UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported)
August 9, 2011
 
NELNET, INC.
(Exact name of registrant as specified in its charter)
 
Nebraska	 	001-31924	 	84-0748903	
(State or other jurisdiction
of incorporation)	 	(Commission
File Number)	 	(I.R.S. Employer
Identification No.)	

121 South 13th Street
Suite 201
Lincoln, Nebraska	 	 
 
68508	
(Address of principal executive offices)	 	(Zip Code)	
 
Registrant’s telephone number, including area code (402) 458-2370
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
[  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
[  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
[  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
[  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 
 
  Item 2.02  Results of Operations and Financial Condition.
 
On August 9, 2011, Nelnet, Inc. (the “Company”) issued a press release with respect to its financial results for the quarter ended June 30, 2011.  A copy of the press release is furnished as Exhibit 99.1 to this report.  In addition, a copy of the supplemental financial information for the quarter ended June 30, 2011, which was made available on the Company’s website at www.nelnetinvestors.com on August 9, 2011 in connection with the press release, is furnished as Exhibit 99.2 to this report.

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

Item 9.01  Financial Statements and Exhibits.
 
(d)           Exhibits.  The following exhibits are furnished as part of this report:
 
Exhibit
No.	 	 
Description	
 	 	 	
99.1	 	Press Release dated August 9, 2011 – “Nelnet Reports Second Quarter 2011 Results”	
 	 	 	
99.2	 	Supplemental Financial Information for the Quarter Ended June 30, 2011	

 

 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
Dated:  August 9, 2011
 	NELNET, INC.	 	
 	 	 	 	
 	By:	/s/ TERRY J. HEIMES	 	
 	 	Name: Terry J. Heimes
Title: Chief Financial Officer	 	

 

Exhibit 99.1
 
Nelnet Reports Second Quarter 2011 Results
 
 	-	Base net income of $1.04 per share for the quarter	
 	-	Tuition payment processing and campus commerce revenue increased 15 percent	
 	-	Revenue from government servicing contract increased $5.8 million to $11.9 million	
 	-	Third quarter dividend of $0.10 per share	
 
LINCOLN, Neb., August 9, 2011 -- Nelnet (NYSE: NNI) today reported base net income of $50.0 million, or $1.04 per share, for the second quarter of 2011, compared with $58.3 million, or $1.17 per share, for the same quarter a year ago. For the six months ended June 30, 2011, the company reported base net income of $106.7 million, or $2.21 per share, compared with $114.2 million, or $2.30 per share, for the same period in 2010. Base net income in 2010 excludes restructuring charges.
 
"The second quarter of 2011 showed progress toward core objectives and strong results,” said Mike Dunlap, Nelnet Chairman and Chief Executive Officer. "We are focused on growing our core businesses of loan servicing, payment processing, education planning, and loan financing; driving diversification; enhancing the customer experience; and operating with financial discipline as we grow."  
 
Growing our core and driving diversification
 
During the second quarter of 2011, revenue from Nelnet's tuition payment processing and campus commerce business increased $2.0 million from the second quarter of 2010, or 15 percent, to $14.8 million. The company’s K-12 tuition payment processing business increased the number of private, faith-based schools it works with by approximately 8 percent, or more than 370 schools, through the acquisition of school contracts from Tuition Management Systems on June 30, 2011.
 
In September 2009, Nelnet began servicing student loans for the Department of Education (Department) under a contract that will increase the company's fee-based revenue as the servicing volume increases. At June 30, 2011, the company was servicing $38.8 billion of loans for 2.7 million borrowers on behalf of the Department, compared with $12.9 billion of loans for 1.5 million borrowers on June 30, 2010. Revenue from this contract increased to $11.9 million for the second quarter of 2011, up from $6.1 million for the same period a year ago.
 
The company's enrollment services revenue decreased to $32.3 million in the second quarter of 2011, from $35.4 million in the second quarter of 2010. Enrollment services revenue is being affected by the current regulatory uncertainty in the for-profit college industry which has caused schools to decrease their marketing spending.
 
Maximizing the value of existing portfolio
 
At June 30, 2011, net student loan assets were $23.2 billion. Substantially all of Nelnet's federal student loans are financed for the life of the loan at rates the company believes will generate significant future cash flow in excess of $1.6 billion.
 
Historically low interest rates are continuing to provide the company opportunities to generate substantial near-term value and cash flow from its student loan portfolio. For the second quarter of 2011, Nelnet reported net interest income of $88.7 million, compared with $97.4 million for the same period a year ago.

 

 
In July 2011, the company purchased the residual interest in $1.9 billion of federal student loans from an affiliate of Greystone & Co., Inc., increasing its student loan assets to more than $25.0 billion.
 
Operating with financial discipline
 
Operating expenses decreased $7.7 million, or 7.1 percent, to $100.6 million in the second quarter of 2011, from $108.2 million in the second quarter of 2010.  Over time, the company anticipates increasing operating expenses with discipline to support revenue growth in its fee-based businesses.
 
GAAP net income
 
Nelnet reported GAAP net income for the second quarter of 2011 of $37.1 million, or $0.76 per dilutive share, compared with $50.0 million, or $0.99 per dilutive share, for the second quarter of 2010. For the first six months of 2011, the company reported GAAP net income of $92.0 million, or $1.89 per dilutive share, compared with $104.3 million, or $2.08 per dilutive share for the same period in 2010.
 
While base net income is not a substitute for reported results under GAAP, base net income is the primary financial performance measure used by management to develop financial plans, allocate resources, track results, evaluate performance, establish corporate performance targets, and determine incentive compensation. The company utilizes base net income in operating its business because base net income permits management to make meaningful period-to-period comparisons by eliminating the temporary volatility in the company's performance that arises from certain items that are primarily affected by factors beyond the control of management.
 
A description of base net income and a reconciliation of GAAP net income to base net income can be found in supplemental financial information to this earnings release online at www.nelnetinvestors.com/results.cfm .
 
Board of Directors approves dividend
 
The Nelnet Board of Directors declared a third quarter cash dividend on the company's outstanding shares of Class A common stock and Class B common stock of $0.10 per share. The dividend will be paid on September 15, 2011, to shareholders of record at the close of business on September 1, 2011. Nelnet currently has 37.0 million shares of Class A common stock and 11.5 million shares of Class B common stock outstanding.
 
This press release contains forward-looking statements within the meaning of federal securities laws.  These statements are based on management's current expectations as of the date of this release, and are subject to known and unknown risks and uncertainties that may cause actual results or performance to differ materially from those expressed or implied by the forward-looking statements.  Such risks include, among others, risks related to the company's student loan portfolio such as interest rate basis and repricing risk and the use of derivatives to manage exposure to interest rate fluctuations; the company's funding and liquidity requirements to satisfy asset financing needs; the company's ability to maintain and increase volumes under its loan servicing contract with the Department to service federally owned student loans; changes in the student loan and educational credit and services marketplace resulting from the implementation of or changes in applicable laws and regulations; changes in the demand or preferences for educational financing and related services by educational institutions, students, and their families; uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations; and changes in general economic and credit market conditions.  For more information, see the "Risk Factors" sections and other cautionary discussions of risks and uncertainties included in documents filed or furnished by the company with the Securities and Exchange Commission, including the cautionary information about forward-looking statements contained in the company's supplemental financial information for the second quarter of 2011.  All information in this release is as of the date of this release. Although the company may from time to time voluntarily update or revise its forward-looking statements to reflect actual results or changes in the company's expectations, the company disclaims any commitment to do so except as required by securities laws.

 

 
Condensed Consolidated Statements of Income
 
 	 	Three months ended	 	 	Six months ended	 	
 	 	June 30,	 	 	March 31,	 	 	June 30,	 	 	June 30,	 	 	June 30,	 	
 	 	2011	 	 	2011	 	 	2010	 	 	2011	 	 	2010	 	
 	 	(unaudited)	 	 	(unaudited)	 	 	(unaudited)	 	 	(unaudited)	 	 	(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan interest	 	$	146,827	 	 	 	147,347 	 	 	 	167,902 	 	 	 	294,174 	 	 	 	318,950 	 	
Amortization of loan premiums and deferred origination costs	 	 	(7,893	)  	 	 	(9,989	)  	 	 	(12,549	)  	 	 	(17,882	)  	 	 	(28,630	)  	
Investment interest	 	 	856 	 	 	 	726 	 	 	 	1,304 	 	 	 	1,582 	 	 	 	2,305 	 	
Total interest income	 	 	139,790 	 	 	 	138,084 	 	 	 	156,657 	 	 	 	277,874 	 	 	 	292,625 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest on bonds and notes payable	 	 	51,054 	 	 	 	52,307 	 	 	 	59,243 	 	 	 	103,361 	 	 	 	110,102 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income	 	 	88,736 	 	 	 	85,777 	 	 	 	97,414 	 	 	 	174,513 	 	 	 	182,523 	 	
Less provision for loan losses	 	 	5,250 	 	 	 	3,750 	 	 	 	6,200 	 	 	 	9,000 	 	 	 	11,200 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income after provision for loan losses	 	 	83,486 	 	 	 	82,027 	 	 	 	91,214 	 	 	 	165,513 	 	 	 	171,323 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	 	 	37,389 	 	 	 	35,636 	 	 	 	36,652 	 	 	 	73,025 	 	 	 	73,046 	 	
Tuition payment processing and campus commerce revenue	 	 	14,761 	 	 	 	19,369 	 	 	 	12,795 	 	 	 	34,130 	 	 	 	30,177 	 	
Enrollment services revenue	 	 	32,315 	 	 	 	33,868 	 	 	 	35,403 	 	 	 	66,183 	 	 	 	68,674 	 	
Software services revenue	 	 	4,346 	 	 	 	4,777 	 	 	 	5,499 	 	 	 	9,123 	 	 	 	9,843 	 	
Other income	 	 	6,826 	 	 	 	6,492 	 	 	 	8,496 	 	 	 	13,318 	 	 	 	15,756 	 	
Gain on sale of loans and debt repurchases	 	 	—	 	 	 	8,307 	 	 	 	8,759 	 	 	 	8,307 	 	 	 	18,936 	 	
Derivative market value and foreign currency adjustments	 	 	(16,813	)  	 	 	1,116 	 	 	 	(7,231	)  	 	 	(15,697	)  	 	 	(3,126	)  	
Derivative settlements, net	 	 	(3,522	)  	 	 	(4,152	)  	 	 	(3,377	)  	 	 	(7,674	)  	 	 	(5,800	)  	
Total other income	 	 	75,302 	 	 	 	105,413 	 	 	 	96,996 	 	 	 	180,715 	 	 	 	207,506 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	 	42,881 	 	 	 	43,912 	 	 	 	40,962 	 	 	 	86,793 	 	 	 	81,606 	 	
Cost to provide enrollment services	 	 	22,140 	 	 	 	22,839 	 	 	 	24,111 	 	 	 	44,979 	 	 	 	46,136 	 	
Depreciation and amortization	 	 	6,769 	 	 	 	6,776 	 	 	 	9,728 	 	 	 	13,545 	 	 	 	20,511 	 	
Restructure expense	 	 	—	 	 	 	—	 	 	 	72 	 	 	 	—	 	 	 	1,269 	 	
Other expenses	 	 	28,767 	 	 	 	26,105 	 	 	 	33,348 	 	 	 	54,872 	 	 	 	62,403 	 	
Total operating expenses	 	 	100,557 	 	 	 	99,632 	 	 	 	108,221 	 	 	 	200,189 	 	 	 	211,925 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes	 	 	58,231 	 	 	 	87,808 	 	 	 	79,989 	 	 	 	146,039 	 	 	 	166,904 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income tax expense	 	 	(21,106	)  	 	 	(32,928	)  	 	 	(29,996	)  	 	 	(54,034	)  	 	 	(62,589	)  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	37,125	 	 	 	54,880 	 	 	 	49,993 	 	 	 	92,005 	 	 	 	104,315 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings - basic	 	$	0.76	 	 	 	1.13 	 	 	 	1.00 	 	 	 	1.90 	 	 	 	2.08 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings - diluted	 	$	0.76	 	 	 	1.13 	 	 	 	0.99 	 	 	 	1.89 	 	 	 	2.08 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average shares outstanding:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	 	48,302,779 	 	 	 	48,171,317 	 	 	 	49,735,398 	 	 	 	48,237,411 	 	 	 	49,726,099 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted	 	 	48,488,046 	 	 	 	48,363,035 	 	 	 	49,934,648 	 	 	 	48,425,886 	 	 	 	49,923,680 	 	

 

Condensed Consolidated Balance Sheets
 
 	 	As of	 	 	As of	 	 	As of	 	
 	 	June 30,	 	 	December 31,	 	 	June 30,	 	
 	 	2011	 	 	2010	 	 	2010	 	
 	 	(unaudited)	 	 	 	 	 	(unaudited)	 	
Assets:	 	 	 	 	 	 	 	 	 	
Student loans receivable, net	 	$	23,228,778	 	 	 	23,948,014 	 	 	 	24,746,932 	 	
Student loans receivable - held for sale	 	 	—	 	 	 	84,987 	 	 	 	1,995,869 	 	
Cash, cash equivalents, and investments (trading securities)	 	 	148,005 	 	 	 	327,037 	 	 	 	305,778 	 	
Restricted cash and investments	 	 	675,182 	 	 	 	757,285 	 	 	 	706,965 	 	
Goodwill	 	 	117,118 	 	 	 	117,118 	 	 	 	143,717 	 	
Intangible assets, net	 	 	37,564 	 	 	 	38,712 	 	 	 	48,708 	 	
Other assets	 	 	664,864 	 	 	 	620,739 	 	 	 	620,054 	 	
Total assets	 	$	24,871,511	 	 	 	25,893,892 	 	 	 	28,568,023 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	
Bonds and notes payable	 	$	23,605,413	 	 	 	24,672,472 	 	 	 	27,428,772 	 	
Other liabilities	 	 	277,314 	 	 	 	314,787 	 	 	 	265,306 	 	
Total liabilities	 	 	23,882,727 	 	 	 	24,987,259 	 	 	 	27,694,078 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Shareholders' equity	 	 	988,784 	 	 	 	906,633 	 	 	 	873,945 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total liabilities and shareholders' equity	 	$	24,871,511	 	 	 	25,893,892 	 	 	 	28,568,023 	 	

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

 

Exhibit 99.2
 
For Release: August 9, 2011
Media Contact: Ben Kiser, 402.458.3024
Investor Contact: Phil Morgan, 402.458.3038

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

The following information should be read in connection with Nelnet, Inc’s (the “Company’s”) press release for second quarter 2011 earnings, dated August 9, 2011 and the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

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

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

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

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

 

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

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

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

 	•	risks associated with litigation, complex government regulations, changes in general economic and credit market conditions, and related party transactions; and	

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

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

Reclassifications

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

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

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

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

2

Condensed Consolidated Statements of Income
 
 	 	Three months ended	 	 	Six months ended	 	
 	 	June 30,	 	 	March 31,	 	 	June 30,	 	 	June 30,	 	 	June 30,	 	
 	 	2011	 	 	2011	 	 	2010	 	 	2011	 	 	2010	 	
 	 	(unaudited)	 	 	(unaudited)	 	 	(unaudited)	 	 	(unaudited)	 	 	(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan interest	 	$	146,827	 	 	 	147,347 	 	 	 	167,902 	 	 	 	294,174 	 	 	 	318,950 	 	
Amortization of loan premiums and deferred origination costs	 	 	(7,893	)  	 	 	(9,989	)  	 	 	(12,549	)  	 	 	(17,882	)  	 	 	(28,630	)  	
Investment interest	 	 	856 	 	 	 	726 	 	 	 	1,304 	 	 	 	1,582 	 	 	 	2,305 	 	
Total interest income	 	 	139,790 	 	 	 	138,084 	 	 	 	156,657 	 	 	 	277,874 	 	 	 	292,625 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest on bonds and notes payable	 	 	51,054 	 	 	 	52,307 	 	 	 	59,243 	 	 	 	103,361 	 	 	 	110,102 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income	 	 	88,736 	 	 	 	85,777 	 	 	 	97,414 	 	 	 	174,513 	 	 	 	182,523 	 	
Less provision for loan losses	 	 	5,250 	 	 	 	3,750 	 	 	 	6,200 	 	 	 	9,000 	 	 	 	11,200 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income after provision for loan losses	 	 	83,486 	 	 	 	82,027 	 	 	 	91,214 	 	 	 	165,513 	 	 	 	171,323 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	 	 	37,389 	 	 	 	35,636 	 	 	 	36,652 	 	 	 	73,025 	 	 	 	73,046 	 	
Tuition payment processing and campus commerce revenue	 	 	14,761 	 	 	 	19,369 	 	 	 	12,795 	 	 	 	34,130 	 	 	 	30,177 	 	
Enrollment services revenue	 	 	32,315 	 	 	 	33,868 	 	 	 	35,403 	 	 	 	66,183 	 	 	 	68,674 	 	
Software services revenue	 	 	4,346 	 	 	 	4,777 	 	 	 	5,499 	 	 	 	9,123 	 	 	 	9,843 	 	
Other income	 	 	6,826 	 	 	 	6,492 	 	 	 	8,496 	 	 	 	13,318 	 	 	 	15,756 	 	
Gain on sale of loans and debt repurchases	 	 	—	 	 	 	8,307 	 	 	 	8,759 	 	 	 	8,307 	 	 	 	18,936 	 	
Derivative market value and foreign currency adjustments	 	 	(16,813	)  	 	 	1,116 	 	 	 	(7,231	)  	 	 	(15,697	)  	 	 	(3,126	)  	
Derivative settlements, net	 	 	(3,522	)  	 	 	(4,152	)  	 	 	(3,377	)  	 	 	(7,674	)  	 	 	(5,800	)  	
Total other income	 	 	75,302 	 	 	 	105,413 	 	 	 	96,996 	 	 	 	180,715 	 	 	 	207,506 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	 	42,881 	 	 	 	43,912 	 	 	 	40,962 	 	 	 	86,793 	 	 	 	81,606 	 	
Cost to provide enrollment services	 	 	22,140 	 	 	 	22,839 	 	 	 	24,111 	 	 	 	44,979 	 	 	 	46,136 	 	
Depreciation and amortization	 	 	6,769 	 	 	 	6,776 	 	 	 	9,728 	 	 	 	13,545 	 	 	 	20,511 	 	
Restructure expense	 	 	—	 	 	 	—	 	 	 	72 	 	 	 	—	 	 	 	1,269 	 	
Other expenses	 	 	28,767 	 	 	 	26,105 	 	 	 	33,348 	 	 	 	54,872 	 	 	 	62,403 	 	
Total operating expenses	 	 	100,557 	 	 	 	99,632 	 	 	 	108,221 	 	 	 	200,189 	 	 	 	211,925 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes	 	 	58,231 	 	 	 	87,808 	 	 	 	79,989 	 	 	 	146,039 	 	 	 	166,904 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income tax expense	 	 	(21,106	)  	 	 	(32,928	)  	 	 	(29,996	)  	 	 	(54,034	)  	 	 	(62,589	)  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	37,125	 	 	 	54,880 	 	 	 	49,993 	 	 	 	92,005 	 	 	 	104,315 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings - basic	 	$	0.76	 	 	 	1.13 	 	 	 	1.00 	 	 	 	1.90 	 	 	 	2.08 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings - diluted	 	$	0.76	 	 	 	1.13 	 	 	 	0.99 	 	 	 	1.89 	 	 	 	2.08 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average shares outstanding:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	 	48,302,779 	 	 	 	48,171,317 	 	 	 	49,735,398 	 	 	 	48,237,411 	 	 	 	49,726,099 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted	 	 	48,488,046 	 	 	 	48,363,035 	 	 	 	49,934,648 	 	 	 	48,425,886 	 	 	 	49,923,680 	 	

3

Condensed Consolidated Balance Sheets
 
 	 	As of	 	 	As of	 	 	As of	 	
 	 	June 30,	 	 	December 31,	 	 	June 30,	 	
 	 	2011	 	 	2010	 	 	2010	 	
 	 	(unaudited)	 	 	 	 	 	(unaudited)	 	
Assets:	 	 	 	 	 	 	 	 	 	
Student loans receivable, net	 	$	23,228,778	 	 	 	23,948,014 	 	 	 	24,746,932 	 	
Student loans receivable - held for sale	 	 	—	 	 	 	84,987 	 	 	 	1,995,869 	 	
Cash, cash equivalents, and investments (trading securities)	 	 	148,005 	 	 	 	327,037 	 	 	 	305,778 	 	
Restricted cash and investments	 	 	675,182 	 	 	 	757,285 	 	 	 	706,965 	 	
Goodwill	 	 	117,118 	 	 	 	117,118 	 	 	 	143,717 	 	
Intangible assets, net	 	 	37,564 	 	 	 	38,712 	 	 	 	48,708 	 	
Other assets	 	 	664,864 	 	 	 	620,739 	 	 	 	620,054 	 	
Total assets	 	$	24,871,511	 	 	 	25,893,892 	 	 	 	28,568,023 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	
Bonds and notes payable	 	$	23,605,413	 	 	 	24,672,472 	 	 	 	27,428,772 	 	
Other liabilities	 	 	277,314 	 	 	 	314,787 	 	 	 	265,306 	 	
Total liabilities	 	 	23,882,727 	 	 	 	24,987,259 	 	 	 	27,694,078 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Shareholders' equity	 	 	988,784 	 	 	 	906,633 	 	 	 	873,945 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total liabilities and shareholders' equity	 	$	24,871,511	 	 	 	25,893,892 	 	 	 	28,568,023 	 	
 
OVERVIEW

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

The Company has certain business objectives in place that include:

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

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

Legislative Impact on Operating Results

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

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

4

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

Due to the legislative changes in the student loan industry, the Company believes there will be opportunities to purchase FFELP loan portfolios and/or expand its current level of guarantee and third party FFELP servicing volume on behalf of current FFELP participants looking to adjust their FFELP businesses.  For example, during the first six months of 2011, the Company purchased $0.7 billion of FFELP student loans, and on July 8, 2011, the Company purchased the residual interest in $1.9 billion of additional FFEL Program loans.

Continue to Grow and Diversify Fee-Based Revenue

The Company has expanded products and services generated from businesses that are not dependent upon the FFEL Program, thereby reducing legislative and political risk related to the education lending industry. Revenues from these businesses are primarily generated from products and services offered in the Company’s Tuition Payment Processing and Campus Commerce and Enrollment Services operating segments. In addition, in September 2009, the Company began servicing federally-owned student loans for the Department. The amount of federally-owned student loans originated through the Direct Loan Program is expected to increase substantially, which will lead to an increase in servicing volume and related revenue for the Company. A summary of revenue from the Company’s fee-based businesses is shown below.
 
 	 	Three months ended	 	 	 	 	 	 	 	
 	 	June 30, 2011	 	 	June 30, 2010	 	 	$ Change	 	 	% Change	 	
Student Loan and Guaranty Servicing (a)	 	$	41,747	 	 	 	42,463 	 	 	 	(716	)  	 	 	(1.7	)%	
Tuition Payment Processing and Campus Commerce	 	 	14,763 	 	 	 	12,799 	 	 	 	1,964 	 	 	 	15.3	 	
Enrollment Services (b)	 	 	32,315 	 	 	 	35,403 	 	 	 	(3,088	)  	 	 	(8.7	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
                Total revenue from fee-based businesses	 	$	88,825	 	 	 	90,665 	 	 	 	(1,840	)  	 	 	(2.0	)%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Six months ended	 	 	 	 	 	 	 	 	 	
 	 	June 30, 2011	 	 	June 30, 2010	 	 	$ Change	 	 	% Change	 	
Student Loan and Guaranty Servicing (a)	 	$	82,175	 	 	 	83,692 	 	 	 	(1,517	)  	 	 	(1.8	)%	
Tuition Payment Processing and Campus Commerce	 	 	34,138 	 	 	 	30,189 	 	 	 	3,949 	 	 	 	13.1	 	
Enrollment Services (b)	 	 	66,183 	 	 	 	68,674 	 	 	 	(2,491	)  	 	 	(3.6	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
                Total revenue from fee-based businesses	 	$	182,496	 	 	 	182,555 	 	 	 	(59	)  	 	 	(0.0	)%	
 
 	(a)	The Student Loan and Guaranty Servicing operating segment included $9.1 million and $12.3 million of revenue earned from rehabilitation collections on defaulted loans for the three months ended June 30, 2011 and 2010, respectively, and $15.6 million and $22.3 million for the six months ended June 30, 2011 and 2010, respectively.	

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

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

5

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

6

Manage Operating Costs

Operating expenses decreased $7.7 million (7.1%) and $11.7 million (5.5%) for the three and six months ended June 30, 2011 compared to the same periods in 2010. Operating expenses increased $0.9 million (0.9%) for the three months ended June 30, 2011 compared to the three months period ended March 31, 2011.
 
 	 	Three months ended	 	 	Change	 	
 	 	June 30, 2011	 	 	June 30, 2010	 	 	$	 	 	%	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	$	42,881	 	 	 	40,962 	 	 	 	1,919 	 	 	 	4.7	%	
Cost to provide enrollment services	 	 	22,140 	 	 	 	24,111 	 	 	 	(1,971	)  	 	 	(8.2	)	
Depreciation and amortization	 	 	6,769 	 	 	 	9,728 	 	 	 	(2,959	)  	 	 	(30.4	)	
Restructure expense	 	 	—	 	 	 	72 	 	 	 	(72	)  	 	 	(100.0	)	
Other expenses	 	 	28,767 	 	 	 	33,348 	 	 	 	(4,581	)  	 	 	(13.7	)	
  Total operating expenses	 	$	100,557	 	 	 	108,221 	 	 	 	(7,664	)  	 	 	(7.1	)  %	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended	 	 	Change	 	
 	 	June 30, 2011	 	 	March 31, 2011	 	 	$	 	 	%	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	$	42,881	 	 	 	43,912 	 	 	 	(1,031	)  	 	 	(2.3	)  %	
Cost to provide enrollment services	 	 	22,140 	 	 	 	22,839 	 	 	 	(699	)  	 	 	(3.1	)	
Depreciation and amortization	 	 	6,769 	 	 	 	6,776 	 	 	 	(7	)  	 	 	(0.1	)	
Restructure expense	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Other expenses	 	 	28,767 	 	 	 	26,105 	 	 	 	2,662 	 	 	 	10.2	 	
  Total operating expenses	 	$	100,557	 	 	 	99,632 	 	 	 	925 	 	 	 	0.9	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended	 	 	Change	 	
 	 	June 30, 2011	 	 	June 30, 2010	 	 	$	 	 	%	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	$	86,793	 	 	 	81,606 	 	 	 	5,187 	 	 	 	6.4	%	
Cost to provide enrollment services	 	 	44,979 	 	 	 	46,136 	 	 	 	(1,157	)  	 	 	(2.5	)	
Depreciation and amortization	 	 	13,545 	 	 	 	20,511 	 	 	 	(6,966	)  	 	 	(34.0	)	
Restructure expense	 	 	—	 	 	 	1,269 	 	 	 	(1,269	)  	 	 	(100.0	)	
Other expenses	 	 	54,872 	 	 	 	62,403 	 	 	 	(7,531	)  	 	 	(12.1	)	
  Total operating expenses	 	$	200,189	 	 	 	211,925 	 	 	 	(11,736	)  	 	 	(5.5	)  %	

Maximize the Value of Existing Portfolio

Fixed rate floor income

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

7

The Company’s core student loan spread (variable student loan spread including fixed rate floor contribution) and variable student loan spread (net interest margin excluding fixed rate floor income) is summarized below.

 	(a)	The interest earned on the majority of the Company’s FFELP student loan assets is indexed to the three-month commercial paper indice. The Company funds the majority of its assets with three-month LIBOR indexed floating rate securities. The relationship between these two indices has a significant impact on student loan spread. This table (the right axis) shows the difference between the average three-month LIBOR and commercial paper indices by quarter.	

The primary difference between variable student loan spread and core student loan spread is fixed rate floor income.  A summary of fixed rate floor income and its contribution to core spread follows.
 
 	 	Three months ended	 	 	Six months ended	 	
 	 	June 30, 2011	 	 	March 31, 2011	 	 	June 30, 2010	 	 	June 30, 2011	 	 	June 30, 2010	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fixed rate floor income, gross	 	$	39,146	 	 	 	37,900	 	 	 	35,340	 	 	 	77,046	 	 	 	74,467	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivative settlements (a)	 	 	(6,345	)	 	 	(6,218	)	 	 	(4,286	)	 	 	(12,563	)	 	 	(8,142	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fixed rate floor income, net	 	$	32,801	 	 	 	31,682	 	 	 	31,054	 	 	 	64,483	 	 	 	66,325	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fixed rate floor income  contribution to spread, net	 	 	0.57	%	 	 	0.55	%	 	 	0.48	%	 	 	0.56	%	 	 	0.53	%	

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

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

8

Future Cash Flow from Portfolio

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

As of June 30, 2011, based on cash flow models developed to reflect management’s current estimate of, among other factors, prepayments, defaults, deferment, forbearance, and interest rates, the Company currently expects future undiscounted cash flows from its portfolio to be approximately $1.63 billion as detailed below.  The $1.63 billion includes approximately $350 million (as of June 30, 2011) of overcollateralization included in the asset-backed securitizations.  These excess net asset positions are reflected variously in the following balances on the consolidated balance sheet:"student loans receivable," "restricted cash and investments," and "accrued interest receivable."
 
The forecasted cash flow presented below includes all loans currently funded in asset-backed securitizations.  As of June 30, 2011, the Company had $20.1 billion of loans included in asset-backed securitizations, which represented 87 percent of its total FFELP student loan portfolio. The forecasted cash flow does not include cash flows that the Company expects to receive related to loans funded through the Department of Education’s Conduit Program and other warehouse facilities or loans originated and/or acquired subsequent to June 30, 2011.

As previously discussed, on July 8, 2011, the Company purchased the residual interest in $1.9 billion of FFELP student loans.  The table below does not include the estimated future cash flow from this portfolio. The Company estimates these loans will add approximately $90 million to $120 million in future cash flow to the Company in addition to the amounts summarized below.

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

9

 
Prepayments :  The primary variable in establishing a life of loan estimate is the level and timing of prepayments. Prepayment rates equal the percentage of loans that prepay annually as a percentage of the beginning of period balance, net of scheduled principal payments.  A number of factors can affect estimated prepayment rates, including the level of consolidation activity and default rates. Should any of these factors change, management may revise its assumptions, which in turn would impact the projected future cash flow. The Company’s cash flow forecast above assumes prepayment rates that are generally consistent with those utilized in the Company’s recent asset-backed securities transactions. If management used a prepayment rate assumption two times greater than what was used to forecast the cash flow, the cash flow forecast would be reduced by approximately $330 million to $390 million.

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

The Company uses the current forward interest rate yield curve to forecast cash flows.  A change in the forward interest rate curve would impact the future cash flows generated from the portfolio.  An increase in future interest rates will reduce the amount of fixed rate floor income the Company is currently receiving.  The Company attempts to mitigate the impact of a rise in short-term rates by hedging interest rate risks. As of June 30, 2011, the net fair value of the Company’s interest rate derivatives used to hedge loans earning fixed rate floor income was a liability of $19.9 million.

Use Liquidity to Capitalize on Market Opportunities

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

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

 	·	FFELP Student Loan Acquisitions	
 	-	Purchased $0.7 billion of FFELP student loans through June 30, 2011	
 	-	Purchased the residual interest in $1.9 billion of FFELP student loans on July 8, 2011	

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

10

 	·	Capital Management	
 	-	Raised the quarterly dividend paid on the Company’s common stock to $0.10 per share	
 	-	Repurchased $63.2 million notional amount of debt recognizing a gain of $7.0 million	

Non-GAAP Performance Measures

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

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

The following table provides a reconciliation of GAAP net income to “base net income”.
 
 	 	Three months ended	 	 	Six months ended	 	
 	 	June 30,	 	 	March 31,	 	 	June 30,	 	 	June 30,	 	 	June 30,	 	
 	 	2011	 	 	2011	 	 	2010	 	 	2011	 	 	2010	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
GAAP net income	 	$	37,125	 	 	 	54,880	 	 	 	49,993	 	 	 	92,005	 	 	 	104,315	 	
Base adjustments:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivative market value and foreign currency adjustments	 	 	16,813	 	 	 	(1,116	)	 	 	7,231	 	 	 	15,697	 	 	 	3,126	 	
Amortization of intangible assets	 	 	3,959	 	 	 	3,976	 	 	 	6,232	 	 	 	7,935	 	 	 	12,748	 	
Total base adjustments before income taxes	 	 	20,772	 	 	 	2,860	 	 	 	13,463	 	 	 	23,632	 	 	 	15,874	 	
Net tax effect	 	 	(7,893	)	 	 	(1,087	)	 	 	(5,116	)	 	 	(8,980	)	 	 	(6,032	)	
Total base adjustments	 	 	12,879	 	 	 	1,773	 	 	 	8,347	 	 	 	14,652	 	 	 	9,842	 	
Base net income	 	$	50,004	 	 	 	56,653	 	 	 	58,340	 	 	 	106,657	 	 	 	114,157	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
GAAP net income	 	$	0.76	 	 	 	1.13	 	 	 	1.00	 	 	 	1.90	 	 	 	2.08	 	
Adjustment for application of the two-class method	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  of computing earnings per share (a)	 	 	—	 	 	 	0.01	 	 	 	0.01	 	 	 	0.01	 	 	 	0.02	 	
Total base adjustments	 	 	0.28	 	 	 	0.04	 	 	 	0.16	 	 	 	0.30	 	 	 	0.20	 	
     Base net income	 	$	1.04	 	 	 	1.18	 	 	 	1.17	 	 	 	2.21	 	 	 	2.30	 	
 
 	(a)	The two-class method requires the calculation of separate earnings per share amounts for unvested share-based awards and for common stock. Unvested share-based awards that contain nonforfeitable rights to dividends are considered securities which participate in undistributed earnings with common stock. GAAP net earnings per share in the above table represents earnings per share attributable to common shareholders.  The adjustment to base net income reflects the earnings allocated to holders of unvested restricted stock awards.	

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The following table summarizes the impact to “base net income” from restructure charges recognized by the Company.
 
 	 	Three months ended	 	 	Six months ended	 	
 	 	June 30,	 	 	March 31,	 	 	June 30,	 	 	June 30,	 	 	June 30,	 	
 	 	2011	 	 	2011	 	 	2010	 	 	2011	 	 	2010	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Base net income	 	$	50,004	 	 	 	56,653 	 	 	 	58,340 	 	 	 	106,657 	 	 	 	114,157 	 	
Adjusted base adjustments:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Restructure expense	 	 	—	 	 	 	—	 	 	 	72 	 	 	 	—	 	 	 	1,269 	 	
Adjusted base adjustments before income taxes	 	 	—	 	 	 	—	 	 	 	72 	 	 	 	—	 	 	 	1,269 	 	
Net tax effect	 	 	—	 	 	 	—	 	 	 	(27	)  	 	 	—	 	 	 	(482	)  	
Total adjusted base adjustments	 	 	—	 	 	 	—	 	 	 	45 	 	 	 	—	 	 	 	787 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Base net income, excluding restructure expense (net of tax)	 	$	50,004	 	 	 	56,653 	 	 	 	58,385 	 	 	 	106,657 	 	 	 	114,944 	 	

Earnings per share:	 	$	1.04	 	 	 	1.18 	 	 	 	1.17 	 	 	 	2.21 	 	 	 	2.30 	 	
Base net income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	0.01 	 	
  Total adjusted base adjustments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
        Base net income, excluding restructure expense (net of tax)	 	$	1.04	 	 	 	1.18 	 	 	 	1.17 	 	 	 	2.21 	 	 	 	2.31 	 	

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

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

Differences between GAAP and Base Net Income

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

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

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

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

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

13

Operating Segments

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

The accounting policies of the Company’s operating segments are the same as those described in note 2 in the notes to the consolidated financial statements included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2010. Intersegment revenues are charged by a segment to another segment that provides the product or service.  Intersegment revenues and expenses are included within each segment consistent with the income statement presentation provided to management.  Changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial information. The Company allocates certain corporate overhead expenses to the individual operating segments.  These expenses include certain corporate activities related to executive management, human resources, accounting, legal, occupancy, and marketing. These costs are allocated to each operating segment based on estimated use of such activities and services.

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

Student Loan and Guaranty Servicing

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

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

The Student Loan and Guaranty Servicing operating segment provides for the servicing of the Company’s student loan portfolios and the portfolios of third parties. The loan servicing activities include loan origination activities, loan conversion activities, application processing, borrower updates, payment processing, due diligence procedures, funds management reconciliations, and claim processing. These activities are performed internally for the Company’s portfolio in addition to generating external fee revenue when performed for third party clients.

14

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

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

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

Student Loan and Guaranty Servicing - Segment Summary of Results

The results for the three and six months ended June 30, 2011 compared to the same periods in 2010 include:

 	·	A decrease in FFELP servicing revenue due to the loss of servicing volume from third party customers.	

 	·	An increase in government servicing revenue due to increased volume from the Department.	

 	·	A decrease in guaranty servicing revenue due to a decrease in rehabilitation collection revenue and the amortization of the guaranty servicing portfolio.	

 	·	A lower operating margin as the result of the growing government servicing portfolio as a percent of the Company’s total servicing portfolio.	

Tuition Payment Processing and Campus Commerce

The Company’s Tuition Payment Processing and Campus Commerce operating segment provides products and services to help students and families manage the payment of education costs at all levels (K-12 and higher education).  It also provides innovative education-focused technologies, services, and support solutions to help schools with the everyday challenges of collecting and processing commerce data.

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

15

Tuition Payment Processing and Campus Commerce - Segment Summary of Results

The results for the three and six months ended June 30, 2011 compared to the same periods in 2010 include:

 	·	An increase in revenue as a result of an increase in the number of managed tuition payment plans and campus commerce transactions processed.	

 	·	An improved operating margin, which includes strong revenue growth while still incurring expenses related to continued investments in new products and services.	

Enrollment Services

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

Enrollment Services - Segment Summary of Results

The results for the three and six months ended June 30, 2011 compared to the same periods in 2010 include a decrease in revenue and operating margin due to the effects from current regulatory uncertainty in the for-profit college industry, which has caused schools to decrease spending on marketing efforts.

Asset Generation and Management Operating Segment

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

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

16

Asset Generation and Management - Segment Summary of Results

The results for the three and six months ended June 30, 2011 compared to the same periods in 2010 include:

 	·	Continued recognition of significant fixed rate floor income due to historically low interest rates.	

 	·	The purchase of $683.1 million of FFELP student loans during the first six months of 2011 from various third parties.	

 	·	The repurchase of $392.0 million of asset-backed securities resulting in a gain of $18.9 million in the first six months of 2010. Due to improvements in the capital markets, the opportunities for the Company to repurchase debt at less than par are becoming more limited. During the first six months of 2011, the Company repurchased $0.6 million of its asset-backed securities resulting in a gain of approximately $55,000.	

Corporate Activity and Overhead

Corporate Activity and Overhead includes the following items:

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

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

Income Taxes

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

17

Segment Operating Results

The tables below reflect “base net income” for each of the Company’s operating segments.  Reconciliation of the segment totals to the Company’s operating results in accordance with GAAP is also included in the tables below.

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

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

18

 	 	Three months ended March 31, 2011	 	
 	 	Fee-Based	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Student
Loan
and
Guaranty	 	 	Tuition
Payment
Processing
and Campus	 	 	Enrollment	 	 	Total
Fee-	 	 	Asset
Generation
and	 	 	Corporate
Activity
and	 	 	 	 	 	Base Net	 	 	Adjustments
to GAAP	 	 	GAAP
Results of	 	
 	 	Servicing	 	 	Commerce	 	 	Services	 	 	Based	 	 	Management	 	 	Overhead	 	 	Eliminations	 	 	Income	 	 	Results	 	 	Operations	 	

Total interest income	 	$	15	 	 	 	6	 	 	 	—	 	 	 	21	 	 	 	137,639	 	 	 	1,146	 	 	 	(722	)	 	 	138,084	 	 	 	—	 	 	 	138,084	 	
Interest expense	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	49,716	 	 	 	3,313	 	 	 	(722	)	 	 	52,307	 	 	 	—	 	 	 	52,307	 	
Net interest income (loss)	 	 	15	 	 	 	6	 	 	 	—	 	 	 	21	 	 	 	87,923	 	 	 	(2,167	)	 	 	—	 	 	 	85,777	 	 	 	—	 	 	 	85,777	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less provision for loan losses	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	3,750	 	 	 	—	 	 	 	—	 	 	 	3,750	 	 	 	—	 	 	 	3,750	 	
Net interest income (loss) after provision for loan losses	 	 	15	 	 	 	6	 	 	 	—	 	 	 	21	 	 	 	84,173	 	 	 	(2,167	)	 	 	—	 	 	 	82,027	 	 	 	—	 	 	 	82,027	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	 	 	35,636	 	 	 	—	 	 	 	—	 	 	 	35,636	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	35,636	 	 	 	—	 	 	 	35,636	 	
Intersegment servicing revenue	 	 	17,857	 	 	 	—	 	 	 	—	 	 	 	17,857	 	 	 	—	 	 	 	—	 	 	 	(17,857	)	 	 	—	 	 	 	—	 	 	 	—	 	
Tuition payment processing and campus commerce revenue	 	 	—	 	 	 	19,369	 	 	 	—	 	 	 	19,369	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	19,369	 	 	 	—	 	 	 	19,369	 	
Enrollment services revenue	 	 	—	 	 	 	—	 	 	 	33,868	 	 	 	33,868	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	33,868	 	 	 	—	 	 	 	33,868	 	
Software services revenue	 	 	4,777	 	 	 	—	 	 	 	—	 	 	 	4,777	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	4,777	 	 	 	—	 	 	 	4,777	 	
Other income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	4,136	 	 	 	2,356	 	 	 	—	 	 	 	6,492	 	 	 	—	 	 	 	6,492	 	
Gain on sale of loans and debt repurchases	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,400	 	 	 	6,907	 	 	 	—	 	 	 	8,307	 	 	 	—	 	 	 	8,307	 	
Derivative market value and foreign currency adjustments	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,116	 	 	 	1,116	 	
Derivative settlements, net	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(4,038	)	 	 	(114	)	 	 	—	 	 	 	(4,152	)	 	 	—	 	 	 	(4,152	)	
        Total other income (expense)	 	 	58,270	 	 	 	19,369	 	 	 	33,868	 	 	 	111,507	 	 	 	1,498	 	 	 	9,149	 	 	 	(17,857	)	 	 	104,297	 	 	 	1,116	 	 	 	105,413	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	 	25,388	 	 	 	7,152	 	 	 	6,257	 	 	 	38,797	 	 	 	778	 	 	 	4,337	 	 	 	—	 	 	 	43,912	 	 	 	—	 	 	 	43,912	 	
Cost to provide enrollment services	 	 	—	 	 	 	—	 	 	 	22,839	 	 	 	22,839	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	22,839	 	 	 	—	 	 	 	22,839	 	
Depreciation and amortization	 	 	1,306	 	 	 	336	 	 	 	813	 	 	 	2,455	 	 	 	—	 	 	 	345	 	 	 	—	 	 	 	2,800	 	 	 	3,976	 	 	 	6,776	 	
Restructure expense	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
        Other	 	 	14,579	 	 	 	2,634	 	 	 	2,318	 	 	 	19,531	 	 	 	1,538	 	 	 	5,036	 	 	 	—	 	 	 	26,105	 	 	 	—	 	 	 	26,105	 	
Intersegment expenses, net	 	 	1,369	 	 	 	1,093	 	 	 	818	 	 	 	3,280	 	 	 	18,147	 	 	 	(3,570	)	 	 	(17,857	)	 	 	—	 	 	 	—	 	 	 	—	 	
        Total operating expenses	 	 	42,642	 	 	 	11,215	 	 	 	33,045	 	 	 	86,902	 	 	 	20,463	 	 	 	6,148	 	 	 	(17,857	)	 	 	95,656	 	 	 	3,976	 	 	 	99,632	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before income taxes and corporate overhead allocation	 	 	15,643	 	 	 	8,160	 	 	 	823	 	 	 	24,626	 	 	 	65,208	 	 	 	834	 	 	 	—	 	 	 	90,668	 	 	 	(2,860	)	 	 	87,808	 	
Corporate overhead allocation	 	 	(753	)	 	 	(251	)	 	 	(251	)	 	 	(1,255	)	 	 	(1,255	)	 	 	2,510	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Income (loss) before income taxes	 	 	14,890	 	 	 	7,909	 	 	 	572	 	 	 	23,371	 	 	 	63,953	 	 	 	3,344	 	 	 	—	 	 	 	90,668	 	 	 	(2,860	)	 	 	87,808	 	
Income tax (expense) benefit	 	 	(5,658	)	 	 	(3,005	)	 	 	(217	)	 	 	(8,880	)	 	 	(24,302	)	 	 	(833	)	 	 	—	 	 	 	(34,015	)	 	 	1,087	 	 	 	(32,928	)	
Net income (loss)	 	$	9,232	 	 	 	4,904	 	 	 	355	 	 	 	14,491	 	 	 	39,651	 	 	 	2,511	 	 	 	—	 	 	 	56,653	 	 	 	(1,773	)	 	 	54,880	 	
 
19

 	 	Three months ended June 30, 2010	 	
 	 	Fee-Based	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Student
Loan
and
Guaranty	 	 	Tuition
Payment
Processing
and Campus	 	 	Enrollment	 	 	Total
Fee-	 	 	Asset
Generation
and	 	 	Corporate
Activity
and	 	 	 	 	 	Base Net	 	 	Adjustments
to GAAP	 	 	GAAP
Results of	 	
 	 	Servicing	 	 	Commerce	 	 	Services	 	 	Based	 	 	Management	 	 	Overhead	 	 	Eliminations	 	 	Income	 	 	Results	 	 	Operations	 	

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

20

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

Total interest income	 	$	27	 	 	 	8	 	 	 	—	 	 	 	35	 	 	 	276,923	 	 	 	2,293	 	 	 	(1,377	)	 	 	277,874	 	 	 	—	 	 	 	277,874	 	
Interest expense	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	98,985	 	 	 	5,753	 	 	 	(1,377	)	 	 	103,361	 	 	 	—	 	 	 	103,361	 	
Net interest income (loss)	 	 	27	 	 	 	8	 	 	 	—	 	 	 	35	 	 	 	177,938	 	 	 	(3,460	)	 	 	—	 	 	 	174,513	 	 	 	—	 	 	 	174,513	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less provision for loan losses	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	9,000	 	 	 	—	 	 	 	—	 	 	 	9,000	 	 	 	—	 	 	 	9,000	 	
Net interest income (loss) after provision for loan losses	 	 	27	 	 	 	8	 	 	 	—	 	 	 	35	 	 	 	168,938	 	 	 	(3,460	)	 	 	—	 	 	 	165,513	 	 	 	—	 	 	 	165,513	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	 	 	73,025	 	 	 	—	 	 	 	—	 	 	 	73,025	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	73,025	 	 	 	—	 	 	 	73,025	 	
Intersegment servicing revenue	 	 	34,650	 	 	 	—	 	 	 	—	 	 	 	34,650	 	 	 	—	 	 	 	—	 	 	 	(34,650	)	 	 	—	 	 	 	—	 	 	 	—	 	
Tuition payment processing and campus commerce revenue	 	 	—	 	 	 	34,130	 	 	 	—	 	 	 	34,130	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	34,130	 	 	 	—	 	 	 	34,130	 	
Enrollment services revenue	 	 	—	 	 	 	—	 	 	 	66,183	 	 	 	66,183	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	66,183	 	 	 	—	 	 	 	66,183	 	
Software services revenue	 	 	9,123	 	 	 	—	 	 	 	—	 	 	 	9,123	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	9,123	 	 	 	—	 	 	 	9,123	 	
Other income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	8,133	 	 	 	5,185	 	 	 	—	 	 	 	13,318	 	 	 	—	 	 	 	13,318	 	
Gain on sale of loans and debt repurchases	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,400	 	 	 	6,907	 	 	 	—	 	 	 	8,307	 	 	 	—	 	 	 	8,307	 	
Derivative market value and foreign currency adjustments	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(15,697	)	 	 	(15,697	)	
Derivative settlements, net	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(7,312	)	 	 	(362	)	 	 	—	 	 	 	(7,674	)	 	 	—	 	 	 	(7,674	)	
Total other income (expense)	 	 	116,798	 	 	 	34,130	 	 	 	66,183	 	 	 	217,111	 	 	 	2,221	 	 	 	11,730	 	 	 	(34,650	)	 	 	196,412	 	 	 	(15,697	)	 	 	180,715	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	 	50,119	 	 	 	14,401	 	 	 	12,188	 	 	 	76,708	 	 	 	1,487	 	 	 	8,598	 	 	 	—	 	 	 	86,793	 	 	 	—	 	 	 	86,793	 	
Cost to provide enrollment services	 	 	—	 	 	 	—	 	 	 	44,979	 	 	 	44,979	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	44,979	 	 	 	—	 	 	 	44,979	 	
Depreciation and amortization	 	 	2,642	 	 	 	681	 	 	 	1,593	 	 	 	4,916	 	 	 	—	 	 	 	694	 	 	 	—	 	 	 	5,610	 	 	 	7,935	 	 	 	13,545	 	
Restructure expense	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Other	 	 	29,184	 	 	 	4,961	 	 	 	4,760	 	 	 	38,905	 	 	 	6,677	 	 	 	9,290	 	 	 	—	 	 	 	54,872	 	 	 	—	 	 	 	54,872	 	
Intersegment expenses, net	 	 	2,429	 	 	 	2,211	 	 	 	1,777	 	 	 	6,417	 	 	 	35,194	 	 	 	(6,961	)	 	 	(34,650	)	 	 	—	 	 	 	—	 	 	 	—	 	
Total operating expenses	 	 	84,374	 	 	 	22,254	 	 	 	65,297	 	 	 	171,925	 	 	 	43,358	 	 	 	11,621	 	 	 	(34,650	)	 	 	192,254	 	 	 	7,935	 	 	 	200,189	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before income taxes and corporate overhead allocation	 	 	32,451	 	 	 	11,884	 	 	 	886	 	 	 	45,221	 	 	 	127,801	 	 	 	(3,351	)	 	 	—	 	 	 	169,671	 	 	 	(23,632	)	 	 	146,039	 	
Corporate overhead allocation	 	 	(1,986	)	 	 	(662	)	 	 	(662	)	 	 	(3,310	)	 	 	(3,309	)	 	 	6,619	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Income (loss) before income taxes	 	 	30,465	 	 	 	11,222	 	 	 	224	 	 	 	41,911	 	 	 	124,492	 	 	 	3,268	 	 	 	—	 	 	 	169,671	 	 	 	(23,632	)	 	 	146,039	 	
Income tax (expense) benefit	 	 	(11,575	)	 	 	(4,264	)	 	 	(85	)	 	 	(15,924	)	 	 	(47,714	)	 	 	624	 	 	 	—	 	 	 	(63,014	)	 	 	8,980	 	 	 	(54,034	)	
Net income (loss)	 	$	18,890	 	 	 	6,958	 	 	 	139	 	 	 	25,987	 	 	 	76,778	 	 	 	3,892	 	 	 	—	 	 	 	106,657	 	 	 	(14,652	)	 	 	92,005	 	
 
21

 	 	Six months ended June 30, 2010	 	
 	 	Fee-Based	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Student
Loan
and
Guaranty	 	 	Tuition
Payment
Processing
and Campus	 	 	Enrollment	 	 	Total
Fee-	 	 	Asset
Generation
and	 	 	Corporate
Activity
and	 	 	 	 	 	Base net	 	 	Adjustments
to GAAP	 	 	GAAP
Results of	 	
 	 	Servicing	 	 	Commerce	 	 	Services	 	 	Based	 	 	Management	 	 	Overhead	 	 	Eliminations	 	 	income	 	 	Results	 	 	Operations	 	

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

22

The adjustments required to reconcile from the Company’s “base net income” measure to its GAAP results of operations relate to differing treatments for derivatives, foreign currency transaction adjustments, and amortization of intangible assets. These items are excluded from management’s evaluation of the Company’s operating results. The following tables reflect adjustments associated with these areas by operating segment and Corporate Activity and Overhead:
 
 	 	Student
Loan
and
Guaranty
Servicing	 	 	Tuition
Payment
Processing
and Campus
Commerce	 	 	Enrollment
Services	 	 	Asset
Generation
and
Management	 	 	Corporate
Activity
and
Overhead	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30, 2011	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivative market value and foreign currency adjustments	 	$	—	 	 	 	—	 	 	 	—	 	 	 	12,531 	 	 	 	4,282 	 	 	 	16,813 	 	
Amortization of intangible assets	 	 	2,100 	 	 	 	981 	 	 	 	878 	 	 	 	—	 	 	 	—	 	 	 	3,959 	 	
Net tax effect (a)	 	 	(798	)  	 	 	(373	)  	 	 	(334	)  	 	 	(4,762	)  	 	 	(1,626	)  	 	 	(7,893	)  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total adjustments to GAAP	 	$	1,302	 	 	 	608 	 	 	 	544 	 	 	 	7,769 	 	 	 	2,656 	 	 	 	12,879 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended March 31, 2011	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivative market value and foreign currency adjustments	 	$	—	 	 	 	—	 	 	 	—	 	 	 	589 	 	 	 	(1,705	)  	 	 	(1,116	)  	
Amortization of intangible assets	 	 	2,100 	 	 	 	998 	 	 	 	878 	 	 	 	—	 	 	 	—	 	 	 	3,976 	 	
Net tax effect (a)	 	 	(798	)  	 	 	(379	)  	 	 	(334	)  	 	 	(224	)  	 	 	648 	 	 	 	(1,087	)  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total adjustments to GAAP	 	$	1,302	 	 	 	619 	 	 	 	544 	 	 	 	365 	 	 	 	(1,057	)  	 	 	1,773 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30, 2010	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivative market value and foreign currency adjustments	 	$	—	 	 	 	—	 	 	 	—	 	 	 	550 	 	 	 	6,681 	 	 	 	7,231 	 	
Amortization of intangible assets	 	 	2,114 	 	 	 	1,591 	 	 	 	2,527 	 	 	 	—	 	 	 	—	 	 	 	6,232 	 	
Net tax effect (a)	 	 	(803	)  	 	 	(605	)  	 	 	(958	)  	 	 	(209	)  	 	 	(2,541	)  	 	 	(5,116	)  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total adjustments to GAAP	 	$	1,311	 	 	 	986 	 	 	 	1,569 	 	 	 	341 	 	 	 	4,140 	 	 	 	8,347 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Six months ended June 30, 2011	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivative market value and foreign currency adjustments	 	$	—	 	 	 	—	 	 	 	—	 	 	 	13,120 	 	 	 	2,577 	 	 	 	15,697 	 	
Amortization of intangible assets	 	 	4,200 	 	 	 	1,979 	 	 	 	1,756 	 	 	 	—	 	 	 	—	 	 	 	7,935 	 	
Net tax effect (a)	 	 	(1,596	)  	 	 	(752	)  	 	 	(667	)  	 	 	(4,986	)  	 	 	(979	)  	 	 	(8,980	)  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total adjustments to GAAP	 	$	2,604	 	 	 	1,227 	 	 	 	1,089 	 	 	 	8,134 	 	 	 	1,598 	 	 	 	14,652 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Six months ended June 30, 2010	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivative market value and foreign currency adjustments	 	$	—	 	 	 	—	 	 	 	—	 	 	 	(4,011	)  	 	 	7,137 	 	 	 	3,126 	 	
Amortization of intangible assets	 	 	4,350 	 	 	 	3,516 	 	 	 	4,882 	 	 	 	—	 	 	 	—	 	 	 	12,748 	 	
Net tax effect (a)	 	 	(1,653	)  	 	 	(1,337	)  	 	 	(1,858	)  	 	 	1,524 	 	 	 	(2,708	)  	 	 	(6,032	)  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total adjustments to GAAP	 	$	2,697	 	 	 	2,179 	 	 	 	3,024 	 	 	 	(2,487	)  	 	 	4,429 	 	 	 	9,842 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	(a)	Income taxes are based on 38% for the individual operating segments.	

23

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

The following table summarizes the components of “net interest income after provision for loan losses,” net of “derivative settlements, net” included in the attached condensed consolidated statements of income.
 
 	 	Three months ended	 	 	Six months ended	 	
 	 	June 30,	 	 	March 31	 	 	June 30,	 	 	June 30,	 	 	June 30,	 	
 	 	2011	 	 	2011	 	 	2010	 	 	2011	 	 	2010	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Variable student loan interest margin, net of settlements on derivatives	 	$	53,997	 	 	 	52,530	 	 	 	67,804	 	 	 	106,527	 	 	 	120,334	 	
Fixed rate floor income, net of settlements on derivatives	 	 	32,801 	 	 	 	31,682 	 	 	 	31,054 	 	 	 	64,483 	 	 	 	66,325 	 	
Investment interest	 	 	856	 	 	 	726	 	 	 	1,304	 	 	 	1,582	 	 	 	2,305	 	
Corporate debt interest expense	 	 	(2,440	)	 	 	(3,313	)	 	 	(6,125	)	 	 	(5,753	)	 	 	(12,241	)	
Provision for loan losses	 	 	(5,250	)	 	 	(3,750	)	 	 	(6,200	)	 	 	(9,000	)	 	 	(11,200	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income after  provision for loan losses (net of  settlements on derivatives)	 	$	79,964	 	 	 	77,875	 	 	 	87,837	 	 	 	157,839	 	 	 	165,523	 	

24

Student Loan Servicing Volumes (dollars in millions)

 
Derivative Market Value and Foreign Currency Adjustments

The following table summarizes the components of “derivative market value and foreign currency adjustments” included in the attached condensed consolidated statements of income.
 
 	 	Three months ended	 	 	Six months ended	 	
 	 	June 30,	 	 	March 31	 	 	June 30,	 	 	June 30,	 	 	June 30,	 	
 	 	2011	 	 	2011	 	 	2010	 	 	2011	 	 	2010	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Change in fair value of derivatives - income (expense)	 	$	2,207	 	 	 	66,450	 	 	 	(100,632	)	 	 	68,658	 	 	 	(168,201	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign currency transaction adjustment (re-measurement  of Euro notes) - income (expense)	 	 	(19,020	)	 	 	(65,334	)	 	 	93,401	 	 	 	(84,355	)	 	 	165,075	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivative market value and foreign currency adjustments - income (expense)	 	$	(16,813	)	 	 	1,116	 	 	 	(7,231	)	 	 	(15,697	)	 	 	(3,126	)	

25

 Derivative Settlements, net

The following table summarizes the components of “derivate settlements, net” included in the attached condensed consolidated statements of income.
 
 	 	Three months ended	 	 	Six months ended	 	
 	 	June 30,	 	 	March 31,	 	 	June 30,	 	 	June 30,	 	 	June 30,	 	
 	 	2011	 	 	2011	 	 	2010	 	 	2011	 	 	2010	 	
Settlements:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
1:3 basis swaps	 	$	373	 	 	 	208	 	 	 	80	 	 	 	581	 	 	 	221	 	
T-Bill/LIBOR basis swaps	 	 	(64	)	 	 	(129	)	 	 	—	 	 	 	(194	)	 	 	—	 	
Interest rate swaps - floor income hedges	 	 	(6,345	)	 	 	(6,218	)	 	 	(4,286	)	 	 	(12,563	)	 	 	(8,142	)	
Interest rate swaps - hybrid debt hedges	 	 	(248	)	 	 	(246	)	 	 	(79	)	 	 	(494	)	 	 	(79	)	
Cross-currency interest rate swaps	 	 	2,770	 	 	 	2,109	 	 	 	917	 	 	 	4,880	 	 	 	2,219	 	
Other	 	 	(8	)	 	 	124	 	 	 	(9	)	 	 	116	 	 	 	(19	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
   Total settlements - expense	 	$	(3,522	)	 	 	(4,152	)	 	 	(3,377	)	 	 	(7,674	)	 	 	(5,800	)	
 
Student Loans Receivable

The tables below outline the components of the Company’s student loan portfolio:
 
 	 	As of June 30, 2011	 	 	As of December 31, 2010	 	
 	 	Held for investment	 	 	Held for investment	 	 	Held for sale (a)	 	
Federally insured loans	 	$	23,083,157	 	 	 	23,757,699 	 	 	 	—	 	
Non-federally insured loans	 	 	30,655 	 	 	 	26,370 	 	 	 	84,987 	 	
 	 	 	23,113,812 	 	 	 	23,784,069 	 	 	 	84,987 	 	
Unamortized loan discount/premiums and deferred origination costs, net	 	 	157,266 	 	 	 	207,571 	 	 	 	—	 	
Allowance for loan losses – federally insured loans	 	 	(31,968	)  	 	 	(32,908	)  	 	 	—	 	
Allowance for loan losses – non-federally insured loans	 	 	(10,332	)  	 	 	(10,718	)  	 	 	—	 	
 	 	$	23,228,778	 	 	 	23,948,014 	 	 	 	84,987 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Allowance for federally insured loans as a percentage of such loans	 	 	0.14	%	 	 	0.14	%	 	 	 	 	
Allowance for non-federally insured loans as a percentage of such loans	 	 	33.70	%	 	 	10.64	%	 	 	 	 	
 
 	(a)	On January 13, 2011, the Company sold a portfolio of non-federally insured loans for proceeds of $91.3 million (100% of par value). The Company retained credit risk related to this portfolio and will pay cash to purchase back any loans which become 60 days delinquent. As of December 31, 2010, the Company classified this portfolio as held for sale and the loans were carried at fair value.	

26

Student Loan Spread

The following table analyzes the student loan spread on the Company’s portfolio of student loans and represents the spread on assets earned in conjunction with the liabilities and derivative instruments used to fund the assets.
 
 	 	Three months ended	 	 	Six months ended	 	
 	 	June 30,	 	 	March 31,	 	 	June 30,	 	 	June 30,	 	 	June 30,	 	
 	 	2011	 	 	2011	 	 	2010	 	 	2011	 	 	2010	 	
Variable student loan yield, gross	 	 	2.57	%	 	 	2.60	%	 	 	2.72	%	 	 	2.58	%	 	 	2.64	%	
Consolidation rebate fees	 	 	(0.71	)	 	 	(0.72	)	 	 	(0.67	)	 	 	(0.72	)	 	 	(0.69	)	
Premium and deferred origination costs amortization	 	 	(0.14	)	 	 	(0.17	)	 	 	(0.19	)	 	 	(0.15	)	 	 	(0.23	)	
Variable student loan yield, net	 	 	1.72	 	 	 	1.71	 	 	 	1.86	 	 	 	1.71	 	 	 	1.72	 	
Student loan cost of funds - interest expense	 	 	(0.83	)	 	 	(0.83	)	 	 	(0.81	)	 	 	(0.83	)	 	 	(0.78	)	
Student loan cost of funds - derivative settlements	 	 	0.05	 	 	 	0.03	 	 	 	0.01	 	 	 	0.04	 	 	 	0.02	 	
Variable student loan spread	 	 	0.94	 	 	 	0.91	 	 	 	1.06	 	 	 	0.92	 	 	 	0.96	 	
Fixed rate floor income, net of s ettlements on derivatives	 	 	0.57	 	 	 	0.55	 	 	 	0.48	 	 	 	0.56	 	 	 	0.53	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Core student loan spread	 	 	1.51	%	 	 	1.46	%	 	 	1.54	%	 	 	1.48	%	 	 	1.49	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Average balance of student loans	 	$	23,298,870	 	 	 	23,586,250	 	 	 	25,931,220	 	 	 	23,440,060	 	 	 	25,006,012	 	
Average balance of debt outstanding	 	 	23,510,072	 	 	 	23,853,620	 	 	 	26,124,574	 	 	 	23,680,897	 	 	 	25,166,222	 	

 Fixed Rate Floor Income
 
The following table shows the Company’s student loan assets that are earning fixed rate floor income as of June 30, 2011:
 
Fixed
interest
rate range	 	Borrower/
lender
weighted
average yield	 	Estimated
variable
conversion
rate (a)	 	Balance of
assets earning fixed-rate
floor income as of
June 30, 2011	
 	 	 	 	 	 	 	
<3.0%	 	2.87%	 	0.23%	$	1,528,366	
3.0 - 3.49%	 	3.21%	 	0.57%	 	1,738,261	
3.5 - 3.99%	 	3.65%	 	1.01%	 	1,775,005	
4.0 - 4.49%	 	4.20%	 	1.56%	 	1,391,225	
4.5 - 4.99%	 	4.72%	 	2.08%	 	772,220	
5.0 - 5.49%	 	5.25%	 	2.61%	 	520,151	
5.5 - 5.99%	 	5.67%	 	3.03%	 	315,462	
6.0 - 6.49%	 	6.19%	 	3.55%	 	367,773	
6.5 - 6.99%	 	6.70%	 	4.06%	 	327,867	
7.0 - 7.49%	 	7.17%	 	4.53%	 	115,458	
7.5 - 7.99%	 	7.71%	 	5.07%	 	202,937	
8.0 - 8.99%	 	8.17%	 	5.53%	 	454,322	
> 9.0%	 	9.04%	 	6.40%	 	259,645	
 	 	 	 	 	$	9,768,692	
 	 	 	 	 	 	 	
(a) The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to variable rate.  As of June 30, 2011, the short-term interest rate was 19 basis points.	

27

 
The following table summarizes the outstanding derivatives instruments as of June 30, 2011 used by the Company to hedge fixed-rate student loan assets.
 
Maturity	 	Notional
Amount	 	 	Weighted
average fixed
rate paid by
the Company (a)	
 	 	 	 	 	 	 	
2011	 	$	3,300,000	 	 	 	0.55	%	
2012	 	 	950,000	 	 	 	1.08	 	
2013	 	 	2,150,000	 	 	 	0.85	 	
2015	 	 	100,000	 	 	 	2.26	 	
2020	 	 	50,000	 	 	 	3.23	 	
 	 	$	6,550,000	 	 	 	0.77	%	
 	 	 	 	 	 	 	 	 	
(a)  For all interest rate derivatives, the Company receives discrete three-month LIBOR.	

 

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