFELP loans, and we service our FFELP loans and loans for third parties. These loan programs are authorized by the Higher Education Act and are subject to periodic reauthorization and changes to the programs by the Administration and U.S. Congress. Any changes, including the potential for borrowers to refinance loans via Direct Consolidation Loans, or broad loan forgiveness, could have a material impact to our cash flows from servicing, interest income, and operating margins. For example, a broad student loan debt cancellation program by the government could result in a significant decrease in our Department servicing revenues and our revenues for servicing FFELP loans for third parties, and even if a broad debt cancellation program only applied to student loans held by the Department, such program could result in a significant increase in consolidations of FFELP loans held by third parties to Federal Direct Loan Program loans, and thus an associated decrease in our third-party FFELP loan servicing revenues.
Government entities in the United States often reserve the right to audit contract costs and conduct inquiries and investigations of business practices. These entities also conduct reviews and investigations and make inquiries regarding systems, including systems of third parties, used in connection with the performance of the contracts. Negative findings from audits, investigations, or inquiries could affect the contractor’s future revenues and profitability. If improper or illegal activities are found in the course of government audits or investigations, we could become subject to various civil and criminal penalties, including those under the civil U.S. False Claims Act. Additionally, we may be subject to administrative sanctions, which may include termination or non-renewal of contracts, forfeiture of profits, suspension of payments, fines and suspensions, or debarment from doing business with other agencies of that government. Due to the inherent limitations of internal controls, it may not be possible to detect or prevent all improper or illegal activities.
The Government could change governmental policies, programs, regulatory environments, spending sentiment, and many other factors and conditions, some of which could adversely impact our business, financial condition, and results of operations. We cannot predict how or what programs or policies will be impacted by the federal government. The conditions described above could impact not only our contracts with the Department, but also other existing or future contracts with government or commercial entities.
Our ability to continue to grow and maintain our contracts with commercial businesses and government agencies is partly dependent on our ability to maintain compliance with various laws, regulations, and industry standards applicable to those contracts.
We are subject to various laws, regulations, and industry standards related to our commercial and government contracts. In most cases, these contracts are subject to termination rights, audits, and investigations. The laws and regulations that impact our operating segments are outlined in Part I, Item 1, “Regulation and Supervision.” Additionally, our contracts with the federal government require that we maintain internal controls in accordance with the National Institute of Standards and Technologies (“NIST”) and our operating segments that utilize payment cards are subject to the Payment Card Industry Data Security Standards (“PCI DSS”). If we are found to be in noncompliance with the contract provisions or applicable laws, regulations, or standards, or the contracted party exercises its termination or other rights for that or other reasons, our reputation could be negatively affected, and our ability to compete for new contracts or maintain existing contracts could diminish. If this were to occur, our results of operations from existing contracts and future opportunities for new contracts could be negatively affected.
The failure to safeguard the privacy of personal information could result in significant legal and reputational harm.
We are subject to complex and evolving laws and regulations, both inside and outside of the United States, governing the privacy and protection of personal information of individuals. The protected individuals can include our customers, employees, and the customers and employees of our clients, vendors, counterparties, and other third parties. Ensuring the collection, use, transfer, and storage of personal information complies with applicable laws and regulations in relevant jurisdictions can increase operating costs, impact the development of new products or services, and reduce operational efficiency. Any mishandling or misuse of the personal information of customers, employees, or others by us or a third party affiliate could expose us to litigation or regulatory fines, penalties, or other sanctions. Additional risks could arise if we or an affiliated third party do not provide adequate disclosure or transparency to our customers about the personal information collected from them and its use; fail to receive, document, and honor the privacy preferences expressed by customers; fail to protect personal information from unauthorized disclosure; or fail to maintain proper training on privacy practices for all employees or third parties who have access to personal data. Concerns regarding the effectiveness of our measures to safeguard personal information and abide by privacy preferences, or even the perception that those measures are inadequate, could cause the loss of existing or potential customers and thereby reduce our revenue. In addition, any failure or perceived failure to comply with applicable privacy or data protection laws and regulations could result in requirements to modify or cease certain operations or practices, and/or significant liabilities, regulatory fines, penalties, and other sanctions. The regulatory framework for privacy issues is evolving and is likely to continue doing so for the foreseeable future, which creates uncertainty. Because the interpretation and application of privacy and data protection laws and privacy standards are still uncertain, it is possible that
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these laws or privacy standards may be interpreted and applied in a manner that is inconsistent with our practices. Any inability to adequately address privacy concerns, even if unfounded, or to comply with applicable privacy or data protection laws, regulations, and privacy standards, could result in additional cost and liability for us, damage our reputation, and harm our business.
The failure of Nelnet Bank to achieve business plan results and effectively deploy loan and deposit strategies in accordance with regulatory requirements and its business plan could adversely affect the Bank’s success during its three-year de novo period.
On November 2, 2020, Nelnet Bank, our banking subsidiary, launched operations. Nelnet Bank operates as an internet Utah-chartered industrial bank franchise focused on the private education loan marketplace. Nelnet Bank was funded by us with an initial capital contribution of $100.0 million, consisting of $55.9 million in cash and $44.1 million of student loan asset-backed securities. In addition, we made a pledged deposit of $40.0 million with Nelnet Bank, as required under an agreement with the FDIC.
The regulatory landscape surrounding industrial banks continues to be scrutinized and banking policy changes may be difficult to predict in advance. Nelnet Bank monitors the regulatory environment and any related changes that may impact the charter or its operations. Nelnet Bank established a three-year business plan, which requires ongoing monitoring to ensure alignment to financial and asset targets as well as other commitments. Failure to meet these targets and commitments could jeopardize the success and profitability of Nelnet Bank.
The banking industry is highly regulated, and the regulatory framework, together with any future legislative changes, may have a significant adverse effect on Nelnet Bank’s operations. Nelnet Bank’s current product offerings are primarily concentrated in loan products for higher education, with expected expansion in alignment with the business plan to unsecured consumer lending. Such concentrations and the competitive environment for those products subject the bank to risks that could adversely affect its financial position. Consumer access to alternative means of financing, the costs of education, and other factors may reduce demand for, or adversely affect Nelnet Bank’s ability to, retain private education loans.
Prior to FDIC approval, Nelnet Bank, Nelnet, Inc. (the parent), and Michael S. Dunlap (Nelnet, Inc.’s controlling shareholder) entered into a Capital and Liquidity Maintenance Agreement and a Parent Company Agreement with the FDIC in connection with Nelnet, Inc.’s role as a source of financial strength for Nelnet Bank. For additional information, see the MD&A - “Liquidity and Capital Resources - Liquidity Impact Related to Nelnet Bank.” However, any failure to meet minimum capital requirements and FDIC regulations can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have material adverse effect on Nelnet Bank’s business, results of operations, and financial condition.
Our failure to successfully manage business and certain asset acquisitions and other investments could have a material adverse effect on our business, financial condition, and/or results of operations.
We have expanded our services and products through business acquisitions, and we may acquire other new businesses, products, and services, or enhance existing businesses, products, and services, or make other investments to further diversify our businesses both within and outside of our historical education-related businesses, through acquisitions of other companies, product lines, technologies, and personnel, or through investments in new asset classes. Any acquisition or investment is subject to a number of risks. Such risks may include diversion of management time and resources, disruption of our ongoing businesses, difficulties in integrating acquisitions (including potential delays or errors in converting loan servicing portfolio acquisitions to our servicing platform), loss of key employees, degradation of services, difficulty expanding information technology systems and other business processes to incorporate the acquired businesses, extensive regulatory requirements, dilution to existing shareholders if our common stock is issued in consideration for an acquisition or investment, incurring or assuming indebtedness or other liabilities in connection with an acquisition, unexpected declines in real estate values or the failure to realize expected benefits from real estate development projects, lack of familiarity with new markets, and difficulties in supporting new product lines. Our failure to successfully manage acquisitions or investments, or successfully integrate acquisitions, could have a material adverse effect on our business, financial condition, and/or results of operations. Correspondingly, our expectations as to the accretive nature of the acquisitions or investments could be inaccurate.
Our significant investments in ALLO and Hudl are subject to a number of risks, including macroeconomic conditions, competition, political and regulatory requirements, technology advancements, cybersecurity threats, retention of key personnel, and other risks. ALLO derives its revenue primarily from the sale of telecommunication services, which are subject to intense competition and extensive federal, state, and local regulations. Additionally, our investment in ALLO is dependent on ALLO maintaining and expanding its infrastructure and continuing to increase market share in existing and new markets. Hudl’s sports performance analysis business is subject to global market conditions, new competition, advancements in technology, and continued demand for their products and services.
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The operating results of these companies could impact the valuation of these investments on our financial statements, and we may not be able to fully monetize these investments without a liquidation event.
Geopolitical risks, such as those associated with Russia’s invasion of Ukraine, could result in a decline in the outlook for the U.S. and global economies.
The uncertain nature, magnitude, and duration of hostilities stemming from Russia’s recent military invasion of Ukraine, including the potential effects of sanctions and retaliatory cyber-attacks on the world economy and markets, have contributed to increased market volatility and uncertainty, and such geopolitical risks could have an adverse impact on macroeconomic factors which affect our assets and businesses.
Regulatory and Legal
Federal and state laws and regulations can restrict our businesses and result in increased compliance expenses, and noncompliance with these laws and regulations could result in penalties, litigation, reputation damage, and a loss of customers.
Our operating segments are heavily regulated by federal and state government regulatory agencies. See Part I, Item 1, "Regulation and Supervision." The laws and regulations enforced by these agencies are proposed or enacted to protect consumers and the financial industry as a whole, not necessarily us, our operating segments, or our shareholders. We have procedures and controls in place to monitor compliance with numerous federal and state laws and regulations. However, because these laws and regulations are complex, differ between jurisdictions, and are often subject to interpretation, or as a result of unintended errors, we may, from time to time, inadvertently be in non-compliance with these laws and regulations. Compliance with these laws and regulations is expensive and requires the time and attention of management. These costs divert capital and focus away from efforts intended to grow our business. If we do not successfully comply with laws, regulations, or policies, we could incur fines or penalties, lose existing or new customer contracts or other business, and suffer damage to our reputation. Changes in these laws and regulations can significantly alter our business environment, limit business operations, and increase costs of doing business, and we cannot predict the impact such changes would have on our profitability.
For example, the CFPB has the authority to supervise, examine, and investigate large nonbank student loan servicers, including us. If the CFPB were to determine that we were not in compliance with applicable laws, regulations, and CFPB guidance, it is possible that this could result in material adverse consequences, including, without limitation, settlements, fines, penalties, public enforcement actions, adverse regulatory actions, changes in our business practices, or other actions. The CFPB has also issued student loan servicing rules since its inception and continues to review servicing areas where new guidance or rules may be issued in the future.
There continues to be uncertainty regarding how the CFPB's recommendations, strategies, and priorities will impact our businesses and our results of operations going forward. Actions by the CFPB could result in requirements to alter our services, causing them to be less attractive or effective and impair our ability to offer them profitably. In the event that the CFPB changes regulations adopted in the past by other regulators, or modifies past regulatory guidance, our compliance costs and litigation exposure could increase.
Several states have enacted laws regulating and monitoring the activity of student loan servicers. For additional information, including risks to us from such state laws, see the paragraph beginning with the same sentence as the immediately preceding sentence that is set forth in Part I, Item 1, “Regulation and Supervision - Loan Servicing and Systems.”
As a result of the Reconciliation Act of 2010, our existing FFELP loan portfolio will continue to decline over time.
The Reconciliation Act of 2010 discontinued new loan originations under the FFEL Program and requires all new federal loan originations to be made through the Federal Direct Loan Program. Although the new law did not alter or affect the terms and conditions of existing FFELP loans, interest income related to existing FFELP loans will decline over time as existing FFELP loans are paid down, refinanced, or repaid by guaranty agencies after default. We currently believe that in the short term we will not be able to invest the excess cash generated from the FFELP loan portfolio into assets that immediately generate the rates of return historically realized from that portfolio. If we are unable to grow or develop new revenue streams, our consolidated revenue and operating margin will decrease as a result of the decline in FFELP loan volume outstanding.
Exposure related to certain tax issues could decrease our net income.
Federal and state income tax laws and regulations are often complex and require interpretation. From time to time, we engage in transactions in which the tax consequences may be subject to uncertainty. Significant judgment is required in assessing and estimating the tax consequences of these transactions. We prepare and file tax returns based on the interpretation of tax laws
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and regulations. In the normal course of business, our tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these authorities. In accordance with authoritative accounting guidance, we establish reserves for tax contingencies related to deductions and credits that we may be unable to sustain. Differences between the reserves for tax contingencies and the amounts ultimately owed are recorded in the period they become known. Adjustments to our reserves could have a material effect on our financial statements.
We may also be impacted by changes in tax laws, including tax rate changes, new tax laws, and subsequent interpretations of tax laws by federal and state tax authorities. For example, any future tax legislation increasing the corporate federal income tax rate and/or limiting deductions could have a negative impact on the Company’s financial results. In addition, several states are in a deficit position. Accordingly, states may look to expand their taxable base, alter their tax calculation, or increase tax rates, which could result in an additional cost to the Company.
In addition to corporate tax matters, as both a lender and servicer of student loans, we are required to report student loan interest received and cancellation of indebtedness to individuals and the Internal Revenue Service on an annual basis. These informational forms assist individuals in complying with their federal and state income tax obligations. The statutory and regulatory guidance regarding the calculations, recipients, and timing are complex and we know that interpretations of these rules vary across the industry. The complexity and volume associated with these informational forms creates a risk of error which could result in penalties or damage to our reputation.
We invest in certain tax-advantaged projects promoting renewable energy resources (solar projects). Our investments in these projects are designed to generate a return primarily through the realization of federal income tax credits, operating cash flows, and other tax benefits, over specified time periods. Our investments in these projects may not generate returns as anticipated and may have an adverse impact on our financial results. We are subject to the risk that tax credits recorded currently and previously, which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level, will fail to meet certain government compliance requirements and will not be able to be realized. The possible inability to realize these tax credits and other tax benefits can have a negative impact on our financial results. The risk of not being able to realize the tax credits and other tax benefits depends on many factors outside of our control, including changes in the applicable tax code and the ability of the projects to continue operation.
Principal Shareholder and Related Party Transactions
Our Executive Chairman beneficially owns 81.8 percent of the voting rights of our shareholders and effectively has control over all of our matters.
Michael S. Dunlap, our Executive Chairman and a principal shareholder, beneficially owns 81.8 percent of the voting rights of our shareholders. Accordingly, each member of the Board of Directors and each member of management has been elected or effectively appointed by Mr. Dunlap and can be removed by Mr. Dunlap. As a result, Mr. Dunlap, as Executive Chairman and controlling shareholder, has control over all of our matters and has the ability to take actions that benefit him, but may not benefit other minority shareholders, and may otherwise exercise his control in a manner with which other minority shareholders may not agree or which they may not consider to be in their best interests.
Our contractual arrangements and transactions with Union Bank and Trust Company ("Union Bank"), which is under common control with us, present conflicts of interest and pose risks to our shareholders that the terms may not be as favorable to us as we could receive from unrelated third parties.
Union Bank is controlled by Farmers & Merchants Investment Inc. ("F&M"), which owns 81.5 percent of Union Bank's common stock and 15.5 percent of Union Bank's non-voting non-convertible preferred stock. Certain grantor retained annuity trusts established by Mr. Dunlap, a controlling shareholder as well as Executive Chairman of our Board of Directors, and his spouse own a total of 50.4 percent of F&M’s outstanding voting common stock, and a certain grantor retained annuity trust established by Mr. Dunlap’s sister, Angela L. Muhleisen, owns 49.2 percent of F&M’s outstanding voting common stock. In addition, Mr. Dunlap and his family and Ms. Muhleisen and her family own a total of 8.9 percent and 7.9 percent, respectively, of F&M’s outstanding non-voting preferred stock, which amounts are convertible into shares of F&M common stock which would currently represent an additional 3.0 percent and 2.8 percent, respectively, of F&M’s outstanding common stock on an as converted basis. Mr. Dunlap serves as a Director and Chairman of F&M, and as a Director of Union Bank. Ms. Muhleisen serves as a Director and Chief Executive Officer of F&M and as a Director, Chairperson, President, and Chief Executive Officer of Union Bank. Union Bank is deemed to have beneficial ownership of a significant number of shares of Nelnet because it serves in a capacity of trustee or account manager for various trusts and accounts holding shares of Nelnet and may share voting and/or investment power with respect to such shares. As of December 31, 2021, Union Bank was deemed to beneficially own 9.8 percent of the voting rights of our outstanding common stock, and Mr. Dunlap and Ms. Muhleisen beneficially owned
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81.8 percent and 11.8 percent, respectively, of the voting rights of our outstanding common stock (with certain shares deemed under applicable SEC rules to be beneficially owned by both Mr. Dunlap and Ms. Muhleisen).
We have entered into, and intend to continue entering into, certain contractual arrangements with Union Bank, including loan purchases, loan servicing, loan participations, banking and lending services, 529 Plan administration services, lease arrangements, trustee services, and various other investment and advisory services. The net aggregate impact on our consolidated statements of income for the years ended December 31, 2021, 2020, and 2019 related to the transactions with Union Bank was income (before income taxes) of $11.0 million, $15.4 million, and $9.7 million, respectively. See note 21 of the notes to consolidated financial statements included in this report for additional information related to the transactions between us and Union Bank.
We intend to maintain our relationship with Union Bank, which our management believes provides certain benefits to us. Those benefits include Union Bank's knowledge of and experience in the FFELP industry, its willingness to provide services, and at times liquidity and capital resources, on an expedient basis, and its proximity to our corporate headquarters in Lincoln, Nebraska.
The majority of the transactions and arrangements with Union Bank are not offered to unrelated third parties or subject to competitive bids. Accordingly, these transactions and arrangements not only present conflicts of interest, but also pose the risk to our shareholders that the terms of such transactions and arrangements may not be as favorable to us as we could receive from unrelated third parties. Moreover, we may have and/or may enter into contracts and business transactions with related parties that benefit Mr. Dunlap and his sister, as well as other related parties, that may not benefit us and/or our minority shareholders.

ITEM 1B. UNRESOLVED STAFF COMMENTS
The Company has no unresolved comments from the staff of the Securities and Exchange Commission regarding its periodic or current reports under the Securities Exchange Act of 1934.

ITEM 2. PROPERTIES
The Company's headquarters are located in Lincoln, Nebraska. The Company owns or leases office space facilities primarily in Nebraska, Wisconsin, and Colorado.
The Company believes its existing office space facilities and equipment, which are used by all reportable segments, are in good operating condition and are suitable for the conduct of its business.

ITEM 3.  LEGAL PROCEEDINGS
Note 23, “Legal Proceedings,” of the notes to consolidated financial statements included in this report is incorporated herein by reference.

ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER 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 January 31, 2022 was 1,477 and 72, respectively. The record holders of the Class B common stock are Michael S. Dunlap, Shelby J. Butterfield, various members of the Dunlap and Butterfield families, and various other estate planning trusts established by and/or entities controlled by them. 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 Company paid quarterly cash dividends on its Class A and Class B common stock during the years ended December 31, 2020 and 2021 in amounts totaling $0.82 per share and $0.90 per share, respectively. The Company currently plans to continue making comparable regular quarterly dividend payments, subject to future earnings, capital requirements, financial condition, and other factors.
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Performance Graph
The following graph compares the change in the cumulative total shareholder return on the Company's Class A common stock to that of the cumulative return of the S&P 500 Index and the S&P 500 Financials Index. The graph assumes that the value of an investment in the Company's Class A common stock and each index was $100 on December 31, 2016 and that all dividends, if applicable, were reinvested. The performance shown in the graph represents past performance and should not be considered an indication of future performance.

																																				
Company/Index	12/31/2016		12/31/2017		12/31/2018		12/31/2019		12/31/2020		12/31/2021	
Nelnet, Inc.	$	100.00 			$	109.27 			$	105.62 			$	118.96 			$	147.56 			$	204.66 		
S&P 500	100.00 			121.83 			116.49 			153.17 			181.35 			233.41 		
S&P 500 Financials	100.00 			122.18 			106.26 			140.40 			138.02 			186.38 		
The preceding information under the caption “Performance Graph” shall be deemed to be “furnished” but not “filed” with the Securities and Exchange Commission.
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Stock Repurchases
The following table summarizes the repurchases of Class A common stock during the fourth quarter of 2021 by the Company or any “affiliated purchaser” of the Company, as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934. Certain share repurchases included in the table below were made pursuant to a trading plan adopted by the Company in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934.

Period		Total number of shares purchased (a)		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs (b)		Maximum number of shares that may yet be purchased under the plans or programs (b)	
October 1 - October 31, 2021		— 			$	— 			— 			2,909,015 		
November 1 - November 30, 2021		145,626 			87.83 			145,626 			2,763,389 		
December 1 - December 31, 2021		194,987 			91.46 			191,709 			2,571,680 		
Total		340,613 			$	89.91 			337,335 			 	

(a)    The total number of shares includes: (i) shares repurchased pursuant to the stock repurchase program discussed in footnote (b) below; and (ii) shares owned and tendered by employees to satisfy tax withholding obligations upon the vesting of restricted shares. Shares of Class A common stock tendered by employees to satisfy tax withholding obligations included 3,278 shares in December 2021. Unless otherwise indicated, shares owned and tendered by employees to satisfy tax withholding obligations were purchased at the closing price of the Company’s shares on the date of vesting.
(b)    On May 8, 2019, the Company announced that its Board of Directors authorized a new stock repurchase program to repurchase up to a total of five million shares of the Company's Class A common stock during the three-year period ending May 7, 2022.
Equity Compensation Plans
For information regarding the securities authorized for issuance under the Company's equity compensation plans, see Part III, Item 12 of this report.

ITEM 6. [RESERVED]

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Management’s Discussion and Analysis of Financial Condition and Results of Operations is for the years ended December 31, 2021 and 2020. All dollars are in thousands, except share data, unless otherwise noted.)
The following discussion and analysis provides information that the Company’s management believes is relevant to an assessment and understanding of the consolidated results of operations and financial condition of the Company. The discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and related notes included in this report. This discussion and analysis contains forward-looking statements subject to various risks and uncertainties and should be read in conjunction with the disclosures and information contained in "Forward-Looking and Cautionary Statements" and Item 1A "Risk Factors" included in this report.
A discussion related to the results of operations and changes in financial condition for the year ended December 31, 2021 compared to the year ended December 31, 2020 is presented below. A discussion related to the results of operations and changes in financial condition for the year ended December 31, 2020 compared to the year ended December 31, 2019 can be found in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2020 Annual Report on Form 10-K, which was filed with the United States Securities and Exchange Commission on February 25, 2021.

OVERVIEW
The Company is a diverse, innovative company with a purpose to serve others and a vision to make dreams possible. The largest operating businesses engage in loan servicing and education technology, services, and payment processing, and the Company also has a significant investment in communications. A significant portion of the Company's revenue is net interest income earned on a portfolio of federally insured student loans. The Company also makes investments to further diversify both within and outside of its historical core education-related businesses including, but not limited to, investments in early-stage and emerging growth companies, real estate, and renewable energy (solar).
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The Company was formed as a Nebraska corporation in 1978 to service federal student loans for two local banks. The Company built on this initial foundation as a servicer to become a leading originator, holder, and servicer of federal student loans, principally consisting of loans originated under the FFEL Program.
The Reconciliation Act of 2010 discontinued new loan originations under the FFEL Program, effective July 1, 2010, and requires all new federal student loan originations be made directly by the Department through the Federal Direct Loan Program. As a result, the Company no longer originates FFELP loans. However, a significant portion of the Company's income continues to be derived from its existing FFELP student loan portfolio. Interest income on the Company's existing FFELP loan portfolio will decline over time as the portfolio is paid down. Since all FFELP loans will eventually run off, a key objective of the Company is to reposition itself for the post-FFELP environment.
To reduce its reliance on interest income from FFELP loans, the Company has expanded its services and products. This expansion has been accomplished through internal growth and innovation as well as business and certain investment acquisitions. The Company is also actively expanding its private education and consumer loan portfolios, and in November 2020 launched Nelnet Bank. In addition, the Company has been servicing federally owned student loans for the Department since 2009.
Liquidity
The Company intends to use its strong liquidity position, as summarized below, to continue to provide and expand its products and services and capitalize on market opportunities, including FFELP, private education, and consumer loan acquisitions (or investment interests therein); strategic acquisitions and investments; and capital management initiatives, including stock repurchases, debt repurchases, and dividend distributions.
•As of December 31, 2021, the Company had cash and cash equivalents of $125.6 million. Cash held by Nelnet Bank is generally not available for Company activities outside of Nelnet Bank. Excluding Nelnet Bank, cash and cash equivalents as of December 31, 2021 was $99.4 million.
•The Company has historically generated positive cash flow from operations. For the year ended December 31, 2021, the Company’s net cash provided by operating activities was $544.9 million.
•The Company has a $495.0 million unsecured line of credit with a maturity date of September 22, 2026. As of December 31, 2021, there was no amount outstanding on the unsecured line of credit and $495.0 million was available for future use. The line of credit provides that the Company may increase the aggregate financing commitments, through the existing lenders and/or through new lenders, up to a total of $737.5 million, subject to certain conditions.
•The majority of the Company’s portfolio of student loans is funded in asset-backed securitizations that will generate significant earnings and cash flow over the life of these transactions. As of December 31, 2021, the Company currently expects future undiscounted cash flows from its securitization portfolio to be approximately $1.88 billion, of which approximately $1.29 billion will be generated over the next five years.

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GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments
The Company prepares its financial statements and presents its financial results in accordance with GAAP. However, it also provides additional non-GAAP financial information related to specific items management believes to be important in the evaluation of its operating results and performance. A reconciliation of the Company's GAAP net income to net income, excluding derivative market value adjustments, and a discussion of why the Company believes providing this additional information is useful to investors, is provided below.
												
	Year ended December 31,	
	2021		2020	
GAAP net income attributable to Nelnet, Inc.	$	393,286 			352,443 		
Realized and unrealized derivative market value adjustments	(92,813)			28,144 		
Tax effect (a)	22,275 			(6,755)		
Net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b)	$	322,748 			373,832 		
				
Earnings per share:				
GAAP net income attributable to Nelnet, Inc.	$	10.20 			9.02 		
Realized and unrealized derivative market value adjustments	(2.41)			0.72 		
Tax effect (a)	0.58 			(0.17)		
Net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b)	$	8.37 			9.57 		

(a)    The tax effects are calculated by multiplying the realized and unrealized derivative market value adjustments by the applicable statutory income tax rate.
(b)    "Derivative market value adjustments" includes both the realized portion of gains and losses (corresponding to variation margin received or paid on derivative instruments that are settled daily at a central clearinghouse) and the unrealized portion of gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP. "Derivative market value adjustments" does not include "derivative settlements" that represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms.
The accounting for derivatives requires that changes in the fair value of derivative instruments be recognized currently in earnings, with no fair value adjustment of the hedged item, unless specific hedge accounting criteria is met. Management has structured all of the Company’s derivative transactions with the intent that each is economically effective; however, the Company’s derivative instruments do not qualify for hedge accounting. As a result, the change in fair value of derivative instruments is reported in current period earnings with no consideration for the corresponding change in fair value of the hedged item. Under GAAP, the cumulative net realized and unrealized gain or loss caused by changes in fair values of derivatives in which the Company plans to hold to maturity will equal zero over the life of the contract. However, the net realized and unrealized gain or loss during any given reporting period fluctuates significantly from period to period.
The Company believes these point-in-time estimates of asset and liability values related to its derivative instruments that are subject to interest rate fluctuations are subject to volatility mostly due to timing and market factors beyond the control of management, and affect the period-to-period comparability of the results of operations. Accordingly, the Company’s management utilizes operating results excluding these items for comparability purposes when making decisions regarding the Company’s performance and in presentations with credit rating agencies, lenders, and investors. Consequently, the Company reports this non-GAAP information because the Company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance.

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Operating Segments
The Company earns net interest income on its loan portfolio, consisting primarily of FFELP loans, in its Asset Generation and Management ("AGM") operating segment. This segment is expected to generate a stable net interest margin and significant amounts of cash as the FFELP portfolio amortizes. As of December 31, 2021, AGM had a $17.4 billion loan portfolio that management anticipates will amortize over the next approximately 15 years and has a weighted average remaining life of approximately 8 years. The Company actively works to maximize the amount and timing of cash flows generated by its FFELP portfolio and seeks to acquire additional loan assets to leverage its servicing scale and expertise to generate incremental earnings and cash flow.
In addition, the Company earns fee-based revenue through the following reportable operating segments:
•Loan Servicing and Systems ("LSS") - referred to as Nelnet Diversified Services ("NDS"), which includes the operations of Nelnet Servicing and Great Lakes
•Education Technology, Services, and Payment Processing ("ETS&PP") - referred to as Nelnet Business Services ("NBS")
Further, the Company earned communications revenue through ALLO, formerly a majority-owned subsidiary of the Company prior to a recapitalization of ALLO resulting in the deconsolidation of ALLO from the Company’s financial statements on December 21, 2020. The recapitalization of ALLO was not considered a strategic shift in the Company’s involvement with ALLO, and ALLO’s results of operations, prior to the deconsolidation, are presented by the Company as a reportable operating segment.
On November 2, 2020, the Company obtained final approval for federal deposit insurance from the Federal Deposit Insurance Corporation ("FDIC") and for a bank charter from the Utah Department of Financial Institutions ("UDFI") in connection with the establishment of Nelnet Bank, and Nelnet Bank launched operations. Nelnet Bank operates as an internet industrial bank franchise focused on the private education loan marketplace, with a home office in Salt Lake City, Utah. Nelnet Bank’s operations are presented by the Company as a reportable operating segment.
Other business activities and operating segments that are not reportable are combined and included in Corporate and Other Activities ("Corporate"). Corporate and Other Activities also includes income earned on certain investments and interest expense incurred on unsecured and other corporate related debt transactions. In addition, the Corporate segment includes direct incremental costs associated with Nelnet Bank prior to the UDFI’s approval for its bank charter, and certain shared service and support costs incurred by the Company that will not be reflected in Nelnet Bank’s operating results through 2023 (the bank’s de novo period). Such Nelnet Bank-related costs included in the Corporate segment totaled $3.4 million (pre-tax) and $6.0 million (pre-tax) in 2021 and 2020, respectively.

41

The information below provides the operating results (net income before taxes) for each reportable operating segment and Corporate and Other Activities for the years ended December 31, 2021 and 2020. See “Results of Operations” for each such reportable operating segment (except for ALLO, which was deconsolidated from the Company’s financial statements in December 2020).

	Year ended December 31,		Certain Items Impacting Comparability (a)	
	2021		2020		Results in 2021 were impacted by:		Results in 2020 were impacted by:	
NDS	$	62,445 			53,375 			•Impairment charges on owned buildings of $13.2 million due to continued evaluation of office space needs as employees continue to work from home due to COVID-19			
NBS	72,713 			66,200 			•A full year of operating results from the December 31, 2020 acquisitions of HigherSchool and CD2			
ALLO (prior to deconsolidation)	— 			(33,188)						
AGM	423,616 			162,703 			•Income of $92.8 million related to changes in the fair value of derivative instruments that do not qualify for hedge accounting

•Negative provision for loan losses of $13.2 million due primarily to improved economic conditions throughout 2021 as compared to December 31, 2020

•Gains from the sale of consumer loans of $18.7 million

•A net gain of $32.9 million related to the Company’s joint venture to acquire Wells Fargo’s private education student loan portfolio. See “2021 Transactions Related to the Private Education Loan Portfolio Sold by Wells Fargo” below

•A decrease of $23.8 million in interest expense as a result of reversing a historical accrued interest liability on certain bonds (initially recorded when certain asset-backed securitizations were acquired in 2011 and 2013), which liability the Company determined is no longer probable of being required to be paid		•A loss of $28.1 million related to changes in the fair value of derivative instruments that do not qualify for hedge accounting

•Provision expense for loan losses of $63.0 million as a result of the COVID-19 pandemic and its effects on economic conditions

•Gains from the sale of consumer loans of $33.0 million

•An impairment expense, net of recoveries, of $16.6 million related to the Company’s beneficial interest in consumer loan securitization investments as a result of the estimated impacts of the COVID-19 pandemic	
Nelnet Bank	(792)			(80)						
Corporate	(55,875)			201,477 			•Net investment gains and income of $58.7 million, including $28.8 million from venture capital investments, $22.3 million related to real estate, and $7.6 million related to asset-backed securities (bonds) and marketable equity securities

•A loss of $42.1 million related to the Company’s voting membership interest investment in ALLO

•A loss of $10.1 million from solar investments (b)		•A gain of $50.1 million to adjust the carrying value of the Company’s investment in Hudl to reflect Hudl’s May 2020 equity raise transaction value

•A gain of $258.6 million from the deconsolidation of ALLO

•A loss of $37.4 million from solar investments (b)	
Net income before taxes	502,105 			450,486 						
Income tax expense	(115,822)			(100,860)						
Net loss attributable to noncontrolling interests (b)	7,003 			2,817 						
Net income	$	393,286 			352,443 						

(a)    All dollar amounts for those items impacting comparability in 2021 and 2020 are pre-tax.
(b)    Losses from solar investments in 2021 and 2020 include losses of $7.1 million and $3.8 million, respectively, attributable to third-party minority interest investors in solar projects that are included in “net loss attributable to noncontrolling interests” in the table above.
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Recent Transactions / Developments
2021 Transactions Related to the Private Education Loan Portfolio Sold by Wells Fargo
In December 2020, Wells Fargo announced the sale of its approximately $10.0 billion portfolio of private education loans representing approximately 445,000 borrowers. The Company entered into a joint venture with other investors to acquire the loans, and under the joint venture, the Company had an approximately 8 percent interest in the loans and has a corresponding 8 percent interest in residual interests in the 2021 securitizations of the loans discussed below. In conjunction with the sale, the Company was selected as servicer of the portfolio. During March and throughout the second quarter of 2021, the vast majority of the borrowers were converted to the Company’s servicing platform. The joint venture established a limited partnership that purchased the private education loans and funded such loans with a temporary warehouse facility.
During 2021, the joint venture completed four asset-backed securitization transactions to permanently finance a total of $8.7 billion of the private education loans purchased by the joint venture (which represented the total remaining loans originally purchased from Wells Fargo, factoring in borrower payments from the date of purchase). The Company is accounting for its approximately 8 percent residual interest in these securitizations as held-to-maturity beneficial interest investments. These investments are reflected on the Company’s consolidated balance sheet as "investments." On behalf of the joint venture, the Company is the sponsor and administrator for these loan securitizations. As sponsor and administrator, the Company earns an annual fee of 10 to 10.75 basis points on the outstanding loan receivable balance in the securitizations. As sponsor, the Company is required to provide a certain level of risk retention, and the Company has purchased bonds issued in such securitizations to satisfy this requirement. The bonds purchased to satisfy the risk retention requirement are reflected on the Company’s consolidated balance sheet as "investments" and as of December 31, 2021, the fair value of these bonds was $412.6 million. The Company must retain these investment securities until the latest of (i) two years from the closing date of the securitization, (ii) the date the aggregate outstanding principal balance of the loans in the securitization is 33% or less of the initial loan balance, and (iii) the date the aggregate outstanding principal balance of the bonds is 33% or less of the aggregate initial outstanding principal balance of the bonds, at which time the Company can sell the investment securities (bonds) to a third party. The Company entered into repurchase agreements with third parties, the proceeds of which were used to purchase a portion of the asset-backed investments, and such investments serve as collateral on the repurchase obligations.
As of December 31, 2021, $483.8 million was outstanding on the Company’s repurchase agreements, of which $313.2 million was borrowed to fund the private education loan securitization bonds subject to the Company’s risk retention requirement. The repurchase agreements have various maturity dates between May 27, 2022 and December 20, 2023, but are subject to early termination upon required notice provided by the Company or the applicable counterparty prior to the maturity dates. The Company pays interest on amounts outstanding on the repurchase agreements based on LIBOR plus an applicable spread, and the Company is also required to pay additional cash in the event the fair value of the securities subject to a repurchase agreement becomes less than the original purchase price of such securities.
During the fourth quarter of 2021, the joint venture completed its fourth and final asset-backed securitization that permanently financed all remaining eligible loans temporarily funded in the joint venture limited partnership’s warehouse facility. The Company initially contributed $71.1 million in the joint venture. Cash distributions, the fair value of the Company’s portion of loans securitized as a result of securitizations, and the Company’s proportionate share of losses of this partnership were $52.1 million, $51.9 million, and $5.0 million, respectively, and reduced the Company’s carrying value of its limited partnership investment to a credit (negative) balance of $37.9 million. During the fourth quarter of 2021, the Company’s financial commitment to the limited partnership was terminated by the partners of the joint venture, and the Company recognized income of $37.9 million (pre-tax) associated with the termination.
COVID-19
Beginning in March 2020, the COVID-19 pandemic resulted in many businesses and schools closing or reducing hours throughout the U.S. to combat the spread of COVID-19, and states and local jurisdictions implementing various containment efforts, including lockdowns on non-essential business and other business restrictions, stay-at-home orders, and shelter-in-place orders. The COVID-19 pandemic caused significant disruption to the U.S. and world economies, including significantly higher unemployment and underemployment and extreme volatility in the U.S. and world markets. These effects had an adverse impact on the Company’s results of operations and, if these effects result in sustained economic stress, they could have a future adverse impact on the Company in a number of ways, including wage inflation and cost of service delivery, rising interest rates due to market conditions or government policy or stimulus, and loan performance (where individual student and consumer borrowers experience financial hardship). Although certain business and economic conditions have improved since the pandemic began, significant uncertainties remain, including with respect to the effectiveness of vaccines against existing and new variant strains of the COVID-19 virus which could be vaccine resistant, the potential impacts of variations in vaccination rates among different geographical areas and demographic segments, vaccine mandates, booster vaccines, and the potential
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impacts of potential additional future spikes in infection rates including through breakthrough infections among the fully vaccinated. In addition, a vast majority of the Company's employees continue to work from home, either full-time or dividing their work days between working from home and working in the office as the Company has offered employees flexibility in the amount of time they work in offices that were re-opened in 2021.
The results of operations discussion below should be read in conjunction with the information included in Item 1A, “Risk Factors – Operations – The COVID-19 pandemic has adversely impacted our results of operations, and either directly or indirectly through impacts on economic conditions or government policy could adversely impact our results of operations, businesses, financial condition, and/or cash flows going forward.”

CONSOLIDATED RESULTS OF OPERATIONS
An analysis of the Company's operating results for the year ended December 31, 2021 compared to 2020 is provided below.
The Company’s operating results are primarily driven by the performance of its existing loan portfolio and the revenues generated by its fee-based businesses and the costs to provide such services. The performance of the Company’s portfolio is driven by net interest income (which includes financing costs) and losses related to credit quality of the assets, along with the cost to administer and service the assets and related debt.
The Company operates as distinct reportable operating segments as described above. For a reconciliation of the reportable segment operating results to the consolidated results of operations, see note 15 of the notes to consolidated financial statements included in this report. Since the Company monitors and assesses its operations and results based on these segments, the discussion following the consolidated results of operations is presented on a reportable segment basis (except for ALLO, which was deconsolidated from the Company's consolidated financial statements in December 2020).

 	Year ended December 31,			
 	2021		2020		Additional information	
Loan interest	$	482,337 			595,113 			Decrease was due primarily to decreases in the gross yield earned on loans and the average balance of loans, partially offset by an increase in gross fixed rate floor income due to lower interest rates in 2021 as compared to 2020. It is currently anticipated that interest rates may rise in 2022 as a result of inflationary pressures in the U.S. economy.	
Investment interest	41,498 			24,543 			Includes income from unrestricted interest-earning deposits and investments and funds in asset-backed securitizations. Increase was due to an increase of student loan asset-backed securities investments (bonds) and interest income earned on loan beneficial interest investments, partially offset by a decrease in interest rates in 2021 as compared to 2020.	
Total interest income	523,835 			619,656 				
Interest expense	176,233 			330,071 			Decrease was due primarily to a decrease in cost of funds and a decrease in the average balance of debt outstanding. In addition, during the first quarter of 2021, the Company reduced interest expense by $23.8 million as a result of reversing a historical accrued interest liability on certain bonds, which liability the Company determined is no longer probable of being required to be paid. The liability was initially recorded when certain asset-backed securitizations were acquired in 2011 and 2013.	
Net interest income	347,602 			289,585 				
Less (negative provision) provision for loan losses	(12,426)			63,360 			Provision for loan losses in 2020 was impacted as a result of an increase in expected defaults due to the COVID-19 pandemic and its effects on economic conditions. During 2021, the Company recorded a negative provision for loan losses due to management’s estimate of certain continued improved economic conditions as of December 31, 2021 in comparison to management’s estimate of economic conditions used to determine the allowance for loan losses as of December 31, 2020. The negative provision recognized in 2021 was partially offset by the establishment of an initial allowance for loans originated and acquired during 2021.	
Net interest income after provision for loan losses	360,028 			226,225 				
Other income/expense:	 		 			
LSS revenue	486,363 			451,561 			See LSS operating segment - results of operations.	
ETS&PP revenue	338,234 			282,196 			See ETS&PP operating segment - results of operations.	
Communications revenue	— 			76,643 			On December 21, 2020, the Company deconsolidated ALLO from the Company’s consolidated financial statements as a result of ALLO’s recapitalization. See note 2 “ALLO Recapitalization” in the notes to consolidated financial statements included in this report for additional information.	
Other	78,681 			57,561 			See table below for components of “other.”	
Gain on sale of loans	18,715 			33,023 			The Company sold $95.8 million (par value) and $185.0 million (par value) of consumer loans to an unrelated third party in 2021 and 2020, respectively, and recognized gains from such sales.	
Gain from deconsolidation of ALLO	— 			258,588 			On December 21, 2020, the Company deconsolidated ALLO from the Company’s consolidated financial statements as a result of ALLO’s recapitalization. See note 2 “ALLO Recapitalization” in the notes to consolidated financial statements included in this report for additional information.	
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Impairment expense and provision for beneficial interests, net	(16,360)			(24,723)			During the first quarter of 2020, the Company recognized impairments of $26.3 million and $7.8 million related to beneficial interest in consumer loan securitization investments and several venture capital investments, respectively. Such impairments were the result of estimated impacts from the COVID-19 pandemic. During the fourth quarter of 2020 and first quarter of 2021, the Company reversed $9.7 million and $2.4 million, respectively, of the provision related to the consumer loan securitization investments due to improved economic conditions. During the third quarter of 2021, the Company evaluated the use of office space as a large number of employees continue to work from home due to COVID-19. As a result of this evaluation, the Company recorded an impairment charge during the third quarter of 2021 of $14.2 million. The impairment charge related primarily to building and operating lease assets. In addition, during 2021, the Company recognized impairments of $4.6 million related to venture capital investments.	
Derivative settlements, net	(21,367)			3,679 			The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative settlements for each applicable period should be evaluated with the Company's net interest income. See AGM operating segment - results of operations.	
Derivative market value adjustments, net	92,813 			(28,144)			Includes the realized and unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP. The majority of the derivative market value adjustments were related to the changes in fair value of the Company's floor income interest rate swaps. Such changes reflect that a decrease in the forward yield curve during a reporting period results in a decrease in the fair value of the Company's floor income interest rate swaps, and an increase in the forward yield curve during a reporting period results in an increase in the fair value of such swaps.	
Total other income/expense	977,079 			1,110,384 				
Cost of services:	 		 			
Cost to provide education technology, services, and payment processing services	108,660 			82,206 			Represents primarily direct costs to provide payment processing and instructional services in the ETS&PP operating segment. See ETS&PP operating segment - results of operations.	
Cost to provide communications services	— 			22,812 			As discussed above, on December 21, 2020, the Company deconsolidated ALLO from the Company’s consolidated financial statements.	
Total cost of services	108,660 			105,018 				
Operating expenses:						
Salaries and benefits	507,132 			501,832 			Increase was due to an increase in headcount in the (i) LSS operating segment due to hiring contact center operations and support associates to prepare for the resumption of federal student loan payments and other activities after the CARES Act suspension expires on May 1, 2022 and to support the increase in private education and consumer loan volume primarily from the addition of the former Wells Fargo portfolio; and (ii) ETS&PP operating segment to support the growth of its customer base, the investment in the development of new technologies, and businesses it acquired in December 2020. These increases were partially offset by the deconsolidation of ALLO from the Company's consolidated financial statements on December 21, 2020. It is currently anticipated that salaries and benefits costs may rise in 2022 as a result of wage inflation due to a constrained labor market.	
Depreciation and amortization	73,741 			118,699 			Decrease was primarily due to the deconsolidation of ALLO from the Company's consolidated financial statements on December 21, 2020, resulting in no ALLO depreciation expense for the Company in 2021.	

Other expenses	145,469 			160,574 			Other expenses includes expenses necessary for operations, such as postage and distribution, consulting and professional fees, occupancy, communications, and certain information technology-related costs. Decrease was due to (i) cost savings in the LSS operating segment as a result of a decrease in printing and postage while student loan payments are suspended as a result of COVID-19 borrower relief efforts and from an increase in the adoption of electronic borrower statements and correspondence; and (ii) the deconsolidation of ALLO on December 21, 2020. These items were partially offset by an increase in costs in the ETS&PP operating segment due to the business acquisitions completed in December 2020 and higher costs of consulting, professional fees, and technology services due to investments in new technologies. See each individual operating segment results of operations discussion for additional information.	
Total operating expenses	726,342 			781,105 				
Income before income taxes	502,105 			450,486 				
Income tax expense	115,822 			100,860 			The effective tax rate was 22.75% and 22.25% for 2021 and 2020, respectively. The Company expects its future effective tax rate will range between 22 and 24 percent.	
Net income	386,283 			349,626 				
Net loss attributable to noncontrolling interests	7,003 			2,817 			Amounts for noncontrolling interests reflect the net income/loss attributable to the holders of minority membership interests in WRCM and multiple solar entities.	
Net income attributable to Nelnet, Inc.	$	393,286 			352,443 				
						
Additional information:						
Net income attributable to Nelnet, Inc.	$	393,286 			352,443 			See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP net income, excluding derivative market value adjustments.	
Derivative market value adjustments, net	(92,813)			28,144 				
Tax effect	22,275 			(6,755)				
Net income attributable to Nelnet, Inc., excluding derivative market value adjustments	$	322,748 			$	373,832 				
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The following table summarizes the components of "other" in "other income/expense."

	Year ended December 31,	
	2021		2020	
Income/gains from investments, net (a)	$	91,593 			56,402 		
ALLO preferred return (b)	8,427 			386 		
Investment advisory services (c)	7,773 			10,875 		
Borrower late fee income (d)	3,444 			5,194 		
Management fee revenue (e)	3,307 			9,421 		
Loss from ALLO voting membership interest investment (f)	(42,148)			(3,565)		
Loss from solar investments (g)	(10,132)			(37,423)		
(Loss) gain on debt repurchased (h)	(6,775)			1,924 		
	
Other	23,192 			14,347 		
  Other income	$	78,681 			57,561 		

(a)    During the second quarter of 2020, the Company recognized a $51.0 million (pre-tax) gain to adjust the carrying value of its investment in Hudl to reflect Hudl’s May 2020 equity raise transaction value.
During 2021, the Company recognized net investment income and gains of $91.6 million, including $32.9 million from the Company’s joint venture to acquire Wells Fargo’s private education student loan portfolio, $28.8 million from venture capital investments, $22.3 million related to real estate investments, and $7.6 million related to investments in asset-backed securities (bonds) and marketable equity securities.
As the Company expects its investment portfolio will continue to grow, the Company also anticipates fluctuations in future periodic earnings resulting from investment valuation adjustments from time to time.
(b)    Represents the Company's income on its preferred membership interests in ALLO, which was deconsolidated from the Company's financial statements in December 2020. As of December 31, 2021, the amount of preferred membership interests held by the Company was $137.3 million, which earns a preferred annual return of 6.25 percent.
(c)    The Company provides investment advisory services through Whitetail Rock Capital Management, LLC ("WRCM"), the Company's SEC-registered investment advisor subsidiary, under various arrangements. WRCM earns annual fees of 10 basis points to 25 basis points on the majority of the outstanding balance of asset-backed securities under management and a share of the gains from the sale of asset-backed securities or asset-backed securities being called prior to the full contractual maturity for which it provides advisory services. As of December 31, 2021, the outstanding balance of asset-backed securities under management subject to these arrangements was $2.0 billion. In addition, WRCM earns annual management fees of five basis points for Nelnet stock under management (with the Nelnet stock primarily shares of Class B common stock held in various trust estates). During 2021, WRCM earned $4.2 million in management fees and generated $3.6 million in performance fees, as compared to $3.6 million in management fees and $7.3 million in performance fees in 2020.
(d)    Represents borrower late fees earned by the AGM operating segment. The decrease in borrower late fees in 2021 as compared to 2020 was due to the Company suspending substantially all borrower late fees effective March 13, 2020 through May 1, 2021 (for private education loans) and October 1, 2021 (for federally insured student loans), to provide borrowers relief as a result of the COVID-19 pandemic.
(e)    Represents revenue earned from providing administrative support and marketing services, which primarily was to Great Lakes’ former parent company under a contract that expired in January 2021.
(f)    Represents the Company's share of loss on its voting membership interests in ALLO. See note 7 of the notes to consolidated financial statements included in this report for additional information regarding the accounting for and income statement impact of this investment.
(g)    Represents the Company's share of income or loss from solar investments under the Hypothetical Liquidation at Book Value ("HLBV") method of accounting. For the majority of the Company's solar investments, the HLBV method of accounting results in accelerated losses in the initial years of investment. The Company made substantial solar investments in 2019 and 2020. Losses from solar investments in 2021 and 2020 include losses of $7.1 million and $3.8 million, respectively, attributable to third-party minority interest investors that are included in “net loss attributable to noncontrolling interests” in the consolidated statements of income.
(h)    Represents gains/losses from the Company’s repurchase of its own debt. See note 5 of the notes to consolidated financial statements included in this report for additional information.
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LOAN SERVICING AND SYSTEMS OPERATING SEGMENT – RESULTS OF OPERATIONS
Loan Servicing Volumes
																																																						
	As of	
	December 31,
2019		March 31,
2020		June 30,
2020		September 30,
2020		December 31,
2020		March 31,
2021		June 30,
2021		September 30,
2021		December 31,
2021	
Servicing volume
(dollars in millions):																		
Nelnet:																		
Government	$	183,790 			185,477 			185,315 			189,932 			191,678 			195,875 			195,030 			198,743 			215,797 		
FFELP	33,185 			32,326 			31,392 			31,122 			30,763 			30,084 			29,361 			28,244 			26,916 		
Private and consumer	16,033 			16,364 			16,223 			16,267 			16,226 			21,397 			24,758 			24,229 			23,702 		
Great Lakes:																		
Government	239,980 			243,205 			243,609 			249,723 			251,570 			257,806 			257,420 			262,311 			262,605 		

Total	$	472,988 			477,372 			476,539 			487,044 			490,237 			505,162 			506,569 			513,527 			529,020 		
																		
Number of servicing
   borrowers:																		
Nelnet:																		
Government	5,574,001 			5,498,872 			5,496,662 			5,604,685 			5,645,946 			5,664,094 			5,636,781 			5,791,521 			6,399,414 		
FFELP	1,478,703 			1,423,286 			1,370,007 			1,332,908 			1,300,677 			1,233,461 			1,198,863 			1,150,214 			1,092,066 		
Private and consumer	682,836 			670,702 			653,281 			649,258 			636,136 			882,477 			1,039,537 			1,097,252 			1,065,439 		
Great Lakes:																		
Government	7,396,657 			7,344,509 			7,346,691 			7,542,679 			7,605,984 			7,637,270 			7,616,270 			7,778,535 			7,797,106 		

Total	15,132,197 			14,937,369 			14,866,641 			15,129,530 			15,188,743 			15,417,302 			15,491,451 			15,817,522 			16,354,025 		
																		
Number of remote hosted borrowers:	6,433,324 			6,354,158 			6,264,559 			6,251,598 			6,555,841 			4,307,342 			4,338,570 			4,548,541 			4,799,368 		

Government Loan Servicing
Nelnet Servicing's and Great Lakes' current student loan servicing contracts with the Department are currently scheduled to expire on December 14, 2023. In 2017, the Department initiated a contract procurement process referred to as the Next Generation Financial Services Environment ("NextGen") for a new framework for the servicing of all student loans owned by the Department. The Consolidated Appropriations Act, 2021 contains provisions directing certain aspects of the NextGen process, including that any new federal student loan servicing environment is required to provide for the participation of multiple student loan servicers and the allocation of borrower accounts to eligible student loan servicers based on performance. The Company cannot predict the timing, nature, or ultimate outcome of NextGen or any other contract procurement process by the Department.
Nelnet Servicing and Great Lakes are two of the current seven private sector entities that have student loan servicing contracts with the Department. In July 2021, the Pennsylvania Higher Education Assistance Agency ("PHEAA"), a servicer for the Department, announced that it will exit the federal student loan servicing business. PHEAA notified the Department it would not be accepting a long-term extension of its student loan servicing contract beyond what was needed to ensure a smooth transition for borrowers. In November 2021, PHEAA and the Department agreed to a short-term extension that will expire in December 2022. All applicable student loans serviced by PHEAA will be transferred to successor servicers prior to the end of this contract extension. At the time of its announcement, PHEAA serviced approximately 8.5 million borrowers under its contract. A portion of the PHEAA servicing volume has been and will be transitioned prior to May 1, 2022, which is the date on which the suspension of federal student loan payments under the CARES Act is scheduled to expire. Approximately 850,000 PHEAA borrowers have been transitioned to Nelnet Servicing’s platform as of the date of this filing (of which approximately 603,000 were converted prior to December 31, 2021). The Company anticipates additional PHEAA volume to be transitioned to its platform during the remainder of 2022, but cannot currently estimate the number of additional borrowers that will be transferred and/or the timing of such transfers.
In addition, the New Hampshire Higher Education Association Foundation Network (“Granite State”) exited the federal student loan servicing business in 2021. Granite State’s servicing volume of approximately 1.3 million borrowers was transitioned to Edfinancial Services, LLC ("Edfinancial"), a current servicer for the Department, during the third and fourth quarters of 2021. Edfinancial utilizes Nelnet Servicing's platform to service their loans for the Department, as did Granite State prior to its exit.
The Department currently allocates new loan volume among its servicers based on certain performance metrics that measured the satisfaction among separate customer groups, including borrowers and Department personnel who work with the servicers.
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The metrics also measure the success of keeping borrowers in an on-time repayment status and helping borrowers avoid default. Under the most recent publicly announced performance metrics used by the Department for the quarterly periods January 1, 2021 through June 30, 2021, Great Lakes’ and Nelnet Servicing’s overall rankings among the six go-forward servicers for the Department (which excludes PHEAA) were third and fifth, respectively. Based on these results, Great Lakes’ and Nelnet Servicing’s allocation of new student loan servicing volumes beginning September 1, 2021 are 18 percent and 12 percent, respectively.
Servicing contract amendments entered into with the Department in September 2021 to extend the contracts through December 14, 2023, also amended the methodology for performance measurements and new loan volume allocations, in part by reflecting additional service level performance metrics under which, along with portfolio performance metrics, the Department will evaluate each servicer and make new loan volume allocations on a quarterly basis.
The CARES Act, among other things, provides broad relief for federal student loan borrowers through May 1, 2022. Under the CARES Act, beginning in March 2020, federal student loan payments and interest accruals were suspended for all borrowers that had loans owned by the Department. As a result of the CARES Act, the Company received less servicing revenue per borrower from the Department based on the borrower forbearance status through September 30, 2020 than what was earned on such accounts prior to these provisions, and the Department further reduced the monthly rate to its servicers for those in forbearance status for the period from October 1, 2020 through May 1, 2022. The Company currently anticipates revenue per borrower from the Department will increase to pre-CARES Act levels beginning May 2, 2022. During the fourth quarter of 2021, the Company earned additional revenue from the Department based on incremental work being performed by the Company to support the Department borrowers coming out of forbearance, including outbound engagement. The Company currently anticipates earning additional incremental revenue during the first half of 2022 by continuing to provide outbound engagement activity and also providing extended hours of service as borrowers come out of forbearance status.
Private Education Loan Servicing
In December 2020, Wells Fargo announced the sale of its approximately $10.0 billion portfolio of private education student loans representing approximately 445,000 borrowers. In conjunction with the sale, the Company was selected as servicer of the portfolio. During March 2021, approximately 261,000 borrowers were converted to the Company's servicing platform, with the vast majority of the remaining borrowers converted in the second quarter of 2021.

48

Summary and Comparison of Operating Results
																		
 	Year ended December 31,			
 	2021		2020		Additional information	
Net interest income	$	43 			315 			Decrease was due to lower interest rates in 2021 as compared to 2020.	
Loan servicing and systems revenue	486,363 			451,561 			See table below for additional information.	
Intersegment servicing revenue	33,956 			36,520 			Represents revenue earned by the LSS operating segment from servicing loans for the AGM and Nelnet Bank operating segments. Decrease in 2021 compared to 2020 was due to the impact of borrower relief policies implemented in March 2020 in response to the COVID-19 pandemic and the expected amortization of AGM's FFELP portfolio. FFELP intersegment servicing revenue will continue to decrease as AGM's FFELP portfolio pays off.	
Other income	3,307 			9,421 			Represents revenue earned from providing administrative support and marketing services, which primarily was to Great Lakes’ former parent company under a contract that expired in January 2021.	
Impairment expense	(13,243)			— 			During the third quarter of 2021, the Company evaluated use of office space as a large number of employees continue to work from home due to COVID-19. As a result of this evaluation, the Company recorded a non-cash impairment charge during the third quarter of 2021. The impairment charge recognized by the LSS operating segment related primarily to building and building improvement assets.	
Total other income	510,383 			497,502 				
Salaries and benefits	297,406 			285,526 			Increase in 2021 compared to 2020 was due to the Company hiring contact center operations and support associates to (i) prepare for the resumption of federal student loan payments and other activities after the CARES Act suspension expires on May 1, 2022; and (ii) support the increase in private education and consumer loan volume, primarily from the addition of the former Wells Fargo portfolio. The Company currently expects salaries and benefits to continue to increase due to continued preparations for the expiration of the CARES Act suspension.	
Depreciation and amortization	25,649 			37,610 			Includes amortization of intangibles from the Great Lakes acquisition in February 2018 and depreciation on property and equipment. Amortization of intangible assets for 2021 and 2020 was $12.3 million and $20.9 million, respectively. The majority of the Great Lakes intangible assets became fully amortized as of June 30, 2021. Excluding amortization of intangible assets, the decrease in 2021 compared to 2020 was due to certain purchases to integrate Great Lakes and expand servicing capacity becoming fully depreciated.	
Other expenses	52,720 			57,420 			Decrease in 2021 compared to 2020 was due to cost savings as a result of the impact of the COVID-19 pandemic and the resulting CARES Act (which became effective March 13, 2020), primarily through a significant reduction of borrower statement printing and postage costs while student loan payments are suspended. The Company currently expects these costs will increase when the provisions of the CARES Act expire, scheduled for May 1, 2022. Decrease was also due to cost savings from an increase in the adoption of electronic borrower statements and correspondence.	
Intersegment expenses	72,206 			63,886 			Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services. Increase in 2021 as compared to 2020 was due to the Company hiring contact center operations and support associates during the second half of 2021 in preparation for the expiration of the CARES Act suspension on May 1, 2022. The Company currently expects intersegment expenses to continue to increase as it prepares for the expiration of the CARES Act suspension.	
Total operating expenses	447,981 			444,442 				
Income before income taxes	62,445 			53,375 				
Income tax expense	(14,987)			(12,810)			Reflects income tax expense at an effective tax rate of 24%.	
Net income	$	47,458 			40,565 				

						
GAAP before tax operating margin	11.9 	%		10.7 	%		Before tax operating margin, excluding impairment and amortization expense, is a non-GAAP measure of before tax operating profitability as a percentage of revenue, and for the LSS segment is calculated as income before income taxes (excluding impairment and amortization expense) divided by the total of loan servicing and systems revenue, intersegment servicing revenue, and other income revenue. The Company uses this metric to monitor and assess the segment’s performance, manage operating costs, identify and evaluate business trends affecting the segment, and make strategic decisions, and believes that it provides additional information to facilitate an understanding of the operating performance of the segment and provides a meaningful comparison of the results of operations between periods.
Before tax operating margin, excluding impairment and amortization expense, increased for 2021 as compared to 2020 due to operating expenses being lower throughout the first half of 2021 as a result of the suspension of federal student loan payments under the CARES Act as discussed above.	
Impairment expense	2.5 			— 				
Amortization expense	2.3 			4.2 				
Non-GAAP before tax operating margin, excluding impairment and amortization expense	16.8 	%		14.9 	%			
49

Loan servicing and systems revenue

 	Year ended December 31,			
	2021		2020		Additional information	
Government servicing - Nelnet	$	167,579 			146,798 			Represents revenue from Nelnet Servicing's Department servicing contract. Increase in 2021 compared to 2020 was due to (i) an increase in the number of borrowers serviced, including PHEAA borrowers transferred to Nelnet Servicing’s platform during the fourth quarter of 2021; (ii) a per borrower rate increase beginning September 1, 2021 to reflect the increase in the cost of labor (Economic Cost Index) per the provisions of the contract; (iii) incremental work performed during the fourth quarter of 2021 related to CARES Act forbearance exit outreach activities to borrowers; and (iv) the discharge of nearly 170,000 TPD borrowers in the fourth quarter of 2021. Nelnet Servicing earns revenue per each TPD borrower that satisfies the requirements for their loan to be discharged. The revenue earned by Nelnet Servicing for CARES Act forbearance exit outreach is non-recurring and will have a less significant contribution in 2022. These increases are partially offset by the decrease in revenue earned per borrower as a result of the suspension of federal student loan payments under the CARES Act.	
Government servicing - Great Lakes	193,214 			179,872 			Represents revenue from the Great Lakes' Department servicing contract. Changes among the current and comparable prior period were due to the same factors as discussed immediately above for Nelnet Servicing, except that Great Lakes did not receive any PHEAA volume in 2021 and does not administer the TPD discharge program.	
Private education and consumer loan servicing	47,302 			32,492 			Increase was due to the addition of the former Wells Fargo private education loan borrowers converted to the Company's servicing platform during March and the second quarter of 2021. Excluding revenue earned on the former Wells Fargo portfolio, revenue for 2021 decreased compared to 2020. The decrease in revenue was due to a decrease in the number of legacy borrowers serviced, a decrease in origination fee revenue, and the impact of borrower relief policies implemented by private lenders in response to the COVID-19 pandemic.	
FFELP servicing	18,281 			20,183 			Decrease in 2021 compared to 2020 was due to a decrease in the number of borrowers serviced and the impact of borrower relief policies implemented by lenders in response to the COVID-19 pandemic. Over time, FFELP servicing revenue will continue to decrease as third-party customers' FFELP portfolios pay off.	
Software services	34,600 			41,999 			Decrease in 2021 compared to 2020 was due to many of the services provided under the Company's remote hosted servicing and system support contract with Great Lakes' former parent, representing 2.3 million borrowers, which expired in January 2021. This decrease in revenue was partially offset by an increase in the number of remote hosted servicing borrowers in 2021 as compared to 2020. In addition, the Company earned deconversion fees in the fourth quarter of 2021 from Granite State, a remote hosted servicing customer, when they exited the federal student loan servicing business and transferred their loan volume to a third party.	
Outsourced services	25,387 			30,217 			The majority of this revenue relates to providing contact center and back office operational outsourcing services. During 2020, the Company began providing services to state agencies to process unemployment claims and conduct certain health tracing support activities (including vaccination registration support). Outsourcing activities provided to state agencies are performed under shorter-term contracts. Revenue from providing these services to state agencies was $17.3 million and $22.0 million during 2021 and 2020, respectively. Outsourcing activities provided to state agencies decreased during 2021 as the needs for such services have decreased from the prior period.	
Loan servicing and systems revenue	$	486,363 			451,561 				

50

EDUCATION TECHNOLOGY, SERVICES, AND PAYMENT PROCESSING OPERATING SEGMENT – RESULTS OF OPERATIONS
This segment of the Company’s business is subject to seasonal fluctuations which correspond, or are related to, the traditional school year. Tuition management revenue is recognized over the course of the academic term, but the peak operational activities take place in summer and early fall. Higher amounts of revenue are typically recognized during the first quarter due to fees related to grant and aid applications as well as online applications and enrollment services. The Company’s operating expenses do not follow the seasonality of the revenues. This is primarily due to generally fixed year-round personnel costs and seasonal marketing costs. Based on the timing of revenue recognition and when expenses are incurred, revenue and pre-tax operating margin are higher in the first quarter as compared to the remainder of the year.
On December 31, 2020, the Company acquired HigherSchool Instructional Services (“HigherSchool”), a services company that provides supplemental instructional services and educational professional development for K-12 schools in New York City, and CD2 LLC (“CD2”), a platform technology solution that includes learning management, collaboration/workflow, gamification, customer management/document storage, and employee boarding. The results of HigherSchool and CD2 are reported in the Company’s consolidated financial statements from the date of acquisition. Revenue recognized by these acquisitions during the year ended December 31, 2021 was $26.0 million.
Summary and Comparison of Operating Results

 	Year ended December 31,			
 	2021		2020		Additional information	
Net interest income	$	1,075 			2,982 			Represents interest income on tuition funds held in custody for schools. Decrease was due to a significant decrease in interest rates in March 2020. If interest rates remain at current levels, the Company anticipates this segment will earn minimal interest income in future periods.	
Education technology, services, and
     payment processing revenue	338,234 			282,196 			See table below for additional information.	
Intersegment revenue	12 			20 				
Other income	— 			373 				
Total other income	338,246 			282,589 				
Cost to provide education technology,
     services, and payment processing
     services	108,660 			82,206 			See table below for additional information.	
Salaries and benefits	112,046 			98,847 			Increase in 2021 compared to 2020 was due to an increase in headcount to support the growth of the customer base, the investment in the development of new technologies, and the acquisitions of HigherSchool and CD2.	
Depreciation and amortization	11,404 			9,459 			Represents primarily amortization of intangible assets from prior business acquisitions. Amortization of intangible assets related to business acquisitions was $10.7 million and $8.7 million for 2021 and 2020, respectively. The increase in 2021 compared to 2020 was due to the acquisitions of HigherSchool and CD2.	
Other expenses	19,318 			14,566 			Increase was due to higher costs for consulting, professional fees, and technology services due to investments in new technologies and the acquisitions of HigherSchool and CD2.	
Intersegment expenses, net	15,180 			14,293 			Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.	
Total operating expenses	157,948 			137,165 				
Income before income taxes	72,713 			66,200 				
Income tax expense	(17,451)			(15,888)			Represents income tax expense at an effective tax rate of 24%.	
Net income	$	55,262 			50,312 				

51

Education technology, services, and payment processing revenue
The following table provides disaggregated revenue by service offering and before tax operating margin for each reporting period.
																		
 	Year ended December 31,			
 	2021		2020		Additional information	
Tuition payment plan services	$	103,970 			100,674 			Revenue increased for 2021 as compared to 2020 as a result of a higher number of payment plans in the K-12 market, partially offset by lower revenues for institutions of higher education as a result of lower enrollment trends and the COVID-19 pandemic.	
Payment processing	127,080 			114,304 			Payment volumes in 2021 increased as compared to 2020 in both the K-12 and higher education markets. The increase in payments volume is driven by both new customers and an increase in volume from existing customers.	
Education technology and services	105,186 			65,885 			Increase in 2021 compared to 2020 was primarily the result of the HigherSchool and CD2 acquisitions. Additionally, revenues from the Company’s school information system software, enrollment and communication products, grant and aid assessments, and FACTS Education Solutions instructional and professional development services increased compared to the prior year.	
Other	1,998 			1,333 				
Education technology, services, and payment processing revenue	338,234 			282,196 				
Cost to provide education technology, services, and payment processing services	108,660 			82,206 			Costs primarily relate to payment processing revenue and such costs decrease/increase in relationship to payment volumes. Costs to provide instructional services are also included as a component of this expense and were a driver in the increase in 2021 compared to 2020 due to the acquisition of HigherSchool and growth in the FACTS Education Solutions division.	
Net revenue	$	229,574 			199,990 				
Before tax operating margin	31.7 	%		33.1 	%		Before tax operating margin is a measure of before tax operating profitability as a percentage of revenue, and for the ETS&PP segment is calculated as income before income taxes divided by net revenue. The Company uses this metric to monitor and assess the segment’s performance, manage operating costs, identify and evaluate business trends affecting the segment, and make strategic decisions, and believes that it facilitates an understanding of the operating performance of the segment and provides a meaningful comparison of the results of operations between periods.

The decrease in margin for 2021 as compared to 2020 was due to investments in i) the development of new services and technologies; and ii) superior customer experiences to align with the Company’s strategies to grow, retain, and diversify revenues. The Company currently anticipates before tax operating margin will continue to decrease from current levels as the Company continues to invest in these areas.	

52

ASSET GENERATION AND MANAGEMENT OPERATING SEGMENT – RESULTS OF OPERATIONS
Loan Portfolio
As of December 31, 2021, the AGM operating segment had a $17.4 billion loan portfolio, consisting primarily of federally insured loans, that management anticipates will amortize over the next approximately 15 years and has a weighted average remaining life of approximately 8 years. For a summary of the Company's loan portfolio as of December 31, 2021 and 2020, see note 4 of the notes to consolidated financial statements included in this report.
Loan Activity
The following table sets forth the activity of loans in the AGM’s operating segment:
												
 	Year ended December 31,	
 	2021		2020	
Beginning balance	$	19,559,108 			20,798,719 		
Loan acquisitions:				
Federally insured student loans	904,088 			1,327,690 		
Private education loans	89,308 			152,048 		
Consumer loans	81,923 			136,985 		
Total loan acquisitions	1,075,319 			1,616,723 		
Repayments, claims, capitalized interest, participations, and other, net	(2,126,708)			(1,999,095)		
Consolidation loans lost to external parties	(964,822)			(672,211)		
Consumer and other loans sold	(101,107)			(185,028)		
Ending balance	$	17,441,790 			19,559,108 		

The Company has also purchased partial ownership in certain private education, consumer, and federally insured student loan securitizations that are accounted for as held-to-maturity beneficial interest investments and included in "investments" in the Company's consolidated financial statements. As of the latest remittance reports filed by the various trusts prior to or as of December 31, 2021, the Company’s ownership correlates to approximately $688 million, $195 million, and $445 million of private education, consumer, and federally insured student loans, respectively, included in these securitizations. The loans held in these securitizations are not included in the above table.
The Company's federally insured student loan acquisitions include the purchase of rehabilitated loans purchased from guaranty agencies. After a guaranty agency rehabilitates a federally insured student loan, the agency sells the rehabilitated loan to a private lender, such as the Company. On March 30, 2021, the Department suspended collections on defaulted federally insured student loans held by guaranty agencies and reduced the interest rate on such loans to zero percent, effectively suspending interest payments. The collections pause and adjusted interest rate are both retroactive to March 13, 2020, when the President first declared a national emergency for the COVID-19 pandemic. The Company currently believes these relief efforts will negatively impact the amount of rehabilitated loans the Company will have the opportunity to purchase in future periods.
Allowance for Loan Losses and Loan Delinquencies
AGM’s total allowance for loan losses of $126.0 million at December 31, 2021 represents reserves equal to 0.6% of AGM's federally insured loans (or 22.2% of the risk sharing component of the loans that is not covered by the federal guaranty), 5.4% of AGM's private education loans, and 12.6% of AGM's consumer loans.
For a summary of AGM’s activity in the allowance for loan losses for 2021 and 2020, and a summary of AGM's loan status and delinquency amounts as of December 31, 2021 and 2020, see note 4 of the notes to consolidated financial statements included in this report.
53

Loan Spread Analysis
The following table analyzes the loan spread on AGM’s portfolio of loans, which represents the spread between the yield earned on loan assets and the costs of the liabilities and derivative instruments used to fund the assets. The spread amounts included in the following table are calculated by using the notional dollar values found in the table under the caption "Net interest income after provision for loan losses, net of settlements on derivatives" below, divided by the average balance of loans or debt outstanding.
												
 	Year ended December 31,	
	2021		2020	
Variable loan yield, gross	2.64 	%		3.17 	%	
Consolidation rebate fees	(0.85)			(0.84)		
Discount accretion, net of premium and deferred origination costs amortization (a)	0.02 			0.01 		
Variable loan yield, net	1.81 			2.34 		
Loan cost of funds - interest expense (b) (c)	(1.04)			(1.64)		
Loan cost of funds - derivative settlements (d) (e)	(0.01)			0.05 		
Variable loan spread	0.76 			0.75 		
Fixed rate floor income, gross	0.76 			0.61 		
Fixed rate floor income - derivative settlements (d) (f)	(0.11)			(0.03)		
Fixed rate floor income, net of settlements on derivatives	0.65 			0.58 		
Core loan spread	1.41 	%		1.33 	%	
				
Average balance of AGM’s loans	$	18,900,038 			20,163,876 		
Average balance of AGM’s debt outstanding	18,610,144 			19,964,813 		
(a)    During the fourth quarter of 2021, the Company changed its estimate of the constant prepayment rate used to amortize/accrete federally insured loan premium/discounts for its consolidation loans from 3 percent to 4 percent, which resulted in a $6.2 million increase to the Company’s net loan discount balance and a corresponding decrease to interest income. The impact of this adjustment was excluded from the above table.
(b)    In the first quarter of 2021, the Company reversed a historical accrued interest liability of $23.8 million on certain bonds, which liability the Company determined is no longer probable of being required to be paid. The liability was initially recorded when certain asset-backed securitizations were acquired in 2011 and 2013. The reduction of this liability is reflected in (a reduction of) "interest on bonds and notes payable and bank deposits" in the consolidated statements of income and the impact of this reduction to interest expense was excluded from the table above.
(c)    In the third quarter of 2021, the Company redeemed certain asset-backed debt securities prior to their legal maturity, resulting in the recognition of $1.5 million in interest expense from the write-off of all remaining debt issuance costs related to the initial issuance of such bonds. This expense was excluded from the table above.
(d)    Derivative settlements represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms. Derivative accounting requires that net settlements with respect to derivatives that do not qualify for "hedge treatment" under GAAP be recorded in a separate income statement line item below net interest income. The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. As such, management believes derivative settlements for each applicable period should be evaluated with the Company’s net interest income (loan spread) as presented in this table. The Company reports this non-GAAP information because the Company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance. See note 6 of the notes to consolidated financial statements included in this report for additional information on the Company's derivative instruments, including the net settlement activity recognized by the Company for each type of derivative for the 2021 and 2020 periods presented in the table under the caption "Consolidated Financial Statement Impact Related to Derivatives - Statements of Income" in note 6 and in this table.
54

A reconciliation of core loan spread, which includes the impact of derivative settlements on loan spread, to loan spread without derivative settlements follows.

	Year ended December 31,	
	2021		2020	
Core loan spread	1.41 	%		1.33 	%	
Derivative settlements (1:3 basis swaps)	0.01 			(0.05)		
Derivative settlements (fixed rate floor income)	0.11 			0.03 		
Loan spread	1.53 	%		1.31 	%	

(e)    Derivative settlements consist of net settlements (paid) received related to the Company’s 1:3 basis swaps.
(f)    Derivative settlements consist of net settlements paid related to the Company’s floor income interest rate swaps.
A trend analysis of AGM’s core and variable loan spreads by calendar year quarter is summarized below.

(a)    The interest earned on a large portion of AGM's FFELP student loan assets is indexed to the one-month LIBOR rate. AGM funds a portion of its assets with three-month LIBOR indexed floating rate securities. The relationship between the indices in which AGM earns interest on its loans and funds such loans has a significant impact on loan spread. This table (the right axis) shows the difference between AGM's liability base rate and the one-month LIBOR rate by quarter. See Item 7A, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk - AGM Operating Segment,” which provides additional detail on AGM’s FFELP student loan assets and related funding for those assets.
Variable loan spread increased during the year ended December 31, 2021 compared to the same period in 2020 due to a narrowing of the basis between the asset and debt indices in which the Company earns interest on its loans and funds such loans (as reflected in the table above). The significant widening during the first and second quarters of 2020 was the result of a significant decrease in interest rates during March 2020 and the first half of the second quarter of 2020. In a declining interest rate environment, student loan spread is compressed, due to the timing of interest rate resets on the Company's assets occurring daily in contrast to the timing of the interest rate resets on the Company's debt that occurs either monthly or quarterly. During the third and fourth quarters of 2020, as the Company's debt reset at lower interest rates, the Company's variable loan spread increased. See Item 7A, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk - AGM Operating Segment,” which provides additional detail on AGM’s FFELP student loan assets and related funding for those assets.
55

The difference between variable loan spread and core loan spread is fixed rate floor income earned on a portion of AGM's federally insured student loan portfolio. A summary of fixed rate floor income and its contribution to core loan spread follows:

 	Year ended December 31,	
	2021		2020	
Fixed rate floor income, gross	$	142,606 			123,460 		
Derivative settlements (a)	(19,729)			(6,699)		
Fixed rate floor income, net	$	122,877 			116,761 		
Fixed rate floor income contribution to spread, net	0.65 	%		0.58 	%	
(a)    Derivative settlements consist of net settlements paid related to the Company's derivatives used to hedge student loans earning fixed rate floor income.
Gross fixed rate floor income increased in 2021 as compared to 2020 due to lower interest rates in 2021 as compared to 2020. The Company has a portfolio of derivative instruments in which the Company pays a fixed rate and receives a floating rate to economically hedge a portion of loans earning fixed rate floor income. The increase in net derivative settlements paid on the floor income interest rate swaps in 2021 as compared to 2020 was due to a decrease in interest rates and increase in the weighted average of notional amount of derivatives outstanding in 2021 as compared to 2020. See Item 7A, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk - AGM Operating Segment,” which provides additional detail on AGM’s portfolio earning fixed rate floor income and the derivatives used by the Company to hedge these loans.
Interest Rate Risk - Replacement of LIBOR as a Benchmark Rate
As of December 31, 2021, the interest earned on a principal amount of $15.9 billion of AGM's FFELP student loan asset portfolio was indexed to one-month LIBOR, and the interest paid on a principal amount of $15.9 billion of AGM’s FFELP student loan asset-backed debt securities was indexed to one-month or three-month LIBOR. In addition, the Company’s derivative financial instrument transactions used to manage LIBOR interest rate risks are indexed to LIBOR. The market transition away from the LIBOR framework could result in significant changes to the interest rate characteristics of the Company's LIBOR-indexed assets and funding for those assets, as well as the Company’s LIBOR-indexed derivative instruments. See Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate" for additional information.

56

Summary and Comparison of Operating Results

 	Year ended December 31,			
 	2021		2020		Additional information	
Net interest income after provision for loan losses	$	347,203 			220,288 			See table below for additional analysis.	
Other income, net	34,306 			7,189 			During 2021, the Company recognized $32.9 million related to its investment in a joint venture to purchase and securitize private education loans sold by Wells Fargo. The Company also earned $3.7 million in 2021 as the administrator and sponsor for the securitizations completed by the joint venture to fund these loans. Other income for 2021 also includes $3.4 million of borrower late fees. For 2021, other income was partially offset by a $6.8 million loss recognized by the Company as a result of purchasing back its own debt. The majority of other income recognized by the Company in 2020 related to $5.2 million of borrower late fees. The decrease in borrower late fees in 2021 as compared to 2020 was due to the Company suspending borrower late fees effective March 13, 2020 to provide borrowers relief as a result of the COVID-19 pandemic. The Company began to recognize borrower late fees again on May 1, 2021 (for private education loans) and October 1, 2021 (for federally insured student loans).	
Gain on sale of loans	18,715 			33,023 			The Company sold $95.8 million (par value) and $185.0 million (par value) of consumer loans to an unrelated third party in 2021 and 2020, respectively, and recognized gains from such sales.	
Impairment expense and provision for beneficial interests, net	2,436 			(16,607)			In March 2020, the Company recognized a provision expense of $26.3 million related to its beneficial interest in consumer loan securitization investments as a result of the estimated impacts of the COVID-19 pandemic. During the fourth quarter of 2020 and first quarter of 2021, the Company reversed $9.7 million and $2.4 million, respectively, of such provision due to improved economic conditions.	
Derivative settlements, net	(21,367)			3,679 			The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative settlements for each applicable period should be evaluated with the Company's net interest income as reflected in the table below.	
Derivative market value adjustments, net	92,813 			(28,144)			Includes the realized and unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP. The majority of the derivative market value adjustments during 2021 and 2020 related to the changes in fair value of the Company's floor income interest rate swaps. Such changes reflect that a decrease in the forward yield curve during a reporting period results in a decrease in the fair value of the Company's floor income interest rate swaps, and an increase in the forward yield curve during a reporting period results in an increase in the fair value of such swaps.	
Total other income/expense	126,903 			(860)				
Salaries and benefits	2,135 			1,747 				
	
Other expenses	13,487 			15,806 			The primary component of other expenses is servicing fees paid to third parties. The decrease in 2021 as compared to 2020 was due to a decrease in AGM's loan portfolio.	
Intersegment expenses	34,868 			39,172 			Amounts include fees paid to the LSS operating segment for the servicing of AGM’s loan portfolio. These amounts exceed the actual cost of servicing the loans. The decrease in servicing fees for 2021 as compared to 2020 was due to the expected amortization of AGM's FFELP portfolio and a decrease in certain servicing activities due to borrower relief initiatives and policies as a result of the COVID-19 pandemic. Intersegment expenses also include costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.	
Total operating expenses	50,490 			56,725 			Total operating expenses were 27 basis points and 28 basis points of the average balance of loans in 2021 and 2020, respectively. The decrease for 2021 as compared to 2020 was due to a decrease in certain servicing activities beginning in March 2020 due to borrower relief initiatives and policies as a result of the COVID-19 pandemic.	
Income before income taxes	423,616 			162,703 				
Income tax expense	(101,668)			(39,049)			Represents income tax expense at an effective tax rate of 24%.	
Net income	$	321,948 			123,654 				
						
Additional information:						
Net income	$	321,948 			123,654 			See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP net income, excluding derivative market value adjustments.	
Derivative market value adjustments, net	(92,813)			28,144 				
Tax effect	22,275 			(6,755)				
Net income, excluding derivative market value adjustments	$	251,410 			145,043 				

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Net interest income after provision for loan losses, net of settlements on derivatives The following table summarizes the components of "net interest income after provision for loan losses" and "derivative settlements, net."

 	Year ended December 31,			
 	2021		2020		Additional information	
Variable interest income, gross	$	499,698 			637,979 			Decrease in 2021 compared to 2020 was due to a decrease in the gross yield earned on loans and a decrease in the average balance of loans.	
Consolidation rebate fees	(160,228)			(168,933)			Decrease was due to a decrease in the average consolidation loan balance.	
Discount accretion, net of premium and deferred origination costs amortization	(3,347)			2,578 			During the fourth quarter of 2021, the Company changed its estimate of the constant prepayment rate used to amortize/accrete federally insured loan premium/discounts for its consolidation loans from 3 percent to 4 percent, which resulted in a $6.2 million increase to the Company’s net loan discount balance and a corresponding decrease to the net accretion discount (decrease to interest income). Excluding this adjustment, the Company recognized a discount accretion (net) of $2.8 million. Net discount accretion is due to the Company's purchases of loans at a net discount over the last several years.	
Variable interest income, net	336,123 			471,624 				
Interest on bonds and notes payable	(171,320)			(326,753)			Decrease in 2021 compared to 2020 was due to a decrease in cost of funds and a decrease in the average balance of debt outstanding. In addition, during the first quarter of 2021, the Company reduced interest expense by $23.8 million as a result of reversing a historical accrued interest liability on certain bonds.	
Derivative settlements, net (a)	(1,638)			10,378 			Derivative settlements include the net settlements (paid) received related to the Company’s 1:3 basis swaps.	
Variable loan interest margin,
net of settlements on derivatives (a)	163,165 			155,249 				
Fixed rate floor income, gross	142,606 			123,460 			Fixed rate floor income increased due to lower interest rates in 2021 as compared to 2020. It is currently anticipated that interest rates may rise in 2022 as a result of inflationary pressures in the U.S. economy, and an increase in future interest rates will reduce the amount of fixed rate floor income the Company is currently receiving.	
Derivative settlements, net (a)	(19,729)			(6,699)			Derivative settlements include the settlements paid related to the Company's floor income interest rate swaps. The increase in net settlements paid in 2021 as compared to 2020 was due to a decrease in interest rates and an increase in the notional amount of derivatives outstanding.	
Fixed rate floor income, net of settlements on derivatives	122,877 			116,761 				
Core loan interest income (a)	286,042 			272,010 				
Investment interest	28,172 			16,390 			Increase in 2021 compared to 2020 was due to an increase in interest income on the Company's loan beneficial interest investments, partially offset by lower interest rates in 2021 as compared to 2020.	
Intercompany interest	(1,598)			(1,404)			Increase was due to an increase in the weighted average intercompany debt outstanding in 2021 as compared to 2020, partially offset by lower interest rates in 2021 as compared to 2020.	
Negative provision (provision) for loan losses - federally insured loans	7,343 			(18,691)			See "Allowance for Loan Losses and Loan Delinquencies" included above under "Asset Generation and Management Operating Segment - Results of Operations.	
Negative provision (provision) for loan losses - private education loans	1,333 			(6,155)				
Negative provision (provision) for loan losses - consumer loans	4,544 			(38,183)				
Net interest income after provision for loan losses (net of settlements on derivatives) (a)	$	325,836 			223,967 			Increase for 2021 as compared to 2020 was due to (i) an increase in core loan spread; (ii) a decrease in interest expense in 2021 as a result of reversing a historical accrued interest liability on certain bonds; (iii) an increase in interest income on the Company's loan beneficial interest investments; and (iv) the recognition of a negative provision for loan losses in 2021 as compared to provision for loan losses in 2020 as a result of the COVID-19 pandemic. These items were partially offset by a decrease in the average balance of loans.	

(a)    Core loan interest income and net interest income after provision for loan losses (net of settlements on derivatives) are non-GAAP financial measures. For an explanation of GAAP accounting for derivative settlements and the reasons why the Company reports these non-GAAP measures (and the limitations thereof), see footnote (d) to the table immediately under the caption “Loan Spread Analysis” above. See note 6 of the notes to consolidated financial statements included in this report for additional information on the Company's derivative instruments, including the net settlement activity recognized by the Company for each type of derivative referred to in the "Additional information" column of this table, for the 2021 and 2020 periods presented in the table under the caption "Consolidated Financial Statement Impact Related to Derivatives - Statements of Income" in note 6 and in this table.
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NELNET BANK OPERATING SEGMENT – RESULTS OF OPERATIONS
Loan Portfolio
As of December 31, 2021, Nelnet Bank had a $257.9 million loan portfolio, consisting of $169.9 million of private education loans and $88.0 million of FFELP loans.
As of December 31, 2021, Nelnet Bank's allowance for loan losses on its portfolio was $1.1 million, which represents reserves equal to 0.3% of Nelnet Bank's federally insured loans (or 12.1% of the risk sharing component of the loans that is not covered by the federal guaranty) and 0.5% of Nelnet Bank's private education loans.
For a summary of Nelnet Bank's activity in the allowance for loan losses for the year ended December 31, 2021, and a summary of Nelnet Bank's loan status and delinquency amounts as of December 31, 2021 and 2020, see note 4 of the notes to consolidated financial statements included in this report.
The following table sets forth the activity in Nelnet Bank's loan portfolio:
												
 	Year ended December 31,	
	2021		2020	
Beginning balance	$	17,543 			— 		
Federally insured student loan acquisitions	99,973 			— 		
Private education loan originations	179,749 			17,660 		
Repayments	(36,181)			(117)		
	
Sales to AGM segment	(3,183)			— 		
	
Ending balance	$	257,901 			17,543 		
Deposits
As of December 31, 2021, Nelnet Bank had $425.4 million of deposits, of which $81.1 million were deposits from Nelnet, Inc. (the parent company) and its subsidiaries (intercompany), and thus eliminated for consolidated financial reporting purposes. All of Nelnet Bank’s deposits are interest-bearing deposits and consist of brokered certificates of deposit (CDs) and retail and other savings deposits and CDs. Retail and other deposits include savings deposits from Educational 529 College Savings and Health Savings plans and commercial and institutional CDs. Union Bank, a related party, is the program manager for the College Savings plans. The intercompany deposits include a pledged deposit of $40.0 million from Nelnet, Inc. as required under the Capital and Liquidity Maintenance Agreement with the FDIC, deposits required for intercompany transactions, operating and savings deposits, and Nelnet Business Services custodial deposits consisting of collected tuition payments which are subsequently remitted to the appropriate school.
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Average Balance Sheet
The following table reflects the rates earned on interest-earning assets and paid on interest-bearing liabilities.
																								
	Year ended
December 31, 2021		Period from November 2, 2020 (Nelnet Bank inception) -
December 31, 2020	
	Balance		Rate		Balance		Rate	
Average assets								
Federally insured student loans	$	64,873 			1.36 	%		— 			— 	%	
Private education loans	86,285 			3.16 			5,019 			3.54 		
Cash and investments	220,735 			1.86 			159,908 			1.46 		
Total interest-earning assets	371,893 			2.08 	%		164,927 			1.53 	%	
Non-interest-earning assets	10,195 					5,767 				
Total assets	$	382,088 					170,694 				
Average liabilities and equity								
Brokered deposits	61,208 			0.84 	%		1,198 			0.55 	%	
Intercompany deposits	81,064 			0.25 			46,504 			0.30 		
Retail and other deposits	132,010 			0.60 			21,207 			0.50 		
Total interest-bearing liabilities	274,282 			0.55 	%		68,909 			0.36 	%	
Non-interest-bearing liabilities	4,705 					1,410 				
Equity	103,101 					100,375 				
Total liabilities and equity	$	382,088 					170,694 				

Summary of Operating Results
On November 2, 2020, Nelnet Bank launched operations, which are presented by the Company as a reportable operating segment. Costs associated with Nelnet Bank prior to November 2, 2020 are included in the Corporate operating segment. In addition, certain shared service and support costs incurred by the Company are not and will not be reflected as part of the Nelnet Bank operating segment through 2023 (the bank's de novo period). The shared service and support costs incurred by the Company related to Nelnet Bank and not reflected in the bank's operating segment were $3.4 million and $6.0 million for the years ended December 31, 2021 and 2020, respectively.

 	Year ended December 31,			
 	2021		2020		Additional information	
Total interest income	$	7,721 			414 			Represents interest earned on Nelnet Bank's FFELP and private education student loans, cash, and investments.	
Interest expense	1,507 			41 			Represents interest expense on deposits.	
Net interest income	6,214 			373 				
Provision for loan losses	794 			330 				
Net interest income after provision for loan losses	5,420 			43 				
Other income	713 			48 				

Salaries and benefits	5,042 			36 			Represents salaries and benefits of Nelnet Bank associates and third-party contract labor.	
Other expenses	1,776 			135 			Represents various expenses such as consulting and professional fees, Nelnet Bank director fees, occupancy, certain information technology-related costs, insurance, marketing, and other operating expenses.	
Intersegment expenses	107 			— 			Represents primarily servicing costs paid to the LSS operating segment.	
Total operating expenses	6,925 			171 				
Loss before income taxes	(792)			(80)				
Income tax benefit	175 			20 			Represents income tax benefit at an effective tax rate of 22.1% and 23.7% for the years ended December 31, 2021 and 2020, respectively.	
Net loss	$	(617)			(60)				

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LIQUIDITY AND CAPITAL RESOURCES
The Company’s Loan Servicing and Systems, and Education Technology, Services, and Payment Processing operating segments are non-capital intensive and both produce positive operating cash flows. As such, a minimal amount of debt and equity capital is allocated to these segments and any liquidity or capital needs are satisfied using cash flow from operations. Therefore, the Liquidity and Capital Resources discussion is concentrated on the Company’s liquidity and capital needs to meet existing debt obligations in the Asset Generation and Management operating segment and the Company's other initiatives to pursue additional strategic investments.
The Company may issue equity and debt securities in the future in order to improve capital, increase liquidity, refinance upcoming maturities, or provide for general corporate purposes. Moreover, the Company may from time-to-time repurchase certain amounts of its outstanding secured debt securities, including debt securities which the Company may issue in the future, for cash and/or through exchanges for other securities. Such repurchases or exchanges may be made in open market transactions, privately negotiated transactions, or otherwise. Any such repurchases or exchanges will depend on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions, compliance with securities laws, and other factors. The amounts involved in any such transactions may be material.
The Company has historically utilized operating cash flow, secured financing transactions (which include warehouse facilities and asset-backed securitizations), operating lines of credit, and other borrowing arrangements to fund its Asset Generation and Management operations and loan acquisitions. In addition, the Company has used operating cash flow, borrowings on its unsecured line of credit, repurchase agreements, and unsecured debt offerings to fund corporate activities; business acquisitions; solar, real estate, and other investments; repurchases of common stock; and repurchases of its own debt.
Sources of Liquidity
The Company has historically generated positive cash flow from operations. For the years ended December 31, 2021 and 2020, the Company's net cash provided by operating activities was $544.9 million and $212.8 million, respectively.
As of December 31, 2021, the Company had cash and cash equivalents of $125.6 million. Cash held by Nelnet Bank is generally not available for Company activities outside of Nelnet Bank. Excluding Nelnet Bank, cash and cash equivalents as of December 31, 2021 was $99.4 million.
The Company also has a $495.0 million unsecured line of credit that matures on September 22, 2026. As of December 31, 2021, there was no amount outstanding on the unsecured line of credit and $495.0 million was available for future use. The line of credit provides that the Company may increase the aggregate financing commitments, through the existing lenders and/or through new lenders, up to a total of $737.5 million, subject to certain conditions.
In addition, the Company has retained certain of its own asset-backed securities upon their initial issuance or repurchased certain of its own asset-backed securities (bonds and notes payable) in the secondary market. For accounting purposes, these notes are eliminated in consolidation and are not included in the Company’s consolidated financial statements. However, these securities remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated by the trust estate. Upon a sale of these notes to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. As of December 31, 2021, the Company holds $381.2 million (par value) of its own asset-backed securities.
The Company intends to use its liquidity position to capitalize on market opportunities, including FFELP, private education, and consumer loan acquisitions (or investment interests therein); strategic acquisitions and investments; and capital management initiatives, including stock repurchases, debt repurchases, and dividend distributions. The timing and size of these opportunities will vary and will have a direct impact on the Company's cash and investment balances.
Cash Flows
During the year ended December 31, 2021, the Company generated $544.9 million from operating activities, compared to $212.8 million for the same period in 2020. The increase in such cash flows from operating activities was due to:
•An increase in net income;
•Adjustments to net income for the impact of the gain from the 2020 deconsolidation of ALLO and the non-cash change in deferred income taxes;
•A decrease in loan discount accretion in 2021 as compared to 2020;
•Net proceeds from the Company’s clearinghouse for margin payments on derivatives in 2021 compared to net payments to the clearing house in 2020; and
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•The impact of changes to the due to customers liability account and loan and investment accrued interest receivable in 2021 as compared to 2020.
These factors were partially offset by:
•The adjustments to net income for derivative market value adjustments;
•Adjustments to net income for the impact of the non-cash provision for loan losses, beneficial interests, and impairment charges and depreciation and amortization;
•Purchases of equity securities; and
•The impact of changes to accounts receivable and other assets in 2021 as compared to 2020.
The primary items included in the statement of cash flows for investing activities are the purchase and repayment of loans. The primary items included in financing activities are the proceeds from the issuance of and payments on bonds and notes payable used to fund loans. Cash provided by investing activities and used in financing activities for the year ended December 31, 2021 was $1.19 billion and $1.49 billion, respectively. Cash provided by investing activities and used in financing activities for the year ended December 31, 2020 was $621.2 million and $1.10 billion, respectively. Investing and financing activities are further addressed in the discussion that follows.
Liquidity Needs and Sources of Liquidity Available to Satisfy Debt Obligations Secured by Loan Assets and Related Collateral
The following table shows AGM’s debt obligations outstanding that are secured by loan assets and related collateral.

 	As of December 31, 2021	
	Carrying amount		Final maturity	
Bonds and notes issued in asset-backed securitizations	$	16,969,211 			5/27/25 - 9/25/69	
FFELP and private education loan warehouse facilities	112,059 			2/13/23 / 5/22/23	
 	$	17,081,270 				
Bonds and Notes Issued in Asset-backed Securitizations
The majority of AGM’s portfolio of student loans is funded in asset-backed securitizations that are structured to substantially match the maturity of the funded assets, thereby minimizing liquidity risk. Cash generated from student loans funded in asset-backed securitizations provide the sources of liquidity to satisfy all obligations related to the outstanding bonds and notes issued in such securitizations. In addition, due to (i) the difference between the yield AGM receives on the loans and cost of financing within these transactions, and (ii) the servicing and administration fees AGM earns from these transactions, AGM has created a portfolio that will generate earnings and significant cash flow over the life of these transactions.
As of December 31, 2021, based on cash flow models developed to reflect management’s current estimate of, among other factors, prepayments, defaults, deferment, forbearance, and interest rates, AGM currently expects future undiscounted cash flows from its portfolio to be approximately $1.88 billion as detailed below.
The forecasted cash flow presented below includes all loans funded in asset-backed securitizations as of December 31, 2021. As of December 31, 2021, AGM had $17.1 billion of loans included in asset-backed securitizations, which represented 98.3 percent of its total loan portfolio. The forecasted cash flow does not include cash flows that the Company expects to receive related to loans funded in its warehouse facilities as of December 31, 2021, private education and consumer loans funded with operating cash, loans acquired subsequent to December 31, 2021, loans owned by Nelnet Bank, and cash flows relating to the Company's ownership of beneficial interest in loan securitizations (such beneficial interest investments are classified as "investments" on the Company's consolidated balance sheets).
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Asset-backed Securitization Cash Flow Forecast
$1.88 billion
(dollars in millions)

The forecasted future undiscounted cash flows of approximately $1.88 billion include approximately $1.14 billion (as of December 31, 2021) of overcollateralization included in the asset-backed securitizations. These excess net asset positions are included in the consolidated balance sheets and included in the balances of "loans and accrued interest receivable" and "restricted cash." The difference between the total estimated future undiscounted cash flows and the overcollateralization of approximately $0.74 billion, or approximately $0.56 billion after income taxes based on the estimated effective tax rate, is expected to be accretive to the Company's December 31, 2021 balance of consolidated shareholders' equity.
The Company uses various assumptions, including prepayments and future interest rates, when preparing its cash flow forecast. These assumptions are further discussed below.
Prepayments: The primary variable in establishing a life of loan estimate is the level and timing of prepayments. Prepayment rates equal the amount of loans that prepay annually as a percentage of the beginning of period balance, net of scheduled principal payments. A number of factors can affect estimated prepayment rates, including the level of consolidation activity, borrower default rates, and utilization of debt management options such as income-based repayment, deferments, and forbearance. Should any of these factors change, management may revise its assumptions, which in turn would impact the projected future cash flow. The Company’s cash flow forecast above assumes prepayment rates that are generally consistent with those utilized in the Company’s recent asset-backed securitization transactions. If management used a prepayment rate assumption two times greater than what was used to forecast the cash flow, the cash flow forecast would be reduced by approximately $120 million to $150 million.
Interest rates: The Company funds a large portion of its student loans with three-month LIBOR indexed floating rate securities. Meanwhile, the interest earned on the Company’s student loan assets is indexed primarily to a one-month LIBOR rate. The different interest rate characteristics of the Company’s loan assets and liabilities funding these assets result in basis risk. The Company’s cash flow forecast assumes three-month LIBOR will exceed one-month LIBOR by 12 basis points for the life of the portfolio, which approximates the historical relationship between these indices. If the forecast is computed assuming a spread of 24 basis points between three-month and one-month LIBOR for the life of the portfolio, the cash flow forecast would be reduced by approximately $60 million to $80 million. As the percentage of the Company's outstanding debt financed by three-month LIBOR declines, the Company's basis risk will be reduced. In addition, the Company attempts to mitigate the
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impact of this basis risk by entering into certain derivative instruments. See Item 7A, "Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk - AGM Operating Segment."
LIBOR is in the process of being discontinued as a benchmark rate, and the market transition away from the current LIBOR framework could result in significant changes to the forecasted cash flows from the Company's asset-backed securitizations. See Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate."
The Company uses the current forward interest rate yield curve to forecast cash flows. A change in the forward interest rate curve would impact the future cash flows generated from the portfolio. An increase in future interest rates will reduce the amount of fixed rate floor income the Company is currently receiving. The Company attempts to mitigate the impact of a rise in short-term rates by hedging interest rate risks. The forecasted cash flow does not include cash flows the Company expects to pay/receive related to derivative instruments used by the Company to manage interest rate risk. See Item 7A, "Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk - AGM Operating Segment."
Warehouse Facilities
The Company funds a portion of its FFELP loan acquisitions using its FFELP warehouse facility. Student loan warehousing allows the Company to buy and manage student loans prior to transferring them into more permanent financing arrangements. As of December 31, 2021, the Company’s FFELP warehouse facility had a maximum financing amount available of $60.0 million, of which $5.0 million was outstanding and $55.0 million was available for additional funding. The warehouse facility has a static advance rate until the expiration date of the liquidity provisions (May 23, 2022). In the event the liquidity provisions are not extended, the valuation agent has the right to perform a one-time mark to market on the underlying loans funded in this facility, subject to a floor. The loans would then be funded at this new advance rate until the final maturity date of the facility (May 22, 2023). As of December 31, 2021, the Company had $0.3 million advanced as equity support on this facility.
The Company has a private education loan warehouse facility that, as of December 31, 2021, had an aggregate maximum financing amount available of $175.0 million, an advance rate of 80 to 90 percent, liquidity provisions through February 13, 2022, and a final maturity date of February 13, 2023. As of December 31, 2021, $107.0 million was outstanding under this warehouse facility, $68.0 million was available for future funding, and $11.8 million was advanced as equity support. This facility was amended on January 28, 2022 to extend the liquidity provisions and final maturity to June 30, 2022 and June 30, 2023, respectively.
Upon termination or expiration of the warehouse facilities, the Company would expect to access the securitization market, obtain replacement warehouse facilities, use operating cash, consider the sale of assets, or transfer collateral to satisfy any remaining obligations.
Other Uses of Liquidity
The Company no longer originates FFELP loans, but continues to acquire FFELP loan portfolios from third parties and believes additional loan purchase opportunities exist, including opportunities to purchase private education and consumer loans (or investment interests therein).
The Company plans to fund additional loan acquisitions and related investments using current cash and investments; using its unsecured line of credit, Union Bank student loan participation agreement, Union Bank student loan asset-backed securities participation agreement, and third-party repurchase agreements (each as described below), and/or establishing similar secured and unsecured borrowing facilities; using its existing warehouse facilities (as described above); increasing the capacity under existing and/or establishing new warehouse facilities; and continuing to access the asset-backed securities market.
Private Education Loan Investment
During 2021, the Company sponsored four asset-backed securitization transactions to permanently finance a total of $8.7 billion of the private education loans sold by Wells Fargo. For further information about these transactions, see “Overview – Recent Transactions / Developments - 2021 Transactions Related to the Private Education Loan Portfolio Sold by Wells Fargo” above. As sponsor, the Company is required to provide a certain level of risk retention, and has purchased bonds issued in such securitizations to satisfy this requirement. The bonds purchased to satisfy the risk retention requirement are reflected on the Company's consolidated balance sheet as "investments" and as of December 31, 2021, the fair value of these bonds was $412.6 million. The Company must retain these investment securities until the expiration of a holding period discussed above under “Overview – Recent Transactions / Developments – 2021 Transactions Related to the Private Education Loan Portfolio Sold by Wells Fargo.” The Company entered into repurchase agreements with third parties, the proceeds of which were used to purchase a portion of the asset-backed investments, and such investments serve as collateral on the repurchase obligations.
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As of December 31, 2021, $483.8 million was outstanding on the Company’s repurchase agreements, of which $313.2 million was borrowed to fund private education loan securitization bonds subject to the Company’s risk retention requirement. The repurchase agreements have various maturity dates between May 27, 2022 and December 20, 2023, but are subject to early termination upon required notice provided by the Company or the applicable counterparty prior to the maturity dates. The Company is required to pay additional cash in the event the fair value of the securities subject to a repurchase agreement becomes less than the original purchase price of such securities.
Upon termination or expiration of the repurchase agreements, the Company would use cash and/or cash proceeds from its unsecured line of credit to satisfy any outstanding obligations subject to the repurchase agreements.
Union Bank Participation Agreement
The Company maintains an agreement with Union Bank, a related party, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in student loans. As of December 31, 2021, $967.5 million of loans were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. The agreement automatically renews annually and is terminable by either party upon five business days' notice. This agreement provides beneficiaries of Union Bank’s grantor trusts with access to investments in interests in student loans, while providing liquidity to the Company. The Company can participate loans to Union Bank to the extent of availability under the grantor trusts, up to $900.0 million or an amount in excess of $900.0 million if mutually agreed to by both parties. Loans participated under this agreement have been accounted for by the Company as loan sales. Accordingly, the participation interests sold are not included on the Company’s consolidated balance sheets.
Asset-backed Securities Transactions
During 2021, the Company completed two FFELP asset-backed securitizations totaling $1.3 billion (par value). The proceeds from these transactions were used primarily to finance student loans purchased during the period and refinance student loans included in the Company's FFELP warehouse facilities and other asset-backed securitizations. See note 5 of the notes to consolidated financial statements included in this report for additional information on these securitizations.
The Company, through its subsidiaries, has historically funded student loans by completing asset-backed securitizations. Depending on market conditions, the Company currently anticipates continuing to access the asset-backed securitization market. Such asset-backed securitization transactions would be used to refinance student loans included in its warehouse facilities, loans purchased from third parties, and/or student loans in its existing asset-backed securitizations.
Liquidity Impact Related to Nelnet Bank
Nelnet Bank launched operations in November 2020. Nelnet Bank was funded by the Company with an initial capital contribution of $100.0 million, consisting of $55.9 million of cash and $44.1 million of student loan asset-backed securities. In addition, the Company made a pledged deposit of $40.0 million with Nelnet Bank, as required under an agreement with the FDIC discussed below.
Prior to Nelnet Bank’s launch of operations, Nelnet Bank, Nelnet, Inc. (the parent), and Michael S. Dunlap (Nelnet, Inc.’s controlling shareholder) entered into a Capital and Liquidity Maintenance Agreement and a Parent Company Agreement with the FDIC in connection with Nelnet, Inc.’s role as a source of financial strength for Nelnet Bank. As part of the Capital and Liquidity Maintenance Agreement, Nelnet, Inc. is obligated to (i) contribute capital to Nelnet Bank for it to maintain capital levels that meet FDIC requirements for a “well capitalized” bank, including a leverage ratio of capital to total assets of at least 12 percent; (ii) provide and maintain an irrevocable asset liquidity takeout commitment for the benefit of Nelnet Bank in an amount equal to the greater of either 10 percent of Nelnet Bank’s total assets or such additional amount as agreed to by Nelnet Bank and Nelnet, Inc.; (iii) provide additional liquidity to Nelnet Bank in such amount and duration as may be necessary for Nelnet Bank to meet its ongoing liquidity obligations; and (iv) establish and maintain a pledged deposit of $40.0 million with Nelnet Bank.
Under the regulatory framework for prompt corrective action, Nelnet Bank is subject to various regulatory capital requirements administered by the FDIC and the UDFI and must meet specific capital standards. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on Nelnet Bank's business, results of operations, and financial condition. On January 1, 2020, the Community Bank Leverage Ratio ("CBLR") framework, as issued jointly by the Office of the Comptroller of the Currency, the Federal Reserve Board, and the FDIC, became effective. Any banking organization with total consolidated assets of less than $10 billion, limited amounts of certain types of assets and off-balance sheet exposures, and a community bank leverage ratio greater than 9% may opt into the CBLR framework quarterly. The CBLR framework allows banks to satisfy capital standards and be considered "well capitalized" under the prompt corrective action framework if their leverage ratio is
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greater than 9%, unless the banking organization's federal banking agency determines that the banking organization's risk profile warrants a more stringent leverage ratio. The FDIC has ordered Nelnet Bank to maintain at least a 12% leverage ratio. Nelnet Bank has opted into the CBLR framework for the quarter ended December 31, 2021 with a leverage ratio of 22.4%. Nelnet Bank intends to maintain at all times regulatory capital levels that meet both the minimum level necessary to be considered “well capitalized” under the FDIC’s prompt corrective action framework and the minimum level required by the FDIC.
Based on Nelnet Bank's business plan and current financial condition, the Company currently believes that the initial capital contribution of $100.0 million and pledged deposit of $40.0 million should provide sufficient capital and liquidity to Nelnet Bank for the next two years.
Liquidity Impact Related to ALLO
Upon the deconsolidation of ALLO on December 21, 2020, the Company recorded its 45 percent voting membership interests in ALLO at fair value, and accounts for such investment under the HLBV method of accounting. In addition, the Company recorded its remaining non-voting preferred membership units of ALLO at fair value, and accounts for such investment as a separate equity investment. As of December 31, 2021, the outstanding preferred membership interests of ALLO held by the Company was $137.3 million that earns a preferred annual return of 6.25 percent.
The agreements among the Company, SDC, and ALLO provide that they will use commercially reasonable efforts (which expressly excludes requiring ALLO to raise any additional equity financing or sell any assets) to cause the redemption, on or before April 2024, of the remaining non-voting preferred membership interests in ALLO held by the Company, plus the amount of accrued and unpaid preferred return on such interests.
If ALLO needs additional capital to support its growth in existing or new markets, the Company has the option to contribute additional capital to maintain its voting equity interest. Although ALLO has obtained third-party debt financing to fund a large portion of its current growth plans, the Company contributed an additional $34.7 million of additional equity to ALLO on February 25, 2022. As a result of this equity contribution, the Company’s voting membership interests percentage did not materially change.
Liquidity Impact Related to Hedging Activities
The Company utilizes derivative instruments to manage interest rate sensitivity. By using derivative instruments, the Company is exposed to market risk which could impact its liquidity. Based on the derivative portfolio outstanding as of December 31, 2021, the Company does not currently anticipate any movement in interest rates having a material impact on its capital or liquidity profile, nor does the Company expect that any movement in interest rates would have a material impact on its ability to make variation margin payments to its third-party clearinghouse. However, if interest rates move materially and negatively impact the fair value of the Company's derivative portfolio, the replacement of LIBOR as a benchmark rate has significant adverse impacts on the Company's derivatives, or if the Company enters into additional derivatives for which the fair value becomes negative, the Company could be required to make variation margin payments to its third-party clearinghouse. The variation margin, if significant, could negatively impact the Company's liquidity and capital resources. In addition, clearing rules require the Company to post amounts of liquid collateral when executing new derivative instruments, which could prevent or limit the Company from utilizing additional derivative instruments to manage interest rate sensitivity and risks. See note 6 of the notes to consolidated financial statements included in this report for additional information on the Company's derivative portfolio.
Other Debt Facilities
As discussed above, the Company has a $495.0 million unsecured line of credit with a maturity date of September 22, 2026. As of December 31, 2021, the unsecured line of credit had no amount outstanding and $495.0 million was available for future use. Upon the maturity date of this facility, there can be no assurance that the Company will be able to maintain this line of credit, increase the amount outstanding under the line, or find alternative funding if necessary.
During 2020, the Company entered into an agreement with Union Bank, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in federally insured student loan asset-backed securities. As of December 31, 2021, $254.0 million (par value) of student loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. This participation agreement has been accounted for by the Company as a secured borrowing. Upon termination or expiration of this agreement, the Company would expect to use operating cash, consider the sale of assets, or transfer collateral to satisfy any remaining obligations.
For further discussion of these debt facilities described above, see note 5 of the notes to consolidated financial statements included in this report.
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Debt Repurchases
Due to the Company’s positive liquidity position and opportunities in the capital markets, the Company has repurchased its own debt over the last several years, and may continue to do so in the future. For accounting purposes, these notes are eliminated in consolidation and are not included in the Company’s consolidated financial statements. However, these securities remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated by the trust estate. Upon a sale of these notes to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. As of December 31, 2021, the Company holds $381.2 million (par value) of its own asset-backed securities.
See note 5 of the notes to consolidated financial statements included in this report for information on debt repurchased by the Company during the last three years.
Stock Repurchases
The Board of Directors has authorized a stock repurchase program to repurchase up to a total of five million shares of the Company's Class A common stock during the three-year period ending May 7, 2022. As of December 31, 2021, 2,571,680 shares remained authorized for repurchase under the Company's stock repurchase program. Shares may be repurchased from time to time on the open market, in private transactions (including with related parties), or otherwise, depending on various factors, including share prices and other potential uses of liquidity.

Shares repurchased by the Company during 2021 and 2020 are shown below. Certain of these repurchases were made pursuant to trading plans adopted by the Company in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934.
																		
	Total shares repurchased		Purchase price (in thousands)		Average price of shares repurchased (per share)	
						
Year ended December 31, 2021	713,274 			$	58,111 			$	81.47 		
Year ended December 31, 2020	1,594,394 			73,358 			46.01 		
Included in the shares repurchased during 2020 in the table above are a total of 100,000 shares of Class A common stock the Company purchased on May 27, 2020 from Shelby J. Butterfield, a significant shareholder of the Company. Included in the shares repurchased during 2021 are a total of 337,717 shares of Class A common stock the Company purchased on August 10, 2021 from various estate planning trusts associated with Shelby J. Butterfield. The shares purchased in 2020 and 2021 were purchased at a discount to the closing market price of the Company's Class A common stock as of May 27, 2020 and August 9, 2021, respectively, and the transactions were separately approved by the Company's Board of Directors and its Nominating and Corporate Governance Committee. Immediately prior to the Company's repurchase of such shares, certain of the repurchased shares were shares of the Company's Class B common stock that were converted to shares of Class A common stock.
Dividends
Dividends of $0.22 per share on the Company’s Class A and Class B common stock were paid on March 15, 2021, June 14, 2021, and September 15, 2021, respectively, and a dividend of $0.24 per share was paid on December 15, 2021.
The Company's Board of Directors declared a first quarter 2022 cash dividend on the Company's Class A and Class B common stock of $0.24 per share. The dividend will be paid on March 15, 2022, to shareholders of record at the close of business on March 1, 2022.
The Company currently plans to continue making regular quarterly dividend payments, subject to future earnings, capital requirements, financial condition, and other factors.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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 accounting principles generally accepted in the United States. 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 3 of the notes to consolidated financial statements included in this report includes a summary of the significant accounting policies and methods used in the preparation of the consolidated financial statements.
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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 identified the allowance for loan losses as a critical accounting policy.
Allowance for Loan Losses
The allowance for loan losses represents the Company’s estimate of the expected lifetime credit losses inherent in loan receivables as of the balance sheet date. The adequacy of the allowance for loan losses is assessed quarterly and the assumptions and models used in establishing the allowance are evaluated regularly. Because credit losses can vary substantially over time, estimating credit losses requires a number of assumptions about matters that are uncertain. Such assumptions are discussed below, and such uncertainty is due in part to the fact that loans in the Company’s portfolio mature over the next 15 years (with a weighted average remaining life of approximately 8 years), and actual credit losses will be affected by, among other things, future economic conditions and future personal financial situations for borrowers, over that extended time frame. Changes in the Company’s assumptions affect “provision for loan losses” on the Company’s consolidated income statements and the “allowance for loan losses” contained within “loans and accrued interest receivable, net of allowance for loan losses” on the Company’s consolidated balance sheets. For additional information regarding our allowance for loan losses, see notes 3 and 4 of the notes to consolidated financial statements included in this report.
The Company estimates the allowance for loan losses for receivables that share similar risk characteristics based on a collective assessment using a combination of measurement models and management judgment. The models consider factors such as historical trends in credit losses, recent portfolio performance, and forward-looking macroeconomic conditions. The models vary by portfolio type including FFELP, private education, and consumer loans. If management does not believe the models reflect lifetime expected credit losses for the portfolio, an adjustment is made to reflect management judgment regarding qualitative factors including economic uncertainty, observable changes in portfolio performance, and other relevant factors.
The Company’s allowance for loan losses is based on various assumptions including: probability of default; loss given default; exposure at default; net loss rates for its consumer portfolio; contractual terms, including prepayments; forecast period; reversion method; reversion period; and macroeconomic factors, including unemployment rates, gross domestic product, and the consumer price index.
The allowance for loan losses is made at a specific point in time and based on relevant information as discussed above. The allowance for loan losses is maintained at a level management believes is appropriate to provide for expected lifetime credit losses inherent in loan receivables as of the balance sheet date. This evaluation is inherently subjective because it requires numerous estimates made by management. These estimates are subjective in nature and involve uncertainties and matters of significant judgement. Changes in estimates could significantly affect the Company's recorded balance for the allowance for loan losses. For additional information regarding changes in the Company’s allowance for loan losses for the years ended December 31, 2021, 2020, and 2019, see the caption “Activity in the Allowance for Loan Losses” in note 4 of the notes to consolidated financial statements included in this report.
The Company considers a range of economic scenarios in its determination of the allowance for loan losses. These scenarios are constructed with interrelated projections of multiple economic variables, and loss estimates are produced that consider the historical correlation of those economic variables with credit losses, and also the expectation that conditions will eventually normalize over the longer run. Scenarios worse than the Company’s expected outcome at December 31, 2021 include risks that the COVID-19 pandemic significantly worsens from the relatively improved conditions at December 31, 2021, or that government stimulus programs related to the pandemic are less effective than expected or have collateral adverse consequences for the economy, any of which could lead to a prolonged downturn in economic activity, reducing the number of businesses that are able to conduct normal operations until after conditions improve, which could impact borrowers’ ability to pay on their loans held with us.
Under the range of economic scenarios considered, the allowance for loan losses would have been lower by $7 million (6 percent) or higher by $13 million (10 percent). This range reflects the sensitivity of the allowance for loan losses specifically related to the scenarios and weights considered as of December 31, 2021, and does not consider other potential adjustments that could increase or decrease loss estimates calculated using alternative economic scenarios.
Because several quantitative and qualitative factors are considered in determining the allowance for loan losses, these sensitivity analyses do not necessarily reflect the nature and extent of future changes in the allowance for loan losses. They are intended to provide insights into the impact of adverse changes in the economy on the Company’s modeled loss estimates for the loan portfolio and do not imply any expectation of future deterioration in loss rates. Given current processes employed by
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the Company, management believes the loss model estimates currently assigned are appropriate. It is possible that others, given the same information, may at any point in time reach different reasonable conclusions that could be significant to the Company’s financial statements.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(All dollars are in thousands, except share amounts, unless otherwise noted)
Interest Rate Risk - AGM Operating Segment
AGM’s primary market risk exposure arises from fluctuations in its borrowing and lending rates, the spread between which could impact AGM due to shifts in market interest rates.
The following table sets forth AGM’s loan assets and debt instruments by rate characteristics:

 	As of December 31, 2021		As of December 31, 2020	
 	Dollars		Percent		Dollars		Percent	
Fixed-rate loan assets	$	7,434,068 			42.6 	%		$	8,720,480 			44.6 	%	
Variable-rate loan assets	10,007,722 			57.4 			10,838,628 			55.4 		
Total	$	17,441,790 			100.0 	%		$	19,559,108 			100.0 	%	
	
Fixed-rate debt instruments	$	801,548 			4.7 	%		$	960,327 			5.0 	%	
Variable-rate debt instruments	16,279,722 			95.3 			18,354,964 			95.0 		
Total	$	17,081,270 			100.0 	%		$	19,315,291 			100.0 	%	
FFELP loans originated prior to April 1, 2006 generally earn interest at the higher of the borrower rate, which is fixed over a period of time, or a floating rate based on the special allowance payment ("SAP") formula set by the Department. The SAP rate is based on an applicable index plus a fixed spread that depends on loan type, origination date, and repayment status. The Company generally finances its FFELP student loan portfolio with variable rate debt. In low and/or declining interest rate environments, when the fixed borrower rate is higher than the SAP rate, the Company’s FFELP student loans earn at a fixed rate while the interest on the variable rate debt typically continues to reflect the low and/or declining interest rates. In these interest rate environments, the Company may earn additional spread income that it refers to as floor income.
Depending on the type of loan and when it was originated, the borrower rate is either fixed to term or is reset to an annual rate each July 1. As a result, for loans where the borrower rate is fixed to term, the Company may earn floor income for an extended period of time, which the Company refers to as fixed rate floor income, and for those loans where the borrower rate is reset annually on July 1, the Company may earn floor income to the next reset date, which the Company refers to as variable rate floor income. All FFELP loans first originated on or after April 1, 2006 effectively earn at the SAP rate, since lenders are required to rebate fixed rate floor income and variable rate floor income for those loans to the Department.
As a result of the significant drop in interest rates during the first half of 2020, the Company earned $4.8 million of variable-rate floor income on approximately $1.4 billion of FFELP loans during the six months ended June 30, 2020. Since the borrower rate reset on July 1, 2020, the Company no longer earns such variable-rate floor income on these loans, reflecting the lower interest rate environment. No variable-rate floor income was earned in 2021.
A summary of fixed rate floor income earned by the AGM operating segment follows.

 	Year ended December 31,	
 	2021		2020	
Fixed rate floor income, gross	$	142,606 			123,460 		
Derivative settlements (a)	(19,729)			(6,699)		
Fixed rate floor income, net	$	122,877 			116,761 		
(a)    Derivative settlements consist of settlements paid related to the Company's derivatives used to hedge student loans earning fixed rate floor income.
Gross fixed rate floor income increased in 2021 as compared to 2020 due to lower interest rates in 2021 as compared to 2020.
Absent the use of derivative instruments, a rise in interest rates will reduce the amount of floor income received and has an impact on earnings due to interest margin compression caused by increasing financing costs, until such time as the federally insured loans earn interest at a variable rate in accordance with their SAP formulas. In higher interest rate environments, where
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the interest rate rises above the borrower rate and fixed rate loans effectively become variable rate loans, the impact of the rate fluctuations is reduced.
The Company enters into derivative instruments to hedge student loans earning fixed rate floor income. The increase in net derivative settlements paid on these derivatives in 2021 as compared to 2020 was due to a decrease in interest rates and an increase in weighted average of notional amount of derivatives outstanding in 2021 as compared to 2020.
The following graph depicts fixed rate floor income for a borrower with a fixed rate of 6.75% and a SAP rate of 2.64%:

The following table shows AGM’s federally insured student loan assets that were earning fixed rate floor income as of December 31, 2021:
																					
Fixed interest rate range		Borrower/lender weighted average yield		Estimated variable conversion rate (a)		Loan balance	
< 3.0%		2.87%		0.23%		$	1,034,712 		
3.0 - 3.49%		3.19%		0.55%		1,309,665 		
3.5 - 3.99%		3.65%		1.01%		1,233,183 		
4.0 - 4.49%		4.20%		1.56%		921,498 		
4.5 - 4.99%		4.71%		2.07%		575,873 		
5.0 - 5.49%		5.22%		2.58%		385,797 		
5.5 - 5.99%		5.67%		3.03%		255,468 		
6.0 - 6.49%		6.19%		3.55%		292,207 		
6.5 - 6.99%		6.70%		4.06%		287,525 		
7.0 - 7.49%		7.17%		4.53%		107,708 		
7.5 - 7.99%		7.71%		5.07%		196,416 		
8.0 - 8.99%		8.18%		5.54%		463,091 		
> 9.0%		9.05%		6.41%		178,219 		
 		 		 		$	7,241,362 		

(a) The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to a variable rate. As of December 31, 2021, the weighted average estimated variable conversion rate was 1.93% and the short-term interest rate was 9 basis points.
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The following table summarizes the outstanding derivative instruments as of December 31, 2021 used by AGM to economically hedge loans earning fixed rate floor income.
															
Maturity		Notional amount		Weighted average fixed rate paid by the Company (a)	
2022		$	500,000 			0.94 	%	
2023		900,000 			0.62 		
2024		2,500,000 			0.35 		
2025		500,000 			0.35 		
2026		500,000 			1.02 		
2031		100,000 			1.53 		

 		$	5,000,000 			0.55 	%	
(a)    For all interest rate derivatives, the Company receives discrete three-month LIBOR.
AGM is also exposed to interest rate risk in the form of basis risk and repricing risk because the interest rate characteristics of AGM’s assets do not match the interest rate characteristics of the funding for those assets. The following table presents AGM’s FFELP student loan assets and related funding for those assets arranged by underlying indices as of December 31, 2021.

Index		Frequency of variable resets		Assets		Funding of student loan assets	
1 month LIBOR (a)		Daily		$	15,940,182 			— 		
3 month H15 financial commercial paper		Daily		621,327 			— 		
3 month Treasury bill		Daily		529,538 			— 		
1 month LIBOR		Monthly		— 			10,494,895 		
3 month LIBOR (a)		Quarterly		— 			5,392,400 		
Fixed rate		—		— 			772,935 		
Auction-rate (b)		Varies		— 			248,550 		
Asset-backed commercial paper (c)		Varies		— 			5,048 		
Other (d)		—		1,455,317 			1,632,536 		
 		 		$	18,546,364 			18,546,364 		

(a)    The Company has certain basis swaps outstanding in which the Company receives three-month LIBOR and pays one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps"). The Company entered into these derivative instruments to better match the interest rate characteristics on its student loan assets and the debt funding such assets. The following table summarizes the 1:3 Basis Swaps outstanding as of December 31, 2021.

Maturity		Notional amount (i)	
2022		$	2,000,000 		
2023		750,000 		
2024		1,750,000 		
2026		1,150,000 		
2027		250,000 		

	

	
		$	5,900,000 		
(i)    The weighted average rate paid by the Company on the 1:3 Basis Swaps as of December 31, 2021 was one-month LIBOR plus 9.1 basis points.

(b)    As of December 31, 2021, the Company was sponsor for $248.6 million of outstanding asset-backed securities that were set and provide for interest rates to be periodically reset via a "dutch auction" (“Auction Rate Securities”). Since the auction feature has essentially been inoperable for substantially all auction rate securities since 2008, the Auction Rate Securities generally pay interest to the holder at a maximum rate as defined by the indenture. While these rates will vary, they will generally be based on a spread to LIBOR or Treasury Securities, or the Net Loan Rate as defined in the financing documents.
(c)    The interest rates on the Company's warehouse facilities are indexed to asset-backed commercial paper rates.
(d)    Assets include accrued interest receivable and restricted cash. Funding represents overcollateralization (equity) and other liabilities included in FFELP asset-backed securitizations and warehouse facilities.
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LIBOR is in the process of being discontinued as a benchmark rate, and the market transition away from the current LIBOR framework could result in significant changes to the interest rate characteristics of the Company's LIBOR-indexed assets and funding for those assets. See Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate."
Sensitivity Analysis
The following tables summarize the effect on the Company’s consolidated earnings, based upon a sensitivity analysis performed on AGM’s assets and liabilities assuming hypothetical increases in interest rates of 100 basis points and 300 basis points while funding spreads remain constant. In addition, a sensitivity analysis was performed assuming the funding index increases 10 basis points and 30 basis points while holding the asset index constant, if the funding index is different than the asset index. The sensitivity analysis was performed on AGM’s variable rate assets (including loans earning fixed rate floor income) and liabilities. The analysis includes the effects of AGM’s derivative instruments in existence during these periods.

 	Interest rates		Asset and funding index mismatches	
	Change from increase of
100 basis points		Change from increase of
300 basis points		Increase of
10 basis points		Increase of
30 basis points	
 								
 	Dollars		Percent		Dollars		Percent		Dollars		Percent		Dollars		Percent	
 	Year ended December 31, 2021	
Effect on earnings:	 												 		 	
Decrease in pre-tax net income before impact of derivative settlements	$	(55,957)			(11.1)	%		$	(103,742)			(20.7)	%		$	(6,020)			(1.2)	%		$	(18,063)			(3.6)	%	
Impact of derivative settlements	43,059 			8.6 			129,176 			25.7 			5,961 			1.2 			17,884 			3.6 		
Increase (decrease) in net income before taxes	$	(12,898)			(2.5)	%		$	25,434 			5.0 	%		$	(59)			— 	%		$	(179)			— 	%	
Increase (decrease) in basic and diluted earnings per share	$	(0.25)					$	0.50 					$	— 					$	— 				
 	Year ended December 31, 2020	
Effect on earnings:	 												 		 	
Decrease in pre-tax net income before impact of derivative settlements	$	(57,447)			(12.8)	%		$	(108,018)			(24.0)	%		$	(7,157)			(1.6)	%		$	(21,477)			(4.8)	%	
Impact of derivative settlements	13,955 			3.1 			41,864 			9.3 			6,112 			1.4 			18,336 			4.1 		
Increase (decrease) in net income before taxes	$	(43,492)			(9.7)	%		$	(66,154)			(14.7)	%		$	(1,045)			(0.2)	%		$	(3,141)			(0.7)	%	
Increase (decrease) in basic and diluted earnings per share	$	(0.85)					$	(1.29)					$	(0.02)					$	(0.06)				
Interest Rate Risk - Nelnet Bank
To manage Nelnet Bank's risk from fluctuations in market interest rates, the Company actively monitors interest rates and other interest sensitive components to minimize the impact that changes in interest rates have on the fair value of assets, net income, and cash flow. To achieve this objective, the Company manages and mitigates its exposure to fluctuations in market interest rates through several techniques, including managing the maturity, repricing, and mix of fixed and variable rate assets and liabilities.
The following table presents Nelnet Bank's loan assets and deposits by rate characteristics:

 	As of December 31, 2021		As of December 31, 2020	
 	Dollars		Percent		Dollars		Percent	
Fixed-rate loan assets	$	191,410 			74.2 	%		$	16,866 			96.1 	%	
Variable-rate loan assets	66,491 			25.8 			677 			3.9 		
Total	$	257,901 			100.0 	%		$	17,543 			100.0 	%	
								
Fixed-rate deposits	$	344,315 			80.9 	%		$	54,633 			48.3 	%	
Variable-rate deposits	81,085 			19.1 			58,413 			51.7 		
Total	$	425,400 			100.0 	%		$	113,046 			100.0 	%	
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Financial Statement Impact – Derivatives
For a table summarizing the effect of derivative instruments in the consolidated statements of income, including the components of "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of income, see note 6 of the notes to consolidated financial statements included in this report.

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
The Company’s management, with the participation of the Company's principal executive and principal financial officers, evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of December 31, 2021. Based on this evaluation, the Company’s principal executive and principal financial officers concluded that the Company's disclosure controls and procedures were effective as of December 31, 2021.
Changes in Internal Control over Financial Reporting
The Company implemented a new enterprise resource planning system in 2021 which replaced multiple systems, including the general ledger and payroll processing systems, and resulted in changes to business processes. We believe the change has enhanced the Company’s internal control over financial reporting due to increased automation and further integration of related processes. The Company replaced multiple internal controls that were previously considered effective with new or modified controls that are also considered effective.
There were no other changes in the Company's internal control over financial reporting during the fiscal quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) for the Company. The Company's internal control system is designed to provide reasonable assurance to the Company's management and board of directors regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements in accordance with U.S. generally accepted accounting principles.
Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2021 based on the criteria for effective internal control described in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that, as of December 31, 2021, the Company's internal control over financial reporting is effective.
The effectiveness of the Company's internal control over financial reporting as of December 31, 2021 has been audited by KPMG LLP, the Company's independent registered public accounting firm, as stated in their report included herein.
Inherent Limitations on Effectiveness of Internal Controls
The Company's management, including the chief executive and chief financial officers, understands that the disclosure controls and procedures and internal control over financial reporting are 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. 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.
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Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Nelnet, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Nelnet, Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated February 28, 2022 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’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, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
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.
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.
/s/ KPMG LLP
Lincoln, Nebraska
February 28, 2022

ITEM 9B. OTHER INFORMATION
During the fourth quarter of 2021, no information was required to be disclosed in a report on Form 8-K, but not reported.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
74

PART III.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information as to the directors, executive officers, and corporate governance of the Company set forth under the captions “PROPOSAL 1 - ELECTION OF DIRECTORS,” “EXECUTIVE OFFICERS,” and “CORPORATE GOVERNANCE,” and the information as to any delinquent report under Section 16(a) of the Securities Exchange Act of 1934 set forth under the caption “SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS, AND PRINCIPAL SHAREHOLDERS - Delinquent Section 16(a) Reports," to the extent any such disclosure is required, in the definitive Proxy Statement to be filed on Schedule 14A with the SEC, no later than 120 days after the end of the Company's fiscal year, relating to the Company's 2022 Annual Meeting of Shareholders scheduled to be held on May 19, 2022 (the “Proxy Statement”), is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions “CORPORATE GOVERNANCE” and “EXECUTIVE COMPENSATION” in the Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information set forth under the caption “SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS, AND PRINCIPAL SHAREHOLDERS - Stock Ownership” in the Proxy Statement is incorporated herein 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.
The following table summarizes information about compensation plans under which equity securities are authorized for issuance.
Equity Compensation Plan Information
																								
		As of December 31, 2021	
Plan category		Number of shares to be issued upon exercise of outstanding options, warrants, and rights (a)		Weighted-average exercise price of outstanding options, warrants, and rights (b)		Number of shares remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)	
Equity compensation plans approved by shareholders		— 			— 			1,515,565 		(1)	
Equity compensation plans not approved by shareholders		— 			— 			— 			
Total		— 			— 			1,515,565 			
(1) Includes 1,100,414, 46,415, and 368,736 shares of Class A Common Stock remaining available for future issuance under the Nelnet, Inc. Restricted Stock Plan, Nelnet, Inc. Directors Stock Compensation Plan, and Nelnet, Inc. Employee Share Purchase Plan, respectively.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information set forth under the captions “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,” “CORPORATE GOVERNANCE - Board Composition and Director Independence,” and “CORPORATE GOVERNANCE - Board Committees” in the Proxy Statement is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information set forth under the caption “PROPOSAL 2 - RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - Independent Accountant Fees and Services” in the Proxy Statement is incorporated herein by reference.

75

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 Balance Sheets as of December 31, 2021 and 2020		F-4	
Consolidated Statements of Income for the years ended December 31, 2021, 2020, and 2019		F-5	
Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020, and 2019		F-6	
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2021, 2020, and 2019		F-7	
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020, and 2019		F-8	
Notes to Consolidated Financial Statements		F-10	

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, furnished, or incorporated by reference as part of this report.
(b) Exhibits
Exhibit Index
						
Exhibit No.	Description	
		
3.1	Composite Third Amended and Restated Articles of Incorporation of Nelnet, Inc., as amended on May 23, 2019, filed as Exhibit 3.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and incorporated herein by reference.	
		
3.2	Ninth Amended and Restated Bylaws of Nelnet, Inc., as amended as of May 24, 2018, filed as Exhibit 3.2 to the registrant's Current Report on Form 8-K filed on May 24, 2018 and incorporated herein by reference.	
		
4.1	Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934, filed as Exhibit 4.1 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2019 and incorporated herein by reference.	
		
4.2	Form of Class A Common Stock Certificate of Nelnet, Inc., filed on November 24, 2003 as Exhibit 4.1 to the registrant’s Registration Statement on Form S-1 (Registration No. 333-108070) and incorporated herein by reference.	
		
4.3	Certain instruments, including indentures of trust, defining the rights of holders of long-term debt of the registrant and its consolidated subsidiaries, none of which instruments authorizes a total amount of indebtedness thereunder in excess of 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis, are omitted from this Exhibit Index pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. Certain of such instruments have been previously filed with the Securities and Exchange Commission, and the registrant hereby agrees to furnish a copy of any such instrument to the Commission upon request.	
		
4.4	Registration Rights Agreement, dated as of December 16, 2003, by and among Nelnet, Inc. and the shareholders of Nelnet, Inc. signatory thereto, filed on November 24, 2003 as Exhibit 4.11 to the registrant’s Registration Statement on Form S-1 (Registration No. 333-108070) and incorporated herein by reference.	
		
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10.1	Composite Form of Amended and Restated Participation Agreement, dated as of June 1, 2001, between NELnet, Inc. (subsequently renamed National Education Loan Network, Inc.) and Union Bank and Trust Company, as amended by the First Amendment thereto dated as of December 19, 2001 through the Cancellation of the Fifteenth Amendment thereto dated as of March 16, 2011 (such Participation Agreement and each amendment through the Cancellation of the Fifteenth Amendment thereto have been previously filed as set forth in the Exhibit Index for the registrant’s Annual Report on Form 10-K for the year ended December 31, 2012, and are incorporated herein by reference), filed as Exhibit 10.1 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2013 and incorporated herein by reference.	
		
10.2	Sixteenth Amendment of Amended and Restated Participation Agreement, dated as of March 23, 2012, by and between Union Bank and Trust Company and National Education Loan Network, Inc., filed as Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 and incorporated herein by reference.	
		
10.3	Seventeenth Amendment of Amended and Restated Participation Agreement, dated as of August 1, 2019, by and between Union Bank and Trust Company and National Education Loan Network, Inc., filed as Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 and incorporated herein by reference.	
		
10.4	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, filed on September 25, 2003 as Exhibit 10.36 to the registrant’s Registration Statement on Form S-1 (Registration No. 333-108070) and incorporated herein by reference.	
		
10.5	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, filed on September 25, 2003 as Exhibit 10.37 to the registrant’s Registration Statement on Form S-1 (Registration No. 333-108070) and incorporated herein by reference.	
		
10.6	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, filed on September 25, 2003 as Exhibit 10.38 to the registrant’s Registration Statement on Form S-1 (Registration No. 333-108070) and incorporated herein by reference.	
		
10.7	Guaranteed Purchase Agreement, dated as of September 1, 2010, by and between Nelnet, Inc. and Union Bank and Trust Company, filed as Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 and incorporated herein by reference.	
		
10.8	First Amendment of Guaranteed Purchase Agreement, dated as of March 22, 2011, by and between Nelnet, Inc. and Union Bank and Trust Company, filed as Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 and incorporated herein by reference.	
		
10.9	Amendment of Agreements dated as of February 4, 2005, by and between National Education Loan Network, Inc. and Union Bank and Trust Company, filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on February 10, 2005 and incorporated herein by reference.	
		
10.10+	Nelnet, Inc. Employee Share Purchase Plan, as amended through March 17, 2011, filed as Exhibit 10.4 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 and incorporated herein by reference.	
		
10.11	Office Building Lease dated June 21, 1996 between Miller & Paine and Union Bank and Trust Company, filed as Exhibit 10.3 to the registrant's Current Report on Form 8-K filed on October 16, 2006 and incorporated herein by reference.	
		
10.12	Amendment to Office Building Lease dated June 11, 1997 between Miller & Paine and Union Bank and Trust Company, filed as Exhibit 10.4 to the registrant's Current Report on Form 8-K filed on October 16, 2006 and incorporated herein by reference.	
		
10.13*#	Office Building Lease dated January 5, 2021 between Union Bank and Trust Company and National Education Loan Network.	
		
10.14	Lease Amendment Number Two dated February 8, 2001 between Miller & Paine and Union Bank and Trust Company, filed as Exhibit 10.5 to the registrant's Current Report on Form 8-K filed on October 16, 2006 and incorporated herein by reference.	
		
10.15	Lease Amendment Number Three dated May 23, 2005 between Miller & Paine, LLC and Union Bank and Trust Company, filed as Exhibit 10.6 to the registrant's Current Report on Form 8-K filed on October 16, 2006 and incorporated herein by reference.	
		
77

						
10.16	Lease Amendment Number Four dated November 13, 2007 between M & P Building, LLC and Union Bank and Trust Company, filed as Exhibit 10.14 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference.	
		
10.17	Lease Amendment Number Five entered into in September 2008 between M & P Building, LLC and Union Bank and Trust Company, filed as Exhibit 10.15 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference.	
		
10.18	Lease Amendment Number Six dated December 15, 2017 between Nelnet Real Estate Ventures, Inc. and Union Bank and Trust Company, filed as Exhibit 10.16 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference.	
		
10.19+	Nelnet, Inc. Restricted Stock Plan, as amended through May 22, 2014, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on May 28, 2014 and incorporated herein by reference.	
		
10.20+	Amendment to Nelnet, Inc. Restricted Stock Plan, effective as of February 11, 2020, filed as Exhibit 10.21 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2019 and incorporated herein by reference.	
		
10.21+	Nelnet, Inc. Directors Stock Compensation Plan, as amended through March 21, 2018, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on May 24, 2018 and incorporated herein by reference.	
		
10.22+	Nelnet, Inc. Executive Officers Incentive Compensation Plan, effective as of January 1, 2019, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on May 23, 2019 and incorporated herein by reference.	
		
10.23	Loan Purchase Agreement, dated as of November 25, 2008, by and between Nelnet Education Loan Funding, Inc., f/k/a NEBHELP, INC., acting, where applicable, by and through Wells Fargo Bank, National Association, not individually but as Eligible Lender Trustee for the Seller under the Warehouse Agreement or Eligible Lender Trust Agreement, and Union Bank and Trust Company, acting in its individual capacity and as trustee, filed as Exhibit 10.71 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference.	
		
10.24	Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 and incorporated herein by reference.	
		
10.25	Modification of Contract dated effective as of June 17, 2014 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on June 18, 2014 and incorporated herein by reference.	
		
10.26	Modification of Contract dated effective as of September 1, 2014 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on September 2, 2014 and incorporated herein by reference.	
		
10.27	Modification of Contract dated effective as of June 16, 2019 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on May 17, 2019 and incorporated herein by reference.	
		
10.28	Modification of Contract dated effective as of November 25, 2019 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on November 27, 2019 and incorporated herein by reference.	
		
10.29	Modification of Contract dated effective as of December 15, 2020 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on December 15, 2020 and incorporated herein by reference.	
		
10.30	Form of Modification of Contract dated effective as of June 15, 2021 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on June 10, 2021 and incorporated herein by reference.	
		
10.31	Form of Modification of Contract entered into on September 24, 2021 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on September 27, 2021 and incorporated herein by reference.	
		
10.32*	Form of Modification of Contract entered into December 29, 2021 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC.	
		
10.33	Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.6 to the registrant's Current Report on Form 8-K filed on May 17, 2019 and incorporated herein by reference.	
		
78

						
10.34	Modification of Contract dated effective as of May 21, 2014 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.7 to the registrant's Current Report on Form 8-K filed on May 17, 2019 and incorporated herein by reference.	
		
10.35	Modification of Contract dated effective as of September 1, 2014 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.8 to the registrant's Current Report on Form 8-K filed on May 17, 2019 and incorporated herein by reference.	
		
10.36	Modification of Contract dated effective as of June 16, 2019 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.2 to the registrant's Current Report on Form 8-K filed on May 17, 2019 and incorporated herein by reference.	
		
10.37	Modification of Contract dated effective as of November 25, 2019 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.2 to the registrant's Current Report on Form 8-K filed on November 27, 2019 and incorporated herein by reference.	
		
10.38	Modification of Contract dated effective as of December 15, 2020 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on December 15, 2020 and incorporated herein by reference.	
		
10.39	Form of Modification of Contract dated effective as of June 15, 2021 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.2 to the registrant's Current Report on Form 8-K filed on June 10, 2021 and incorporated herein by reference.	
		
10.40	Form of Modification of Contract entered into on September 24, 2021 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.2 to the registrant's Current Report on Form 8-K filed on September 27, 2021 and incorporated herein by reference.	
		
10.41*	Form of Modification of Contract entered into on January 7, 2022 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc.	
		
10.42	Management Agreement, dated effective as of May 1, 2011, by Whitetail Rock Capital Management, LLC and Union Bank and Trust Company, filed as Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 and incorporated herein by reference.	
		
10.43	Management Agreement, dated effective as of January 20, 2012, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.58 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2011 and incorporated herein by reference.	
		
10.44	Management Agreement, dated effective as of October 27, 2015, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.25 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2015 and incorporated herein by reference.	
		
10.45#	Appendix A, dated July 29, 2020, to Management Agreement dated effective as of October 27, 2015, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.4 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference.	
		
10.46	Management Agreement, dated effective as of January 4, 2016, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 and incorporated herein by reference.	
		
10.47	Management Agreement, dated effective as of March 23, 2017, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 and incorporated herein by reference.	
		
10.48	Amended Appendix A, dated May 8, 2019, to Management Agreement, dated effective as of March 23, 2017, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 and incorporated herein by reference.	
		
10.49#	Amended Appendix A, dated July 29, 2020, to Management Agreement dated effective as of March 23, 2017, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.5 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference.	
		
79

						
10.50#	Management Agreement dated effective as of July 29, 2020, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.6 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference.	
		
10.51	Investment Management Agreement, dated effective as of February 10, 2012, by and among Whitetail Rock SLAB Fund I, LLC, Whitetail Rock Fund Management, LLC, and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.4 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 and incorporated herein by reference.	
		
10.52	Investment Management Agreement, dated effective as of February 14, 2013, by and among Whitetail Rock SLAB Fund III, LLC, Whitetail Rock Fund Management, LLC, and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.31 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2013 and incorporated herein by reference.	
		
10.53	Form of Custodian Agreement for Whitetail Rock SLAB Funds by and among the Fund, Whitetail Rock Fund Management, LLC, and Union Bank and Trust Company, filed as Exhibit 10.27 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference.	
		
10.54	Form of Administrative Services Agreement for Whitetail Rock SLAB Funds by and among the Fund, Whitetail Rock Fund Management, LLC, Adminisystems, Inc., and Union Bank and Trust Company, filed as Exhibit 10.28 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference.	
		
10.55	Management Agreement dated as of August 8, 2019 between 1867 – Riley Road, LLC (of which Farmers & Merchants Investment Inc., North Central Bancorp, Inc., and Nelnet Solar, LLC are members) and 1867 Capital-1, LLC (a wholly owned subsidiary of Nelnet, Inc.), filed as Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 and incorporated herein by reference.	
		
10.56	Subordination Agreement effective as of July 26, 2019, by and between Union Bank and Trust Company, Nelnet, Inc., and Agile Sports Technologies, Inc., filed as Exhibit 10.7 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and incorporated herein by reference.	
		
10.57#	Third Amended and Restated Credit Agreement dated as of September 22, 2021, among Nelnet, Inc., U.S. Bank National Association, as Administrative Agent; Wells Fargo Bank, National Association, as Syndication Agent, Royal Bank of Canada, as Documentation Agent, U.S. Bank National Association and Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Book Runners; and various lender parties thereto, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on September 22, 2021 and incorporated herein by reference.	
		
10.58	Third Amended and Restated Guaranty dated as of September 22, 2021, by each of the subsidiaries of Nelnet, Inc. signatories thereto, in favor of U.S. Bank National Association, as Administrative Agent, filed as Exhibit 10.2 to the registrant's Current Report on Form 8-K filed on September 22, 2021 and incorporated herein by reference.	
		
10.59	Aircraft Joint Ownership Agreement dated as of January 1, 2019, by and between National Education Loan Network, Inc. and MSD711, LLC, filed as Exhibit 10.43 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference.	
		
10.60	Aircraft Management Agreement, dated as of January 1, 2019, by and between Duncan Aviation, Inc. and National Education Loan Network, Inc. and MSD711, LLC, filed as Exhibit 10.44 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference.	
		
10.61	Amended and Restated Consulting and Services Agreement made and entered into as of October 1, 2013, by and between Nelnet, Inc. and Union Bank and Trust Company, filed as Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 and incorporated herein by reference.	
		
10.62	Master Private Loan Program Agreement dated as of August 22, 2018, by and between Union Bank and Trust Company and Nelnet, Inc., filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 and incorporated herein by reference.	
		
10.63±	Education Loan Marketing Agreement dated as of August 22, 2018, by and between Nelnet Consumer Finance, Inc. and Union Bank and Trust Company, filed as Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 and incorporated herein by reference.	
		
10.64±	Private Student Loan Origination and Servicing Agreement dated as of August 22, 2018, by and between Nelnet Servicing, LLC, d/b/a Firstmark Services, and Union Bank and Trust Company, filed as Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 and incorporated herein by reference.	
		
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10.65±±	Private Student Loan Purchase Agreement dated as of November 19, 2019, by and among National Education Loan Network, Inc., as Purchaser, Union Bank and Trust Company, as Purchaser Lender Trustee, and Union Bank and Trust Company, as Seller, filed as Exhibit 10.56 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2019 and incorporated herein by reference.	
		
10.66	Private Loan Sale Agreement dated as of October 9, 2014, by and between Nelnet, Inc. and Union Bank and Trust Company, filed as Exhibit 10.47 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference.	
		
10.67	Private Student Loan Servicing Agreement dated as of October 9, 2014, by and between Nelnet Servicing, LLC and Union Bank and Trust Company, filed as Exhibit 10.48 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference.	
		
10.68	First Amendment of Loan Servicing Agreement dated as of September 27, 2013, by and between Nelnet, Inc. and Union Bank and Trust Company, filed as Exhibit 10.49 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference.	
		
10.69	Private Loan Servicing Letter Agreement dated as of February 27, 2017, by and between Nelnet Servicing, LLC and Union Bank and Trust Company, filed as Exhibit 10.54 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference.	
		
10.70	Form of Trust/Custodial/Safekeeping Agreement by and between National Education Loan Network, Inc., as Principal, and Union Bank and Trust Company, as Trustee, filed as Exhibit 10.55 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference.	
		
10.71	Form of Special Investment Directions by National Education Loan Network, Inc. and its affiliates, as Principal under the Form of Trust/Custodial/Safekeeping Agreement between Principal and Union Bank and Trust Company, as Trustee, filed as Exhibit 10.56 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference.	
		
10.72	Loan Participation Agreement dated as of January 1, 2018 between Union Bank and Trust Company and Union Bank and Trust Company as trustee for National Education Loan Network, Inc., filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 and incorporated herein by reference.	
		
10.73	Amended and Restated Trust Agreement dated as of December 21, 2018 among Nelnet Private Student Loan Financing Corporation, as Depositor, Union Bank and Trust Company, as Trustee, and U.S. Bank Trust National Association, as Delaware Trustee, filed as Exhibit 10.57 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference.	
		
10.74±±	Amended and Restated Trust Agreement, dated effective as of January 11, 2019, by and among Nelnet Private Student Loan Financing Corporation, as Depositor, Union Bank and Trust Company, as Trustee, National Education Loan Network, Inc., as Administrator, and U.S. Bank Trust National Association, as Delaware Trustee, filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and incorporated herein by reference.	
		
10.75±±	Interim Trust Agreement, dated effective as of January 11, 2019, by and among ACM F Acquisition, LLC, as ACM Seller, National Education Loan Network, Inc., as NELN Seller, and Union Bank and Trust Company, as Interim Trustee, filed as Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and incorporated herein by reference.	
		
10.76	SLABS Participation Agreement, dated effective as of May 5, 2020, by and between National Education Loan Network, Inc., and Union Bank and Trust Company, as Trustee, filed as Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference.	
		
10.77*	First Amendment of SLABS Participation Agreement, dated effective as of October 1, 2021, by and between National Education Loan Network, Inc., and Union Bank and Trust Company, as Trustee.	
		
10.78	Parent Company Agreement, dated as of June 26, 2020, by and among the Federal Deposit Insurance Corporation, Nelnet, Inc., Michael Dunlap, and Nelnet Bank, filed as Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference.	
		
10.79	Capital and Liquidity Maintenance Agreement, dated as of June 26, 2020, by and among the Federal Deposit Insurance Corporation, Nelnet, Inc., Michael Dunlap, and Nelnet Bank, filed as Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference.	
		
10.80++	Master Agreement entered into as of October 1, 2020, by and among SDC Allo Holdings, LLC, Nelnet, Inc., and ALLO Communications LLC, filed as Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 and incorporated herein by reference.	
		
81

						
10.81++	Membership Unit Purchase Agreement, dated as of October 1, 2020, by and among SDC Allo Holdings, LLC, Nelnet, Inc., and ALLO Communications LLC, filed as Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 and incorporated herein by reference.	
		
10.82	Omnibus Amendment dated as of October 15, 2020 to the Master Agreement and the Membership Unit Purchase Agreement, by and among SDC Allo Holdings, LLC, Nelnet, Inc., and ALLO Communications LLC, filed as Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 and incorporated herein by reference.	
		
10.83*±±	Form of Amended & Restated Limited Liability Company Operating Agreement for solar energy investments managed by a subsidiary of Nelnet, Inc. and in which certain parties referred to therein with other relationships with Nelnet, Inc. have participated.	
		
10.84*±±	Form of Management Agreement for solar energy investments managed by a subsidiary of Nelnet, Inc. and in which certain parties referred to therein with other relationships with Nelnet, Inc. have participated.	
		
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 Chief Executive Officer Jeffrey R. Noordhoek.	
		
31.2*	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer James D. Kruger.	
		
32**	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
		
101.INS*	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.	
		
101.SCH*	Inline XBRL Taxonomy Extension Schema Document	
		
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document	
		
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document	
		
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document	
		
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document	
		
104*	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).	

						
*	Filed herewith	
 **	Furnished herewith	
 +	Indicates a management contract or compensatory plan or arrangement contemplated by Item 15(a)(3) of Form 10-K.	
 ++	Pursuant to Item 601(a)(5) of Regulation S-K, certain schedules and similar attachments to the exhibit have been omitted. The exhibit is not intended to be, and should not be relied upon as, including disclosures regarding any facts and circumstances relating to the registrant or any of its subsidiaries or affiliates. The exhibit contains representations and warranties by the registrant and the other parties that were made only for purposes of the agreement set forth in the exhibit and as of specified dates. The representations, warranties, and covenants in the agreement were made solely for the benefit of the parties to the agreement, may be subject to limitations agreed upon by the contracting parties (including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the agreement instead of establishing these matters as facts), and may apply contractual standards of materiality or material adverse effect that generally differ from those applicable to investors. In addition, information concerning the subject matter of the representations, warranties, and covenants may change after the date of the agreement, which subsequent information may or may not be fully reflected in the registrant's public disclosures.	
 ±	Certain portions of this exhibit have been redacted and are subject to a confidential treatment order granted by the U.S. Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.	
 ±±	Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.	
 #	Schedules, exhibits, and similar attachments to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K.	

ITEM 16. FORM 10-K SUMMARY
The Company has elected not to include an optional summary of information required by Form 10-K.
82

SIGNATURES
Pursuant to the requirements of 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:	February 28, 2022			
		NELNET, INC.	
				
		By:	/s/ JEFFREY R. NOORDHOEK	
		Name:	 Jeffrey R. Noordhoek	
		Title:	Chief Executive Officer	
			(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 and on the dates indicated.
															
Signature		Title		Date	
					
/s/ JEFFREY R. NOORDHOEK		Chief Executive Officer (Principal Executive Officer)		February 28, 2022	
Jeffrey R. Noordhoek					
					
/s/ JAMES D. KRUGER		Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)		February 28, 2022	
James D. Kruger					
					
/s/ MICHAEL S. DUNLAP		Executive Chairman		February 28, 2022	
Michael S. Dunlap					
					
/s/ JAMES P. ABEL		Director		February 28, 2022	
James P. Abel					
					
/s/ PREETA D. BANSAL		Director		February 28, 2022	
Preeta D. Bansal					
					
/s/ WILLIAM R. CINTANI		Director		February 28, 2022	
William R. Cintani					
					
/s/ KATHLEEN A. FARRELL		Director		February 28, 2022	
Kathleen A. Farrell					
					
/s/ DAVID S. GRAFF		Director		February 28, 2022	
David S. Graff					
					
/s/ THOMAS E. HENNING		Director		February 28, 2022	
Thomas E. Henning					
					
/s/ KIMBERLY K. RATH		Director		February 28, 2022	
Kimberly K. Rath					

83

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, 2021 and 2020	F-4	
Consolidated Statements of Income for the years ended December 31, 2021, 2020, and 2019	F-5	
Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020, and 2019	F-6	
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2021, 2020, and 2019	F-7	
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020, and 2019	F-8	
Notes to Consolidated Financial Statements	F-10	

F - 1

Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Nelnet, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Nelnet, Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, 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) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”
Basis for Opinion
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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of the allowance for loan losses
As discussed in Note 4 to the consolidated financial statements, the Company’s allowance for loan losses as of December 31, 2021 was $127.1 million, of which $103.4 related to the Company’s allowance for loan losses on Non-Nelnet Bank federally insured loans and $16.1 related to the Company’s allowance for loan losses on Non-Nelnet Bank private education loans, collectively, the allowance for loan losses (the ALL). The ALL is the measure of expected credit losses on a pooled basis for those loans that share similar risk characteristics. The Company estimated the ALL using an undiscounted cash flow model. The Company’s methodology is based on relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. For the undiscounted cash flow models, the expected credit losses are the product of multiplying
F - 2

the Company’s estimates of probability of default (PD), loss given default (LGD), and the exposure at default over the expected life of the loans. The undiscounted cash flow model incorporates a single economic forecast scenario and macroeconomic assumptions over the reasonable and supportable forecast periods. After the reasonable and supportable forecast periods, the Company reverts on a straight-line basis over the reversion period to its historical loss rates, evaluated over the historical observation period, for the remaining life of the loans. All such periods are established for each portfolio segment. A portion of the ALL is comprised of qualitative adjustments to historical loss experience.
We identified the assessment of the ALL as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the ALL methodology, including the methods, models, and significant assumptions used to estimate the PD and LGD. Such assumptions included segmentation of loans with similar risk characteristics, the economic forecast scenario and macroeconomic assumptions, the reasonable and supportable forecast periods, and the historical observation period. The assessment also included an evaluation of the conceptual soundness and performance of the PD and LGD models. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the ALL estimate, including controls over the:
•development of the ALL methodology
•continued use and appropriateness of changes made to PD and LGD models
•identification and determination of the significant assumptions used in the PD and LGD models
•performance monitoring of the PD and LGD models
•analysis of the ALL results, trends, and ratios.
We evaluated the Company’s process to develop the ALL estimate by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:
•evaluating the Company’s ALL methodology for compliance with U.S. generally accepted accounting principles
•evaluating judgments made by the Company relative to the assessment and performance testing of the PD and LGD models by comparing them to relevant Company-specific metrics and trends and the applicable industry practices
•assessing the conceptual soundness and performance testing of the PD and LGD models by inspecting the model documentation to determine whether the models are suitable for their intended use
•evaluating the selection of the economic forecast scenarios and underlying assumptions by comparing it to the Company’s business environment and relevant industry practices
•evaluating the length of the historical observation period and reasonable and supportable forecast periods by comparing to specific portfolio risk characteristics and trends
•determining whether the loan portfolio is segmented by similar risk characteristics by comparing to the Company’s business environment and relevant industry practices.
We also assessed the cumulative results of the procedures performed to assess the sufficiency of the audit evidence obtained related to the ALL estimate by evaluating the:
•cumulative results of the audit procedures
•qualitative aspects of the Company’s accounting practices
•potential bias in the accounting estimates.
/s/ KPMG LLP
We have served as the Company’s auditor since 1998.
Lincoln, Nebraska
February 28, 2022
F - 3

												
NELNET, INC. AND SUBSIDIARIES	
Consolidated Balance Sheets	
As of December 31, 2021 and 2020	
 	2021		2020	
	(Dollars in thousands, except share data)	
Assets:	 		 	
Loans and accrued interest receivable (net of allowance for loan losses of $127,113 and
   $175,698, respectively)	$	18,335,197 			20,185,656 		
Cash and cash equivalents:	 		 	
Cash and cash equivalents - not held at a related party	30,128 			33,292 		
Cash and cash equivalents - held at a related party	95,435 			87,957 		
Total cash and cash equivalents	125,563 			121,249 		
Investments	1,588,919 			992,940 		
Restricted cash	741,981 			553,175 		
Restricted cash - due to customers	326,645 			283,971 		
Accounts receivable (net of allowance for doubtful accounts of $1,160 and $1,824, respectively)	163,315 			76,460 		
Goodwill	142,092 			142,092 		
Intangible assets, net	52,029 			75,070 		
Property and equipment, net	119,413 			123,527 		
Other assets	82,887 			92,020 		
	
Total assets	$	21,678,041 			22,646,160 		
Liabilities:	 		 	
Bonds and notes payable	$	17,631,089 			19,320,726 		
Accrued interest payable	4,566 			28,701 		
Bank deposits	344,315 			54,633 		
Other liabilities	379,231 			312,280 		
Due to customers	366,002 			301,471 		
	
Total liabilities	18,725,203 			20,017,811 		
Commitments and contingencies				
Equity:				
Nelnet, Inc. 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 27,239,654
     shares and 27,193,154 shares, respectively	272 			272 		
Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding
     10,676,642 shares and 11,155,571 shares, respectively	107 			112 		
Additional paid-in capital	1,000 			3,794 		
Retained earnings	2,940,523 			2,621,762 		
Accumulated other comprehensive earnings, net	9,304 			6,102 		
Total Nelnet, Inc. shareholders' equity	2,951,206 			2,632,042 		
Noncontrolling interests	1,632 			(3,693)		
Total equity	2,952,838 			2,628,349 		
Total liabilities and equity	$	21,678,041 			22,646,160 		
				
Supplemental information - assets and liabilities of consolidated education and other lending variable interest entities:				
Loans and accrued interest receivable	$	17,981,414 			20,132,996 		
Restricted cash	674,073 			499,223 		
	
Bonds and notes payable	(17,462,456)			(19,355,375)		
Accrued interest payable and other liabilities	(36,276)			(83,127)		
	
Net assets of consolidated education and other lending variable interest entities	$	1,156,755 			1,193,717 		
See accompanying notes to consolidated financial statements.
F - 4

																		
NELNET, INC. AND SUBSIDIARIES	
Consolidated Statements of Income	
Years ended December 31, 2021, 2020, and 2019	
 						
 	2021		2020		2019	
	(Dollars in thousands, except share data)	
Interest income:	 		 		 	
Loan interest	$	482,337 			595,113 			914,256 		
Investment interest	41,498 			24,543 			34,421 		
Total interest income	523,835 			619,656 			948,677 		
Interest expense:	 		 		 	
Interest on bonds and notes payable and bank deposits	176,233 			330,071 			699,327 		
Net interest income	347,602 			289,585 			249,350 		
Less (negative provision) provision for loan losses	(12,426)			63,360 			39,000 		
Net interest income after provision for loan losses	360,028 			226,225 			210,350 		
Other income/expense:	 		 		 	
Loan servicing and systems revenue	486,363 			451,561 			455,255 		
Education technology, services, and payment processing revenue	338,234 			282,196 			277,331 		
Communications revenue	— 			76,643 			64,269 		
Other	78,681 			57,561 			47,918 		
Gain on sale of loans	18,715 			33,023 			17,261 		
Gain from deconsolidation of ALLO	— 			258,588 			— 		
Impairment expense and provision for beneficial interests, net	(16,360)			(24,723)			— 		
Derivative market value adjustments and derivative settlements, net	71,446 			(24,465)			(30,789)		
Total other income/expense	977,079 			1,110,384 			831,245 		
Cost of services:						
Cost to provide education technology, services, and payment processing services	108,660 			82,206 			81,603 		
Cost to provide communications services	— 			22,812 			20,423 		
Total cost of services	108,660 			105,018 			102,026 		
Operating expenses:	 		 		 	
Salaries and benefits	507,132 			501,832 			463,503 		
Depreciation and amortization	73,741 			118,699 			105,049 		

Other expenses	145,469 			160,574 			194,272 		
Total operating expenses	726,342 			781,105 			762,824 		
Income before income taxes	502,105 			450,486 			176,745 		
Income tax expense	115,822 			100,860 			35,451 		
Net income	386,283 			349,626 			141,294 		
Net loss attributable to noncontrolling interests	7,003 			2,817 			509 		
Net income attributable to Nelnet, Inc.	$	393,286 			352,443 			141,803 		
Earnings per common share:						
Net income attributable to Nelnet, Inc. shareholders - basic and diluted	$	10.20 			9.02 			3.54 		
Weighted average common shares outstanding - basic and diluted	38,572,801 			39,059,588 			40,047,402 		
See accompanying notes to consolidated financial statements.
F - 5

																																				
NELNET, INC. AND SUBSIDIARIES	
Consolidated Statements of Comprehensive Income	
Years ended December 31, 2021, 2020, and 2019	
	2021		2020		2019	
	(Dollars in thousands)	
Net income			$	386,283 					349,626 					141,294 		
Other comprehensive income (loss):												
Net changes related to foreign currency translation adjustments	$		(10)					— 					— 		
Net changes related to available-for-sale debt securities:												
Unrealized holding gains (losses) arising during period, net	6,921 					6,637 					(1,199)				
Reclassification of gains recognized in net income, net of losses	(2,695)					(2,521)					— 				
Income tax effect	(1,014)			3,212 			(986)			3,130 			288 			(911)		
Other comprehensive income (loss)			3,202 					3,130 					(911)		
Comprehensive income			389,485 					352,756 					140,383 		
Comprehensive loss attributable to noncontrolling interests			7,003 					2,817 					509 		
Comprehensive income attributable to Nelnet, Inc.			$	396,488 					355,573 					140,892 		

See accompanying notes to consolidated financial statements.
F - 6

																																																																		
NELNET, INC. AND SUBSIDIARIES	
Consolidated Statements of Shareholders' Equity	
Years ended December 31, 2021, 2020, and 2019	
	Nelnet, Inc. Shareholders				
	Preferred stock shares		Common stock shares		Preferred stock		Class A common stock		Class B common stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive earnings		Noncontrolling interests		Total equity	
			Class A		Class B																	
	(Dollars in thousands, except share data)	
Balance as of December 31, 2018	—		28,798,464		11,459,641		$	— 			288 			115 			622 			2,299,556 			3,883 			10,315 			2,314,779 		
Issuance of noncontrolling interests	—		—		—		— 			— 			— 			— 			— 			— 			4,756 			4,756 		
Net income (loss)	—		—		—		— 			— 			— 			— 			141,803 			— 			(509)			141,294 		
Other comprehensive loss	—		—		—		— 			— 			— 			— 			— 			(911)			— 			(911)		
Distribution to noncontrolling interests	—		—		—		— 			— 			— 			— 			— 			— 			(4,103)			(4,103)		
Cash dividends on Class A and Class B common stock - $0.74 per share	—		—		—		— 			— 			— 			— 			(29,485)			— 			— 			(29,485)		
Issuance of common stock, net of forfeitures	—		198,272		—		— 			2 			— 			4,849 			— 			— 			— 			4,851 		
Compensation expense for stock based awards	—		—		—		— 			— 			— 			6,401 			— 			— 			— 			6,401 		
Repurchase of common stock	—		(726,273)		—		— 			(7)			— 			(6,157)			(34,247)			— 			— 			(40,411)		
Impact of adoption of new accounting standard	—		—		—		— 			— 			— 			— 			— 			— 			(6,077)			(6,077)		
Conversion of common stock	—		188,032		(188,032)		— 			2 			(2)			— 			— 			— 			— 			— 		
	
Balance as of December 31, 2019	—		28,458,495		11,271,609		— 			285 			113 			5,715 			2,377,627 			2,972 			4,382 			2,391,094 		
Issuance of noncontrolling interests	—		—		—		— 			— 			— 			— 			— 			— 			219,265 			219,265 		
Net income (loss)	—		—		—		— 			— 			— 			— 			352,443 			— 			(2,817)			349,626 		
Other comprehensive income	—		—		—		— 			— 			— 			— 			— 			3,130 			— 			3,130 		
Distribution to noncontrolling interests	—		—		—		— 			— 			— 			— 			— 			— 			(16,123)			(16,123)		
Cash dividends on Class A and Class B common stock - $0.82 per share	—		—		—		— 			— 			— 			— 			(31,778)			— 			— 			(31,778)		
Issuance of common stock, net of forfeitures	—		213,015		—		— 			2 			— 			5,626 			— 			— 			— 			5,628 		
Compensation expense for stock based awards	—		—		—		— 			— 			— 			7,290 			— 			— 			— 			7,290 		
Repurchase of common stock	—		(1,594,394)		—		— 			(16)			— 			(14,837)			(58,505)			— 			— 			(73,358)		
Impact of adoption of new accounting standard	—		—		—		— 			— 			— 			— 			(18,868)			— 			— 			(18,868)		
Conversion of common stock	—		116,038		(116,038)		— 			1 			(1)			— 			— 			— 			— 			— 		
Acquisition of noncontrolling interest	—		—		—		— 			— 			— 			— 			(375)			— 			(225)			(600)		
Deconsolidation of noncontrolling interest - ALLO	—		—		—		— 			— 			— 			— 			— 			— 			(208,175)			(208,175)		
Other equity transactions, net of costs incurred to sell shares of subsidiary	—		—		—		— 			— 			— 			— 			1,218 			— 			— 			1,218 		
Balance as of December 31, 2020	—		27,193,154		11,155,571		— 			272 			112 			3,794 			2,621,762 			6,102 			(3,693)			2,628,349 		
Issuance of noncontrolling interests	—		—		—		— 			— 			— 			— 			— 			— 			61,087 			61,087 		
Net income (loss)	—		—		—		— 			— 			— 			— 			393,286 			— 			(7,003)			386,283 		
Other comprehensive income	—		—		—		— 			— 			— 			— 			— 			3,202 			— 			3,202 		
Distribution to noncontrolling interests	—		—		—		— 			— 			— 			— 			— 			— 			(48,759)			(48,759)		
Cash dividends on Class A and Class B common stock - $0.90 per share	—		—		—		— 			— 			— 			— 			(34,457)			— 			— 			(34,457)		
Issuance of common stock, net of forfeitures	—		280,845		—		— 			2 			— 			4,827 			— 			— 			— 			4,829 		
Compensation expense for stock based awards	—		—		—		— 			— 			— 			10,415 			— 			— 			— 			10,415 		
Repurchase of common stock	—		(713,274)		—		— 			(7)			— 			(18,036)			(40,068)			— 			— 			(58,111)		
	
Conversion of common stock	—		478,929		(478,929)		— 			5 			(5)			— 			— 			— 			— 			— 		

	
Balance as of December 31, 2021	—		27,239,654		10,676,642		$	— 			272 			107 			1,000 			2,940,523 			9,304 			1,632 			2,952,838 		
																						
See accompanying notes to consolidated financial statements.

F - 7

																					
NELNET, INC. AND SUBSIDIARIES	
Consolidated Statements of Cash Flows	
Years ended December 31, 2021, 2020, and 2019	
 		2021		2020		2019	
		(Dollars in thousands)	
Net income attributable to Nelnet, Inc.		$	393,286 			352,443 			141,803 		
Net loss attributable to noncontrolling interests		(7,003)			(2,817)			(509)		
Net income		386,283 			349,626 			141,294 		
Adjustments to reconcile net income to net cash provided by operating activities:		 		 			
Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs		132,325 			198,473 			192,662 		
Loan discount accretion		(7,990)			(35,285)			(35,824)		
(Negative provision) provision for loan losses		(12,426)			63,360 			39,000 		
Derivative market value adjustments		(92,813)			28,144 			76,195 		
	
Payments to terminate derivative instruments, net		— 			— 			(12,530)		
	
Proceeds from (payments to) clearinghouse - initial and variation margin, net		91,294 			(26,747)			(70,685)		
Gain from deconsolidation of ALLO, including cash impact		— 			(287,579)			— 		
Gain from sale of loans		(18,715)			(33,023)			(17,261)		

Gain from investments, net		(3,811)			(14,055)			(3,095)		
Loss on (gain from) repurchases and extinguishments of debt, net		6,775 			(1,924)			16,553 		
Purchases of equity securities, net		(42,916)			— 			— 		
Deferred income tax expense (benefit)		55,622 			7,974 			(7,265)		
Non-cash compensation expense		10,673 			16,739 			6,781 		
Provision for beneficial interests and impairment expense, net		16,360 			24,723 			— 		
Other		— 			186 			584 		
Decrease (increase) in loan and investment accrued interest receivable		1,378 			(61,090)			(54,586)		
(Increase) decrease in accounts receivable		(86,982)			40,880 			(55,949)		
Decrease (increase) in other assets, net		39,439 			59,182 			(19,858)		
Decrease in the carrying amount of ROU asset, net		7,170 			11,594 			8,793 		
Decrease in accrued interest payable		(24,135)			(18,584)			(14,394)		
Increase in other liabilities, net		29,775 			35,907 			49,100 		
Decrease in the carrying amount of lease liability		(6,978)			(9,401)			(8,678)		
Increase (decrease) in due to customers		64,539 			(136,285)			68,078 		
Net cash provided by operating activities		544,867 			212,815 			298,915 		
Cash flows from investing activities:		 		 			
Purchases and originations of loans		(1,318,605)			(1,459,696)			(1,906,669)		
Purchases of loans from a related party		(22,678)			(147,539)			(101,538)		
Net proceeds from loan repayments, claims, and capitalized interest		3,103,776 			2,644,347 			3,462,391 		
Proceeds from sale of loans		85,906 			136,126 			196,564 		
Purchases of available-for-sale securities		(734,817)			(471,510)			(1,010)		
Proceeds from sales of available-for-sale securities		160,976 			173,784 			105 		
Proceeds from and sale of beneficial interest in loan securitizations, net		40,602 			44,213 			6,593 		
Purchases of other investments		(253,894)			(168,216)			(103,250)		
Proceeds from other investments		191,821 			13,011 			63,879 		
Purchases of held-to-maturity debt securities		(8,200)			— 			— 		
Purchases of property and equipment		(58,952)			(113,312)			(92,499)		
	
Business acquisitions, net of cash and restricted cash acquired		— 			(29,989)			— 		
	
Net cash provided by investing activities		$	1,185,935 			621,219 			1,524,566 		
							
F - 8

																					
NELNET, INC. AND SUBSIDIARIES	
Consolidated Statements of Cash Flows (Continued)	
			
		2021		2020		2019	
		(Dollars in thousands)	
Cash flows from financing activities:		 		 			
Payments on bonds and notes payable		$	(3,683,770)			(3,129,485)			(4,698,878)		
Proceeds from issuance of bonds and notes payable		1,947,559 			1,884,689 			2,997,972 		
Payments of debt issuance costs		(7,093)			(8,674)			(14,406)		
Payments to extinguish debt		— 			— 			(14,030)		
	
Increase in bank deposits, net		289,682 			54,633 			— 		
Dividends paid		(34,457)			(31,778)			(29,485)		
Repurchases of common stock		(58,111)			(73,358)			(40,411)		
Proceeds from issuance of common stock		1,465 			1,653 			1,552 		
Acquisition of noncontrolling interest		— 			(600)			— 		
Issuance of noncontrolling interests		50,716 			205,768 			4,650 		

	

	
Distribution to noncontrolling interests		(878)			(1,088)			(235)		
Net cash used in financing activities		(1,494,887)			(1,098,240)			(1,793,271)		
Effect of exchange rate changes on cash		(121)			— 			— 		
Net increase (decrease) in cash, cash equivalents, and restricted cash		235,794 			(264,206)			30,210 		
Cash, cash equivalents, and restricted cash, beginning of period		958,395 			1,222,601 			1,192,391 		
Cash, cash equivalents, and restricted cash, end of period		$	1,194,189 			958,395 			1,222,601 		

	

	

Supplemental disclosures of cash flow information:						
Cash disbursements made for interest	$	152,173 			301,570 			657,436 		
Cash disbursements made for income taxes, net of refunds and credits received (a)	$	18,659 			29,685 			17,672 		
Cash disbursements made for operating leases	$	7,970 			11,488 			9,966 		
						
Noncash operating, investing, and financing activity:						
ROU assets obtained in exchange for lease obligations	$	4,228 			4,282 			8,731 		
Receipt of beneficial interest in consumer loan securitizations	$	23,506 			52,501 			39,780 		
Distribution to noncontrolling interests	$	47,881 			15,035 			3,868 		
Issuance of noncontrolling interests	$	10,371 			4,132 			— 		

(a) For 2021, 2020, and 2019 the Company utilized $34.1 million, $53.9 million, and $31.8 million of federal and state tax credits, respectively, related primarily to renewable energy.
Supplemental disclosures of noncash activities regarding the adoption of the new accounting standard for measurement of credit losses on January 1, 2020 are contained in note 3.
Supplemental disclosures of noncash activities regarding the Company's recapitalization of ALLO in 2020 and business acquisitions during 2020 are contained in note 2 and note 8, respectively.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheets to the total of the amounts reported in the consolidated statements of cash flows.

	As of		As of		As of		As of	
	December 31, 2021		December 31, 2020		December 31, 2019		December 31, 2018	
Total cash and cash equivalents	$	125,563 			121,249 			133,906 			121,347 		
Restricted cash	741,981 			553,175 			650,939 			701,366 		
Restricted cash - due to customers	326,645 			283,971 			437,756 			369,678 		
Cash, cash equivalents, and restricted cash	$	1,194,189 			958,395 			1,222,601 			1,192,391 		

See accompanying notes to consolidated financial statements.

F - 9

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

1. Description of Business
Nelnet, Inc. and its subsidiaries (“Nelnet” or the “Company”) is a diverse, innovative company with a purpose to serve others and a vision to make dreams possible. The largest operating businesses engage in loan servicing and education technology, services, and payment processing, and the Company also has a significant investment in communications. A significant portion of the Company's revenue is net interest income earned on a portfolio of federally insured student loans. The Company also makes investments to further diversify the Company both within and outside of its historical core education-related businesses, including, but not limited to, investments in early-stage and emerging growth companies, real estate, and renewable energy (solar). Substantially all revenue from external customers is earned, and all long-lived assets are located, in the United States.
The Company was formed as a Nebraska corporation in 1978 to service federal student loans for two local banks. The Company built on this initial foundation as a servicer to become a leading originator, holder, and servicer of federal student loans, principally consisting of loans originated under the Federal Family Education Loan Program (“FFELP” or “FFEL Program”) of the U.S. Department of Education (the “Department”).
The Health Care and Education Reconciliation Act of 2010 (the “Reconciliation Act of 2010”) discontinued loan originations under the FFEL Program, effective July 1, 2010, and requires that all new federal student loan originations be made directly by the Department through the Federal Direct Loan Program. This law does not alter or affect the terms and conditions of existing FFELP loans. As a result of this law, the Company no longer originates FFELP loans. However, a significant portion of the Company’s income continues to be derived from its existing FFELP student loan portfolio. Interest income on the Company’s existing FFELP loan portfolio will decline over time as the portfolio is paid down. Since all FFELP loans will eventually run off, a key objective of the Company is to reposition itself for the post-FFELP environment. To reduce its reliance on interest income on student loans, the Company has expanded its services and products. This expansion has been accomplished through internal growth and innovation as well as business and certain investment acquisitions. The Company is also actively expanding its private education and consumer loan portfolios, and in November 2020 launched Nelnet Bank (as further discussed below). In addition, the Company has been servicing federally owned student loans for the Department since 2009.
The Company's reportable operating segments include:
• Loan Servicing and Systems (“LSS”)
• Education Technology, Services, and Payment Processing (“ETS&PP”)
• Communications
• Asset Generation and Management (“AGM”)
• Nelnet Bank
A description of each reportable operating segment is included below. See note 15 for additional information on the Company's segment reporting.
Loan Servicing and Systems
The primary service offerings of the Loan Servicing and Systems operating segment (known as Nelnet Diversified Services (“NDS”)) include:
•Servicing federally-owned student loans for the Department of Education
•Servicing FFELP loans
•Originating and servicing private education and consumer loans
•Backup servicing for FFELP, private education, and consumer loans
•Providing student loan servicing software and other information technology products and services
•Customer acquisition, management services, and backup servicing for community solar developers
•Providing outsourced services including call center, processing, and technology services
LSS provides for the servicing of the Company's student loan portfolio and the portfolios of third parties. The loan servicing activities include loan conversion activities, application processing, borrower updates, customer service, payment processing, due diligence procedures, funds management reconciliations, and claim processing. These activities are performed internally for the Company's portfolio, in addition to generating external fee revenue when performed for third-party clients. In addition, LSS provides backup servicing to third-parties, which allows a transfer of the customer’s servicing volume to the Company’s platform and becoming a full servicing customer if their existing servicer cannot perform their duties.
F - 10

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

Nelnet Servicing, LLC (“Nelnet Servicing”) and Great Lakes Educational Loan Services, Inc. (“Great Lakes”), subsidiaries of the Company, are two of the current seven private sector entities that have student loan servicing contracts with the Department to provide servicing capacity for loans owned by the Department.
This segment also provides student loan servicing software, which is used internally and licensed to third-party student loan holders and servicers. These software systems have been adapted so that they can be offered as hosted servicing software solutions usable by third parties to service various types of student loans, including Federal Direct Loan Program and FFEL Program loans.
This segment also provides business process outsourcing primarily specializing in contact center management. The contact center solutions and services include taking inbound calls, helping with outreach campaigns and sales, interacting with customers through multi-channels, and processing and technology services.
Education Technology, Services, and Payment Processing
The Education Technology, Services, and Payment Processing segment (known as Nelnet Business Services (“NBS”)) provides education services, payment technology, and community management solutions for K-12 schools, higher education institutions, churches, and businesses in the United States and internationally. NBS provides service and technology under five divisions as follows:
FACTS provides solutions that elevate the education experience in the K-12 market for school administrators, teachers, and families. FACTS offers (i) financial management, including tuition payment plans and financial needs assessment (grant and aid); (ii) school administration solutions, including school information system software that automates the flow of information between school administrators, teachers, and parents and includes administrative processes such as scheduling, cafeteria management, attendance, and grade book management; (iii) enrollment and communications, including website design and cost effective admissions software; (iv) advancement (giving management), including a comprehensive donation platform that streamlines donor communications, organizes donor information, and provides access to data analysis and reporting; and (v) education development, including customized professional development and coaching services, educational instruction services, and innovative technology products that aid in teacher and student evaluations.
Nelnet Campus Commerce delivers payment technology to higher education institutions. Nelnet Campus Commerce solutions include (i) tuition management, including tuition payment plans and service and technology for student billings, payments, and refunds; and (ii) integrated commerce including solutions for in-person, online, and mobile payment experiences on campus.
PaymentSpring provides secure payment processing technology. PaymentSpring supports and provides payment processing services, including credit card and electronic transfer, to the other divisions of NBS in addition to other industries and software platforms across the United States.
Nelnet Community Engagement provides faith community engagement, giving management, and learning management services and technologies. Nelnet Community Engagement serves customers in the technology, nonprofit, religious, health care, and professional services industries.
Nelnet International provides its services and technology in more than 50 countries with the largest concentrations in Australia, New Zealand, and the Asia-Pacific region. Nelnet International serves customers in the education, local government, and healthcare industries. Nelnet International’s suite of services include an integrated commerce payment platform, financial management and tuition payment plan services, and a school management platform that provides administrative, information management, financial management, and communication functions for K-12 schools.
Communications
ALLO Communications LLC (“ALLO”) provides pure fiber optic service to homes and businesses for internet, television, and telephone services. ALLO derives its revenue primarily from the sale of communication services to residential, governmental, and business customers in Nebraska and Colorado. Internet and television services include revenue from residential and business customers for subscriptions to ALLO's data and video products. ALLO data services provide high-speed internet access over ALLO's all-fiber network at various symmetrical speeds of up to 1 gigabit per second for residential customers and is capable of providing symmetrical speeds of over 1 gigabit per second for business customers. Telephone services include local and long distance telephone service, hosted PBX services, and other services.
F - 11

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

On December 21, 2020 the Company deconsolidated ALLO from the Company’s consolidated financial statements due to ALLO’s recapitalization. The recapitalization of ALLO was not considered a strategic shift in the Company’s involvement with ALLO and ALLO’s results of operations, prior to deconsolidation, are presented by the Company as a reportable operating segment. See note 2, “ALLO Recapitalization,” for a description of this transaction and the Company’s continued involvement.
Asset Generation and Management
The Company's Asset Generation and Management operating segment includes the acquisition, management, and ownership of the Company's loan assets (excluding loan assets held by Nelnet Bank). Substantially all loan assets included in this segment are student loans originated under the FFEL Program, including the Stafford Loan Program, the PLUS Loan program, and loans that reflect the consolidation into a single loan of certain previously separate borrower obligations (“Consolidation” loans). AGM also acquires private education and consumer loans. AGM generates a substantial portion of its earnings from the spread, referred to as loan spread, between the yield it receives on its loan portfolio and the associated costs to finance such portfolio. The loan assets are held in a series of lending subsidiaries and associated securitization trusts designed specifically for this purpose. In addition to the loan spread earned on its portfolio, all costs and activity associated with managing the portfolio, such as servicing of the assets and debt maintenance, are included in this segment.
Nelnet Bank
On November 2, 2020, the Company obtained final approval for federal deposit insurance from the Federal Deposit Insurance Corporation ("FDIC") and for a bank charter from the Utah Department of Financial Institutions ("UDFI") in connection with the establishment of Nelnet Bank, and Nelnet Bank launched operations. Nelnet Bank operates as an internet Utah-chartered industrial bank franchise focused on the private education loan marketplace, with a home office in Salt Lake City, Utah. Nelnet Bank serves and plans to serve a niche market, with a concentration in the private education and unsecured consumer loan markets.
Corporate and Other Activities
Other business activities and operating segments that are not reportable are combined and included in Corporate and Other Activities. Corporate and Other Activities include the following items:
•The operating results of Whitetail Rock Capital Management, LLC (“WRCM”), the Company's SEC-registered investment advisor subsidiary
•The majority of the Company’s investment activities
•Interest expense incurred on unsecured and certain other corporate related debt transactions
•Other product and service offerings that are not considered reportable operating segments
Corporate and Other Activities also includes certain corporate activities and overhead functions related to executive management, internal audit, human resources, accounting, legal, enterprise risk management, information technology, occupancy, and marketing. These costs are allocated to each operating segment based on estimated use of such activities and services.

2. ALLO Recapitalization
On October 1, 2020, the Company entered into various agreements with SDC, a third party global digital infrastructure investor, and ALLO, then a majority owned communications subsidiary of the Company, for various transactions contemplated by the parties in connection with a recapitalization and additional funding for ALLO.
The agreements provided for a series of interrelated transactions, whereby on October 15, 2020, ALLO received proceeds of $197.0 million from SDC as the purchase price for the issuance of non-voting preferred membership units of ALLO, and redeemed $160.0 million of non-voting preferred membership units of ALLO held by the Company. On December 21, 2020, the non-voting preferred membership units of ALLO held by SDC automatically converted into voting membership units of ALLO pursuant to the terms of the agreements upon the receipt on December 21, 2020 of the required approvals from applicable regulatory authorities. As a result of such conversion, SDC, the Company, and members of ALLO’s management own approximately 48 percent, 45 percent, and 7 percent, respectively, of the outstanding voting membership interests of ALLO, and the Company deconsolidated ALLO from the Company’s consolidated financial statements.
F - 12

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

Upon the deconsolidation of ALLO, the Company recorded its 45 percent voting membership interests in ALLO at fair value, and accounts for such investment under the Hypothetical Liquidation at Book Value (“HLBV”) method of accounting. In addition, the Company recorded its remaining non-voting preferred membership interests in ALLO at fair value, and accounts for such investment as a separate equity investment. The agreements between the Company, SDC, and ALLO provide that they will use commercially reasonable efforts (which expressly excludes requiring ALLO to raise any additional equity financing or sell any assets) to cause ALLO to redeem, on or before April 2024, the remaining preferred membership units of ALLO held by the Company, plus the amount of accrued and unpaid preferred return on such units. The preferred membership units earn a preferred annual return of 6.25 percent.
The voting membership interests and non-voting preferred membership interests of ALLO are included on the consolidated balance sheet in “investments.” See note 7 for additional information.
As a result of the deconsolidation of ALLO on December 21, 2020, the Company recognized a gain of $258.6 million as summarized below.
						
	As of
December 21, 2020	
Voting interest/equity method investment - recorded at fair value	$	132,960 		
Preferred membership interest investment - recorded at fair value	228,530 		
Less: ALLO assets deconsolidated:		
Cash and cash equivalents – not held at a related party	(299)		
Cash and cash equivalents – held at a related party	(28,692)		
Accounts receivable	(4,138)		
Goodwill	(21,112)		
Intangible assets	(6,083)		
Property and equipment, net	(245,295)		
Other assets	(29,643)		
Other liabilities	24,185 		
Noncontrolling interests	208,175 		
Gain recognized upon deconsolidation of ALLO	$	258,588 		
		
The impact to the Company’s 2020 operating results as a result of the ALLO recapitalization is summarized below:

Gain from deconsolidation	$	258,588 		
Compensation expense (note 1)	(9,298)		
Obligation to SDC (note 2)	(2,339)		
	$	246,951 		

Note 1: On October 1, 2020 (prior to the deconsolidation of ALLO), ALLO recognized compensation expense related to the modification of certain equity awards previously granted to members of ALLO’s management.
Note 2:    As part of the ALLO recapitalization transaction, the Company and SDC entered into an agreement, in which the Company has a contingent payment obligation to pay SDC a contingent payment amount of $25.0 million to $35.0 million in the event the Company disposes of its voting membership interests of ALLO that it holds and realizes from such disposition certain targeted return levels. The Company recognized the estimated fair value of the contingent payment as of December 31, 2020 to be $2.3 million, which is included in “other liabilities” on the consolidated balance sheet.

F - 13

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

3. Summary of Significant Accounting Policies and Practices
Consolidation
The consolidated financial statements include the accounts of Nelnet, Inc. and its consolidated subsidiaries. In addition, the accounts of all variable interest entities (“VIEs”) of which the Company has determined that it is the primary beneficiary are included in the consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation.
Variable Interest Entities
The Company assesses its partnerships and joint ventures to determine if the entity meets the qualifications of a VIE. The Company performs a qualitative assessment of each VIE to determine if it is the primary beneficiary. The primary beneficiary is the entity which has both: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE. The Company examines specific criteria and uses judgment when determining whether an entity is a VIE and whether it is the primary beneficiary. The Company performs this review initially at the time it enters into a partnership or joint venture agreement and reassess upon reconsideration events.
VIEs - Consolidated
The Company is required to consolidate VIEs in which it has determined it is the primary beneficiary.
The Company's education and other lending subsidiaries are engaged in the securitization of finance assets. These lending subsidiaries hold beneficial interests in eligible loans, subject to creditors with specific interests. The liabilities of the Company's lending subsidiaries are not the direct obligations of Nelnet, Inc. or any of its other subsidiaries. Each lending subsidiary is structured to be bankruptcy remote, meaning that it should not be consolidated in the event of bankruptcy of the parent company or any other subsidiary. The Company is generally the administrator and master servicer of the securitized assets held in its lending subsidiaries and owns the residual interest of the securitization trusts. For accounting purposes, the transfers of loans to the securitization trusts do not qualify as sales. Accordingly, all the financial activities and related assets and liabilities, including debt, of the securitizations are reflected in the Company's consolidated financial statements and are summarized as supplemental information on the balance sheet.
VIEs - Not consolidated
The Company is not required to consolidate VIEs in which it has determined it is not the primary beneficiary.
In December of 2020, Wells Fargo announced the sale of its approximately $10.0 billion portfolio of private education loans representing approximately 445,000 borrowers. The Company entered into a joint venture with other investors to acquire the loans. During 2021, the joint venture completed asset-backed securitization transactions to permanently finance a total of $8.7 billion of the private education loans purchased by the joint venture (which represented the total remaining loans originally purchased from Wells Fargo, factoring in borrower payments from the date of purchase). Under the terms of the joint venture agreements, the Company is the servicer of the portfolio, owns an approximate 8 percent interest in residual interests in securitizations of the loans, and serves as the sponsor and administrator for the loan securitizations completed by the joint venture. See note 7, “Investments” for a description of, and the Company’s accounting for, these transactions, and disclosure of the Company’s maximum exposure.
The Company makes investments in entities that promote renewable energy sources (solar). The Company’s investments in these entities generate a return primarily through the realization of federal income tax credits, operating cash flows, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods. These investments are included in "investments" on the consolidated balance sheets and accounted for under the HLBV method of accounting. The carrying value of these investments are reduced by tax credits earned when the solar project is placed in service. The Company’s unfunded capital and other commitments related to these unconsolidated VIEs are included in “other liabilities” on the consolidated balance sheet. The Company’s maximum exposure to loss from these unconsolidated VIEs include the investment, unfunded capital commitments, and previously recorded tax credits which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level. The tax credit recapture period ratably decreases over five years from when the project is placed in service. While the Company believes potential losses from these investments are remote, the maximum exposure was determined by assuming a scenario where the energy-producing projects completely fail and do not meet certain government compliance requirements resulting in recapture of the related tax credits.
F - 14

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

The following table provides a summary of solar investment VIEs that the Company has not consolidated:

	As of December 31,	
	2021		2020	
Investment carrying amount	$	(41,030)			(26,006)		
Tax credits subject to recapture	111,289 			101,943 		
Unfunded capital and other commitments	4,350 			13,330 		
Company’s maximum exposure to loss	74,609 			89,267 		
Exposure syndicated to third-party investors	71,511 			15,562 		
Maximum exposure to loss	$	146,120 			104,829 		
As of December 31, 2021, the Company owned 45 percent of the economic rights of ALLO Communications LLC and has a disproportional 43 percent of the voting rights related to all operating decisions for ALLO's business. See note 1, “Description of Business,” for a description of ALLO, including the primary services offered. See note 2, “ALLO Recapitalization,” for disclosure of ALLO’s recapitalization and the Company’s initial recognition of its voting interest/equity method and non-voting preferred membership investments. See note 7, “Investments,” for the Company’s carrying value of its voting interest/equity method and non-voting preferred membership investments, which is the Company’s maximum exposure to loss.
Noncontrolling Interests
Amounts for noncontrolling interests reflect the proportionate share of membership interest (equity) and net income attributable to the holders of minority membership interests in the following entities:
•Whitetail Rock Capital Management, LLC - WRCM is the Company’s SEC-registered investment advisor subsidiary. WRCM issued 10 percent minority membership interests on January 1, 2012.
In addition, the Company has established multiple entities for the purpose of investing in renewable energy (solar) and federal opportunity zone programs in which it has noncontrolling members.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities, reported amounts of revenues and expenses, and other disclosures. Actual results may differ from those estimates.
Loans Receivable
Loans consist of federally insured student loans, private education loans, and consumer loans. If the Company has the ability and intent to hold loans for the foreseeable future, such loans are held for investment and carried at amortized cost. Amortized cost includes the unamortized premium or discount and capitalized origination costs and fees, all of which are amortized to interest income. Loans which are held-for-investment also have an allowance for loan loss as needed. Any loans the Company has the ability and intent to sell are classified as held for sale and are carried at the lower of cost or fair value. Loans which are held for sale do not have the associated premium or discount and origination costs and fees amortized into interest income and there is also no related allowance for loan losses. There were no loans classified as held for sale as of December 31, 2021 and 2020.
Federally insured loans were originated under the FFEL Program by certain eligible lenders as defined by the Higher Education Act of 1965, as amended (the “Higher Education Act”). These loans, including related accrued interest, are guaranteed at their maximum level permitted under the Higher Education Act by an authorized guaranty agency, which has a contract of reinsurance with the Department. The terms of the loans, which vary on an individual basis, generally provide for repayment in monthly installments of principal and interest. Generally, Stafford and PLUS loans have repayment periods between five and ten years. Consolidation loans have repayment periods of twelve to thirty years. FFELP loans do not require repayment while the borrower is in-school, and during the grace period immediately upon leaving school. Under the Higher Education Act, a borrower may also be granted a deferment or forbearance for a period of time based on need, during which time the borrower is not considered to be in repayment. Interest continues to accrue on loans in the in-school, deferment, and forbearance program periods. In addition, eligible borrowers may qualify for income-driven repayment plans offered by the Department. These plans determine the borrower's payment amount based on their discretionary income and may extend their repayment period. Interest
F - 15

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

rates on federally insured student loans may be fixed or variable, dependent upon the type of loan, terms of the loan agreements, and date of origination.
Substantially all FFELP loan principal and related accrued interest is guaranteed as provided by the Higher Education Act. These guarantees are subject to the performance of certain loan servicing due diligence procedures stipulated by applicable Department regulations. If these due diligence requirements are not met, affected student loans may not be covered by the guarantees in the event of borrower default. Such student loans are subject to “cure” procedures and reinstatement of the guarantee under certain circumstances.
Loans also include private education and consumer loans. Private education loans are loans to students or their families that are non-federal loans and loans not insured or guaranteed under the FFEL Program. These loans are used primarily to bridge the gap between the cost of higher education and the amount funded through financial aid, federal loans, or borrowers' personal resources. The terms of the private education loans, which vary on an individual basis, generally provide for repayment in monthly installments of principal and interest over a period of up to thirty years. The private education loans are not covered by a guarantee or collateral in the event of borrower default. Consumer loans are unsecured loans to an individual for personal, family, or household purposes. The terms of the consumer loans, which vary on an individual basis, generally provide for repayment in weekly or monthly installments of principal and interest over a period of up to six years.
Allowance for Loan Losses
On January 1, 2020, the Company adopted ASU No. 2016-13, Financial Instruments – Credit Losses (“Topic 326”): Measurement of Credit Losses on Financial Instruments, which replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss ("CECL") methodology. The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for financial assets measured at amortized cost at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. The Company adopted Topic 326 using the modified retrospective method. As such, the results for reporting periods beginning after January 1, 2020 are presented under Topic 326 (recognizing estimated credit losses expected to occur over the asset's remaining life) while prior period amounts continue to be reported in accordance with previously applicable GAAP (recognizing estimated credit losses using an incurred loss model); therefore, the comparative information for 2019 is not comparable to the information presented for 2020 and 2021. Adoption of the new guidance primarily impacted the allowance for loan losses related to the Company's loan portfolio. Upon adoption, the Company recorded an increase to the allowance for loan losses of $91.0 million and decreased retained earnings, net of tax, by $18.9 million.
Allowance for Loan Losses - Accounting Policies Under Topic 326
The allowance for loan losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans as of the balance sheet date. Such allowance is based on the credit losses expected to arise over the life of the asset which includes consideration of prepayments. Loans are charged off when management determines the loan is uncollectible. Charge-offs are recognized as a reduction to the allowance for loan losses. Expected recoveries of amounts previously charged off, not to exceed the aggregate of the amount previously charged off, are included in the estimate of the allowance for loan losses at the balance sheet date.
The Company aggregates loans with similar risk characteristics into pools to estimate its expected credit losses. The Company evaluates such pooling decisions each quarter and makes adjustments as risk characteristics change.
The Company determines its estimated credit losses for the following financial assets as follows:
Loans receivable
Management has determined that the federally insured, private education, and consumer loan portfolios each meet the definition of a portfolio segment, which is defined as the level at which an entity develops and documents a systematic method for determining its allowance for loan losses. Accordingly, the portfolio segment disclosures are presented on this basis in note 4 for each of these portfolios. The Company does not disaggregate its portfolio segment loan portfolios into classes of financing receivables.
The Company utilizes an undiscounted cash flow methodology in determining its lifetime expected credit losses on its federally insured and private education loan portfolios and a remaining life methodology for its consumer loan portfolio. For the undiscounted cash flow models, the expected credit losses are the product of multiplying the Company’s estimates of
F - 16

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

probability of default and loss given default and the exposure of default over the expected life of the loans. For the remaining life method, the expected credit losses are the product of multiplying the Company’s estimated net loss rate by the exposure at default over the expected life of the loans. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current economic conditions, and reasonable and supportable forecasts. The Company has determined that, for modeling current expected credit losses, the Company can reasonably estimate expected losses that incorporate current economic conditions and forecasted probability weighted economic scenarios up to a one-year period. Macroeconomic factors used in the models include such variables as unemployment rates, gross domestic product, and consumer price index. After the "reasonable and supportable" period, the Company reverts to its actual long-term historical loss experience in the historical observation period. The Company uses a straight line reversion method over two years. Historical credit loss experience provides the basis for the estimation of expected credit losses. A portion of the allowance is comprised of qualitative adjustments to historical loss experience.
Qualitative adjustments consider the following factors, as applicable, for each of the Company’s loan portfolios: student loans in repayment versus those in nonpaying status; delinquency status; type of private education or consumer loan program; trends in defaults in the portfolio based on Company and industry data; past experience; trends in federally insured student loan claims rejected for payment by guarantors; changes in federal student loan programs; and other relevant qualitative factors.
The federal government guarantees 97 percent of the principal of and the interest on federally insured student loans disbursed on and after July 1, 2006 (and 98 percent for those loans disbursed on and after October 1, 1993 and prior to July 1, 2006), which limits the Company’s loss exposure on the outstanding balance of the Company’s federally insured portfolio. Federally insured student loans disbursed prior to October 1, 1993 are fully insured. Private education and consumer loans are unsecured, with neither a government nor a private insurance guarantee. Accordingly, the Company bears the full risk of loss on these loans if the borrower and co-borrower, if applicable, default. The Company places private education and consumer loans on nonaccrual status when the collection of principal and interest is 90 days past due and charges off the loan when the collection of principal and interest is 120 days or 180 days past due, depending on type of loan program. Collections, if any, are reflected as a recovery through the allowance for loan losses.
Purchased Loans Receivable with Credit Deterioration (“PCD”)
The Company has purchased federally insured rehabilitation loans that have experienced more than insignificant credit deterioration since origination. Rehabilitation loans are loans that have previously defaulted, but for which the borrower has made a specified number of on-time payments. Although rehabilitation loans benefit from the same guarantees as other federally insured loans, rehabilitation loans have generally experienced redefault rates that are higher than default rates for federally insured loans that have not previously defaulted. These PCD loans are recorded at the amount paid. An allowance for loan losses is determined using the same methodology as for other loans held for investment. The sum of the loans’ purchase price and allowance for loan losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized or accreted into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense.
Loan Accrued Interest Receivable
Accrued interest receivable on loans is combined and presented with the loans receivable amortized cost balance on the Company’s consolidated balance sheet.
For the Company’s federally insured loan portfolio, the Company records an allowance for credit losses for accrued interest receivables. For federally insured loans, accrued interest receivable is typically charged-off when the contractual payment of principal or interest has become greater than 270 days past due. Charge-offs of accrued interest receivable are recognized as a reduction to the allowance for loan losses.
For the Company’s private education and consumer loan portfolios, the Company does not measure an allowance for credit losses for accrued interest receivables. For private education and consumer loans, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due. Charge-offs of accrued interest receivable are recognized by reversing interest income.
Allowance for Loan Losses - Accounting Policies Prior to Adoption of Topic 326
Prior to the adoption of Topic 326 effective January 1, 2020, the allowance for loan losses represented management's estimate of probable losses on loans. The provision for loan losses for periods ended prior to January 1, 2020 reflected the activity for
F - 17

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

the applicable period and provided an allowance at a level that the Company's management believed was appropriate to cover probable losses inherent in the loan portfolio. The Company evaluated the adequacy of the allowance for loan losses using a historical loss rate methodology adjusted for qualitative factors separately on each of its federally insured, private education, and consumer loan portfolios. These evaluation processes were subject to numerous judgments and uncertainties including the selection of loss rates over time and determination of the loss emergence period.
Cash and Cash Equivalents and Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Company considers all investments with original maturities of three months or less to be cash equivalents.
Accrued interest on loans purchased and sold is included in cash flows from operating activities in the respective period. Net purchased loan accrued interest was $48.3 million, $92.3 million, and $112.9 million in 2021, 2020, and 2019, respectively.
Investments
The Company classifies its debt securities, primarily student loan and other asset-backed securities, as available-for-sale. These securities are carried at fair value, with the changes in fair value, net of taxes, carried as a separate component of shareholders’ equity. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts, which are amortized using the effective interest rate method. When an investment is sold, the cost basis is determined through specific identification of the security sold. For available-for-sale debt securities where fair value is less than amortized cost, credit-related impairment, if any, is recognized through an allowance for credit losses and adjusted each period for changes in credit risk.
The Company classifies its residual interest in federally insured, private education, and consumer loan securitizations as held-to-maturity beneficial interest investments. The Company measures accretable yield initially as the excess of all cash flows expected to be collected attributable to the beneficial interest estimated at the acquisition/transaction date over the initial investment and recognizes interest income over the life of the beneficial interest using the effective interest method. The Company continues to update, over the life of the beneficial interest, the expectation of cash flows to be collected. Beneficial interest investments are evaluated for impairment by comparing the present value of the remaining cash flows as estimated at the initial transaction date (or the last date previously revised) to the present value of the cash flows expected to be collected at the current financial reporting date, both discounted using the same effective rate equal to the current yield used to accrete the beneficial interest. If the present value of remaining cash flows is less than the present value of cash flows expected to be collected, the Company records an allowance for credit losses for the difference. Subsequent favorable changes, if any, decreases the allowance for credit losses. The Company reflects the changes in the allowance for credit losses in provision for beneficial interests on the consolidated statements of income.
Equity investments with readily determinable fair values are measured at fair value, with changes in the fair value recognized through net income (other than those equity investments accounted for under the equity method of accounting or those that result in consolidation of the investee).
For equity investments without readily determinable fair value, the Company uses the measurement alternative of cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The Company uses qualitative factors to identify impairment on these investments.
The Company accounts for equity investments over which it has significant influence but not a controlling financial interest using the equity method of accounting. Equity method investments are recorded at cost and subsequently increased or decreased by the amount of the Company’s proportionate share of the net earnings or losses and other comprehensive income of the investee. Equity method investments are evaluated for other-than-temporary impairment using certain impairment indicators such as a series of operating losses of an investee or other factors. These factors may indicate that a decrease in value of the investment has occurred that is other-than-temporary and shall be recognized.
The Company accounts for its solar investments, voting equity investment in ALLO, and certain real estate investments under the HLBV method of accounting. The HLBV method of accounting is used by the Company for equity method investments when the liquidation rights and priorities as defined by an equity investment agreement differ from what is reflected by the underlying percentage ownership or voting interests. The Company applies the HLBV method using a balance sheet approach. A calculation is prepared at each balance sheet date to determine the amount that the Company would receive if an equity investment entity were to liquidate its net assets and distribute that cash to the investors based on the contractually defined
F - 18

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

liquidation priorities. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period, after adjusting for capital contributions and distributions, is the amount the Company recognizes for its share of the earnings or losses from the equity investment for the period.
Restricted Cash
Restricted cash primarily includes amounts for student loan securitizations and other secured borrowings. This cash must be used to make payments related to trust obligations. Amounts on deposit in these accounts are primarily the result of timing differences between when principal and interest is collected on the student loans held as trust assets and when principal and interest is paid on the trust's asset-backed debt securities. Restricted cash also includes collateral deposits with derivative third-party clearinghouses.
Restricted Cash - Due to Customers
As a servicer of student loans, the Company collects student loan remittances and subsequently disburses these remittances to the appropriate lending entities. In addition, as part of the Company's Education Technology, Services, and Payment Processing operating segment, the Company collects tuition payments and subsequently remits these payments to the appropriate schools. Cash collected for customers and the related liability are included in the accompanying consolidated balance sheets.
Accounts Receivable
Accounts receivable are presented at their net realizable values, which include allowances for doubtful accounts. Allowance estimates are based upon individual customer experience, as well as the age of receivables and likelihood of collection.
Business Combinations
The Company uses the acquisition method in accounting for acquired businesses. Under the acquisition method, the financial statements reflect the operations of an acquired business starting from the completion of the acquisition. The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of acquisition. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. All contingent consideration is measured at fair value on the acquisition date and included in the consideration transferred in the acquisition. Contingent consideration classified as a liability is remeasured to fair value at each reporting date until the contingency is resolved, and changes in fair value are recognized in earnings.
Goodwill
The Company reviews goodwill for impairment annually (as of November 30) and whenever triggering events or changes in circumstances indicate its carrying value may not be recoverable. Goodwill is tested for impairment using a fair value approach at the reporting unit level. A reporting unit is the operating segment, or a business one level below that operating segment if discrete financial information is prepared and regularly reviewed by segment management. However, components are aggregated as a single reporting unit if they have similar economic characteristics.
The Company tests goodwill for impairment in accordance with applicable accounting guidance. The guidance provides an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the estimated fair value of a reporting unit is less than its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform a quantitative impairment test, otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test.
For the 2021, 2020, and 2019 annual reviews of goodwill, the Company assessed qualitative factors and concluded it was not more likely than not that the fair value of its reporting units were less than their carrying amount. As such, the Company was not required to perform further impairment testing and concluded there was no impairment of goodwill.
Intangible Assets
The Company uses estimates to determine the fair value of acquired assets to allocate the purchase price to acquired intangible assets. Such estimates are generally based on estimated future cash flows or cost savings associated with particular assets and are discounted to present value using an appropriate discount rate. The estimates of future cash flows associated with intangible assets are generally prepared using a cost savings method, a lost income method, or an excess return method, as appropriate. In
F - 19

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

utilizing such methods, management must make certain assumptions about the amount and timing of estimated future cash flows and other economic benefits from the assets, the remaining economic useful life of the assets, and general economic factors concerning the selection of an appropriate discount rate. The Company may also use replacement cost or market comparison approaches to estimate fair value if such methods are determined to be more appropriate.
Intangible assets with finite lives are amortized over their estimated lives. Such assets are amortized using a method of amortization that reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up. If that pattern cannot be reliably determined, the Company uses a straight-line amortization method.
The Company evaluates the estimated remaining useful lives of purchased intangible assets and whether events or changes in circumstances warrant a revision to the remaining periods of amortization.
Property and Equipment
Property and equipment are carried at cost, net of accumulated depreciation. Maintenance and repairs are charged to expense as incurred, and major improvements, including leasehold improvements, are capitalized. Gains and losses from the sale of property and equipment are included in determining net income. The Company uses the straight-line method for recording depreciation and amortization. Leasehold improvements are amortized straight-line over the shorter of the lease term or estimated useful life of the asset.
Leases
The Company determines if the arrangement is, or contains, a lease at the inception of an arrangement and records the lease in the consolidated financial statements upon lease commencement, which is the date when the underlying asset is made available by the lessor. The Company primarily leases office and data center space. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The lease expense for these leases is recognized on a straight-line basis over the lease term. All other lease assets (ROU assets) and lease liabilities are recognized based on the present value of lease payments over the lease term at the commencement date. The Company classifies each lease as operating or financing, with the income statement reflecting lease expense for operating leases and amortization/interest expense for financing leases. When the discount rate implicit in the lease cannot be readily determined, the Company uses its incremental borrowing rate.
The Company accounts for lease and non-lease components together as a single, combined lease component for its office and data center space. In addition, the Company identified itself as the lessor in its Communications operating segment for services provided to customers that include customer-premise equipment. The Company accounted for those services and associated leases as a single, combined component. The non-lease services are 'predominant' in those contracts. Therefore, the combined component is considered a single performance obligation under ASC Topic 606, Revenue from Contracts with Customers.
Most leases include one or more options to renew, with renewal terms that can be extended. The exercise of lease renewal options for the majority of leases is at the Company's discretion. Renewal options that the Company is reasonably certain to exercise are included in the lease term.
Certain leases include escalating rental payments or rental payments adjusted periodically for inflation. None of the lease agreements include any residual value guarantees, a transfer of title, or a purchase option that is reasonably certain to be exercised.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets, such as property and equipment, purchased intangibles subject to amortization, and ROU assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Assumptions and estimates about future cash flows generated by, remaining useful lives of, and fair values of the Company's intangible and other long-lived assets are complex and subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in the Company's business strategy and internal forecasts. Although the Company believes the historical assumptions and estimates used are reasonable and appropriate, different assumptions and estimates could materially impact the reported financial results.
F - 20

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

Fair Value Measurements
The Company uses estimates of fair value in applying various accounting standards for its financial statements.
Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company's policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value, such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates, and credit spreads, relying first on observable data from active markets. Depending on current market conditions, additional adjustments to fair value may be based on factors such as liquidity, credit, and bid/offer spreads. In some cases fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Transaction costs are not included in the determination of fair value. When possible, the Company seeks to validate the model's output to market transactions. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the estimates of current or future values.
The Company categorizes its fair value estimates based on a hierarchical framework associated with three levels of price transparency utilized in measuring assets and liabilities at fair value. Classification is based on the lowest level of input that is significant to the fair value of the instrument. The three levels include:
•Level 1: Quoted prices for identical instruments in active markets. The types of financial instruments included in Level 1 are highly liquid instruments with quoted prices.
•Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose primary value drivers are observable.
•Level 3: Instruments whose primary value drivers are unobservable. Inputs are developed based on the best information available; however, significant judgment is required by management in developing the inputs.
Revenue Recognition
The Company applies the provisions of ASC Topic 606, Revenue from Contracts with Customers ("ASC Topic 606"), to its fee-based operating segments. The majority of the Company’s revenue earned in its Asset Generation and Management and Nelnet Bank operating segments, including loan interest and derivative activity, is explicitly excluded from the scope of ASC Topic 606. The Company recognizes revenue under the core principle of ASC Topic 606 to depict the transfer of control of products and services to the Company’s customers in an amount reflecting the consideration to which the Company expects to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.
Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records deferred revenue when revenue is received or receivable in advance of the delivery of service. For multi-year contracts, the Company generally invoices customers annually at the beginning of each annual coverage period. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined its contracts do not include a significant financing component.
The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year. Total capitalized costs to obtain a contract were immaterial during the periods presented and are included in “other assets” on the consolidated balance sheets.
Additional information related to revenue earned in its Asset Generation and Management operating segment is provided below. See note 16, "Disaggregated Revenue and Deferred Revenue" for additional information related to the Company's fee-based operating segments.
F - 21

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

Loan interest income - Loan interest on federally insured student loans is paid by the Department or the borrower, depending on the status of the loan at the time of the accrual. The Department makes quarterly interest subsidy payments on certain qualified FFELP loans until the student is required under the provisions of the Higher Education Act to begin repayment. Borrower repayment of FFELP loans normally begins within six months after completion of the borrower's course of study, leaving school, or ceasing to carry at least one-half the normal full-time academic load, as determined by the educational institution. Borrower repayment of PLUS and Consolidation loans normally begins within 60 days from the date of loan disbursement. Borrower repayment of private education loans typically begins six months following the borrower's graduation from a qualified institution, and the interest is either paid by the borrower or capitalized annually or at repayment. Repayment of consumer loans typically starts upon origination of the loan.
The Department provides a special allowance to lenders participating in the FFEL Program. The special allowance is accrued based upon the fiscal quarter average rate of 13-week Treasury Bill auctions (for loans originated prior to January 1, 2000), the fiscal quarter average rate of the daily three-month financial commercial paper rates (for loans originated on and after January 1, 2000), or the fiscal quarter average rate of daily one-month LIBOR rates (for loans originated on and after January 1, 2000, and for lenders which elected to change the special allowance index to one-month LIBOR effective April 1, 2012) relative to the yield of the student loan.
The Company recognizes loan interest income as earned, net of amortization of loan premiums and deferred origination costs and the accretion of loan discounts. Loan interest income is recognized based upon the expected yield of the loan after giving effect to interest rate reductions resulting from borrower utilization of incentives such as timely payments ("borrower benefits") and other yield adjustments. Loan premiums or discounts, deferred origination costs, and borrower benefits are amortized/accreted over the estimated life of the loans, which includes an estimate of forecasted payments in excess of contractually required payments (the constant prepayment rate). The constant prepayment rate currently used by the Company to amortize/accrete federally insured loan premiums/discounts is 5 percent for Stafford loans and 4 percent for Consolidation loans. The Company periodically evaluates the assumptions used to estimate the life of the loans and prepayment rates. In instances where there are changes to the assumptions, amortization/accretion is adjusted on a cumulative basis to reflect the change since the acquisition of the loan. During the fourth quarter of 2021, the Company changed its estimate of the constant prepayment rate on its consolidation loans from 3 percent to 4 percent, which resulted in a $6.2 million increase to the Company’s net loan discount balance and a corresponding pre-tax decrease to interest income.
The Company also pays the Department an annual 105 basis point rebate fee on Consolidation loans. These rebate fees are netted against loan interest income.
Interest Expense
Interest expense is based upon contractual interest rates, adjusted for the amortization of debt issuance costs and the accretion of discounts. The amortization of debt issuance costs and accretion of discounts are recognized using the effective interest method.
Transfer of Financial Assets and Extinguishments of Liabilities
The Company accounts for loan sales and debt repurchases in accordance with applicable accounting guidance. If a transfer of loans qualifies as a sale, the Company derecognizes the loan and recognizes a gain or loss as the difference between the carrying basis of the loan sold and the consideration received. The Company from time to time repurchases its outstanding debt and records a gain or loss on the early extinguishment of debt based upon the difference between the carrying amount of the debt and the amount paid to the third party.
Derivative Accounting
All over-the-counter derivative contracts executed by the Company are cleared post-execution at the Chicago Mercantile Exchange (“CME”), a regulated clearinghouse. Substantially all of the Company’s outstanding derivatives are over-the-counter contracts. Clearing is a process by which a third-party, the clearinghouse, steps in between the original counterparties and guarantees the performance of both, by requiring that each post liquid collateral on an initial (initial margin) and mark-to-market (variation margin) basis to cover the clearinghouse’s potential future exposure in the event of default.
The CME legally characterizes variation margin payments for over-the-counter derivatives they clear as settlements of the derivatives’ exposure rather than collateral against the exposure. For accounting and presentation purposes, the Company considers variation margin and the corresponding derivative instrument as a single unit of account. As such, variation margin payments are considered in determining the fair value of the centrally cleared derivative portfolio. The Company records
F - 22

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

derivative contracts on its balance sheet with a fair value of zero due to the payment or receipt of variation margin between the Company and the CME settling the outstanding mark-to-market exposure on such derivatives to a balance of zero on a daily basis. Management has structured all of the Company's derivative transactions with the intent that each is economically effective; however, the Company's derivative instruments do not qualify for hedge accounting. As a result, the change in market value of derivative instruments is reported in current period earnings. Changes or shifts in the forward yield curve can significantly impact the valuation of the Company’s derivatives, and therefore impact the results of operations of the Company. The changes in fair value of derivative instruments, as well as the settlement payments made on such derivatives, are included in “derivative market value adjustments and derivative settlements, net” on the consolidated statements of income.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company uses the deferred method of accounting for its credits related to state tax incentives and investments that generate investment tax credits. The investment tax credits are recognized as a reduction to the related asset.
Income tax expense includes deferred tax expense, which represents a portion of the net change in the deferred tax asset or liability balance during the year, plus any change made in the valuation allowance, and current tax expense, which represents the amount of tax currently payable to or receivable from a tax authority plus amounts for expected tax deficiencies.
Compensation Expense for Stock Based Awards
The Company has a restricted stock plan that is intended to provide incentives to attract, retain, and motivate employees in order to achieve long term growth and profitability objectives. The restricted stock plan provides for the grant to eligible employees of awards of restricted shares of Class A common stock. The fair value of restricted stock awards is determined on the grant date based on the Company's stock price and is amortized to compensation cost over the related vesting periods, which range up to ten years. For those awards with only service conditions that have graded vesting schedules, the Company recognizes compensation expense on a straight-line basis over the requisite service period for each separately vesting portion of the award, as if the award was, in substance, multiple awards. Holders of restricted stock are entitled to receive dividends from the date of grant whether or not vested. The Company accounts for forfeitures as they occur.
The Company also has a directors stock compensation plan pursuant to which non-employee directors can elect to receive their annual retainer fees in the form of fully vested shares of Class A common stock, and also elect to defer receipt of such shares until the termination of their service on the board of directors. The fair value of grants under this plan is determined on the grant date based on the Company's stock price, and is expensed over the board member's annual service period.
Translation of Foreign Currencies
The Company’s foreign subsidiaries use the local currency of the countries in which they are located as their functional currency. Accordingly, assets and liabilities are translated into U.S. dollars (the Company’s reporting currency) using the exchange rates in effect on the consolidated balance sheet dates. Equity accounts are translated at historical rates, except for the change in retained earnings during the year, which is the result of the income statement translation process. Revenue and expense accounts are translated using the weighted average exchange rate during the period. The cumulative translation adjustments associated with the net assets of foreign subsidiaries are recorded in accumulated other comprehensive earnings in the accompanying consolidated statements of shareholders’ equity.
F - 23

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

4. Loans and Accrued Interest Receivable and Allowance for Loan Losses
Loans and accrued interest receivable consisted of the following:
												
	As of		As of	
 	December 31, 2021		December 31, 2020	
Non-Nelnet Bank:				
Federally insured student loans:				
Stafford and other	$	3,904,000 			4,383,000 		
Consolidation	13,187,047 			14,746,173 		
Total	17,091,047 			19,129,173 		
Private education loans	299,442 			320,589 		
Consumer loans	51,301 			109,346 		
Non-Nelnet Bank loans	17,441,790 			19,559,108 		
Nelnet Bank:				
Federally insured student loans	88,011 			— 		

	
Private education loans	169,890 			17,543 		
	
Nelnet Bank loans	257,901 			17,543 		
 				
Accrued interest receivable	788,552 			794,611 		
Loan discount, net of unamortized loan premiums and deferred origination costs	(25,933)			(9,908)		
	
Allowance for loan losses:				
Non-Nelnet Bank:				
Federally insured loans	(103,381)			(128,590)		
Private education loans	(16,143)			(19,529)		
Consumer loans	(6,481)			(27,256)		
Non-Nelnet Bank allowance for loan losses	(126,005)			(175,375)		
Nelnet Bank:				
Federally insured loans	(268)			— 		
Private education loans	(840)			(323)		
	
Nelnet Bank allowance for loan losses	(1,108)			(323)		
 	$	18,335,197 			20,185,656 		
Loan Sales
The Company has sold portfolios of consumer loans to an unrelated third party who securitized such loans. As partial consideration received for the consumer loans sold, the Company received residual interest in the consumer loan securitizations that are included in "investments" on the Company's consolidated balance sheet. The following table provides a summary of the consumer loans sold and gains recognized by the Company during 2021, 2020, and 2019.

	Loans sold
(par value)		Gain		Residual interest received in securitization	
2021:						
May 14, 2021	$	77,417 			15,271 			24.5 	%	
September 29, 2021	18,390 			3,249 			6.9 		
	$	95,807 			18,520 				
2020:						
January 30, 2020	$	124,249 			18,206 			31.4 	%	
July 29, 2020	60,779 			14,817 			25.4 		
	$	185,028 			33,023 				
2019:						
May 1, 2019	$	47,680 			1,712 			11.0 	%	
October 17, 2019	179,301 			15,549 			28.7 		
	$	226,981 			17,261 				
F - 24

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

Activity in the Allowance for Loan Losses
The following table presents the activity in the allowance for loan losses by portfolio segment.

	Balance at beginning of period		Impact of Topic 326 adoption		Provision (negative provision) for loan losses		Charge-offs		Recoveries		Initial allowance on loans purchased with credit deterioration (a)		Loan sales		Balance at end of period	
	Year ended December 31, 2021	
Non-Nelnet Bank																
Federally insured loans	$	128,590 			— 			(7,343)			(21,139)			— 			3,273 			— 			103,381 		
Private education loans	19,529 			— 			(1,333)			(2,476)			721 			— 			(298)			16,143 		
Consumer loans	27,256 			— 			(4,544)			(5,123)			824 			— 			(11,932)			6,481 		
Nelnet Bank																
Federally insured loans	— 			— 			268 			— 			— 			— 			— 			268 		
Private education loans	323 			— 			526 			(4)			— 			— 			(5)			840 		
	
	$	175,698 			— 			(12,426)			(28,742)			1,545 			3,273 			(12,235)			127,113 		
	Year ended December 31, 2020	
Non-Nelnet Bank																
Federally insured loans	$	36,763 			72,291 			18,691 			(14,955)			— 			15,800 			— 			128,590 		
Private education loans	9,597 			4,797 			6,156 			(1,652)			631 			— 			— 			19,529 		
Consumer loans	15,554 			13,926 			38,183 			(12,115)			1,132 			— 			(29,424)			27,256 		
Nelnet Bank																
	
Private education loans	— 			— 			330 			(7)			— 			— 			— 			323 		
	
	$	61,914 			91,014 			63,360 			(28,729)			1,763 			15,800 			(29,424)			175,698 		
	Year ended December 31, 2019	
Non-Nelnet Bank																
Federally insured loans	$	42,310 			— 			8,000 			(13,547)			— 			— 			— 			36,763 		
Private education loans	10,838 			— 			— 			(1,965)			724 			— 			— 			9,597 		
Consumer loans	7,240 			— 			31,000 			(12,498)			812 			— 			(11,000)			15,554 		

	
	
	$	60,388 			— 			39,000 			(28,010)			1,536 			— 			(11,000)			61,914 		

(a)    During the years ended December 31, 2021 and 2020, the Company acquired $224.1 million (par value) and $835.0 million (par value), respectively, of federally insured rehabilitation loans that met the definition of PCD loans when they were purchased by the Company.
Beginning in March 2020, the coronavirus disease 2019 (“COVID-19”) pandemic caused significant disruptions in the U.S. and world economies. Apart from the impact of the adoption of Topic 326 effective January 1, 2020, the Company’s allowance for loan losses increased in 2020 primarily as a result of the COVID-19 pandemic and its effects on economic conditions.
During the year ended December 31, 2021, the Company recorded a negative provision for loan losses due to (i) management's estimate of certain continued improved economic conditions as of December 31, 2021 in comparison to management's estimate of economic conditions used to determine the allowance for loan losses as of December 31, 2020; (ii) an increase in the constant prepayment rate on FFELP consolidation loans; and (iii) the amortization of the federally insured loan portfolio. These amounts were partially offset by the establishment of an initial allowance for loans originated and acquired during the period.

F - 25

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

Loan Status and Delinquencies
The key credit quality indicators for the Company’s federally insured, private education, and consumer loan portfolios are loan status, including delinquencies. The impact of changes in loan status is incorporated into the allowance for loan losses calculation. Delinquencies have the potential to adversely impact the Company’s earnings through increased servicing and collection costs and account charge-offs. The table below shows the Company’s loan status and delinquency amounts.

	As of December 31,	
	2021		2020		2019	
Federally insured loans - Non-Nelnet Bank:	 				 		 				 							
Loans in-school/grace/deferment (a)	$	829,624 			4.9 	%		 		$	1,036,028 			5.4 	%		 		$	1,074,678 			5.3 	%			
Loans in forbearance (b)	1,118,667 			6.5 			 		1,973,175 			10.3 			 		1,339,821 			6.6 				
Loans in repayment status:					 						 							
Loans current	12,847,685 					84.9 	%		13,683,054 					84.9 	%		15,410,993 					86.0 	%	
Loans delinquent 31-60 days (c)	895,656 					5.9 			633,411 					3.9 			650,796 					3.6 		
Loans delinquent 61-90 days (c)	352,449 					2.3 			307,936 					1.9 			428,879 					2.4 		
Loans delinquent 91-120 days (c)	251,075 					1.7 			800,257 					5.0 			310,851 					1.7 		
Loans delinquent 121-270 days (c)	592,449 					3.9 			674,975 					4.2 			812,107 					4.5 		
Loans delinquent 271 days or greater (c)(d)	203,442 					1.3 			20,337 					0.1 			300,418 					1.8 		
Total loans in repayment	15,142,756 			88.6 			100.0 	%		16,119,970 			84.3 			100.0 	%		17,914,044 			88.1 			100.0 	%	
Total federally insured loans	17,091,047 			100.0 	%		 		19,129,173 			100.0 	%		 		20,328,543 			100.0 	%			
Accrued interest receivable	784,716 							791,453 							730,059 						
Loan discount, net of unamortized premiums and deferred origination costs	(28,309)							(14,505)							(35,822)						
Non-accretable discount (e)	— 							— 							(28,036)						
Allowance for loan losses	(103,381)							(128,590)							(36,763)						
Total federally insured loans and accrued interest receivable, net of allowance for loan losses	$	17,744,073 							$	19,777,531 							$	20,957,981 						
																		
Private education loans - Non-Nelnet Bank:																		
Loans in-school/grace/deferment (a)	$	9,661 			3.2 	%				$	5,049 			1.6 	%				$	4,493 			1.8 	%			
Loans in forbearance (b)	3,601 			1.2 					2,359 			0.7 					3,108 			1.3 				
Loans in repayment status:																		
Loans current	280,457 					98.0 	%		310,036 					99.0 	%		227,013 					95.9 	%	
Loans delinquent 31-60 days (c)	2,403 					0.8 			1,099 					0.4 			2,814 					1.2 		
Loans delinquent 61-90 days (c)	976 					0.3 			675 					0.2 			1,694 					0.7 		
Loans delinquent 91 days or greater (c)	2,344 					0.9 			1,371 					0.4 			5,136 					2.2 		
Total loans in repayment	286,180 			95.6 			100.0 	%		313,181 			97.7 			100.0 	%		236,657 			96.9 			100.0 	%	
Total private education loans	299,442 			100.0 	%		 		320,589 			100.0 	%		 		244,258 			100.0 	%			
Accrued interest receivable	1,960 							2,131 							1,558 						
Loan discount, net of unamortized premiums	(1,123)							2,691 							46 						
Non-accretable discount (e)	— 							— 							(4,362)						
Allowance for loan losses	(16,143)							(19,529)							(9,597)						
Total private education loans and accrued interest receivable, net of allowance for loan losses	$	284,136 							$	305,882 							$	231,903 						

Consumer loans - Non-Nelnet Bank:																		
Loans in deferment (a)	$	43 			0.1 	%				$	829 			0.8 	%				$	— 						
Loans in repayment status:																		
Loans current	49,697 					97.0 	%		105,650 					97.4 	%		220,404 					97.5 	%	
Loans delinquent 31-60 days (c)	414 					0.8 			954 					0.9 			2,046 					0.9 		
Loans delinquent 61-90 days (c)	322 					0.6 			804 					0.7 			1,545 					0.7 		
Loans delinquent 91 days or greater (c)	825 					1.6 			1,109 					1.0 			1,923 					0.9 		
Total loans in repayment	51,258 			99.9 			100.0 	%		108,517 			99.2 			100.0 	%		225,918 					100.0 	%	
Total consumer loans	51,301 			100.0 	%				109,346 			100.0 	%				225,918 						
Accrued interest receivable	396 							1,001 							1,880 						
Loan premium	913 							1,640 							740 						
Allowance for loan losses	(6,481)							(27,256)							(15,554)						
Total consumer loans and accrued interest receivable, net of allowance for loan losses	$	46,129 							$	84,731 							$	212,984 						
																		
F - 26

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

																																																						
	As of December 31,	
	2021		2020		2019	
Federally insured loans - Nelnet Bank:																		
Loans in-school/grace/deferment (a)	$	330 			0.4 	%															
Loans in forbearance (b)	1,057 			1.2 																
Loans in repayment status:																		
Loans current	85,599 					98.8 	%													
Loans delinquent 31-60 days (c)	816 					1.0 														
Loans delinquent 61-90 days (c)	— 					— 														
Loans delinquent 91-120 days (c)	— 					— 														
Loans delinquent 121-270 days (c)	209 					0.2 														
Loans delinquent 271 days or greater (c)	— 					— 														
Total loans in repayment	86,624 			98.4 			100.0 	%													
Total federally insured loans	88,011 			100.0 	%															
Accrued interest receivable	1,216 																		
Loan premium	26 																		
	
Allowance for loan losses	(268)																		
Total federally insured loans and accrued interest receivable, net of allowance for loan losses	$	88,985 																		
Private education loans - Nelnet Bank:																		
Loans in-school/grace/deferment (a)	$	150 			0.1 	%				$	— 			— 	%									
Loans in forbearance (b)	460 			0.3 					29 			0.2 										
Loans in repayment status:																		
Loans current	169,157 					99.9 	%		17,514 					100.0 	%							
Loans delinquent 31-60 days (c)	51 					— 			— 					— 								
Loans delinquent 61-90 days (c)	— 					— 			— 					— 								
Loans delinquent 91 days or greater (c)	72 					0.1 			— 					— 								
Total loans in repayment	169,280 			99.6 			100.0 	%		17,514 			99.8 			100.0 	%							
Total private education loans	169,890 			100.0 	%				17,543 			100.0 	%									
Accrued interest receivable	264 							26 												
Deferred origination costs	2,560 							266 												
	
Allowance for loan losses	(840)							(323)												
Total private education loans and accrued interest receivable, net of allowance for loan losses	$	171,874 							$	17,512 												

(a)    Loans for borrowers who still may be attending school or engaging in other permitted educational activities and are not yet required to make payments on the loans, e.g., residency periods for medical students or a grace period for bar exam preparation for law students.
(b)    Loans for borrowers who have temporarily ceased making full payments due to hardship or other factors, according to a schedule approved by the servicer consistent with the established loan program servicing procedures and policies.
(c)    The period of delinquency is based on the number of days scheduled payments are contractually past due and relate to repayment loans, that is, receivables not charged off, and not in school, grace, deferment, or forbearance.
(d)    A portion of loans included in loans delinquent 271 days or greater includes loans in claim status, which are loans that have gone into default and have been submitted to the guaranty agency.
(e)    Upon adoption of ASC 326 on January 1, 2020, the Company reclassified the non-accretable discount balance related to loans purchased with evidence of credit deterioration to allowance for loan losses.
As a result of COVID-19, effective March 13, 2020 through June 30, 2020, the Company proactively applied a 90 day natural disaster forbearance to any loan that was 31-269 days past due (for federally insured loans) and 80 days past due (for private education loans), and to any current loan upon request. Beginning July 1, 2020, the Company discontinued proactively applying 90 day natural disaster forbearances on past due loans. However, the Company continued to apply a natural disaster forbearance in 90 day increments to any private education and federally insured loan upon request through July 31, 2021 and September 30, 2021, respectively.
As a result of the ongoing impacts of the COVID-19 pandemic, the Company continues to review whether additional and/or extended borrower relief policies and activities are needed. All relief provided to borrowers by the Company through December 31, 2021 have been delays in payment that the Company considers to be insignificant and have not been accounted for as troubled debt restructuring.
F - 27

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

Nonaccrual Status
The Company does not place federally insured loans on nonaccrual status due to the government guaranty. The amortized cost of private and consumer loans on nonaccrual status, as well as the allowance for loan losses related to such loans, as of December 31, 2021, 2020, and 2019 was not material.
Amortized Cost Basis by Origination Year
The following table presents the amortized cost of the Company's private education and consumer loans by loan status and delinquency amount as of December 31, 2021 based on year of origination. Effective July 1, 2010, no new loan originations can be made under the FFEL Program and all new federal loan originations must be made under the Federal Direct Loan Program. As such, all the Company’s federally insured loans were originated prior to July 1, 2010.

	2021		2020		2019		2018		2017		Prior years		Total	
Private education loans - Non-Nelnet Bank:														
Loans in school/grace/deferment	$	2,266 			1,981 			3,557 			— 			— 			1,857 			9,661 		
Loans in forbearance	— 			267 			960 			47 			— 			2,327 			3,601 		
Loans in repayment status:														
Loans current	2,768 			68,754 			50,348 			492 			— 			158,095 			280,457 		
Loans delinquent 31-60 days	— 			308 			225 			— 			— 			1,870 			2,403 		
Loans delinquent 61-90 days	— 			81 			— 			— 			— 			895 			976 		
Loans delinquent 91 days or greater	— 			— 			4 			— 			— 			2,340 			2,344 		
Total loans in repayment	2,768 			69,143 			50,577 			492 			— 			163,200 			286,180 		
Total private education loans	$	5,034 			71,391 			55,094 			539 			— 			167,384 			299,442 		
Accrued interest receivable													1,960 		
Loan discount, net of unamortized premiums													(1,123)		
Allowance for loan losses													(16,143)		
Total private education loans and accrued interest receivable, net of allowance for loan losses													$	284,136 		
														
Consumer loans - Non-Nelnet Bank:														
Loans in deferment	$	25 			— 			— 			18 			— 			— 			43 		
Loans in repayment status:														
Loans current	37,822 			960 			5,087 			5,746 			82 			— 			49,697 		
Loans delinquent 31-60 days	205 			51 			120 			33 			5 			— 			414 		
Loans delinquent 61-90 days	113 			40 			109 			60 			— 			— 			322 		
Loans delinquent 91 days or greater	133 			43 			261 			388 			— 			— 			825 		
Total loans in repayment	38,273 			1,094 			5,577 			6,227 			87 			— 			51,258 		
Total consumer loans	$	38,298 			1,094 			5,577 			6,245 			87 			— 			51,301 		
Accrued interest receivable													396 		
Loan premium													913 		
Allowance for loan losses													(6,481)		
Total consumer loans and accrued interest
receivable, net of allowance for loan losses													$	46,129 		
														
Private education loans - Nelnet Bank:														
Loans in school/grace/deferment	$	150 			— 			— 			— 			— 			— 			150 		
Loans in forbearance	445 			15 			— 			— 			— 			— 			460 		
Loans in repayment status:														
Loans current	158,486 			10,671 			— 			— 			— 			— 			169,157 		
Loans delinquent 31-60 days	51 			— 			— 			— 			— 			— 			51 		
Loans delinquent 61-90 days	— 			— 			— 			— 			— 			— 			— 		
Loans delinquent 91 days or greater	72 			— 			— 			— 			— 			— 			72 		
Total loans in repayment	158,609 			10,671 			— 			— 			— 			— 			169,280 		
Total private education loans	$	159,204 			10,686 			— 			— 			— 			— 			169,890 		
Accrued interest receivable													264 		
Deferred origination costs													2,560 		
Allowance for loan losses													(840)		
Total private education loans and accrued interest receivable, net of allowance for loan losses													$	171,874 		
F - 28

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

5. Bonds and Notes Payable
The following tables summarize the Company’s outstanding debt obligations by type of instrument:

 	As of December 31, 2021	
	Carrying
amount		Interest rate
range		Final maturity	
Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:	 		 		 	
Bonds and notes based on indices	$	15,887,295 			0.23% - 2.10%		5/27/25 - 9/25/69	
Bonds and notes based on auction	248,550 			0.00% - 1.09%		3/22/32 - 8/27/46	
Total FFELP variable-rate bonds and notes	16,135,845 						
Fixed-rate bonds and notes issued in FFELP loan asset-backed
      securitizations	772,935 			1.42% - 3.45%		10/25/67 - 8/27/68	
FFELP loan warehouse facility	5,048 			0.21%		5/22/23	
Private education loan warehouse facility	107,011 			0.24%		2/13/23	
	
Variable-rate bonds and notes issued in private education loan asset-backed securitizations	31,818 			1.65% / 1.85%		12/26/40 / 6/25/49	
Fixed-rate bonds and notes issued in private education loan asset-backed securitization	28,613 			3.60% / 5.35%		12/26/40 / 12/28/43	
Unsecured line of credit	— 			—		9/22/26	
Participation agreement	253,969 			0.78%		5/4/22	
Repurchase agreements	483,848 			0.66% - 1.46%		5/27/22 - 12/20/23	
Secured line of credit	5,000 			1.91%		5/30/22	
	
 	17,824,087 			 		 	
Discount on bonds and notes payable and debt issuance costs	(192,998)						
Total	$	17,631,089 						

 	As of December 31, 2020	
	Carrying
amount		Interest rate
range		Final maturity	
Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:	 		 		 	
Bonds and notes based on indices	$	17,127,643 			0.28% - 2.05%		5/27/25 - 10/25/68	
Bonds and notes based on auction	749,925 			1.12% - 2.14%		3/22/32 - 11/26/46	
Total FFELP variable-rate bonds and notes	17,877,568 						
Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations	923,076 			1.42% - 3.45%		10/25/67 - 8/27/68	
FFELP loan warehouse facilities	252,165 			0.27% / 0.31%		5/20/22 / 2/26/23	
Private education loan warehouse facility	150,397 			0.28%		2/13/22	
Consumer loan warehouse facility	25,809 			0.28%		4/23/22	
Variable-rate bonds and notes issued in private education loan asset-backed securitizations	49,025 			1.65% / 1.90%		12/26/40 / 6/25/49	
Fixed-rate bonds and notes issued in private education loan asset-backed securitization	37,251 			3.60% / 5.35%		12/26/40 / 12/28/43	
Unsecured line of credit	120,000 			1.65%		12/16/24	
Participation agreement	118,558 			0.84%		5/4/21	
Secured line of credit	5,000 			1.90%		5/30/22	
	
 	19,558,849 			 		 	
Discount on bonds and notes payable and debt issuance costs	(238,123)						
Total	$	19,320,726 						
F - 29

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

Warehouse Facilities
The Company funds a portion of its loan acquisitions using warehouse facilities. Loan warehousing allows the Company to buy and manage loans prior to transferring them into more permanent financing arrangements.
FFELP loan warehouse facility
As of December 31, 2021, the Company’s FFELP warehouse facility had an aggregate maximum financing amount available of $60.0 million, liquidity provisions through May 23, 2022, and a final maturity of May 22, 2023. As of December 31, 2021, $5.0 million was outstanding under this facility, $55.0 million was available for future funding, and the Company had $0.3 million advanced as equity support. In the event the Company is unable to renew the liquidity provisions by May 23, 2022, the facility would become a term facility at a stepped-up cost, with no additional student loans being eligible for financing, and the Company would be required to refinance the existing loans in the facility by the facility's final maturity date.
Private Education loan warehouse facility
During 2020, the Company obtained a private education loan warehouse facility. As of December 31, 2021, the facility has an aggregate maximum financing amount available of $175.0 million, an advance rate of 80 to 90 percent, liquidity provisions through February 13, 2022, and a final maturity date of February 13, 2023. As of December 31, 2021, $107.0 million was outstanding under this warehouse facility, $68.0 million was available for future funding, and the Company had $11.8 million advanced as equity support.
Consumer loan warehouse facility
The Company had a $100.0 million consumer loan warehouse facility. On March 31, 2021, the Company terminated this facility.
Asset-backed securitizations
The Company has historically relied upon asset-backed securitizations as its most significant source of funding for loans. The net cash flow the Company receives from the securitized loans generally represents the excess amounts, if any, generated by the underlying loans over the amounts required to be paid to the bondholders, after deducting servicing fees and any other expenses relating to the securitizations. The Company’s rights to cash flow from securitized loans are subordinate to bondholder interests, and the securitized loans may fail to generate any cash flow beyond what is due to bondholders. The bonds and notes payable are primarily secured by the loans receivable, related accrued interest, and by the amounts on deposit in the accounts established under the respective financing agreements.
The following tables summarize the asset-backed securitization transactions completed in 2021 and 2020.

		Securitizations completed during the year ended December 31, 2021	
		2021-1		2021-2		Total	
	
Date securities issued		6/30/21		8/31/21			
Total original principal amount		$	797,000 			531,300 			1,328,300 		
							
Class A senior notes:							
Total principal amount		$	781,000 			520,600 			1,301,600 		

Cost of funds		1-month LIBOR plus 0.50%		1-month LIBOR plus 0.50%			
Final maturity date		7/25/69		9/25/69			
Class B subordinated notes:					
Total principal amount		$	16,000 			10,700 			26,700 		

Cost of funds		1-month LIBOR plus 1.25%		1-month LIBOR plus 1.20%			
Final maturity date		7/25/69		9/25/69			

F - 30

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

																																				
	Securitizations completed during the year ended December 31, 2020	
	2020-1		2020-2		2020-3		2020-4 (a)		2020-5 (a)		Total	
	
Date securities issued	2/20/20		3/11/20		3/19/20		8/27/20		10/1/20			
Total original principal amount	$	435,600 			272,100 			352,600 			191,300 			295,000 			1,546,600 		
												
Class A senior notes:												
Total principal amount	$	424,600 			264,300 			343,600 			191,300 			295,000 			1,518,800 		
Bond discount	— 			(44)			(1,503)			(19)			— 			(1,566)		
Issue price	$	424,600 			264,256 			342,097 			191,281 			295,000 			1,517,234 		
Cost of funds	1-month LIBOR plus 0.74%		1.83%		1-month LIBOR plus 0.92%		1.42%		1-month LIBOR plus 0.88%			
Final maturity date	3/26/68		4/25/68		3/26/68		8/27/68		10/25/68			
												
Class B subordinated notes:											
Total principal amount	$	11,000 			7,800 			9,000 							27,800 		
Bond discount	— 			(574)			(284)							(858)		
Issue price	$	11,000 			7,226 			8,716 							26,942 		
Cost of funds	1-month LIBOR plus 1.75%		2.50%		1-month LIBOR plus 1.90%							
Final maturity date	3/26/68		4/25/68		3/26/68							

(a)    Total original principal amount excludes the Class B subordinated tranche for the 2020-4 and 2020-5 transactions, totaling $5.0 million and $7.5 million, respectively, that was retained by the Company at issuance. As of December 31, 2021, the Company had a total of $381.2 million (par value) of its own asset-backed securities that were retained upon initial issuance or repurchased in the secondary market. For accounting purposes, these notes are eliminated in consolidation and are not included in the Company's consolidated financial statements. However, these securities remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated in the trust estate. Upon a sale of these notes to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. Upon sale, these notes would be shown as "bonds and notes payable" in the Company's consolidated balance sheet.
Unsecured Line of Credit
The Company has a $495.0 million unsecured line of credit that has a maturity date of September 22, 2026. The line of credit provides that the Company may increase the aggregate financing commitments, through the existing lenders and/or through new lenders, up to a total of $737.5 million, subject to certain conditions. As of December 31, 2021, no amount was outstanding on the line of credit and $495.0 million was available for future use. Interest on amounts borrowed under the line of credit is payable, at the Company's election, at an alternate base rate or a Eurodollar rate, plus a variable rate (LIBOR), in each case as defined in the credit agreement. The initial margin applicable to Eurodollar borrowings is 150 basis points and may vary from 100 to 200 basis points depending on the Company's credit rating.
The line of credit agreement contains certain financial covenants that, if not met, lead to an event of default under the agreement. The covenants include, among others, maintaining:
•A minimum consolidated net worth
•A minimum recourse indebtedness to adjusted EBITDA (over the last four rolling quarters)
•A limitation on recourse indebtedness
•A limitation on the amount of unsecuritized private education and consumer loans in the Company’s portfolio
•A limitation on permitted investments, including business acquisitions that are not in one of the Company's existing lines of business
As of December 31, 2021, the Company was in compliance with all of these requirements. Many of these covenants are duplicated in the Company's other lending facilities, including its warehouse facilities.
The Company's operating line of credit does not have any covenants related to unsecured debt ratings. However, changes in the Company's ratings have modest implications on the pricing level at which the Company obtains funds.
A default on the Company's other debt facilities would result in an event of default on the Company's unsecured line of credit that would result in the outstanding balance on the line of credit becoming immediately due and payable.
F - 31

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

Participation Agreement
The Company has an agreement with Union Bank and Trust Company ("Union Bank"), a related party, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in FFELP loan asset-backed securities. As of December 31, 2021, $254.0 million of FFELP loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. The agreement automatically renews annually and is terminable by either party upon five business days' notice. The Company can participate FFELP loan asset-backed securities to Union Bank to the extent of availability under the grantor trusts, up to $400.0 million or an amount in excess of $400.0 million if mutually agreed to by both parties. The Company maintains legal ownership of the FFELP loan asset-backed securities and, in its discretion, approves and accomplishes any sale, assignment, transfer, encumbrance, or other disposition of the securities. As such, the FFELP loan asset-backed securities under this agreement have been accounted for by the Company as a secured borrowing.
See note 7 for additional information about the FFELP loan asset-backed securities investments serving as collateral under this participation agreement.
Repurchase Agreements
On May 3, 2021 and June 23, 2021, the Company entered into repurchase agreements with non-affiliated third parties, the proceeds of which are collateralized by certain private education and FFELP loan asset-backed securities. The first agreement has maturity dates of November 20, 2023 and December 20, 2023, or earlier if either party provides 180 days’ prior written notice, and the second agreement has a maturity date of May 27, 2022. The Company incurs interest on amounts outstanding under these agreements based on three-month LIBOR plus an applicable spread. Under the first agreement, the Company is subject to margin deficit payment requirements if the fair value of the securities subject to the agreement is less than the original purchase price of such securities on any scheduled reset date, and under the second agreement, the Company could be subject to margin deficit payment requirements if the fair value of the securities subject to the agreement is less than the original purchase price of such securities and the counter-party provides notice requiring such payment. Included in “bonds and notes payable” as of December 31, 2021 was $208.1 million subject to the first agreement and $275.8 million subject to the second agreement.
See note 7 for additional information about the private education loan asset-backed securities investments serving as collateral for these repurchase agreements.
Debt Covenants
Certain bond resolutions and related credit agreements 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 as of December 31, 2021.
Maturity Schedule
Bonds and notes outstanding as of December 31, 2021 are due in varying amounts as shown below.

2022		$	439,328 		
2023		415,547 		
2024		— 		
2025		28,116 		
2026		— 		
2027 and thereafter		16,941,096 		
		$	17,824,087 		
Generally, the Company's secured financing instruments 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 lending subsidiaries.
F - 32

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

Accrued Interest Liability
During the first quarter of 2021, the Company reversed a historical accrued interest liability of $23.8 million on certain bonds, which liability the Company determined was no longer probable of being required to be paid. The liability was initially recorded when certain asset-backed securitizations were acquired in 2011 and 2013. The reduction of this liability is reflected in (a reduction of) "interest on bonds and notes payable and bank deposits" in the consolidated statements of income.
Debt Repurchases
The following table summarizes the Company's repurchases of its own debt. Gains/losses recorded by the Company from the repurchase of debt are included in “other” in "other income/expense" on the Company’s consolidated statements of income.
																		
	Year ended December 31,	
	2021		2020		2019	
Purchase price	$	(407,487)			(25,643)			(39,864)		
Par value	406,875 			27,605 			40,000 		
Remaining debt discount and unamortized cost of issuance	(6,163)			(38)			— 		
(Loss) gain	$	(6,775)			1,924 			136 		

During 2019, the Company extinguished $1.05 billion of notes payable included in certain FFELP asset-backed securitizations prior to the notes’ contractual maturities. To extinguish the notes, the Company paid premiums of $14.0 million and wrote off $2.7 million of debt issuance costs. In total, the Company recognized $16.7 million (pre-tax) in expenses to extinguish these notes, which is included in “other expenses” on the consolidated statements of income.

6. Derivative Financial Instruments
The Company uses derivative financial instruments primarily to manage interest rate risk. The Company is exposed to interest rate risk in the form of basis risk and repricing risk because the interest rate characteristics of the Company's assets do not match the interest rate characteristics of the funding for those assets. The Company periodically reviews the mismatch related to the interest rate characteristics of its assets and liabilities together with the Company's outlook as to current and future market conditions. Based on those factors, the Company uses derivative instruments as part of its overall risk management strategy. Derivative instruments used as part of the Company's interest rate risk management strategy are discussed below.
Basis Swaps
Interest earned on the majority of the Company's FFELP student loan assets is indexed to the one-month LIBOR rate. Meanwhile, the Company funds a portion of its FFELP loan assets with three-month LIBOR indexed floating rate securities. The differing interest rate characteristics of the Company's loan assets versus the liabilities funding these assets results in basis risk, which impacts the Company's excess spread earned on its loans.
The Company also faces repricing risk due to the timing of the interest rate resets on its liabilities, which may occur as infrequently as once a quarter, in contrast to the timing of the interest rate resets on its assets, which generally occur daily.
As of December 31, 2021, the Company’s AGM operating segment had $15.9 billion, $0.6 billion, and $0.5 billion of FFELP loans indexed to the one-month LIBOR rate, three-month commercial paper rate, and the three-month treasury bill rate, respectively, the indices for which reset daily, and $5.4 billion of debt indexed to three-month LIBOR, the indices for which reset quarterly, and $10.5 billion of debt indexed to one-month LIBOR, the indices for which reset monthly.
The Company has used derivative instruments to hedge its basis risk and repricing risk. The Company has entered into basis swaps in which the Company receives three-month LIBOR set discretely in advance and pays one-month LIBOR plus or minus a spread as defined in the agreements (the “1:3 Basis Swaps”).

F - 33

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

The following table summarizes the Company’s 1:3 Basis Swaps outstanding:

		As of December 31,	
		2021		2020	
Maturity		Notional amount		Notional amount	
2021		$	— 			250,000 		
2022		2,000,000 			2,000,000 		
2023		750,000 			750,000 		
2024		1,750,000 			1,750,000 		
2026		1,150,000 			1,150,000 		
2027		250,000 			250,000 		

	

	
		$	5,900,000 			6,150,000 		
The weighted average rate paid by the Company on the 1:3 Basis Swaps as of December 31, 2021 and 2020, was one-month LIBOR plus 9.1 basis points.
Interest rate swaps – floor income hedges
FFELP loans originated prior to April 1, 2006 generally earn interest at the higher of the borrower rate, which is fixed over a period of time, or a floating rate based on the Special Allowance Payments ("SAP") formula set by the Department. The SAP rate is based on an applicable index plus a fixed spread that depends on loan type, origination date, and repayment status. The Company generally finances its student loan portfolio with variable rate debt. In low and/or certain declining interest rate environments, when the fixed borrower rate is higher than the SAP rate, these student loans earn at a fixed rate while the interest on the variable rate debt typically continues to reflect the low and/or declining interest rates. In these interest rate environments, the Company may earn additional spread income that it refers to as floor income.
Depending on the type of loan and when it was originated, the borrower rate is either fixed to term or is reset to an annual rate each July 1. As a result, for loans where the borrower rate is fixed to term, the Company may earn floor income for an extended period of time, which the Company refers to as fixed rate floor income, and for those loans where the borrower rate is reset annually on July 1, the Company may earn floor income to the next reset date, which the Company refers to as variable rate floor income. All FFELP loans first originated on or after April 1, 2006 effectively earn at the SAP rate, since lenders are required to rebate fixed rate floor income and variable rate floor income for these loans to the Department.
Absent the use of derivative instruments, a rise in interest rates may reduce the amount of floor income received and this may have an impact on earnings due to interest margin compression caused by increasing financing costs, until such time as the federally insured loans earn interest at a variable rate in accordance with their SAP formulas. In higher interest rate environments, where the interest rate rises above the borrower rate and fixed rate loans effectively become variable rate loans, the impact of the rate fluctuations is reduced.
As of December 31, 2021 and 2020, the Company had $7.2 billion and $8.4 billion, respectively, of FFELP student loan assets that were earning fixed rate floor income.

F - 34

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

The following table summarizes the outstanding derivative instruments used by the Company to economically hedge loans earning fixed rate floor income.
																											
		As of December 31, 2021		As of December 31, 2020	
Maturity		Notional amount		Weighted average fixed rate paid by the Company (a)		Notional amount		Weighted average fixed rate paid by the Company (a)	
									
2021		$	— 			— 	%		$	600,000 			2.15 	%	
2022		500,000 			0.94 			500,000 			0.94 		
2023		900,000 			0.62 			900,000 			0.62 		
2024		2,500,000 			0.35 			2,000,000 			0.32 		
2025		500,000 			0.35 			500,000 			0.35 		
2026		500,000 			1.02 			— 			— 		
2031		100,000 			1.53 			— 			— 		
	
 		$	5,000,000 			0.55 	%		$	4,500,000 			0.70 	%	
 
(a)    For all interest rate derivatives, the Company receives discrete three-month LIBOR.
Consolidated Financial Statement Impact Related to Derivatives - Statements of Income
The following table summarizes the components of "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of income.
																					
		Year ended December 31,	
		2021		2020		2019	
Settlements:		 		 			
1:3 basis swaps		$	(1,638)			10,378 			5,214 		
Interest rate swaps - floor income hedges		(19,729)			(6,699)			40,192 		
	
Total settlements - (expense) income		(21,367)			3,679 			45,406 		
Change in fair value:		 		 		 	
1:3 basis swaps		5,027 			(7,462)			1,515 		
Interest rate swaps - floor income hedges		87,786 			(20,682)			(77,027)		

	
Other		— 			— 			(683)		
Total change in fair value - income (expense)		92,813 			(28,144)			(76,195)		
Derivative market value adjustments and derivative
   settlements, net - income (expense)		$	71,446 			(24,465)			(30,789)		
Derivative Instruments - Credit and Market Risk
Interest rate movements have an impact on the amount of variation margin the Company may be required to pay to its third-party clearinghouse. The Company attempts to manage market risk associated with interest rates by establishing and monitoring limits as to the types and degree of risk that may be undertaken. The Company's derivative portfolio and hedging strategy is reviewed periodically by its internal risk committee and board of directors' Risk and Finance Committee. With the Company's current derivative portfolio, the Company does not currently anticipate any movement in interest rates having a material impact on its liquidity or capital resources, nor expects future movements in interest rates to have a material impact on its ability to meet variation margin payments to its third-party clearinghouse. Due to the existing low interest rate environment, the Company's exposure to downward movements in interest rates on its interest rate swaps is limited. In addition, the historical high correlation between one-month and three-month LIBOR limits the Company's exposure to interest rate movements on the 1:3 Basis Swaps.
F - 35

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

7. Investments
Private Education Loan Investment
In December 2020, Wells Fargo announced the sale of its approximately $10.0 billion portfolio of private education loans representing approximately 445,000 borrowers. The Company entered into a joint venture with other investors to acquire the loans. Under the terms of the joint venture agreements, the Company is the servicer of the portfolio, owns an approximate 8 percent interest in residual interests in securitizations of the loans, and serves as the sponsor and administrator for the loan securitizations completed by the joint venture.
The joint venture established a limited partnership that purchased the private education loans and funded such loans with a temporary warehouse facility. The Company’s initial contribution to the limited partnership was $71.1 million. In conjunction with the establishment of the limited partnership, the parties provided additional funding commitments to the partnership, in the event additional funding became necessary after the initial purchase of loans. In accordance with GAAP, the Company’s carrying value of its investment in the limited partnership is accounted for under the equity method of accounting, is reduced by cash distributions and the fair value of its portion of loans transferred into securitizations, and can be less than zero or negative because of the potential future contributions pursuant to the funding commitment. The carrying value of the investment in the limited partnership is also impacted by the amount of the Company’s proportionate share of the net earnings or losses of the partnership.
During 2021, the joint venture completed asset-backed securitization transactions to permanently finance a total of $8.7 billion of the private education loans purchased by the joint venture. Cash distributions, the fair value of the Company’s portion of loans securitized as a result of these securitizations, and the Company’s proportionate share of losses of this partnership were $52.1 million, $51.9 million, and $5.0 million, respectively, and reduced the Company’s carrying value of its limited partnership investment to a credit (negative) balance of $37.9 million. During the fourth quarter of 2021, the Company’s financial commitment to the limited partnership was terminated by the partners of the joint venture, and the Company recognized income of $37.9 million (pre-tax) associated with the termination, which is included in “other” in “other income/expense” on the consolidated statements of income. The Company’s ownership in the residual interest of securitization transactions used to permanently finance the loans are reflected in the table below as “beneficial interest in private education loan securitizations.”
As sponsor of the loan securitizations, the Company is required to provide a certain level of risk retention, and has purchased bonds issued in such securitizations to satisfy this requirement. The bonds purchased to satisfy the risk retention requirement are included in “private education loan asset-backed securities – available for sale” in the table below and as of December 31, 2021, the fair value of these bonds was $412.6 million. The Company must retain these investment securities until the latest of (i) two years from the closing date of the securitization, (ii) the date the aggregate outstanding principal balance of the loans in the securitization is 33% or less of the initial loan balance, and (iii) the date the aggregate outstanding principal balance of the bonds is 33% or less of the aggregate initial outstanding principal balance of the bonds, at which time the Company can sell its investment securities (bonds) to a third party. The Company entered into repurchase agreements with third-parties, the proceeds of which were used to purchase a portion of the asset-backed investments, and such investments serve as collateral on the repurchase obligations.

F - 36

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

A summary of the Company's investments follows:

	As of December 31, 2021		As of December 31, 2020	
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value	
																
Investments (at fair value):																
FFELP loan asset-backed securities- available-for-sale (a)	$	480,691 			14,710 			(719)			494,682 			338,475 			8,040 			(13)			346,502 		
Private education loan asset-backed securities - available-for-sale (b)	414,286 			507 			(2,241)			412,552 			— 			— 			— 			— 		
Other debt securities - available-for-sale	22,435 			— 			— 			22,435 			2,103 			2 			— 			2,105 		
Equity securities	60,153 			13,930 			(2,097)			71,986 			36,227 			8,768 			(2,954)			42,041 		
Total investments (at fair value)	$	977,565 			29,147 			(5,057)			1,001,655 			376,805 			16,810 			(2,967)			390,648 		

Other Investments (not measured at fair value):																
Other debt securities - held-to-maturity (c)							8,200 									— 		
Venture capital and funds:																
Measurement alternative (d)(e)							157,609 									144,795 		
Equity method							67,840 									14,912 		
Total venture capital and funds							225,449 									159,707 		
Real estate																
Equity method							47,226 									50,291 		
Notes receivable							— 									847 		
Total real estate							47,226 									51,138 		
Investment in ALLO:																
Voting interest/equity method (f)							87,247 									129,396 		
Preferred membership interest and accrued and unpaid preferred return (g)							137,342 									228,916 		
Total investment in ALLO							224,589 									358,312 		
Solar (h)							(42,457)									(30,373)		
Beneficial interest in private education loan securitizations (i)							66,008 									— 		
Beneficial interest in consumer loan securitizations, net of allowance for credit losses of $4,449 as of December 31, 2020 (i)							28,366 									27,954 		
Beneficial interest in federally insured student loan securitizations (i)							25,768 									30,377 		
Tax liens, affordable housing, and other							4,115 									5,177 		
Total investments (not measured at fair value)							587,264 									602,292 		
Total investments							$	1,588,919 									$	992,940 		
(a)    As of December 31, 2021, $254.0 million (par value) of FFELP loan asset-backed securities were subject to participation interests held by Union Bank, as discussed in note 5 under "Participation Agreement."
As of December 31, 2021, the stated maturities of a majority of the Company’s FFELP student loan asset-backed securities classified as available-for-sale were greater than 10 years; however, such securities with a fair value of $77.9 million as of December 31, 2021 are scheduled to mature within the next 10 years, including $25.2 million, $32.1 million, and $20.6 million due within the next one year, 1-5 years, and 6-10 years, respectively.
(b)    As of December 31, 2021, a total of $400.0 million (par value) of private education loan asset-backed securities were subject to repurchase agreements with third-parties, as discussed in note 5 under “Repurchase Agreements.”
As of December 31, 2021, the stated maturities for all the Company’s private education loan asset-backed securities classified as available for sale were greater than 10 years.
(c)    As of December 31, 2021, securities classified as held-to-maturity of $3.5 million and $4.7 million were scheduled to mature within one year and 1-5 years, respectively. As of December 31, 2021, the fair value of these securities approximated their carrying value.
F - 37

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

(d)    The Company has an investment in Agile Sports Technologies, Inc. (doing business as “Hudl”) that is included in “venture capital and funds” in the above table. In May 2020, the Company made an additional equity investment of approximately $26 million in Hudl, as one of the participants in an equity raise completed by Hudl. Prior to the additional 2020 investment, the Company had direct and indirect equity ownership interests in Hudl of less than 20%, which did not materially change as a result of this transaction. The Company accounts for its investment in Hudl using the measurement alternative method, which requires it to adjust its carrying value of the investment for changes resulting from observable market transactions. As a result of Hudl’s equity raise, the Company recognized a $51.0 million (pre-tax) gain during the second quarter of 2020 to adjust its carrying value to reflect the May 2020 transaction value. This gain is included in “other” in “other income/expense” on the consolidated statements of income. In May 2021, the Company made an additional $5 million investment in Hudl. For accounting purposes, the May 2021 equity raise transaction was not considered an observable market transaction (not orderly) because it was not subject to customary marketing activities and the price was contractually agreed to during Hudl's prior May 2020 equity raise. Accordingly, the Company did not adjust its carrying value of its Hudl investment to the May 2021 transaction value. As of December 31, 2021, the carrying amount of the Company's investment in Hudl is $133.9 million.
David S. Graff, who has served on the Company's Board of Directors since May 2014, is CEO, co-founder, and a director of Hudl.
(e)    In October 2021, CompanyCam Inc., an entity in which the Company has an equity investment, completed an additional equity raise. The Company accounts for its investment in this entity using the measurement alternative method, which requires it to adjust its carrying value of the investment for changes resulting from observable market transactions. As a result of this entity’s equity raise, the Company recognized a $10.3 million (pre-tax) gain during the fourth quarter of 2021 to adjust its carrying value to reflect the October 2021 transaction value. As of December 31, 2021, the carrying amount of this investment is $11.5 million.
(f)    The Company accounts for its voting membership interests in ALLO Holdings LLC, a holding company for ALLO Communications LLC (collectively referred to as "ALLO") under the HLBV method of accounting. During the years ended December 31, 2021 and 2020, the Company recognized pre-tax losses of $42.1 million and $3.6 million, respectively, under the HLBV method of accounting on its ALLO voting membership interests investment.
Assuming ALLO continues its planned growth in existing and new communities, it will continue to invest substantial amounts in property and equipment to build the network and connect customers. The resulting recognition of depreciation and development costs could result in continuing net operating losses by ALLO under GAAP. Applying the HLBV method of accounting, the Company will continue to recognize a significant portion of ALLO’s anticipated losses over the next several years. Income and losses from the Company's investment in ALLO are included in "other" in "other income/expense" on the consolidated statements of income.
(g)    On January 19, 2021, ALLO obtained certain private debt financing facilities from unrelated third-party lenders. With proceeds from this transaction, ALLO redeemed a portion of its non-voting preferred membership interests held by the Company in exchange for an aggregate redemption price payment to the Company of $100.0 million. Under October 2020 recapitalization agreements for ALLO, the parties have agreed to use commercially reasonable efforts (which expressly excludes requiring ALLO to raise any additional equity financing or sell any assets) to cause ALLO to redeem, on or before April 2024, the remaining preferred membership interests of ALLO held by the Company, plus the amount of accrued and unpaid preferred return on such interests.
As of December 31, 2021, the outstanding preferred membership interests of ALLO held by the Company was $137.3 million, which includes accrued and unpaid preferred return of $7.7 million that was capitalized at December 31, 2021. The preferred membership interests of ALLO held by the Company earn a preferred annual return of 6.25 percent. During the years ended December 31, 2021 and 2020, the Company recognized pre-tax income on its ALLO preferred membership interests of $8.4 million and $0.4 million, respectively, that is included in "other" in "other income/expense" on the consolidated statements of income.
(h)    The Company makes investments in entities that promote renewable energy sources (solar). The Company’s investments in these entities generate a return primarily through the realization of federal income tax credits, operating cash flows, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods which range from 5 to 6 years. As of December 31, 2021, the Company has funded a total of $227.9 million in solar investments, which includes $59.2 million funded by syndication partners. The carrying value of the Company’s solar investments are reduced by tax credits earned when the solar project is placed in service. The solar investment balance at December 31, 2021 represents the sum of total tax credits earned on solar projects placed in service through December 31, 2021 and the calculated HLBV net losses being larger than total payments made by the Company on such projects. The Company is committed to fund an additional $22.3 million on these projects, of which $17.9 million will be provided by syndication partners.
The Company accounts for its solar investments using the HLBV method of accounting. For the majority of the Company’s solar investments, the HLBV method of accounting results in accelerated losses in the initial years of investment. During the years ended December 31, 2021 and 2020, the Company recognized pre-tax losses of $10.1
F - 38

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

million and $37.4 million, respectively, on its solar investments. These losses are included in “other” in "other income/expense" on the consolidated statements of income. Losses from solar investments in 2021 and 2020 include losses of $7.1 million and $3.8 million, respectively, attributable to third-party minority interest investors that are included in “net loss attributable to noncontrolling interests” in the consolidated statements of income.
(i)    The Company has partial ownership in certain private education, consumer, and federally insured student loan securitizations. As of the latest remittance reports filed by the various trusts prior to or as of December 31, 2021, the Company's ownership correlates to approximately $688 million, $195 million, and $445 million of private education, consumer, and federally insured student loans, respectively, included in these securitizations.
Impairment Expense and Provision for Beneficial Interests
During the first quarter of 2020, the Company recorded a $26.3 million provision charge related to the Company's beneficial interest in consumer loan securitizations. As of March 31, 2020, the Company's estimate of future cash flows from the beneficial interest in consumer loan securitizations was lower than previously anticipated due to the expectation of increased consumer loan defaults within such securitizations due to the distressed economic conditions resulting from the COVID-19 pandemic and recorded an allowance for credit losses of $26.3 million. Additionally, during the first quarter of 2020, the Company recorded a $7.8 million impairment charge related to several of its venture capital investments. The Company identified several venture capital investments, a majority of which were accounted for under the measurement alternative, that were also negatively impacted by the distressed economic conditions resulting from the COVID-19 pandemic, and estimated that the fair value of such investments was significantly reduced from their previous carrying value. During the fourth quarter of 2020 and first quarter of 2021, due to improved economic conditions, the Company reduced the allowance for credit losses related to the consumer loan beneficial interests by $9.7 million and $2.4 million, respectively.
During 2021, the Company recorded a total impairment charge of $4.6 million related to several of its venture capital investments accounted for under the measurement alternative method.
The impairment expense and recovery activity described above is included in “impairment expense and provision for beneficial interests, net” on the consolidated statements of income.

8. Business Combination
HigherSchool Publishing Company ("HigherSchool")
On December 31, 2020, the Company acquired 100 percent of the outstanding stock of HigherSchool for total cash consideration of $24.7 million. HigherSchool provides supplemental instructional services and educational professional development for K-12 schools. The acquisition of HigherSchool has expanded the Company's professional development and educational instruction services. The operating results of HigherSchool are included in the Education Technology, Services, and Payment Processing operating segment from the date of acquisition.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date.

Cash and cash equivalents	$	7 		
Accounts receivable	5,711 		
Intangible assets	24,200 		
Excess cost over fair value of net assets acquired (goodwill)	6,292 		
Other liabilities	(11,510)		
Net assets acquired	$	24,700 		

The acquired intangible assets were customer relationships of $24.2 million (10-year useful life).
The $6.3 million of goodwill was assigned to the Education Technology, Services, and Payment Processing operating segment and is not expected to be deductible for tax purposes. The amount allocated to goodwill was primarily attributed to the deferred tax liability related to the difference between the carrying amount and tax basis of acquired identifiable intangible assets.
The pro forma impacts of the HigherSchool acquisition on the Company's historical results prior to the acquisition were not material.
F - 39

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

9. Intangible Assets
Intangible assets consist of the following:
																		
	Weighted average remaining useful life as of
December 31, 2021 (months)		As of December 31,	
			2021		2020	
Amortizable intangible assets, net:	 		 			
Customer relationships (net of accumulated amortization of $97,398 and $83,419, respectively)	103		$	47,894 			66,974 		
Computer software (net of accumulated amortization of $3,669 and $4,127, respectively)	24		4,135 			6,430 		
Trade names (net of accumulated amortization of $3,455)	—		— 			1,666 		
Total - amortizable intangible assets, net	96		$	52,029 			75,070 		

The Company recorded amortization expense on its intangible assets of $23.0 million, $30.8 million, and $32.8 million during the years ended December 31, 2021, 2020, and 2019, respectively. The Company will continue to amortize intangible assets over their remaining useful lives. As of December 31, 2021, the Company estimates it will record amortization expense as follows:

2022	$	9,939 		
2023	9,830 		
2024	7,457 		
2025	4,644 		
2026	4,517 		
2027 and thereafter	15,642 		
 	$	52,029 		

10. Goodwill
The change in the carrying amount of goodwill by reportable operating segment was as follows:

	Loan Servicing and Systems		Education Technology, Services, and Payment Processing		Communications		Asset Generation and Management (a)		Nelnet Bank		Corporate and Other Activities		Total	
Balance as of December 31, 2019	$	23,639 			70,278 			21,112 			41,883 			— 			— 			156,912 		
Goodwill acquired	— 			6,292 			— 			— 			— 			— 			6,292 		
Deconsolidation of ALLO	— 			— 			(21,112)			— 			— 			— 			(21,112)		
	
Balance as of December 31, 2020 and 2021	$	23,639 			76,570 			— 			41,883 			— 			— 			142,092 		

	

(a)    As a result of the Reconciliation Act of 2010, the Company no longer originates new FFELP loans, and net interest income from the Company's existing FFELP loan portfolio will decline over time as the Company's portfolio pays down. As a result, as this revenue stream winds down, goodwill impairment will be triggered for the Asset Generation and Management reporting unit due to the passage of time and depletion of projected cash flows stemming from its FFELP student loan portfolio. Management believes the elimination of new FFELP loan originations will not have an adverse impact on the fair value of the Company's other reporting units.

F - 40

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

11. Property and Equipment
Property and equipment consisted of the following:
																		
			As of December 31,	
	Useful life		2021		2020	
Computer equipment and software	1-5 years		$	234,222 			172,664 		
Building and building improvements	5-48 years		48,782 			52,444 		
Office furniture and equipment	1-10 years		22,463 			21,899 		
Leasehold improvements	1-15 years		10,537 			9,168 		
Transportation equipment	5-10 years		4,857 			4,857 		
Land	—		3,266 			3,642 		
Construction in progress	—		2,392 			18,478 		
			326,519 			283,152 		
Accumulated depreciation			(207,106)			(159,625)		
Total property and equipment, net			$	119,413 			123,527 		

The Company recorded depreciation expense on its property and equipment of $50.7 million, $87.9 million, and $72.3 million during the years ended December 31, 2021, 2020, and 2019, respectively.
Impairment charges
During the third quarter of 2021, the Company evaluated the use of office space as a large number of employees continue to work from home due to COVID-19. As a result of this evaluation, the Company recorded a non-cash impairment charge of $14.2 million during the three months ended September 30, 2021. The impairment charge of $13.2 million within its Loan Servicing and Systems operating segment related primarily to building and building improvements. The impairment charge of $1.0 million within its Corporate and Other Activities operating segment related to operating lease assets associated with leased office space which the Company had fully ceased to use prior to the lease term end date. These impairment charges are included in "impairment expense and provision for beneficial interest, net" in the consolidated statements of income.

12. Shareholders’ Equity
Classes of Common Stock
The Company's common stock is divided into two classes. The Class B common stock has ten votes per share and the Class A common stock has one vote per share on all matters to be voted on by the Company's shareholders. 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.
Stock Repurchases
The Company has a stock repurchase program that expires on May 7, 2022 in which it can repurchase up to five million shares of its Class A common stock on the open market, through private transactions, or otherwise. As of December 31, 2021, 2.6 million shares may still be purchased under the Company's stock repurchase program. Shares repurchased by the Company during 2021, 2020, and 2019 are shown in the table below. In accordance with the corporate laws of the state in which the Company is incorporated, all shares repurchased by the Company are legally retired upon acquisition by the Company.

	Total shares repurchased		Purchase price
(in thousands)		Average price of shares repurchased (per share)	
Year ended December 31, 2021	713,274 			$	58,111 			$	81.47 		
Year ended December 31, 2020	1,594,394 			73,358 			46.01 		
Year ended December 31, 2019	726,273 			40,411 			55.64 		

F - 41

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

13. Earnings per Common Share
Presented below is a summary of the components used to calculate basic and diluted earnings per share. The Company applies the two-class method in computing both basic and diluted earnings per share, which requires the calculation of separate earnings per share amounts for common stock and unvested share-based awards. Unvested share-based awards that contain nonforfeitable rights to dividends are considered securities which participate in undistributed earnings with common stock.

 	Year ended December 31,	
	2021		2020		2019	
	Common shareholders		Unvested restricted stock shareholders		Total		Common shareholders		Unvested restricted stock shareholders		Total		Common shareholders		Unvested restricted stock shareholders		Total	
Numerator:																		
Net income attributable to Nelnet, Inc.	$	386,865 			6,421 			393,286 			347,451 			4,992 			352,443 			139,946 			1,857 			141,803 		
Denominator:																		
Weighted-average common shares outstanding - basic and diluted	37,943,032 			629,769 			38,572,801 			38,506,351 			553,237 			39,059,588 			39,523,082 			524,320 			40,047,402 		
Earnings per share - basic and diluted	$	10.20 			10.20 			10.20 			9.02 			9.02 			9.02 			3.54 			3.54 			3.54 		
Unvested restricted stock awards are the Company's only potential common shares and, accordingly, there were no awards that were antidilutive and not included in average shares outstanding for the diluted earnings per share calculation.
As of December 31, 2021, a cumulative amount of 221,996 shares have been deferred by non-employee directors under the Directors Stock Compensation Plan and will become issuable upon the termination of service by the respective non-employee director on the board of directors. These shares are included in the Company's weighted average shares outstanding calculation.

14. Income Taxes
The Company is subject to income taxes in the United States, Canada, and Australia. Significant judgment is required in evaluating the Company's tax positions and determining the provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain.
As required by the Income Taxes Topic of the FASB Accounting Standards Codification ("ASC Topic 740"), the Company recognizes in the consolidated financial statements only those tax positions determined to be more likely than not of being sustained upon examination, based on the technical merits of the positions. It further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the period of such change.
As of December 31, 2021, the total amount of gross unrecognized tax benefits (excluding the federal benefit received from state positions) was $19.7 million, which is included in “other liabilities” on the consolidated balance sheet. Of this total, $15.6 million (net of the federal benefit on state issues) represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in future periods. The Company currently anticipates uncertain tax positions will decrease by $7.2 million prior to December 31, 2022 as a result of a lapse of applicable statutes of limitations, settlements, correspondence with examining authorities, and recognition or measurement considerations with federal and state jurisdictions; however, actual developments in this area could differ from those currently expected. Of the anticipated $7.2 million decrease, $5.7 million, if recognized, would favorably affect the Company's effective tax rate. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits follows:
												
	Year ended December 31,	
	2021		2020	
Gross balance - beginning of year	$	20,318 			20,148 		
Additions based on tax positions of prior years	271 			634 		
Additions based on tax positions related to the current year	2,388 			2,523 		
	
Reductions for tax positions of prior years	(1,002)			(69)		
	
Reductions due to lapse of applicable statutes of limitations	(2,297)			(2,918)		
Gross balance - end of year	$	19,678 			20,318 		

F - 42

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

All the reductions shown in the table above that are due to prior year tax positions and the lapse of statutes of limitations impacted the effective tax rate.
The Company's policy is to recognize interest and penalties accrued on uncertain tax positions as part of interest expense and other expense, respectively. As of December 31, 2021 and 2020, $5.1 million and $5.4 million in accrued interest and penalties, respectively, were included in “other liabilities” on the consolidated balance sheets. The impact to the consolidated statements of income related to interest expense and penalties for uncertain tax positions was not significant for the years 2021, 2020, and 2019. The impact of timing differences and tax attributes are considered when calculating interest and penalty accruals associated with the unrecognized tax benefits.
The Company and its subsidiaries file a consolidated federal income tax return in the U.S. and the Company or one of its subsidiaries files income tax returns in various state, local, and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years prior to 2018. The Company is no longer subject to U.S. state and local income tax examinations by tax authorities prior to 2010. As of December 31, 2021, the Company has tax uncertainties that remain unsettled in the jurisdiction of California (2010 through 2017).
The provision for income taxes consists of the following components:

	Year ended December 31,	
	2021		2020		2019	
Current:						
Federal	$	55,239 			82,832 			38,931 		
State	4,792 			9,815 			3,546 		
Foreign	169 			239 			239 		
Total current provision	60,200 			92,886 			42,716 		
						
Deferred:						
Federal	46,145 			7,269 			(4,280)		
State	9,647 			718 			(2,922)		
Foreign	(170)			(13)			(63)		
Total deferred provision	55,622 			7,974 			(7,265)		
Provision for income tax expense	$	115,822 			100,860 			35,451 		

The differences between the income tax provision computed at the statutory federal corporate tax rate and the financial statement provision for income taxes are shown below:

	Year ended December 31,	
	2021		2020		2019	
Tax expense at federal rate	21.0 	%		21.0 	%		21.0 	%	
Increase (decrease) resulting from:						
State tax, net of federal income tax benefit	3.0 			2.8 			2.5 		
Tax credits	(0.8)			(1.1)			(3.0)		
Provision for uncertain federal and state tax matters	(0.1)			(0.2)			(0.7)		
	
Other	(0.3)			(0.2)			0.2 		
Effective tax rate	22.8 	%		22.3 	%		20.0 	%	

F - 43

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

The tax effect of temporary differences that give rise to deferred tax assets and liabilities include the following:
												
	As of December 31,	
	2021		2020	
Deferred tax assets:				
Deferred revenue	$	21,593 			18,081 		
Student loans	19,776 			26,894 		
Accrued expenses	10,712 			10,661 		
State tax credit carryforwards	8,546 			5,987 		
Stock compensation	4,027 			2,546 		
Lease liability	3,685 			4,123 		
Net operating losses	2,410 			647 		
Basis in certain derivative contracts	— 			5,061 		
Securitizations	— 			694 		

Total gross deferred tax assets	70,749 			74,694 		
Less state tax valuation allowance	(2,084)			(569)		
Net deferred tax assets	68,665 			74,125 		
Deferred tax liabilities:				
Partnership basis	100,428 			64,023 		
Basis in certain derivative contracts	15,927 			— 		
Depreciation	15,264 			14,092 		
Debt and equity investments	12,859 			20,538 		
Loan origination services	4,930 			5,040 		
Intangible assets	4,772 			7,703 		
Lease right of use asset	3,317 			4,037 		
Securitization	128 			— 		
	
Other	1,665 			661 		
Total gross deferred tax liabilities	159,290 			116,094 		
Net deferred tax asset (liability)	$	(90,625)			(41,969)		

The Company has performed an evaluation of the recoverability of deferred tax assets. 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 or eligible for utilization of a tax credit carryforward. Management considers the scheduled reversals of deferred tax liabilities, projected taxable income, carry back opportunities, and tax planning strategies in making the assessment of the amount of the valuation allowance. With the exception of a portion of the Company's state net operating losses, it is management's opinion that it is more likely than not that the deferred tax assets will be realized and should not be reduced by a valuation allowance. The amount of deferred tax assets considered realizable could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.
As of December 31, 2021 and 2020, the Company had a current income tax receivable of $8.1 million and $21.5 million, respectively, that is included in "other assets" on the consolidated balance sheets. Net deferred tax assets of $27.3 million and net deferred tax liabilities of $117.9 million are included in “other assets” and “other liabilities,” respectively, on the consolidated balance sheets.

F - 44

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

15. Segment Reporting
The Company's reportable operating segments include:
• Loan Servicing and Systems
• Education Technology, Services, and Payment Processing
• Communications
• Asset Generation and Management
• Nelnet Bank
The Company earns fee-based revenue through its Loan Servicing and Systems and Education Technology, Services, and Payment Processing operating segments and earned revenue from its Communications operating segment prior to its deconsolidation on December 21, 2020. In addition, the Company earns interest income on its loan portfolio in its Asset Generation and Management operating segment. On November 2, 2020, the Company launched operations of Nelnet Bank. Nelnet bank operates as an internet bank franchise focused primarily on the private education loan marketplace.
The Company’s operating segments are defined by the products and services they offer and the types of customers they serve, and they reflect the manner in which financial information is currently evaluated by management. See note 1, "Description of Business," for a description of each operating segment, including the primary products and services offered.
The management reporting process measures the performance of the Company’s operating segments based on the management structure of the Company, as well as the methodology used by management to evaluate performance and allocate resources. Executive management (the "chief operating decision maker") evaluates the performance of the Company’s operating segments based on their financial results prepared in conformity with U.S. GAAP.
The accounting policies of the Company’s operating segments are the same as those described in the summary of significant accounting policies. Intersegment revenues are charged by a segment that provides a product or service to another segment. Intersegment revenues and expenses are included within each segment consistent with the income statement presentation provided to management. Income taxes are allocated based on 24% of income before taxes for each individual operating segment, except for Nelnet Bank, which reflects Nelnet Bank’s actual tax expense/benefit as allocated and reflected in its Call Report filed with the Federal Deposit Insurance Corporation. The difference between the consolidated income tax expense and the sum of taxes calculated for each operating segment is included in income taxes in Corporate and Other Activities.
Corporate and Other Activities
Other business activities and operating segments that are not reportable are combined and included in Corporate and Other Activities. Corporate and Other Activities includes the following items:
•The majority of the Company’s investment activities, including investments accounted for under the equity method. See note 7 for the amounts of investments in equity method investees.
•Interest expense incurred on unsecured and certain other corporate related debt transactions
•Other product and service offerings that are not considered reportable operating segments including, but not limited to, WRCM, the SEC-registered investment advisor subsidiary
Corporate and Other Activities also includes certain corporate activities and overhead functions related to executive management, internal audit, human resources, accounting, legal, enterprise risk management, information technology, occupancy, and marketing. These costs are allocated to each operating segment based on estimated use of such activities and services. Certain shared service costs incurred to support Nelnet Bank will not be allocated to Nelnet Bank until the end of the Bank’s de novo period (November 2023).
Segment Results
The following tables include the results of each of the Company's reportable operating segments reconciled to the consolidated financial statements.
F - 45

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

																																																
 	Year ended December 31, 2021	
	Loan Servicing and Systems		Education Technology, Services, and Payment Processing		Communications (a)		Asset
Generation and
Management		Nelnet Bank		Corporate and Other Activities		Eliminations		Total	
Total interest income	$	137 			1,075 			— 			506,901 			7,721 			9,801 			(1,800)			523,835 		
Interest expense	94 			— 			— 			172,918 			1,507 			3,515 			(1,800)			176,233 		
Net interest income (expense)	43 			1,075 			— 			333,983 			6,214 			6,286 			— 			347,602 		
Less (negative provision) provision for loan losses	— 			— 			— 			(13,220)			794 			— 			— 			(12,426)		
Net interest income after provision for loan losses	43 			1,075 			— 			347,203 			5,420 			6,286 			— 			360,028 		
Other income/expense:	 		 				 				 		 		 	
Loan servicing and systems revenue	486,363 			— 			— 			— 			— 			— 			— 			486,363 		
Intersegment revenue	33,956 			12 			— 			— 			— 			— 			(33,968)			— 		
Education technology, services, and payment processing revenue	— 			338,234 			— 			— 			— 			— 			— 			338,234 		
Communications revenue	— 			— 			— 			— 			— 			— 			— 			— 		
Other	3,307 			— 			— 			34,306 			713 			40,356 			— 			78,681 		
Gain on sale of loans	— 			— 			— 			18,715 			— 			— 			— 			18,715 		
Gain from deconsolidation of ALLO	— 			— 			— 			— 			— 			— 			— 			— 		
Impairment expense and provision for beneficial interests, net	(13,243)			— 			— 			2,436 			— 			(5,553)			— 			(16,360)		
Derivative settlements, net	— 			— 			— 			(21,367)			— 			— 			— 			(21,367)		
Derivative market value adjustments, net	— 			— 			— 			92,813 			— 			— 			— 			92,813 		
Total other income/expense	510,383 			338,246 			— 			126,903 			713 			34,803 			(33,968)			977,079 		
Cost of services:																
Cost to provide education technology, services, and payment processing services	— 			108,660 			— 			— 			— 			— 			— 			108,660 		
Cost to provide communications services	— 			— 			— 			— 			— 			— 			— 			— 		
Total cost of services	— 			108,660 			— 			— 			— 			— 			— 			108,660 		
Operating expenses:	 		 				 				 		 		 	
Salaries and benefits	297,406 			112,046 			— 			2,135 			5,042 			90,502 			— 			507,132 		
Depreciation and amortization	25,649 			11,404 			— 			— 			— 			36,682 			— 			73,741 		
	
Other expenses	52,720 			19,318 			— 			13,487 			1,776 			58,173 			— 			145,469 		
Intersegment expenses, net	72,206 			15,180 			— 			34,868 			107 			(88,393)			(33,968)			— 		
Total operating expenses	447,981 			157,948 			— 			50,490 			6,925 			96,964 			(33,968)			726,342 		
Income (loss) before income taxes	62,445 			72,713 			— 			423,616 			(792)			(55,875)			— 			502,105 		
Income tax (expense) benefit	(14,987)			(17,451)			— 			(101,668)			175 			18,109 			— 			(115,822)		
Net income (loss)	47,458 			55,262 			— 			321,948 			(617)			(37,766)			— 			386,283 		
Net loss attributable to noncontrolling interests	— 			— 			— 			— 			— 			7,003 			— 			7,003 		
Net income (loss) attributable to Nelnet, Inc.	$	47,458 			55,262 			— 			321,948 			(617)			(30,763)			— 			393,286 		
																
Total assets as of December 31, 2021	$	296,618 			443,788 			— 			18,965,371 			535,948 			1,963,032 			(526,716)			21,678,041 		

(a)    On December 21, 2020, the Company deconsolidated ALLO from the Company’s consolidated financial statements. See note 2, “ALLO Recapitalization,” for a description of the transaction and a summary of the deconsolidation impact. Accordingly, there are no operating results for the (former) Communications operating segment in 2021.

F - 46

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

																																																
 	Year ended December 31, 2020	
	Loan Servicing and Systems		Education Technology, Services, and Payment Processing		Communications (a)		Asset
Generation and
Management		Nelnet Bank (b)		Corporate and Other Activities		Eliminations		Total	
Total interest income	$	436 			3,036 			2 			611,474 			414 			5,775 			(1,480)			619,656 		
Interest expense	121 			54 			— 			328,157 			41 			3,178 			(1,480)			330,071 		
Net interest income (expense)	315 			2,982 			2 			283,317 			373 			2,597 			— 			289,585 		
Less (negative provision) provision for loan losses	— 			— 			— 			63,029 			330 			— 			— 			63,360 		
Net interest income after provision for loan losses	315 			2,982 			2 			220,288 			43 			2,597 			— 			226,225 		
Other income/expense:																
Loan servicing and systems revenue	451,561 			— 			— 			— 			— 			— 			— 			451,561 		
Intersegment revenue	36,520 			20 			— 			— 			— 			— 			(36,540)			— 		
Education technology, services, and payment processing revenue	— 			282,196 			— 			— 			— 			— 			— 			282,196 		
Communications revenue	— 			— 			76,643 			— 			— 			— 			— 			76,643 		
Other	9,421 			373 			1,561 			7,189 			48 			38,969 			— 			57,561 		
Gain on sale of loans	— 			— 			— 			33,023 			— 			— 			— 			33,023 		
Gain from deconsolidation of ALLO	— 			— 			— 			— 			— 			258,588 			— 			258,588 		
Impairment expense and provision for beneficial interests, net	— 			— 			— 			(16,607)			— 			(8,116)			— 			(24,723)		
Derivative settlements, net	— 			— 			— 			3,679 			— 			— 			— 			3,679 		
Derivative market value adjustments, net	— 			— 			— 			(28,144)			— 			— 			— 			(28,144)		
Total other income/expense	497,502 			282,589 			78,204 			(860)			48 			289,441 			(36,540)			1,110,384 		
Cost of services:																
Cost to provide education technology, services, and payment processing services	— 			82,206 			— 			— 			— 			— 			— 			82,206 		
Cost to provide communications services	— 			— 			22,812 			— 			— 			— 			— 			22,812 		
Total cost of services	— 			82,206 			22,812 			— 			— 			— 			— 			105,018 		
Operating expenses:																
Salaries and benefits	285,526 			98,847 			30,935 			1,747 			36 			84,741 			— 			501,832 		
Depreciation and amortization	37,610 			9,459 			42,588 			— 			— 			29,043 			— 			118,699 		
	
Other expenses	57,420 			14,566 			13,327 			15,806 			135 			59,320 			— 			160,574 		
Intersegment expenses, net	63,886 			14,293 			1,732 			39,172 			— 			(82,543)			(36,540)			— 		
Total operating expenses	444,442 			137,165 			88,582 			56,725 			171 			90,561 			(36,540)			781,105 		
Income (loss) before income taxes	53,375 			66,200 			(33,188)			162,703 			(80)			201,477 			— 			450,486 		
Income tax (expense) benefit	(12,810)			(15,888)			7,965 			(39,049)			20 			(41,098)			— 			(100,860)		
Net income (loss)	40,565 			50,312 			(25,223)			123,654 			(60)			160,379 			— 			349,626 		
Net loss attributable to noncontrolling interests	— 			— 			— 			— 			— 			2,817 			— 			2,817 		
Net income (loss) attributable to Nelnet, Inc.	$	40,565 			50,312 			(25,223)			123,654 			(60)			163,196 			— 			352,443 		
																
Total assets as of December 31, 2020	$	190,297 			436,702 			— 			20,773,968 			216,937 			1,225,790 			(197,534)			22,646,160 		

(a)    On December 21, 2020, the Company deconsolidated ALLO from the Company’s consolidated financial statements. See note 2, “ALLO Recapitalization,” for a description of the transaction and a summary of the deconsolidation impact. Accordingly, the operating results for the Communications operating segment in the table above are for the period from January 1, 2020 through December 21, 2020.
(b)    Nelnet Bank launched operations on November 2, 2020. Accordingly, the operating results for the Nelnet Bank operating segment in the table above are for the period from November 2, 2020 through December 31, 2020.

F - 47

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

																																																
 	Year ended December 31, 2019	
	Loan Servicing and Systems		Education Technology, Services, and Payment Processing		Communications		Asset
Generation and
Management		Nelnet Bank (a)		Corporate and Other Activities		Eliminations		Total	
Total interest income	$	2,031 			9,244 			3 			931,963 			— 			9,232 			(3,796)			948,677 		
Interest expense	115 			46 			— 			693,375 			— 			9,587 			(3,796)			699,327 		
Net interest income (expense)	1,916 			9,198 			3 			238,588 			— 			(355)			— 			249,350 		
Less (negative provision) provision for loan losses	— 			— 			— 			39,000 			— 			— 			— 			39,000 		
Net interest income after provision for loan losses	1,916 			9,198 			3 			199,588 			— 			(355)			— 			210,350 		
Other income/expense:																
Loan servicing and systems revenue	455,255 			— 			— 			— 			— 			— 			— 			455,255 		
Intersegment revenue	46,751 			— 			— 			— 			— 			— 			(46,751)			— 		
Education technology, services, and payment processing revenue	— 			277,331 			— 			— 			— 			— 			— 			277,331 		
Communications revenue	— 			— 			64,269 			— 			— 			— 			— 			64,269 		
Other	9,736 			259 			1,509 			13,088 			— 			23,327 			— 			47,918 		
Gain on sale of loans	— 			— 			— 			17,261 			— 			— 			— 			17,261 		
Gain from deconsolidation of ALLO	— 			— 			— 			— 			— 			— 			— 			— 		
Impairment expense and provision for beneficial interests, net	— 			— 			— 			— 			— 			— 			— 			— 		
Derivative settlements, net	— 			— 			— 			45,406 			— 			— 			— 			45,406 		
Derivative market value adjustments, net	— 			— 			— 			(76,195)			— 			— 			— 			(76,195)		
Total other income/expense	511,742 			277,590 			65,778 			(440)			— 			23,327 			(46,751)			831,245 		
Cost of services:																
Cost to provide education technology, services, and payment processing services	— 			81,603 			— 			— 			— 			— 			— 			81,603 		
Cost to provide communications services	— 			— 			20,423 			— 			— 			— 			— 			20,423 		
Total cost of services	— 			81,603 			20,423 			— 			— 			— 			— 			102,026 		
Operating expenses:																
Salaries and benefits	276,136 			94,666 			21,004 			1,545 			— 			70,152 			— 			463,503 		
Depreciation and amortization	34,755 			12,820 			37,173 			— 			— 			20,300 			— 			105,049 		
	
Other expenses	71,064 			22,027 			15,165 			34,445 			— 			51,571 			— 			194,272 		
Intersegment expenses, net	54,325 			13,405 			2,962 			47,362 			— 			(71,303)			(46,751)			— 		
Total operating expenses	436,280 			142,918 			76,304 			83,352 			— 			70,720 			(46,751)			762,824 		
Income (loss) before income taxes	77,378 			62,267 			(30,946)			115,796 			— 			(47,748)			— 			176,745 		
Income tax (expense) benefit	(18,571)			(14,944)			7,427 			(27,792)			— 			18,428 			— 			(35,451)		
Net income (loss)	58,807 			47,323 			(23,519)			88,004 			— 			(29,320)			— 			141,294 		
Net loss attributable to noncontrolling interests	— 			— 			— 			— 			— 			509 			— 			509 		
Net income (loss) attributable to Nelnet, Inc.	$	58,807 			47,323 			(23,519)			88,004 			— 			(28,811)			— 			141,803 		
																
Total assets as of December 31, 2019	$	290,311 			506,382 			303,347 			22,128,917 			— 			627,897 			(147,884)			23,708,970 		

(a)    Nelnet Bank launched operations on November 2, 2020. Accordingly, there are no operating results for the Nelnet Bank operating segment in the year ended December 31, 2019.

F - 48

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

16. Disaggregated Revenue and Deferred Revenue
The following provides additional revenue recognition information for the Company’s fee-based reportable operating segments.
Loan Servicing and Systems Revenue
Loan servicing and systems revenue consists of the following items:
•Loan servicing revenue - Loan servicing revenue consideration is determined from individual contracts with customers and is calculated monthly based on the dollar value of loans, number of loans, number of borrowers serviced for each customer, or number of transactions. Loan servicing requires a significant level of integration and the individual components are not considered distinct. The Company performs various services, including, but not limited to, (i) application processing, (ii) monthly servicing, (iii) conversion processing, and (iv) fulfillment services, during each distinct service period. Even though the mix and quantity of activities that the Company performs each period may differ, the nature of the activities are substantially the same. Revenue is allocated to the distinct service period, typically a month, and recognized as control transfers as customers simultaneously receive and consume benefits.
•Software services revenue - Software services revenue consideration is determined from individual contracts with customers and includes license and maintenance fees associated with loan software products, generally in a remote hosted environment, and computer and software consulting. Usage-based revenue, based on each loan or unique borrower, from remote hosted licenses is allocated to the distinct service period, typically a month, and recognized as control transfers as customers simultaneously receive and consume benefits. Revenue from any non-refundable up-front fee is recognized ratably over the contract period, as the fee relates to set-up activities that provide no incremental benefit to the customers. Computer and software consulting is also capable of being distinct and accounted for as a separate performance obligation. Revenue allocated to computer and software consulting is recognized as services are provided.
•Outsourced services revenue - Outsourced services revenue consideration is determined from individual contracts with customers and is calculated monthly based on the volume of services. Revenue is allocated to the distinct service period, typically a month, and recognized as control transfers as customers simultaneously receive and consume benefits.
The following table provides disaggregated revenue by service offering:
																		
	Year ended December 31,	
	2021		2020		2019	
Government servicing - Nelnet	$	167,579 			146,798 			157,991 		
Government servicing - Great Lakes	193,214 			179,872 			185,656 		
Private education and consumer loan servicing	47,302 			32,492 			36,788 		
FFELP servicing	18,281 			20,183 			25,043 		
Software services	34,600 			41,999 			41,077 		
Outsourced services and other	25,387 			30,217 			8,700 		
Loan servicing and systems revenue	$	486,363 			451,561 			455,255 		
Education Technology, Services, and Payment Processing Revenue
Education technology, services, and payment processing revenue consists of the following items:
•Tuition payment plan services - Tuition payment plan services consideration is determined from individual plan agreements, which are governed by plan service agreements, and includes access to a remote hosted environment and management of payment processing. The management of payment processing is considered a distinct performance obligation when sold with the remote hosted environment. Revenue for each performance obligation is allocated to the distinct service period, the academic school term, and recognized ratably over the service period as customers simultaneously receive and consume benefits.
F - 49

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

•Payment processing - Payment processing consideration is determined from individual contracts with customers and includes electronic transfer and credit card processing, reporting, virtual terminal solutions, and specialized integrations to business software for education and non-education markets. Volume-based revenue from payment processing is allocated and recognized to the distinct service period, based on when each transaction is completed, and recognized as control transfers as customers simultaneously receive and consume benefits. The electronic transfer and credit card processing consideration is recognized as revenue on a gross basis as the Company is the principal in the delivery of the payment processing. The Company has concluded it is the principal as it controls the services before delivery to the educational institution or business, it is primarily responsible for the delivery of the services, and it has discretion in setting prices charged to its customers. In addition, the Company has the unilateral ability to accept or reject a transaction based on criteria established by the Company. The Company is liable for the costs of processing the transactions and records such costs within "cost to provide education technology, services, and payment processing services."
•Education technology and services - Education technology and services consideration is determined from individual contracts with customers and is based on the services selected by the customer. Services in K-12 private and faith-based markets primarily includes (i) assistance with financial needs assessment, (ii) school information system software that automates administrative processes such as admissions, enrollment, scheduling, cafeteria management, attendance, and grade book management, and (iii) professional development and educational instruction services. Revenue for these services is recognized for the consideration the Company has a right to invoice, the amount of which corresponds directly with the value provided to the customer based on the performance completed. Services provided to the higher education market include payment technology and processing that allow for electronic billing and payment of campus charges. These services are considered distinct performance obligations. Revenue for each performance obligation is allocated to the distinct service period, typically a month or based on when each transaction is completed, and recognized as control transfers as customers simultaneously receive and consume benefits.
The following table provides disaggregated revenue by service offering:
																		
	Year ended December 31,	
	2021		2020		2019	
Tuition payment plan services	$	103,970 			100,674 			106,682 		
Payment processing	127,080 			114,304 			110,848 		
Education technology and services	105,186 			65,885 			58,578 		
Other	1,998 			1,333 			1,223 		
Education technology, services, and payment processing revenue	$	338,234 			282,196 			277,331 		
Cost to provide education technology, services, and payment processing services is primarily associated with providing payment processing services. Interchange and payment network fees are charged by the card associations or payment networks. Depending upon the transaction type, the fees are a percentage of the transaction’s dollar value, a fixed amount, or a combination of the two methods. Other items included in cost to provide education technology, services, and payment processing services include salaries and benefits and third-party professional service costs directly related to providing professional development and educational instruction services to teachers, school leaders, and students.
Communications Revenue
Communications revenue is derived principally from internet, television, and telephone services and is billed as a flat fee in advance of providing the service. Revenues for usage-based services, such as access charges billed to other telephone carriers for originating and terminating long-distance calls on the Company's network, are billed in arrears. These are each considered distinct performance obligations. Revenue is recognized monthly for the consideration the Company has a right to invoice, the amount of which corresponds directly with the value provided to the customer based on the performance completed. The Company recognizes revenue from these services in the period the services are rendered rather than billed. Revenue received or receivable in advance of the delivery of services is included in deferred revenue. Earned but unbilled usage-based services are recorded in accounts receivable.

F - 50

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

The following table provides disaggregated revenue by service offering and customer type. The amounts listed for 2020 reflect activity prior to ALLO’s deconsolidation on December 21, 2020:

	Period from January 1 2020 - December 21, 2020		Year ended December 31, 2019	
				
Internet	$	48,362 			38,239 		
Television	17,091 			16,196 		
Telephone	11,037 			9,705 		
Other	153 			129 		
Communications revenue	$	76,643 			64,269 		
				
Residential revenue	$	58,029 			48,344 		
Business revenue	18,038 			15,689 		
Other	576 			236 		
Communications revenue	$	76,643 			64,269 		
Cost to provide communications services is primarily associated with television programming costs. ALLO has various contracts to obtain television programming from programming vendors whose compensation is typically based on a flat fee per customer. The cost of the right to exhibit network programming under such arrangements is recorded in the month the programming is available for exhibition. Programming costs are paid each month based on calculations performed by ALLO and are subject to periodic audits performed by the programmers. Other items in cost to provide communications services include connectivity, franchise, and other regulatory costs directly related to providing internet and telephone services.
Other Income
The following table provides the components of "other" in “other income/expense” on the consolidated statements of income:

	Year ended December 31,	
	2021		2020		2019	
Income/gains from investments, net	$	91,593 			56,402 			8,356 		
ALLO preferred return	8,427 			386 			— 		
Investment advisory services	7,773 			10,875 			2,941 		
Borrower late fee income	3,444 			5,194 			12,884 		
Management fee revenue	3,307 			9,421 			9,736 		
Loss from ALLO voting membership interest investment	(42,148)			(3,565)			— 		
Loss from solar investments	(10,132)			(37,423)			(2,220)		
(Loss) gain on debt repurchased	(6,775)			1,924 			136 		
	
Other	23,192 			14,347 			16,085 		
  Other income	$	78,681 			57,561 			47,918 		

•Investment advisory fees - Investment advisory services are provided by WRCM, the Company's SEC-registered investment advisor subsidiary, under various arrangements. The Company earns monthly fees based on the monthly outstanding balance of investments and certain performance measures, which are recognized monthly as the uncertainty of the transaction price is resolved.
•Borrower late fee income - Late fee income is earned by the education lending subsidiaries. Revenue is allocated to the distinct service period, based on when each transaction is completed.
•Management fee revenue - Management fee revenue is earned for providing administrative support and marketing services, which primarily was to Great Lakes' former parent company under a contract that expired in January 2021. Revenue is allocated to the distinct service period, based on when each transaction is completed.

F - 51

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

Deferred Revenue
Activity in the deferred revenue balance, which is included in "other liabilities" on the consolidated balance sheets, is shown below:
																														
	Loan Servicing and Systems		Education, Technology, Services, and Payment Processing		Communications		Corporate and Other Activities		Total	
Balance as of December 31, 2018	$	4,413 			30,556 			2,551 			1,602 			39,122 		
Deferral of revenue	3,585 			93,373 			36,024 			3,505 			136,487 		
Recognition of revenue	(5,286)			(91,855)			(35,343)			(3,479)			(135,963)		
Balance as of December 31, 2019	2,712 			32,074 			3,232 			1,628 			39,646 		
Deferral of revenue	2,490 			90,183 			43,596 			3,209 			139,478 		
Recognition of revenue	(3,824)			(90,409)			(42,903)			(3,286)			(140,422)		
Deconsolidation of ALLO	— 			— 			(3,925)			— 			(3,925)		
Business acquisition	— 			1,419 			— 			— 			1,419 		
Balance as of December 31, 2020	1,378 			33,267 			— 			1,551 			36,196 		
Deferral of revenue	5,882 			109,278 			— 			5,775 			120,935 		
Recognition of revenue	(4,844)			(105,801)			— 			(5,316)			(115,961)		

Balance as of December 31, 2021	$	2,416 			36,744 			— 			2,010 			41,170 		

17. Major Customer
Nelnet Servicing and Great Lakes, subsidiaries of the Company, each earn loan servicing revenue from a servicing contract with the Department. Revenue earned by Nelnet Servicing related to this contract was $167.6 million, $146.8 million, and $158.0 million for the years ended December 31, 2021, 2020, and 2019, respectively. Revenue earned by Great Lakes related to this contract was $193.2 million, $179.9 million, and $185.7 million for the years ended December 31, 2021, 2020, and 2019, respectively.
Nelnet Servicing's and Great Lakes' student loan servicing contracts with the Department are scheduled to expire on December 14, 2023. In 2017, the Department initiated a contract procurement process referred to as the Next Generation Financial Services Environment ("NextGen") for a new framework for the servicing of all student loans owned by the Department. The Consolidated Appropriations Act, 2021 contains provisions directing certain aspects of the NextGen process, including that any new federal student loan servicing environment is required to provide for the participation of multiple student loan servicers and the allocation of borrower accounts to eligible student loan servicers based on performance. The Company cannot predict the timing, nature, or ultimate outcome of NextGen or any other contract procurement process by the Department.

18. Leases
The following table provides supplemental balance sheet information related to leases:

	As of December 31,	
	2021		2020	
Operating lease ROU assets, which is included in "other assets" on the
     consolidated balance sheet	$	14,314 			18,301 		
Operating lease liabilities, which is included in "other liabilities" on the
     consolidated balance sheet	$	15,899 			18,733 		
F - 52

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

The following table provides components of lease expense:
																		
	Year ended December 31,	
	2021		2020		2019	
Rental expense, which is included in "other expenses" on the
      consolidated statements of income (a)	$	9,386 			11,885 			11,171 		
Rental expense, which is included in "cost to provide communications
      services" on the consolidated statements of income (a)	— 			1,997 			1,609 		
Total operating rental expense	$	9,386 			13,882 			12,780 		
(a) Includes short-term and variable lease costs, which are immaterial.
Weighted average remaining lease term and discount rate are shown below:
												
	As of December 31,	
	2021		2020	
Weighted average remaining lease term (years)	5.15		5.65	
Weighted average discount rate	3.23 	%		2.43 	%	
Maturity of lease liabilities are shown below:

2022	$	5,816 		
2023	4,122 		
2024	1,757 		
2025	1,421 		
2026	731 		
2027 and thereafter	3,702 		
Total lease payments	17,549 		
Imputed interest	(1,650)		
Total	$	15,899 		

19. Defined Contribution Benefit Plan
The Company has a 401(k) savings plan that covers substantially all of its employees. Employees may contribute up to 100 percent of their pre-tax salary, subject to IRS limitations. The Company matches up to 100 percent on the first 3 percent of contributions and 50 percent on the next 2 percent. The Company made contributions to the plan of $11.2 million, $11.7 million, and $10.8 million during the years ended December 31, 2021, 2020, and 2019, respectively.
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NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

20. Stock Based Compensation Plans
Restricted Stock Plan
The following table summarizes restricted stock activity:
																		
	Year ended December 31,	
	2021		2020		2019	
Non-vested shares at beginning of year	552,456 			549,845 			532,336 		
Granted	249,096 			151,639 			186,281 		
Vested	(116,842)			(114,282)			(109,651)		
Canceled	(24,544)			(34,746)			(59,121)		
Non-vested shares at end of year	660,166 			552,456 			549,845 		
As of December 31, 2021, there was $23.5 million of unrecognized compensation cost included in equity on the consolidated balance sheet related to restricted stock, which is expected to be recognized as compensation expense in future periods as shown in the table below.

2022	$	8,795 		
2023	5,563 		
2024	3,615 		
2025	2,267 		
2026	1,355 		
2027 and thereafter	1,907 		
	$	23,502 		
For the years ended December 31, 2021, 2020, and 2019, the Company recognized compensation expense of $10.4 million, $7.3 million, and $6.4 million, respectively, related to shares issued under the restricted stock plan, which is included in "salaries and benefits" on the consolidated statements of income.
Employee Share Purchase Plan
The Company has an employee share purchase plan pursuant to which employees are entitled to purchase Class A common stock from payroll deductions at a 15 percent discount from market value. During the years ended December 31, 2021, 2020, and 2019, the Company recognized compensation expense of $0.2 million, $0.4 million, and $0.3 million, respectively, in connection with issuing 24,205 shares, 36,687 shares, and 33,250 shares, respectively, under this plan, which is included in "salaries and benefits" on the consolidated statements of income.
Non-employee Directors Compensation Plan
The Company has a compensation plan for non-employee directors pursuant to which non-employee directors can elect to receive their annual retainer fees in the form of cash or Class A common stock. If a non-employee director elects to receive Class A common stock, the number of shares of Class A common stock that are awarded is equal to the amount of the annual retainer fee otherwise payable in cash divided by 85 percent of the fair market value of a share of Class A common stock on the date the fee is payable. Non-employee 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.
F - 54

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

For the years ended December 31, 2021, 2020, and 2019, the Company recognized $1.4 million, $1.2 million, and $1.2 million, respectively, of expense related to this plan, which is included in "other expenses" on the consolidated statements of income. The following table provides the number of shares awarded under this plan for the years ended December 31, 2021, 2020, and 2019.
																		
	Shares issued -
not deferred		Shares issued-
deferred		Total	
Year ended December 31, 2021	9,958 			12,072 			22,030 		
Year ended December 31, 2020	12,740 			16,513 			29,253 		
Year ended December 31, 2019	9,588 			11,212 			20,800 		

As of December 31, 2021, a cumulative amount of 221,996 shares have been deferred by directors and will be issued upon the termination of their service on the board of directors. These shares are included in the Company's weighted average shares outstanding calculation.

21. Related Parties (dollar amounts in this note are not in thousands)
Transactions with Union Bank and Trust Company
Union Bank and Trust Company ("Union Bank") is controlled by Farmers & Merchants Investment Inc. (“F&M”), which owns a majority of Union Bank's common stock and a minority share of Union Bank's non-voting non-convertible preferred stock. Michael S. Dunlap, Executive Chairman and a member of the board of directors and a significant shareholder of the Company, along with his spouse and children, owns or controls a significant portion of the stock of F&M, and Mr. Dunlap's sister, Angela L. Muhleisen, along with her spouse and children, also owns or controls a significant portion of F&M stock. Mr. Dunlap serves as a Director and Chairman of F&M, and as a Director of Union Bank. Ms. Muhleisen serves as a Director and Chief Executive Officer of F&M and as a Director, Chairperson, President, and Chief Executive Officer of Union Bank. Union Bank is deemed to have beneficial ownership of a significant number of shares of the Company because it serves in a capacity of trustee or account manager for various trusts and accounts holding shares of the Company, and may share voting and/or investment power with respect to such shares. Mr. Dunlap and Ms. Muhleisen beneficially own a significant percent of the voting rights of the Company's outstanding common stock.
The Company has entered into certain contractual arrangements with Union Bank. These transactions are summarized below.
Loan Purchases
The Company purchased $22.3 million (par value), $144.9 million (par value), and $67.7 million (par value) of private education loans from Union Bank in 2021, 2020, and 2019, respectively. In addition, the Company purchased $32.6 million (par value) of consumer loans from Union Bank in 2019. There were no consumer loan purchases in 2021 or 2020. The net premiums paid by the Company on these loan acquisitions was $0.4 million, $2.6 million, and $1.2 million in 2021, 2020, and 2019, respectively.
The Company has an agreement with Union Bank in which the Company provides marketing, origination, and loan servicing services to Union Bank related to private education loans. Union Bank paid $0.1 million, $2.0 million, and $1.8 million in marketing fees to the Company in 2021, 2020, and 2019, respectively, under this agreement.
Loan Servicing
The Company serviced $262.6 million, $331.3 million, and $395.5 million of FFELP and private education loans for Union Bank as of December 31, 2021, 2020, and 2019, respectively. Servicing and origination fee revenue earned by the Company from servicing loans for Union Bank was $0.5 million, $0.7 million, and $0.6 million in 2021, 2020, and 2019, respectively.
Funding - Participation Agreements
The Company maintains an agreement with Union Bank, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in student loans (the “FFELP Participation Agreement”). The Company uses this facility as a source to fund FFELP student loans. As of December 31, 2021 and 2020, $967.5 million and $874.2 million, respectively, of loans were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. The agreement automatically renews annually and is terminable by either party upon five business days' notice. This agreement provides beneficiaries of Union Bank's grantor trusts with access to investments in interests in student loans,
F - 55

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

while providing liquidity to the Company on a short-term basis. The Company can participate loans to Union Bank to the extent of availability under the grantor trusts, up to $900 million or an amount in excess of $900 million if mutually agreed to by both parties. Loans participated under this agreement have been accounted for by the Company as loan sales. Accordingly, the participation interests sold are not included on the Company's consolidated balance sheets.
The Company maintains an agreement with Union Bank, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in FFELP loan asset-backed securities. As of December 31, 2021 and 2020, $254.0 million and $118.6 million, respectively, of FFELP loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. The FFELP loan asset-backed securities under this agreement have been accounted for by the Company as a secured borrowing. See note 5 for additional information.
Funding - Real Estate
401 Building, LLC (“401 Building”) is an entity that was established in 2015 for the sole purpose of acquiring, developing, and owning a commercial real estate property in Lincoln, Nebraska. The Company owns 50% of 401 Building. On May 1, 2018, Union Bank, as lender, received a $1.5 million promissory note from 401 Building. The promissory note carries an interest rate of 6.00% and has a maturity date of December 1, 2032.
330-333, LLC (“330-333”) is an entity that was established in 2016 for the sole purpose of acquiring, developing, and owning a commercial real estate property in Lincoln, Nebraska. The Company owns 50% of 330-333. On October 22, 2019, Union Bank, as lender, received a $162,000 promissory note from 330-333. The promissory note carries an interest rate of 6.00% and has a maturity date of December 1, 2032.
12100.5 West Center, LLC ("West Center") is an entity that was established in 2016 for the sole purpose of acquiring, developing, and owning a commercial real estate property in Omaha, Nebraska. The Company owns 33.33% of West Center. On October 29, 2019, Union Bank, as lender, received a $2.9 million promissory note from West Center. The promissory note carries an interest rate of 3.85% and has a maturity date of October 30, 2024.
Operating Cash Accounts
The majority of the Company's cash operating accounts are maintained at Union Bank. The Company also invests amounts in the Short term Federal Investment Trust (“STFIT”) of the Student Loan Trust Division of Union Bank, which are included in “cash and cash equivalents - held at a related party” and “restricted cash - due to customers” on the accompanying consolidated balance sheets. As of December 31, 2021 and 2020, the Company had $380.2 million and $285.6 million, respectively, invested in the STFIT or deposited at Union Bank in operating accounts, of which $284.8 million and $197.6 million as of December 31, 2021 and 2020, respectively, represented cash collected for customers. Interest income earned by the Company on the amounts invested in the STFIT and in cash operating accounts in 2021, 2020, and 2019, was $0.2 million, $0.5 million, and $1.6 million, respectively.
529 Plan
The Company provides certain 529 Plan administration services to certain college savings plans (the “College Savings Plans”) through a contract with Union Bank, as the program manager. Union Bank is entitled to a fee as program manager pursuant to its program management agreement with the College Savings Plans. For the years ended December 31, 2021, 2020, and 2019, the Company has received fees of $3.5 million, $1.3 million, and $3.7 million, respectively, from Union Bank related to the administration services provided to the College Savings Plans.
During 2021 and 2020, certain call center services were provided by the Company to Union Bank for College Savings Plan clients. For services provided in 2021, the Company received $0.4 million from Union Bank; fees received for services provided in 2020 were not significant.
Additionally, Union Bank, as the program manager for the College Savings Plans, has agreed to allocate plan bank deposits to Nelnet Bank. As of December 31, 2021 and 2020, Nelnet Bank had $184.9 million and $48.4 million, respectively, in deposits from the funds offered under the College Savings Plans.
F - 56

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

Lease Arrangements
Union Bank leases approximately 4,100 square feet in the Company's corporate headquarters building. Union Bank paid the Company approximately $81,000, $80,000, and $79,000 for commercial rent and storage income during 2021, 2020, and 2019, respectively. The lease agreement expires on June 30, 2023.
Other Fees Paid to Union Bank
During the years ended December 31, 2021, 2020, and 2019, the Company paid Union Bank approximately $280,000, $279,000, and $213,000, respectively, in cash and flexible spending accounts management, trustee and health savings account maintenance fees, including investment custodial and correspondent services for Nelnet Bank.
Other Fees Received from Union Bank
During the years ended December 31, 2021, 2020, and 2019, Union Bank paid the Company approximately $342,000, $317,000, and $317,000, respectively, under certain employee sharing arrangements. During the years ended December 31, 2020 and 2019, Union Bank paid the Company approximately $273,000, and $92,000, respectively, for communications services.
401(k) Plan Administration
Union Bank administers the Company's 401(k) defined contribution plan. Fees paid to Union Bank to administer the plan are paid by the plan participants and were approximately $766,000, $447,000, and $366,000 during the years ended December 31, 2021, 2020, and 2019, respectively.
Investment Services
Union Bank has established various trusts whereby Union Bank serves as trustee for the purpose of purchasing, holding, managing, and selling investments in student loan asset-backed securities. WRCM, an SEC-registered investment advisor and a subsidiary of the Company, has a management agreement with Union Bank under which WRCM performs various advisory and management services on behalf of Union Bank with respect to investments in securities by the trusts, including identifying securities for purchase or sale by the trusts. The agreement provides that Union Bank will pay to WRCM annual fees of 10 basis points to 25 basis points on the outstanding balance of the investments in the trusts. As of December 31, 2021, the outstanding balance of investments in the trusts was $1.8 billion. In addition, Union Bank will pay additional fees to WRCM which equal a share of the gains from the sale of securities from the trusts or securities being called prior to the full contractual maturity. For the years ended December 31, 2021, 2020, and 2019, the Company earned $6.3 million, $9.8 million, and $1.8 million, respectively, of fees under this agreement.
WRCM also has management agreements with Union Bank under which it is designated to serve as investment advisor with respect to the assets (principally Nelnet stock) within several trusts established by Mr. Dunlap and his spouse, and Ms. Muhleisen and her spouse. Union Bank serves as trustee for the trusts. Per the terms of the agreements, Union Bank pays WRCM five basis points of the aggregate value of the assets of the trusts as of the last day of each calendar quarter. As of December 31, 2021, WRCM was the investment advisor with respect to a total 428,414 shares and 4.7 million shares of the Company's Class A and Class B common stock, respectively, held directly by these trusts. For the years ended December 31, 2021, 2020, and 2019, the Company earned approximately $213,000, $141,000, and $144,000, respectively, of fees under these agreements.
WRCM has established private investment funds for the primary purpose of purchasing, selling, investing, and trading, directly or indirectly, in student loan asset-backed securities, and to engage in financial transactions related thereto. Mr. Dunlap, Jeffrey R. Noordhoek (an executive officer of the Company), Ms. Muhleisen and her spouse, and WRCM have invested in certain of these funds. Based upon the current level of holdings by non-affiliated limited partners, the management agreements provide non-affiliated limited partners the ability to remove WRCM as manager without cause. WRCM earns 50 basis points (annually) on the outstanding balance of the investments in these funds, of which WRCM pays approximately 50 percent of such amount to Union Bank as custodian. As of December 31, 2021, the outstanding balance of investments in these funds was $138.0 million. The Company paid Union Bank $0.3 million in each of 2021, 2020, and 2019 as custodian of the funds.
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NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

Transactions with Agile Sports Technologies, Inc. (doing business as "Hudl")
David Graff, who has served on the Company's Board of Directors since 2014, is CEO, co-founder, and a director of Hudl. On each of May 20, 2020 and May 27, 2021, the Company made additional equity investments in Hudl, as one of the participants in equity raises completed by Hudl. See Note 7, “Investments” for additional information on these transactions. The Company and Mr. Dunlap, along with his children, currently hold combined direct and indirect equity ownership interests in Hudl of 19.3% and 3.8%, respectively, which did not materially change as a result of the May 2020 and May 2021 transactions. The Company's and Mr. Dunlap's direct and indirect equity ownership interests in Hudl consist of preferred stock with certain liquidation preferences that are considered substantive. Accordingly, for accounting purposes, the Company's and Mr. Dunlap's equity ownership interests are not considered in-substance common stock and the Company is accounting for its equity investment in Hudl using the measurement alternative method.
On July 26, 2019, the Company, as lender, received a $16.0 million promissory note from Hudl. The promissory note carried a 14 percent interest rate and was due 180 days from the date of issuance. In connection with this promissory note, the Company entered into a Subordination Agreement with Union Bank, effective as of July 26, 2019, which required the Company to subordinate its promissory note from Hudl to existing notes Union Bank holds from Hudl. The $16.0 million promissory note from Hudl was paid in full to the Company in August 2019.
The Company makes investments to further diversify the Company both within and outside of its historical core education-related businesses, including investments in real estate. Recent real estate investments have been focused on the development of commercial properties in the Midwest, and particularly in Lincoln, Nebraska, where the Company's headquarters are located. One investment includes the development of a building in Lincoln's Haymarket District that is the headquarters of Hudl, in which Hudl is the primary tenant in this building.
Transaction with Assurity Life Insurance Company ("Assurity")
Thomas Henning, who has served on the Company's Board of Directors since 2003, was President and Chief Executive Officer of Assurity during the years ended December 31, 2021, 2020, and 2019, when Nelnet Business Services, a subsidiary of the Company, paid $2.1 million, $1.8 million, and $1.7 million, respectively, to Assurity for insurance premiums for insurance on certain tuition payment plans. As part of providing the tuition payment plan insurance to Nelnet Business Services, Assurity entered into a reinsurance agreement with the Company's insurance subsidiary, under which Assurity paid the Company's insurance subsidiary reinsurance premiums of $1.8 million, $1.4 million, and $1.3 million in 2021, 2020, and 2019, respectively, and the Company's insurance subsidiary paid claims on such reinsurance to Assurity of $1.5 million, $1.0 million, and $0.9 million in 2021, 2020, and 2019, respectively. In addition, Assurity pays Nelnet Business Services a partial refund annually based on claim experience, which was approximately $41,000, $64,000, and $56,000 for the years ended December 31, 2021, 2020, and 2019, respectively. Mr. Henning retired as President and Chief Executive Officer of Assurity effective January 1, 2022, and now serves as the Non-Executive Chairman of Assurity’s board of directors.
Solar Transactions
The Company has co-invested in Company-managed limited liability companies with related parties that invest in renewable energy (solar) (as summarized below). As part of these transactions, the Company receives management and performance fees under a management agreement.
																																							
Entity/Relationship		Investment amount		Fees earned by the Company	
 		2021		2020		2019		2021		2020		2019	
F&M		$	7,913,000 			4,600,000 			2,068,868 			29,491 			46,154 			68,869 		
Assurity (Board member Thomas Henning)		5,421,659		1,150,000		— 			16,027		11,538		— 		
Ameritas Life Insurance Corp. (Board member James Abel)		5,000,000 			— 			— 			9,615 			— 			— 		
North Central Bancorp, Inc. (directly and indirectly owned by F&M, Mr. Dunlap, and Ms. Muhleisen)		2,466,667 			1,533,333 			2,068,868 			14,958 			15,385 			68,869 		
Infovisa, Inc. (directly and indirectly owned by F&M,
Mr. Dunlap, and Ms. Muhleisen)		562,600 			— 			— 			1,923 			— 			— 		
Farm and Home Insurance Agency, Inc. (indirectly owned by Mr. Dunlap and Ms. Muhleisen)		116,667 			383,333 			— 			962 			3,846 			— 		
F - 58

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

22. Fair Value
The following tables present the Company’s financial assets and liabilities that are measured at fair value on a recurring basis. There were no transfers into or out of level 1, level 2, or level 3 for the year ended December 31, 2021.

 	As of December 31, 2021		As of December 31, 2020	
 	Level 1		Level 2		Total		Level 1		Level 2		Total	
Assets:	 		 		 							
Investments (a):												
FFELP loan asset-backed securities - available-for-sale	$	— 			494,682 			494,682 			— 			346,502 			346,502 		
Private education loan asset-backed debt securities - available for sale	— 			412,552 			412,552 			— 			— 			— 		
Other debt securities - available for sale	100 			22,335 			22,435 			103 			2,002 			2,105 		
Equity securities	63,154 			— 			63,154 			10,114 			— 			10,114 		
Equity securities measured at net asset value (b)					8,832 							31,927 		
Total investments	63,254 			929,569 			1,001,655 			10,217 			348,504 			390,648 		
      Total assets	$	63,254 			929,569 			1,001,655 			10,217 			348,504 			390,648 		

(a)    Investments represent investments recorded at fair value on a recurring basis. Level 1 investments are measured based upon quoted prices and as of December 31, 2021 and 2020, include investments traded on an active exchange and a single U.S. Treasury security. Level 2 investments include student loan asset-backed, mortgage-backed, and collateralized loan obligation securities. The fair value for the Level 2 securities is determined using indicative quotes from broker-dealers or an income approach valuation technique (present value using the discount rate adjustment technique) that considers, among other things, rates currently observed in publicly traded debt markets for debt of similar terms issued by companies with comparable credit risk.
(b)    In accordance with the Fair Value Measurements Topic of the FASB Accounting Standards Codification, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

F - 59

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

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

 	As of December 31, 2021	
 	Fair value		Carrying value		Level 1		Level 2		Level 3	
Financial assets:	 		 		 		 			
Loans receivable	$	18,576,272 			17,546,645 			— 			— 			18,576,272 		
Accrued loan interest receivable	788,552 			788,552 			— 			788,552 			— 		
Cash and cash equivalents	125,563 			125,563 			125,563 			— 			— 		
Investments (at fair value)	1,001,655 			1,001,655 			63,254 			929,569 			— 		
Beneficial interest in loan securitizations	142,391 			120,142 			— 			— 			142,391 		
Restricted cash	741,981 			741,981 			741,981 			— 			— 		
Restricted cash – due to customers	326,645 			326,645 			326,645 			— 			— 		
Financial liabilities:	 		 							
Bonds and notes payable	17,819,902 			17,631,089 			— 			17,819,902 			— 		
Accrued interest payable	4,566 			4,566 			— 			4,566 			— 		
Bank deposits	342,463 			344,315 			184,897 			157,566 			— 		
Due to customers	366,002 			366,002 			366,002 			— 			— 		

 	As of December 31, 2020	
 	Fair value		Carrying value		Level 1		Level 2		Level 3	
Financial assets:	 		 		 		 			
Loans receivable	$	20,454,132 			19,391,045 			— 			— 			20,454,132 		
Accrued loan interest receivable	794,611 			794,611 			— 			794,611 			— 		
Cash and cash equivalents	121,249 			121,249 			121,249 			— 			— 		
Investments (at fair value)	390,648 			390,648 			10,217 			348,504 			— 		
Beneficial interest in loan securitizations	58,709 			58,331 			— 			— 			58,709 		
Restricted cash	553,175 			553,175 			553,175 			— 			— 		
Restricted cash – due to customers	283,971 			283,971 			283,971 			— 			— 		
Financial liabilities:	 		 							
Bonds and notes payable	19,270,810 			19,320,726 			— 			19,270,810 			— 		
Accrued interest payable	28,701 			28,701 			— 			28,701 			— 		
Bank deposits	54,599 			54,633 			48,422 			6,177 			— 		
Due to customers	301,471 			301,471 			301,471 			— 			— 		
The methodologies for estimating the fair value of financial assets and liabilities that are measured at fair value on a recurring basis are previously discussed. The remaining financial assets and liabilities were estimated using the following methods and assumptions:
Loans Receivable
Fair values for loans receivable were determined by modeling loan cash flows using stated terms of the assets and internally-developed assumptions. The significant assumptions used to project cash flows are prepayment speeds, default rates, cost of funds, required return on equity, and future interest rate and index relationships. A number of significant inputs into the models are internally derived and not observable to market participants.
Beneficial Interest in Loan Securitizations
Fair values for beneficial interest in loan securitizations were determined by modeling securitization cash flows and internally-developed assumptions. The significant assumptions used to project cash flows are prepayment speeds, default rates, cost of funds, required return on equity, and future interest rate and index relationships. A number of significant inputs into the models are internally derived and not observable to market participants.
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NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

Cash and Cash Equivalents, Restricted Cash, Restricted Cash – Due to Customers, Accrued Loan Interest Receivable, Accrued Interest Payable, and Due to Customers
The carrying amount approximates fair value due to the variable rate of interest and/or the short maturities of these instruments.
Bonds and Notes Payable
The fair value of student loan asset-backed securitizations and warehouse facilities was determined from quotes from broker-dealers or through standard bond pricing models using the stated terms of the borrowings, observable yield curves, market credit spreads, and weighted average life of underlying collateral. For all other bonds and notes payable, the carrying amount approximates fair value due to the variable rate of interest and/or the short maturities of these instruments.
Bank Deposits
Some of the Company’s deposits are fixed-rate and the fair value for these deposits are estimated using discounted cash flows based on rates currently offered for deposits of similar maturities. These are level 2 valuations. The fair value of the remaining deposits equal the amounts payable on demand at the balance sheet date and are reported at their carrying value. These are level 1 valuations.
Limitations
The fair value estimates are made at a specific point in time based on relevant market information and information about the financial instruments. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Therefore, the calculated fair value estimates in many instances cannot be substantiated by comparison to independent markets and, in many cases, may not be realizable in a current sale of the instrument. Changes in assumptions could significantly affect the estimates.

23. Legal Proceedings
The Company is subject to various claims, lawsuits, and proceedings that arise in the normal course of business. These matters frequently involve claims by student loan borrowers disputing the manner in which their student loans have been serviced or the accuracy of reports to credit bureaus, claims by student loan borrowers or other consumers alleging that state or Federal consumer protection laws have been violated in the process of collecting loans or conducting other business activities, and disputes with other business entities. In addition, from time to time, the Company receives information and document requests or demands from state or federal regulators concerning its business practices. The Company cooperates with these inquiries and responds to the requests or demands. While the Company cannot predict the ultimate outcome of any regulatory examination, inquiry, or investigation, the Company believes its activities have materially complied with applicable law, including the Higher Education Act, the rules and regulations adopted by the Department thereunder, and the Department's guidance regarding those rules and regulations. On the basis of present information, anticipated insurance coverage, and advice received from counsel, it is the opinion of the Company's management that the disposition or ultimate determination of these claims, lawsuits, and proceedings will not have a material adverse effect on the Company's business, financial position, or results of operations.
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NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

24. Condensed Parent Company Financial Statements
The following represents the condensed balance sheets as of December 31, 2021 and 2020 and condensed statements of income, comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2021 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 lending subsidiaries debt financing arrangements.

Balance Sheets	
(Parent Company Only)	
As of December 31, 2021 and 2020	
	2021		2020	
Assets:				
Cash and cash equivalents	$	47,434 			69,687 		
Investments	1,236,933 			707,332 		
Investment in subsidiary debt	374,087 			38,903 		
Restricted cash	107,103 			93,271 		
Investment in subsidiaries	1,986,136 			1,963,413 		
Notes receivable from subsidiaries	314 			21,209 		
Other assets	123,716 			115,631 		
	
Total assets	$	3,875,723 			3,009,446 		
Liabilities:				
Notes payable, net of debt issuance costs	$	734,881 			236,317 		
Other liabilities	189,317 			140,710 		
	
Total liabilities	924,198 			377,027 		
Equity:				
Nelnet, Inc. shareholders' equity:				
Common stock	379 			384 		
Additional paid-in capital	1,000 			3,794 		
Retained earnings	2,940,523 			2,621,762 		
Accumulated other comprehensive earnings	9,304 			6,102 		
Total Nelnet, Inc. shareholders' equity	2,951,206 			2,632,042 		
Noncontrolling interest	319 			377 		
Total equity	2,951,525 			2,632,419 		
Total liabilities and shareholders' equity	$	3,875,723 			3,009,446 		
F - 62

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

																		
Statements of Income	
(Parent Company Only)	
Years ended December 31, 2021, 2020, and 2019	
 	2021		2020		2019	
Investment interest income	$	12,455 			4,110 			4,925 		
Interest expense on bonds and notes payable	3,515 			3,179 			9,588 		
Net interest income (expense)	8,940 			931 			(4,663)		
Other income/expense:	 		 		 	
Other income	45,291 			48,688 			8,384 		
(Loss) gain from debt repurchases, net	(6,530)			1,962 			136 		
Equity in subsidiaries income	313,451 			132,101 			182,346 		
Gain from deconsolidation of ALLO	— 			258,588 			— 		
Impairment expense	(4,637)			(7,784)			— 		
Derivative market value adjustments and derivative settlements, net	71,446 			(24,465)			(30,789)		
Total other income/expense	419,021 			409,090 			160,077 		
Operating expenses	7,632 			14,006 			19,561 		
Income before income taxes	420,329 			396,015 			135,853 		
Income tax (expense) benefit	(27,101)			(43,577)			5,950 		
Net income	393,228 			352,438 			141,803 		
Net loss attributable to noncontrolling interest	58 			5 			— 		
Net income attributable to Nelnet, Inc.	$	393,286 			352,443 			141,803 		

																																				
Statements of Comprehensive Income	
(Parent Company Only)	
Years ended December 31, 2021, 2020, and 2019	
	2021		2020		2019	
Net income			$	393,228 					352,438 					141,803 		
Other comprehensive income (loss):												
Net changes related to equity in subsidiaries other comprehensive income	$		6,692 					— 					— 		
Net changes related to available-for-sale securities:												
Unrealized holding (losses) gains arising during period, net	(4,220)					6,637 					(1,199)				
Reclassification of gains recognized in net income, net of losses	(372)					(2,521)					— 				
Income tax effect	1,102 			(3,490)			(986)			3,130 			288 			(911)		
Other comprehensive income (loss)			3,202 					3,130 					(911)		
Comprehensive income			396,430 					355,568 					140,892 		
Comprehensive loss attributable to noncontrolling interests			58 					5 					— 		
Comprehensive income attributable to Nelnet, Inc.			$	396,488 					355,573 					140,892 		

F - 63

NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)

																		
Statements of Cash Flows	
(Parent Company Only)	
Years ended December 31, 2021, 2020, and 2019	
	2021		2020		2019	
Net income attributable to Nelnet, Inc.	$	393,286 			352,443 			141,803 		
Net loss attributable to noncontrolling interest	(58)			(5)			— 		
Net income	393,228 			352,438 			141,803 		
Adjustments to reconcile net income to net cash provided by (used in) operating activities:						
Depreciation and amortization	591 			534 			467 		
Derivative market value adjustments	(92,813)			28,144 			76,195 		
Payments to terminate derivative instruments, net	— 			— 			(12,530)		
	
Proceeds from (payments to) clearinghouse - initial and variation margin, net	91,294 			(26,747)			(70,685)		
Equity in earnings of subsidiaries	(313,451)			(132,101)			(182,346)		
	
Gain from deconsolidation of ALLO, including cash impact	— 			(287,579)			— 		
Loss on (gain from) debt repurchases	6,530 			(1,962)			(136)		
Loss on (gain from) investments, net	721 			(46,019)			(3,969)		
Purchases of equity securities, net	(42,916)			— 			— 		
Deferred income tax expense (benefit)	47,423 			23,747 			(19,183)		
Non-cash compensation expense	10,673 			16,739 			6,781 		
Impairment expense	4,637 			7,784 			— 		
Other	— 			(329)			(481)		
Increase in other assets	(9,108)			(17,410)			(10,672)		
Increase in other liabilities	1,784 			26,009 			29,384 		
Net cash provided by (used in) operating activities	98,593 			(56,752)			(45,372)		
Cash flows from investing activities:						
	
Purchases of available-for-sale securities	(640,644)			(342,563)			— 		
Proceeds from sales of available-for-sale securities	133,286 			168,555 			— 		
Capital distributions/contributions from/to subsidiaries, net	294,578 			99,830 			449,602 		
Decrease in notes receivable from subsidiaries	20,895 			21,343 			14,421 		
Purchases of subsidiary debt, net	(335,184)			(25,085)			— 		
	
Purchases of other investments	(110,184)			(54,637)			(47,106)		
Proceeds from other investments	129,899 			8,564 			27,926 		
	
Net cash (used in) provided by investing activities	(507,354)			(123,993)			444,843 		
Cash flows from financing activities:						
Payments on notes payable	(126,530)			(20,381)			(361,272)		
Proceeds from issuance of notes payable	619,259 			190,520 			60,000 		
Payments of debt issuance costs	(1,286)			(49)			(1,129)		
Dividends paid	(34,457)			(31,778)			(29,485)		
Repurchases of common stock	(58,111)			(73,358)			(40,411)		
Proceeds from issuance of common stock	1,465 			1,653 			1,552 		
Acquisition of noncontrolling interest	— 			(600)			— 		
Issuance of noncontrolling interest	— 			194,985 			878 		
	
Net cash provided by (used in) financing activities	400,340 			260,992 			(369,867)		
Net (decrease) increase in cash, cash equivalents, and restricted cash	(8,421)			80,247 			29,604 		
Cash, cash equivalents, and restricted cash, beginning of period	162,958 			82,711 			53,107 		
Cash, cash equivalents, and restricted cash, end of period	$	154,537 			162,958 			82,711 		
						
Cash disbursements made for:						
Interest	$	2,301 			2,577 			9,501 		
Income taxes, net of refunds and credits	$	18,659 			29,685 			17,672 		
						
Noncash investing activities:						

	
	
(Distribution from) contribution to subsidiary, net	$	(835)			49,066 			— 		

F - 64

APPENDIX A
Description of
The Federal Family Education Loan Program
The Federal Family Education Loan Program
The Higher Education Act provided for a program of 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 authorized certain student loans to be insured and reinsured under the Federal Family Education Loan Program (“FFELP”). The Student Aid and Fiscal Responsibility Act, enacted into law on March 30, 2010, as part of the Health Care and Education Reconciliation Act of 2010, terminated the authority to make FFELP loans. As of July 1, 2010, no new FFELP loans have been made.
Generally, a student was eligible for loans made under the Federal Family Education Loan Program only if he or she:
•Had been accepted for enrollment or was enrolled in good standing at an eligible institution of higher education;
•Was 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 was pursuing;
•Was not in default on any federal education loans;
•Had not committed a crime involving fraud in obtaining funds under the Higher Education Act which funds had not been fully repaid; and
•Met other applicable eligibility requirements.
Eligible institutions included higher educational institutions and vocational schools that complied with specific federal regulations. Each loan is 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 Federal Family Education Loan Program. The Higher Education Act allows lesser rates of interest to be charged.
Types of loans
Four types of loans were available under the Federal Family Education Loan Program:
•Subsidized Stafford Loans
•Unsubsidized Stafford Loans
•PLUS Loans
•Consolidation Loans

These loan types vary as to eligibility requirements, interest rates, repayment periods, loan limits, 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.
The primary loan under the Federal Family Education Loan Program is the Subsidized Stafford Loan. Students who were not eligible for Subsidized Stafford Loans based on their economic circumstances might have obtained Unsubsidized Stafford Loans. Graduate or professional students and parents of dependent undergraduate students might have obtained PLUS Loans. Consolidation Loans were available to borrowers with existing loans made under the Federal Family Education Loan Program and other federal programs to consolidate repayment of the borrower's existing loans. Prior to July 1, 1994, the Federal Family Education Loan Program also offered Supplemental Loans for Students (“SLS Loans”) to graduate and professional students and independent undergraduate students and, under certain circumstances, dependent undergraduate students, to supplement their Stafford Loans.
A - 1

Subsidized Stafford Loans
General. Subsidized Stafford Loans were eligible for insurance and reinsurance under the Higher Education Act if the eligible student to whom the loan was made was accepted or was enrolled in good standing at an eligible institution of higher education or vocational school and carried at least one-half the normal full-time workload at that institution. Subsidized Stafford Loans had limits as to the maximum amount which could be borrowed for an academic year and in the aggregate for both undergraduate and graduate or professional study. Both annual and aggregate limitations excluded loans made under the PLUS Loan Program. The Secretary of Education had discretion to raise these limits to accommodate students undertaking specialized training requiring exceptionally high costs of education.
Subsidized Stafford Loans were made only to student borrowers who met 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 Program funding have been the subject of frequent and extensive amendments.
Interest rates for Subsidized Stafford Loans. For Stafford Loans first disbursed to a “new” borrower (a “new” borrower is defined for purposes of this section as one who had no outstanding balance on a FFELP loan on the date the new promissory note was signed) for a period of enrollment beginning before January 1, 1981, the applicable interest rate is fixed at 7%.
For Stafford Loans first disbursed to a “new” borrower, for a period of enrollment beginning on or after January 1, 1981, but before September 13, 1983, the applicable interest rate is fixed at 9%.
For Stafford Loans first disbursed to a “new” borrower, for a period of enrollment beginning on or after September 13, 1983, but before July 1, 1988, the applicable interest rate is fixed at 8%.
For Stafford Loans first disbursed to a borrower with an outstanding balance on a PLUS, SLS, or Consolidation Loan, but not on a Stafford Loan, where the new loan is intended for a period of enrollment beginning before July 1, 1988, the applicable interest rate is fixed at 8%.
For Stafford Loans first disbursed before October 1, 1992, to a “new” borrower or to a borrower with an outstanding balance on a PLUS, SLS, or Consolidation Loan, but not a Stafford Loan, where the new loan is intended for a period of enrollment beginning on or after July 1, 1988, the applicable interest rate is as follows:
•Original fixed interest rate of 8% for the first 48 months of repayment. Beginning on the first day of the 49th month of repayment, the interest rate increased to a fixed rate of 10% thereafter. Loans in this category were subject to excess interest rebates and have been converted to a variable interest rate based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 3.25%. The variable interest rate is adjusted annually on July 1. The maximum interest rate for loans in this category is 10%.
For Stafford Loans first disbursed on or after July 23, 1992, but before July 1, 1994, to a borrower with an outstanding Stafford Loan made with a 7%, 8%, 9%, or 8%/10% fixed interest rate, the original, applicable interest rate is the same as the rate provided on the borrower's previous Stafford Loan (i.e., a fixed rate of 7%, 8%, 9%, or 8%/10%). Loans in this category were subject to excess interest rebates and have been converted to a variable interest rate based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate for a loan in this category is equal to the loan's previous fixed rate (i.e., 7%, 8%, 9%, or 10%).
For Stafford Loans first disbursed on or after October 1, 1992, but before December 20, 1993, to a borrower with an outstanding balance on a PLUS, SLS, or Consolidation Loan, but not on a Stafford Loan, the original, applicable interest rate is fixed at 8%. Loans in this category were subject to excess interest rebates and have been converted to a variable interest rate based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate for a loan in this category is 8%.
For Stafford Loans first disbursed on or after October 1, 1992, but before July 1, 1994, to a “new” borrower, the applicable interest rate is variable and is based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate for a loan in this category is 9%.
For Stafford Loans first disbursed on or after December 20, 1993, but before July 1, 1994, to a borrower with an outstanding balance on a PLUS, SLS, or Consolidation Loan, but not on a Stafford Loan, the applicable interest rate is variable and is based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate for a loan in this category is 9%.
A - 2

For Stafford Loans first disbursed on or after July 1, 1994, but before July 1, 1995, where the loan is intended for a period of enrollment that includes or begins on or after July 1, 1994, the applicable interest rate is variable and is based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate for a loan in this category is 8.25%.
For Stafford Loans first disbursed on or after July 1, 1995, but before July 1, 1998, the applicable interest rate is as follows:
•When the borrower is in school, in grace, or in an authorized period of deferment, the applicable interest rate is variable and is based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 2.5%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 8.25%.

•When the borrower is in repayment or in a period of forbearance, the applicable interest rate is variable and is based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 8.25%.

For Stafford Loans first disbursed on or after July 1, 1998, but before July 1, 2006, the applicable interest rate is as follows:
•When the borrower is in school, in grace, or in an authorized period of deferment, the applicable interest rate is variable and is based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 1.7%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 8.25%.
•When the borrower is in repayment or in a period of forbearance, the applicable interest rate is variable and is based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 2.3%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 8.25%.
For Stafford Loans first disbursed on or after July 1, 2006, the applicable interest rate is fixed at 6.80%. However, for Stafford Loans for undergraduates, the applicable interest rate was reduced in phases for which the first disbursement was made on or after:
•July 1, 2008 and before July 1, 2009, the applicable interest rate is fixed at 6.00%,
•July 1, 2009 and before July 1, 2010, the applicable interest rate is fixed at 5.60%.
Unsubsidized Stafford Loans
General. The Unsubsidized Stafford Loan program was created by Congress in 1992 for students who did not qualify for Subsidized Stafford Loans due to parental and/or student income and assets in excess of permitted amounts. These students were entitled to borrow the difference between the Stafford Loan maximum for their status (dependent or independent) and their Subsidized Stafford Loan eligibility through the Unsubsidized Stafford Loan Program. The general requirements for Unsubsidized Stafford Loans, including special allowance payments, are essentially the same as those for 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 were determined without respect to the expected family contribution. The borrower is required to either pay interest from the time the loan is disbursed or the accruing interest is capitalized when repayment begins at the end of a deferment or forbearance, when the borrower is determined to no longer have a partial financial hardship under the Income-Based Repayment plan or when the borrower leaves the plan. Unsubsidized Stafford Loans were not available before October 1, 1992. A student meeting the general eligibility requirements for a loan under the Federal Family Education Loan Program was 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, with the exception of Unsubsidized Stafford Loans first disbursed on or after July 1, 2008, which retain a fixed interest rate of 6.80%.
A - 3

PLUS Loans
General. PLUS Loans were made to parents, and under certain circumstances spouses of remarried parents, of dependent undergraduate students. Effective July 1, 2006, graduate and professional students were eligible borrowers under the PLUS Loan program. For PLUS Loans made on or after July 1, 1993, the borrower could not have an adverse credit history as determined by criteria established by the Secretary of Education. The basic provisions applicable to PLUS Loans are similar to those of Stafford Loans with respect to the involvement of guarantee 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, in that federal interest subsidy payments are not available under the PLUS Loan Program and special allowance payments are more restricted.
Interest rates for PLUS Loans. For PLUS Loans first disbursed on or after January 1, 1981, but before October 1, 1981, the applicable interest rate is fixed at 9%.
For PLUS Loans first disbursed on or after October 1, 1981, but before November 1, 1982, the applicable interest rate is fixed at 14%.
For PLUS Loans first disbursed on or after November 1, 1982, but before July 1, 1987, the applicable interest rate is fixed at 12%.
Beginning July 1, 2001, for PLUS Loans first disbursed on or after July 1, 1987, but before October 1, 1992, the applicable interest rate is variable and is based on the weekly average one-year constant maturity Treasury bill yield for the last calendar week ending on or before June 26 preceding July 1 of each year, plus 3.25%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 12%. Prior to July 1, 2001, PLUS Loans in this category had interest rates which were based on the 52-week Treasury bill auctioned at the final auction held prior to the preceding June 1, plus 3.25%. The annual (July 1) variable interest rate adjustment was applicable prior to July 1, 2001, as was the maximum interest rate of 12%. PLUS Loans originally made at a fixed interest rate, which have been refinanced for purposes of securing a variable interest rate, are subject to the variable interest rate calculation described in this paragraph.
Beginning July 1, 2001, for PLUS Loans first disbursed on or after October 1, 1992, but before July 1, 1994, the applicable interest rate is variable and is based on the weekly average one-year constant maturity Treasury yield for the last calendar week ending on or before June 26 preceding July 1 of each year, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 10%. Prior to July 1, 2001, PLUS Loans in this category had interest rates which were based on the 52-week Treasury bill auctioned at the final auction held prior to the preceding June 1, plus 3.1%. The annual (July 1) variable interest rate adjustment was applicable prior to July 1, 2001, as was the maximum interest rate of 10%.
Beginning July 1, 2001, for PLUS Loans first disbursed on or after July 1, 1994, but before July 1, 1998, the applicable interest rate is variable and is based on the weekly average one-year constant maturity Treasury yield for the last calendar week ending on or before June 26 preceding July 1 of each year, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 9%. Prior to July 1, 2001, PLUS Loans in this category had interest rates which were based on the 52-week Treasury bill auctioned at the final auction held prior to the preceding June 1, plus 3.1%. The annual (July 1) variable interest rate adjustment was applicable prior to July 1, 2001, as was the maximum interest rate of 9%.
For PLUS Loans first disbursed on or after July 1, 1998, but before July 1, 2006, the applicable interest rate is variable and is based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1 of each year, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 9%.
For PLUS Loans first disbursed on or after July 1, 2006, the applicable interest rate is fixed at 8.5%.
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 guarantee 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. The SLS Loan Program was discontinued on July 1, 1994.
A - 4

Interest rates for SLS Loans. The applicable interest rates on SLS Loans made before October 1, 1992, and on SLS Loans originally made at a fixed interest rate, which have been refinanced for purposes of securing a variable interest rate, are identical to the applicable interest rates described for PLUS Loans made before October 1, 1992.
For SLS Loans first disbursed on or after October 1, 1992, but before July 1, 1994, the applicable interest rate is as follows:
•Beginning July 1, 2001, the applicable interest rate is variable and is based on the weekly average one-year constant maturity Treasury yield for the last calendar week ending on or before June 26 preceding July 1 of each year, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 11%. Prior to July 1, 2001, SLS Loans in this category had interest rates which were based on the 52-week Treasury bill auctioned at the final auction held prior to the preceding June 1, plus 3.1%. The annual (July 1) variable interest rate adjustment was applicable prior to July 1, 2001, as was the maximum interest rate of 11%.
Consolidation Loans
General. The Higher Education Act authorized a program under which certain borrowers could consolidate their various federally insured education loans into a single loan insured and reinsured on a basis similar to Stafford Loans. Consolidation Loans could be obtained in an amount sufficient to pay outstanding principal, unpaid interest, late charges, and collection costs on federally insured or reinsured student loans incurred under the Federal Family Education Loan and Direct Loan Programs, including PLUS Loans made to the consolidating borrower, as well as loans made under the Perkins Loan (formally National Direct Student Loan Program), Federally Insured Student Loan (FISL), Nursing Student Loan (NSL), Health Education Assistance Loan (HEAL), and Health Professions Student Loan (HPSL) Programs. To be eligible for a FFELP Consolidation Loan, a borrower had to:
•Have outstanding indebtedness on student loans made under the Federal Family Education Loan Program and/or certain other federal student loan programs; and
•Be in repayment status or in a grace period on loans to be consolidated.
Borrowers who were in default on loans to be consolidated had to first make satisfactory arrangements to repay the loans to the respective holder(s) or had to agree to repay the consolidating lender under an income-based repayment arrangement in order to include the defaulted loans in the Consolidation Loan. For applications received on or after January 1, 1993, borrowers could add additional loans to a Consolidation Loan during the 180-day period following the origination of the Consolidation Loan.
A married couple who agreed to be jointly liable on a Consolidation Loan for which the application was received on or after January 1, 1993, but before July 1, 2006, was treated as an individual for purposes of obtaining a Consolidation Loan.
Interest rates for Consolidation Loans. For Consolidation Loans disbursed before July 1, 1994, the applicable interest rate is fixed at the greater of:
•9%, or
•The weighted average of the interest rates on the loans consolidated, rounded to the nearest whole percent.
For Consolidation Loans disbursed on or after July 1, 1994, based on applications received by the lender before November 13, 1997, the applicable interest rate is fixed and is based on the weighted average of the interest rates on the loans consolidated, rounded up to the nearest whole percent.
For Consolidation Loans on which the application was received by the lender between November 13, 1997, and September 30, 1998, inclusive, the applicable interest rate is variable according to the following:
•For the portion of the Consolidation Loan which is comprised of FFELP, Direct, FISL, Perkins, HPSL, or NSL loans, the variable interest rate is based on the bond equivalent rate of the 91-day Treasury bills auctioned at the final auction before the preceding June 1, plus 3.1%. The variable interest rate for this portion of the Consolidation Loan is adjusted annually on July 1. The maximum interest rate for this portion of the Consolidation Loan is 8.25%.
•For the portion of the Consolidation Loan which is attributable to HEAL Loans (if applicable), the variable interest rate is based on the average of the bond equivalent rates of the 91-day Treasury bills auctioned for the quarter ending June 30, plus 3.0%. The variable interest rate for this portion of the Consolidation Loan is adjusted annually on July 1. There is no maximum interest rate for the portion of a Consolidation Loan that is represented by HEAL Loans.
A - 5

For Consolidation Loans on which the application was received by the lender on or after October 1, 1998, the applicable interest rate is determined according to the following:
•For the portion of the Consolidation Loan which is comprised of FFELP, Direct, FISL, Perkins, HPSL, or NSL loans, the applicable interest rate is fixed and is based on the weighted average of the interest rates on the non-HEAL loans being consolidated, rounded up to the nearest one-eighth of one percent. The maximum interest rate for this portion of the Consolidation Loan is 8.25%.
•For the portion of the Consolidation Loan which is attributable to HEAL Loans (if applicable), the applicable interest rate is variable and is based on the average of the bond equivalent rates of the 91-day Treasury bills auctioned for the quarter ending June 30, plus 3.0%. The variable interest rate for this portion of the Consolidation Loan is adjusted annually on July 1. There is no maximum interest rate for the portion of the Consolidation Loan that is represented by HEAL Loans.
For a discussion of required payments that reduce the return on Consolidation Loans, see “Fees - Rebate fee on Consolidation Loans” in this Appendix.
Interest rate during active duty
The Higher Education Opportunity Act of 2008 revised the Servicemembers Civil Relief Act to include FFEL Program loans. Interest charges on FFEL Program loans are capped at 6% during a period of time on or after August 14, 2008, in which a borrower has served or is serving on active duty in the Armed Forces, National Oceanic and Atmospheric Administration, Public Health Services, or National Guard. The interest charge cap includes the interest rate in addition to any fees, service charges, and other charges related to the loan. The cap is applicable to loans made prior to the date the borrower was called to active duty.
Maximum loan amounts
Each type of loan was subject to certain limits on the maximum principal amount, with respect to a given academic year and in the aggregate. Consolidation Loans were limited only by the amount of eligible loans to be consolidated. PLUS Loans were limited to the difference between the cost of attendance and the other aid available to the student. Stafford Loans, subsidized and unsubsidized, were 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. Dependent and independent undergraduate students were subject to the same annual loan limits on Subsidized Stafford Loans; independent students were allowed greater annual loan limits on Unsubsidized Stafford Loans. A student who had not successfully completed the first year of a program of undergraduate education could borrow up to $3,500 in Subsidized Stafford Loans in an academic year. A student who had successfully completed the first year, but who had not successfully completed the second year, could borrow up to $4,500 in Subsidized Stafford Loans per academic year. An undergraduate student who had successfully completed the first and second years, but who had not successfully completed the remainder of a program of undergraduate education, could borrow up to $5,500 in Subsidized Stafford Loans per academic year.
Dependent students could borrow an additional $2,000 in Unsubsidized Stafford Loans for each year of undergraduate study. Independent students could borrow an additional $6,000 of Unsubsidized Stafford Loans for each of the first two years and an additional $7,000 for the third, fourth, and fifth years of undergraduate study. For students enrolled in programs of less than an academic year in length, the limits were generally reduced in proportion to the amount by which the programs were less than one year in length. A graduate or professional student could borrow up to $20,500 in an academic year where no more than $8,500 was representative of Subsidized Stafford Loan amounts.
The maximum aggregate amount of Subsidized Stafford and Unsubsidized Stafford Loans, including that portion of a Consolidation Loan used to repay such loans, which a dependent undergraduate student may have outstanding is $31,000 (of which only $23,000 may be Subsidized Stafford Loans). An independent undergraduate student may have an aggregate maximum of $57,500 (of which only $23,000 may be Subsidized Stafford Loans). The maximum aggregate amount of Subsidized Stafford and Unsubsidized Stafford Loans, including the portion of a Consolidation Loan used to repay such loans, for a graduate or professional student, including loans for undergraduate education, is $138,500, of which only $65,500 may be Subsidized Stafford Loans. In some instances, schools could certify loan amounts in excess of the limits, such as for certain health profession students.
Loan limits for PLUS Loans. For PLUS Loans made on or after July 1, 1993, the annual amounts of PLUS Loans were limited only by the student's unmet need. There was no aggregate limit for PLUS Loans.
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Repayment
Repayment periods. Loans made under the Federal Family Education Loan Program, other than Consolidation Loans and loans being repaid under an income-based or extended repayment schedule, must provide for repayment of principal in periodic installments over a period of not less than five, nor more than ten years. A borrower may request, with concurrence of the lender, to repay the loan in less than five years with the right to subsequently extend the minimum repayment period to five years. Since the 1998 Amendments, lenders have been required to offer extended repayment schedules to new borrowers disbursed on or after October 7, 1998 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. Consolidation Loans must be repaid within maximum repayment periods which vary depending upon the principal amount of the borrower's outstanding student loans, but may not exceed 30 years. For Consolidation Loans for which the application was received prior to January 1, 1993, the repayment period cannot exceed 25 years. Periods of authorized deferment and forbearance are excluded from the maximum repayment period. In addition, if the repayment schedule on a loan with a variable interest rate does not provide for adjustments to the amount of the monthly installment payment, the maximum repayment period may be extended for up to three years.
Repayment of principal on a Stafford Loan does not begin until a student drops below at least a half-time course of study. For Stafford Loans for which the applicable rate of interest is fixed at 7%, the repayment period begins between nine and twelve months after the borrower ceases to pursue at least a half-time course of study, as indicated in the promissory note. For other Stafford Loans, the repayment period begins six months after the borrower ceases to pursue at least a half-time course of study. These periods during which payments of principal are not due are the “grace periods.”
In the case of SLS, PLUS, and Consolidation Loans, the repayment period begins on the date of final disbursement of the loan, except that the borrower of a SLS Loan who also has a Stafford Loan may postpone repayment of the SLS Loan to coincide with the commencement of repayment of the Stafford Loan.
During periods in which repayment of principal is required, unless the borrower is repaying under an income-based repayment schedule, payments of principal and interest must in general be made at a rate of at least $600 per year, except that a borrower and lender may agree to a lesser rate at any time before or during the repayment period. However, at a minimum, the payments must satisfy the interest that accrues during the year. Borrowers may make accelerated payments at any time without penalty.
Income-sensitive repayment schedule. Since 1993, lenders have been required to offer income-sensitive repayment schedules, in addition to standard and graduated repayment schedules, for Stafford, SLS, and Consolidation Loans. Beginning in 2000, lenders have been required to offer income-sensitive repayment schedules to PLUS borrowers as well. Use of income-sensitive repayment schedules may extend the maximum repayment period for up to five years if the payment amount established from the borrower's income will not repay the loan within the maximum applicable repayment period.
Income-based repayment schedule. Effective July 1, 2009, a borrower in the Federal Family Education Loan Program or Federal Direct Loan Program, other than a PLUS Loan made to a parent borrower or any Consolidation Loan that repaid one or more parent PLUS loans, may qualify for an income-based repayment schedule regardless of the disbursement dates of the loans if he or she has a partial financial hardship. A borrower has a financial hardship if the annual loan payment amount based on a 10-year repayment schedule exceeds 15% of the borrower's adjusted gross income, minus 150% of the poverty line for the borrower's actual family size. Interest will be paid by the Secretary of Education for subsidized loans for the first three years for any borrower whose scheduled monthly payment is not sufficient to cover the accrued interest. Interest will capitalize at the end of the partial financial hardship period, or when the borrower begins making payments under a standard repayment schedule. The Secretary of Education will cancel any outstanding balance after 25 years if a borrower who has made payments under this schedule meets certain criteria.
Deferment periods. No principal payments need be made during certain periods of deferment prescribed by the Higher Education Act. For a borrower who first obtained a Stafford or SLS loan which was disbursed before July 1, 1993, deferments are available:
•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 for a period of enrollment beginning on or after July 1, 1987, an active duty member of the National Oceanic and Atmospheric Administration Corps;
•During a period not exceeding three years while the borrower is a volunteer under the Peace Corps Act;
•During a period not exceeding three years while the borrower is a full-time paid volunteer under the Domestic Volunteer Act of 1973;
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•During a period not exceeding three years while the borrower is a full-time volunteer in service which the Secretary of Education has determined is comparable to service in the Peace Corp or under the Domestic Volunteer Act of 1970 with an organization which is exempt from taxation under Section 501(c)(3) of the Internal Revenue Code;
•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;
•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 because of caring for a dependent who is so disabled;
•During a period not exceeding two years while the borrower is seeking and unable to find full-time employment;
•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 for a period of enrollment beginning on or after July 1, 1987, is pursuing at least a half-time course of study);
•During any period that the borrower is pursuing a course of study in a graduate fellowship program;
•During any period the borrower is receiving rehabilitation training services for qualified individuals, as defined by the Secretary of Education;
•During a period not exceeding six months per request while the borrower is on parental leave;
•Only with respect to a borrower who first obtained a student loan disbursed on or after July 1, 1987, or a student loan for a period of enrollment beginning on or after July 1, 1987, during a period not exceeding 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 exceeding one year for mothers, with preschool age children, who are entering or re-entering the work force and who are paid at a rate of no more than $1 per hour more than the federal minimum wage; and
•For loans that are in repayment status on or before September 28, 2018, the borrower is eligible for deferment during periods the borrower is undergoing treatment for cancer and the 6 months following treatment.
For a borrower who first obtained a loan on or after July 1, 1993, deferments are available:
•During any period that the borrower is pursuing at least a half-time course of study at an eligible institution;
•During any period that the borrower is pursuing a course of study in a graduate fellowship program;
•During any period the borrower is receiving rehabilitation training services for qualified individuals, as defined by the Secretary of Education;
•During a period not exceeding three years while the borrower is seeking and unable to find full-time employment;
•During a period not exceeding three years for any reason which has caused or will cause the borrower economic hardship. Economic hardship includes working full-time and earning an amount that does not exceed the greater of the federal minimum wage or 150% of the poverty line applicable to a borrower's family size and state of residence. Additional categories of economic hardship are based on the receipt of payments from a state or federal public assistance program, service in the Peace Corps, or until July 1, 2009, the relationship between a borrower's educational debt burden and his or her income; and
•For loans that are in repayment status on or before September 28, 2018, the borrower is eligible for deferment during periods the borrower is undergoing treatment for cancer and the 6 months following treatment.
Effective October 1, 2007, a borrower serving on active duty during a war or other military operation or national emergency, or performing qualifying National Guard duty during a war or other military operation or national emergency may obtain a military deferment for all outstanding Title IV loans in repayment. For all periods of active duty service that include October 1, 2007 or begin on or after that date, the deferment period includes the borrower's service period and 180 days following the demobilization date.
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A borrower serving on or after October 1, 2007, may receive up to 13 months of active duty student deferment after the completion of military service if he or she meets the following conditions:
•Is a National Guard member, Armed Forces reserves member, or retired member of the Armed Forces;
•Is called or ordered to active duty; and
•Is enrolled at the time of, or was enrolled within six months prior to, the activation in a program at an eligible institution.
The active duty student deferment ends the earlier of when the borrower returns to an enrolled status, or at the end of 13 months.
PLUS Loans first disbursed on or after July 1, 2008, are eligible for the following deferment options:
•A parent PLUS borrower, upon request, may defer the repayment of the loan during any period during which the student for whom the loan was borrowed is enrolled at least half time. Also upon request, the borrower can defer the loan for the six-month period immediately following the date on which the student for whom the loan was borrowed ceases to be enrolled at least half time, or if the parent borrower is also a student, the date after he or she ceases to be enrolled at least half time.
•A graduate or professional student PLUS borrower may defer the loan for the six-month period immediately following the date on which he or she ceases to be enrolled at least half time. This option does not require a request and may be granted each time the borrower ceases to be enrolled at least half time.
Prior to the 1992 Amendments, only some of the deferments described above were available to PLUS and Consolidation Loan borrowers. Prior to the 1986 Amendments, PLUS Loan borrowers were not entitled to certain deferments.
Forbearance periods. The Higher Education Act also provides for periods of forbearance during which the lender, in case of a borrower's temporary financial hardship, may postpone any payments. A borrower is entitled to forbearance for a period not exceeding three years while the borrower's debt burden under Title IV of the Higher Education Act (which includes the Federal Family Education Loan Program) equals or exceeds 20% of the borrower's gross income. A borrower is also entitled to forbearance while he or she is serving in a qualifying internship or residency program, a “national service position” under the National and Community Service Trust Act of 1993, a qualifying position for loan forgiveness under the Teacher Loan Forgiveness Program, or a position that qualifies him or her for loan repayment under the Student Loan Repayment Program administered by the Department of Defense. In addition, administrative forbearances are provided in circumstances such as, but not limited to, a local or national emergency, a 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.
Interest payments during grace, deferment, forbearance, and applicable income-based repayment ("IBR") periods. The Secretary of Education makes interest payments on behalf of the borrower for Subsidized loans while the borrower is in school, grace, deferment, and during the first 3 years of the IBR plan for any remaining interest that is not satisfied by the IBR payment amount. Interest that accrues during forbearance periods, and, if the loan is not eligible for interest subsidy payments during school, grace, deferment, and IBR periods, may be paid monthly or quarterly by the borrower. At the appropriate time, any unpaid accrued interest may be capitalized by the lender.
For a borrower who is eligible for the Cancer Treatment Deferment, interest that accrues during the period of deferment on any subsidized loan is subsidized. For cancer treatment deferment periods on any Unsubsidized Stafford Loan, the interest during such periods is not charged to the borrower.
Fees
Guarantee fee and Federal default fee. For loans for which the date of guarantee of principal was on or after July 1, 2006, a guarantee agency was required to collect and deposit into the Federal Student Loan Reserve Fund a Federal default fee in an amount equal to 1% of the principal amount of the loan. The fee was collected either by deduction from the proceeds of the loan or by payment from other non-Federal sources. Federal default fees could not be charged to borrowers of Consolidation Loans.

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Origination fee. Beginning with loans first disbursed on or after July 1, 2006, the maximum origination fee which could be charged to a Stafford Loan borrower decreased according to the following schedule:
•1.5% with respect to loans for which the first disbursement was made on or after July 1, 2007, and before July 1, 2008;
•1.0% with respect to loans for which the first disbursement was made on or after July 1, 2008, and before July 1, 2009; and
•0.5% with respect to loans for which the first disbursement was made on or after July 1, 2009, and before July 1, 2010.
A lender could charge a lesser origination fee to Stafford Loan borrowers as long as the lender did so consistently with respect to all borrowers who resided in or attended school in a particular state. Regardless of whether the lender passed all or a portion of the origination fee on to the borrower, the lender had to pay the origination fee owed on each loan it made to the Secretary of Education.
An eligible lender was required to charge the borrower of a PLUS Loan an origination fee equal to 3% of the principal amount of the loan. This fee had to be deducted proportionately from each disbursement of the PLUS Loan and had to be remitted to the Secretary of Education.
Lender fee. The lender of any loan made under the Federal Family Education Loan Program was required to pay a fee to the Secretary of Education. For loans made on or after October 1, 2007, the fee was equal to 1.0% of the principal amount of such loan. This fee could not be charged to the borrower.
Rebate fee on Consolidation Loans. The holder of any Consolidation Loan made on or after October 1, 1993, was required to pay to the Secretary of Education a monthly rebate fee. For loans made on or after October 1, 1993, from applications received prior to October 1, 1998, and after January 31, 1999, the fee is equal to 0.0875% (1.05% per annum) of the principal and accrued interest on the Consolidation Loan. For loans made from applications received during the period beginning on or after October 1, 1998, through January 31, 1999, the fee is 0.0517% (0.62% per annum).
Interest subsidy payments
Interest subsidy payments are interest payments paid on the outstanding principal balance of an eligible loan before the time the loan enters repayment and during deferment periods. The Secretary of Education and the guarantee agencies enter into interest subsidy agreements whereby the Secretary of Education agrees to pay interest subsidy payments on a quarterly basis 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 payments. Consolidation Loans for which the application was received on or after January 1, 1993, are eligible for interest subsidy payments. Consolidation Loans made from applications received on or after August 10, 1993, are eligible for interest subsidy payments only if all underlying loans consolidated were 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 repaid subsidized FFELP Loans or similar subsidized loans made under the Direct Loan Program. The portion of the Consolidation Loan that repaid HEAL Loans is not eligible for interest subsidy, regardless of the date the Consolidation Loan was made.
Special allowance payments
The Higher Education Act provides for special allowance payments (SAP) 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).
Stafford Loans. The effective formulas for special allowance payment rates for Subsidized 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.
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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	3 Month Commercial Paper Rate less Applicable Interest Rate + 2.34%(3)(6)	
On or after October 1, 2007 and held by a Department of Education certified not-for-profit holder or Eligible Lender Trustee holding on behalf of a Department of Education certified not-for-profit entity	3 Month Commercial Paper Rate less Applicable Interest Rate + 1.94%(4)(6)	
All other loans on or after October 1, 2007	3 Month Commercial Paper Rate less Applicable Interest Rate + 1.79%(5)(6)	

(1) Substitute 2.5% in this formula while such 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.
(4) Substitute 1.34% in this formula while such loans are in-school, grace, or deferment status.
(5) Substitute 1.19% in this formula while such loans are in-school, grace, or deferment status.
(6) The Military Construction and Veterans Affairs and Related Agencies Appropriations Act of 2012 provides an alternate calculation method that substitutes for 3 Month Commercial Paper Rate “1 Month London Inter Bank Offered Rate (LIBOR) for United States dollars in effect for each of the days in such quarter as compiled and released by the British Banker's Association." This method has to be selected by each lender or beneficial holder before April 1, 2012 and applies to all loans held under the same lender identification number for the quarter beginning April 1, 2012 and all succeeding 3-month periods.
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%(1)	
PLUS loans on or after October 1, 2007 and held by a Department of Education certified not-for-profit holder or Eligible Lender Trustee holding on behalf of a Department of Education certified not-for-profit entity	3 Month Commercial Paper Rate less Applicable Interest Rate + 1.94%(1)	
All other PLUS loans on or after October 1, 2007	3 Month Commercial Paper Rate less Applicable Interest Rate + 1.79%(1)	
Consolidation loans on or after October 1, 2007 and held by a Department of Education certified not-for-profit holder or Eligible Lender Trustee holding on behalf of a Department of Education certified not-for-profit entity	3 Month Commercial Paper Rate less Applicable Interest Rate + 2.24%(1)	
All other Consolidation loans on or after October 1, 2007	3 Month Commercial Paper Rate less Applicable Interest Rate + 2.09%(1)	

(1) The Military Construction and Veterans Affairs and Related Agencies Appropriations Act of 2012 provides an alternate calculation method that substitutes for 3 Month Commercial Paper Rate “1 Month London Inter Bank Offered Rate (LIBOR) for United States dollars in effect for each of the days in such quarter as compiled and released by the British Banker's Association." This method has to be selected by each lender or beneficial holder before April 1, 2012 and applies to all loans held under the same lender identification number for the quarter beginning April 1, 2012 and all succeeding 3-month periods.
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 quarters 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
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Loans” and “Interest Rates for SLS Loans.” Special allowance payments are available on variable rate PLUS Loans and SLS Loans made on or after July 1, 1987, and before July 1, 1994, and on any PLUS Loans made on or after July 1, 1998, and before January 1, 2000, only if the variable rate, which is reset annually, based on the weekly average one-year constant maturity Treasury yield for loans made before July 1, 1998, and based on the 91-day or 52-week Treasury bill, as applicable for loans made on or after July 1, 1998, exceeds the applicable maximum borrower rate. The maximum borrower rate is between 9% and 12% per annum. The portion, if any, of a Consolidation Loan that repaid a HEAL Loan is ineligible for special allowance payments.
Recapture of excess interest. The Higher Education Reconciliation Act of 2005 provides that, with respect to a loan for which the first disbursement of principal was made on or after April 1, 2006, if the applicable interest rate for any three-month period exceeds the special allowance support level applicable to the loan for that period, an adjustment must be made by calculating the excess interest and crediting such amounts to the Secretary of Education not less often than annually. The amount of any adjustment of interest for any quarter will be equal to:
•The applicable interest rate minus the special allowance support level for the loan, multiplied by
•The average daily principal balance of the loan during the quarter, divided by
•Four.
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%
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provided that the special allowance applicable to the loans may not be less than 9.5% less the Applicable Interest Rate. Special rules apply with respect to special allowance payments made on loans
•Originated or acquired with funds obtained from the refunding of tax-exempt obligations issued prior to October 1, 1993, or
•Originated or acquired with funds obtained from collections on other loans made or purchased with funds obtained from tax-exempt obligations initially issued prior to October 1, 1993.
Amounts derived from recoveries of principal on loans eligible to receive a minimum 9.5% special allowance payment may only be used to originate or acquire additional loans by a unit of a state or local government, or non-profit entity not owned or controlled by or under common ownership of a for-profit entity and held directly or through any subsidiary, affiliate or trustee, which entity has a total unpaid balance of principal equal to or less than $100,000,000 on loans for which special allowances were paid in the most recent quarterly payment prior to September 30, 2005. Such entities may originate or acquire additional loans with amounts derived from recoveries of principal until December 31, 2010. Loans acquired with the proceeds of tax-exempt obligations originally issued after October 1, 1993, receive special allowance payments made on other loans. Beginning October 1, 2006, in order to receive 9.5% special allowance payments, a lender must undergo an audit arranged by the Secretary of Education attesting to proper billing for 9.5% payments on only eligible “first generation” and “second generation” loans. First generation loans include those loans acquired using funds directly from the issuance of the tax-exempt obligation. Second-generation loans include only those loans acquired using funds obtained directly from first-generation loans. Furthermore, the lender must certify compliance of its 9.5% billing on such loans with each request for payment.
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. In addition, the amount of the lender origination fee is collected by offset to special allowance payments and interest subsidy payments. 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, the special allowance payable to the lender must be increased by an amount equal to the daily interest accruing on the special allowance and interest subsidy payments due the lender.
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    OFFICE BUILDING LEASE

THIS LEASE, made and entered into this 5th day of January, 2021, by and between Union Bank and Trust Company, hereinafter called "Landlord", and National Education Loan Network, Inc hereinafter called "Tenant".

    WITNESSETH:

1.    PREMISES. Landlord does hereby lease unto Tenant, and Tenant does hereby lease from Landlord, Class A office space in the building planned for construction in the Heartwood Preserve Development at 144th and West Dodge Road, Omaha, Nebraska, to-wit:

The space outlined in red on Exhibit "A" attached hereto containing approximately 44,539 rentable square feet (exact square footage to be calculated upon final space plan per BOMA standards), with 24,804 rentable square feet located on the second floor of the building and 19,735 rentable square feet located on the third floor of the building.

Such leased premises hereinafter are referred to as the "Premises". In addition to the Premises, Tenant shall enjoy the nonexclusive use of any exterior automobile parking areas, access roads, driveways, walkways, sidewalks, restrooms, stairwells, hallways, elevators, entrance and exit doors, and other common areas (referred to herein as the "Common Areas") furnished by Landlord in or for the benefit of the Building, subject to control and reasonable regulation by Landlord.

2. TERM. The term of this lease shall be for five (5) years commencing one hundred twenty (120) days from the date tenant takes possession upon substantial completion of the Core & Shell construction of the Building (“Commencement Date”) as defined and described in Exhibit F. Full construction plans and schedule will be provided and agreed upon between Tenant and Landlord prior to lease execution. Landlord and Tenant shall enter into a written memorandum setting forth the commencement date and the termination date of the term of this lease. (Tenant shall have the right to access the space upon lease execution and/or substantial completion of the Core & Shell to begin the preparation for occupancy of the premises.) Tenant’s access shall not interfere with any tenant improvements taking place. There shall be no rent charged during this period.

3.    (a) BASE RENT. Tenant agrees to pay Landlord, without demand, deduction, or set off, at _________________c/o OMNE Partners, 13340 California Street Suite 100, Omaha NE 68154, or at such other place as Landlord from time to time may designate in writing, an annual base rent payable by Tenant in equal consecutive monthly installments, in advance, on the first day of each calendar month during the term of this lease. The Base Rent for the initial term shall as state in the below rent schedule:
                    
Months 1 -60 @ $22.00 PER SQUARE FOOT PER YEAR, NNN

Rent for any period of less than a calendar month shall be prorated on a daily basis based on the amount of days in that specific month and shall be paid on the execution of this lease and on the first day of the last calendar month during the term of this lease.

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(b) ADDITIONAL RENT. In addition to the base rent specified in paragraph 3(a) above, Tenant also shall pay to Landlord as additional rent for each calendar year during the term of this lease, without demand, deduction, or set off, an amount determined as follows:
(1)    For each calendar year, Landlord shall compute the actual costs and expenses without markup ("Operating Costs") incurred by the Landlord in operating, managing, repairing, and maintaining the Building and the Common Areas, including but not limited to all improvements from time to time located therein or thereon. Operating costs shall include but not be limited to the following: (1) all actual energy and utility costs, including but not limited to gas, electricity, fuel oil, propane, water, and sewer use fees, (2) personal property taxes levied and assessed against property used in the operation and maintenance of the Building and Common Areas, (3) real estate taxes as described in paragraph 25 below (4) janitorial and trash removal services whether supplied by employees of Landlord or independent contractors, salaries of janitorial personnel (including payroll taxes, fringe benefits, and workmen's compensation insurance), and janitorial supplies, (5) all expenses, fees, and costs (including but not limited to materials, supplies, salaries of maintenance personnel and related payroll taxes, fringe benefits, and workmen's compensation insurance) incurred in connection with all repairs, maintenance, and replacements of any improvements, fixtures, systems, and equipment in or about the Building, Common Areas and Tenant premises, (6) all Building management costs and fees, including but not limited to office supplies, salaries, staff and support costs, advertising costs, and other management costs and expenses, incurred by Landlord and any and all management fees and costs paid to independent contractors, (7) exterior and interior landscaping, snow removal, and grounds maintenance costs including but not limited to parking lot resurfacing, striping, repair, and maintenance, (8) general maintenance of the roofing and building exterior (9) actual rental payments for equipment, fixtures, and systems of any kind owned or leased and used by Landlord in connection with the management, operation, or maintenance of the Building and the Common Areas, (10) premiums and other charges for property insurance, commercial general liability insurance, boiler insurance, rent insurance, and any other insurance coverages on or relating to the Building, the Common Areas, and the Land, (11) costs of all nominal light bulbs and/or lighting used in the Building, and (12) all contract services of any kind (such as but not limited to security and alarm services) and all other costs, fees, and expenses incurred by Landlord with respect to the management, repair, maintenance, and operation of the Building and the Common Areas; provided, however, that operating costs shall not include (1) except as otherwise provided above, the cost of capital improvements in connection with the repair or replacement of the roof, foundation, exterior walls, and other structural elements of the Building; (2) costs and expenses incurred by Landlord in performing any obligations of any tenant of the Building which fall within the scope of the Tenant's obligations under paragraph 7 of this lease; and (3) depreciation on the Building and Improvements or amounts paid toward principal or interest of loans of Landlord..

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(2)    Tenant's additional rent under this paragraph 3(b) for a particular calendar year shall be the Tenant Fraction (as described in paragraph 38) of the operating costs for such calendar year; provided, that if such calendar year does not fall entirely within the term of this lease, then Tenant shall pay only that fraction of the amount of additional rent determined under the preceding provisions of this subparagraph (2) whose numerator is the number of days during such calendar year which fall within the term of this lease and whose denominator is 365.
(3)    Parking, under Paragraph 14 below.

Landlord shall estimate the amount of such additional rent for a particular calendar year at the beginning of such calendar year and Tenant shall pay one-twelfth (1/12) of such estimated amount to Landlord concurrently with Tenant's monthly payments of base rent pursuant to paragraph 3(a). As soon as Tenant's actual additional rent under this paragraph 3(b) for the particular calendar year has been determined, (i) if Tenant has paid less than the full amount due, Tenant promptly shall pay to Landlord any remaining amount of such additional rent then due or (ii) if Tenant has paid more than the full amount due, Landlord shall credit the excess amount against Tenant's next additional rent payment or payments coming due under this paragraph 3(b) or, if the term of Tenant's lease expired at the end of such calendar year, shall refund such excess amount to Tenant.

4.    PERMITTED USE. Tenant may use and occupy the Premises for general office; administrative and general support functions consistent with Tenant’s existing businesses, including operation of contact centers, and no other purpose provided Tenant does not exceed the Building’s parking ration of 5:1,000. Tenant agrees to conduct its business at all times in a responsible and reputable manner and at all times to comply with all laws, ordinances, and governmental regulations affecting the Premises and its cleanliness, safety, occupancy, and use. Tenant shall not commit or suffer to be committed any waste upon the Premises or any nuisance or other act or thing which may disturb the quiet enjoyment of any other tenant in the Building. Tenant shall faithfully comply with the rules and regulations attached as Exhibit “C” hereto. Landlord reserves the right, from time to time, to make all reasonable modifications to such rules and regulations. The addition to and modification of such rules and regulations shall be binding upon Tenant upon delivery of a copy of them to Tenant.

5.    LANDLORD'S COVENANTS. Landlord covenants that it is the owner of the real estate described in paragraph 1 of this lease; that the Premises will be wholly contained within the tract of real estate described in Exhibit B to this lease; and that Landlord has full power and authority to make this lease with Tenant. Landlord further covenants that Tenant, upon the complete and timely payment of all rent and performance of Tenant's other obligations under this lease, shall peacefully and quietly have, hold, and enjoy the occupancy of the Premises throughout the term of this lease or until this lease is sooner terminated in accordance with its provisions without any disturbance from Landlord or anyone claiming by, through, or under Landlord.

6.    MECHANIC'S LIENS. If any mechanic's lien or other lien is filed against the Building or Land or any part thereof for any reason whatsoever by reason of Tenant's acts or omissions or because of a claim against Tenant, then Tenant shall cause each such lien to be cancelled and discharged of record by bond or otherwise within ten (10) business days after notice by Landlord and shall indemnify, defend and hold harmless Landlord from any costs, expenses, damages, or liabilities directly or indirectly resulting from such lien.

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7.    MAINTENANCE AND REPAIRS. Tenant, at its expense, shall keep the Premises neat, orderly, safe, and clean (as described later in this Paragraph) and promptly shall make any and all repairs and replacements to the Premises, to the Building and the fixtures and equipment constituting a part thereof, and to the Common Areas which may be required as a result of any malicious, willful or negligent act or omission of Tenant or Tenant's contractors, concessionaires, licensees, agents, servants, invitees, employees, or anyone else for whom Tenant may be responsible. Tenant, at its expense, also shall maintain, repair and replace any special heating, ventilating, air conditioning and related systems added by Tenant to serve the Premises (eg: special temperature or humidity controls for computer room). Tenant shall, at its expense, provide all light bulbs for the Premises, (except for nominal light bulbs and/or lighting furnished and installed by Landlord as described in paragraph 3), but Landlord shall install such light bulbs provided by Tenant. Landlord shall operate, manage, repair, and maintain (1) the Common Areas, (2) the roof, foundation, exterior walls, and other structural elements of the Building, and (3) the heating, air conditioning, sprinkler, sewer, plumbing, fluorescent lights and electrical systems serving the Building, subject to Tenant's obligations with respect to Tenant's share of the costs of such operation, management, repair, and maintenance as provided in paragraph 3(b) of this lease. Landlord shall also make all non-structural repairs and replacements of any kind which become necessary to the Premises during the term of this lease so as to keep the Premises in good condition and repair and shall maintain and keep in good repair the electrical and plumbing fixtures located within the Premises and sewer drains immediately related to such plumbing fixtures,

8.    ENVIRONMENTAL MATTERS. For purposes of this paragraph "Hazardous Substance" shall have the meaning given to such phrase in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 USC §9601, et seq.) and also shall include any flammable explosives, radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic substances, or related materials which are regulated by any federal, state, or local law, ordinance, rule, regulation, or policy relating to the protection of the environment, provided, reasonable and customary amounts of necessary janitorial supplies, even if included in the above definition, will be permitted in the Premises. For purposes of this paragraph, an "Environmental Regulation" is any federal, state, or local law, ordinance, rule, regulation, or policy governing the use, storage, treatment, transportation, manufacture, refinement, handling, production, discharge, emission, or disposal of any Hazardous Substance. Tenant shall not use, store, handle, produce, dispose of, discharge, take any other actions, or allow anyone else to take any of such actions, with respect to any Hazardous Substance in, at, on, or from the Premises in any manner which violates any Environmental Regulation. During the term of this lease and any other periods of Tenant's occupancy of the Premises, Tenant at its expense shall obtain, maintain in effect, and comply with all permits and licenses required by any Environmental Regulation applicable to Tenant or the Premises. Within three (3) business days after Tenant is notified or otherwise becomes aware of any actual or potential violation or alleged violation of any Environmental Regulation involving or relating to the Premises, Tenant shall notify Landlord in writing of such actual or potential violation or alleged violation and promptly shall deliver to Landlord copies of any written materials that Tenant may have or thereafter receive which pertain to or purport to give notice of such actual or potential violation or alleged violation. Tenant, at its expense, promptly shall conduct and complete all investigations, studies, sampling, testing, removal, and other actions necessary to clean up and remove from the Premises any Hazardous Substance which may have been introduced into or upon the Premises during the term

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of this lease or any other period of occupancy of the Premises by Tenant, all in accordance with and as required by any applicable Environmental Regulation and the orders and directions of federal, state, and local governmental authorities having jurisdiction over the Premises or such actions. Tenant shall provide Landlord and Landlord's agents or representatives with access to the Premises and to Tenant's files and records at all reasonable times for the purpose of verifying Tenant's compliance with the requirements of this paragraph. Tenant shall indemnify, defend and hold harmless Landlord against and from any and all claims, demands, penalties, fines, liabilities, settlements, damages, costs, or expenses of whatever kind or nature (including but not limited to attorney fees, fees of environmental consultants, and laboratory fees) known or unknown, contingent or otherwise, arising out of or in any way related to the presence, release, threatened release, or disposal of any Hazardous Substance in, upon, or from the Premises or arising out of or in any way related to the violation by Tenant or the Premises of any Environmental Regulation during the term of this lease and any other period of Tenant's occupancy of the Premises. The obligations of Tenant under this paragraph shall survive the termination of this lease and of Tenant's occupancy of the Premises.

9.    SIGNS AND TRADE FIXTURES. Tenant shall not install any signs upon the exterior of the Building. Tenant shall not install any signs within the interior atrium windows of the Premises without prior written approval from Landlord's Managing Agent. Tenant shall utilize one (1) exterior marque sign, paid for by the Tenant and installed by Landlord. Signage design must be approved by Landlord. Interior signage must be approved by Landlord in its sole and absolute discretion. Sign costs related to the interior space, suite signage and monument signage will be funded by the Tenant. Tenant may install in or upon the Premises and remove therefrom such trade fixtures as it may deem necessary or appropriate to its business operations; provided that the removal of such trade fixtures shall cause no material damage to the Premises. Any damage which may be caused to the Premises by the removal of any of Tenant's trade fixtures shall be repaired by Tenant at its expense forthwith upon the removal of any such trade fixtures; provided that such damage is not caused by the negligence of Landlord or its contractors, agents, servants, employees, or anyone else for whom Landlord may be responsible.

10.    ALTERATIONS BY TENANT. Tenant shall make no alterations or additions whatsoever to the Premises or to any of the mechanical, electrical, plumbing, heating, air conditioning, sprinkler, or sewer systems serving the Premises without prior written consent of Landlord. At the time Landlord's consent to any alterations or additions is sought, Tenant shall submit to Landlord plans and specifications for such work, together with a statement of the estimated cost of such work. Such plans and specifications shall be reviewed by the Landlord for conformance to the Building Rules, Regulations and Standards. All such alterations or additions shall be completed in a good and workmanlike manner with first-class materials. At Landlord's option, any additions or alterations made to the Premises by Tenant shall remain a part of the Premises and be surrendered therewith upon the termination of this lease or, upon the termination of this lease, Tenant shall restore the Premises to their original condition at Tenant's expense, including removal of all abandoned wiring and cabling installed by Tenant.

11.    INDEMNIFICATION.

(a)    Tenant agrees to indemnify, defend, and hold harmless Landlord, its parents, subsidiaries, and affiliates, from and against any and all claims, demands, causes of action, liabilities,

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lawsuits, damages, fines, expenses of every kind and character, including reasonable attorney fees, for any personal or bodily injury to persons on the Land or in the Building, or damage to real or tangible personal property, including the Land, the Building, the Common Areas, Building spaces leased to others, the Premises, and any tangible personal property thereon, arising out of or related to Tenant’s use, occupancy, management or control of the Premises and Tenant’s operations or activities on the Land or in the Building or Common Areas, and to the extent caused by the negligent or willful acts or omissions by Tenant, its employees, agents, representatives, contractors, invitees, or anyone else for whom Tenant may be responsible.

(b)    Landlord agrees to indemnify, defend, and hold harmless Tenant, its parents, subsidiaries, and affiliates, from and against any and all claims, demands, causes of action, liabilities, lawsuits, damages, fines, expenses of every kind and character, including reasonable attorney fees, for any personal or bodily injury to persons on the Land or in the Building, damage to the Premises, or damage to any tangible personal property on the Land or in the Premises or Building spaces leased to others, arising out of or related to Landlord’s operation, activities, management or control of the Building and Common Areas (other than the Premises or Building spaces leased to others) and to the extent caused by the negligent or willful acts or omissions of Landlord, its employees, agents, representatives, contractors, invitees, or anyone else for whom Landlord may be responsible.

12.    TENANT’S INSURANCE. Tenant, at its expense at all times during the term of this lease and any other period of occupancy of the Premises by Tenant, shall provide and maintain with respect to the Premises the following minimum insurance coverage and limits:

(a)    Commercial General Liability. Commercial general liability insurance with coverage limits of not less than $2,000,000 aggregate and $1,000,000 per occurrence, and with a policy endorsement naming Landlord as an additional insured on a primary, non-contributory basis. Such commercial general liability policy also will provide a wavier of subrogation in favor of the Landlord.
(b)    Excess Liability Insurance. Umbrella or Excess liability insurance that schedules the general liability underlying policy, with coverage limits of at least $5,000,000, with waiver of subrogation in favor of the Landlord and with a policy endorsement naming the Landlord as an additional insured primary noncontributory.
(c)    Property Insurance. Property insurance to cover Tenant’s improvements and betterments to the Premises, on a replacement cost basis and with Special Perils to be covered, with waiver of subrogation in favor of the Landlord, and naming the Landlord as a loss payee.
(d)    Worker’s Compensation. Worker’s compensation at statutory limits covering Tenant’s employees at the Premises, with a wavier of subrogation in favor of the Landlord.

(e) Tenant shall furnish to Landlord Certificate(s) of Insurance evidencing the above insurance and coverages on an annual basis.
(f)     All Tenant insurance policies and Certificate(s) shall be endorsed with 30-day notice of cancellation or non-renewal to Landlord.

13.    PROPERTY INSURANCE. Landlord, at all times during the term of this lease and any other period of occupancy of the Premises by Tenant, shall provide and maintain at Landlord's expense commercial property insurance that includes Special Perils, with

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coverage limits of not less than eighty percent (80%) co-insurance basis of the Building Replacement Cost. Tenant understands and agrees that the premiums for and any other costs related to such insurance will be included in "operating costs" for purposes of paragraph 3(b). Tenant further understands and acknowledges that such property insurance will not cover any of Tenant's property, including but not limited to leasehold improvements, in the absence of a prior written agreement between Landlord and Tenant with respect to such coverage.

14.    PARKING. Tenant and its employees shall park their motor vehicles only in the areas of the parking lot specifically designated by Landlord for that purpose. Tenant shall be allotted a maximum of fifteen (15) designated parking stalls in the garage parking lot. The total number of stalls shall be mutually agreed upon and articulated by written amendment to this Agreement at a cost of $125.00 per month per garage parking stall.

15. ASSIGNMENT AND SUBLETTING. Tenant will have the right to sublease or assign its premises with Landlord's consent, which shall not be unreasonably withheld. Additionally, tenant shall have the right, so long as it remains liable under the lease, to assign or sublease or otherwise permit occupancy of Tenant’s premises to any related entity or affiliate of Tenant, whether by merger or consolidation, or to any successor firm.

16.    ENTRY BY LANDLORD. Landlord shall have the right to enter the Premises at all reasonable hours for the purpose of inspecting the Premises and for all other necessary purposes; provided, that such entry shall not unreasonably interfere with the conduct of Tenant's business. Landlord and Building Manager shall have the right to enter the Premises at any time in the event of an emergency. For a period commencing six (6) months prior to the termination of this lease, Landlord may have reasonable access to the Premises for the purpose of exhibiting the Premises to prospective tenants thereof and may display "For Lease" signs on the Premises.

17.    SERVICES. Landlord shall furnish reasonably adequate heating and air conditioning for the Premises as provided during normal business hours as provided in Exhibit “C” and at such other times as Landlord may deem necessary or desirable in the manner customary in the Building. Heating and cooling services shall be delivered to the Building upon the following schedule: Monday – Friday: 6:00am – 6:00pm; Saturday: 8:00am – 12:00pm. Should Tenant require additional/off-hours HVAC service, Tenant shall notify Building management of Tenant’s requirement no less than 24 hours in advance. Said service shall be billed at $_______ per hour, per floor. Landlord shall furnish water (if the Premises contain any plumbing fixtures) and electricity for the Premises; provided that Tenant shall not install or use any equipment in the Premises which requires unusual or excessive amounts of electricity without Landlord's prior written consent. Landlord will provide janitorial services five (5) days per week commensurate with other Class "A" office buildings in the Omaha market. Specifications of such services are described in in Exhibit “D”. Tenant agrees that Landlord shall have the right to discontinue any service above mentioned or any part thereof whenever and during any period for which bills for rent or other services are not promptly paid by Tenant. Tenant further agrees that Landlord shall not be liable for damages, nor shall the rent provided for in this lease be abated, for Landlord's failure to furnish or delay in furnishing any service above mentioned when such failure to furnish or delay in furnishing, is occasioned, in whole or in part, by reasonably necessary repairs, renewals, or improvements, any strike or labor controversy, any accident

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or casualty whatsoever, or any other cause or causes beyond the reasonable control of Landlord; provided, that Landlord shall follow reasonable maintenance and replacement schedules to maintain the Building and the fixtures and equipment constituting a part thereof in good operating condition. Tenant understands and agrees that Landlord's costs and expenses incurred in providing the services referred to in this paragraph will be included in "operating costs" for purposes of paragraph 3(b).

18.    DAMAGE BY CASUALTY. If, during the term of this lease, the Premises shall be so damaged by fire or other casualty as to be rendered wholly or partially untenantable, then the rent shall be abated in proportion to Tenant's loss of use of the Premises while the Premises remain wholly or partially untenantable; and in the event of such damage Landlord shall, within thirty (30) days after such damage, elect whether to repair the Premises or to terminate this lease and notify Tenant in writing of such election. If Landlord elects not to repair the Premises, then this lease shall be deemed to have been terminated as of the date of such damage; but Landlord and Tenant shall fulfill all of their obligations under this lease which accrued on or before the effective date of such termination. If Landlord elects to repair the Premises, then Landlord shall complete such repairs within 270 days after the occurrence of such damages and, upon completion thereof, shall so notify Tenant in writing whereupon Tenant's obligation to pay the full amount of its rent under this lease shall resume as of the date the repaired Premises are made available to Tenant for occupancy.

19.    BANKRUPTCY. In the event that Tenant becomes subject to voluntary proceedings, or involuntary proceedings which are not dismissed within sixty (60) days of filing, under the Bankruptcy Reform Act of 1978 (the “Act"), Landlord shall have all of the rights and remedies which are available to a Landlord under the Act in such event.

20. HOLDOVER. In the event Tenant, does not immediately surrender the Premises on the date of expiration of the term of this Lease or any extension period thereof, Tenant shall, by virtue of this section of the Lease, become a tenant by the month and hereby agrees to pay to Landlord a Monthly Base Rent equal to one hundred twenty-five percent (125%) of the then current base rent.

21.    WAIVERS. One or more waivers by Landlord or Tenant of a breach of any covenant or condition by the other of them shall not be construed as a waiver of the subsequent breach of the same covenant or condition, and the consent or approval by Landlord or Tenant to or of any act by either requiring the other's consent or approval shall not be deemed to waive or render unnecessary either party's consent to or approval of any subsequent similar act by the other party.

22.    WAIVER OF CLAIMS. Tenant agrees that (except for the willful misconduct, gross negligence, or unlawful acts or omissions of Landlord and Landlord's agents and employees) Landlord and Landlord's agents and employees shall not be liable for and Tenant hereby waives all claims for damage to persons or property sustained by Tenant or any person claiming by, through, or under Tenant resulting from any accident or occurrence in or upon the Premises or any part of the Building, Common Areas, or Land, including but not limited to claims for damage resulting from (a) any of Tenant’s equipment, fixtures and trade fixtures or appurtenances becoming out of repair; (b) injury done or occasioned by fire or wind or other natural condition or event; (c) any defect in or failure of plumbing, heating, sprinkler, or air conditioning equipment, electrical wiring or equipment, gas, water, or steam

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pipes, elevators, stairs, porches, railings, driveways or walks; (d) broken glass; (e) the backing up of any sewer pipe or downspout; (f) the bursting, leaking, or running over of any tank, tub, washstand, water closet, waste pipe, drain, or any other pipe or tank in, upon, or about the Premises or the stoppage of any utility service for the purpose of inspecting the system or making repairs thereto; (g) the escape of steam or hot air; (h) water, snow, or ice being upon or coming through the roof, skylight, trap door, stairs, walks, or any other place upon or near the Premises or otherwise; (i) the falling of any fixtures, plaster, or stucco; and (j) any act, omission, or negligence of co-tenants or of other persons or occupants of the Building or of adjoining or contiguous buildings or of owners of adjacent or contiguous property.

23.    NOTICES. Whenever under this lease a provision is made for notice of any kind, such notice shall be given in writing and sent by personal delivery or e-mail to Andy Kutilek c/o OMNE Partners, 13340 California Street Suite 100, Omaha NE 68154 with a copy to _____________________Omaha, NE ________ and to Tenant at the Premises or at such other address as either party may from time to time designate in writing. Each such notice shall be deemed to have been given at the time it shall be personally delivered to such address or upon delivery via e-mail in the manner prescribed herein. Tenant’s address:

Nelnet
			
121 S. 13th Street, Suite 100	
Lincoln, NE 68508	

24.    RELATIONSHIP OF PARTIES. Nothing contained in this lease shall be deemed or construed by the parties hereto, or by any third party, to create the relationship of principal and agent or of partnership or of joint venture between the parties hereto, it being understood and agreed that neither the method of computation of rent, nor any other provision contained herein, nor any acts of the parties hereto shall be deemed to create any relationship between the parties hereto other than the relationship of landlord and tenant.

25.    REAL ESTATE TAXES. Landlord agrees to pay, prior to delinquency, the general real estate taxes on the Land, Common Areas, and Building whose delinquency dates occur during the term of this lease and any installments of special taxes or assessments against or allocable to the Land, Common Areas, or Building which if not timely paid would become delinquent during the term of this lease. Any such taxes paid or payable by Landlord (except amounts paid in lieu of taxes under any redevelopment agreement, tax increment financing agreement or similar government agreement) shall be included as part of the operating expenses referred to in paragraph 3(b) and Tenant shall pay the Tenant Fraction of such taxes as provided in paragraph 3(b). Tenant agrees to pay when due all property tax which during the term of this lease may be assessed against any personal property, fixtures, or leasehold improvements of Tenant at any time located in or about the Premises.

26.    DELAYS IN PERFORMANCE. The performance by Landlord and Tenant of any of their respective obligations or undertakings provided for in this lease (except the payment of rent

    or any other sums of money payable by Tenant under this lease) shall be excused and no default shall be deemed to exist in the event and so long as the performance of any such

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obligation or undertaking is prevented, delayed, retarded, or hindered by any act of nature, declared pandemic, fire, earthquake, flood, explosion, action of the elements, war, riot, failure of transportation, strikes, lockouts, action of labor unions, condemnation, laws, orders of government or civil or military authorities, inability to procure labor, equipment, facilities, materials or supplies in the open market, or any other cause beyond the reasonable control of Landlord or Tenant, as the case may be.

27.    DELINQUENT PAYMENTS. If any base rent, additional rent, or other sums due and payable by Tenant under this lease are not paid within ten 10) days after such base rent, additional rent, or other sums are due and payable, then Tenant, at Landlord’s option, shall pay a late charge of ten percent (10%) of the amount due. If such rent or other sums are not paid within thirty (30) days after the due date, then such unpaid base rent, additional rent, or other sums shall bear interest at the rate of sixteen percent (16%) per annum or, if lower, at the maximum contact interest rate allowable by law from their respective due dates until paid.

28.    DEFAULT. If Tenant defaults in the payment of any rent or other sums due and payable to Landlord under this lease and such default continues for a period of ten (10) days, or if Tenant shall violate or default in the performance of any covenants, agreements, stipulations or other conditions contained herein (other than the payment of rent and other sums payable under this lease) and such violation or default continues for a period of thirty (30) days after written notice of such violation or default has been given by Landlord to Tenant (or, in the case of a default not curable within thirty (30) days), if Tenant shall fail to commence to cure the same within thirty (30) days and thereafter proceed diligently to complete the cure thereof), then Landlord, at its option, upon fifteen (15) days prior written notice to Tenant may re-enter and repossess the Premises, with or without process of law, and declare this lease terminated and the term of this lease ended forthwith. Landlord may exercise any legal remedy available to remove all persons and property then located in the Premises, and Landlord shall not be liable for damages by reason of such re-entry and repossession. Notwithstanding such re-entry and repossession by Landlord, the liability of Tenant for the payment of the rent and other sums due hereunder and for the performance of Tenant's other obligations hereunder for the balance of the term of this lease shall not be relinquished or extinguished; and Landlord at any time my commence such one or more actions as it may deem necessary to collect any sums due from Tenant under this lease. In the event of any such re-entry and repossession, Landlord shall have the right to relet all or any portion of the Premises upon such terms and conditions as Landlord may deem appropriate; and any such reletting shall not relieve Tenant of any of its obligations to Landlord under this lease, except to the extent of any net rentals actually received by Landlord from such reletting after deducting all of Landlord's expenses (including but not limited to legal expenses, brokerage commissions, and the costs of remodeling the Premises so as to render it suitable for reletting) incurred in preparing for and accomplishing such reletting. Tenant further agrees to pay, in addition to the rentals and other sums agreed to be paid hereunder, such additional sums as a court of competent jurisdiction may adjudge reasonable as attorneys' fees in any suit or action resulting in a judgment in favor of Landlord instituted by Landlord to enforce the provisions of this lease or the collection of the rentals or other sums payable by Tenant hereunder.

29.    MEMORANDUM OF LEASE. Both parties agree not to record this lease; but each party hereto agrees, at the request of the other, to execute a memorandum of lease setting forth the

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rental and other charges payable by Tenant under this lease, and any such memorandum of lease shall expressly state that it is executed pursuant to the provisions contained in this lease and is not intended to vary the terms and conditions of this lease.

30.    SUBORDINATION. Landlord may assign its rights under this lease as security to the holders of one or more mortgages (which term shall include a mortgage, trust deed, or other encumbrance) now or hereafter in force against all or any part of the Building, Common Areas, or Land. Upon the request of Landlord, Tenant will subordinate its rights hereunder to the lien of one or more mortgages (which term shall include a mortgage, trust deed, and other encumbrance) now or hereafter in force against all or any part of the Building, Common Areas, or Land and to all advances made or hereafter to be made upon the security thereof; provided, that any such mortgage shall provide that the mortgagee, in the event of its acquiring title to the Building, Common Areas, or Land, whether through foreclosure, judicial process, or otherwise, shall recognize the validity of this lease and shall honor the rights of Tenant hereunder so long as Tenant (a) is not in default under this lease at the time such mortgagee acquires such title and (b) agrees to attorn to such mortgagee as if it were the original Landlord hereunder.

31.    CUMULATIVE RIGHTS. The rights, options, elections and remedies of both parties contained in this lease shall be cumulative and may be exercised on one or more occasions; and none of them shall be construed as excluding any other or any additional right, priority, or remedy allowed or provided by law.

32.    EMINENT DOMAIN. If the whole or any part exceeding twenty-five percent (25%) of the Premises shall be taken by any public authority under the power of eminent domain, then the lease term shall cease as of the earlier of (a) the date possession shall be taken by such public authority, or (b) the date Tenant elects to terminate the lease; and Tenant shall pay rent up to the applicable date with an appropriate refund by Landlord of such rent as shall have been paid in advance for a period subsequent to such date. If twenty-five percent (25%) or less of the floor space of the Premises shall be so taken, then the lease term shall cease only as to the part taken as of the date possession shall be taken by such public authority, and Tenant shall pay its full rent up to that day with an appropriate refund to Tenant of such rent as may have been paid in advance for a period subsequent to the date of the taking, and thereafter the Base Rent and the Tenant Fraction shall be equitably adjusted; in such event, Landlord, at its expense, shall make all necessary repairs and alterations to the Premises and the Building so as to constitute the remaining premises a complete architectural unit. All compensation awarded for any taking under the power of eminent domain, whether for the whole or any part of the Premises, shall be the property of the Landlord, whether such damages be awarded as compensation for the diminution value or loss of the leasehold or for the diminution value of or loss of the fee of the Premises or otherwise; and Tenant hereby assigns to Landlord all of Tenant's right, title, and interest in and to any and all such compensation except for moving costs.

33.    OCCUPANCY. Except as otherwise provided in this paragraph 33, Tenant shall, throughout the term of this lease, continuously occupy the Premises and conduct business therefrom during all normal business hours. Notwithstanding the foregoing, Tenant shall not be required to continuously occupy or conduct business in the Premises (a) when the Premises are untenantable by reason of the occurrence of damage thereto or destruction thereof, (b) for the duration of any governmental order which prohibits the occupancy or

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conduct of business in the Premises, or (c) during the period of a declared national, state or local pandemic or epidemic, and Tenant determines in its discretion to not occupy or conduct business in the Premises. If Tenant ceases to occupy or conduct business from the Premises for any of the reasons stated above, Tenant shall immediately, but not less than 24 hours after the fact, notify Landlord that Tenant is, has or will cease occupying and/or conducting business in the Premises. Notwithstanding any other provision of this lease, upon notification or upon Landlord learning or discovering that Tenant is no longer occupying or conducting business in the Premises, Landlord shall have the right to enter the Premises at any time for the purpose of inspecting the Premises and for all other necessary purposes. If Landlord is obligated to obtain additional property insurance under paragraph 13 because Tenant ceases to continuously occupy the Premises, any additional premium costs for such insurance shall be charged to and paid by Tenant as additional rent under paragraph 3(b)(1).
    [reserved]

34.    BINDING AGREEMENT. All rights and liabilities herein given to or imposed upon the respective parties hereto shall extend to and bind the respective heirs, executors, administrators, legal representatives, successors, and assigns of such parties. No rights, however, shall inure to the benefit of any assigns of Tenant unless the assignment to such assignee has been approved by Landlord in writing if such approval is required by this lease.

35.    ESTOPPEL CERTIFICATES. Tenant, from time to time upon written request from Landlord, agrees to execute, acknowledge, and deliver to Landlord within seven (7) days of such request, in form reasonably satisfactory to Landlord or Landlord's mortgagee, a written statement certifying that Tenant has accepted the Premises, that this lease is unmodified and in full force and effect (or, if there have been modifications, that this lease is in full force and effect as modified, setting forth the modifications), that Landlord is not in default hereunder, the date to which the rent and other amounts payable by Tenant have been paid in advance (if any), and such additional facts as reasonably may be required by Landlord or Landlord's mortgagee. Tenant understands and agrees that any such statement delivered pursuant to this paragraph may be relied upon by any prospective purchaser or mortgagee of the Premises and their respective successors and assigns.

36.    GOVERNING LAW. This lease shall be governed by and construed in accordance with the laws of the State of Nebraska. The parties agree that venue and exclusive jurisdiction for any litigation involving this lease shall be in the state and/or federal courts located in Lancaster County, Nebraska.

37.    MULTIPLE COPIES. This lease may executed in multiple counterparts, each of which shall be deemed to be an original for all purposes.

38. DEFINITIONS.
(a)TERM AND LEASE. Except as otherwise expressly stated in this lease, the "term" of this lease shall include the original term and any additional term or extended term, and references to this "lease" shall include this instrument and any properly executed amendment thereof or supplement thereto.
(b)TENANT FRACTION. Whenever used in this lease, the phrase "Tenant Fraction" shall mean that fraction whose numerator is 44,539 square feet (as described in paragraph 1) and whose denominator is _________________ square feet (i.e.: _____

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%). In event of any additions to the Premises or the Building, or reduction of the Premises due to eminent domain, the numerator and denominator will be modified to reflect the adjusted rentable square feet involved.
(c)RENTABLE SQUARE FEET. Rentable square feet of the Building shall be computed by measuring to the inside finished surface of the dominant portion of the permanent outer building walls, excluding any major vertical penetrations of the floor, and no deduction shall be made for columns and projections necessary to the Building. The Rentable Area of an office on a particular floor shall be computed by multiplying the Useable Area of that office by the quotient of the division of the Rentable Area of the Building by the Useable Area of the Building, referred to as the “R/UR Ratio”.
(d)USEABLE SQUARE FEET. Useable square feet of an office shall be computed by measuring to the finished surface of the office side of corridor and other permanent walls, to the center of partitions that separate the office from adjoining Useable Areas, and to the inside finished surface of the dominant portion of the permanent outer building walls, and no deduction shall be made for columns and projections necessary to the Building. The Useable Area of the Building shall be equal to the sum of all Useable Areas on each floor of the Building.

39.    NO PERSONAL LIABILITY. Anything in this lease to the contrary notwithstanding, Tenant agrees that it will look solely to the equity, estate, and property of Landlord in the Building, Common Areas, and Land (subject to prior rights of the holder of any mortgage or deed of trust thereon) for the collection of any judgement requiring the payment of money by Landlord in the event of any default on the part of Landlord in the observance or performance of any of the terms, covenants, and conditions of this lease to be observed or performed by Landlord; and Tenant understands and agrees that no other assets of Landlord shall be subject to levy, execution, or other process for the satisfaction of any such judgment or for the enforcement of any rights or remedies of Tenant.

40.    SALE OR UNDERLYING LEASE. In the event of (a) a sale, transfer, or exchange of the Building, Common Areas, and Land or any undivided interest therein, and assignment of this Lease, (b) the making by Landlord of an underlying lease of the Building, Common Areas, and Land, and assignment of this lease, or (c) a sale or transfer and assignment of the leasehold estate under any such underlying lease, the Landlord thereafter shall be entirely relieved of all liability for the covenants and obligations to be performed by Landlord under this lease to the extent of the interest in or portion of the Building, Common Areas, and Land so sold, transferred, or leased; and, without further agreement between any of the parties hereto and the purchaser or transferee in the event of any such sale or transfer or the tenant in the event of any such underlying lease, as the case may be, such purchaser, transferee, or tenant shall be deemed to have assumed and agreed to carry out all of the obligations of Landlord under this lease. As long as any such underlying lease shall be in force and effect, the parties hereto expressly understand and agree that there shall be no liability under this lease on the part of Landlord. Notwithstanding the foregoing provisions of this paragraph, the Landlord, shall not be relieved of any liability to Tenant arising or occurring prior to the sale, transfer, or lease referred to herein.

41.    PARAGRAPH TITLES. The titles of the various paragraphs of this lease have been inserted merely as a matter of convenience and for reference only and shall not be deemed in any manner to define, limit, or describe the scope or intent of the particular paragraphs to

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which they refer or to affect the meaning or construction of the language contained in the body of such paragraphs.

42.    SEVERABILITY. If any provision of this lease shall be declared legally invalid or unenforceable, then the remaining provisions of this lease nevertheless shall continue in full force and effect and shall be enforceable to the fullest extent permitted by law.

43.    TIME OF ESSENCE. Time is of the essence of this lease, and all provisions of this lease relating to the time of performance of any obligation under this lease shall be strictly construed.

45.    NUMBER AND GENDER. Where the context of this lease requires, singular words shall be read as if plural, plural words shall be read as if singular, and words of neuter gender shall be read as if masculine or feminine.

46. COMPLETION OF PREMISES. Deleted.

47.    SECURITY DEPOSIT. None.

48.ENTIRE AGREEMENT. Tenant and Landlord hereby agree that this document and the Exhibits hereto which are listed below represent the entire agreement between the parties hereto with respect to the Premises and that there are no other agreements, promises, or representations, written or verbal, between the parties hereto pertaining to the Premises or the subject matter hereof. This lease may not be amended or supplemented orally but only by an agreement in writing which has been signed by the party against whom enforcement of any such amendment or supplement is sought.

49.OPTIONS TO EXTEND TERM. If Tenant is not then in default under this lease, Tenant shall have the option to extend the term of this lease for four (4) periods of five (5) year, from and after the expiration of the initial term of this lease, by giving written notice to Landlord of the exercise of such option at least six (6) months prior to the expiration of the prior term. The rental rate of the option period shall increase 1.5% each year of Tenant’s Renewal Term.

50.TELECOMMUNICATIONS. Landlord, at no charge, shall make available to Tenant and/or its telecommunications carriers physical facilities within the building in which the Premises are located as may be reasonably required by such carriers to bring its telecommunications services to the Premises. Further, Tenant’s telecommunications carriers shall be allowed to add additional Points of Entry (POEs) and conduit from the POE to the carrier’s outside plant. Tenant shall, in addition, have the right to install secure conduit if deemed necessary as part of Tenant’s telecom installation. The installation of such equipment shall be subject to the FCC and local zoning codes. The Tenant shall have access to broadband fiber services provided to the floor’s telecommunications room.

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51.CONFIDENTIALITY. Landlord and Tenant acknowledge the confidential and proprietary nature of both Landlord confidential information and Tenant confidential information (collectively “Confidential Information”). Landlord and Tenant agree that should one party receive or come into possession of the Confidential Information of the other party, the receiving party will protect and keep the other party’s Confidential Information confidential, will not use such Confidential Information of the other party for any reason or purpose, and will not disclose such Confidential Information of the other party to any other person without the prior written instruction of other party. The term "Confidential Information" shall mean all information regarding a party’s business practices, and any personally identifiable information and/or nonpublic personal information (as that term is defined under the Graham-Leach-Bliley Act and implementing regulations) of the party’s employees and customers, all of which, by its nature, is confidential or proprietary, specifically including, without limitation, all financial data, revenues, rents, operating expenses, net income, capital expenditures, budgets, projections, terms of applicable financing, provisions of tenant leases, marketing strategies and plans, customer information, employee information, and other similar information or data. In the event either party discovers unauthorized access to the Confidential Information provided by the other party, the party suffering the breach will notify the other party within a reasonable period of time, not to exceed five (5) business days by email of the event and the status of efforts to mitigate or resolve the unauthorized access. Promptly upon the request of either party, the receiving party shall surrender or destroy all memoranda, notes, compilations, studies, analyses, records, drawings, manuals and other documents or materials pertaining to, including, or otherwise reflecting the Confidential Information disclosed by the disclosing party. Upon return or destruction of such materials, an authorized representative of each party shall certify in writing that all of the foregoing materials have been surrendered to the other party or destroyed. This Confidentiality provision shall survive termination of this Agreement.

52.TENANT IMPROVEMENTS. Tenant agrees to accept the Premises in “as-is” condition and the Landlord has no obligation whatsoever to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof. Tenant shall perform all of the Tenant’s Improvements at Tenant’s sole cost based upon mutually agreeable plans and specifications. Tenant’s Improvements shall include all vertical penetrations (stairwells) that are not included in the Building’s Core and Shell construction.

53.BROKERAGE COMMISSION. OMNE Partners represents the Landlord in this transaction and will be paid a fee by the Landlord in accordance with a separate agreement.

54.EXHIBITS. The following Exhibits are a part of this lease and have been attached to this lease prior to its execution:

A -    Floor plan showing location of Premises
B -    Legal description of the Land
C -    Rules and Regulations
D - Janitorial Service Description
E - Base Building Conditions
F - Work Letter Agreement

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SIGNATURES ON THE FOLLOWING PAGE.

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IN WITNESS WHEREOF, Landlord and Tenant have executed this lease on the day and year first above written.

	

BY:	LANDLORD: Union Bank & Trust Company, a Nebraska State Banking corporation.

/s/ Angie Muhleisen	
Witness
	
PRINT/TYPE NAME:	  

Angie Muhleisen	
Date			
	ITS:	Member	

	

BY:	TENANT: National Education Loan Network, Inc

/s/ William J Munn	
Witness	
PRINT/TYPE NAME:	  

William J Munn	
			
December 30, 2020	
ITS:	Secretary	
Date			

17

Wesley Beemer Digitally signed by Wesley Beemer Date: 2021.12.29 10:22:49 -05'00'

 

 

 

 

 

Jill M. Leitl Chief Operating Officer 01/06/2022 Wesley Beemer Digitally signed by Wesley Beemer Date: 2022.01.07 08:05:44 -05'00'

 

 

 

 

 

 

 

 

 

Exhibit 10.83

Certain information identified by “[***]” has been excluded from this exhibit pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is both not material and is the type that the registrant treats as private or confidential.

EXPLANATORY NOTE: The following form of Amended & Restated Limited Liability Company Operating Agreement is utilized for solar energy investments managed by 1867 Capital-1, LLC, a wholly owned subsidiary of Nelnet, Inc. The following parties with other relationships with Nelnet, Inc. have participated in various of such investments: Ameritas Life Insurance Company, Assurity Life Insurance Company, Farm and Home Insurance, Inc., Farmers & Merchants Investment Inc., Infovisa, Inc., North Central Bancorp, Inc., and Union Bank and Trust Company. Third parties unrelated to Nelnet, Inc. have also participated in various of such investments. Specific provisions and terms for particular investments may vary.

AMENDED & RESTATED
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF ___________________

This Amended and Restated Limited Liability Company Operating Agreement (“Agreement”) is entered into effective as of ________________ (“Effective Date”), by and between Nelnet Solar, LLC, a Nebraska limited liability company (together with its successors and assigns, “Nelnet Solar”), together with any such other members who may obtain a membership interest in the Company from time to time hereafter (collectively, the “Members”), __________________, a Nebraska limited liability company formed and existing under the laws of the State of Nebraska (“Company”), and 1867 Capital-1, LLC, a Nebraska limited liability company (together with its successors and permitted assigns, the “Manager”).

WHEREAS, __________________was formed as a limited liability company under the laws of the State of Nebraska pursuant to the Certificate of Organization filed with the Nebraska Secretary of State on __________________;

WHEREAS, the Company was governed by a Limited Liability Company Operating Agreement entered into effective as of __________________by Nelnet Solar, LLC as the sole member thereof (“Prior Agreement”);

WHEREAS, the parties hereto desire to enter into this Agreement to amend and restate the Prior Agreement in its entirety, to cause the admission of additional Members, and to set forth more fully the rights, obligations, and duties of Members;

NOW, THEREFORE, in consideration of their mutual promises, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Members agree as follows:

ARTICLE I - DEFINITIONS
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Capitalized terms not otherwise defined shall have the respective meanings set forth below.

“Adjusted Capital Account Deficit” means, with respect to any Member, the deficit balance, if any, in such Member’s Capital Account as of the end of the relevant Allocation Year, after giving effect to the following adjustments:

(i)Crediting to such Capital Account any amounts that such Member is deemed obligated to restore pursuant to Regulation Section 1.704-2(b)(2)(ii)(c) or the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and

(ii)Debiting to such Capital Account the items described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5), and (6).

The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

“Affiliate” of any Person means any Person directly or indirectly controlling, controlled by, or under common control with such Person or related by blood, marriage, or adoption to such Person.

“After-Tax Basis” means, with respect to any payment to be received by Nelnet Solar that is properly included in the taxable income of Nelnet Solar, the amount of such payment supplemented by a further payment or payments so that, after deducting from such payments the amount of all income taxes (net of any current credits, deductions, or other tax benefits arising from the payment by Nelnet Solar of any amount, including taxes, for which the payment to be received is made) imposed currently on Nelnet Solar by any governmental authority or other taxing authority with respect to such payments, the balance of such payments shall be equal to the original payment received; provided, however, for the purposes of this definition, and for purposes of any payment to be made to Nelnet Solar on an After-Tax Basis, it shall be assumed that federal, state, and local income taxes are payable at the highest marginal combined federal and Nebraska statutory income tax rate (taking into account the deductibility of state income taxes for federal income tax purposes) applicable to Nelnet Solar for the Fiscal Year with respect to which the payment is made. For purposes of this definition, “Nelnet Solar” shall be construed to include all members of the group in which Nelnet Solar is consolidated for tax purposes.

“Agreement” has the meaning set forth in the preamble.

“Allocation Year” means (i) the period commencing on the date hereof and ending on December 31, 2022, (ii) any subsequent twelve (12) month period commencing on January 1 and ending on December 31, or (iii) any portion of the period described in (i) or (ii) above for which the Company is required to allocate Profits, Losses and other items of Company income, gain, loss, or deduction pursuant to Article V of this Agreement.

2

“Bankruptcy” with respect to a Person shall occur when (i) the Person files a voluntary petition in bankruptcy; (ii) the Person made an assignment for the benefit of creditors; (iii) a petition for relief in bankruptcy is filed against the Person in any court of competent jurisdiction and is not dismissed within one hundred twenty (120) days; (iv) the Person is adjudicated bankrupt or insolvent by any court of competent jurisdiction; (v) the Person seeks, consents to, or acquiesces in the appointment of a trustee or receiver of the Person’s properties or a substantial portion thereof; or (vi) the Person acknowledges that it is unable to pay its debts as they come due.

“Business Plan” means any business plan and budget adopted by the Manager.

“Capital Account” means, with respect to any Member, the Capital Account maintained for such Member in accordance with Sections 1.704-1(b) and 1.704-2 of the Regulations, as described in Section 4.7 of this Agreement.

“Capital Call Anniversary” has the meaning set forth in Section 4.7.

“Capital Commitment” has the meaning set forth in Section 4.1.

“Capital Contribution” means the amount of cash contributed to the Company by a Member.

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Company” has the meaning set forth in the preamble.

“Company Minimum Gain” has the same meaning as “partnership minimum gain” set forth in Regulations Sections 1.704-2(b)(2) and 1.704-2(d), substituting the term “Company” for the term “partnership” as the context requires.

“Company ROI” means the Members’ after-tax total return on investment, measured by (a) taking the sum of the Members’ net after-tax cash distributions, tax credits, and other tax benefits received from their investment in the Company, assuming application of the highest federal income tax rate then applicable to a corporate taxpayer (as calculated each year) and assuming that each Member of the Company (and its direct or indirect owners) is able to utilize in full all profits and losses (along with constituent items of income, gain, deduction, and credit) allocated to such Member, including, but not limited to, all solar investment tax credits allocated to such Member and (b) dividing such sum by the total Capital Contributions made by the Members (including their predecessors-in-interest) pursuant to this Agreement. For the avoidance of doubt, Company ROI shall be calculated without regard to any at-risk limitations, passive activity limitations, excess credit limitations, taxable income limitations, or other limitations on ability to utilize or recognize credits, profits, or losses that may be applicable to a Member (and its direct or indirect owners).

“Compensatory Damages” has the meaning set forth in Section 4.7.
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“Consent” and “consent” mean, unless otherwise specified, the prior written consent or approval of the applicable Person, as the context may require, to do the act or thing for which the consent is solicited and the “Consent of the Members” means the unanimous consent or approval of all the Members.

“Damages” means any and all losses, claims, demands, costs, damages, liabilities (including joint and several liabilities), expenses (including attorneys’ fees and disbursements), judgments, fines, settlements, and other amounts arising from any and all claims, demands, actions, suits, or proceedings, whether civil, criminal, administrative, or investigative.

“Default Rate” has the meaning set forth in Section 4.7.

“Depreciation” means, for each Allocation Year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Allocation Year for federal income tax purposes, except that, if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such Allocation Year, Depreciation shall be an amount that bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Allocation Year bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for federal income tax purposes of an asset at the beginning of such Allocation Year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Managers.

“Disqualified Person” means (a) the United States, any state or political subdivision thereof, any possession of the United States, any local government, or any agency, political subdivision, or instrumentality of any of the foregoing, (b) any organization which is exempt from tax imposed by the Code (including any organization exempt from tax under Code Section 501(a), any former tax-exempt organization within the meaning of Code Section 168 (h)(2)(E), and any tax-exempt controlled entity within the meaning of Code Section 168(h)(6)(F)(iii) if such entity has not made the election provided in Code Section 168(h)(6)(F)(ii)), (c) any Indian tribal government described in Section 7701(a)(40) of the Code, (d) any Person who is not a United States Person (including any Person that is not a United States person as defined in Code Section 7701(a)(30)), (e) any entity referred to in former Code Section 54(j)(4), (f) a real estate investment trust, as defined in Code Section 856(a), (g) a regulated investment company, as defined in Code Section 851(a), (h) any Person described in Code Section 50(d)(1), (i) a holding company under the Public Utilities Holding Company Act or a public utility under the Federal Power Act, or (j) any partnership or other pass-through entity, any direct or indirect partner (or other holder of an equity or profits interest) of which is an organization or entity described in clauses (a)-(i).

“Economic Interest” means the elements of an interest in a Holding Company or a Project Company, as applicable, that (i) is limited to the right to receive allocations of profits and losses (along with constituent items of income, gain, deduction, and credit) and distributions of net cash flow, and (ii) do not include any rights to vote, grant any consent, or participate in any way in the management of the relevant entity.

“Effective Date” has the meaning set forth in the preamble.

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“Equity Capital Contribution Agreement” means, with respect to a Project, the Equity Capital Contribution Agreement of the Holding Company that has an ownership interest in said Project, as applicable.

“Gross Asset Value” means with respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows:

(i)The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset as agreed to by the Members, provided that the initial Gross Asset Value of the Property contributed to the Company by the Members, if any, shall be set forth on Exhibit A of this Agreement;

(ii)The Gross Asset Values of all items of Property shall be adjusted to equal their respective gross fair market values (taking Code Section 7701(g) into account) as of the following times: (A) the acquisition of an interest (or additional interest) in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (B) the distribution by the Company to a Member of more than a de minimis amount of Property as consideration for all or a portion of an interest in the Company; (C) the liquidation of the Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); and (D) in connection with the grant of an interest in the Company (other than a de minimis interest) as consideration for the provision of services to or for the benefit of the Company by an existing Member acting in a member capacity, or by a new Member acting in a partner capacity in anticipation of being a Member; provided that an adjustment described in clauses (A), (B), and (D) of this paragraph shall be made only if the Manager reasonably determines that such adjustment is necessary to reflect the relative economic interests of the Members in the Company;

(iii)The Gross Asset Value of any item of Property distributed to any Member shall be adjusted to equal the gross fair market value (taking Code Section 7701(g) into account) of such item on the date of distribution;

(iv)The gross fair market value of a publicly traded security shall equal its market value;

(v)The Gross Asset Value of each item of Property shall be increased (or decreased) to reflect any adjustments to the basis of such assets pursuant to Code Section 734(b) or Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to (A) Regulations Section 1.704-1(b)(2)(iv)(m) and (B) subparagraph (vi) of the definition of “Profits” and “Losses” or Section 5.7 of this Agreement; provided, however, that Gross Asset Values shall not be adjusted pursuant to this subparagraph (v) to the extent that an adjustment pursuant to subparagraph (ii) is required in connection with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (v).

(vi)If the Gross Asset Value of an asset has been determined or adjusted pursuant to subparagraph (i), (ii), or (v), such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset, for purposes of computing Profits and Losses.

5

“Holding Company” means, individually or collectively as context dictates, any limited liability companies in which Company acquires a membership interest for purposes of investing in one or more Projects. Each Holding Company will own or lease its own unique portfolio of Project(s) and will be governed by a unique operating agreement and set of tax equity investment documents. “Holding Companies” means more than one Holding Company.

“Holding Company Operating Agreement” means the Limited Liability Company Operating Agreement of the applicable Holding Company, as may be amended from time to time. As it relates to a Project, the Holding Company Operating Agreement means the Operating Agreement of the Holding Company that owns said Project.

“Interest” shall mean the entire interest of any Member in and to the Company, as reflected in such Member’s Percentage Interest, including all economic and non-economic rights associated therewith.

“LLC Act” or “Act” means the Nebraska Uniform Limited Liability Company Act.

“Manager” has the meaning set forth in the preamble.

“Material Adverse Effect” means a material adverse effect upon the results of operations, financial condition, assets, properties, or business of the Company, taken as a whole, or on the ability of the Company to perform its material obligations to third parties (including obligations to any Holding Company, Project Company, project document counterparty, investment document counterparty, or loan document counterparty); provided, however, that changes in or affecting financial, credit, or capital market conditions or economies or the solar industry, to the extent such changes do not adversely affect the Company as a whole in a disproportionate manner relative to other similarly situated participants, shall not constitute or be considered in determining whether a Material Adverse Effect has occurred.

“Members” means those individuals or entities listed on Exhibit A attached hereto.

“Member Nonrecourse Debt” has the same meaning as the term “partner nonrecourse debt” set forth in Regulations Section 1.704-2(b)(4).

“Member Nonrecourse Debt Minimum Gain” means an amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704-2(i)(3).

“Member Nonrecourse Deductions” has the same meaning as the term “partner nonrecourse deductions” set forth in Regulations Sections 1.704-2(i)(1) and 1.704-2(i)(2).

“Nelnet Solar” has the meaning set forth in the preamble.
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“Nonrecourse Deductions” has the meaning set forth in Regulations Sections 1.704-2(b)(1) and 1.704-2(c).

“Nonrecourse Liability” has the meaning set forth in Regulations Section 1.704-2(b)(3)
    
“Percentage Interest” means, as to a Member at any particular time, the ratio of (i) the Capital Commitment of such Member (for the avoidance of doubt, without reducing such Capital Commitment for purposes of this definition by the amount of any capital calls or Capital Contributions with respect to, or other draws on, such Capital Commitment), to (ii) the total Capital Commitments of all Members (for the avoidance of doubt, without reducing such Capital Commitments for purposes of this definition by the amount of any capital calls or Capital Contributions with respect to, or other draws on, such Capital Commitments), as reflected in Exhibit A to this Agreement. Each Percentage Interest represents a membership interest in the Company.

“Person” means any natural person, corporation, limited liability company, partnership, joint venture, association, trust or other business, governmental, or legal entity.

“Prior Agreement” has the meaning set forth in the preamble.

“Profits” and “Losses” mean, for each Allocation Year, an amount equal to the Company’s taxable income or loss, respectively, for such Allocation Year, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments (without duplication):

(i)Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this definition of “Profits” and “Losses” shall be added to such taxable income or loss;

(ii)Any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses pursuant to this definition of “Profits” and “Losses”, shall be subtracted from such taxable income or loss;

(iii)In the event the Gross Asset Value of any Property is adjusted pursuant to subparagraphs (ii) or (iii) of the definition of Gross Asset Value, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the Gross Asset Value of the Property) or an item of loss (if the adjustment decreases the Gross Asset Value of the item of Property) from the disposition of such Property and shall be taken into account for purposes of computing Profits or Losses;

(iv)Gain or loss resulting from any disposition of Property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference
7

to the Gross Asset Value of the Property disposed of, notwithstanding that the adjusted tax basis of such Property differs from its Gross Asset Value;

(v)In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Allocation Year, computed in accordance with the definition of “Depreciation”;

(vi)To the extent an adjustment to the adjusted tax basis of any item of Property pursuant to Code Section 734(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member’s Interest, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the item of Property) or loss (if the adjustment decreases such basis) from the disposition of such item of Property and shall be taken into account for purposes of computing Profits or Losses; and

(vii)Notwithstanding any other provision of this definition, any items that are specially allocated pursuant to Section 5.3 or Section 5.4 of this Agreement shall not be taken into account in computing Profits or Losses.

The amounts of the items of Company income, gain, loss, or deduction available to be specially allocated pursuant to Sections 5.3 and 5.4 of this Agreement shall be determined by applying rules analogous to those set forth in subparagraphs (i) through (vi) above.

“Project” or collectively “Projects” means the solar photovoltaic generation and/or energy storage systems as contemplated in the applicable Holding Company Operating Agreement.

“Project Company” means an entity that owns a Project.

“Property” means all real and personal property acquired by the Company, including both tangible and intangible property.

“Qualified Counsel” means a lawyer or law firm with a high reputation for ethics and competence, which lawyer (or one or more members of which firm) shall regularly engage in a practice that involves issues such as those raised by the requested opinion or advice.

“Regulations” means proposed, temporary, and final regulations promulgated under the Code in effect as of the date of filing the Certificate of Organization and the corresponding sections of any regulations subsequently issued that amend or supersede such regulations.

“Regulatory Allocations” means the allocations set forth in Section 5.3(a) through 5.3(g).

    “Related Person” means a “related person” (within the meaning of Section 267 or Section 707 of the Code) as to any purchaser of power generated by any Project owned or leased by a Holding Company.

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“Super-Majority Approval of Members” means the vote or approval by written consent of Members holding two-thirds (2/3) or more of outstanding Percentage Interests of the Company.

“Second Installment”, with respect to a Project, has the meaning set forth in the Operating Agreement or the Equity Capital Contribution Agreement of the Holding Company that has an ownership interest in said Project, as applicable.

“Second Installment Conditions Precedent” means, with respect to a Project, the conditions set forth in the Operating Agreement or the Equity Capital Contribution Agreement of the Holding Company that has an ownership or leasehold interest in said Project, as applicable.

“Third Installment”, with respect to a Project, has the meaning set forth in the Operating Agreement or the Equity Capital Contribution Agreement of the Holding Company that has an ownership interest in said Project, as applicable.

“Third Installment Conditions Precedent” means, with respect to a Project, the conditions set forth in the Operating Agreement or the Equity Capital Contribution Agreement of the Holding Company that has an ownership or leasehold interest in said Project, as applicable.

“Transfer” means any disposition or attempted disposition, directly or indirectly, by operation of law or otherwise, voluntarily or involuntarily, of all or a portion of an Interest, or any right, power, or interest therein, including any sale, gift, pledge, encumbrance, or creation of a security interest in any Interest.

“Unfunded Amount” has the meaning set forth in Section 4.7.

“Withdrawal Event” has the meaning set forth in Section 6.1(a).

ARTICLE II - ORGANIZATION

2.1Name. The name of the Company is “__________________”.

2.2Certificate of Organization. The Certificate of Organization of the Company was filed with the Nebraska Secretary of State on __________________, and is incorporated herein.

2.3Purpose. Under the Certificate of Organization, the Company is authorized to engage in all lawful businesses for which a limited liability company may be organized under the LLC Act and to have all of the rights and authority afforded to such limited liability companies. Notwithstanding the foregoing, the Company will exclusively engage in the following activities:

(a)Acquisition, holding, and, if appropriate, liquidation of tax equity investments in Projects through its ownership of one or more Holding Companies, which intend to acquire by ownership or leasehold interest, develop, maintain, and operate Projects; and,
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(b)Performing all acts necessary or convenient to effectuate the purpose of the Company as described in Section 2.3(a) and the purpose of the Holding Companies.

The purposes of the Company and the nature and character of its business shall not be amended or extended, by implication or otherwise, except with the Consent of the Members.

2.4Term. The period of duration of the Company shall be perpetual, unless sooner dissolved pursuant to the provisions of this Agreement or the LLC Act. The term of this Agreement shall commence on the date specified in the opening paragraph and shall terminate only upon the dissolution of the Company in accordance with this Agreement.

2.5Principal Office. The initial principal office of the Company shall be located at 121 South 13th Street, Suite 100, Lincoln, Nebraska 68508. The Manager may from time to time establish a different principal office for the Company.

2.6Agent for Service of Process. The Company’s initial agent for service of process and designated office within the State of Nebraska shall be C T Corporation System, 5601 South 59th Street, Lincoln, NE 68516. The Company shall ensure that its initial and any subsequent agent for service of process is instructed to provide copies of any notices received to the Manager.

ARTICLE III - MEMBERS

3.1Names. The name of the initial Member and the Percentage Interest issued to the initial Member is set forth on Exhibit A to this Agreement. Exhibit A may be amended from time to time as additional Members are added or changed.

3.2Limitation of Liability. No Member shall have any personal liability for any act, debt, or obligation of the Company, except to the arising from any fraud, gross negligence, or willful misconduct of a Member.

3.3Admission of Additional Members; Adjustments to Percentage Interests. New Members may be admitted to membership in the Company with the approval of the Manager and without the Consent of the Members being required therefor. A new Member must agree in writing to be bound by the terms of this Agreement (including any amendments required by the Members) as if such additional Member were an original party thereto. Assuming requisite authorization, a Person shall be deemed admitted as a Member of the Company upon execution of a Joinder Agreement substantially in the form attached hereto as Exhibit C. Upon admission, the new Member shall have all rights and duties of a Member of the Company, including the duty to contribute capital in accordance with Section 4.1 hereof. Notwithstanding the foregoing or anything in this Agreement to the contrary, the Capital Commitment of Nelnet Solar may fluctuate from time to time in accordance with the sizing and needs of the Holding Companies in which Company has acquired a membership interest, which may cause the corresponding Percentage Interests of the Members to fluctuate from time to time (up or down). The Manager shall amend Exhibit A from time to time to reflect any changes in the names, addresses, Capital Commitments, or Percentage Interests of the Members as contemplated by this Agreement. Any reference in this Agreement to the Members shall be deemed to be a reference to the Members listed on Exhibit A, as amended and in effect from time to time.
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3.4Representations, Warranties, and Covenants of Members. Each Member, for itself severally and not jointly, hereby represents and warrants to the Company and each other Member that the following statements are true and correct as of the Effective Date or such later date on which such Person becomes a Member, as applicable, and covenants to the Company and each other Member that the statements in Section 3.4 shall be true and correct at all times that such Member is a Member:

(a)such Member is duly incorporated, organized, or formed (as applicable), validly existing, and (if applicable) in good standing under the law of the jurisdiction of its incorporation, organization, or formation; if required by applicable law, such Member is duly qualified and in good standing in the jurisdiction of its principal place of business, if different from its jurisdiction of incorporation, organization, or formation; and such Member has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder, and all necessary actions by the board of directors, shareholders, managers, members, partners, trustees, beneficiaries, or other applicable Persons necessary for the due authorization, execution, delivery, and performance of this Agreement by such Member have been duly taken;

(b)such Member has duly executed and delivered this Agreement and it constitutes the legal, valid, and binding obligation of such Member enforceable against it in accordance with its terms (except as may be limited by bankruptcy, insolvency, or similar laws of general application and by the effect of general principles of equity, regardless of whether considered at law or in equity);

(c)such Member’s authorization, execution, delivery, and performance of this Agreement do not and will not (i) conflict with, or result in a breach, default, or violation of, (A) the organizational documents of such Member, (B) any contract or agreement to which such Member is a party or is otherwise subject, or (C) any law, order, judgment, decree, writ, injunction, or arbitral award to which such Member is subject; or (ii) require any consent, approval, or authorization from, filing or registration with, or notice to, any governmental authority or other Person, unless such requirement has already been satisfied; and

(d)such Member (or if such Member is a disregarded entity, the Person treated as owning the Member’s assets for federal income tax purposes) is not a Disqualified Person, such Member is a “United States person” within the meaning of Section 7701(a)(30) of the Code (or is an entity that is disregarded as separate from such a person for federal income tax purposes), such Member is not subject to withholding under Section 1446 of the Code, and such Member is not a Related Person.

3.5Nelnet Solar hereby represents and warrants as of the Effective Date, and each of its successors and assigns represents and warrants as of such later date on which such Person becomes a Member, that it is a wholly owned direct or indirect subsidiary of Nelnet, Inc., a Nebraska corporation, and Nelnet Solar (and each of its successors and assigns that is a Member) hereby covenants that it shall remain a wholly owned direct or indirect subsidiary of Nelnet, Inc. for so long as it is a Member of Company.
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3.6Each Member hereby agrees to indemnify and hold harmless Manager, Company, the other Members, and their respective affiliates and each of their, and their affiliates’, respective managers, officers, directors, members, employees, agents, and representatives from any and all Damages resulting to any of the foregoing persons from any breach of any representation, warranty, or covenant made by such indemnifying Member under this Article III.

ARTICLE IV - CAPITALIZATION

4.1Capital Contributions of Members. As of the date of a Member’s admission to the Company, the Member commits to make Capital Contributions to the Company in the aggregate amount set forth next to its name on Exhibit A (“Capital Commitment”), on the dates and pursuant to the terms and conditions set forth in this Agreement. In consideration of such Capital Commitment, the Member shall be issued Percentage Interests in the amount set forth next to its name on Exhibit A. A Member’s Capital Contributions shall be paid in cash and shall be paid in installments pursuant to capital calls from the Manager. It is anticipated that the Manager will issue capital calls requiring the Members to make Capital Contributions according to the following installment schedule and terms, though Manager reserves the discretion to issue capital calls at different times and on different terms as set forth in subparagraph (d) of this Section 4.1:

(a)First Installment. Subject to Section 4.1(d), it is anticipated that each Member will contribute 1% of the Member’s total Capital Commitment to the Company on or about the date of such Member’s admission to the Company.

(b)Subsequent Installments. Subsequent capital calls and Capital Contribution installments will typically occur on a Project-by-Project basis. Subject to Section 4.1(d), upon the satisfaction or waiver by the Company of the Second Installment Conditions Precedent with respect to a Project, or in expectation of the satisfaction of the Second Installment Conditions Precedent with respect to a Project, it is anticipated that each Member will contribute to the Company the Second Installment for such Project. Subject to Section 4.1(d), upon the satisfaction or waiver by the Company of the Third Installment Conditions Precedent with respect to a Project, or in expectation of the satisfaction of the Third Installment Conditions Precedent with respect to a Project, it is anticipated that each Member will contribute to the Company the Third Installment for such Project. Capital calls will be made at the times and in the amounts necessary to make Capital Contributions to Holding Companies, including when and as necessary to ensure Company has at least a 20% interest in a Project at or around the time such Project reaches mechanical completion.

(c)Installment Groupings. In the event a group of Projects are expected to satisfy installment conditions precedent within a reasonable timeframe of each other, Manager will have the discretion to combine Capital Contributions for individual Projects into one Capital Contribution for all the Projects that are expected to satisfy the installment conditions precedent at that time. For the avoidance of doubt, the Manager’s discretion to combine Capital Contributions for Projects expected to satisfy installment conditions within a reasonable timeframe of each other shall not be limited to Projects within a particular Holding Company but shall instead include all Projects across all Holding Companies. For illustration purposes, if a Project in Holding Company A is expected to satisfy Second Installment Conditions Precedent at
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the same time that a Project in Holding Company B is expected to satisfy Third Installment Conditions Precedent, then the Manager may group those two Projects and issue a capital call that encompasses the Second Installment for the Project in Holding Company A as well as the Third Installment for the Project in Holding Company B.

(d)Reservation of Discretion. Notwithstanding anything herein to the contrary, the Manager reserves the right to issue capital calls and to require Members to make Capital Contributions in the amounts and on the dates and terms that it deems to be in the best interests of the Company and the Members; provided, however, that in no event shall any Member be required to contribute capital to the Company beyond the aggregate Capital Commitment specified for such Member on Exhibit A. While Manager anticipates making capital calls to Members in accordance with the installment schedule and terms set forth in subparagraphs (a) through (c) of this Section 4.1, Manager reserves the right to deviate from these terms in its reasonable discretion, based on an assessment of interests that include, but are not limited to, maximizing the efficient use of cash flow, ensuring the sufficiency of Members’ Capital Accounts, preserving Members’ tax basis and ability to utilize solar investment tax credits, preserving the investment structure necessary to effectuate the purpose of the Company and Holding Company, facilitating the pragmatic management of cash flow to ensure timely contributions from the Company to Holding Company, and any other interests the Manager deems advisable or necessary.

4.2Capital Contributions by Manager. The Manager shall not be required to make any Capital Contributions to the Company.

4.3Interest on Capital Contributions. Members shall not be entitled to interest on or with respect to their Capital Contributions.

4.4Return of Capital Contributions. No Member shall have the right to receive any return of the Member’s Capital Contributions.

4.5Loans by Members. No Member shall lend money to the Company except with the Consent of the Members and on terms and conditions agreed to by the Members. No loan shall constitute a Capital Contribution or an increase in any Member’s Capital Account.

4.6Capital Accounts. A separate Capital Account shall be maintained for each Member. Each Member’s Capital Account shall be credited with the Member’s Capital Contributions and such Member’s distributive share of the Company’s Profits. Each Member’s Capital Account shall be debited by the amount of money and the fair market value of any assets distributed to the Member and such Member’s distributive share of Company Losses. In all events, each Member’s Capital Account shall be maintained in compliance with the provisions of Treasury Regulation Sections 1.704-1(b) and 1.704-2, and all provisions of this Agreement relating to the maintenance of capital accounts shall be interpreted and applied in a manner consistent with such Treasury Regulation and other applicable Treasury Regulations adopted from time to time.
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4.7Failure to Make Capital Contributions. If a Member fails or refuses to contribute all or any portion of its Capital Commitment called for by the Manager in accordance with this Agreement within seven (7) days after the request therefor, the Company, at the discretion of the Manager, shall have the right to declare that interest shall accrue daily on such outstanding unpaid Capital Contribution (“Unfunded Amount”) at a rate per annum equal to the lesser of (i) [***] percent ([***]%) or (ii) the maximum interest that may be charged by the Company under applicable law (“Default Rate”), from and including the date the Unfunded Amount was due until the date the Unfunded Amount is actually contributed to the Company.

(a)Second Installment Defaults. If the Capital Contribution default relates to a Second Installment for a Project, and the defaulting Member has not cured the contribution default within ten (10) days after the request therefor, Nelnet Solar shall have the right to cure the default by contributing the Unfunded Amount to the Company. If Nelnet Solar contributes the Unfunded Amount to the Company, it shall be entitled to the Economic Interest associated with the Unfunded Amount, with such transfer of Economic Interest effective as of the making of the applicable Second Installment; provided, however, that no transfer of Economic Interest may occur unless, in the opinion of Qualified Counsel reasonably satisfactory to Manager, such transfer should not have an adverse effect on any tax credits or other tax benefits received or expected to be received by the Members (including any recapture of any tax benefits).

(b)Third Installment Defaults. If the Capital Contribution default relates to a Third Installment for a Project, and the defaulting Member has not cured the contribution default within fifteen (15) days after the request therefor, Nelnet Solar shall have the right to cure the default by contributing the Unfunded Amount to the Company. If Nelnet Solar contributes the Unfunded Amount to the Company, it shall be entitled to: (i) the Economic Interest associated with the Unfunded Amount (with such transfer of Economic Interest effective as of the placed in service date associated with such Third Installment); and (ii) from the defaulting Member, compensatory damages equal to [***] percent ([***]%) of the Unfunded Amount, which damages shall be payable on an After-Tax Basis and shall become due and payable on the one-year anniversary of the date the Unfunded Amount was due (such date the “Capital Call Anniversary” and such damages “Compensatory Damages”); provided, however, that no transfer of Economic Interest may occur unless, in the opinion of Qualified Counsel reasonably satisfactory to Manager, such transfer should not have an adverse effect on any tax credits or other tax benefits received or expected to be received by the Members (including any recapture of any tax benefits); provided further that if in the foregoing situation Qualified Counsel concludes that a transfer of Economic Interest should not or cannot occur, the amount of Compensatory Damages to which Nelnet Solar shall be entitled shall be equal to [***] percent ([***]%) of the Unfunded Amount, which damages shall be payable on an After-Tax Basis and shall become due and payable on the Capital Call Anniversary. For the avoidance of doubt, (A) if Nelnet Solar makes an election to cure in accordance with this Section 4.7(b) at a hypothetical Unfunded Amount of $[***], and if a transfer of Economic Interest occurs in accordance with this Section 4.7(b), then the defaulting Member will owe $[***], on an After-Tax Basis, to Nelnet Solar as of the Capital Call Anniversary; and (B) if non-defaulting Member makes an election to cure in accordance with this Section 4.7(b) at a hypothetical Unfunded Amount of $[***], and if a transfer of Economic Interest does not occur as a result of the limitations imposed by this Section 4.7(b), then the defaulting Member will owe $[***], on an After-Tax Basis, to Nelnet Solar as of the Capital Call Anniversary.

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(c)Defaults Generally. In addition to and without limiting the generality or application of any of the foregoing, in the event a defaulting Member has not, in the case of a Third Installment Capital Contribution default, cured the default within fifteen (15) days after the request therefor, or, in the case of any other type of contribution default, cured the default within ten (10) days after the request therefor, the defaulting Member agrees to pay the Manager liquidated damages equal to [***]% of the Unfunded Amount. Furthermore, the Company may, at the discretion of the Manager, take any or all of the following actions in connection with any contribution default:

(i)Institute legal proceedings against the defaulting Member to obtain payment of the Unfunded Amount, together with interest thereon, at the cost and expense of the defaulting Member;
(ii)Cause any distributions otherwise payable to the defaulting Member under this Agreement to be set off or withheld from such defaulting Member;
(iii)Suspend all voting rights, rights to distributions, and, to the fullest extent permitted by law, other rights provided to the defaulting Member under this Agreement;
(iv)Reduce the Capital Commitment of the defaulting Member or reduce the Economic Interest of the defaulting Member in the applicable Holding Company or Project Company (with such reduction effective as of (i) with respect to a default associated with a Second Installment, the making of the Second Installment, and (ii) with respect to a default associated with a Third Installment, the placed in service date associated with such Third Installment);
(v)In the event Nelnet Solar cures the contribution default in accordance with this Section 4.7, increase the Capital Commitment of Nelnet Solar or increase the Economic Interest of Nelnet Solar in the applicable Holding Company or Project Company (with such increases effective as of (i) with respect to a default associated with a Second Installment, the making of the Second Installment, and (ii) with respect to a default associated with a Third Installment, the placed in service date associated with such Third Installment); and
(vi)Take any other action or avail itself of any other remedies that may be available at law or equity.

Each Member acknowledges and agrees that it would be impracticable or extremely difficult to determine the actual damages incurred by a non-defaulting Member as a result of a failure of a Member to fund all or part of its Capital Commitment, and that the entitlement of the Company to exercise the remedies described in this Section 4.7 is fair and reasonable. Manager’s “discretion” as used in this Section 4.7 shall be guided by consideration of factors such as the materiality of any adverse effect of a contribution default on the operation of Company or any Holding Company, unforeseen dynamics at the Project level, recalibration of interests to reflect paid-in Capital Contributions, and preservation of tax and economic benefits associated with Company’s investments.

ARTICLE V - ALLOCATIONS AND DISTRIBUTIONS
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5.1Allocation of Profits. Subject to Section 4.7, after giving effect to the special allocations set forth in Sections 5.3 and 5.4, Profits for any Allocation Year shall be allocated to the Members in proportion to their Percentage Interests.

5.2Allocation of Losses. Subject to Section 4.7, after giving effect to the special allocations set forth in Sections 5.3 and 5.4, Losses for any Allocation Year shall be allocated to the Members in proportion to their Percentage Interests, except as provided in Section 5.5.

5.3Special “Regulatory” Allocations. The following Regulatory Allocations shall be made in the following order:

(a)Company Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.704-2(f), notwithstanding any other provision of this Article V, if there is a net decrease in Company Minimum Gain (determined according to Regulations Section 1.704-2(d)(1)) during any Allocation Year, each Member shall be specially allocated items of Company income and gain for such Allocation Year (and, if necessary, subsequent Allocation Years) in an amount equal to such Member’s share of the net decrease in Company Minimum Gain, determined in accordance with Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 5.3(a) is intended to comply with the “minimum gain chargeback” requirement in Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.

(b)Member Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.704-2(i)(4), notwithstanding any other provision of this Article V, if there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt during any Allocation Year, each Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be specially allocated items of Company income and gain for such Allocation Year (and, if necessary, subsequent Allocation Years) in an amount equal to such Member’s share of the net decrease in Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 5.3(b) is intended to comply with the minimum gain chargeback requirement in Regulations Section 1.704-2(i)(4) and shall be interpreted consistently therewith.

(c)Qualified Income Offset. In the event that any Member unexpectedly receives any adjustments, allocations, or distributions described in Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Company income and gain shall be allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of such Member created by such adjustments, allocations, or distributions as quickly as possible, provided that an allocation pursuant to this Section 5.3(c) shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article V have been tentatively made as if this Section 5.3(c) were not in this Agreement.
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(d)Gross Income Allocation. In the event that any Member has a deficit Capital Account at the end of any Allocation Year that is in excess of the sum of (i) the amount such Member is obligated to restore pursuant to any provision of this Agreement, and (ii) the amount such Member is deemed to be obligated to restore pursuant to the penultimate sentences of Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Member shall be allocated items of Company income and gain in the amount of such excess as quickly as possible; provided that an allocation pursuant to this Section 5.3(d) shall be made only if and to the extent that such Member would have a deficit Capital Account in excess of such sum after all other allocations provided for in this Article V have been tentatively made as if Section 5.3(c) and this Section 5.3(d) were not in this Agreement.

(e)Nonrecourse Deductions. Nonrecourse Deductions for any Allocation Year shall be specially allocated among the Members in proportion to their Percentage Interests.

(f)Member Nonrecourse Deductions. Any Member Nonrecourse Deductions for any Allocation Year shall be specially allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Regulations Section 1.704-2(i)(1).

(g)Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or Section 743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Member in complete liquidation of such Member’s Interest in the Company, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Members in accordance with their Interests in the Company in the event Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member to whom such distribution was made in the event Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.

5.4Curative Allocations. The Regulatory Allocations set forth in Sections 5.3(a)-(g) are intended to comply with certain requirements of the Regulations. It is the intent of the Members that, to the extent possible, the Regulatory Allocations shall be offset either with special allocations of other items of Company income, gain, loss, or deduction pursuant to this Section 5.4. Therefore, notwithstanding any other provision of this Article V (other than the Regulatory Allocations), the Members shall make such offsetting special allocations of Company income, gain, loss, or deduction in whatever manner the Members determine appropriate so that, after such offsetting allocations are made, each Member’s Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of this Agreement and all Company items were allocated pursuant to Sections 5.1, 5.2, and 5.3 (other than the Regulatory Allocations). In exercising its discretion under this Section 5.4, each of the Members shall take into account future Regulatory Allocations under Sections 5.3(a) and 5.3(b) that, although not yet made, are likely to offset other Regulatory Allocations previously made under Sections 5.3(e) and 5.3(f).
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5.5Loss Limitation. Losses allocated pursuant to Section 5.2 hereof shall not exceed the maximum amount of Losses that can be allocated without causing any Member to have an Adjusted Capital Account Deficit at the end of any Allocation Year. In the event some but not all of the Members would have Adjusted Capital Account Deficits as a consequence of an allocation of Losses pursuant to Section 5.2 hereof, the limitation set forth in this Section 5.5 shall be applied on a Member-by-Member basis, and Losses not allocable to any Member as a result of such limitation shall be allocated to the other Members in accordance with the positive balances in such Member’s Capital Accounts so as to allocate the maximum permissible Losses to each Member under Regulations Section 1.704-1(b)(2)(ii)(d).

5.6Other Allocation Rules.

(a)For purposes of determining the Profits, Losses, or any other items allocable to any period, Profits, Losses, and any such other items shall be determined on a daily, monthly, or other basis, as determined by the Members using any permissible method under Code Section 706 and the Regulations thereunder.

(b)The Members are aware of the income tax consequences of the allocations made pursuant to this Article V, and hereby agree to be bound by the provisions of this Article V in reporting their shares of Company income and loss for income tax purposes, except as otherwise required by law.

5.7Tax Allocations: Code Section 704(c).

(a)Except as otherwise provided in this Section 5.7, each item of income, gain, loss, and deduction of the Company for federal income tax purposes shall be allocated among the Members in the same manner as such items are allocated for book purposes under this Article V.

(b)In accordance with Code Section 704(c) and the Regulations thereunder, income, gain, loss, and deduction with respect to any Property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such Property to the Company for federal income tax purposes and its initial Gross Asset Value using the “remedial method” pursuant to the Regulations under Code Section 704(c).

(c)In the event the Gross Asset Value of any Company asset is adjusted pursuant to subparagraph (ii) of the definition of “Gross Asset Value,” subsequent allocations of income, gain, loss, and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Regulations thereunder.

(d)Any elections or other decisions relating to such allocations shall be made by the Manager in any manner that reasonably reflects the purpose and intention of this Agreement, provided that any items of loss or deduction attributable to Property contributed by a Member shall, to the extent of an amount equal to the excess of (1) the federal income tax basis of such Property at the time of its contribution over (2) the Gross Asset Value of such Property at such time, be allocated in its entirety to the such contributing Member and the tax basis of such
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Property for purposes of computing the amounts of all items allocated to any other Member (including a transferee of the contributing Member) shall be equal to its Gross Asset Value upon its contribution to the Company.

(e)Allocations pursuant to this Section 5.7 are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Member’s Capital Account or share of Profits, Losses, other items, or distributions pursuant to any provision of this Agreement.

5.8Distributions. Except as provided in Sections 4.7 and 5.9, and except for distributions made in connection with the dissolution of the Company and the distribution of its assets pursuant to Article IX below, all distributions of cash or other Property shall be made to the Members in proportion to their Percentage Interests and otherwise at such times and in such amounts as may be determined from time to time by the Manager. It is expected that Manager shall, with respect to each fiscal year of the Company, cause the Company to make pro rata distributions to the Members in amounts sufficient to satisfy the tax liabilities of such Members; provided, however, that tax distributions shall not be made to the extent such distributions would constitute a violation of law or to the extent cash is unavailable. It is also expected that, in the event Company receives payment related to a Project’s exclusion from the portfolio of a Holding Company, Company will distribute to Members the proceeds of such exclusion payment. Finally, it is expected that, upon liquidation of each Holding Company, Company will distribute to Members the proceeds of such liquidation; provided, however, that proceeds may be withheld to satisfy any contingent liabilities of the Company or obligation to fund the Performance Fee.

5.9Limitation upon Distributions. Anything herein to the contrary notwithstanding, no distribution shall be declared and paid unless, after the distribution is made, the assets of the Company are in excess of all liabilities of the Company, except liabilities to Members on account of their Capital Contributions.

ARTICLE VI - MANAGEMENT OF THE COMPANY

6.1Rights, Duties and Powers of the Manager.

(a)Authority of Manager. The Company shall be manager-managed. Subject to the limitations of that certain management agreement between Manager and Company and Section 2.3 of this Agreement, and except as otherwise provided in this Agreement and under the LLC Act, the Manager shall have full power and authority to execute, deliver, and perform such contracts, agreements and other undertakings and to engage in all activities and transactions, as it may deem necessary or advisable for, or as may be incidental to, the conduct of the business contemplated by this Section 6.1, including, without in any manner limiting the generality of the foregoing, entering into contracts, agreements, undertaking, and transactions with any Member or with any other Person having any business, financial, or other relationship with any Member or Members. To the fullest extent permitted by law, the Manager shall have full and complete authority, power, and discretion (i) to manage and control the business, affairs, and properties of the Company, (ii) to make all decisions regarding those matters, and (iii) to perform any and all other acts or activities customary or incident to the management of the Company’s business, including but not limited to (A) negotiating and executing tax equity investment documents (including the Holding Company Operating Agreement); (B) making capital calls and distributions as contemplated by this Agreement; (C) taking any action required or permitted by the Holding Company Operating Agreement, including advancing Company Capital Contributions; (D) amending or granting a waiver under any contracts or agreements to which
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Company is a party; (E) negotiating and executing contracts for services with attorneys and other advisors; (F) negotiating documents effectuating Company’s sale of its membership interest in a Holding Company; (G) preparing the Company’s tax returns and implementing the Company’s tax policies, tax elections, and other related activities; (H) maintaining Company bank accounts and books and records; (I) authorizing the sale, lease, or otherwise disposing of all or substantially all the Company’s assets; (J) approving a merger, conversion, or domestication of the Company; and (K) undertaking any other act, whether inside or outside the ordinary course of the Company’s activities.

(b)The Manager may delegate powers and duties to officers and agents, in each case without releasing the Manager from its responsibilities hereunder or under that certain management agreement between the Manager and Company. The Manager may appoint a President of the Company, a Secretary, one or more Vice Presidents, a Treasurer, and assistant officers to hold office for such period and with such authority as the Manager may determine. Any officer or agent of the Company may be removed, with or without cause, by the Manager.

(c)Subject to the terms of this Agreement, the Manager shall have complete and exclusive power and responsibility, to the fullest extent permitted by law, (i) for all investment and investment management decisions to be undertaken on behalf of the Company, and (ii) for managing and administering the affairs of the Company. Unless otherwise specified, the Manager shall have the power and authority to do all things which the Manager considers necessary or desirable to carry out its duties hereunder and to achieve the purposes of the Company.

(d)Every power vested in the Manager pursuant to this Agreement shall be construed as a power to act in its sole and absolute discretion, except as otherwise expressly provided herein. No provision of this Agreement shall be construed to require the Manager to violate the LLC Act or any other law, regulation, or rule of any self-regulatory organization.

6.2Compensation of Manager.     Manager shall receive a Management Fee equal to [***]% of the aggregate Capital Contributions of the Members (net of such Management Fee). Such Management Fee shall be payable as a portion of each and every respective and successive Capital Contribution installment, irrespective of the date on which such Capital Contribution installment is made. Generally, Manager will receive [***]% of the proceeds from each capital call or Capital Contribution installment contributed to Company (net of Management Fee). Additionally, at the time of liquidation of the Company, Manager shall be entitled to receive a one-time Performance Fee equal to an amount not to exceed [***]% of the aggregate Capital Contributions of Members (net of Management Fee), with the precise amount to be determined based on Company ROI at the time of liquidation. Manager shall be entitled to receive a Performance Fee of [***]% of the aggregate Capital Contributions of Members if, after payment of such Performance Fee, Company ROI is at least [***]%. If payment of such a Performance Fee would result in Company ROI dropping below [***]%, then the Performance Fee shall be proportionately reduced such that Company ROI after payment of the Performance Fee is equal to at least [***]%. If Company ROI prior to payment of the Performance Fee is below [***]%, then Manager shall not be entitled to a Performance Fee. The Management Fee and Performance Fee calculations are included in Exhibit B. Notwithstanding anything herein to the contrary, if, at the time of liquidation of the Company, Company lacks sufficient funds to pay Manager the Performance Fee due hereunder as a result of prior distributions to Members, the Manager shall be permitted to issue a capital call to Members to fund any such shortfall.

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6.3Limitation of Liability. No Manager shall have any personal liability to any third party for any act, debt, or obligation of the Company solely by reason of being a manager of the Company, except to the extent arising from any material breach by a Manager of this Agreement or any fraud, gross negligence, or willful misconduct of a Manager. Under no circumstances will the liability of Manager exceed, in the aggregate, the fees actually paid to Manager hereunder or under the management agreement between Manager and Company. Any liability or recovery from Manager under this Agreement shall be limited to actual damages, and no special, consequential, indirect, or punitive damages shall be allowed.

6.4Admission of Additional Manager; Withdrawal of Manager.

(a)The Manager may admit one or more additional managers to the Company with the Consent of Members, which may be natural persons, partnerships, companies (including limited liability companies), or other persons. No additional manager shall be added unless such additional Manager agrees to be bound by all of the terms of this Agreement. Additional managers shall not be entitled to compensation from the Company for their services as managers to the Company.

(b)The Manager may appoint a successor manager with the Consent of the Members.

(c)The Manager (and/or any successor or additional manager) may withdraw as Manager of the Company, provided that if there is no successor manager at the time of such withdrawal, the Manager’s withdrawal shall not be effective until a successor manager is approved by a Super-Majority Approval of Members.

6.5Rights of Members. The Members shall take no part in the management, control, or operation of the Company’s business and shall have no right or authority to act for the Company or to vote on matters other than as set forth in this Agreement or as required by applicable law. Except as otherwise provided herein or required by law, a Member shall have no liability for the debts or obligations of the Company.

6.6Actions by Members.

(a)Annual Meetings. The Company will not hold an annual meeting of the Members.
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(b)Special Meetings. The Manager may at any time call a meeting of the Members or call for a vote without a meeting of the Members on matters on which they are entitled to vote. The Manager shall set a record date for any such meeting or vote. Any Company meeting or the date upon which such votes, without a meeting, will be counted shall be no less than five (5) nor more than ninety (90) days following the record date. All expenses of the voting and such notification shall be borne by the Company.

(c)Quorum. A quorum for the transaction of business at any meeting of the Members shall consist of Members holding at least a majority of outstanding Percentage Interests of the Company. Members may participate in any meeting of the Members through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear one another.

(d)Voting Requirements. Except as provided elsewhere in this Agreement or the Certificate of Organization, or required by the LLC Act, the Members shall have voting rights in proportion to their Percentage Interests. Except as expressly stated otherwise in this Agreement, the vote of the Members holding a majority of outstanding Percentage Interests of the Company shall be the act of the Members.

(e)Action by Written Consent. Any action required or permitted to be taken at any meeting of Members may be taken without a meeting pursuant to a written consent which sets forth the action and is signed by Members holding outstanding Percentage Interests whose consent would be sufficient to approve such action at a meeting of Members. All such written consents shall be filed with the records of the Company.

(f)Member Not Agent. No Member shall be considered an agent of the Company solely by virtue of being a Member, and Members shall have no authority to act for or to bind the Company solely by virtue of their being Members of the Company.

6.7[Reserved]

6.8[Reserved]

6.9Specific Authorizations.

(a)Authorization of Officers or Agents. The Manager may authorize any officer or agent to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Company. Such authority may be general or confined to specific instances.

(b)Authority to Borrow Money or Issue Evidence of Indebtedness. No loans shall be contracted on behalf of the Company and no evidences of indebtedness shall be issued in its name unless authorized by the Manager. Such authority may be general or confined to specific instances.

(c)Authority to Sign Checks. The Manager shall have the authority to designate which officers and agents of the Company shall have the authority to sign checks, drafts, or other
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orders for the payment of money and notes or other evidences of indebtedness issued in the name of the Company.

6.10Duty of Loyalty. The Manager hereby covenants and agrees to:

(a)Account to the Company and hold as trustee for the Company any assets, profit, or benefit derived by such Manager (i) in the conduct or winding up of the Company’s activities, (ii) from a use of the Company’s assets, or (iii) from the appropriation of a limited liability company opportunity;

(b)Refrain from dealing with the Company in the conduct or winding up of the Company’s activities as or on behalf of a Person having an interest adverse to the Company, unless such transaction is fair to the Company; and

(c)Subject to Section 6.16 of this Agreement, it is expressly acknowledged and agreed that Manager may, in its discretion, directly or indirectly own, operate, manage, control, or provide services in competition with Company without consent of any Member.

6.11Duty of Care.

(a)Whenever in this Agreement the Manager is permitted or required to make a decision (a) in its “discretion,” “sole and absolute discretion”, or under a grant of similar latitude, such Manager shall be entitled to consider such interests and factors as it desires, including its own interests (and those of its Affiliates), and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Company, any of its subsidiaries, or any other person, or (b) in its “good faith,” “reasonable discretion”, or under another express standard, such Manager shall act under such express standard and shall not be subject to any other standard of care imposed by applicable law or otherwise; provided, however, that nothing in this Agreement shall be deemed to eliminate or reduce any obligations of the Manager with respect to the implied covenant of good faith and fair dealing to the extent applicable.

(b)In discharging the duty of care set forth in this Section, a Manager may rely in good faith upon opinions, reports, statements, or other information provided by another Person that the Manager reasonably believes is a competent and reliable source for the information.

6.12Good Faith and Fair Dealing. The Members and Manager shall discharge any applicable duties set forth in this Agreement and exercise any rights consistently with the contractual obligation of good faith and fair dealing.

6.13Duty of Confidentiality.

(a)General Rule. In the absence of a final order to the contrary by a court or other governmental authority of competent jurisdiction or an arbitrator, Manager and each Member shall maintain in confidence all information relating to the Company and all Company books and records and Company information that is reasonably identified as confidential or that the
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Manager or Member knows or reasonably should know requires confidentiality in the Company’s best interest.

(b)Exceptions. A Manager or Member may copy and use the above information and, under appropriate conditions of confidentiality, may disclose it to the extent necessary or appropriate for the performance of the Manager’s or Member’s duties under this Agreement, and a Member may disclose such information to the extent required by applicable law. Moreover, (i) a Member may disclose the above information to its counsel and public accountants, provided that, prior to sharing confidential information with such representatives, the Member shall advise such representatives of the obligations of this Section 6.13, and the Member shall be liable for any breach of this Section 6.13 by its representatives; (ii) a Member may use, retain, and disclose any such information that (A) has been publicly disclosed (other than by such Member in breach of this Section 6.13), (B) has rightfully come into the possession of such Member or any affiliate thereof from a source other than the Company, Manager, or their affiliates without any duty of confidentiality, (C) was already in the possession of or available to such Member or any of its affiliates (without any duty of confidentiality) prior to receiving such information from the Company, Manager, or their affiliates, or (D) is independently developed by such Member or its affiliates without reference to confidential information of the Company; (iii) to the extent that any such Member or any of its respective affiliates has received a subpoena, interrogatory, request for information or documents, civil investigative demand, or other written demand under color of legal right for such information, such Member may disclose such information, provided, however, that such Member shall provide prompt notice of such order or written demand to Manager, if permitted by law, to enable Manager, at Company’s expense, to seek a protective order or otherwise prevent or restrict such disclosure; (iv) any such Member may disclose such information to its actual or potential lenders, investors, purchasers, or other persons directly or indirectly providing, or proposing to provide, financing to, purchases of, or investments in, such Member or any of its affiliates, so long as such persons are subject to confidentiality restrictions similar to those contained in this Section 6.13; (v) any such Member or affiliate thereof may disclose such information to any governmental authority with jurisdiction for taxes to the extent required or requested in connection with an audit, inquiry, examination, or claim for refund involving such Member’s interest in the Company or any subsequent administrative or judicial proceeding; (vi) any such Member may disclose such information as may in its judgment be required under or necessary to comply with any federal, state, or foreign securities laws or regulations, including any disclosure rules or regulations applicable to an offering of securities, provided that such Member, if permitted by law, shall notify Manager of any such disclosures prior to making such disclosures; and (vii) any such Member (and any representatives or advisors of such Member) may disclose to any and all Persons the tax treatment and tax structure of the transactions contemplated hereby and all materials (including opinions or other tax analysis) related to such tax treatment and tax structure, provided, however, that any such tax information is required to be kept confidential to the extent necessary to comply with any applicable securities laws (this provision is intended to cause the transactions contemplated hereby not to be treated as having been offered under conditions of confidentiality for purposes of Treasury Regulations Sections 1.6011-4(b)(3) and 301.6111-2(a)(2)(ii) (or any successor provision) and shall be construed in a manner consistent with such purpose). Additionally, notwithstanding anything herein to the contrary, the Manager or an Affiliate thereof may disclose aggregate
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information about the Company and its investments for marketing purposes, including information about aggregate Capital Commitments, Project sizes and locations, and environmental impact; provided, however, that neither Manager nor its Affiliate shall disclose a Member’s involvement in the Company or a Member’s individual Capital Commitment without such Member’s consent.

(c)Binding Effect of This Section; Termination of Binding Effect. This Section shall bind each Manager and Member while a Manager or Member and permanently thereafter except with respect to information that becomes publicly known through no fault of the Manager or Member.

6.14Authorization or Ratification of Certain Acts. All of the Members may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that would otherwise violate the duty of loyalty set forth in Section 6.10.

6.15Limitation of Fiduciary Duties. No Manager or Member shall be subject to any fiduciary duties or to personal liability for breaches of any fiduciary duties except for those fiduciary duties expressly set forth in this Agreement. Any fiduciary duties not expressly provided for in this Agreement are hereby waived. A Member does not have any fiduciary duty to the Company or to any other Member solely by reason of being a Member. The Members acknowledge and consent to any affiliation of ownership between and among certain Members of the Company and waive any objection as to conflict of interest or breach of fiduciary duty with respect thereto.

6.16Exculpation and Indemnification.    No Member, Manager, or officer of the Company shall be liable to the Company or to any other Member for any action taken or omitted to be taken with respect to the Company within the scope of such Member, Manager, or officer’s authority conferred by, and in accordance with, this Agreement, except to the extent any such act or omission was (i) attributable to the willful misconduct or fraud of such Member, Manager, or Officer, (ii) a violation of the express terms of this Agreement by such Member, Manager, or Officer, or (iii) otherwise the source of an indemnification obligation on the part of the applicable Member, Manager, or officer.

Notwithstanding any provision in this Agreement to the contrary, any duties (including fiduciary duties) of the Manager, or its members, officers, employees, and agents, or of any Affiliate of the Manager, to the Company or to a Member arising from acts or omissions alleged to breach a fiduciary duty for actions taken for the purpose of benefiting a Member, as opposed to the Company, and that would otherwise apply at law or in equity in such case are hereby eliminated to the fullest extent permitted by applicable law. The foregoing shall not be deemed to eliminate (i) the obligation of the Manager to act in compliance with the express terms of this Agreement or (ii) the implied contractual covenant of good and fair dealing to the extent applicable.

6.17    Removal of Manager. The Manager of the Company may be removed, immediately following which any management agreement with the Manager shall automatically terminate, by Super-Majority Approval of the Members (excluding the vote or approval, as well as Percentage Interests for purposes of calculating outstanding Percentage Interests, of any Members that are Affiliates of Manager) only in the event of (i) a material breach by the Manager of this Agreement or the applicable management agreement, which breach shall continue uncured for thirty (30) days after the giving of written notice thereof to such Manager specifying the source and nature of such breach, (ii) gross negligence, willful misconduct, or fraud on the part of the Manager, or (iii) Bankruptcy of the Manager.
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ARTICLE VII - FINANCIAL MATTERS

7.1Annual Accounting Period. The Company’s annual accounting period for financial and tax purposes shall be the calendar year.

7.2Deposits. All funds of the Company not otherwise employed shall be deposited from time to time to the credit of the Company in banks, trust companies, or other depositories selected by the Manager.

7.3Books and Records. The Manager shall cause to be kept complete and accurate books and records with respect to the conduct of the Company’s business. These books and records shall be maintained in accordance with sound accounting practices and shall be available at the Company’s principal office for examination by any Member, or a Member’s duly authorized representatives, during normal business hours.

7.4Financial Records. Within one hundred eighty (180) days after the end of each fiscal year, the Manager shall cause to be prepared the annual financial statements for the Company, including a balance sheet and a profit and loss statement, using generally accepted accounting principles applied in a consistent manner, and all information concerning the Company that is needed for the Company and the Members to timely prepare their local, state, and federal tax returns. Within forty (40) days after the end of each fiscal quarter (March, June, September, and December), the Manager shall cause to be prepared the quarterly financial statements for the Company, including a balance sheet and a profit and loss statement, using generally accepted accounting principles applied in a consistent manner.

7.5Tax Elections; Partnership Representative. For all federal income tax purposes, the Company shall be classified as a partnership subject to Subchapter K of the Code, and the regulations promulgated thereunder, and its profits and losses shall be deemed to be exclusively those of its Members. All tax elections shall be made by the Manager. Unless the Manager designates another person, Nelnet Solar shall serve as the “partnership representative” as such term is defined in Section 6223(a) of the Code and the regulations promulgated thereunder. The “partnership representative” shall reasonably communicate with the Manager before taking any action as the “partnership representative” and, to the extent permitted by law, shall act in the best interests of all Members. This Agreement shall be construed and applied so as to ensure full compliance with the provisions of Subchapter K of the Code and the regulations promulgated thereunder as in effect from time to time.

7.6Tax Returns. The Manager shall, on behalf of and in the name of the Company, prepare, or cause to be prepared, and timely file Company’s federal, state, and local tax returns (including Internal Revenue Service Forms K-1 to be issued to the Members).

ARTICLE VIII - TRANSFERS OF MEMBERSHIP INTERESTS

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8.1Restrictions on Transfer. A Member may not Transfer all or any portion of such Member’s Interest in the Company except as explicitly permitted by this Agreement and applicable law, including applicable securities laws (pursuant to registration or exemptions therefrom). Any Transfer in violation of this Agreement shall be null and void and the Company shall not recognize it.

8.2Transfers of Interests of Members. The following Transfers shall not constitute a violation of this Agreement:

(a)A Transfer by a Member to an Affiliate of that Member;

(b)A Transfer by a Member to a lineal descendant, ancestor, or spouse, to a custodianship under the Uniform Transfers to Minors Act for a lineal descendant, ancestor, Member, or spouse, or to a trust for the exclusive benefit of one or more lineal descendants, ancestors, Members, or spouses;

(c)Upon or after the death of a Member, a Transfer from such Member to the personal representative of such Member’s estate or to the nominee of such personal representative;

(d)After the death of a Member, a Transfer from such Member’s estate to a lineal descendant, ancestor, Member, or spouse, to a custodianship under the Uniform Transfers to Minors Act for a lineal descendant, ancestor, Member, or spouse, or to a trust for the exclusive benefit of one or more lineal descendants, ancestors, Members, or spouses; or

(e)A Transfer from a custodianship or trust which is a permitted transferee under subparagraph (a) or (c) above to a beneficiary of such custodianship or trust who is a lineal descendant, ancestor, Member, or spouse at the time of the Transfer or the grantor of such trust.

Before any Transfer permitted under subparagraphs (a) through (e) above shall be effected, the transferee, if not already a party to this Agreement, shall have executed and delivered to the Company the Joinder Agreement attached hereto as Exhibit C, effective upon the transferee’s acquisition of the transferred interest in the Company, and shall have made all representations, warranties, and covenants set forth in Section 3.4 of this Agreement. Upon compliance with the provisions of this Section 8.2, a permitted transferee shall become a Member of the Company.

8.3Manager Consent Required. Except as set forth in Section 8.2 of this Agreement, a Member may not Transfer all or any portion of such Member’s Interest in the Company to another Person except with the prior written consent of Manager; provided, however, that Nelnet Solar may not Transfer all or any portion of its Interest in the Company to a Person other than an Affiliate of Nelnet Solar except with the Consent of the Members. Notwithstanding anything in this Agreement to the contrary, (a) Manager may, at its discretion, require as a condition to the Transfer of an Interest or Economic Interest an opinion of Qualified Counsel addressed to the Members that such Transfer should not have an adverse effect on the tax benefits received or expected to be received by any Member, and (b) no Transfer of an Interest or portion thereof shall effect a release of the transferring Member from any liabilities to the Company or other Members arising from events occurring prior to or in connection with the Transfer.
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ARTICLE IX - DISSOLUTION

9.1Dissolution.

(a)The Company shall be dissolved upon the occurrence of any of the following events:
(i)by Super-Majority Approval of Members, provided that such approval includes the approval of a majority of Members (excluding Affiliates of Members to the extent it would result in a group of Affiliated Members receiving more than one vote); or

(ii)pursuant to a court order determining that the Company should be dissolved because it is not reasonably practical to carry on the business of the Company in conformity with this Agreement upon a finding that those in control of the Company are acting in a manner that is illegal, or fraudulent or that the assets of the Company are being misapplied or wasted; or

(iii)in the event of a liquidation, redemption, or sale of Company’s interest in every Holding Company in which Company has an interest, at the discretion of the Manager, following not less than fifteen (15) days prior written notice to the Members.

(b)As soon as possible following the occurrence of any of the events specified in this Section 9.1 effecting the dissolution of the Company and in all events subject to the terms of this Agreement, the appropriate representative of the Company shall execute a statement of intent to dissolve in such form as shall be prescribed by the Nebraska Secretary of State and file the same with the Nebraska Secretary of State’s office.

9.2Winding Up, Liquidation, and Distribution of Assets.

(a)Upon dissolution, an accounting shall be made by the accountant or accounting firm then serving the Company of the accounts of the Company and of the Company’s assets, liabilities, and operations, from the date of the last previous accounting until the date of dissolution. The Manager shall immediately proceed to wind up the affairs of the Company.

(b)If the Company is dissolved and its affairs are to be wound up, the Manager shall:

(i)Sell or otherwise liquidate all of the Company’s assets as promptly as practicable (except to the extent the Manager may determine to distribute any assets to the Members in kind);

(ii)Allocate any Profit or Loss resulting from such sales to the Members’ Capital Accounts in accordance with Article V hereof;

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(iii)Discharge all liabilities of the Company, including liabilities to Members who are creditors, to the extent otherwise permitted by law, other than liabilities to Members for distributions, and establish such reserves as may be reasonably necessary to provide for contingent or liabilities of the Company (for purposes of determining the Capital Accounts of the Members, the amounts of such reserves shall be deemed to be an expense of the Company);

(iv)Distribute the remaining assets in the following order:

(1)If any assets of the Company are to be distributed in kind, the net fair market value of such assets as of the date of dissolution shall be determined by independent appraisal or by agreement of the Members. Such assets shall be deemed to have been sold as of the date of dissolution for their fair market value, and the Capital Accounts of the Members shall be adjusted pursuant to the provisions of Article V of this Agreement to reflect such deemed sale.

(2)The positive balance (if any) of each Member’s Capital Account (as determined after taking into account all Capital Account adjustments for the Company’s taxable year during which the liquidation occurs) shall be distributed to the Members, either in cash or in kind, as determined by the Manager, with any assets distributed in kind being valued for this purpose at their Gross Asset Value. Thereafter, any remaining cash or property shall be distributed to the Members in proportion to their Percentage Interests.

(c)Notwithstanding anything to the contrary in this Agreement, upon a liquidation within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations, if any Member has a deficit balance in his or her Capital Account (after giving effect to all contributions, distributions, allocations and other Capital Account adjustments for all taxable years, including the year during that such liquidation occurs), such Member shall have no obligation to make any additional Capital Contribution to the Company to restore the Capital Account to zero dollars ($0.00), and the negative balance of such Member’s Capital Account shall not be considered a debt owed by such Member to the Company or to any other Person for any purpose whatsoever.

(d)Upon completion of the winding up, liquidation, and distribution of the assets, the
Company shall be deemed terminated.

(e)The Manager shall comply with any applicable requirements of applicable law pertaining to the winding up of the affairs of the Company and the final distribution of its assets.

9.3Statement of Dissolution. When all debts, liabilities, and obligations have been paid and discharged or adequate provisions have been made therefor and all of the remaining property and assets have been distributed to the Members, a statement of dissolution shall be executed in duplicate and verified by the person signing the statement, which statement shall set
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forth the information required by the LLC Act. Duplicate originals of such statement of dissolution shall be delivered to the Nebraska Secretary of State and all notice requirements under the LLC Act shall be undertaken.

9.4Existence after Dissolution. Upon an occurrence specified in Section 9.1 and the filing of the statement of dissolution, the existence of the Company shall cease, except for the purpose of suits, other proceedings, and appropriate action as provided in the LLC Act. The Manager shall have authority to distribute any Company property discovered after dissolution, convey real estate, and take such other action as may be necessary on behalf of and in the name of the Company.

9.5Return of Contribution Nonrecourse to Other Members. Except as provided by law or as expressly provided in this Agreement, upon dissolution, each Member shall look solely to the assets of the Company for the return of its Capital Contribution. If the Company property remaining after the payment or discharge of the debts and liabilities of the Company is insufficient to return the cash contribution of one or more Members, such Member or Members shall have no recourse against any other Member or the Manager.

ARTICLE X - INDEMNIFICATION

10.1Indemnification of the Manager. To the fullest extent not prohibited by law, the Company shall indemnify and hold harmless the Manager from and against any and all losses, claims, demands, costs, damages, liabilities (including joint and several liabilities), expenses (including attorneys’ fees and disbursements), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, in which the Manager may be involved, or threatened to be involved in, as a party or otherwise, by reason of its status as a Manager (other than those by the Company or another Member); provided, however, no such indemnification shall apply unless each of the following requirements have been met: (i) the Manager’s conduct did not constitute a breach of the duty of loyalty set forth in Section 6.10; (ii) the Manager did not knowingly receive a financial benefit to which the Manager is not entitled; (iii) the Manager’s conduct did not constitute an intentional infliction of harm on the Company or a Member; (iv) the Manager’s conduct did not constitute an intentional violation of criminal law; and (v) the Manager did not commit fraud or willful misconduct and was not grossly negligent.

(a)Payment of Expenses. To the fullest extent not prohibited by law, out-of-pocket expenses (including legal fees and expenses but excluding damages owing to third parties) incurred by or on behalf of a Manager in defending any claim, demand, or action (other than those by the Company or another Member) shall be paid by the Company in advance of the final disposition of such proceeding upon the receipt of a written undertaking (which need not be secured) by or on behalf of the Manager to repay such amount if it shall ultimately be determined, by a final, non-appealable judgment by a court of competent jurisdiction, that the Manager is not entitled to be indemnified by the Company as authorized hereunder.

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(b)Cumulative With Other Rights. The indemnification provided by this Section shall be in addition to any other rights to which a Manager may be entitled under any agreement with the Company or vote of the Members, as a matter of law or otherwise, both as to action or inaction of the Manager in its capacity as a Manager, and to action or inaction in another capacity, and shall continue as to a Manager who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns, administrators, and personal representatives of each Manager.

(c)Source of Indemnity. Any indemnification hereunder shall be satisfied solely out of the assets of the Company and no Member shall be subject to personal liability by reason of these indemnification provisions.

(d)Conflict of Interest. No Manager shall be denied indemnification hereunder, in whole or in part, because the Manager had an interest in the transaction with respect to which the indemnification applies, if the transaction was approved or ratified as provided by the terms of this Agreement.

(e)Successors in Interest. The provisions of this Section are for the benefit of the
Managers and their heirs, successors, assigns, administrators, and personal representatives.

10.2Other Indemnification. The Company may, by Super-Majority Approval of Members, make any other indemnification that is authorized by a resolution adopted by such Members to the extent such indemnification is not prohibited by the Act.

ARTICLE XI - NOTICES

All notices hereunder shall be in writing and may be delivered in person or sent by mail, by facsimile, or by overnight courier service. Except as otherwise set forth herein, notices shall be deemed to have been delivered when actually received, three (3) business days after being sent by first class mail, postage prepaid, when sent by facsimile with transmission confirmed, or the next business day after being sent by overnight courier service, whichever occurs first. Notices shall be sent to the Company at its principal office, to a Member at the address shown for that Member on Exhibit A, and to a Manager at its business address (as given to the Company by the Manager).

ARTICLE XII- SPECIFIC PERFORMANCE AND OTHER EQUITABLE REMEDIES

Each Member acknowledges that a remedy at law for any breach or attempted breach of this Agreement may be inadequate and agrees that the Company and each other Member shall be entitled to seek specific performance and injunctive and other equitable relief in case of any such breach or attempted breach. Each Member further hereby waives any requirement for the securing or posting of any bond in connection with the obtaining of such injunctive or other equitable relief. Each Member hereby consents to the issuance of a temporary restraining order and/or temporary or permanent injunction against any breach or attempted breach by such Member, including any attempted Transfer of the Member’s Interest in violation of Article VIII.

ARTICLE XIII - MISCELLANEOUS

13.1Counterparts. This Agreement may be executed in counterparts and as so executed shall constitute one agreement binding on all parties hereto.

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13.2No Waiver. The waiver of any breach of any term hereof shall not be construed as a waiver of any subsequent breach of that term.

13.3Binding Nature; No Third Party Beneficiaries. This Agreement is binding upon and shall inure to the benefit of the parties hereto and their personal representatives, successors, and permitted assigns. The parties hereto do not intend this Agreement to be for the benefit of any other Persons who are not a party to this Agreement, including any creditors of the Company or of a Member.

13.4Amendment. This Agreement and the Certificate of Organization may only be amended in writing by the Manager with the Consent of the Members. Upon such amendment, each Member shall be deemed to have accepted the amended terms. No amendment shall be implied based on the conduct of the parties hereto.

13.5Governing Law and Venue; Waiver of Jury Trial. This Agreement shall be governed by the laws of the State of Nebraska, without giving effect to principles of conflict of laws that would apply the laws of another jurisdiction. EACH PARTY HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

13.6Entire Understanding; Severability; Superseding Agreement. This Agreement contains the entire understanding of the parties hereto regarding the subject matter hereof. It supersedes and cancels all prior agreements and understandings with regard to the subject matter hereof. Each provision of this Agreement shall be considered severable and if any provision is determined to be invalid and contrary to law for any reason, such invalidity shall not impair the operation of or affect the other provisions of this Agreement that are valid. In the event of any inconsistency between this Agreement and that certain management agreement between Manager and the Company, this Agreement shall, to the fullest extent permitted by law, govern.

13.7Interpretation. In this Agreement, except where the context otherwise requires, the singular includes the plural and the plural the singular; references to contracts or agreements are to be construed as including all duly approved amendments, modifications, or revisions thereto; references to statutes are to be construed as including all statutory provisions consolidating, amending, or replacing the statute referred to; references to sections, paragraphs, and subsections are to sections, paragraphs, and subsections of this Agreement unless otherwise indicated; and the words “including,” “includes” and “include” shall be deemed to be followed by the words “without limitation.”

IN WITNESS WHEREOF, the undersigned have each caused this Agreement to be executed effective as of the date first set forth above.

Nelnet Solar, LLC
a Nebraska limited liability company, Member

32

By: _____________________________________
Scott Gubbels, Vice President

1867 Capital-1, LLC
a Nebraska limited liability company, Manager

By: _____________________________________
Scott Gubbels, Vice President

THE INTERESTS ISSUED BY COMPANY HAVE NOT BEEN REGISTERED WITH OR QUALIFIED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES REGULATORY AUTHORITY. THE INTERESTS CANNOT BE SOLD, TRANSFERRED, ASSIGNED, OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE RESTRICTIONS ON TRANSFERABILITY IN THIS AGREEMENT AND APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
33

EXHIBIT A

SCHEDULE OF MEMBERS, CAPITAL COMMITMENTS, AND PERCENTAGE INTERESTS

												
Member Name and Address	Capital Commitment	Approx. Membership Interest*	Approx. Percentage Interest*	

				
				
Total		100%	100%	

* Percentage Interests are rounded in this table for presentation purposes only and do not reflect the precise percentages applied in calculating Members’ capital calls, allocations, and distributions.
34

EXHIBIT B

MANAGEMENT & PERFORMANCE FEE MODEL

						
Management Fee	
Members’ Projected Capital Contributions, net of Mgmt. Fee		
Management Fee %		
Management Fee Due Upon Funding		
Members’ Projected Aggregate Capital Contributions		
		
Performance Fee	
Members’ Projected Capital Contributions, net of Mgmt. Fee		
Performance Fee %		
Performance Fee Due Upon Liquidation		

35

EXHIBIT C

JOINDER TO LIMITED LIABILITY COMPANY AGREEMENT

The undersigned is executing and delivering this Joinder, effective as of ______________, to the Limited Liability Company Agreement of __________________, a Nebraska limited liability company (“Company”), dated as of __________________ (as amended from time to time in accordance with its terms, the “LLC Agreement”), by and among the Company and the Company’s members named therein from time to time. Capitalized terms used but not defined herein have the meaning ascribed to them in the LLC Agreement.

By executing and delivering to the Company this Joinder, the undersigned hereby agrees to become a party to, to be bound by, and to comply in full with the provisions of the LLC Agreement, in the same manner as if the undersigned were an original signatory to the LLC Agreement. The undersigned acknowledges and agrees that the undersigned is delivering this Joinder in connection with a capital contribution to the Company of $_______________________, in exchange for a _________ Percentage Interest in the Company. The Company shall amend Exhibit A to the LLC Agreement to reflect the admission of the undersigned as a Member. This Joinder shall be binding upon any assignee, transferee, heir, or assign of the Member. This Joinder may be executed in multiple counterparts, each of which shall constitute an original and all of which shall constitute one and the same document. This Joinder may be executed and delivered by electronic means, including by delivery of a .PDF signature. By signing this Joinder, Manager hereby approves admission of the undersigned as a new Member of the Company.

MEMBER:________________________________

By: ______________________________________
Title: _____________________________________

1867 Capital-1, LLC
Company Manager

By: ______________________________________
Title: _____________________________________

36

EXHIBIT D

INVESTMENT CRITERIA

37

Exhibit 10.84

Certain information identified by “[***]” has been excluded from this exhibit pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is both not material and is the type that the registrant treats as private or confidential.

EXPLANATORY NOTE: The following form of Management Agreement is utilized for solar energy investments managed by 1867 Capital-1, LLC, a wholly owned subsidiary of Nelnet, Inc. The following parties with other relationships with Nelnet, Inc. have participated in various of such investments: Ameritas Life Insurance Company, Assurity Life Insurance Company, Farm and Home Insurance, Inc., Farmers & Merchants Investment Inc., Infovisa, Inc., North Central Bancorp, Inc., and Union Bank and Trust Company. Third parties unrelated to Nelnet, Inc. have also participated in various of such investments. Specific provisions and terms for particular investments may vary.

MANAGEMENT AGREEMENT
This MANAGEMENT AGREEMENT (the “Agreement”), dated as of __________________, is hereby entered into by and between __________________, a Nebraska limited liability company (the “Company”), and 1867 Capital-1, LLC, a Nebraska limited liability company (the “Manager”). Capitalized terms shall, when used herein, have the same meaning as provided in the Operating Agreement (defined below).
RECITALS
WHEREAS, Company desires to retain Manager to provide asset management services to Company, and also to provide to Company the benefit of the experience of the employees of Manager in connection with tax equity investment in and administrative oversight of such tax equity investment in certain solar power generation and/or energy storage projects (each a “Project” and collectively, the “Projects”), as well as other services as described in this Agreement;
WHEREAS, Manager is willing to provide such management services to Company upon the terms set forth in this Agreement and in consideration of the distributions from Company in accordance with the Company’s Operating Agreement, dated __________________ (the “Operating Agreement”); and
NOW, THEREFORE, in consideration of these premises and the mutual covenants and agreements set forth in this Agreement and for other good and valuable consideration, the parties, intending to be legally bound, hereby agree to the following terms and conditions:
AGREEMENT
1. Authority and Duties of the Manager.
(a) Appointment. The Company hereby engages the Manager, and the Manager hereby agrees, upon the terms and subject to the conditions set forth herein, to provide, or cause any of its Affiliates to provide, certain services to the Company, as described in Section 1(c) hereof. For purposes of this

Agreement, an “Affiliate” of any specified person is a person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.
(b) Authority of Manager. Subject to the limitations contained elsewhere in this Agreement and in the Operating Agreement, Manager may execute, deliver, and perform all contracts, agreements, and other undertakings and engage in all activities and transactions as may, in the reasonable discretion of Manager, be necessary or advisable to carry out the objectives of this Agreement and the Operating Agreement.
(c) Services. During the Term, Manager shall, subject to the limitations set forth in the Operating Agreement, provide or cause to be provided to Company the following services (the “Services”):
(i)    all management services necessary for the day-to-day operation of Company;
(ii)    oversight and management of all aspects of the Company’s business;
(iii)    due diligence and related services with respect to the Project(s);
(iv)    recommendations to Company as to the selection of any proposed contractors or other counterparties in relation to any proposed Project, and negotiations with such proposed contractors or counterparties on behalf of Company or any Holding Company, as applicable;
(v)    recommendations to Company regarding the continuing holding or disposition of any Company, Holding Company, or Project assets and in connection thereto, maintenance of market knowledge as may be necessary to provide such recommendations;
(vi)    supervision of all ongoing maintenance and improvement activities for the Projects and the assets of Company or any Holding Company, and direction to any contractors or subcontractors performing services under any Project, as necessary;
(vii)    recommendations to Company on acquisitions or dispositions of assets for Company or any Holding Company;
(viii)    review of Project-related reports submitted by contractors;
(ix)    arrangement of periodic third-party appraisals of Company or any Project assets as may be required from time to time;
(ix)    preparation at the end of each fiscal quarter (March, June, September and December) and delivery to Company within forty (40) calendar days of the end of each fiscal quarter, an asset management report setting forth:
(A)    Company and each Holding Company’s and Project’s financial performance; and
(B)    the relevant market conditions affecting Company, each Holding Company, and the Projects.
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(x)    compilation of all necessary information for Company, in such manner and relating to such business and financial matters as may be reasonably requested from time to time by Company;
(xi)    any other services reasonably related to the above and deemed by the Manager to be beneficial to the success of the Projects, Holding Company, and the Company.
Any advice or materials provided by Manager to Company shall be subject to Section 6.13 (Duty of Confidentiality) of the Operating Agreement (the terms of which are incorporated herein by reference, mutatis mutandis).
(d) Representations, Warranties, and Covenants of Manager. Manager hereby represents and warrants that the following statements are true and correct as of the Effective Date, and covenants to the Company and the Members thereof that the statements in this Section 1(d) shall be true and correct at all times that such Manager is a Manager:
(i)the Manager is duly organized, validly existing, and in good standing under the law of the jurisdiction of its organization; the Manager is duly qualified and in good standing in the jurisdiction of its principal place of business; and the Manager has full power and authority to execute and deliver this Agreement and the Operating Agreement and to perform its obligations hereunder and thereunder, and all necessary actions by the board of directors, shareholders, managers, members, partners, trustees, beneficiaries, or other applicable Persons necessary for the due authorization, execution, delivery, and performance of this Agreement and the Operating Agreement by the Manager have been duly taken;
(ii)the Manager has duly executed and delivered this Agreement and the Operating Agreement and they constitute the legal, valid, and binding obligation of that Manager enforceable against it in accordance with their respective terms (except as may be limited by bankruptcy, insolvency, or similar laws of general application and by the effect of general principles of equity, regardless of whether considered at law or in equity);
(iii)the Manager’s authorization, execution, delivery, and performance of this Agreement and the Operating Agreement do not and will not (i) conflict with, or result in a breach, default, or violation of, (A) the organizational documents of such Manager, (B) any contract or agreement to which the Manager is a party or is otherwise subject, or (C) any law, order, judgment, decree, writ, injunction, or arbitral award to which the Manager is subject; or (ii) require any consent, approval or authorization from, filing or registration with, or notice to, any governmental authority or other Person, unless such requirement has already been satisfied;
(iv)the Manager (or if the Manager is a disregarded entity, the person treated as owning the Manager’s assets for federal income tax purposes) is not a Disqualified
3

Person (as defined in the Operating Agreement), the Manager is a “United States person” within the meaning of Section 7701(a)(30) of the Code (or is an entity that is disregarded as separate from such a person for federal income tax purposes), and the Manager is not subject to withholding under Section 1446 of the Code; and
(v)the Manager is a wholly owned direct or indirect subsidiary of Nelnet.
2. Personnel. Manager shall provide and make available as necessary all professional, supervisory, managerial, administrative, and other personnel as are necessary to perform the Services. All personnel, who may be employees or independent contractors of Manager or its Affiliates or third-party firms, shall be properly qualified and shall have appropriate experience in respect of the duties to which they are assigned.
3. Fees. Manager shall be entitled to fees in accordance with the Fee Schedule annexed hereto and the Operating Agreement. Manager shall maintain detailed records of payments with appropriate cash and disbursement controls and make available such records to the Company upon request. Under no circumstances shall Manager be obligated to incur any expenses of the Company with Manager’s own funds in order to discharge its duties and responsibilities hereunder.
4. Permissible Activities; Non-Exclusive Agreement. Nothing herein shall in any way preclude the Manager or its Affiliates or any related parties from engaging in any business activities or from performing services for its or their own account or for the account of others, including, without limitation, for any persons or entities that may be in competition with the business conducted by the Company and any of its Affiliates. Nothing in this Agreement shall be deemed to limit or restrict Manager’s right, or the right of any of its officers, members, or employees, to engage in any other business or to devote time and attention to the management or other aspects of any business, whether of a similar or dissimilar nature, or to render management services to any other entity.
5. Access to Information. Manager shall furnish to the Company such information concerning activities undertaken for the Company pursuant to this Agreement as may reasonably be required in order for the Company to comply with its obligations under the Operating Agreement. Manager shall provide any materials that Company may reasonably request in connection with Manager’s provision of Services pursuant to this Agreement.
6. Limited Liability of Manager; Limitation on Damages. The Company agrees that neither Manager nor its Affiliates (including, without limitation, any members, managers, limited partners, general partners, directors, officers, employees, representatives, advisors, and agents of Manager or its Affiliates) (each such person or entity being a “Covered Person”) shall be liable to the Company or its Members (as defined in the Operating Agreement) for any liabilities, obligations, losses, costs, damages, expenses, claims, judgments, and reasonable attorney’s fees and expenses (collectively, “Losses”) occasioned by any act or omission of any Covered Person in connection with the performance of such Covered Person’s services hereunder; provided, however, that Manager shall be liable to the Company for acts or omissions by it which constitute fraud, gross negligence, willful misconduct with respect to Manager’s obligations under this Agreement, as finally determined by a court having proper jurisdiction and after all appeals are resolved or exhausted. Under no circumstances will the liability of Manager and/or any Covered Person(s) exceed, in the aggregate, the fees actually paid to Manager hereunder. Any
4

liability or recovery under this Agreement shall be limited to actual damages, and no special, consequential, indirect, or punitive damages shall be allowed.
For the avoidance of doubt, except as otherwise provided by law, Company specifically agrees that Manager shall not be liable for: (a) any loss that Company may suffer by reason of any investment decision or Project decision made or other action taken or omitted in good faith, or by reason of underperformance of a Project; (b) any act or failure to act by any developer, offtaker, or other person with whom Manager or Company may deal in connection with the subject matter of this Agreement; or (c) any loss or failure or delay in performance of any obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond Manager’s reasonable control, including, without limitation, acts of God, earthquakes, fires, floods, wars, terrorism, civil or military disturbances, sabotage, epidemics or pandemics, riots, interruptions, loss or malfunctions of utility, computer software or hardware, transportation or communication service, accidents, labor disputes, acts of civil or military authority, governmental actions, and inability to obtain labor, material, equipment, or transportation.
7. Indemnification.
(a) The Company shall indemnify and hold harmless each Covered Person from and against any Losses arising out of any claim asserted or threatened to be asserted in connection with any matter arising out of or in connection with this Agreement or the Company’s business or affairs; provided, however, that no Covered Person shall be entitled to any such indemnification with respect to any Losses that were caused by such Covered Person’s fraud, gross negligence, or willful misconduct with respect to any of Manager’s obligations under this Agreement. The Company shall advance to any Covered Person the reasonable costs and expenses of investigating and/or defending such claim subject to receiving a written undertaking from the Covered Person to repay such amounts if and to the extent of any subsequent determination by a court or other tribunal of competent jurisdiction that the Covered Person was not entitled to indemnification hereunder. Notwithstanding the foregoing, the Company shall not be liable hereunder for any settlement of any action or claim effected without its consent thereto, which consent will not be unreasonably withheld, conditioned, or delayed.
(b) The Manager’s rights to indemnification set forth in this Section 7 are in addition to and cumulative with (but shall be without duplication of) those rights to indemnification set forth in the Operating Agreement.
8. Term; Termination.
(a)    This Agreement has a term beginning on the date of this Agreement and expiring on the date on which the term of the Operating Agreement expires or terminates for any reason. This Agreement shall terminate automatically upon the withdrawal of the Manager as the manager of the Company in accordance with Section 6.4 of the Operating Agreement or upon the removal of the Manager as the manager of the Company in accordance with Section 6.17 of the Operating Agreement.
(b)    Company shall have the right to terminate this Agreement upon failure by the Manager to perform or observe a material obligation hereunder or in the event of persistent breaches of this Agreement, either of which are not cured within thirty (30) business days after receipt of a notice in writing from Company (the “Cure Period”) specifying the failure or nature of the breach. Notwithstanding the foregoing, if such breach is not reasonably susceptible of cure within the Cure
5

Period, the Cure Period shall be extended so long as Manager is diligently and in good faith pursuing such cure to its completion.
9. Affiliate Contracts and Transactions. The Members acknowledge and consent to the affiliation of ownership between Manager and certain Members of the Company and waive any objection as to conflict of interest or breach of fiduciary duty with respect thereto. Manager shall be authorized to cause the Company to enter into contracts, agreements, and other arrangements for the furnishing to the Company of any goods or services with Manager and with any Affiliate of Manager, provided any such contract, agreement, or other arrangement, including the fee arrangements thereunder, complies with applicable requirements under the Operating Agreement and is on arm’s length terms. The Manager shall have the authority to subcontract or delegate its duties and responsibilities hereunder to any one or more Affiliates of Manager, provided that all fees and other compensation payable to such Affiliate(s) are payable solely by Manager from amounts payable to Manager hereunder. Such subcontracting or delegation shall not relieve Manager of its responsibilities hereunder.
10. Amendment; Modification; Waiver. This Agreement may be amended, in whole or in part, only with the written consent of the Manager and the Company. The failure of either party to insist upon the strict performance of any covenant, agreement, provision, or condition of this Agreement shall not constitute a waiver thereof.
11. Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, but the rights and obligations hereunder shall not, except as otherwise expressly provided herein, be assignable, transferable, or delegable without the written consent of the other party hereto and any attempted assignment, transfer, or delegation thereof without such consent shall be void. Notwithstanding the foregoing, Manager may, without the prior written consent of Company, assign all or any portion of its rights and obligations under this Agreement to an Affiliate. No assignment shall relieve the assigning party of any of its obligations hereunder.
12. Independent Contractor. The Parties agree that Manager is an independent contractor to Company. No elements of an employee-employer, joint venture, franchise, or partnership relationship exist between the parties.
13. Miscellaneous.
(a)     This Agreement, and all claims or causes of action (whether in contract, tort, or statute) that may be based upon, arise out of or, or relate to this Agreement (including the negotiation, execution, or performance of this Agreement), shall be governed by and enforced in accordance with the internal laws of the State of Nebraska, including its statutes of limitations, without regard to principles of conflicts of laws that would apply the laws of another jurisdiction.
(b)     Each party hereto submits to the jurisdiction of any state or federal court sitting in Lincoln, Nebraska in any action arising out of or relating to this Agreement and agrees that all claims in respect of any such action may be heard and determined in any such court. Each party hereto agrees that a final judgment in any action so brought will be conclusive and may be enforced by action on the judgment or in any other manner provided at law or in equity. Each party hereto waives any defense of inconvenient forum to the maintenance of any action so brought and waives any bond, surety, or other security that might be required of any other party with respect thereto.
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(c)     No person or entity other than the Company and Manager is or shall be entitled to bring any action to enforce any provision of this Agreement. The provisions of this Agreement are solely for the benefit of and shall be enforceable only by the Company and Manager and their respective successors and assigns as permitted hereunder. Notwithstanding the foregoing, each Covered Person shall be an intended third-party beneficiary for the purposes of Sections 6 and 7 of this Agreement and shall have the right to enforce any of its rights thereunder.
(d)     If either party shall institute an action or proceeding against the other party relating to this Agreement, the unsuccessful party in such action or proceeding shall reimburse the successful party for its disbursements incurred in connection therewith and for its reasonable attorneys’ fees actually incurred.
(e)     This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof (except to the extent certain provisions of the Operating Agreement are referenced or incorporated herein or by their nature are not intended to be superseded by this Agreement). There are no further agreements or understandings, written or oral, in effect between the parties with respect to the subject matter hereof. Notwithstanding the foregoing, each Covered Person shall be an intended third-party beneficiary for the purposes of Sections 6 and 7 of this Agreement and shall have the right to enforce any of its rights thereunder.
(f)     If any provision of this Agreement or the application thereof to any person, entity, or circumstance shall be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provisions to any other person, entity, or circumstance shall not be affected thereby and shall be enforced to the greatest extent permitted by applicable law.
(g)     This Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all of the parties, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party hereto shall become bound by this Agreement immediately upon affixing its signature hereto.
(h)    Sections 3, 6, 7, and 13 shall survive termination of this Agreement. Upon any termination of this Agreement, Manager shall have no further obligations hereunder, provided that: (a) any liability under this Agreement of one party to the other shall survive and remain in full force and effect, notwithstanding such termination, with respect to any claim or matter on which either of the parties has given the other written notice prior to such termination (except that Manager may render to Company a statement of fees due Manager through the date of termination after such date), until such liability has been finally settled; (b) Manager retains the right to complete any transactions open as of the termination date and to retain amounts in the account sufficient to effect such completion; and (c) Manager shall be entitled to its fees and expenses in accordance with Section 3, pro-rated to the date of termination.
(i)    In the event of any inconsistency between this Agreement and the Operating Agreement, the Operating Agreement shall, to the fullest extent permitted by law, govern.
7

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8

In witness whereof, the parties have executed this Management Agreement as of the day and year first above written.

									
COMPANY:
__________________

By: _______________________________
Scott Gubbels, Vice President	MANAGER:
1867 Capital-1, LLC

By: _________________________________
Scott Gubbels, Vice President		

9

FEE SCHEDULE
1. Management Fee
Company shall pay to Manager a Management Fee equal to [***]% of the aggregate Capital Contributions of Members (net of Management Fee) pursuant to Section 6.2 of the Operating Agreement. The Management Fee shall be paid by Company as each Member’s capital is contributed to the Company. The Management Fee will be payable to Manager by wire transfer in same-day funds to the bank account designated by Manager.
2. Performance Fee
At the time of Company’s final liquidating distribution to Members, Manager shall be entitled to receive from such Member a one-time Performance Fee equal to an amount not to exceed [***]% of such Member’s aggregate Capital Contributions (net of Management Fee). The precise amount of a Member’s fee shall be based on the Company ROI, as defined in the Operating Agreement (“Company ROI”), at the time of liquidation. Manager shall be entitled to receive a Performance Fee of [***]% of Members’ aggregate Capital Contributions if, after payment of such Performance Fee, Company ROI is at least [***]%. If payment of such a Performance Fee would result in Company ROI dropping below [***]%, then the Performance Fee shall be proportionately reduced such that the Company ROI after payment of the Performance Fee is equal to at least [***]%. If Company ROI prior to payment of the Performance Fee is below [***]%, then Manager shall not be entitled to a Performance Fee. The Performance Fee shall be withheld from Company’s final distribution to the Members.

10

Exhibit 21.1

List of Direct and Indirect Subsidiaries of Nelnet, Inc. as of December 31, 2021
																		
		Name	Organized in	Relationship to Nelnet Inc.	Percentage Ownership	
1 			1867 - AGATE20, LLC	Nebraska	Indirect Subsidiary	100.00	
2 			1867 - Excelsior, LLC	Nebraska	Indirect Subsidiary	100.00	
3 			1867 - GS20, LLC	Nebraska	Indirect Subsidiary	100.00	
4 			1867 - NUG21, LLC	Nebraska	Indirect Subsidiary	100.00	
5 			1867 - NY1, LLC	Nebraska	Indirect Subsidiary	100.00	
6 			1867 - RP, LLC	Nebraska	Indirect Subsidiary	100.00	
7 			1867 - RP20, LLC	Nebraska	Indirect Subsidiary	100.00	
8 			1867 - SOL21, LLC	Nebraska	Indirect Subsidiary	100.00	
9 			1867 - SR, LLC	Nebraska	Indirect Subsidiary	100.00	
10 			1867 Capital-1, LLC	Nebraska	Direct Subsidiary	100.00	
11 			1867-C2, LLC	Nebraska	Indirect Subsidiary	100.00	
12 			1867-C2-NY, LLC	Nebraska	Indirect Subsidiary	100.00	
13 			1867-CC22, LLC	Nebraska	Indirect Subsidiary	100.00	
14 			1867-SOL22, LLC	Nebraska	Indirect Subsidiary	100.00	
15 			1867-SOL23, LLC	Nebraska	Indirect Subsidiary	100.00	
16 			ACM F Acquisition, LLC	Nebraska	Indirect Subsidiary	100.00	
17 			Aware3, LLC	Missouri	Indirect Subsidiary	100.00	
18 			Aware3, LLC	Missouri	Indirect Subsidiary	100.00	
19 			CampusGuard, LLC	Nebraska	Indirect Subsidiary	100.00	
20 			CampusGuard Pty Ltd	Australia	Indirect Subsidiary	100.00	
21 			Community Development Opportunity Fund III, LLC	Nebraska	Indirect Subsidiary	100.00	
22 			Community Development Opportunity Fund V, LLC	Nebraska	Direct Subsidiary	100.00	
23 			Community Development Opportunity Fund VI, LLC	Nebraska	Indirect Subsidiary	100.00	
24 			Community Development Opportunity Fund VII, LLC	Nebraska	Indirect Subsidiary	100.00	
25 			Community Development Opportunity Fund VIII, LLC	Nebraska	Indirect Subsidiary	100.00	
26 			EFS Finance Co., LLC	Nebraska	Indirect Subsidiary	100.00	
27 			FACTS Education Corporation	Nebraska	Indirect Subsidiary	100.00	
28 			FACTS Education Solutions, LLC	Arizona	Indirect Subsidiary	100.00	
29 			First National Life Insurance Company of the USA, Inc.	Nebraska	Indirect Subsidiary	100.00	
30 			FM Systems LLC d/b/a Tuition Management Systems, LLC	Delaware	Indirect Subsidiary	100.00	
31 			FP Sacramento, LLC	Nebraska	Indirect Subsidiary	100.00	
32 			Great Lakes Educational Loan Services, Inc.	Wisconsin	Indirect Subsidiary	100.00	
33 			HigherSchool Publishing Company	Illinois	Indirect Subsidiary	100.00	
34 			Municipal Tax Investment, LLC	Nebraska	Direct Subsidiary	100.00	
35 			Municipal Tax Property, LLC	Nebraska	Indirect Subsidiary	100.00	
36 			National Education Loan Network, Inc.	Nebraska	Direct Subsidiary	100.00	
37 			Nelnet Academic Services, LLC	Nebraska	Direct Subsidiary	100.00	
38 			Nelnet Bank, Inc.	Utah	Direct Subsidiary	100.00	
39 			Nelnet Business Solutions - Canada, Inc.	Ontario	Indirect Subsidiary	100.00	
40 			Nelnet Business Solutions, Inc.	Nebraska	Indirect Subsidiary	100.00	
41 			Nelnet Captive Insurance Company, Inc.	Delaware	Indirect Subsidiary	100.00	
42 			Nelnet Community Engagement, LLC	Nebraska	Indirect Subsidiary	100.00	

																		
43 			Nelnet Consumer Finance, Inc.	Nebraska	Indirect Subsidiary	100.00	
44 			Nelnet Diversified Solutions, LLC	Nebraska	Direct Subsidiary	100.00	
45 			Nelnet Education Loan Funding, Inc.	Nebraska	Indirect Subsidiary	100.00	
46 			Nelnet FFELP Student Loan Warehouse-I, LLC	Delaware	Indirect Subsidiary	100.00	
47 			Nelnet Finance Corp.	Nebraska	Indirect Subsidiary	100.00	
48 			Nelnet Fund Management, LLC	Nebraska	Direct Subsidiary	100.00	
49 			Nelnet Government Services, LLC	Nebraska	Indirect Subsidiary	100.00	
50 			Nelnet Insurance Services, LLC	Nebraska	Indirect Subsidiary	100.00	
51 			Nelnet International Pty Ltd	Australia	Indirect Subsidiary	100.00	
52 			Nelnet Learning Technologies, LLC	Nebraska	Indirect Subsidiary	100.00	
53 			Nelnet Loan Acquisition Corporation	Nebraska	Indirect Subsidiary	100.00	
54 			Nelnet Management Corporation -1	Nevada	Indirect Subsidiary	100.00	
55 			Nelnet Philippines, Inc.	Philippines	Indirect Subsidiary	100.00	
56 			Nelnet Private Education Loan Funding, LLC	Delaware	Indirect Subsidiary	100.00	
57 			Nelnet Private Student Loan Financing Corporation	Nebraska	Indirect Subsidiary	100.00	
58 			Nelnet Private Student Loan Warehouse-2, LLC	Delaware	Indirect Subsidiary	100.00	
59 			Nelnet Private Student Loan Warehouse-I, LLC	Delaware	Indirect Subsidiary	100.00	
60 			Nelnet Real Estate Ventures, LLC	Nebraska	Indirect Subsidiary	100.00	
61 			Nelnet Sales Co., LLC	Nebraska	Indirect Subsidiary	100.00	
62 			Nelnet Servicing, LLC	Nebraska	Indirect Subsidiary	100.00	
63 			Nelnet Solar, LLC	Nebraska	Direct Subsidiary	100.00	
64 			Nelnet Store, LLC	Nebraska	Indirect Subsidiary	100.00	
65 			Nelnet Student Loan Depositor, LLC	Nebraska	Indirect Subsidiary	100.00	
66 			Nelnet Student Loan Funding II Management Corporation	Nebraska	Indirect Subsidiary	100.00	
67 			Nelnet Student Loan Funding II, LLC	Delaware	Indirect Subsidiary	100.00	
68 			Nelnet Student Loan Funding III, LLC	Delaware	Indirect Subsidiary	100.00	
69 			Nelnet Student Loan Funding Management Corporation	Nevada	Indirect Subsidiary	100.00	
70 			Nelnet Student Loan Funding, LLC	Delaware	Indirect Subsidiary	100.00	
71 			Nelnet Sustainable Ventures, LLC	Nebraska	Indirect Subsidiary	100.00	
72 			Nelnet UNL Alliance, LLC	Nebraska	Direct Subsidiary	100.00	
73 			NHELP – II, LLC	Delaware	Indirect Subsidiary	100.00	
74 			NHELP – III, LLC	Delaware	Indirect Subsidiary	100.00	
75 			PaymentSpring, LLC	Nebraska	Indirect Subsidiary	100.00	
76 			Wachovia Education Loan Funding, LLC	Delaware	Indirect Subsidiary	100.00	
77 			Community Development Opportunity Fund I, LLC	Nebraska	Direct Subsidiary	99.91	
78 			Bodega Avenue Solar LLC	California	Indirect Subsidiary	99.00	
79 			Briggs Solar Lessee, LLC	Rhode Island	Indirect Subsidiary	99.00	
80 			C2 CT Fund 1 Holdings, LLC	Delaware	Indirect Subsidiary	99.00	
81 			GSPP NN Fund II, LLC	New York	Indirect Subsidiary	99.00	
82 			Iris 3 TenantCo, LLC	Delaware	Indirect Subsidiary	99.00	
83 			Kearsarge NYMA MT, LLC	Massachusetts	Direct Subsidiary	99.00	
84 			NY CSG 2 Holdings, LLC	Delaware	Indirect Subsidiary	99.00	
85 			RenewProp Lessee 1, LLC	Delaware	Indirect Subsidiary	99.00	
86 			RenewProp Lessee 2, LLC	Delaware	Indirect Subsidiary	99.00	
87 			RenewProp Lessee 5, LLC	Delaware	Indirect Subsidiary	99.00	
88 			Solar Projectco 12 Tenant, LLC	Delaware	Indirect Subsidiary	99.00	
89 			Virgo Charlestown NY Holdco, LLC	Delaware	Direct Subsidiary	99.00	

																		
90 			Virgo Skipjack Holdco, LLC	Delaware	Direct Subsidiary	99.00	
91 			1st Source Solar 2, LLC	Delaware	Direct Subsidiary	90.00	
92 			1st Source Solar 3, LLC	Delaware	Direct Subsidiary	90.00	
93 			1st Source Solar 5, LLC	Delaware	Direct Subsidiary	90.00	
94 			1st Source Solar 6, LLC	Delaware	Indirect Subsidiary	90.00	
95 			Whitetail Rock Capital Management, LLC	Nebraska	Indirect Subsidiary	90.00	
96 			Whitetail Rock Fund Management, LLC	Nebraska	Indirect Subsidiary	90.00	
97 			SRC Partnership 2, LLC	Delaware	Indirect Subsidiary	89.10	
98 			SSI MN Tranche 1, LLC	Delaware	Indirect Subsidiary	89.10	
99 			Virgo KAM Holdco, LLC	Delaware	Indirect Subsidiary	89.10	
100 			Wenonah Holdings LLC	Delaware	Indirect Subsidiary	89.10	
101 			44 Trade Center, LLC	Missouri	Indirect Subsidiary	85.00	
102 			TC Westport, LLC	Missouri	Indirect Subsidiary	85.00	
103 			Community Development Opportunity Fund II, LLC	Nebraska	Direct Subsidiary	68.93	
104 			DU Univ Lofts GP LLC	Delaware	Indirect Subsidiary	67.87	
105 			1867 - NelKSI, LLC	Nebraska	Indirect Subsidiary	65.00	
106 			WPC-NN CHULA I-5 JV, LLC	Delaware	Indirect Subsidiary	65.00	
107 			Harvest 960, LP	Pennsylvania	Indirect Subsidiary	59.33	
108 			330-333 Building Acquisition Corporation	Nebraska	Indirect Subsidiary	50.00	
109 			330-333 Building, LLC	Nebraska	Indirect Subsidiary	50.00	
110 			401 Building Acquisition Corporation	Nebraska	Indirect Subsidiary	50.00	
111 			401 Building, LLC	Nebraska	Indirect Subsidiary	50.00	
112 			4600 Innovation Drive, LLC	Nebraska	Indirect Subsidiary	50.00	
113 			7200 WorldCom, LLC	Nebraska	Indirect Subsidiary	50.00	
114 			BenefitEd, LLC	Nebraska	Indirect Subsidiary	50.00	
115 			Canopy Park, LLC	Nebraska	Indirect Subsidiary	50.00	
116 			Community Development Opportunity Fund IV, LLC	Nebraska	Direct Subsidiary	50.00	
117 			EADO, LLC	Nebraska	Indirect Subsidiary	50.00	
118 			Invite Education, LLC	Delaware	Direct Subsidiary	50.00	
119 			LT&T Collection, LLC	Nebraska	Indirect Subsidiary	50.00	
120 			Lumberworks Lofts Acquisition Corporation	Nebraska	Indirect Subsidiary	50.00	
121 			Lumberworks Lofts, LLC	Nebraska	Indirect Subsidiary	50.00	
122 			Nelnet-Kearsarge Solar, LLC	Nebraska	Indirect Subsidiary	50.00	
123 			NGWeb Solutions, LLC	Nebraska	Indirect Subsidiary	50.00	
124 			PI Timberline, LLC	Missouri	Direct Subsidiary	50.00	
125 			Telegraph Lofts West, LLC	Nebraska	Indirect Subsidiary	50.00	
126 			West Haymarket Holding Company, LLC	Nebraska	Indirect Subsidiary	50.00	
127 			Telegraph Flats, LLC	Nebraska	Indirect Subsidiary	49.96	
128 			Iris 3 Landlord, LLC	Delaware	Indirect Subsidiary	48.51	
129 			RenewProp Lessor 1, LLC	Delaware	Indirect Subsidiary	48.51	
130 			RenewProp Lessor 2, LLC	Delaware	Indirect Subsidiary	48.51	
131 			RenewProp Lessor 5, LLC	Delaware	Indirect Subsidiary	48.51	
132 			Solar Projectco 12 Landlord, LLC	Delaware	Indirect Subsidiary	48.51	
133 			1867 - Kear21, LLC	Nebraska	Indirect Subsidiary	46.00	
134 			Kearsarge NN Fund II MT, LLC	Massachusetts	Indirect Subsidiary	45.54	
135 			ALLO Arizona, LLC	Nebraska	Indirect Subsidiary	45.04	
136 			ALLO Ashland, LLC	Nebraska	Indirect Subsidiary	45.04	

																		
137 			ALLO Columbus, LLC	Nebraska	Indirect Subsidiary	45.04	
138 			ALLO Communications, LLC	Nebraska	Indirect Subsidiary	45.04	
139 			ALLO Fremont, LLC	Nebraska	Indirect Subsidiary	45.04	
140 			ALLO Grand Island, LLC	Nebraska	Indirect Subsidiary	45.04	
141 			ALLO Greeley, LLC	Nebraska	Indirect Subsidiary	45.04	
142 			ALLO Holdings, LLC	Nebraska	Direct Subsidiary	45.04	
143 			ALLO Hudson, LLC	Nebraska	Indirect Subsidiary	45.04	
144 			ALLO Intermediate Holdings, LLC	Nebraska	Indirect Subsidiary	45.04	
145 			ALLO Kearney, LLC	Nebraska	Indirect Subsidiary	45.04	
146 			ALLO Milford, LLC	Nebraska	Indirect Subsidiary	45.04	
147 			ALLO Seward, LLC	Nebraska	Indirect Subsidiary	45.04	
148 			ALLO Sidney, LLC	Nebraska	Indirect Subsidiary	45.04	
149 			ALLO Valentine, LLC	Nebraska	Indirect Subsidiary	45.04	
150 			ALLO Wayne, LLC	Nebraska	Indirect Subsidiary	45.04	
151 			ALLO York, LLC	Nebraska	Indirect Subsidiary	45.04	
152 			Lincoln Lodging, LLC	Nebraska	Indirect Subsidiary	45.00	
153 			KSI II Holdco D, LLC	Delaware	Indirect Subsidiary	43.55	
154 			Summerset Associates, LLC	Missouri	Indirect Subsidiary	42.50	
155 			Brookhollow Business Park, LLC	Nevada	Indirect Subsidiary	37.50	
156 			Kearsarge NYMA, LLC	Massachusetts	Indirect Subsidiary	34.65	
157 			Atrium Building, LLC	Nebraska	Indirect Subsidiary	34.47	
158 			12100.5 West Center, LLC	Nebraska	Indirect Subsidiary	33.33	
159 			Florence Business Center, LLC	Kentucky	Direct Subsidiary	33.33	
160 			Iris 1 TenantCo, LLC	Delaware	Indirect Subsidiary	27.90	
161 			1867 - NELKSI21, LLC	Nebraska	Indirect Subsidiary	27.00	
162 			KSI II Holdco E, LLC	Delaware	Indirect Subsidiary	26.73	
163 			GSPP NN Fund IV, LLC	New York	Indirect Subsidiary	25.20	
164 			Enfield Distribution Center, LLC	Connecticut	Direct Subsidiary	25.00	
165 			Portsmouth Distribution Center, LLC	Virginia	Direct Subsidiary	25.00	
166 			TDP Phase Three - NMTC, LLC	Nebraska	Indirect Subsidiary	25.00	
167 			TDP Phase Three, LLC	Nebraska	Indirect Subsidiary	25.00	

Note: This list does not include Nelnet Student Loan Trusts utilized in asset backed security financings.

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statements (Nos. 333-112374, 333-144790, 333-151991, 333-161814, and 333-230130 on Form S-8 and No. 333-144789 on Form S-3) of our reports dated February 28, 2022, with respect to the consolidated financial statements of Nelnet, Inc. and the effectiveness of internal control over financial reporting.

/s/ KPMG LLP

Lincoln, Nebraska
February 28, 2022

Exhibit 31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
I, Jeffrey R. Noordhoek, certify that:
 
1.I have reviewed this annual report on Form 10-K of Nelnet, Inc. (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 officer 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 registrant'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 officer 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:	February 28, 2022	/s/ JEFFREY R. NOORDHOEK	
		Jeffrey R. Noordhoek Chief Executive Officer
Principal Executive Officer	

Exhibit 31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
I, James D. Kruger, certify that:

1.I have reviewed this annual report on Form 10-K of Nelnet, Inc. (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 officer 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 registrant'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 officer 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:	February 28, 2022	/s/ JAMES D. KRUGER	
		James D. Kruger
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. (the “Company”) on Form 10-K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 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:	February 28, 2022	By: /s/ JEFFREY R. NOORDHOEK	
		Name: Jeffrey R. Noordhoek
Title:   Chief Executive Officer
 Principal Executive Officer	
			
		By: /s/ JAMES D. KRUGER	
		Name: James D. Kruger
Title:   Chief Financial Officer
 Principal Financial Officer and Principal Accounting Officer