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)
 March 3, 2010
 
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 March 3, 2010, Nelnet, Inc. (the “Company”) issued a press release with respect to its financial results for the quarter ended December 31, 2009.  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 December 31, 2009, which was made available on the Company’s website at www.nelnetinvestors.com on March 3, 2010 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 March 3, 2010 – “Nelnet Reports Fourth Quarter 2009 Results”
 	
99.2	 	Supplemental Financial Information for the Quarter Ended December 31, 2009	

 

 
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:  March 3, 2010
 	 	NELNET, INC.	 	
 	 	 	 	 	
 	 	By:  	/s/ TERRY J. HEIMES 	 	
 	 	 	Name:  Terry J. Heimes	 	
 	 	 	Title:  Chief Financial Officer	 	

Exhibit 99.1
 
Media contact: Ben Kiser, 402.458.3024
Investor contact: Phil Morgan, 402.458.3038

Nelnet Reports Fourth Quarter 2009 Results
 	·	Base net income of $3.94 per share for 2009 and $1.64 per share for the fourth quarter	
 	·	Fee-based revenue increased 13 percent	
 	·	Significant increase in volume of loans serviced for the Department of Education	
 	·	Strong balance sheet and cash position	

LINCOLN, Neb., March 3, 2010 – Nelnet (NYSE: NNI) today reported base net income of $81.3 million, or $1.64 per share, for the fourth quarter of 2009, compared with $15.8 million, or $0.32 per share, for the same quarter a year ago. For the year ended December 31, 2009, the company reported base net income of $194.9 million, or $3.94 per share, compared with $81.1 million, or $1.65 per share, for 2008. Base net income excludes discontinued operations, restructuring charges, impairment expenses, and certain liquidity-related charges.

Base net income in the fourth quarter of 2009 includes pre-tax gains of $26.9 million, or $0.35 per share after tax, on the sale of $1.7 billion of federal student loans to the Department of Education (Department) and $22.7 million, or $0.30 per share after tax, from the company’s repurchase of $302.1 million of asset-backed debt. Excluded from base net income in the fourth quarter of 2009 is a $32.7 million non-cash impairment charge related to goodwill and intangible assets of the company’s direct marketing and list management business.

“After a challenging 2008, we ended 2009 significantly stronger and with renewed optimism for the future,” said Mike Dunlap, Nelnet Chairman and Chief Executive Officer. “Our focus on our customers, associates, and continuing to diversify our company served us well. We are excited by our increasing fee-based revenue, significant increase in volume we service for the Department, and our strong balance sheet position. Together, these results have positioned us well for 2010.”

Diversifying and increasing fee-based revenue

Total revenue from fee-based businesses for the fourth quarter of 2009 increased 13 percent to $77.3 million, or 62 percent of total revenue, and is compared with $68.4 million for the same period a year ago.

In the fourth quarter of 2009, Nelnet’s fee-based revenue from the company’s tuition payment plan, campus commerce, and lead generation businesses increased $5.0 million, or 16 percent, to $36.0 million, compared with the same period in 2008.

In September 2009, Nelnet began servicing student loans for the Department under a contract that will increase the company’s fee-based revenue as the servicing volume increases. As of December 31, 2009, the company was servicing approximately $3.4 billion of loans on behalf of the Department, of which approximately $1.5 billion was incremental volume previously serviced by other companies. As of March 1, 2010, servicing volume for the Department has grown to $6.3 billion, up from $177 million at September 30, 2009.

 

Maximizing the value of existing portfolio

At December 31, 2009, net student loan assets were $23.9 billion.  Substantially all of Nelnet's federal student loans are financed for the life of the loan at rates the company currently believes will generate significant future cash flow. In addition to loans held to term, Nelnet has liquidity for new loan originations through the Department's Loan Participation and Loan Purchase Programs, which will allow Nelnet to make loans to eligible students through the 2009-2010 academic year.

Narrower spreads and historically low interest rates are continuing to provide an opportunity for the company to generate substantial near-term value and cash flow from its student loan portfolio. For the fourth quarter of 2009, Nelnet reported net interest income of $80.5 million, compared with $38.5 million for the same period a year ago.
 
The company reported core student loan spread of 1.44 percent for the fourth quarter of 2009 compared with 0.90 percent for the same period of 2008 and 1.27 percent for the third quarter of 2009. Core student loan spread is benefiting from two factors: 1) lower interest rates increased fixed rate floor income to $38.9 million in the fourth quarter of 2009, compared with $12.3 million for the same period a year ago and $38.8 million in the third quarter of 2009, and 2) the disparity between three-month financial commercial paper rate (CP) and three-month LIBOR has tightened significantly.
 
Managing operating expenses
 
Management continues to effectively manage operating expenses. As a result, operating expenses, excluding restructuring and impairment charges, decreased $9.6 million, or 12 percent, for the three months ended December 31, 2009, compared with the same period in 2008.  Total operating expenses, excluding the impairment charge, for the fourth quarter of 2009 were $90.3 million.
 
GAAP net income
 
Nelnet reported GAAP net income for the fourth quarter of 2009 of $59.1 million, or $1.18 per dilutive share, compared with $31.0 million, or $0.63 per dilutive share, for the fourth quarter of 2008. For the year ended December 31, 2009, the company reported GAAP net income of $139.1 million, or $2.78 per dilutive share, compared with $28.7 million, or $0.58 per dilutive share, for 2008.
 
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 .
 
Nelnet will host a conference call to discuss this earnings release at 11:00 a.m. (Eastern) Thursday, March 4, 2010. To access the call live, participants in the United States and Canada should dial 888.427.9415, and international callers should dial 719.785.1751 at least 15 minutes prior to the call. A live audio webcast of the call will also be available at www.nelnetinvestors.com under the Events & Webcasts menu. A replay of the conference call will be available through March 14, 2010. To access the replay via telephone within the United States and Canada, callers should dial 888.203.1112. International callers should dial 719.457.0820. All callers accessing the replay will need to use the confirmation code 4363322. A replay of the audio webcast will also be available at www.nelnetinvestors.com .
 
This press release contains forward-looking statements based on management’s current expectations as of the date of this release. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Because such statements inherently involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks include, among others, changes in the terms of student loans and the educational credit marketplace arising from the implementation of applicable laws and regulations, and from changes in such laws and regulations, adverse results in legal disputes, changes in the demand for educational financing or in financing preferences of educational institutions, students, and their families, increased financing costs and changes in the general interest rate environment. For more information, see the company's filings with the Securities and Exchange Commission, including the forward-looking statements contained in the company’s supplemental financial information for the fourth quarter 2009. All information in this release is as of March 3, 2010. The company does not undertake any obligation to update or revise these forward-looking statements to conform the statement to actual results or changes in the company’s expectations.

 

Condensed Consolidated Statements of Income
 
 	 	Three months ended	 	 	Year ended	 	
 	 	December 31,	 	 	September 30,	 	 	December 31,	 	 	December 31,	 	 	December 31,	 	
 	 	2009	 	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
 	 	(unaudited)	 	 	(unaudited)	 	 	(unaudited)	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan interest	 	$	153,891	 	 	 	162,786	 	 	 	286,279	 	 	 	683,449	 	 	 	1,267,003	 	
Amortization of loan premiums and deferred	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
origination costs	 	 	(18,558	)	 	 	(19,531	)	 	 	(21,036	)	 	 	(73,529	)	 	 	(90,620	)	
Investment interest	 	 	1,477	 	 	 	1,943	 	 	 	8,084	 	 	 	10,287	 	 	 	37,998	 	
Total interest income	 	 	136,810	 	 	 	145,198	 	 	 	273,327	 	 	 	620,207	 	 	 	1,214,381	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest on bonds and notes payable	 	 	56,262	 	 	 	76,016	 	 	 	234,868	 	 	 	384,862	 	 	 	1,026,489	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income	 	 	80,548	 	 	 	69,182	 	 	 	38,459	 	 	 	235,345	 	 	 	187,892	 	
Less provision for loan losses	 	 	6,000	 	 	 	7,500	 	 	 	7,000	 	 	 	29,000	 	 	 	25,000	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income after provision	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
for loan losses	 	 	74,548	 	 	 	61,682	 	 	 	31,459	 	 	 	206,345	 	 	 	162,892	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	 	 	27,467	 	 	 	26,006	 	 	 	21,769	 	 	 	108,747	 	 	 	99,942	 	
Tuition payment processing and campus commerce revenue	 	 	13,521	 	 	 	12,987	 	 	 	12,175	 	 	 	53,894	 	 	 	48,155	 	
Enrollment services revenue	 	 	31,209	 	 	 	30,670	 	 	 	29,257	 	 	 	119,397	 	 	 	112,405	 	
Software services revenue	 	 	4,740	 	 	 	4,600	 	 	 	4,773	 	 	 	21,164	 	 	 	24,115	 	
Other income	 	 	28,669	 	 	 	11,094	 	 	 	4,988	 	 	 	68,152	 	 	 	22,775	 	
Gain (loss) on sale of loans, net	 	 	26,762	 	 	 	8,788	 	 	 	(3,988	)	 	 	35,148	 	 	 	(51,414	)	
Derivative market value, foreign currency,	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
and put option adjustments	 	 	5,265	 	 	 	2,826	 	 	 	46,348	 	 	 	(30,802	)	 	 	10,827	 	
Derivative settlements, net	 	 	479	 	 	 	4,914	 	 	 	9,668	 	 	 	39,286	 	 	 	55,657	 	
Total other income	 	 	138,112	 	 	 	101,885	 	 	 	124,990	 	 	 	414,986	 	 	 	322,462	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	 	39,316	 	 	 	37,810	 	 	 	41,262	 	 	 	155,532	 	 	 	183,393	 	
Other expenses	 	 	27,284	 	 	 	29,217	 	 	 	45,510	 	 	 	120,198	 	 	 	147,192	 	
Cost to provide enrollment services	 	 	18,718	 	 	 	20,323	 	 	 	16,903	 	 	 	74,926	 	 	 	64,965	 	
Impairment expense	 	 	32,728	 	 	 	—	 	 	 	—	 	 	 	32,728	 	 	 	18,834	 	
Amortization of intangible assets	 	 	4,998	 	 	 	5,312	 	 	 	6,511	 	 	 	22,249	 	 	 	26,230	 	
Total operating expenses	 	 	123,044	 	 	 	92,662	 	 	 	110,186	 	 	 	405,633	 	 	 	440,614	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes	 	 	89,616	 	 	 	70,905	 	 	 	46,263	 	 	 	215,698	 	 	 	44,740	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income tax expense	 	 	(30,553	)	 	 	(24,501	)	 	 	(16,103	)	 	 	(76,573	)	 	 	(17,896	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations	 	 	59,063	 	 	 	46,404	 	 	 	30,160	 	 	 	139,125	 	 	 	26,844	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from discontinued operations, net of tax	 	 	—	 	 	 	—	 	 	 	837	 	 	 	—	 	 	 	1,818	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	59,063	 	 	 	46,404	 	 	 	30,997	 	 	 	139,125	 	 	 	28,662	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Continuing operations	 	$	1.18	 	 	 	0.93	 	 	 	0.61	 	 	 	2.79	 	 	 	0.54	 	
Discontinued operations	 	 	—	 	 	 	—	 	 	 	0.02	 	 	 	—	 	 	 	0.04	 	
Net earnings	 	$	1.18	 	 	 	0.93	 	 	 	0.63	 	 	 	2.79	 	 	 	0.58	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Continuing operations	 	$	1.18	 	 	 	0.93	 	 	 	0.61	 	 	 	2.78	 	 	 	0.54	 	
Discontinued operations	 	 	—	 	 	 	—	 	 	 	0.02	 	 	 	—	 	 	 	0.04	 	
Net earnings	 	$	1.18	 	 	 	0.93	 	 	 	0.63	 	 	 	2.78	 	 	 	0.58	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average shares outstanding - basic	 	 	49,639,329	 	 	 	49,611,423	 	 	 	49,075,755	 	 	 	49,484,816	 	 	 	49,099,967	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average shares outstanding - diluted	 	 	49,838,374	 	 	 	49,808,856	 	 	 	49,289,186	 	 	 	49,685,143	 	 	 	49,324,278	 	

 

Condensed Consolidated Balance Sheets
 
 	 	As of	 	 	As of	 	 	As of	 	
 	 	December 31,	 	 	September 30,	 	 	December 31,	 	
 	 	2009	 	 	2009	 	 	2008	 	
 	 	 	 	 	(unaudited)	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	
Assets:	 	 	 	 	 	 	 	 	 	
Student loans receivable, net	 	$	23,926,957	 	 	 	23,764,263	 	 	 	25,413,008	 	
Student loans receivable - held for sale	 	 	—	 	 	 	1,627,794	 	 	 	—	 	
Cash and cash equivalents	 	 	338,181	 	 	 	334,293	 	 	 	189,847	 	
Restricted cash and investments	 	 	717,233	 	 	 	849,419	 	 	 	1,158,257	 	
Goodwill	 	 	143,717	 	 	 	175,178	 	 	 	175,178	 	
Intangible assets, net	 	 	53,538	 	 	 	59,803	 	 	 	77,054	 	
Other assets	 	 	696,801	 	 	 	781,112	 	 	 	841,553	 	
Total assets	 	$	25,876,427	 	 	 	27,591,862	 	 	 	27,854,897	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	
Bonds and notes payable	 	$	24,805,289	 	 	 	26,586,093	 	 	 	26,787,959	 	
Other liabilities	 	 	286,575	 	 	 	277,695	 	 	 	423,712	 	
Total liabilities	 	 	25,091,864	 	 	 	26,863,788	 	 	 	27,211,671	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Shareholders' equity	 	 	784,563	 	 	 	728,074	 	 	 	643,226	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total liabilities and shareholders' equity	 	$	25,876,427	 	 	 	27,591,862	 	 	 	27,854,897	 	

Exhibit 99.2
 
For Release: March 3, 2010
Media Contact: Ben Kiser, 402.458.3024
Investor Contact: Phil Morgan, 402.458.3038

Nelnet, Inc. supplemental financial information for the fourth quarter 2009
(All dollars are in thousands, except per share amounts, unless otherwise noted)

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 expectations and statements that assume or are dependent upon future events, are forward-looking statements. These forward-looking statements are subject to risks, uncertainties, assumptions, and other factors that may cause the actual results to be materially different from those reflected in such forward-looking statements. These factors include, among others, the risks and uncertainties set forth in the “Risk Factors” section of the Company’s annual report on Form 10-K for the year ended December 31, 2009; increases in financing costs; limits on liquidity; any adverse outcomes in any significant litigation to which the Company is a party; and changes in the terms of student loans and the educational credit marketplace arising from the implementation of, or changes in, applicable laws and regulations (including changes resulting from new laws, such as any new laws enacted to implement the Administration’s 2010 budget proposals as they relate to the Federal Family Education Loan Program (the “FFEL Program” or “FFELP”) of the U.S. Department of Education (the “Department”)), which may reduce the volume, average term, special allowance payments, and yields on student loans under the FFELP, or result in loans being originated or refinanced under non-FFEL programs or may affect the terms upon which banks and others agree to sell FFELP loans to the Company. The Company could also be affected by changes in the demand for educational financing or in financing preferences of lenders, educational institutions, students, and their families; the Company’s ability to maintain its credit facilities or obtain new facilities; the ability of lenders under the Company’s credit facilities to fulfill their lending commitments under these facilities; changes to the terms and conditions of the liquidity programs offered by the Department; changes in the general interest rate environment and in the securitization markets for education loans, which may increase the costs or limit the availability of financings necessary to initiate, purchase, or carry education loans; losses from loan defaults; changes in prepayment rates, guaranty rates, loan floor rates, and credit spreads; uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations; the uncertain nature of estimated expenses that may be incurred and cost savings that may result from restructuring plans; incorrect estimates or assumptions by management in connection with the preparation of the consolidated financial statements; and changes in general economic conditions. Additionally, financial projections may not prove to be accurate and may vary materially. The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this Supplement. The Company is not obligated to publicly release any revisions to forward-looking statements to reflect events after the date of this Supplement or unforeseen events. Although the Company may from time to time voluntarily update its prior forward-looking statements, it disclaims any commitment to do so except as required by securities laws.

Condensed Consolidated Statements of Income
 
 	 	Three months ended	 	 	Year ended	 	
 	 	December 31,	 	 	September 30,	 	 	December 31,	 	 	December 31,	 	 	December 31,	 	
 	 	2009	 	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
 	 	(unaudited)	 	 	(unaudited)	 	 	(unaudited)	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan interest	 	$	153,891	 	 	 	162,786	 	 	 	286,279	 	 	 	683,449	 	 	 	1,267,003	 	
Amortization of loan premiums and deferred	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 origination costs	 	 	(18,558	)	 	 	(19,531	)	 	 	(21,036	)	 	 	(73,529	)	 	 	(90,620	)	
Investment interest	 	 	1,477	 	 	 	1,943	 	 	 	8,084	 	 	 	10,287	 	 	 	37,998	 	
Total interest income	 	 	136,810	 	 	 	145,198	 	 	 	273,327	 	 	 	620,207	 	 	 	1,214,381	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest on bonds and notes payable	 	 	56,262	 	 	 	76,016	 	 	 	234,868	 	 	 	384,862	 	 	 	1,026,489	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income	 	 	80,548	 	 	 	69,182	 	 	 	38,459	 	 	 	235,345	 	 	 	187,892	 	
Less provision for loan losses	 	 	6,000	 	 	 	7,500	 	 	 	7,000	 	 	 	29,000	 	 	 	25,000	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income after provision	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 for loan losses	 	 	74,548	 	 	 	61,682	 	 	 	31,459	 	 	 	206,345	 	 	 	162,892	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	 	 	27,467	 	 	 	26,006	 	 	 	21,769	 	 	 	108,747	 	 	 	99,942	 	
Tuition payment processing and campus commerce revenue	 	 	13,521	 	 	 	12,987	 	 	 	12,175	 	 	 	53,894	 	 	 	48,155	 	
Enrollment services revenue	 	 	31,209	 	 	 	30,670	 	 	 	29,257	 	 	 	119,397	 	 	 	112,405	 	
Software services revenue	 	 	4,740	 	 	 	4,600	 	 	 	4,773	 	 	 	21,164	 	 	 	24,115	 	
Other income	 	 	28,669	 	 	 	11,094	 	 	 	4,988	 	 	 	68,152	 	 	 	22,775	 	
Gain (loss) on sale of loans, net	 	 	26,762	 	 	 	8,788	 	 	 	(3,988	)	 	 	35,148	 	 	 	(51,414	)	
Derivative market value, foreign currency,	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
and put option adjustments	 	 	5,265	 	 	 	2,826	 	 	 	46,348	 	 	 	(30,802	)	 	 	10,827	 	
Derivative settlements, net	 	 	479	 	 	 	4,914	 	 	 	9,668	 	 	 	39,286	 	 	 	55,657	 	
Total other income	 	 	138,112	 	 	 	101,885	 	 	 	124,990	 	 	 	414,986	 	 	 	322,462	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	 	39,316	 	 	 	37,810	 	 	 	41,262	 	 	 	155,532	 	 	 	183,393	 	
Other expenses	 	 	27,284	 	 	 	29,217	 	 	 	45,510	 	 	 	120,198	 	 	 	147,192	 	
Cost to provide enrollment services	 	 	18,718	 	 	 	20,323	 	 	 	16,903	 	 	 	74,926	 	 	 	64,965	 	
Impairment expense	 	 	32,728	 	 	 	—	 	 	 	—	 	 	 	32,728	 	 	 	18,834	 	
Amortization of intangible assets	 	 	4,998	 	 	 	5,312	 	 	 	6,511	 	 	 	22,249	 	 	 	26,230	 	
Total operating expenses	 	 	123,044	 	 	 	92,662	 	 	 	110,186	 	 	 	405,633	 	 	 	440,614	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes	 	 	89,616	 	 	 	70,905	 	 	 	46,263	 	 	 	215,698	 	 	 	44,740	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income tax expense	 	 	(30,553	)	 	 	(24,501	)	 	 	(16,103	)	 	 	(76,573	)	 	 	(17,896	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations	 	 	59,063	 	 	 	46,404	 	 	 	30,160	 	 	 	139,125	 	 	 	26,844	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from discontinued operations, net of tax	 	 	—	 	 	 	—	 	 	 	837	 	 	 	—	 	 	 	1,818	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	59,063	 	 	 	46,404	 	 	 	30,997	 	 	 	139,125	 	 	 	28,662	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Continuing operations	 	$	1.18	 	 	 	0.93	 	 	 	0.61	 	 	 	2.79	 	 	 	0.54	 	
Discontinued operations	 	 	—	 	 	 	—	 	 	 	0.02	 	 	 	—	 	 	 	0.04	 	
Net earnings	 	$	1.18	 	 	 	0.93	 	 	 	0.63	 	 	 	2.79	 	 	 	0.58	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Continuing operations	 	$	1.18	 	 	 	0.93	 	 	 	0.61	 	 	 	2.78	 	 	 	0.54	 	
Discontinued operations	 	 	—	 	 	 	—	 	 	 	0.02	 	 	 	—	 	 	 	0.04	 	
Net earnings	 	$	1.18	 	 	 	0.93	 	 	 	0.63	 	 	 	2.78	 	 	 	0.58	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average shares outstanding - basic	 	 	49,639,329	 	 	 	49,611,423	 	 	 	49,075,755	 	 	 	49,484,816	 	 	 	49,099,967	 	
Weighted average shares outstanding - diluted	 	 	49,838,374	 	 	 	49,808,856	 	 	 	49,289,186	 	 	 	49,685,143	 	 	 	49,324,278	 	

2

 
Condensed Consolidated Balance Sheets

 	 	As of	 	 	As of	 	 	As of	 	
 	 	December 31,	 	 	September 30,	 	 	December 31,	 	
 	 	2009	 	 	2009	 	 	2008	 	
 	 	 	 	 	(unaudited)	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	
Assets:	 	 	 	 	 	 	 	 	 	
Student loans receivable, net	 	$	23,926,957	 	 	 	23,764,263	 	 	 	25,413,008	 	
Student loans receivable - held for sale	 	 	—	 	 	 	1,627,794	 	 	 	—	 	
Cash and cash equivalents	 	 	338,181	 	 	 	334,293	 	 	 	189,847	 	
Restricted cash and investments	 	 	717,233	 	 	 	849,419	 	 	 	1,158,257	 	
Goodwill	 	 	143,717	 	 	 	175,178	 	 	 	175,178	 	
Intangible assets, net	 	 	53,538	 	 	 	59,803	 	 	 	77,054	 	
Other assets	 	 	696,801	 	 	 	781,112	 	 	 	841,553	 	
Total assets	 	$	25,876,427	 	 	 	27,591,862	 	 	 	27,854,897	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	
Bonds and notes payable	 	$	24,805,289	 	 	 	26,586,093	 	 	 	26,787,959	 	
Other liabilities	 	 	286,575	 	 	 	277,695	 	 	 	423,712	 	
Total liabilities	 	 	25,091,864	 	 	 	26,863,788	 	 	 	27,211,671	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Shareholders' equity	 	 	784,563	 	 	 	728,074	 	 	 	643,226	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total liabilities and shareholders' equity	 	$	25,876,427	 	 	 	27,591,862	 	 	 	27,854,897	 	
 
OVERVIEW

The Company is a transaction processing and finance company focused primarily on providing quality education related products and services to students, families, schools, and financial institutions nationwide.  The Company earns its revenue from fee-based processing businesses, including its loan servicing, payment processing, and lead generation businesses, and the net interest income on its student loan portfolio.

The Company has certain business objectives in place that include:

 	·	Grow and diversify revenue from fee generating businesses	
 	·	Manage operating costs	
 	·	Maximize the value of existing portfolio	
 	·	Eliminate exposure to liquidity risk and unfunded debt burden	

Achieving these business objectives has impacted the financial condition and operating results of the Company during 2009. In addition, legislation concerning the student loan industry has impacted and will continue to impact the financial condition and operating results of the Company.  Each of these items are discussed below.

3

Grow and Diversify Revenue from Fee-Based Businesses

In recent years, the Company has expanded products and services generated from businesses that are not dependent upon the FFEL Program, thereby reducing legislative and political risk. 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. As shown below, revenue earned from businesses less dependent upon the FFEL Program has grown $5.0 million (16.2%) and $22.1 million (18.3%) for the three months and year ended December 31, 2009 compared to the same periods in 2008.
 
 	 	Three months ended	 	 	 	 	 	 	 	
 	 	December 31,	 	 	December 31,	 	 	 	 	 	 	 	
 	 	2009	 	 	2008	 	 	$ Change	 	 	% Change	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Tuition Payment Processing and Campus Commerce	 	$	13,521	 	 	 	12,175	 	 	 	1,346	 	 	 	 	
Enrollment Services - Lead Generation	 	 	22,477	 	 	 	18,794	 	 	 	3,683	 	 	 	 	

 	 	 	35,998	 	 	 	30,969	 	 	$	5,029	 	 	 	16.2	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Enrollment Services - Other	 	 	8,732	 	 	 	10,463	 	 	 	 	 	 	 	 	 	
Student Loan and Guaranty Servicing	 	 	28,784	 	 	 	22,663	 	 	 	 	 	 	 	 	 	
Software and Technical Services	 	 	3,805	 	 	 	3,879	 	 	 	 	 	 	 	 	 	
Net interest income from fee-based segments	 	 	15	 	 	 	463	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
          Total revenue from fee-based segments	 	$	77,334	 	 	 	68,437	 	 	 	 	 	 	 	 	 	
 
 	 	Year ended	 	 	 	 	 	 	 	
 	 	December 31,	 	 	December 31,	 	 	 	 	 	 	 	
 	 	2009	 	 	2008	 	 	$ Change	 	 	% Change	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Tuition Payment Processing and Campus Commerce	 	$	53,894	 	 	 	48,155	 	 	 	5,739	 	 	 	 	
Enrollment Services - Lead Generation	 	 	88,851	 	 	 	72,513	 	 	 	16,338	 	 	 	 	

 	 	 	142,745	 	 	 	120,668	 	 	$	22,077	 	 	 	18.3	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Enrollment Services - Other	 	 	30,546	 	 	 	39,929	 	 	 	 	 	 	 	 	 	
Student Loan and Guaranty Servicing	 	 	113,974	 	 	 	104,287	 	 	 	 	 	 	 	 	 	
Software and Technical Services	 	 	17,463	 	 	 	19,707	 	 	 	 	 	 	 	 	 	
Net interest income from fee-based segments	 	 	174	 	 	 	3,107	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
          Total revenue from fee-based segments	 	$	304,902	 	 	 	287,698	 	 	 	 	 	 	 	 	 	
 
Department of Education Servicing Contract

In June 2009, the Department of Education named the Company as one of four private sector servicers awarded a servicing contract to service all federally-owned student loans, including FFELP loans purchased by the Department pursuant to ECASLA. No later than August 2010, the Company expects to also begin servicing new loans originated under the Direct Loan Program. Servicing volume has initially been allocated by the Department to the four servicers and performance factors such as customer satisfaction levels and default rates will determine volume allocations over time. The contract spans five years with one, five-year renewal option.  Servicing loans under this contract will further diversify the Company’s revenue and customer base.

4

For the federal fiscal year ended September 30, 2009, the estimated volume for the Direct Loan Program was approximately $38 billion, an increase of 110% from the federal fiscal year ended September 30, 2008.  This increase was the result of schools shifting from the FFELP to the Direct Loan Program as a result of lenders exiting the FFELP marketplace, due to legislation and capital market disruptions. See “Legislation – Recent Developments.”  Regardless of the outcome of the currently proposed legislation, the Direct Loan Program volume is expected to increase substantially in the next few years, which would lead to an increase in servicing volume for the Department’s four private sector servicers.

The Company began servicing loans for the Department in September 2009 and recognized approximately $1.7 million of revenue under this contract in 2009. As of December 31, 2009 and March 1, 2010, the Company was servicing approximately $3.4 billion and $6.3 billion, respectively, of loans under the Department’s servicing contract, which includes approximately $1.5 billion and $4.3 billion, respectively, of loans not previously serviced by the Company that were sold by third parties to the Department as part of the ECASLA Purchase Program.

Manage Operating Costs

The Company has continued to focus on managing costs and gaining efficiencies and has continued to benefit from restructuring activities.  As shown below, excluding the cost to provide enrollment services and restructuring and impairment charges, operating expenses decreased $9.6 million (12.0%) and $46.2 million (13.7%) for the three months and year ended December 31, 2009 compared to the same periods in 2008 and remained relatively flat with an increase of $1.2 million (1.8%) for the three months ended December 31, 2009 compared to the three months ended September 30, 2009.

Operating Expenses
 
 	 	Three months ended	 	 	 	 	 	 	 	
 	 	December 31,	 	 	December 31,	 	 	 	 	 	 	 	
 	 	2009	 	 	2008	 	 	$ Change	 	 	% Change	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits (a)	 	$	37,962	 	 	 	41,302	 	 	 	(3,340	)	 	 	(8.1	)%	
Other expenses (b)	 	 	32,282	 	 	 	38,496	 	 	 	(6,214	)	 	 	(16.1	)	
   Operating expenses, excluding the cost	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
      to provide enrollment services and restructure	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
      and impairment expenses	 	 	70,244	 	 	 	79,798	 	 	$	(9,554	)	 	 	(12.0	)%	
Cost to provide enrollment services	 	 	18,718	 	 	 	16,903	 	 	 	 	 	 	 	 	 	
Restructure expense (c)	 	 	1,354	 	 	 	(40	)	 	 	 	 	 	 	 	 	
Impairment expense	 	 	32,728	 	 	 	—	 	 	 	 	 	 	 	 	 	
Liquidity contingency planning fees (d)	 	 	—	 	 	 	13,525	 	 	 	 	 	 	 	 	 	
  Total operating expenses	 	$	123,044	 	 	 	110,186	 	 	 	 	 	 	 	 	 	

5

 	 	Three months ended	 	 	 	 	 	 	 	
 	 	December 31,	 	 	September 30,	 	 	 	 	 	 	 	
 	 	2009	 	 	2009	 	 	$ Change	 	 	% Change	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits (a)	 	$	37,962	 	 	 	36,398	 	 	 	1,564	 	 	 	4.3	%	
Other expenses (b)	 	 	32,282	 	 	 	32,601	 	 	 	(319	)	 	 	(1.0	)	
   Operating expenses, excluding the cost	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
      to provide enrollment services and restructure	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
      and impairment expenses	 	 	70,244	 	 	 	68,999	 	 	$	1,245	 	 	 	1.8	%	
Cost to provide enrollment services	 	 	18,718	 	 	 	20,323	 	 	 	 	 	 	 	 	 	
Restructure expense (c)	 	 	1,354	 	 	 	3,340	 	 	 	 	 	 	 	 	 	
Impairment expense	 	 	32,728	 	 	 	—	 	 	 	 	 	 	 	 	 	
  Total operating expenses	 	$	123,044	 	 	 	92,662	 	 	 	 	 	 	 	 	 	

 	 	Year ended	 	 	 	 	 	 	 	
 	 	December 31,	 	 	December 31,	 	 	 	 	 	 	 	
 	 	2009	 	 	2008	 	 	$ Change	 	 	% Change	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits (a)	 	$	151,285	 	 	 	177,724	 	 	 	(26,439	)	 	 	(14.9	)%	
Other expenses (b)	 	 	138,712	 	 	 	158,499	 	 	 	(19,787	)	 	 	(12.5	)	
   Operating expenses, excluding the cost	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
      to provide enrollment services and restructure,	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
      impairment, and liquidity related expenses	 	 	289,997	 	 	 	336,223	 	 	$	(46,226	)	 	 	(13.7	)%	
Cost to provide enrollment services	 	 	74,926	 	 	 	64,965	 	 	 	 	 	 	 	 	 	
Restructure expense (c)	 	 	7,982	 	 	 	7,067	 	 	 	 	 	 	 	 	 	
Impairment expense	 	 	32,728	 	 	 	18,834	 	 	 	 	 	 	 	 	 	
Liquidity contingency planning fees (d)	 	 	—	 	 	 	13,525	 	 	 	 	 	 	 	 	 	
  Total operating expenses	 	$	405,633	 	 	 	440,614	 	 	 	 	 	 	 	 	 	
 
 	(a)	Excludes restructure expenses related to employee termination benefits.	

 	(b)	Excludes liquidity contingency planning fees and restructure expenses related to lease terminations.	

 	(c)	Restructure expense is included in “salaries and benefits” and “other expenses” in the condensed consolidated statements of income.	

 	(d)	Liquidity contingency planning fees were incurred by the Company to minimize exposure related to the equity support provisions of the Company’s FFELP loan warehouse facility.  These fees are included in “other expenses” in the condensed consolidated statements of income.	

Included in operating expenses for the three months and year ended December 31, 2009 is an impairment charge of $32.7 million related to the impairment of goodwill and intangible assets related to the Company’s direct marketing and list management business.  This business has been negatively affected by the economic recession and deterioration of the direct-to-consumer student loan market.  As of December 31, 2009, the Company has $143.7 million of goodwill remaining on its consolidated balance sheet.  See note 6 of the notes to the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2009, which provides a summary of the remaining goodwill by operating segment.

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 index plus a fixed spread that is dependent upon when the loan was originated, the loan’s repayment status, and funding sources for the loan.  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.

6

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) during 2008 and 2009 is summarized below.

During the three months and year ended December 31, 2009, loan interest income includes $38.9 million (65 basis points of spread contribution) and $145.1 million (58 basis points), respectively, of fixed rate floor income compared to $12.3 million (19 basis points) and $37.5 million (14 basis points) during the same periods in 2008. The increase in fixed rate floor income throughout 2009 is due to a decrease in interest rates.  The Company’s variable student loan spread increased throughout 2009 as a result of the tightening of the commercial paper rate, which is the primary rate the Company earns on its student loan portfolio, and the LIBOR rate, which is the primary rate the Company pays to fund its student loan assets.

If interest rates remain low, the Company anticipates continuing to earn significant fixed rate floor income in future periods.

Future Cash Flow from Portfolio

The majority of the Company’s portfolio of student loans is funded in asset backed securitizations that are structured to substantially match the maturity of the funded assets and there are minimal liquidity issues related to these facilities. In addition, due to the difference between the yield the Company receives on the loans and cost of financing within these transactions, the Company has created a portfolio that will generate earnings and significant cash flow over the life of these transactions.

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 $1.43 billion. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” in the Company’s annual report on Form 10-K for the year ended December 31, 2009 for further details related to the estimated future cash flow from the Company’s portfolio.

7

Eliminate Exposure to Liquidity Risk and Unfunded Debt Burden

Reducing Liquidity Risk

The Company had a FFELP warehouse facility that was due to expire in May 2010 that provided for formula-based advance rates based on current market conditions, which required equity support to be posted to the facility under certain circumstances.  As of December 31, 2008, the Company had $1.6 billion of student loans in this facility, $1.4 billion borrowed under the facility, and $280.6 million in cash posted as equity funding support for the facility.  During 2009, the Company has reduced its liquidity exposure under this facility as a result of the following transactions:

 	·	In March 2009, the Company completed a $294.6 million asset-backed securitization and refinanced loans previously financed in the facility.	

 	·	In June 2009, the Company accessed the Department’s Conduit Program and refinanced loans previously financed in the facility.	

 	·	In August 2009, the Company entered into a new $500.0 million FFELP warehouse facility that expires in August 2012.  In August 2009, the Company utilized the new warehouse facility to refinance all remaining loans in the old warehouse facility.  Refinancing these loans allowed the Company to terminate the prior facility and withdraw all remaining equity funding support.	

In the fourth quarter of 2009, the Company completed asset-backed securities transactions totaling $852.9 million.  On February 17, 2010, the Company also completed an asset-backed securities transaction of $523.3 million. The Company used the proceeds from the sale of these notes to purchase student loans that were previously financed in the new FFELP warehouse facility and certain other existing asset-backed securitizations.  As of March 1, 2010, $30.5 million was outstanding under the new FFELP warehouse and $469.5 million was available for future use.

In addition to the new FFELP warehouse, the Company has reliable sources of liquidity available for new FFELP Stafford and PLUS loan originations for the 2009-2010 academic year under the Department’s Participation and Purchase Programs.

8

Debt Repurchases

During 2009, the Company repurchased outstanding debt as summarized below. Gains recorded by the Company from the repurchase of debt are included in “other income” on the Company’s condensed consolidated statements of income.

 	 	Three months ended December 31, 2009	 	 	
 	 	Notional amount	 	 	Purchase price	 	 	Gain	 	 	
 	 	 	 	 	 	 	 	 	 	 	
Asset-backed securities	 	$	302,105	 	 	 	279,454	 	 	 	22,651	 	 	

 	 	Three months ended September 30, 2009	 	 	
 	 	Notional amount	 	 	Purchase price	 	 	Gain (loss)	 	 	
 	 	 	 	 	 	 	 	 	 	 	
5.125% Senior Notes due 2010	 	$	137,898	 	 	 	138,505	 	 	 	(607	)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Asset-backed securities	 	 	44,950	 	 	 	39,095	 	 	 	5,855	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	182,848	 	 	 	177,600	 	 	 	5,248	 	 	

 	 	Year ended December 31, 2009	 	 	Remaining balance as of	 	
 	 	Notional amount	 	 	Purchase price	 	 	Gain	 	 	December 31, 2009	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
5.125% Senior Notes due 2010	 	$	208,284	 	 	 	196,529	 	 	 	11,755	 	 	$	66,716	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Junior Subordinated Hybrid Securities	 	 	1,750	 	 	 	350	 	 	 	1,400	 	 	$	198,250	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Asset-backed securities	 	 	348,155	 	 	 	319,627	 	 	 	28,528	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	558,189	 	 	 	516,506	 	 	 	41,683	 	 	 	 	 	

Subsequent to December 31, 2009 (through March 1, 2010), the Company has repurchased an additional $174.5 million (notional amount) of asset-backed securities resulting in a gain of approximately $6 million.

Legislation

ECASLA

In August 2008, the Department implemented the Loan Purchase Commitment Program and the Loan Purchase Participation Program pursuant to ECASLA.  During the three months and year ended December 31, 2009, the Company sold $1.7 billion and $2.1 billion, respectively, of student loans to the Department under the Purchase Program, resulting in gains of $26.9 million and $36.6 million.  As of December 31, 2009, the Company had $463.9 million of FFELP loans funded using the Participation Program.  The Company plans to continue to use the Participation Program to fund certain loans originated for the 2009-2010 academic year.

9

Recent Developments

On February 26, 2009, the President introduced a fiscal year 2010 Federal budget proposal calling for the elimination of the FFEL Program and a recommendation that all new student loan originations be funded through the Federal Direct Loan Program.    On September 17, 2009, the House of Representatives passed H.R. 3221, the Student Aid and Fiscal Responsibility Act (“SAFRA”), which would eliminate the FFEL Program and require that, after July 1, 2010, all new federal student loans be made through the Federal Direct Loan Program. The Senate is expected to begin its consideration of similar student loan reform legislation sometime in 2010. In addition to the House-passed legislation, there are several other proposals for changes to the education financing framework that may be considered that would maintain a role for private lenders in the origination of federal student loans.  These include a possible extension of ECASLA, which expires on July 1, 2010, and the Student Loan Community Proposal, a proposal endorsed by a cross-section of FFELP service providers (including the Company) as an alternative to the 100% federal direct lending proposal included in SAFRA.

Elimination of the FFEL Program would impact the Company’s operations and profitability by, among other things, reducing the Company’s interest revenues as a result of the inability to add new FFELP loans to the Company’s portfolio and reducing guarantee and third-party FFELP servicing fees as a result of reduced FFELP loan servicing and origination volume. Additionally, the elimination of the FFEL Program could reduce education loan software licensing opportunities and related consulting fees received from lenders using the Company’s software products and services.

In June 2009, the Department of Education named the Company as one of four private sector companies awarded a servicing contract to service student loans.  No later than August 2010, the Company expects to begin servicing new loans originated under the Direct Loan Program. If legislation is passed mandating that all new student loan originations be funded through the Direct Loan Program, revenue from servicing loans under this contract will partially offset the loss of revenue if the FFEL Program is eliminated.

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.

10

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

 	 	Three months ended	 	 	Year ended	 	
 	 	December 31,	 	 	September 30,	 	 	December 31,	 	 	December 31,	 	 	December 31,	 	
 	 	2009	 	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
GAAP net income	 	$	59,063	 	 	 	46,404	 	 	 	30,997	 	 	 	139,125	 	 	 	28,662	 	
Base adjustments:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivative market value, foreign currency,	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
and put option adjustments	 	 	(5,265	)	 	 	(2,826	)	 	 	(46,348	)	 	 	30,802	 	 	 	(10,361	)	
Amortization of intangible assets	 	 	4,998	 	 	 	5,312	 	 	 	6,511	 	 	 	22,249	 	 	 	26,230	 	
Compensation related to business combinations	 	 	—	 	 	 	—	 	 	 	476	 	 	 	159	 	 	 	2,999	 	
Variable rate floor income, net of settlements on derivatives	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(7,502	)	 	 	(32,360	)	
Total base adjustments before income taxes	 	 	(267	)	 	 	2,486	 	 	 	(39,361	)	 	 	45,708	 	 	 	(13,492	)	
Net tax effect (a)	 	 	91	 	 	 	(859	)	 	 	13,776	 	 	 	(16,227	)	 	 	5,792	 	
Total base adjustments	 	 	(176	)	 	 	1,627	 	 	 	(25,585	)	 	 	29,481	 	 	 	(7,700	)	
     Base net income	 	 	58,887	 	 	 	48,031	 	 	 	5,412	 	 	 	168,606	 	 	 	20,962	 	
Discontinued operations, net of tax	 	 	—	 	 	 	—	 	 	 	(837	)	 	 	—	 	 	 	(1,818	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Base net income, excluding discontinued operations	 	$	58,887	 	 	 	48,031	 	 	 	4,575	 	 	 	168,606	 	 	 	19,144	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
GAAP net income	 	$	1.18	 	 	 	0.93	 	 	 	0.63	 	 	 	2.79	 	 	 	0.58	 	
Adjustment for application of the two-class method	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
of computing earnings per share (b)	 	 	0.01	 	 	 	0.01	 	 	 	—	 	 	 	0.02	 	 	 	—	 	
Total base adjustments	 	 	—	 	 	 	0.03	 	 	 	(0.52	)	 	 	0.60	 	 	 	(0.15	)	
     Base net income	 	 	1.19	 	 	 	0.97	 	 	 	0.11	 	 	 	3.41	 	 	 	0.43	 	
Discontinued operations, net of tax	 	 	—	 	 	 	—	 	 	 	(0.02	)	 	 	—	 	 	 	(0.04	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Base net income, excluding discontinued operations	 	$	1.19	 	 	 	0.97	 	 	 	0.09	 	 	 	3.41	 	 	 	0.39	 	

 	(a)	For 2009, income taxes are applied at 38%.  For 2008, income taxes are applied at the consolidated effective tax rate.	

 	(b)	On January 1, 2009, the Company began applying the two-class method of computing earnings per share.  Prior period earnings per share data was retroactively adjusted.  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 stockholders.  The adjustment to base net income reflects the earnings allocated to unvested restricted stockholders.	

11

The following table summarizes the impact to base net income from restructuring, impairment, and liquidity related charges recognized by the Company.
 
 	 	Three months ended	 	 	Year ended	 	
 	 	December 31,	 	 	September 30,	 	 	December 31,	 	 	December 31,	 	 	December 31,	 	
 	 	2009	 	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Base net income, excluding discontinued operations	 	$	58,887	 	 	 	48,031	 	 	 	4,575	 	 	 	168,606	 	 	 	19,144	 	
Adjusted base adjustments:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Restructuring charges	 	 	1,354	 	 	 	3,340	 	 	 	(40	)	 	 	7,982	 	 	 	7,067	 	
Impairment expense	 	 	32,728	 	 	 	—	 	 	 	—	 	 	 	32,728	 	 	 	18,834	 	
Liquidity related charges (a)	 	 	—	 	 	 	—	 	 	 	17,513	 	 	 	—	 	 	 	64,939	 	
Adjusted base adjustments before income taxes	 	 	34,082	 	 	 	3,340	 	 	 	17,473	 	 	 	40,710	 	 	 	90,840	 	
Net tax effect (b)	 	 	(11,620	)	 	 	(1,154	)	 	 	(6,199	)	 	 	(14,452	)	 	 	(28,889	)	
Total adjusted base adjustments	 	 	22,462	 	 	 	2,186	 	 	 	11,274	 	 	 	26,258	 	 	 	61,951	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Base net income, excluding discontinued operations, restructuring	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
         charges (net of tax), impairment expense (net of tax), and	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
         liquidity related charges (net of tax)	 	$	81,349	 	 	 	50,217	 	 	 	15,849	 	 	 	194,864	 	 	 	81,095	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Base net income, excluding discontinued operations	 	$	1.19	 	 	 	0.97	 	 	 	0.09	 	 	 	3.41	 	 	 	0.39	 	
Restructuring charges, net of tax	 	 	0.02	 	 	 	0.04	 	 	 	—	 	 	 	0.10	 	 	 	0.10	 	
Impairment expense, net of tax	 	 	0.43	 	 	 	—	 	 	 	—	 	 	 	0.43	 	 	 	0.26	 	
Liquidity related charges, net of tax (a)	 	 	—	 	 	 	—	 	 	 	0.23	 	 	 	—	 	 	 	0.90	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Base net income, excluding discontinued operations, restructuring	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
         charges (net of tax), impairment expense (net of tax), and	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
         liquidity related charges (net of tax)	 	$	1.64	 	 	 	1.01	 	 	 	0.32	 	 	 	3.94	 	 	 	1.65	 	
 
 	(a)	Liquidity related charges were incurred by the Company to minimize exposure related to the equity support provisions of the Company’s FFELP loan warehouse facility.	

 	(b)	For 2009, income taxes are applied at 38%.  For 2008, income taxes are applied at the consolidated effective tax rate.	

12

Historical Non-GAAP Performance Measures and Other Financial Data

The Company has demonstrated its ability to grow earnings and shareholders’ equity as shown by the tables below.

Earnings Growth
 
 	 	Year ended December 31,	 	
 	 	2003	 	 	2004	 	 	2005	 	 	2006	 	 	2007	 	 	2008	 	 	2009	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
GAAP net income	 	$	27,103	 	 	 	149,179 	 	 	 	181,122 	 	 	 	68,155 	 	 	 	32,854 	 	 	 	28,662 	 	 	 	139,125 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Base net income, excluding discontinued operations,	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
         restructuring charges (net of tax), impairment	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
         expense (net of tax), and liquidity related	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
        charges (net of tax)	 	 	27,797	 	 	 	54,938	 	 	 	75,681	 	 	 	76,130	 	 	 	85,270	 	 	 	81,095	 	 	 	194,864	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
         GAAP	 	 	0.60	 	 	 	2.78	 	 	 	3.37	 	 	 	1.27	 	 	 	0.66	 	 	 	0.58	 	 	 	2.79	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
         Base net income, excluding discontinued operations,	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
         restructuring charges (net of tax), impairment	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
         expense (net of tax), and liquidity related	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
        charges (net of tax)	 	 	0.61	 	 	 	1.02	 	 	 	1.41	 	 	 	1.42	 	 	 	1.72	 	 	 	1.65	 	 	 	3.94	 	
 
Shareholder Value

 	 	As of December 31,	 	 	2003 - 2009	 	
 	 	2003	 	 	2004	 	 	2005	 	 	2006	 	 	2007	 	 	2008	 	 	2009	 	 	CAGR	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Shareholders' equity	 	$	305,489	 	 	 	456,175	 	 	 	649,492	 	 	 	671,850	 	 	 	608,879	 	 	 	643,226	 	 	 	784,563	 	 	 	17.0	%	
Tangible shareholders' equity	 	 	293,859	 	 	 	439,383	 	 	 	405,862	 	 	 	318,842	 	 	 	331,354	 	 	 	390,994	 	 	 	587,308	 	 	 	12.2	%	
Book value per common share	 	 	5.70	 	 	 	8.50	 	 	 	12.03	 	 	 	12.79	 	 	 	12.31	 	 	 	13.05	 	 	 	15.73	 	 	 	18.4	%	
Tangible book value per common share	 	 	5.48	 	 	 	8.19	 	 	 	7.52	 	 	 	6.07	 	 	 	6.70	 	 	 	7.93	 	 	 	11.77	 	 	 	13.6	%	

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.

13

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, foreign currency, and put option 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.  Changes in fair value of derivative instruments should be recognized currently in earnings unless specific hedge accounting criteria are met.  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 include interest rate swaps, basis swaps, and cross-currency interest rate swaps.  Management has structured all 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 consolidated statements of operations.

“Base net income” excludes the foreign currency transaction gains or losses caused by the re-measurement of the Company’s Euro-denominated bonds to U.S. dollars.  In connection with the issuance of the Euro-denominated bonds, the Company has entered into cross-currency interest rate swaps.  Under the terms of these agreements, the principal payments on the Euro-denominated notes will effectively be paid at the exchange rate in effect 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 consolidated statements of operations.  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 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.

In 2008, “base net income” also excluded the change in fair value of put options issued by the Company for certain business acquisitions.  The put options were valued by the Company each reporting period using a Black-Scholes pricing model.  Therefore, the fair value of those options were primarily affected by the strike price and term of the underlying option, the Company’s stock price, and the dividend yield and volatility of the Company’s stock.  The Company believed those point-in-time estimates of value were subject to fluctuations which made it difficult to evaluate the ongoing results of operations against the Company’s business plans and affected the period-to-period comparability of the results of operations.  In 2008, the Company settled all of its obligations related to these put options.

14

The gains and/or losses included in “Derivative market value, foreign currency, and put option adjustments” on the attached consolidated statements of operations are primarily caused by interest rate and currency volatility, changes in the value of put options based on the inputs used in the Black-Scholes pricing model, as well as the volume and terms of put options and of derivatives not receiving hedge treatment.  “Base net income” excludes these unrealized gains and losses and isolates the effect of interest rate, currency, and put option volatility on the fair value of such instruments during the period.  Under GAAP, the effects of these factors on the fair value of the put options and 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.

Compensation related to business combinations :   The Company has structured certain business combinations in which the consideration paid has been dependent on the sellers’ continued employment with the Company.  As such, the value of the consideration paid is recognized as compensation expense by the Company over the term of the applicable employment agreement.  “Base net income” excludes this expense because the Company believes such charges do not drive its operating performance on a long-term basis and can affect the period-to-period comparability of the results of operations.  If the Company did not enter into the employment agreements in connection with the acquisition, the amount paid to these former shareholders of the acquired entity would have been recorded by the Company as additional consideration of the acquired entity, thus, not having an effect on the Company’s results of operations.

Variable rate floor income, net of settlements on derivatives:   Loans that reset annually on July 1 can generate excess spread income compared with the rate based on the special allowance payment formula in declining interest rate environments.  The Company refers to this additional income as variable-rate floor income.  The Company excludes variable-rate floor income, net of settlements paid on derivatives used to hedge student loan assets earning variable-rate floor income, from its “base net income” since the timing and amount of variable-rate floor income (if any) is uncertain, it has been eliminated by legislation for all loans originated on and after April 1, 2006, and it is in excess of expected spreads.  In addition, because variable-rate floor income is subject to the underlying rate for the subject loans being reset annually on July 1, it is a factor beyond the Company’s control which can affect the period-to-period comparability of results of operations.

15

The Company has used derivative instruments to hedge variable rate floor income during certain periods. During the year ended December 31, 2008, the Company made payments (settlements) of $10.0 million on such derivatives.  None of the payments (settlements) were made during the three months ended December 31, 2008. These settlements are netted with variable-rate floor income and are excluded from “base net income.”

Discontinued operations : In May 2007, the Company sold EDULINX.  As a result of this transaction, the results of operations for EDULINX are reported as discontinued operations for all periods presented.  The Company presents “base net income” excluding discontinued operations since the operations and cash flows of EDULINX have been eliminated from the ongoing operations of the Company.

Operating Segments

The Company has five operating segments as follows:

 	·	Student Loan and Guaranty Servicing	
 	·	Tuition Payment Processing and Campus Commerce	
 	·	Enrollment Services	
 	·	Software and Technical Services	
 	·	Asset Generation and Management	

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 the summary of significant accounting policies included in the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.  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 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, 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 GAAP and may not be comparable to similarly titled measures reported by other companies.  Unlike financial accounting, there is no comprehensive, authoritative guidance for management reporting.

Fee-Based Operating Segments

Historically, the Company generated the majority of its revenue from net interest income earned in its Asset Generation and Management operating segment.  The Company has made several acquisitions that have expanded the Company’s products and services and has diversified its revenue – primarily from fee-based businesses.  The Company currently offers a broad range of pre-college, in-college, and post-college products and services to students, families, schools, and financial institutions.  These products and services help students and families plan and pay for their education and students plan their careers.  The Company’s products and services are designed to simplify the education planning and financing process and are focused on providing value to students, families, and schools throughout the education life cycle.  The Company continues to diversify its sources of revenue, including those generated from businesses that are not dependent upon government programs, reducing legislative and political risk.

16

Student Loan and Guaranty Servicing

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 and servicing provided to guaranty agencies.  The loan servicing activities include loan origination activities, loan conversion activities, application processing, borrower updates, payment processing, due diligence procedures, and claim processing. These activities are performed internally for the Company’s portfolio in addition to generating fee revenue when performed for third-party clients.  The guaranty servicing activities include providing software and data center services, borrower and loan updates, default aversion tracking services, claim processing services, and post-default collection services to guaranty agencies.  The following are the primary product and service offerings the Company offers as part of its Student Loan and Guaranty Servicing segment:

 	·	Origination and servicing of FFELP loans	
 	·	Origination and servicing of non-federally insured student loans	
 	·	Servicing and support outsourcing for guaranty agencies	

In June 2009, the Department of Education named the Company as one of four private sector companies awarded a servicing contract to service all federally-owned student loans, including FFELP loans purchased by the Department pursuant to ECASLA. No later than August 2010, the Company expects to also begin servicing new loans originated under the Direct Loan Program. Servicing volume has initially been allocated by the Department to the four servicers and performance factors such as customer satisfaction levels and default rates will determine volume allocations over time. The contract spans five years with one, five-year renewal option. Servicing loans under this contract will increase revenue earned by this segment.  However, operating margins under this contract are expected to be lower than historical levels achieved.

Tuition Payment Processing and Campus Commerce

The Tuition Payment Processing and Campus Commerce operating segment provides products and services to help institutions and education seeking families manage the payment of education costs during the pre-college and college stages of the education life cycle.  The Company provides actively managed tuition payment solutions, online payment processing, detailed information reporting, financial needs analysis, and data integration services to K-12 and higher educational institutions, families, and students.  In addition, the Company provides customer-focused electronic transactions, information sharing, and account and bill presentment to colleges and universities.

Enrollment Services

The Enrollment Services operating segment offers products and services that are focused on helping colleges recruit and retain students (lead generation and recruitment services) and helping students plan and prepare for life after high school (content management and publishing and editing services).  Lead generation products and services include vendor lead management services and admissions lead generation. Recruitment services include pay per click marketing management, email marketing, list marketing services, and admissions consulting. Content management products and services include online courses and related services.  Publishing and editing services include test preparation study guides and essay and resume editing services.

17

Software and Technical Services

The Software and Technical Services operating segment develops student loan servicing software, which is used internally by the Company and also licensed to third-party student loan holders and servicers. This segment also provides information technology products and services, with core areas of business in educational loan software solutions, legacy modernization, technical consulting services, and Enterprise Content Management solutions.

Asset Generation and Management Operating Segments

The Asset Generation and Management operating segment includes the acquisition, management, and ownership of the Company’s student loan assets. Revenues are primarily generated from the Company’s earnings from the spread, referred to as the Company’s student loan spread, between the yield received on the student loan portfolio and the costs associated with originating, acquiring, and financing the student loan portfolio.  The Company generates student loan assets through direct origination or through acquisitions. The student loan assets are held in a series of education lending subsidiaries designed specifically for this purpose.  In addition to the student loan portfolio, all costs and activity associated with the generation of assets, funding of those assets, and maintenance of the debt transactions are included in this segment.  This includes derivative activity and the related derivative market value and foreign currency adjustments.

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.

18

 
 	 	Three months ended December 31, 2009	 	
 	 	Fee-Based	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	Tuition	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Student	 	 	Payment	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	"Base net	 	 	 	 	
 	 	Loan	 	 	Processing	 	 	 	 	 	Software	 	 	 	 	 	Asset	 	 	Corporate	 	 	 	 	 	income"	 	 	 	 	
 	 	and	 	 	and	 	 	 	 	 	and	 	 	Total	 	 	Generation	 	 	Activity	 	 	Eliminations	 	 	Adjustments	 	 	GAAP	 	
 	 	Guaranty	 	 	Campus	 	 	Enrollment	 	 	Technical	 	 	Fee-	 	 	and	 	 	and	 	 	and	 	 	to GAAP	 	 	Results of	 	
 	 	Servicing	 	 	Commerce	 	 	Services	 	 	Services	 	 	Based	 	 	Management	 	 	Overhead	 	 	Reclassifications	 	 	Results	 	 	Operations	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total interest income	 	$	10	 	 	 	5	 	 	 	—	 	 	 	—	 	 	 	15	 	 	 	136,013	 	 	 	1,461	 	 	 	(679	)	 	 	—	 	 	 	136,810	 	
Interest expense	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	51,084	 	 	 	5,857	 	 	 	(679	)	 	 	—	 	 	 	56,262	 	
Net interest income (loss)	 	 	10	 	 	 	5	 	 	 	—	 	 	 	—	 	 	 	15	 	 	 	84,929	 	 	 	(4,396	)	 	 	—	 	 	 	—	 	 	 	80,548	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less provision for loan losses	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	6,000	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	6,000	 	
Net interest income (loss) after	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
provision for loan losses	 	 	10	 	 	 	5	 	 	 	—	 	 	 	—	 	 	 	15	 	 	 	78,929	 	 	 	(4,396	)	 	 	—	 	 	 	—	 	 	 	74,548	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	 	 	27,849	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	27,849	 	 	 	—	 	 	 	(382	)	 	 	—	 	 	 	—	 	 	 	27,467	 	
Tuition payment processing and campus commerce revenue	 	 	—	 	 	 	13,521	 	 	 	—	 	 	 	—	 	 	 	13,521	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	13,521	 	
Enrollment services revenue	 	 	—	 	 	 	—	 	 	 	31,209	 	 	 	—	 	 	 	31,209	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	31,209	 	
Software services revenue	 	 	935	 	 	 	—	 	 	 	—	 	 	 	3,805	 	 	 	4,740	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	4,740	 	
Other income	 	 	146	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	146	 	 	 	26,846	 	 	 	1,677	 	 	 	—	 	 	 	—	 	 	 	28,669	 	
Gain (loss) on sale of loans, net	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	26,762	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	26,762	 	
Intersegment revenue	 	 	22,813	 	 	 	65	 	 	 	139	 	 	 	3,773	 	 	 	26,790	 	 	 	—	 	 	 	7,730	 	 	 	(34,520	)	 	 	—	 	 	 	—	 	
Derivative market value, foreign	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
currency, and put option adjustments	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	5,265	 	 	 	5,265	 	
Derivative settlements, net	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	479	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	479	 	
Total other income (expense)	 	 	51,743	 	 	 	13,586	 	 	 	31,348	 	 	 	7,578	 	 	 	104,255	 	 	 	54,087	 	 	 	9,025	 	 	 	(34,520	)	 	 	5,265	 	 	 	138,112	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	 	13,762	 	 	 	6,203	 	 	 	5,927	 	 	 	5,322	 	 	 	31,214	 	 	 	1,564	 	 	 	6,357	 	 	 	181	 	 	 	—	 	 	 	39,316	 	
Restructure expense - severance and	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
contract terminination costs	 	 	805	 	 	 	—	 	 	 	—	 	 	 	222	 	 	 	1,027	 	 	 	—	 	 	 	327	 	 	 	(1,354	)	 	 	—	 	 	 	—	 	
Impairment expense	 	 	—	 	 	 	—	 	 	 	32,728	 	 	 	—	 	 	 	32,728	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	32,728	 	
Cost to provide enrollment services	 	 	—	 	 	 	—	 	 	 	18,718	 	 	 	—	 	 	 	18,718	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	18,718	 	
Other expenses	 	 	8,041	 	 	 	2,630	 	 	 	3,624	 	 	 	1,038	 	 	 	15,333	 	 	 	3,931	 	 	 	8,020	 	 	 	—	 	 	 	4,998	 	 	 	32,282	 	
Intersegment expenses	 	 	8,687	 	 	 	838	 	 	 	517	 	 	 	672	 	 	 	10,714	 	 	 	21,963	 	 	 	670	 	 	 	(33,347	)	 	 	—	 	 	 	—	 	
Total operating expenses	 	 	31,295	 	 	 	9,671	 	 	 	61,514	 	 	 	7,254	 	 	 	109,734	 	 	 	27,458	 	 	 	15,374	 	 	 	(34,520	)	 	 	4,998	 	 	 	123,044	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before income taxes	 	 	20,458	 	 	 	3,920	 	 	 	(30,166	)	 	 	324	 	 	 	(5,464	)	 	 	105,558	 	 	 	(10,745	)	 	 	—	 	 	 	267	 	 	 	89,616	 	
Income tax (expense) benefit (a)	 	 	(7,774	)	 	 	(1,490	)	 	 	11,463	 	 	 	(123	)	 	 	2,076	 	 	 	(40,112	)	 	 	7,574	 	 	 	—	 	 	 	(91	)	 	 	(30,553	)	
Net income (loss) from continuing operations	 	 	12,684	 	 	 	2,430	 	 	 	(18,703	)	 	 	201	 	 	 	(3,388	)	 	 	65,446	 	 	 	(3,171	)	 	 	—	 	 	 	176	 	 	 	59,063	 	
Income from discontinued operations , net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Net income (loss)	 	$	12,684	 	 	 	2,430	 	 	 	(18,703	)	 	 	201	 	 	 	(3,388	)	 	 	65,446	 	 	 	(3,171	)	 	 	—	 	 	 	176	 	 	 	59,063	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(a) Income taxes are applied based on 38% of income (loss) before income taxes for the individual operating segments.	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

Before tax operating margin (1):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Three months ended December 31, 2009	 	 	41.1	%	 	 	28.8	%	 	 	8.2	%	 	 	7.2	%	 	 	27.1	%	 	 	70.8	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Three months ended September 30, 2009	 	 	39.9	%	 	 	28.6	%	 	 	4.3	%	 	 	1.5	%	 	 	24.6	%	 	 	47.3	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Three months ended December 31, 2008	 	 	26.2	%	 	 	25.1	%	 	 	5.3	%	 	 	6.0	%	 	 	17.8	%	 	 	(14.4	%)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 
(1) Before tax operating margin excludes restructure and impairment expenses and fixed rate floor income.

19

 	 	Three months ended September 30, 2009	 	
 	 	Fee-Based	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	Tuition	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Student	 	 	Payment	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	"Base net	 	 	 	 	
 	 	Loan	 	 	Processing	 	 	 	 	 	Software	 	 	 	 	 	Asset	 	 	Corporate	 	 	 	 	 	income"	 	 	 	 	
 	 	and	 	 	and	 	 	 	 	 	and	 	 	Total	 	 	Generation	 	 	Activity	 	 	Eliminations	 	 	Adjustments	 	 	GAAP	 	
 	 	Guaranty	 	 	Campus	 	 	Enrollment	 	 	Technical	 	 	Fee-	 	 	and	 	 	and	 	 	and	 	 	to GAAP	 	 	Results of	 	
 	 	Servicing	 	 	Commerce	 	 	Services	 	 	Services	 	 	Based	 	 	Management	 	 	Overhead	 	 	Reclassifications	 	 	Results	 	 	Operations	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total interest income	 	$	23	 	 	 	16	 	 	 	—	 	 	 	—	 	 	 	39	 	 	 	144,310	 	 	 	1,191	 	 	 	(342	)	 	 	—	 	 	 	145,198	 	
Interest expense	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	69,914	 	 	 	6,444	 	 	 	(342	)	 	 	—	 	 	 	76,016	 	
Net interest income (loss)	 	 	23	 	 	 	16	 	 	 	—	 	 	 	—	 	 	 	39	 	 	 	74,396	 	 	 	(5,253	)	 	 	—	 	 	 	—	 	 	 	69,182	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less provision for loan losses	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	7,500	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	7,500	 	
Net interest income (loss) after	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
provision for loan losses	 	 	23	 	 	 	16	 	 	 	—	 	 	 	—	 	 	 	39	 	 	 	66,896	 	 	 	(5,253	)	 	 	—	 	 	 	—	 	 	 	61,682	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	 	 	26,387	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	26,387	 	 	 	—	 	 	 	(381	)	 	 	—	 	 	 	—	 	 	 	26,006	 	
Tuition payment processing and campus commerce revenue	 	 	—	 	 	 	12,987	 	 	 	—	 	 	 	—	 	 	 	12,987	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	12,987	 	
Enrollment services revenue	 	 	—	 	 	 	—	 	 	 	30,670	 	 	 	—	 	 	 	30,670	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	30,670	 	
Software services revenue	 	 	966	 	 	 	—	 	 	 	—	 	 	 	3,634	 	 	 	4,600	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	4,600	 	
Other income	 	 	137	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	137	 	 	 	9,959	 	 	 	998	 	 	 	—	 	 	 	—	 	 	 	11,094	 	
Gain (loss) on sale of loans, net	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	8,788	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	8,788	 	
Intersegment revenue	 	 	21,525	 	 	 	62	 	 	 	139	 	 	 	3,793	 	 	 	25,519	 	 	 	—	 	 	 	8,355	 	 	 	(33,874	)	 	 	—	 	 	 	—	 	
Derivative market value, foreign	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
currency, and put option adjustments	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	2,826	 	 	 	2,826	 	
Derivative settlements, net	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	4,914	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	4,914	 	
Total other income (expense)	 	 	49,015	 	 	 	13,049	 	 	 	30,809	 	 	 	7,427	 	 	 	100,300	 	 	 	23,661	 	 	 	8,972	 	 	 	(33,874	)	 	 	2,826	 	 	 	101,885	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	 	12,468	 	 	 	6,399	 	 	 	5,337	 	 	 	5,756	 	 	 	29,960	 	 	 	1,693	 	 	 	5,919	 	 	 	238	 	 	 	—	 	 	 	37,810	 	
Restructure expense- severance and	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
contract terminination costs	 	 	2,646	 	 	 	—	 	 	 	—	 	 	 	292	 	 	 	2,938	 	 	 	—	 	 	 	402	 	 	 	(3,340	)	 	 	—	 	 	 	—	 	
Impairment expense	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Cost to provide enrollment services	 	 	—	 	 	 	—	 	 	 	20,323	 	 	 	—	 	 	 	20,323	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	20,323	 	
Other expenses	 	 	7,613	 	 	 	2,265	 	 	 	3,266	 	 	 	776	 	 	 	13,920	 	 	 	4,801	 	 	 	8,567	 	 	 	1,929	 	 	 	5,312	 	 	 	34,529	 	
Intersegment expenses	 	 	9,398	 	 	 	670	 	 	 	550	 	 	 	786	 	 	 	11,404	 	 	 	20,764	 	 	 	533	 	 	 	(32,701	)	 	 	—	 	 	 	—	 	
Total operating expenses	 	 	32,125	 	 	 	9,334	 	 	 	29,476	 	 	 	7,610	 	 	 	78,545	 	 	 	27,258	 	 	 	15,421	 	 	 	(33,874	)	 	 	5,312	 	 	 	92,662	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before income taxes	 	 	16,913	 	 	 	3,731	 	 	 	1,333	 	 	 	(183	)	 	 	21,794	 	 	 	63,299	 	 	 	(11,702	)	 	 	—	 	 	 	(2,486	)	 	 	70,905	 	
Income tax (expense) benefit (a)	 	 	(6,427	)	 	 	(1,418	)	 	 	(507	)	 	 	70	 	 	 	(8,282	)	 	 	(24,054	)	 	 	6,976	 	 	 	—	 	 	 	859	 	 	 	(24,501	)	
Net income (loss) from continuing operations	 	 	10,486	 	 	 	2,313	 	 	 	826	 	 	 	(113	)	 	 	13,512	 	 	 	39,245	 	 	 	(4,726	)	 	 	—	 	 	 	(1,627	)	 	 	46,404	 	
Income from discontinued operations , net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Net income (loss)	 	$	10,486	 	 	 	2,313	 	 	 	826	 	 	 	(113	)	 	 	13,512	 	 	 	39,245	 	 	 	(4,726	)	 	 	—	 	 	 	(1,627	)	 	 	46,404	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(a) Income taxes are applied based on 38% of income (loss) before income taxes for the individual operating segments.	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

20

 	 	Three months ended December 31, 2008	 	
 	 	Fee-Based	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	Tuition	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Student	 	 	Payment	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	"Base net	 	 	 	 	
 	 	Loan	 	 	Processing	 	 	 	 	 	Software	 	 	 	 	 	Asset	 	 	Corporate	 	 	 	 	 	income"	 	 	 	 	
 	 	and	 	 	and	 	 	 	 	 	and	 	 	Total	 	 	Generation	 	 	Activity	 	 	Eliminations	 	 	Adjustments	 	 	GAAP	 	
 	 	Guaranty	 	 	Campus	 	 	Enrollment	 	 	Technical	 	 	Fee-	 	 	and	 	 	and	 	 	and	 	 	to GAAP	 	 	Results of	 	
 	 	Servicing	 	 	Commerce	 	 	Services	 	 	Services	 	 	Based	 	 	Management	 	 	Overhead	 	 	Reclassifications	 	 	Results	 	 	Operations	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total interest income	 	$	217	 	 	 	218	 	 	 	1	 	 	 	24	 	 	 	460	 	 	 	271,639	 	 	 	2,029	 	 	 	(801	)	 	 	—	 	 	 	273,327	 	
Interest expense	 	 	—	 	 	 	—	 	 	 	(3	)	 	 	—	 	 	 	(3	)	 	 	223,867	 	 	 	11,805	 	 	 	(801	)	 	 	—	 	 	 	234,868	 	
Net interest income (loss)	 	 	217	 	 	 	218	 	 	 	4	 	 	 	24	 	 	 	463	 	 	 	47,772	 	 	 	(9,776	)	 	 	—	 	 	 	—	 	 	 	38,459	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less provision for loan losses	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	7,000	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	7,000	 	
Net interest income (loss) after	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
provision for loan losses	 	 	217	 	 	 	218	 	 	 	4	 	 	 	24	 	 	 	463	 	 	 	40,772	 	 	 	(9,776	)	 	 	—	 	 	 	—	 	 	 	31,459	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	 	 	21,769	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	21,769	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	21,769	 	
Tuition payment processing and campus commerce revenue	 	 	—	 	 	 	12,175	 	 	 	—	 	 	 	—	 	 	 	12,175	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	12,175	 	
Enrollment services revenue	 	 	—	 	 	 	—	 	 	 	29,257	 	 	 	—	 	 	 	29,257	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	29,257	 	
Software services revenue	 	 	894	 	 	 	—	 	 	 	—	 	 	 	3,879	 	 	 	4,773	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	4,773	 	
Other income	 	 	7	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	7	 	 	 	3,614	 	 	 	1,367	 	 	 	—	 	 	 	—	 	 	 	4,988	 	
Gain (loss) on sale of loans, net	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(5,609	)	 	 	1,621	 	 	 	—	 	 	 	—	 	 	 	(3,988	)	
Intersegment revenue	 	 	18,353	 	 	 	60	 	 	 	—	 	 	 	1,838	 	 	 	20,251	 	 	 	—	 	 	 	16,541	 	 	 	(36,792	)	 	 	—	 	 	 	—	 	
Derivative market value, foreign	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
currency, and put option adjustments	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	46,348	 	 	 	46,348	 	
Derivative settlements, net	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	9,668	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	9,668	 	
Total other income (expense)	 	 	41,023	 	 	 	12,235	 	 	 	29,257	 	 	 	5,717	 	 	 	88,232	 	 	 	7,673	 	 	 	19,529	 	 	 	(36,792	)	 	 	46,348	 	 	 	124,990	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	 	10,955	 	 	 	5,840	 	 	 	5,678	 	 	 	4,050	 	 	 	26,523	 	 	 	2,159	 	 	 	13,329	 	 	 	(1,225	)	 	 	476	 	 	 	41,262	 	
Restructure expense - severance and	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
contract terminination costs	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(40	)	 	 	40	 	 	 	—	 	 	 	—	 	
Cost to provide enrollment services	 	 	—	 	 	 	—	 	 	 	16,903	 	 	 	—	 	 	 	16,903	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	16,903	 	
Other expenses	 	 	6,792	 	 	 	3,136	 	 	 	3,423	 	 	 	588	 	 	 	13,939	 	 	 	19,886	 	 	 	11,712	 	 	 	(27	)	 	 	6,511	 	 	 	52,021	 	
Intersegment expenses	 	 	12,697	 	 	 	352	 	 	 	1,705	 	 	 	761	 	 	 	15,515	 	 	 	19,351	 	 	 	714	 	 	 	(35,580	)	 	 	—	 	 	 	—	 	
Total operating expenses	 	 	30,444	 	 	 	9,328	 	 	 	27,709	 	 	 	5,399	 	 	 	72,880	 	 	 	41,396	 	 	 	25,715	 	 	 	(36,792	)	 	 	6,987	 	 	 	110,186	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before income taxes	 	 	10,796	 	 	 	3,125	 	 	 	1,552	 	 	 	342	 	 	 	15,815	 	 	 	7,049	 	 	 	(15,962	)	 	 	—	 	 	 	39,361	 	 	 	46,263	 	
Income tax (expense) benefit (a)	 	 	(3,779	)	 	 	(1,094	)	 	 	(543	)	 	 	(119	)	 	 	(5,535	)	 	 	(2,467	)	 	 	5,675	 	 	 	—	 	 	 	(13,776	)	 	 	(16,103	)	
Net income (loss) from continuing operations	 	 	7,017	 	 	 	2,031	 	 	 	1,009	 	 	 	223	 	 	 	10,280	 	 	 	4,582	 	 	 	(10,287	)	 	 	—	 	 	 	25,585	 	 	 	30,160	 	
Income from discontinued operations , net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	837	 	 	 	837	 	
Net income (loss)	 	$	7,017	 	 	 	2,031	 	 	 	1,009	 	 	 	223	 	 	 	10,280	 	 	 	4,582	 	 	 	(10,287	)	 	 	—	 	 	 	26,422	 	 	 	30,997	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(a) Income taxes are aplied to each operating segment based on the consolidated effective tax rate for the period.	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

21

 	 	Year ended December 31, 2009	 	
 	 	Fee-Based	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	Tuition	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Student	 	 	Payment	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	"Base net	 	 	 	 	
 	 	Loan	 	 	Processing	 	 	 	 	 	Software	 	 	 	 	 	Asset	 	 	Corporate	 	 	 	 	 	income"	 	 	 	 	
 	 	and	 	 	and	 	 	 	 	 	and	 	 	Total	 	 	Generation	 	 	Activity	 	 	Eliminations	 	 	Adjustments	 	 	GAAP	 	
 	 	Guaranty	 	 	Campus	 	 	Enrollment	 	 	Technical	 	 	Fee-	 	 	and	 	 	and	 	 	and	 	 	to GAAP	 	 	Results of	 	
 	 	Servicing	 	 	Commerce	 	 	Services	 	 	Services	 	 	Based	 	 	Management	 	 	Overhead	 	 	Reclassifications	 	 	Results	 	 	Operations	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total interest income	 	$	112	 	 	 	62	 	 	 	—	 	 	 	—	 	 	 	174	 	 	 	609,143	 	 	 	5,391	 	 	 	(2,003	)	 	 	7,502	 	 	 	620,207	 	
Interest expense	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	357,930	 	 	 	28,935	 	 	 	(2,003	)	 	 	—	 	 	 	384,862	 	
Net interest income (loss)	 	 	112	 	 	 	62	 	 	 	—	 	 	 	—	 	 	 	174	 	 	 	251,213	 	 	 	(23,544	)	 	 	—	 	 	 	7,502	 	 	 	235,345	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less provision for loan losses	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	29,000	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	29,000	 	
Net interest income (loss) after	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
provision for loan losses	 	 	112	 	 	 	62	 	 	 	—	 	 	 	—	 	 	 	174	 	 	 	222,213	 	 	 	(23,544	)	 	 	—	 	 	 	7,502	 	 	 	206,345	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	 	 	110,273	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	110,273	 	 	 	—	 	 	 	(1,526	)	 	 	—	 	 	 	—	 	 	 	108,747	 	
Tuition payment processing and campus commerce revenue	 	 	—	 	 	 	53,894	 	 	 	—	 	 	 	—	 	 	 	53,894	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	53,894	 	
Enrollment services revenue	 	 	—	 	 	 	—	 	 	 	119,397	 	 	 	—	 	 	 	119,397	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	119,397	 	
Software services revenue	 	 	3,701	 	 	 	—	 	 	 	—	 	 	 	17,463	 	 	 	21,164	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	21,164	 	
Other income	 	 	644	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	644	 	 	 	45,697	 	 	 	21,811	 	 	 	—	 	 	 	—	 	 	 	68,152	 	
Gain (loss) on sale of loans, net	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	35,148	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	35,148	 	
Intersegment revenue	 	 	85,104	 	 	 	237	 	 	 	555	 	 	 	14,586	 	 	 	100,482	 	 	 	—	 	 	 	33,469	 	 	 	(133,951	)	 	 	—	 	 	 	—	 	
Derivative market value, foreign	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
currency, and put option adjustments	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(30,802	)	 	 	(30,802	)	
Derivative settlements, net	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	39,286	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	39,286	 	
Total other income (expense)	 	 	199,722	 	 	 	54,131	 	 	 	119,952	 	 	 	32,049	 	 	 	405,854	 	 	 	120,131	 	 	 	53,754	 	 	 	(133,951	)	 	 	(30,802	)	 	 	414,986	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	 	54,289	 	 	 	25,549	 	 	 	23,222	 	 	 	21,978	 	 	 	125,038	 	 	 	6,767	 	 	 	24,777	 	 	 	(1,209	)	 	 	159	 	 	 	155,532	 	
Restructure expense- severance and	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
contract termination costs	 	 	5,964	 	 	 	—	 	 	 	—	 	 	 	936	 	 	 	6,900	 	 	 	—	 	 	 	1,082	 	 	 	(7,982	)	 	 	—	 	 	 	—	 	
Impairment expense	 	 	—	 	 	 	—	 	 	 	32,728	 	 	 	—	 	 	 	32,728	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	32,728	 	
Cost to provide enrollment services	 	 	—	 	 	 	—	 	 	 	74,926	 	 	 	—	 	 	 	74,926	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	74,926	 	
Other expenses	 	 	35,391	 	 	 	9,642	 	 	 	13,226	 	 	 	3,330	 	 	 	61,589	 	 	 	19,566	 	 	 	35,307	 	 	 	3,736	 	 	 	22,249	 	 	 	142,447	 	
Intersegment expenses	 	 	37,039	 	 	 	2,800	 	 	 	2,121	 	 	 	2,867	 	 	 	44,827	 	 	 	81,335	 	 	 	2,334	 	 	 	(128,496	)	 	 	—	 	 	 	—	 	
Total operating expenses	 	 	132,683	 	 	 	37,991	 	 	 	146,223	 	 	 	29,111	 	 	 	346,008	 	 	 	107,668	 	 	 	63,500	 	 	 	(133,951	)	 	 	22,408	 	 	 	405,633	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before income taxes	 	 	67,151	 	 	 	16,202	 	 	 	(26,271	)	 	 	2,938	 	 	 	60,020	 	 	 	234,676	 	 	 	(33,290	)	 	 	—	 	 	 	(45,708	)	 	 	215,698	 	
Income tax (expense) benefit (a)	 	 	(25,518	)	 	 	(6,156	)	 	 	9,984	 	 	 	(1,118	)	 	 	(22,808	)	 	 	(89,178	)	 	 	19,186	 	 	 	—	 	 	 	16,227	 	 	 	(76,573	)	
Net income (loss) from continuing operations	 	 	41,633	 	 	 	10,046	 	 	 	(16,287	)	 	 	1,820	 	 	 	37,212	 	 	 	145,498	 	 	 	(14,104	)	 	 	—	 	 	 	(29,481	)	 	 	139,125	 	
Income from discontinued operations, net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Net income (loss)	 	$	41,633	 	 	 	10,046	 	 	 	(16,287	)	 	 	1,820	 	 	 	37,212	 	 	 	145,498	 	 	 	(14,104	)	 	 	—	 	 	 	(29,481	)	 	 	139,125	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(a) Income taxes are applied based on 38% if income (loss) before taxes for the individual operating segments.	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Before tax operating margin (1):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Year ended December 31, 2009	 	 	36.6	%	 	 	29.9	%	 	 	5.4	%	 	 	12.1	%	 	 	24.5	%	 	 	45.4	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Year ended December 31, 2008	 	 	26.6	%	 	 	31.1	%	 	 	4.7	%	 	 	13.8	%	 	 	19.6	%	 	 	16.9	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(1) Before tax operating margin excludes restructure and impairment expenses and fixed rate floor income.

22

 	 	Year ended December 31, 2008	 	
 	 	Fee-Based	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	Tuition	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Student	 	 	Payment	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	"Base net	 	 	 	 	
 	 	Loan	 	 	Processing	 	 	 	 	 	Software	 	 	 	 	 	Asset	 	 	Corporate	 	 	 	 	 	income"	 	 	 	 	
 	 	and	 	 	and	 	 	 	 	 	and	 	 	Total	 	 	Generation	 	 	Activity	 	 	Eliminations	 	 	Adjustments	 	 	GAAP	 	
 	 	Guaranty	 	 	Campus	 	 	Enrollment	 	 	Technical	 	 	Fee-	 	 	and	 	 	and	 	 	and	 	 	to GAAP	 	 	Results of	 	
 	 	Servicing	 	 	Commerce	 	 	Services	 	 	Services	 	 	Based	 	 	Management	 	 	Overhead	 	 	Reclassifications	 	 	Results	 	 	Operations	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total interest income	 	$	1,377	 	 	 	1,689	 	 	 	17	 	 	 	24	 	 	 	3,107	 	 	 	1,164,329	 	 	 	6,810	 	 	 	(2,190	)	 	 	42,325	 	 	 	1,214,381	 	
Interest expense	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	986,556	 	 	 	42,123	 	 	 	(2,190	)	 	 	—	 	 	 	1,026,489	 	
Net interest income (loss)	 	 	1,377	 	 	 	1,689	 	 	 	17	 	 	 	24	 	 	 	3,107	 	 	 	177,773	 	 	 	(35,313	)	 	 	—	 	 	 	42,325	 	 	 	187,892	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less provision for loan losses 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	25,000	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	25,000	 	
Net interest income (loss) after provision	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
for loan losses	 	 	1,377	 	 	 	1,689	 	 	 	17	 	 	 	24	 	 	 	3,107	 	 	 	152,773	 	 	 	(35,313	)	 	 	—	 	 	 	42,325	 	 	 	162,892	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expense): 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing income	 	 	99,916	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	99,916	 	 	 	26	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	99,942	 	
Tuition payment processing and campus commerce revenue	 	 	—	 	 	 	48,155	 	 	 	—	 	 	 	—	 	 	 	48,155	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	48,155	 	
Enrollment services revenue	 	 	—	 	 	 	—	 	 	 	112,405	 	 	 	—	 	 	 	112,405	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	112,405	 	
Software services revenue	 	 	4,371	 	 	 	—	 	 	 	37	 	 	 	19,707	 	 	 	24,115	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	24,115	 	
Other income	 	 	51	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	51	 	 	 	17,401	 	 	 	5,323	 	 	 	—	 	 	 	—	 	 	 	22,775	 	
Gain (loss) on sale of loans	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(53,035	)	 	 	1,621	 	 	 	—	 	 	 	—	 	 	 	(51,414	)	
Intersegment revenue	 	 	75,361	 	 	 	302	 	 	 	2	 	 	 	6,831	 	 	 	82,496	 	 	 	—	 	 	 	63,384	 	 	 	(145,880	)	 	 	—	 	 	 	—	 	
Derivative market value, foreign	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
currency, and put option adjustments	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	466	 	 	 	—	 	 	 	—	 	 	 	10,361	 	 	 	10,827	 	
Derivative settlements, net	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	65,622	 	 	 	—	 	 	 	—	 	 	 	(9,965	)	 	 	55,657	 	
Total other income (expense)	 	 	179,699	 	 	 	48,457	 	 	 	112,444	 	 	 	26,538	 	 	 	367,138	 	 	 	30,480	 	 	 	70,328	 	 	 	(145,880	)	 	 	396	 	 	 	322,462	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses: 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	 	51,320	 	 	 	23,290	 	 	 	24,379	 	 	 	18,081	 	 	 	117,070	 	 	 	8,316	 	 	 	54,910	 	 	 	98	 	 	 	2,999	 	 	 	183,393	 	
Restructure expense - severance and	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
contract termination costs	 	 	747	 	 	 	—	 	 	 	282	 	 	 	487	 	 	 	1,516	 	 	 	1,845	 	 	 	3,706	 	 	 	(7,067	)	 	 	—	 	 	 	—	 	
Impairment expense	 	 	5,074	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	5,074	 	 	 	9,351	 	 	 	4,409	 	 	 	—	 	 	 	—	 	 	 	18,834	 	
Cost to provide enrollment services	 	 	—	 	 	 	—	 	 	 	64,965	 	 	 	—	 	 	 	64,965	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	64,965	 	
Other expenses	 	 	33,922	 	 	 	9,879	 	 	 	11,224	 	 	 	2,489	 	 	 	57,514	 	 	 	35,679	 	 	 	53,975	 	 	 	24	 	 	 	26,230	 	 	 	173,422	 	
Intersegment expenses	 	 	47,737	 	 	 	1,397	 	 	 	6,641	 	 	 	2,323	 	 	 	58,098	 	 	 	77,105	 	 	 	3,732	 	 	 	(138,935	)	 	 	—	 	 	 	—	 	
Total operating expenses	 	 	138,800	 	 	 	34,566	 	 	 	107,491	 	 	 	23,380	 	 	 	304,237	 	 	 	132,296	 	 	 	120,732	 	 	 	(145,880	)	 	 	29,229	 	 	 	440,614	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before income taxes	 	 	42,276	 	 	 	15,580	 	 	 	4,970	 	 	 	3,182	 	 	 	66,008	 	 	 	50,957	 	 	 	(85,717	)	 	 	—	 	 	 	13,492	 	 	 	44,740	 	
Income tax (expense) benefit(a) 	 	 	(14,321	)	 	 	(5,175	)	 	 	(1,730	)	 	 	(1,021	)	 	 	(22,247	)	 	 	(18,356	)	 	 	28,499	 	 	 	—	 	 	 	(5,792	)	 	 	(17,896	)	
Net income (loss) from continuing operations	 	 	27,955	 	 	 	10,405	 	 	 	3,240	 	 	 	2,161	 	 	 	43,761	 	 	 	32,601	 	 	 	(57,218	)	 	 	—	 	 	 	7,700	 	 	 	26,844	 	
Income from discontinued operations, net of tax 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,818	 	 	 	1,818	 	
Net income (loss)	 	$	27,955	 	 	 	10,405	 	 	 	3,240	 	 	 	2,161	 	 	 	43,761	 	 	 	32,601	 	 	 	(57,218	)	 	 	—	 	 	 	9,518	 	 	 	28,662	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(a) Income taxes are aplied to each operating segment based on the consolidated effective tax rate for the period.

23

 
Corporate Activity and Overhead in the previous tables primarily 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	
 	·	Certain corporate activities and unallocated overhead functions related to executive management, human resources, accounting and finance, legal, marketing, and corporate technology support	

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, amortization of intangible assets, discontinued operations, and certain other items that management does not consider in evaluating the Company’s operating results.  See “Non-GAAP Performance Measures.”  The following tables reflect adjustments associated with these areas by operating segment and Corporate Activity and Overhead:

24

 	 	Student	 	 	Tuition	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Loan	 	 	Payment	 	 	 	 	 	Software	 	 	Asset	 	 	Corporate	 	 	 	 	
 	 	and	 	 	Processing	 	 	 	 	 	and	 	 	Generation	 	 	Activity	 	 	 	 	
 	 	Guaranty	 	 	and Campus	 	 	Enrollment	 	 	Technical	 	 	and	 	 	and	 	 	 	 	
 	 	Servicing	 	 	Commerce	 	 	Services	 	 	Services	 	 	Management	 	 	Overhead	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended December 31, 2009	 	
 	 	 	 	
Derivative market value, foreign currency, and	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
put option adjustments	 	$	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(2,930	)	 	 	(2,335	)	 	 	(5,265	)	
Amortization of intangible assets	 	 	1,079	 	 	 	1,842	 	 	 	1,967	 	 	 	110	 	 	 	—	 	 	 	—	 	 	 	4,998	 	
Compensation related to business combinations	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Variable-rate floor income, net of settlements on derivatives	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Income from discontinued operations, net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Net tax effect (a)	 	 	(410	)	 	 	(700	)	 	 	(747	)	 	 	(42	)	 	 	1,113	 	 	 	877	 	 	 	91	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total adjustments to GAAP	 	$	669	 	 	 	1,142	 	 	 	1,220	 	 	 	68	 	 	 	(1,817	)	 	 	(1,458	)	 	 	(176	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended September 30, 2009	 	
 	 	 	 	
Derivative market value, foreign currency, and	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
put option adjustments	 	$	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(2,826	)	 	 	—	 	 	 	(2,826	)	
Amortization of intangible assets	 	 	1,078	 	 	 	1,842	 	 	 	2,251	 	 	 	141	 	 	 	—	 	 	 	—	 	 	 	5,312	 	
Compensation related to business combinations	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Variable-rate floor income, net of settlements on derivatives	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Income from discontinued operations, net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Net tax effect (a)	 	 	(410	)	 	 	(700	)	 	 	(855	)	 	 	(54	)	 	 	1,074	 	 	 	86	 	 	 	(859	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total adjustments to GAAP	 	$	668	 	 	 	1,142	 	 	 	1,396	 	 	 	87	 	 	 	(1,752	)	 	 	86	 	 	 	1,627	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended December 31, 2008	 	
 	 	 	 	
Derivative market value, foreign currency, and	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
put option adjustments	 	$	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(46,348	)	 	 	—	 	 	 	(46,348	)	
Amortization of intangible assets	 	 	1,165	 	 	 	1,889	 	 	 	3,258	 	 	 	199	 	 	 	—	 	 	 	—	 	 	 	6,511	 	
Compensation related to business combinations	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	476	 	 	 	476	 	
Variable-rate floor income, net of settlements on derivatives	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Income from discontinued operations, net of tax	 	 	(837	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(837	)	
Net tax effect (a)	 	 	(408	)	 	 	(661	)	 	 	(1,140	)	 	 	(70	)	 	 	16,222	 	 	 	(167	)	 	 	13,776	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total adjustments to GAAP	 	$	(80	)	 	 	1,228	 	 	 	2,118	 	 	 	129	 	 	 	(30,126	)	 	 	309	 	 	 	(26,422	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Year ended December 31, 2009	 	
 	 	 	 	
Derivative market value, foreign currency, and	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
put option adjustments	 	$	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	34,569	 	 	 	(3,767	)	 	 	30,802	 	
Amortization of intangible assets	 	 	4,315	 	 	 	7,440	 	 	 	9,961	 	 	 	533	 	 	 	—	 	 	 	—	 	 	 	22,249	 	
Compensation related to business combinations	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	159	 	 	 	159	 	
Variable-rate floor income, net of settlements on derivatives	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(7,502	)	 	 	—	 	 	 	(7,502	)	
Income from discontinued operations, net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Net tax effect (a)	 	 	(1,640	)	 	 	(2,827	)	 	 	(3,787	)	 	 	(202	)	 	 	(10,285	)	 	 	2,514	 	 	 	(16,227	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total adjustments to GAAP	 	$	2,675	 	 	 	4,613	 	 	 	6,174	 	 	 	331	 	 	 	16,782	 	 	 	(1,094	)	 	 	29,481	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Year ended December 31, 2008	 	
 	 	 	 	
Derivative market value, foreign currency, and	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
put option adjustments	 	$	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(13,844	)	 	 	3,483	 	 	 	(10,361	)	
Amortization of intangible assets	 	 	4,751	 	 	 	7,826	 	 	 	12,451	 	 	 	1,057	 	 	 	145	 	 	 	—	 	 	 	26,230	 	
Compensation related to business combinations	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	2,999	 	 	 	2,999	 	
Variable-rate floor income, net of settlements on derivatives	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(32,360	)	 	 	—	 	 	 	(32,360	)	
Loss from discontinued operations, net of tax	 	 	(1,818	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1,818	)	
Net tax effect (a)	 	 	(1,590	)	 	 	(2,615	)	 	 	(4,185	)	 	 	(354	)	 	 	16,770	 	 	 	(2,234	)	 	 	5,792	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total adjustments to GAAP	 	$	1,343	 	 	 	5,211	 	 	 	8,266	 	 	 	703	 	 	 	(29,289	)	 	 	4,248	 	 	 	(9,518	)	
 
 	(a)	For 2009, income taxes are based on 38% of income (loss) before income taxes for the individual operating segments.  For 2008, income taxes are applied to the individual operating segments using the Company’s consolidated effective tax rate for each applicable period.	

25

 
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	 	 	Year ended	 	
 	 	December 31,	 	 	September 30,	 	 	December 31,	 	 	December 31,	 	 	December 31,	 	
 	 	2009	 	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Variable student loan interest margin, net	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
of settlements on derivatives	 	$	46,496	 	 	 	39,749	 	 	 	39,579	 	 	 	148,181	 	 	 	210,217	 	
Fixed rate floor income, net of	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
settlements on derivatives	 	 	38,911	 	 	 	38,848	 	 	 	12,269	 	 	 	145,098	 	 	 	37,457	 	
Investment interest	 	 	1,477	 	 	 	1,943	 	 	 	8,084	 	 	 	10,287	 	 	 	37,998	 	
Corporate debt interest expense	 	 	(5,857	)	 	 	(6,444	)	 	 	(11,805	)	 	 	(28,935	)	 	 	(42,123	)	
Provision for loan losses	 	 	(6,000	)	 	 	(7,500	)	 	 	(7,000	)	 	 	(29,000	)	 	 	(25,000	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income after	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
provision for loan losses (net of	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
settlements on derivatives)	 	$	75,027	 	 	 	66,596	 	 	 	41,127	 	 	 	245,631	 	 	 	218,549	 	

Other Income

The following table summarizes the components of “other income” included in the attached condensed consolidated statements of income.

 	 	Three months ended	 	 	Year ended	 	
 	 	December 31,	 	 	September 30,	 	 	December 31,	 	 	December 31,	 	 	December 31,	 	
 	 	2009	 	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gains on debt repurchases	 	$	22,651	 	 	 	5,248	 	 	 	—	 	 	 	41,683	 	 	 	—	 	
Borrower late fee income	 	 	2,658	 	 	 	2,859	 	 	 	2,607	 	 	 	11,305	 	 	 	11,515	 	
Gain on sale of equity method investment	 	 	—	 	 	 	—	 	 	 	—	 	 	 	3,500	 	 	 	—	 	
Other	 	 	3,360	 	 	 	2,987	 	 	 	2,381	 	 	 	11,664	 	 	 	11,260	 	
        Other income	 	$	28,669	 	 	 	11,094	 	 	 	4,988	 	 	 	68,152	 	 	 	22,775	 	

Derivative Market Value, Foreign Currency, and Put Option Adjustments

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

 	 	Three months ended	 	 	Year ended	 	
 	 	December 31,	 	 	September 30,	 	 	December 31,	 	 	December 31,	 	 	December 31,	 	
 	 	2009	 	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Change in fair value of derivatives	 	$	(13,059	)	 	 	42,182	 	 	 	33,822	 	 	 	6,852	 	 	 	(38,576	)	
Foreign currency transaction adjustment (re-measured	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
of Euro notes)	 	 	18,324	 	 	 	(39,356	)	 	 	12,526	 	 	 	(37,654	)	 	 	52,886	 	
Change in fair value of put options	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
issued in business acquisitions	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(3,483	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivative market value, foreign currency,	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
and put option adjustments	 	$	5,265	 	 	 	2,826	 	 	 	46,348	 	 	 	(30,802	)	 	 	10,827	 	

26

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	 	 	Year ended	 	
 	 	December 31,	 	 	September 30,	 	 	December 31,	 	 	December 31,	 	 	December 31,	 	
 	 	2009	 	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest rate swaps	 	 	(1,573	)	 	 	(436	)	 	 	(842	)	 	 	(2,020	)	 	 	(15,036	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Average/discrete basis swaps	 	 	(224	)	 	 	646	 	 	 	4,236	 	 	 	11,483	 	 	 	44,947	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
1/3 basis swaps	 	 	719	 	 	 	3,071	 	 	 	911	 	 	 	21,192	 	 	 	1,805	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cross-currency interest rate swaps	 	 	1,557	 	 	 	1,633	 	 	 	5,363	 	 	 	8,631	 	 	 	23,941	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivative settlements, net	 	$	479	 	 	 	4,914	 	 	 	9,668	 	 	 	39,286	 	 	 	55,657	 	
 
Student Loans Receivable

Student loans receivable includes all student loans owned by or on behalf of the Company and includes the unamortized cost of acquisition or origination less an allowance for loan losses.  The following table describes the components of the Company’s loan portfolio:

 	 	As of December 31, 2009	 	
 	 	 	 	 	 	 	 	Originated	 	 	Originated	 	 	2009-2010	 	
 	 	 	 	 	 	 	 	prior to	 	 	on or after	 	 	Academic	 	
 	 	Total	 	 	10/1/07	 	 	10/1/07 (a)	 	 	year loans (b)	 	
Federally insured:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
   Stafford	 	$	7,145,966	 	 	 	29.9	%	 	$	6,237,445	 	 	 	494,611	 	 	 	413,910	 	
   PLUS/SLS	 	 	474,826	 	 	 	2.0	%	 	 	372,434	 	 	 	52,122	 	 	 	50,270	 	
   Consolidation	 	 	15,851,761	 	 	 	66.3	%	 	 	15,665,937	 	 	 	185,824	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
      Total federally insured	 	 	23,472,553	 	 	 	98.2	%	 	$	22,275,816	 	 	 	732,557	 	 	 	464,180	 	
 	 	 	100.0	%	 	 	 	 	 	 	94.9	%	 	 	3.1	%	 	 	2.0	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-federally insured	 	 	163,321 	 	 	 	0.6	%	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
      Total student loans receivable (gross)	 	 	23,635,874	 	 	 	98.8	%	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unamortized premiums and deferred	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
   origination costs	 	 	341,970	 	 	 	1.4	%	 	 	 	 	 	 	 	 	 	 	 	 	
Allowance for loan losses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
   Federally insured	 	 	(30,102	)	 	 	(0.1	%)	 	 	 	 	 	 	 	 	 	 	 	 	
   Non-federally insured	 	 	(20,785	)	 	 	(0.1	%)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
      Total student loans receivable (net)	 	$	23,926,957	 	 	 	100.0	%	 	 	 	 	 	 	 	 	 	 	 	 	

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 	 	As of September 30, 2009	 	
 	 	 	 	 	 	 	 	Originated	 	 	Originated	 	 	  2008-2009	 	 	  2009-2010	 	
 	 	 	 	 	 	 	 	prior to	 	 	on or after	 	 	Academic	 	 	Academic	 	
 	 	Total	 	 	10/1/07	 	 	10/01/07 (a)	 	 	year loans (b)	 	 	year loans (b)	 	
Federally insured:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
   Stafford	 	$	8,321,669	 	 	 	32.8	%	 	$	6,140,869	 	 	 	452,558	 	 	 	1,445,080	 	 	 	283,162	 	
   PLUS/SLS	 	 	615,513	 	 	 	2.4	%	 	 	369,335	 	 	 	47,585	 	 	 	162,089	 	 	 	36,504	 	
   Consolidation	 	 	15,965,190	 	 	 	62.9	%	 	 	15,778,158	 	 	 	187,032	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
      Total federally insured	 	 	24,902,372	 	 	 	98.1	%	 	$	22,288,362	 	 	 	687,175	 	 	 	1,607,169	 	 	 	319,666	 	
 	 	 	100.0	%	 	 	 	 	 	 	89.4	%	 	 	2.8	%	 	 	6.5	%	 	 	1.3	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-federally insured	 	 	167,114	 	 	 	0.7	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
      Total student loans receivable (gross)	 	 	25,069,486	 	 	 	98.7	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unamortized premiums and deferred	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
   origination costs - held for investment	 	 	352,066	 	 	 	1.4	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unamortized premiums and deferred	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
   origination costs - held for sale	 	 	20,625	 	 	 	0.1	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Allowance for loan losses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
   Federally insured	 	 	(29,015	)	 	 	(0.1	%)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
   Non-federally insured	 	 	(21,105	)	 	 	(0.1	%)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
      Total student loans receivable (net)	 	$	25,392,057	 	 	 	100.0	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

 	 	As of December 31, 2008	 	
 	 	 	 	 	 	 	 	Originated	 	 	Originated	 	 	  2008-2009	 	
 	 	 	 	 	 	 	 	prior to	 	 	on or after	 	 	Academic	 	
 	 	Total	 	 	10/1/07	 	 	10/1/07 (a)	 	 	year loans (b)	 	
Federally insured:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
   Stafford	 	$	7,602,568	 	 	 	29.9	%	 	$	6,641,817	 	 	 	390,658	 	 	 	570,093	 	
   PLUS/SLS	 	 	527,670	 	 	 	2.1	%	 	 	412,142	 	 	 	48,346	 	 	 	67,182	 	
   Consolidation	 	 	16,657,703	 	 	 	65.5	%	 	 	16,614,950	 	 	 	42,753	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
      Total federally insured	 	 	24,787,941	 	 	 	97.5	%	 	$	23,668,909	 	 	 	481,757	 	 	 	637,275	 	
 	 	 	100.0	%	 	 	 	 	 	 	95.5	%	 	 	1.9	%	 	 	2.6	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-federally insured	 	 	273,108	 	 	 	1.1	%	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
      Total student loans receivable (gross)	 	 	25,061,049	 	 	 	98.6	%	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unamortized premiums and deferred	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
   origination costs	 	 	402,881	 	 	 	1.6	%	 	 	 	 	 	 	 	 	 	 	 	 	
Allowance for loan losses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
   Federally insured	 	 	(25,577	)	 	 	(0.1	%)	 	 	 	 	 	 	 	 	 	 	 	 	
   Non-federally insured	 	 	(25,345	)	 	 	(0.1	%)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
      Total student loans receivable (net)	 	$	25,413,008	 	 	 	100.0	%	 	 	 	 	 	 	 	 	 	 	 	 	

 	(a)	Federally insured student loans originated on or after October 1, 2007 earn a reduced annual yield as a result of the enactment of the College Cost Reduction and Access Act of 2007 in September 2007.	

 	(b)	2008-2009 and 2009-2010 academic year loans are eligible to be participated and sold to the Department under the Department’s Participation and Purchase Programs.	

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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	 	 	Year ended	 	
 	 	December 31,	 	 	September 30,	 	 	December 31,	 	 	December 31,	 	 	December 31,	 	
 	 	2009	 	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
Variable student loan yield	 	 	2.61	%	 	 	2.64	%	 	 	4.98	%	 	 	2.87	%	 	 	5.42	%	
Consolidation rebate fees	 	 	(0.71	)	 	 	(0.68	)	 	 	(0.72	)	 	 	(0.70	)	 	 	(0.73	)	
Premium and deferred origination costs amortization	 	 	(0.31	)	 	 	(0.31	)	 	 	(0.33	)	 	 	(0.30	)	 	 	(0.35	)	
Variable student loan net yield	 	 	1.59	 	 	 	1.65	 	 	 	3.93	 	 	 	1.87	 	 	 	4.34	 	
Student loan cost of funds - interest expense	 	 	(0.83	)	 	 	(1.07	)	 	 	(3.38	)	 	 	(1.40	)	 	 	(3.66	)	
Student loan cost of funds - derivative settlements	 	 	0.03	 	 	 	0.08	 	 	 	0.16	 	 	 	0.16	 	 	 	0.23	 	
Variable student loan spread	 	 	0.79	 	 	 	0.66	 	 	 	0.71	 	 	 	0.63	 	 	 	0.91	 	
Variable-rate floor income, net of	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
settlements on derivatives	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(0.03	)	 	 	(0.06	)	
Fixed rate floor income, net of	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
settlements on derivatives	 	 	0.65	 	 	 	0.61	 	 	 	0.19	 	 	 	0.58	 	 	 	0.14	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Core student loan spread	 	 	1.44	%	 	 	1.27	%	 	 	0.90	%	 	 	1.18	%	 	 	0.99	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Average balance of student loans (in thousands)	 	$	23,731,121	 	 	 	25,056,836	 	 	 	25,516,571	 	 	 	24,794,311	 	 	 	26,044,507	 	
Average balance of debt outstanding (in thousands)	 	 	24,045,176	 	 	 	25,677,213	 	 	 	26,121,885	 	 	 	25,286,533	 	 	 	26,869,364	 	

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