Equibles

10-Q

NELNET INC (NNI)

10-Q 2020-08-06 For: 2020-06-30
View Original
Added on April 04, 2026

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to .

Commission File Number: 001-31924

NELNET, INC.

(Exact name of registrant as specified in its charter)

Nebraska 84-0748903
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
121 South 13th Street, Suite 100
Lincoln, Nebraska 68508
(Address of principal executive offices) (Zip Code)

(402) 458-2370

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol Name of each exchange on which registered
Class A Common Stock, Par Value $0.01 per Share NNI New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.        Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).        Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒                                               Accelerated filer ☐

Non-accelerated filer ☐     Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 31, 2020, there were 27,152,828 and 11,171,609 shares of Class A Common Stock and Class B Common Stock, par value $0.01 per share, outstanding, respectively (excluding a total of 11,305,731 shares of Class A Common Stock held by wholly owned subsidiaries).

NELNET, INC.

FORM 10-Q

INDEX

June 30, 2020

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 32
Item 3. Quantitative and Qualitative Disclosures About Market Risk 65
Item 4. Controls and Procedures 70
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 70
Item 1A. Risk Factors 70
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 75
Item 6. Exhibits 76
Signatures 77

ITEM 1.  FINANCIAL STATEMENTS

NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(unaudited)
As of As of
June 30, 2020 December 31, 2019
Assets:
Loans and accrued interest receivable (net of allowance for loan losses of $209,445 and<br><br>$61,914, respectively) $ 20,460,873 21,402,868
Cash and cash equivalents:
Cash and cash equivalents - not held at a related party 14,242 13,922
Cash and cash equivalents - held at a related party 53,298 119,984
Total cash and cash equivalents 67,540 133,906
Investments 449,700 247,099
Restricted cash 585,236 650,939
Restricted cash - due to customers 268,539 437,756
Accounts receivable (net of allowance for doubtful accounts of $3,901 and $4,455, respectively) 73,783 115,391
Goodwill 156,912 156,912
Intangible assets, net 66,733 81,532
Property and equipment, net 350,043 348,259
Other assets 131,849 134,308
Total assets $ 22,611,208 23,708,970
Liabilities:
Bonds and notes payable $ 19,726,158 20,529,054
Accrued interest payable 32,760 47,285
Other liabilities 242,965 303,781
Due to customers 268,539 437,756
Total liabilities 20,270,422 21,317,876
Commitments and contingencies
Equity:
Nelnet, Inc. shareholders' equity:
Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding — —
Common stock:
Class A, $0.01 par value. Authorized 600,000,000 shares; issued and outstanding 27,232,836<br><br>shares and 28,458,495 shares, respectively 272 285
Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding<br><br>11,171,609 shares and 11,271,609 shares, respectively 112 113
Additional paid-in capital 1,867 5,715
Retained earnings 2,331,312 2,377,627
Accumulated other comprehensive earnings 3,233 2,972
Total Nelnet, Inc. shareholders' equity 2,336,796 2,386,712
Noncontrolling interests 3,990 4,382
Total equity 2,340,786 2,391,094
Total liabilities and equity $ 22,611,208 23,708,970
Supplemental information - assets and liabilities of consolidated education and other lending variable interest entities:
Loans and accrued interest receivable $ 20,488,321 21,399,382
Restricted cash 567,064 639,816
Other assets 30 31
Bonds and notes payable (19,856,362) (20,742,798)
Accrued interest payable and other liabilities (97,523) (162,494)
Net assets of consolidated education and other lending variable interest entities $ 1,101,530 1,133,937

See accompanying notes to consolidated financial statements.

NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
(unaudited)
Three months ended Six months ended
June 30, June 30,
2020 2019 2020 2019
Interest income:
Loan interest $ 146,140 238,222 327,933 480,555
Investment interest 5,743 8,566 13,141 16,819
Total interest income 151,883 246,788 341,074 497,374
Interest expense:
Interest on bonds and notes payable 85,248 186,963 219,366 378,733
Net interest income 66,635 59,825 121,708 118,641
Less provision for loan losses 2,999 9,000 79,297 16,000
Net interest income after provision for loan losses 63,636 50,825 42,411 102,641
Other income/expense:
Loan servicing and systems revenue 111,042 113,985 223,778 228,883
Education technology, services, and payment processing revenue 59,304 60,342 142,979 139,502
Communications revenue 18,998 15,758 37,179 30,300
Gain on sale of loans — 1,712 18,206 1,712
Other income 60,127 14,440 68,408 23,507
Impairment expense (332) — (34,419) —
Derivative market value adjustments and derivative settlements, net 1,910 (24,088) (14,455) (35,628)
Total other income/expense 251,049 182,149 441,676 388,276
Cost of services:
Cost to provide education technology, services, and payment processing services 15,376 15,871 38,181 36,930
Cost to provide communications services 5,743 5,101 11,325 9,860
Total cost of services 21,119 20,972 49,506 46,790
Operating expenses:
Salaries and benefits 119,247 111,214 239,125 222,272
Depreciation and amortization 29,393 24,484 57,041 48,697
Other expenses 37,052 45,417 80,439 89,233
Total operating expenses 185,692 181,115 376,605 360,202
Income before income taxes 107,874 30,887 57,976 83,925
Income tax expense 21,264 6,209 11,131 17,600
Net income 86,610 24,678 46,845 66,325
Net income attributable to noncontrolling interests (128) (59) (895) (115)
Net income attributable to Nelnet, Inc. $ 86,482 24,619 45,950 66,210
Earnings per common share:
Net income attributable to Nelnet, Inc. shareholders - basic and diluted $ 2.21 0.61 1.16 1.65
Weighted average common shares outstanding - basic and diluted 39,203,404 40,050,065 39,579,459 40,210,787

See accompanying notes to consolidated financial statements.

NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(unaudited)
Three months ended Six months ended
June 30, June 30,
2020 2019 2020 2019
Net income $ 86,610 24,678 46,845 66,325
Other comprehensive income (loss):
Available-for-sale securities:
Unrealized holding gains (losses) arising during period, net 3,236 (537) 221 (972)
Reclassification adjustment for (gains) losses recognized in net income, net (112) — 123 —
Income tax effect (750) 129 (83) 233
Total other comprehensive income (loss) 2,374 (408) 261 (739)
Comprehensive income 88,984 24,270 47,106 65,586
Comprehensive income attributable to noncontrolling interests (128) (59) (895) (115)
Comprehensive income attributable to Nelnet, Inc. $ 88,856 24,211 46,211 65,471

See accompanying notes to consolidated financial statements.

NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except share data)
(unaudited)
Nelnet, Inc. Shareholders
Preferred stock shares Common stock shares Preferred stock Class A common stock Class B common stock Additional paid-in capital Retained earnings Accumulated other comprehensive (loss) earnings Noncontrolling interests Total equity
Class A Class B
Balance as of March 31, 2019 — 28,628,528 11,459,641 $ — 286 115 636 2,321,407 3,552 4,298 2,330,294
Issuance of noncontrolling interests — — — — — — — — — 26 26
Net income — — — — — — — 24,619 — 59 24,678
Other comprehensive loss — — — — — — — — (408) — (408)
Distribution to noncontrolling interests — — — — — — — — — (91) (91)
Cash dividends on Class A and Class B common stock - $0.18 per share — — — — — — — (7,172) — — (7,172)
Issuance of common stock, net of forfeitures — 10,138 — — — — 1,384 — — — 1,384
Compensation expense for stock based awards — — — — — — 1,590 — — — 1,590
Repurchase of common stock — (419,140) — — (4) — (1,940) (21,739) — — (23,683)
Conversion of common stock — 180,000 (180,000) — 2 (2) — — — — —
Balance as of June 30, 2019 — 28,399,526 11,279,641 $ — 284 113 1,670 2,317,115 3,144 4,292 2,326,618
Balance as of March 31, 2020 — 28,582,032 11,271,609 $ — 286 113 9,140 2,310,282 859 5,120 2,325,800
Issuance of noncontrolling interests — — — — — — — — — 26 26
Net income — — — — — — — 86,482 — 128 86,610
Other comprehensive income — — — — — — — — 2,374 — 2,374
Distribution to noncontrolling interests — — — — — — — — — (534) (534)
Cash dividends on Class A and Class B common stock - $0.20 per share — — — — — — — (7,733) — — (7,733)
Issuance of common stock, net of forfeitures — 23,853 — — — — 1,660 — — — 1,660
Compensation expense for stock based awards — — — — — — 1,857 — — — 1,857
Repurchase of common stock — (1,473,049) — — (15) — (10,790) (56,469) — — (67,274)
Conversion of common stock — 100,000 (100,000) — 1 (1) — — — — —
Acquisition of noncontrolling interest — — — — — — — (1,250) — (750) (2,000)
Balance as of June 30, 2020 — 27,232,836 11,171,609 $ — 272 112 1,867 2,331,312 3,233 3,990 2,340,786

See accompanying notes to consolidated financial statements.

NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except share data)
(unaudited)
Nelnet, Inc. Shareholders
Preferred stock shares Common stock shares Preferred stock Class A common stock Class B common stock Additional paid-in capital Retained earnings Accumulated other comprehensive (loss) earnings Noncontrolling interests Total equity
Class A Class B
Balance as of December 31, 2018 — 28,798,464 11,459,641 $ — 288 115 622 2,299,556 3,883 10,315 2,314,779
Issuance of noncontrolling interests — — — — — — — — — 52 52
Net income — — — — — — — 66,210 — 115 66,325
Other comprehensive loss — — — — — — — — (739) — (739)
Distribution to noncontrolling interests — — — — — — — — — (113) (113)
Cash dividends on Class A and Class B common stock - $0.36 per share — — — — — — — (14,403) — — (14,403)
Issuance of common stock, net of forfeitures — 141,529 — — 1 — 3,876 — — — 3,877
Compensation expense for stock based awards — — — — — — 2,958 — — — 2,958
Repurchase of common stock — (720,467) — — (7) — (5,786) (34,248) — — (40,041)
Impact of adoption of new accounting standard — — — — — — — — — (6,077) (6,077)
Conversion of common stock — 180,000 (180,000) — 2 (2) — — — — —
Balance as of June 30, 2019 — 28,399,526 11,279,641 $ — 284 113 1,670 2,317,115 3,144 4,292 2,326,618
Balance as of December 31, 2019 — 28,458,495 11,271,609 $ — 285 113 5,715 2,377,627 2,972 4,382 2,391,094
Issuance of noncontrolling interests — — — — — — — — — 52 52
Net income — — — — — — — 45,950 — 895 46,845
Other comprehensive income — — — — — — — — 261 — 261
Distribution to noncontrolling interests — — — — — — — — — (589) (589)
Cash dividends on Class A and Class B common stock - $0.40 per share — — — — — — — (15,679) — — (15,679)
Issuance of common stock, net of forfeitures — 172,275 — — 1 — 4,600 — — — 4,601
Compensation expense for stock based awards — — — — — — 3,595 — — — 3,595
Repurchase of common stock — (1,497,934) — — (15) — (12,043) (56,469) — — (68,527)
Impact of adoption of new accounting standard — — — — — — — (18,867) — — (18,867)
Conversion of common stock — 100,000 (100,000) — 1 (1) — — — — —
Acquisition of noncontrolling interest — — — — — — — (1,250) — (750) (2,000)
Balance as of June 30, 2020 — 27,232,836 11,171,609 $ — 272 112 1,867 2,331,312 3,233 3,990 2,340,786

See accompanying notes to consolidated financial statements.

NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
Six months ended
June 30,
2020 2019
Net income attributable to Nelnet, Inc. $ 45,950 66,210
Net income attributable to noncontrolling interests 895 115
Net income 46,845 66,325
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs 99,282 94,121
Loan discount accretion (19,196) (18,806)
Provision for loan losses 79,297 16,000
Derivative market value adjustments 24,513 67,635
Proceeds from termination of derivative instruments — 2,119
Payments to clearinghouse - initial and variation margin, net (24,453) (77,229)
Gain on sale of loans (18,206) (1,712)
Gain from investments, net (48,402) (2,970)
(Gain) loss on repurchases and extinguishment of debt (403) 1,801
Deferred income tax benefit (14,762) (15,023)
Non-cash compensation expense 3,581 3,138
Impairment expense 34,419 —
Increase in accrued interest receivable (123,276) (44,967)
Decrease (increase) in accounts receivable 41,608 (5,972)
Decrease (increase) in other assets, net 22,992 (6,065)
Decrease in the carrying amount of ROU asset 5,948 4,307
Decrease in accrued interest payable (14,525) (5,208)
Decrease in other liabilities (26,817) (504)
Decrease in the carrying amount of lease liability (4,829) (4,164)
Decrease in due to customers (169,217) (90,661)
Net cash used in operating activities (105,601) (17,835)
Cash flows from investing activities:
Purchases of loans (872,987) (997,123)
Purchases of loans from a related party (75,118) (32,580)
Net proceeds from loan repayments, claims, and capitalized interest 1,800,286 1,889,084
Proceeds from sale of loans 90,465 42,215
Purchases of available-for-sale securities (112,675) (1,010)
Proceeds from sales of available-for-sale securities 23,372 192
Proceeds from beneficial interest in loan securitizations 21,765 968
Purchases of other investments (117,598) (26,314)
Proceeds from other investments 6,770 23,763
Purchases of property and equipment (46,994) (43,715)
Net cash provided by investing activities 717,286 855,480
Cash flows from financing activities:
Payments on bonds and notes payable (2,073,710) (2,007,483)
Proceeds from issuance of bonds and notes payable 1,252,360 1,092,186
Payments of debt issuance costs (5,863) (5,515)
Payments to extinguish debt — (1,394)
Dividends paid (15,679) (14,403)
Repurchases of common stock (68,527) (40,041)
Proceeds from issuance of common stock 781 724
Acquisition of noncontrolling interest (2,000) —
Distribution to noncontrolling interests (333) (113)
Net cash used in financing activities (912,971) (976,039)
Net decrease in cash, cash equivalents, and restricted cash (301,286) (138,394)
Cash, cash equivalents, and restricted cash, beginning of period 1,222,601 1,192,391
Cash, cash equivalents, and restricted cash, end of period $ 921,315 1,053,997
NELNET, INC. AND SUBSIDIARIES
--- --- --- ---
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(unaudited)
Six months ended
June 30,
2020 2019
Supplemental disclosures of cash flow information:
Cash disbursements made for interest $ 209,170 354,902
Cash disbursements made for income taxes, net of refunds and credits received $ 7,949 11,529
Cash disbursements made for operating leases $ 5,442 4,792
Noncash operating, investing, and financing activity:
ROU assets obtained in exchange for lease obligations $ 3,265 3,298
Receipt of beneficial interest in consumer loan securitizations $ 38,490 7,921
Distribution to noncontrolling interest $ 33 —

Supplemental disclosures of noncash activities regarding the adoption of the new accounting standard for measurement of credit losses on financial instruments on January 1, 2020 are contained in note 1.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheets to the total of the amounts reported in the consolidated statements of cash flows.

As of As of As of As of
June 30, 2020 December 31, 2019 June 30, 2019 December 31, 2018
Total cash and cash equivalents $ 67,540 133,906 84,400 121,347
Restricted cash 585,236 650,939 690,580 701,366
Restricted cash - due to customers 268,539 437,756 279,017 369,678
Cash, cash equivalents, and restricted cash $ 921,315 1,222,601 1,053,997 1,192,391

See accompanying notes to consolidated financial statements.

NELNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts, unless otherwise noted)

(unaudited)

1.  Basis of Financial Reporting

The accompanying unaudited consolidated financial statements of Nelnet, Inc. and subsidiaries (the “Company”) as of June 30, 2020 and for the three and six months ended June 30, 2020 and 2019 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2019 and, in the opinion of the Company’s management, the unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results of operations for the interim periods presented. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results for the year ending December 31, 2020. The unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the "2019 Annual Report").

Reclassifications

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

•Reclassifying the line item "accrued interest receivable" on the Company's consolidated balance sheet to "loans and accrued interest receivable" and "investments"; and

•Reclassifying "gain on sale of loans" that was previously included in "other income" to a new line item on the Company's consolidated statements of income.

Accounting Standard Adopted in 2020

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments – Credit Losses (“ASC 326”), which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss ("CECL") methodology. Since its original issuance in 2016, the FASB has issued several updates to the original ASU.

The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for financial assets measured at amortized cost at the time the financial asset is originated or acquired, including, for the Company, loans receivable, accounts receivable, and held-to-maturity beneficial interests in loan securitizations. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. For available-for-sale debt securities where fair value is less than amortized cost, credit-related impairment, if any, is recognized through an allowance for credit losses and adjusted each period for changes in credit risk.

On January 1, 2020, the Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 (recognizing estimated credit losses expected to occur over the asset's remaining life) while prior period amounts continue to be reported in accordance with previously applicable GAAP (recognizing estimated credit losses using an incurred loss model); therefore, the comparative information for 2019 is not comparable to the information presented for 2020. Adoption of the new guidance primarily impacted the allowance for loan losses related to the Company's loan portfolio. Upon adoption, the Company recorded an increase to the allowance for loan losses of $91.0 million, which included a reclassification of the non-accretable discount balance and premiums related to loans purchased with evidence of credit deterioration, and decreased retained earnings, net of tax, by $18.9 million. The following table illustrates the impact of the adoption of ASC 326.

Balances at <br>December 31, 2019 Impact of ASC 326 adoption Balances at <br>January 1, 2020
Assets
Loans and accrued interest receivable, net of allowance
Loans receivable $ 20,798,719 — 20,798,719
Accrued interest receivable 733,497 — 733,497
Loan discount, net (35,036) 33,790 (1,246)
Non-accretable discount (32,398) 32,398 —
Allowance for loan losses (61,914) (91,014) (152,928)
Loans and accrued interest receivable, net of allowance 21,402,868 (24,826) 21,378,042
Liabilities
Other liabilities (deferred taxes) 303,781 (5,958) 297,823
Equity
Retained earnings 2,377,627 (18,868) 2,358,759

The Company adopted ASC 326 using the prospective transition approach for loans receivable purchased with credit deterioration ("PCD") that were previously classified as purchased credit impaired ("PCI"). In accordance with the standard, the Company did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2020, the unamortized cost basis of the PCD assets were adjusted to reflect the addition of $32.4 million in the allowance for loan losses (as reflected in the table above). The remaining noncredit premium on these loans as of January 1, 2020 (based on the adjusted amortized cost basis) will be amortized into interest income over the life of the loans. Changes to the allowance for loan losses on these loans after adoption are recorded through provision expense.

Summary of Significant Accounting Policies Affected by Implementation of ASC 326

Allowance for Loan Losses

The allowance for loan losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans as of the balance sheet date. Such allowance is based on the credit losses expected to arise over the life of the asset which includes consideration of prepayments. Loans are charged off when management determines the loan is uncollectible. Charge-offs are recognized as a reduction to the allowance for loan losses. Expected recoveries of amounts previously charged off, not to exceed the aggregate of the amount previously charged off, are included in the estimate of the allowance for loan losses at the balance sheet date.

The Company aggregates loans with similar risk characteristics into homogeneous pools to estimate its expected credit losses. The Company continuously evaluates such pooling decisions and adjusts as needed from period to period as risk characteristics change.

The Company determines its estimated credit losses for the following financial assets as follows:

Loans receivable

Management has determined that the federally insured, private education, and consumer loan portfolios each meet the definition of a portfolio segment, which is defined as the level at which an entity develops and documents a systematic method for determining its allowance for loan losses. Accordingly, the portfolio segment disclosures are presented on this basis in note 2 for each of these portfolios. The Company does not disaggregate its portfolio segment loan portfolios into classes of financing receivables.

The Company utilizes an undiscounted cash flow methodology in determining its lifetime expected credit losses on its federally insured and private education loan portfolios and a remaining life methodology for its consumer loan portfolio. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The Company has determined that, for modeling current expected credit losses, in general, the Company can reasonably estimate expected losses that incorporate current and forecasted economic conditions up to a one-year period. After this "reasonable and supportable" period, the Company uses a reversion period to the Company's actual long-term historical loss experience over a full economic life cycle. Historical credit loss experience provides

the basis for the estimation of expected credit losses. Qualitative and quantitative adjustments to historical loss information are made separately on each of the Company’s federally insured, private education, and consumer loan portfolios.

Qualitative and quantitative adjustments related to current conditions and the reasonable and supportable forecast period consider all of the following for the Company’s federally insured loan portfolio: loans in repayment versus those in nonpaying status; delinquency status; trends in defaults in the portfolio based on Company and industry data; past experience; trends in student loan claims rejected for payment by guarantors; changes in federal student loan programs; current economic conditions, including changes in unemployment rates; and other relevant qualitative factors. The federal government guarantees 97 percent of the principal of and the interest on federally insured student loans disbursed on and after July 1, 2006 (and 98 percent for those loans disbursed on and after October 1, 1993 and prior to July 1, 2006), which limits the Company’s loss exposure on the outstanding balance of the Company’s federally insured portfolio. Student loans disbursed prior to October 1, 1993 are fully insured.

Qualitative and quantitative adjustments related to current conditions and the reasonable and supportable forecast period consider all of the following for the Company’s private education loans: loans in repayment versus those in a nonpaying status; delinquency status; type of program; trends in defaults in the portfolio based on Company and industry data; past experience; current economic conditions, including changes in unemployment rates and gross domestic product growth; and other relevant qualitative factors. The Company places private education loans on nonaccrual status when the collection of principal and interest is 90 days past due and charges off the loan when the collection of principal and interest is 120 days past due. Collections, if any, are reflected as a recovery through the allowance for loan losses.

Qualitative and quantitative adjustments related to current conditions and a reasonable and supportable forecast period consider all of the following for the Company's consumer loans: delinquency status; type of program; trends in defaults in the portfolio based on Company and industry data; past experience; current economic conditions; and other relevant qualitative factors. The Company places consumer loans on nonaccrual status when the collection of principal and interest is 90 days past due and charges off the loan when the collection of principal and interest is 120 days or 180 days past due, depending on type of loan program. Collections, if any, are reflected as a recovery through the allowance for loan losses.

Purchased Loans Receivable with Credit Deterioration (“PCD”)

The Company has purchased federally insured rehabilitation loans that have experienced more than insignificant credit deterioration since origination. Rehabilitation loans are loans that have previously defaulted, but for which the borrower has made a specified number of on-time payments. Although rehabilitation loans benefit from the same guarantees as other federally insured loans, rehabilitation loans have generally experienced redefault rates that are higher than default rates for federally insured loans that have not previously defaulted. These PCD loans are recorded at the amount paid. An allowance for loan losses is determined using the same methodology as for other loans held for investment. The sum of the loans’ purchase price and allowance for loan losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized or accreted into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense.

Loan Accrued Interest Receivable

The Company has elected to present its loan accrued interest receivable balance combined in its consolidated balance sheets with the loans receivable amortized cost balance.

For the Company’s federally insured loan portfolio, the Company has elected to measure an allowance for credit losses for accrued interest receivables. For federally insured loans, accrued interest receivable is typically charged-off when the contractual payment of principal or interest has become greater than 270 days past due. Charge-offs of accrued interest receivable are recognized as a reduction to the allowance for loan losses.

For the Company’s private education and consumer loan portfolios, the Company has elected not to measure an allowance for credit losses for accrued interest receivables. For private education and consumer loans, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due. Charge-offs of accrued interest receivable are recognized by reversing interest income.

2.  Loans and Accrued Interest Receivable and Allowance for Loan Losses

Loans and accrued interest receivable consisted of the following:

As of As of
June 30, 2020 December 31, 2019
Federally insured student loans:
Stafford and other $ 4,439,492 4,684,314
Consolidation 14,948,379 15,644,229
Total 19,387,871 20,328,543
Private education loans 293,218 244,258
Consumer loans 149,308 225,918
19,830,397 20,798,719
Accrued interest receivable 856,880 733,497
Loan discount, net of unamortized loan premiums and deferred origination costs (16,959) (35,036)
Non-accretable discount — (32,398)
Allowance for loan losses:
Federally insured loans (144,829) (36,763)
Private education loans (25,535) (9,597)
Consumer loans (39,081) (15,554)
$ 20,460,873 21,402,868

On January 30, 2020, the Company sold $124.2 million (par value) of consumer loans to an unrelated third party who securitized such loans. The Company recognized a $18.2 million (pre-tax) gain as part of this transaction. As partial consideration received for the consumer loans sold, the Company received a 31.4 percent residual interest in the consumer loan securitization that is included in "investments" on the Company's consolidated balance sheet.

Subsequent to June 30, 2020, the Company made the decision to sell an additional $60.8 million (par value) of consumer loans to an unrelated third party who securitized such loans. As of June 30, 2020, these loans were classified as held for investment and are included in the table above. As partial consideration received for the consumer loans sold, the Company received a 25.4 percent residual interest in the consumer loan securitization. The Company currently anticipates recognizing a gain in the third quarter of 2020 of $14.8 million (pre-tax) from the sale of those loans.

Activity in the Allowance for Loan Losses

The following table presents the activity in the allowance for loan losses by portfolio segment.

Balance at beginning of period Impact of ASC 326 adoption Provision for loan losses Charge-offs Recoveries Initial allowance on loans purchased with credit deterioration (a) Loan sale Balance at end of period
Three months ended June 30, 2020
Federally insured loans $ 146,759 — (1,950) (6,080) — 6,100 — 144,829
Private education loans 23,056 — 2,322 (26) 183 — — 25,535
Consumer loans 39,053 — 2,627 (2,820) 221 — — 39,081
$ 208,868 — 2,999 (8,926) 404 6,100 — 209,445
Three months ended June 30, 2019
Federally insured loans $ 40,934 — 2,000 (3,878) — — — 39,056
Private education loans 10,587 — — (588) 158 — — 10,157
Consumer loans 10,257 — 7,000 (2,652) 273 — (1,500) 13,378
$ 61,778 — 9,000 (7,118) 431 — (1,500) 62,591
Six months ended June 30, 2020
Federally insured loans $ 36,763 72,291 37,373 (12,398) — 10,800 — 144,829
Private education loans 9,597 4,797 12,121 (1,355) 375 — — 25,535
Consumer loans 15,554 13,926 29,803 (7,170) 468 — (13,500) 39,081
$ 61,914 91,014 79,297 (20,923) 843 10,800 (13,500) 209,445
Six months ended June 30, 2019
Federally insured loans $ 42,310 — 4,000 (7,254) — — — 39,056
Private education loans 10,838 — — (1,070) 389 — — 10,157
Consumer loans 7,240 — 12,000 (4,658) 296 — (1,500) 13,378
$ 60,388 — 16,000 (12,982) 685 — (1,500) 62,591

a) During the three and six months ended June 30, 2020, the Company acquired $292.7 million (par value) and $583.9 million (par value), respectively, of federally insured rehabilitation loans. These loans met the definition of PCD loans when they were purchased by the Company. The Company estimated that the expected credit losses relating to these loans was $6.1 million and $10.8 million, respectively, at the time of purchase. The noncredit discount recorded as part of these acquisitions will be recognized into interest income using an effective yield over the life of the loans.

In March 2020, the rapid outbreak of the respiratory disease caused by a novel strain of coronavirus, coronavirus 2019 or COVID-19 ("COVID-19"), was declared a global pandemic by the World Health Organization and a national emergency by the President, and caused significant disruptions in the U.S. and world economies. Apart from the impact of the adoption of ASC 326 effective January 1, 2020, the Company’s allowance for loan losses increased during the first quarter of 2020 primarily as a result of the COVID-19 pandemic and its effects on current and forecasted economic conditions.

The Company's provision expense for the three months ended June 30, 2020 was also impacted by the Company's estimate of certain improved economic conditions as of June 30, 2020 than what was used by the Company to determine the allowance for loan losses as of March 31, 2020. These improved economic conditions were partially offset by the Company extending its reversion period (to the Company's actual long-term historical loss experience) as of June 30, 2020, as the Company currently believes the economy will take longer to recover from the COVID-19 pandemic than what was originally estimated as of March 31, 2020.

The Company's total allowance for loan losses of $209.4 million at June 30, 2020 represents reserves equal to 0.7% of the Company's federally insured loans (or 29.1% of the risk sharing component of the loans that is not covered by the federal guaranty), 8.7% of the Company's private education loans, and 26.2% of the Company's consumer loans.

Loan Status and Delinquencies

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

As of June 30, 2020 As of December 31, 2019 As of June 30, 2019
Federally insured loans:
Loans in-school/grace/deferment $ 936,746 4.8 % $ 1,074,678 5.3 % $ 1,222,021 5.8 %
Loans in forbearance 5,370,466 27.7 1,339,821 6.6 1,420,120 6.7
Loans in repayment status:
Loans current 12,984,175 99.3 % 15,410,993 86.0 % 16,055,368 86.7 %
Loans delinquent 31-60 days 2,057 — 650,796 3.6 677,113 3.7
Loans delinquent 61-90 days 165 — 428,879 2.4 443,988 2.4
Loans delinquent 91-120 days 23 — 310,851 1.7 269,688 1.5
Loans delinquent 121-270 days 101 — 812,107 4.5 755,093 4.1
Loans delinquent 271 days or greater 94,138 0.7 300,418 1.8 310,741 1.6
Total loans in repayment 13,080,659 67.5 100.0 % 17,914,044 88.1 100.0 % 18,511,991 87.5 100.0 %
Total federally insured loans 19,387,871 100.0 % 20,328,543 100.0 % 21,154,132 100.0 %
Accrued interest receivable 853,473 730,059 720,887
Loan discount, net of unamortized premiums and deferred origination costs (19,116) (35,822) (38,808)
Non-accretable discount (a) — (28,036) (28,527)
Allowance for loan losses (144,829) (36,763) (39,056)
Total federally insured loans and accrued interest receivable, net of allowance for loan losses $ 20,077,399 $ 20,957,981 $ 21,768,628
Private education loans:
Loans in-school/grace/deferment $ 3,971 1.3 % $ 4,493 1.8 % $ 3,912 2.0 %
Loans in forbearance 21,890 7.5 3,108 1.3 1,143 0.6
Loans in repayment status:
Loans current 265,720 99.4 % 227,013 95.9 % 183,414 94.7 %
Loans delinquent 31-60 days 680 0.2 2,814 1.2 3,491 1.8
Loans delinquent 61-90 days 244 0.1 1,694 0.7 1,658 0.9
Loans delinquent 91 days or greater 713 0.3 5,136 2.2 5,134 2.6
Total loans in repayment 267,357 91.2 100.0 % 236,657 96.9 100.0 % 193,697 97.4 100.0 %
Total private education loans 293,218 100.0 % 244,258 100.0 % 198,752 100.0 %
Accrued interest receivable 1,961 1,558 1,113
Loan premium, net of unaccreted discount 813 46 (880)
Non-accretable discount (a) — (4,362) (5,008)
Allowance for loan losses (25,535) (9,597) (10,157)
Total private education loans and accrued interest receivable, net of allowance for loan losses $ 270,457 $ 231,903 $ 183,820
Consumer loans:
Loans in deferment $ 3,274 2.2 % $ — $ —
Loans in repayment status:
Loans current 142,540 97.6 % 220,404 97.5 % 234,944 98.8 %
Loans delinquent 31-60 days 938 0.7 2,046 0.9 1,254 0.5
Loans delinquent 61-90 days 1,078 0.7 1,545 0.7 824 0.3
Loans delinquent 91 days or greater 1,478 1.0 1,923 0.9 930 0.4
Total loans in repayment 146,034 97.8 100.0 % 225,918 100.0 % 237,952 100.0 %
Total consumer loans 149,308 100.0 % 225,918 237,952
Accrued interest receivable 1,446 1,880 1,846
Loan premium 1,344 740 736
Allowance for loan losses (39,081) (15,554) (13,378)
Total consumer loans and accrued interest receivable, net of allowance for loan losses $ 113,017 $ 212,984 $ 227,156

(a) Upon adoption of ASC 326 on January 1, 2020, the Company reclassified the non-accretable discount balance related to loans purchased with evidence of credit deterioration to allowance for loan losses.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law. The CARES Act, among other things, provides broad relief, effective March 13, 2020 through September 30, 2020, for borrowers that have student loans owned by the Department of Education (the "Department"). This relief package excluded Federal Family Education Loan Program ("FFELP" or "FFEL Program"), private education, and consumer loans. Although the Company's loans are excluded from the provisions of the CARES Act, the Company is providing relief for its borrowers.

For the Company's federally insured and private education loans, effective March 13, 2020 through June 30, 2020, the Company proactively applied a 90 day natural disaster forbearance to any loan that was 31-269 days past due (for federally insured loans) and 80 days past due (for private education loans), and to any current loan upon request. Beginning July 1, 2020, the Company discontinued proactively applying 90 day natural disaster forbearances on past due loans. However, the Company will continue to apply a natural disaster forbearance with an end date of September 30, 2020, to any federally insured and private education loan upon request.

In addition, for private education loans, effective March 13, 2020 through September 30, 2020, the Company is delaying final demand letters and default activity, while replacing collection calls with borrower outreach on relief options. For both federally insured and private education loans, effective March 13, 2020 through September 30, 2020, borrower late fees are being waived and borrower payments made after March 13, 2020 are refunded upon a borrower's request.

For the majority of the Company's consumer loans, borrowers are generally being offered, upon request and/or documented evidence of financial distress, a two-month deferral of payments, with an option of additional deferrals if the COVID-19 pandemic continues. In addition, effective March 13, 2020 through September 30, 2020, the majority of fees (non-sufficient funds, late charges, check fees) and credit bureau reporting are currently suspended. The specific relief terms on the Company's consumer loan portfolio vary depending on the loan program and servicer of such loans.

The Company will continue to review whether additional and/or extended borrower relief policies and activities are needed.

Nonaccrual Status

The Company does not place federally insured loans on nonaccrual status due to the government guaranty. The amortized cost of private and consumer loans on nonaccrual status, as well as the allowance for loan losses related to such loans, as of December 31, 2019 and June 30, 2020, was not material.

Amortized Cost Basis by Origination Year

The following table presents the amortized cost of the Company's private education and consumer loans by loan status and delinquency amount as of June 30, 2020 based on year of origination. Effective July 1, 2010, no new loan originations can be made under the FFEL Program and all new federal loan originations must be made under the Federal Direct Loan Program. As such, all the Company’s federally insured loans were originated prior to July 1, 2010.

Six months ended June 30, 2020 2019 2018 2017 2016 Prior Years Total
Private education loans:
Loans in school/grace/deferment $ — 386 — — 405 3,180 3,971
Loans in forbearance — 6,947 169 — 641 14,133 21,890
Loans in repayment status:
Loans current 32,868 90,929 1,021 — 5,638 135,264 265,720
Loans delinquent 31-60 days — 59 — — — 621 680
Loans delinquent 61-90 days — — — — — 244 244
Loans delinquent 91 days or greater — — — — — 713 713
Total loans in repayment 32,868 90,988 1,021 — 5,638 136,842 267,357
Total private education loans $ 32,868 98,321 1,190 — 6,684 154,155 293,218
Accrued interest receivable 1,961
Loan premium, net of unaccreted discount 813
Allowance for loan losses (25,535)
Total private education loans and accrued interest receivable, net of allowance for loan losses $ 270,457
Consumer loans:
Loans in deferment $ — 1,352 1,893 29 — — 3,274
Loans in repayment status:
Loans current 76,002 29,953 31,955 4,630 — — 142,540
Loans delinquent 31-60 days 349 348 178 63 — — 938
Loans delinquent 61-90 days 289 447 297 45 — — 1,078
Loans delinquent 91 days or greater 211 652 586 29 — — 1,478
Total loans in repayment 76,851 31,400 33,016 4,767 — — 146,034
Total consumer loans $ 76,851 32,752 34,909 4,796 — — 149,308
Accrued interest receivable 1,446
Loan premium 1,344
Allowance for loan losses (39,081)
Total consumer loans and accrued interest receivable, net of allowance for loan losses $ 113,017

3.  Bonds and Notes Payable

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

As of June 30, 2020
Carrying<br><br>amount Interest rate<br><br>range Final maturity
Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:
Bonds and notes based on indices $ 17,838,950 0.39% - 2.08% 5/27/25 - 3/26/68
Bonds and notes based on auction 757,925 0.36% - 2.69% 3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes 18,596,875
Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations 760,063 1.83% - 3.45% 10/25/67 / 4/25/68
FFELP warehouse facilities 201,126 0.79% / 0.93% 11/22/21 / 2/26/23
Private education loan warehouse facility 107,355 0.95% 2/13/22
Consumer loan warehouse facility 73,571 0.83% 4/23/22
Variable-rate bonds and notes issued in private education loan asset-backed securitizations 59,811 1.65% / 1.93% 12/26/40 / 6/25/49
Fixed-rate bonds and notes issued in private education loan asset-backed securitization 42,942 3.60% / 5.35% 12/26/40 / 12/28/43
Unsecured line of credit 30,000 1.69% 12/16/24
Unsecured debt - Junior Subordinated Hybrid Securities 20,381 3.55% 9/15/61
Other borrowings 91,702 0.86% / 1.93% 5/4/21 / 5/30/22
19,983,826
Discount on bonds and notes payable and debt issuance costs (257,668)
Total $ 19,726,158
As of December 31, 2019
--- --- --- --- ---
Carrying<br><br>amount Interest rate<br><br>range Final maturity
Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:
Bonds and notes based on indices $ 18,428,998 1.98% - 3.61% 5/27/25 - 1/25/68
Bonds and notes based on auction 768,626 2.75% - 3.60% 3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes 19,197,624
Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations 512,836 2.00% - 3.45% 10/25/67 / 11/25/67
FFELP warehouse facilities 778,094 1.98% / 2.07% 5/20/21 / 5/31/22
Consumer loan warehouse facility 116,570 1.99% 4/23/22
Variable-rate bonds and notes issued in private education loan asset-backed securitizations 73,308 3.15% / 3.54% 12/26/40 / 6/25/49
Fixed-rate bonds and notes issued in private education loan asset-backed securitization 49,367 3.60% / 5.35% 12/26/40 / 12/28/43
Unsecured line of credit 50,000 3.29% 12/16/24
Unsecured debt - Junior Subordinated Hybrid Securities 20,381 5.28% 9/15/61
Other borrowings 5,000 3.44% 5/30/22
20,803,180
Discount on bonds and notes payable and debt issuance costs (274,126)
Total $ 20,529,054

FFELP Warehouse Facilities

The Company funds the majority of its FFELP loan acquisitions using its FFELP warehouse facilities. Student loan warehousing allows the Company to buy and manage student loans prior to transferring them into more permanent financing arrangements.

As of June 30, 2020, the Company had two FFELP warehouse facilities as summarized below.

NFSLW-I (a) NHELP-II (b) Total
Maximum financing amount $ 300,000 250,000 550,000
Amount outstanding 102,387 98,739 201,126
Amount available $ 197,613 151,261 348,874
Expiration of liquidity provisions November 20, 2020 February 26, 2021
Final maturity date November 22, 2021 February 26, 2023
Advanced as equity support $ 7,346 8,683 16,029

(a) On May 20, 2020, the Company decreased the maximum financing amount for this warehouse facility to $300 million, extended the expiration of liquidity provisions to November 20, 2020, and extended the maturity date to November 22, 2021.

(b) On May 29, 2020, the Company decreased the maximum financing amount for this warehouse facility to $250 million, extended the expiration of liquidity provisions to February 26, 2021, and extended the maturity date to February 26, 2023.

Asset-Backed Securitizations

The following table summarizes the asset-backed securitization transactions completed during the first six months of 2020.

2020-1 2020-2 2020-3 Total
Date securities issued 2/20/20 3/11/20 3/19/20
Total original principal amount $ 435,600 272,100 352,600 1,060,300
Class A senior notes:
Total principal amount $ 424,600 264,300 343,600 1,032,500
Bond discount — (44) (1,503) (1,547)
Issue price $ 424,600 264,256 342,097 1,030,953
Cost of funds 1-month LIBOR plus 0.74% 1.83% 1-month LIBOR plus 0.92%
Final maturity date 3/26/68 4/25/68 3/26/68
Class B subordinated notes:
Total principal amount $ 11,000 7,800 9,000 27,800
Bond discount — (574) (284) (858)
Issue price $ 11,000 7,226 8,716 26,942
Cost of funds 1-month LIBOR plus 1.75% 2.50% 1-month LIBOR plus 1.90%
Final maturity date 3/26/68 4/25/68 3/26/68

Private Education Loan Warehouse Facility

On February 13, 2020, the Company closed on a private education loan warehouse facility with an aggregate maximum financing amount available of $100.0 million. On March 20, 2020, the facility was amended to increase the maximum financing amount to $200.0 million. The facility has an advance rate of 80 to 90 percent, liquidity provisions through February 13, 2021, and a final maturity date of February 13, 2022. As of June 30, 2020, $107.4 million was outstanding under this warehouse facility and $92.6 million was available for future funding. Additionally, as of June 30, 2020, the Company had $12.4 million advanced as equity support under this facility.

Consumer Loan Warehouse Facility

The Company has a consumer loan warehouse facility that has an aggregate maximum financing amount available of $200.0 million, an advance rate of 70 or 75 percent depending on the type of collateral and subject to certain concentration limits, liquidity provisions to April 23, 2021, and a final maturity date of April 23, 2022. As of June 30, 2020, $73.6 million was outstanding under this warehouse facility and $126.4 million was available for future funding. Additionally, as of June 30, 2020, the Company had $24.7 million advanced as equity support under this facility.

Unsecured Line of Credit

The Company has a $455.0 million unsecured line of credit that has a maturity date of December 16, 2024. As of June 30, 2020, $30.0 million was outstanding on the line of credit and $425.0 million was available for future use. The line of credit provides that the Company may increase the aggregate financing commitments, through the existing lenders and/or through new lenders, up to a total of $550.0 million, subject to certain conditions.

Other Borrowings

During the second quarter of 2020, the Company entered into an agreement with Union Bank and Trust Company ("Union Bank"), a related party, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in student loan asset-backed securities. As of June 30, 2020, $86.7 million of student loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. The agreement automatically renews annually and is terminable by either party upon five business days' notice. The Company can participate student loan asset-backed securities to Union Bank to the extent of availability under the grantor trusts, up to $100.0 million or an amount in excess of $100.0 million if mutually agreed to by both parties. Student loan asset-backed securities under this agreement have been accounted for by the Company as a secured borrowing.

4.  Derivative Financial Instruments

The Company uses derivative financial instruments to manage interest rate risk. Derivative instruments used as part of the Company's risk management strategy are further described in note 5 of the notes to consolidated financial statements included in the 2019 Annual Report. A tabular presentation of such derivatives outstanding as of June 30, 2020 and December 31, 2019 is presented below.

Basis Swaps

The following table summarizes the Company’s outstanding basis swaps as of December 31, 2019 and June 30, 2020, in which the Company receives three-month LIBOR set discretely in advance and pays one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps").

Maturity Notional amount
As of As of
June 30, 2020 December 31, 2019
2020 $ — 1,000,000
2021 250,000 250,000
2022 2,000,000 2,000,000 (a)
2023 750,000 750,000
2024 1,750,000 1,750,000
2026 1,150,000 1,150,000
2027 250,000 250,000
$ 6,150,000 7,150,000

(a) $750 million of the notional amount of these derivatives had forward effective start dates in May 2020.

The weighted average rate paid by the Company on the 1:3 Basis Swaps as of June 30, 2020 and December 31, 2019 was one-month LIBOR plus 9.1 basis points and 9.7 basis points, respectively.

Interest Rate Swaps – Floor Income Hedges

The following table summarizes the outstanding derivative instruments used by the Company to economically hedge loans earning fixed rate floor income.

As of June 30, 2020 As of December 31, 2019
Maturity Notional amount Weighted average fixed rate paid by the Company (a)(d) Notional amount Weighted average fixed rate paid by the Company (a)
2020 $ — — % $ 1,500,000 1.01 %
2021 600,000 2.15 600,000 2.15
2022 (b) 500,000 0.94 250,000 1.65
2023 (c) 400,000 1.00 150,000 2.25
$ 1,500,000 1.44 % $ 2,500,000 1.42 %

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

(b) $250.0 million of the derivatives outstanding at December 31, 2019 and June 30, 2020 have forward effective start dates in June 2021 and $250.0 million of derivatives entered into in May 2020 have forward effective start dates in August 2020.

(c) $250.0 million of derivatives entered into in May 2020 have forward effective start dates in July 2020.

(d) Excluding the derivatives with forward effective start dates, the weighted average fixed rate paid by the Company as of June 30, 2020, on its $750.0 million floor income derivative portfolio was 2.17%.

Interest Rate Caps

In June 2015 and June 2019, the Company paid $2.9 million and $0.3 million, respectively, for interest rate cap contracts to mitigate a rise in interest rates and its impact on earnings related to its student loan portfolio earning a fixed rate. In the event that the one-month LIBOR or three-month LIBOR rate rises above the applicable strike rate, the Company will receive monthly payments related to the spread difference. The following table summarizes these derivative instruments as of June 30, 2020.

Notional Amount Strike rate Maturity date
$ 125,000 2.50% (1-month LIBOR) July 15, 2020
150,000 4.99% (1-month LIBOR) July 15, 2020
500,000 2.25% (3-month LIBOR) September 25, 2020

Consolidated Financial Statement Impact Related to Derivatives - Statements of Income

The following table summarizes the components of "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of income.

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Settlements:
1:3 basis swaps $ 7,129 807 9,242 3,140
Interest rate swaps - floor income hedges (1,308) 12,165 816 28,867
Total settlements - income (expense) 5,821 12,972 10,058 32,007
Change in fair value:
1:3 basis swaps (2,872) 4 (1,314) (2,209)
Interest rate swaps - floor income hedges (1,039) (36,851) (23,199) (63,563)
Interest rate swap options - floor income hedges — (88) — (1,464)
Interest rate caps — (125) — (399)
Total change in fair value - income (expense) (3,911) (37,060) (24,513) (67,635)
Derivative market value adjustments and derivative settlements, net - income (expense) $ 1,910 (24,088) (14,455) (35,628)

5.  Investments

A summary of the Company's investments follows:

As of December 31, 2019
Gross unrealized gains Gross unrealized losses Fair value Amortized cost Gross unrealized gains Gross unrealized losses Fair value
Investments (at fair value):
Student loan asset-backed and other debt securities - available-for-sale (a) 137,970 4,571 (316) 142,225 48,790 3,911 — 52,701
Equity securities 5,345 (2,664) 29,972 9,622 4,561 (1,283) 12,900
Total investments (at fair value) 165,261 9,916 (2,980) 172,197 58,412 8,472 (1,283) 65,601
Other Investments (not measured at fair value):
Venture capital and funds:
Measurement alternative 143,224 72,760
Equity method 14,906 15,379
Other 539 1,301
Total venture capital and funds 158,669 89,440
Real estate and solar:
Equity method 55,611 51,721
Other 856 867
Total real estate and solar 56,467 52,588
Beneficial interest in federally insured loan securitizations (b) 32,396 —
Beneficial interest in consumer loan securitizations, net of allowance for credit losses of 24,837 as of June 30, 2020 (b) 24,676 33,187
Tax liens and affordable housing 5,295 6,283
Total investments (not measured at fair value) 277,503 181,498
Total investments $ 449,700 $ 247,099

All values are in US Dollars.

(a) As of June 30, 2020, $86.7 million (par value) of student loan asset-backed securities were subject to participation interests held by Union Bank, as discussed in note 3 under "Other Borrowings."

(b) During 2020, the Company has purchased partial ownership in certain federally insured and consumer loan securitizations. As of the latest remittance reports filed by the various trusts prior to June 30, 2020, the Company's ownership correlates to approximately $545 million and $270 million of federally insured and consumer loans, respectively, included in these securitizations.

Investment in Agile Sports Technologies, Inc. (doing business as "Hudl")

On May 20, 2020, the Company made an additional equity investment of approximately $26 million in Hudl, as one of the participants in an equity raise completed by Hudl. Prior to the additional 2020 investment, the Company had direct and indirect equity ownership interests in Hudl of less than 20%, which did not materially change as a result of this transaction. The Company accounts for its investment in Hudl using the measurement alternative method, which requires it to adjust its carrying value of the investment for changes resulting from observable market transactions. As a result of Hudl’s equity raise, the Company recognized a $51.0 million (pre-tax) gain during the three months ended June 30, 2020 to adjust its carrying value to reflect the May 20, 2020 transaction value. This gain is included in "other income" on the consolidated statements of income.

David S. Graff, who has served on the Company’s Board of Directors since May 2014, is CEO, co-founder, and a director of Hudl.

Impairment Expense

During the three months ended March 31, 2020, the Company recorded a total of $34.1 million (pre-tax) in impairment charges related to its investments, which included $26.3 million and $7.8 million in impairments related to the Company's beneficial interest in consumer loan securitizations and several of its venture capital investments, respectively. As of March 31, 2020, the Company's estimate of future cash flows from the beneficial interest in consumer loan securitizations was lower than previously anticipated due to the expectation of increased consumer loan defaults within such securitizations due to the distressed economic conditions resulting from the COVID-19 pandemic. The Company measured the allowance for credit losses on the consumer loan beneficial interests by comparing the present value of expected cash flows to the amortized cost basis and recorded an allowance for credit losses of $26.3 million, which represented the amount by which the fair value was less than the amortized cost basis. Additionally, as of March 31, 2020, the Company identified several venture capital investments, a majority of which were accounted for under the measurement alternative, that were also negatively impacted by the distressed economic conditions resulting from the COVID-19 pandemic during the first quarter of 2020, and estimated that the fair value of such investments was significantly reduced from their previous carrying value.

During the three months ended June 30, 2020, the Company recorded a $0.3 million (pre-tax) impairment charge related to a real estate investment. No additional impairment charges were considered necessary by the Company as of June 30, 2020.

  1. Intangible Assets

A summary of the Company's intangible assets follows:

Weighted average remaining useful life as of June 30, 2020 (months)
As of As of
June 30, 2020 December 31, 2019
Amortizable intangible assets, net:
Customer relationships (net of accumulated amortization of $73,827 and $60,553, respectively) 81 $ 58,626 71,900
Trade names (net of accumulated amortization of $3,334 and $2,792, respectively) 71 6,936 7,478
Computer software (net of accumulated amortization of $4,216 and $3,233, respectively) 8 1,171 2,154
Total - amortizable intangible assets, net 78 $ 66,733 81,532

The Company recorded amortization expense on its intangible assets of $7.4 million and $8.3 million during the three months ended June 30, 2020 and 2019, respectively, and $14.8 million and $16.8 million during the six months ended June 30, 2020 and 2019, respectively. The Company will continue to amortize intangible assets over their remaining useful lives. As of June 30, 2020, the Company estimates it will record amortization expense as follows:

2020 (July 1 - December 31) $ 16,011
2021 19,687
2022 6,431
2023 6,184
2024 5,771
2025 and thereafter 12,649
$ 66,733
  1. Goodwill

The carrying amount of goodwill as of December 31, 2019 and June 30, 2020 by reportable operating segment was as follows:

Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Asset Generation and Management Corporate and Other Activities Total
Goodwill balance $ 23,639 70,278 21,112 41,883 — 156,912
  1. Property and Equipment

A summary of the Company's property and equipment follows:

As of As of
Useful life June 30, 2020 December 31, 2019
Non-communications:
Computer equipment and software 1-5 years $ 177,513 160,319
Building and building improvements 5-48 years 38,883 37,904
Office furniture and equipment 1-10 years 22,049 21,245
Leasehold improvements 1-15 years 9,080 9,517
Transportation equipment 5-10 years 5,032 5,049
Land — 1,400 1,400
Construction in progress — 21,070 13,738
275,027 249,172
Accumulated depreciation - non-communications (162,981) (142,270)
Non-communications, net property and equipment 112,046 106,902
Communications:
Network plant and fiber 4-15 years 265,189 254,560
Customer located property 2-4 years 29,976 27,011
Central office 5-15 years 19,011 17,672
Transportation equipment 4-10 years 6,895 6,611
Computer equipment and software 1-5 years 6,064 5,574
Other 1-39 years 3,737 3,702
Land — 70 70
Construction in progress — 1,620 54
332,562 315,254
Accumulated depreciation - communications (94,565) (73,897)
Communications, net property and equipment 237,997 241,357
Total property and equipment, net $ 350,043 348,259

The Company recorded depreciation expense on its property and equipment of $22.0 million and $16.2 million during the three months ended June 30, 2020 and 2019, respectively, and $42.3 million and $31.9 million during the six months ended June 30, 2020 and 2019, respectively.

9.  Earnings per Common Share

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

Three months ended June 30,
2020 2019
Common shareholders Unvested restricted stock shareholders Total Common shareholders Unvested restricted stock shareholders Total
Numerator:
Net income attributable to Nelnet, Inc. $ 85,243 1,239 86,482 24,292 327 24,619
Denominator:
Weighted-average common shares outstanding - basic and diluted 38,641,794 561,610 39,203,404 39,518,652 531,413 40,050,065
Earnings per share - basic and diluted $ 2.21 2.21 2.21 0.61 0.61 0.61
Six months ended June 30,
2020 2019
Common shareholders Unvested restricted stock shareholders Total Common shareholders Unvested restricted stock shareholders Total
Numerator:
Net income attributable to Nelnet, Inc. $ 45,305 645 45,950 65,346 864 66,210
Denominator:
Weighted-average common shares outstanding - basic and diluted 39,023,624 555,835 39,579,459 39,685,958 524,829 40,210,787
Earnings per share - basic and diluted $ 1.16 1.16 1.16 1.65 1.65 1.65

10.  Segment Reporting

See note 14 of the notes to consolidated financial statements included in the 2019 Annual Report for a description of the Company's operating segments. The following tables include the results of each of the Company's operating segments reconciled to the consolidated financial statements.

Three months ended June 30, 2020
Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Asset<br>Generation and<br>Management Corporate and Other Activities Eliminations Total
Total interest income $ 52 420 — 150,583 1,196 (368) 151,883
Interest expense 28 21 — 84,489 1,078 (368) 85,248
Net interest income (expense) 24 399 — 66,094 118 — 66,635
Less provision for loan losses — — — 2,999 — — 2,999
Net interest income after provision for loan losses 24 399 — 63,095 118 — 63,636
Other income/expense:
Loan servicing and systems revenue 111,042 — — — — — 111,042
Intersegment revenue 8,537 3 — — — (8,540) —
Education technology, services, and payment processing revenue — 59,304 — — — — 59,304
Communications revenue — — 18,998 — — — 18,998
Gain on sale of loans — — — — — — —
Other income 1,914 — 392 732 57,089 — 60,127
Impairment expense — — — — (332) — (332)
Derivative settlements, net — — — 5,821 — — 5,821
Derivative market value adjustments, net — — — (3,911) — — (3,911)
Total other income/expense 121,493 59,307 19,390 2,642 56,757 (8,540) 251,049
Cost of services:
Cost to provide education technology, services, and payment processing services — 15,376 — — — — 15,376
Cost to provide communications services — — 5,743 — — — 5,743
Total cost of services — 15,376 5,743 — — — 21,119
Operating expenses:
Salaries and benefits 68,401 24,522 5,570 421 20,334 — 119,247
Depreciation and amortization 9,142 2,362 10,824 — 7,065 — 29,393
Other expenses 13,380 2,326 3,774 4,863 12,710 — 37,052
Intersegment expenses, net 15,996 3,429 536 9,055 (20,476) (8,540) —
Total operating expenses 106,919 32,639 20,704 14,339 19,633 (8,540) 185,692
Income (loss) before income taxes 14,598 11,691 (7,057) 51,398 37,242 — 107,874
Income tax (expense) benefit (3,504) (2,806) 1,694 (12,336) (4,312) — (21,264)
Net income (loss) 11,094 8,885 (5,363) 39,062 32,930 — 86,610
Net income attributable to noncontrolling interests — — — — (128) — (128)
Net income (loss) attributable to Nelnet, Inc. $ 11,094 8,885 (5,363) 39,062 32,802 — 86,482
Total assets as of June 30, 2020 $ 221,313 351,392 301,741 21,136,268 732,994 (132,500) 22,611,208
Three months ended June 30, 2019
--- --- --- --- --- --- --- --- ---
Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Asset<br><br>Generation and<br><br>Management Corporate and Other<br>Activities Eliminations Total
Total interest income $ 550 1,659 1 243,295 2,258 (974) 246,788
Interest expense 19 11 — 184,035 3,872 (974) 186,963
Net interest income (expense) 531 1,648 1 59,260 (1,614) — 59,825
Less provision for loan losses — — — 9,000 — — 9,000
Net interest income after provision for loan losses 531 1,648 1 50,260 (1,614) — 50,825
Other income/expense:
Loan servicing and systems revenue 113,985 — — — — — 113,985
Intersegment revenue 11,598 — — — — (11,598) —
Education technology, services, and payment processing revenue — 60,342 — — — — 60,342
Communications revenue — — 15,758 — — — 15,758
Gain on sale of loans — — — 1,712 — — 1,712
Other income 2,277 — 362 3,176 8,624 — 14,440
Impairment expense — — — — — — —
Derivative settlements, net — — — 12,972 — — 12,972
Derivative market value adjustments, net — — — (37,060) — — (37,060)
Total other income/expense 127,860 60,342 16,120 (19,200) 8,624 (11,598) 182,149
Cost of services:
Cost to provide education technology, services, and payment processing services — 15,871 — — — — 15,871
Cost to provide communications services — — 5,101 — — — 5,101
Total cost of services — 15,871 5,101 — — — 20,972
Operating expenses:
Salaries and benefits 66,496 22,823 5,192 382 16,321 — 111,214
Depreciation and amortization 8,799 3,324 7,737 — 4,623 — 24,484
Other expenses 17,118 5,805 3,865 6,207 12,423 — 45,417
Intersegment expenses, net 13,604 3,148 716 11,665 (17,535) (11,598) —
Total operating expenses 106,017 35,100 17,510 18,254 15,832 (11,598) 181,115
Income (loss) before income taxes 22,374 11,019 (6,490) 12,806 (8,822) — 30,887
Income tax (expense) benefit (5,370) (2,645) 1,558 (3,074) 3,321 — (6,209)
Net income (loss) 17,004 8,374 (4,932) 9,732 (5,501) — 24,678
Net income attributable to noncontrolling interests — — — — (59) — (59)
Net income (loss) attributable to Nelnet, Inc. $ 17,004 8,374 (4,932) 9,732 (5,560) — 24,619
Total assets as of June 30, 2019 $ 267,611 336,896 302,873 22,907,234 595,623 (190,437) 24,219,800
Six months ended June 30, 2020
--- --- --- --- --- --- --- --- ---
Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Asset<br>Generation and<br>Management Corporate and Other Activities Eliminations Total
Total interest income $ 369 2,411 — 336,509 2,751 (967) 341,074
Interest expense 73 38 — 217,737 2,485 (967) 219,366
Net interest income (expense) 296 2,373 — 118,772 266 — 121,708
Less provision for loan losses — — — 79,297 — — 79,297
Net interest income after provision for loan losses 296 2,373 — 39,475 266 — 42,411
Other income/expense:
Loan servicing and systems revenue 223,778 — — — — — 223,778
Intersegment revenue 19,591 14 — — — (19,605) —
Education technology, services, and payment processing revenue — 142,979 — — — — 142,979
Communications revenue — — 37,179 — — — 37,179
Gain on sale of loans — — — 18,206 — — 18,206
Other income 4,544 — 745 3,947 59,172 — 68,408
Impairment expense — — — (26,303) (8,116) — (34,419)
Derivative settlements, net — — — 10,058 — — 10,058
Derivative market value adjustments, net — — — (24,513) — — (24,513)
Total other income/expense 247,913 142,993 37,924 (18,605) 51,056 (19,605) 441,676
Cost of services:
Cost to provide education technology, services, and payment processing services — 38,181 — — — — 38,181
Cost to provide communications services — — 11,325 — — — 11,325
Total cost of services — 38,181 11,325 — — — 49,506
Operating expenses:
Salaries and benefits 138,894 48,218 10,986 863 40,163 — 239,125
Depreciation and amortization 17,990 4,749 21,330 — 12,972 — 57,041
Other expenses 30,870 8,418 7,463 8,581 25,108 — 80,439
Intersegment expenses, net 32,235 6,756 1,160 20,971 (41,517) (19,605) —
Total operating expenses 219,989 68,141 40,939 30,415 36,726 (19,605) 376,605
Income (loss) before income taxes 28,220 39,044 (14,340) (9,545) 14,596 — 57,976
Income tax (expense) benefit (6,773) (9,371) 3,442 2,291 (720) — (11,131)
Net income (loss) 21,447 29,673 (10,898) (7,254) 13,876 — 46,845
Net income attributable to noncontrolling interests — — — — (895) — (895)
Net income (loss) attributable to Nelnet, Inc. $ 21,447 29,673 (10,898) (7,254) 12,981 — 45,950
Total assets as of June 30, 2020 $ 221,313 351,392 301,741 21,136,268 732,994 (132,500) 22,611,208
Six months ended June 30, 2019
--- --- --- --- --- --- --- --- ---
Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Asset<br>Generation and<br>Management Corporate and Other Activities Eliminations Total
Total interest income $ 1,047 3,676 3 490,162 4,310 (1,824) 497,374
Interest expense 19 19 — 372,834 7,685 (1,824) 378,733
Net interest income (expense) 1,028 3,657 3 117,328 (3,375) — 118,641
Less provision for loan losses — — — 16,000 — — 16,000
Net interest income after provision for loan losses 1,028 3,657 3 101,328 (3,375) — 102,641
Other income/expense:
Loan servicing and systems revenue 228,883 — — — — — 228,883
Intersegment revenue 23,815 — — — — (23,815) —
Education technology, services, and payment processing revenue — 139,502 — — — — 139,502
Communications revenue — — 30,300 — — — 30,300
Gain on sale of loans — — — 1,712 — — 1,712
Other income 4,350 — 487 6,701 11,969 — 23,507
Impairment expense — — — — — — —
Derivative settlements, net — — — 32,007 — — 32,007
Derivative market value adjustments, net — — — (67,635) — — (67,635)
Total other income/expense 257,048 139,502 30,787 (27,215) 11,969 (23,815) 388,276
Cost of services:
Cost to provide education technology, services, and payment processing services — 36,930 — — — — 36,930
Cost to provide communications services — — 9,860 — — — 9,860
Total cost of services — 36,930 9,860 — — — 46,790
Operating expenses:
Salaries and benefits 132,715 45,830 9,929 760 33,038 — 222,272
Depreciation and amortization 17,671 6,835 15,099 — 9,093 — 48,697
Other expenses 36,047 11,116 7,342 10,044 24,685 — 89,233
Intersegment expenses, net 27,362 6,447 1,380 23,952 (35,326) (23,815) —
Total operating expenses 213,795 70,228 33,750 34,756 31,490 (23,815) 360,202
Income (loss) before income taxes 44,281 36,001 (12,820) 39,357 (22,896) — 83,925
Income tax (expense) benefit (10,628) (8,640) 3,077 (9,446) 8,037 — (17,600)
Net income (loss) 33,653 27,361 (9,743) 29,911 (14,859) — 66,325
Net income attributable to noncontrolling interests — — — — (115) — (115)
Net income (loss) attributable to Nelnet, Inc. $ 33,653 27,361 (9,743) 29,911 (14,974) — 66,210
Total assets as of June 30, 2019 $ 267,611 336,896 302,873 22,907,234 595,623 (190,437) 24,219,800
  1. Disaggregated Revenue and Deferred Revenue

The following tables provide disaggregated revenue by service offering and/or customer type for the Company's fee-based reportable operating segments.

Loan Servicing and Systems

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Government servicing - Nelnet $ 37,360 40,459 76,010 80,099
Government servicing - Great Lakes 45,213 45,973 91,660 93,050
Private education and consumer loan servicing 8,196 8,985 16,805 18,465
FFELP servicing 4,917 6,424 10,531 13,119
Software services 10,651 10,021 21,969 19,762
Outsourced services and other 4,705 2,123 6,803 4,388
Loan servicing and systems revenue $ 111,042 113,985 223,778 228,883

Education Technology, Services, and Payment Processing

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Tuition payment plan services $ 22,947 24,655 54,534 54,829
Payment processing 21,168 21,311 52,910 50,290
Education technology and services 14,927 14,096 34,980 33,805
Other 262 280 555 578
Education technology, services, and payment processing revenue $ 59,304 60,342 142,979 139,502

Communications

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Internet $ 11,930 9,297 23,125 17,726
Television 4,218 4,050 8,440 7,939
Telephone 2,812 2,395 5,502 4,575
Other 38 16 112 60
Communications revenue $ 18,998 15,758 37,179 30,300
Residential revenue $ 14,209 11,890 27,766 22,955
Business revenue 4,619 3,816 9,091 7,230
Other 170 52 322 115
Communications revenue $ 18,998 15,758 37,179 30,300

Other Income

The following table provides the components of "other income" on the consolidated statements of income:

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Gain on investments, net of losses $ 53,151 4,258 49,286 3,831
Management fee revenue 1,914 2,277 4,544 4,350
Investment advisory services 922 731 3,724 1,441
Borrower late fee income 319 3,161 3,506 6,674
Other 3,821 4,013 7,348 7,211
Other income $ 60,127 14,440 68,408 23,507

Deferred Revenue

Activity in the deferred revenue balance, which is included in "other liabilities" on the consolidated balance sheets, is shown below:

Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Corporate and Other Activities Total
Three months ended June 30, 2020
Balance, beginning of period $ 2,195 19,640 3,414 1,640 26,889
Deferral of revenue 800 22,340 10,640 879 34,659
Recognition of revenue (880) (22,056) (10,326) (843) (34,105)
Balance, end of period $ 2,115 19,924 3,728 1,676 27,443
Three months ended June 30, 2019
Balance, beginning of period $ 3,947 18,498 2,756 1,552 26,753
Deferral of revenue 764 24,770 8,798 841 35,173
Recognition of revenue (1,396) (21,779) (8,474) (782) (32,431)
Balance, end of period $ 3,315 21,489 3,080 1,611 29,495
Six months ended June 30, 2020
Balance, beginning of period $ 2,712 32,074 3,232 1,628 39,646
Deferral of revenue 1,182 37,420 20,567 1,734 60,903
Recognition of revenue (1,779) (49,570) (20,071) (1,686) (73,106)
Balance, end of period $ 2,115 19,924 3,728 1,676 27,443
Six months ended June 30, 2019
Balance, beginning of period $ 4,413 30,556 2,551 1,602 39,122
Deferral of revenue 1,880 38,732 17,064 1,577 59,253
Recognition of revenue (2,978) (47,799) (16,535) (1,568) (68,880)
Balance, end of period $ 3,315 21,489 3,080 1,611 29,495

12.  Major Customer

Nelnet Servicing, LLC ("Nelnet Servicing"), a subsidiary of the Company, earns loan servicing revenue from a servicing contract with the Department. Revenue earned by Nelnet Servicing related to this contract was $37.4 million and $40.5 million for the three months ended June 30, 2020 and 2019, and $76.0 million and $80.1 million for the six months ended June 30, 2020 and 2019, respectively. In addition, Great Lakes Educational Loan Services, Inc. ("Great Lakes"), which was acquired by the Company on February 7, 2018, also earns loan servicing revenue from a similar servicing contract with the Department. Revenue earned by Great Lakes related to this contract was $45.2 million and $46.0 million for the three months ended June 30, 2020 and 2019, and $91.7 million and $93.1 million for the six months ended June 30, 2020 and 2019, respectively.

Nelnet Servicing and Great Lakes' servicing contracts with the Department previously provided for expiration on June 16, 2019. On November 26, 2019, Nelnet Servicing and Great Lakes each received extensions from the Department on their contracts through December 14, 2020. The most current contract extensions also provide the potential for two additional six-month extensions at the Department's discretion through December 14, 2021.

The Department is conducting a contract procurement process entitled Next Generation Financial Services Environment (“NextGen”) for a new framework for the servicing of all student loans owned by the Department. On January 15, 2019, the Department issued solicitations for three NextGen components:

•NextGen Enhanced Processing Solution ("EPS")

•NextGen Business Process Operations ("BPO")

•NextGen Optimal Processing Solution ("OPS")

On April 1, 2019 and October 4, 2019, the Company responded to the EPS solicitation component. On January 16, 2020, the Department released an amendment to the EPS solicitation component and the Company responded on February 3, 2020. In addition, on August 1, 2019, the Company responded to the BPO solicitation component. On January 10, 2020, the Department released an amendment to the BPO solicitation component and the Company responded on January 30, 2020. The EPS solicitation component was for a transitional technology system and certain processing functions the Department planned to use under NextGen to service the Department's student loan customers for a period of time before eventually moving to OPS in the future. However, on April 3, 2020, the Department cancelled the OPS solicitation component. The BPO solicitation component is for the back office and call center operational functions for servicing the Department's student loan customers.

On March 30, 2020, the Company received a letter from the Department notifying the Company that the Company's proposal in response to the EPS component had been determined to be outside of the competitive range and would receive no further consideration for an award. On April 13, 2020, the Company filed a protest with the Government Accountability Office ("GAO") challenging the Department's decision to cancel the OPS solicitation component without amending the EPS solicitation component. On April 27, 2020, the Company filed a supplemental protest challenging a number of bases for the Department's competitive range exclusion of the Company's proposal from the EPS solicitation component. On July 10, 2020, the Department cancelled the solicitation for the EPS component. In its cancellation description, the Department indicated that it continues to be committed to the goals and vision of NextGen, and that it will be introducing a new solicitation to continue the NextGen strategy in the future. Based on the Department's cancellation of the EPS procurement, on July 14, 2020, the GAO dismissed the Company's protests as moot. The Company fully intends to compete for the servicing system solution as the Department proceeds with their NextGen strategy.

On June 18, 2020, the Company received a letter from the Department notifying the Company that the Company's proposal in response to the BPO solicitation component was determined to be ineligible for award, claiming the Company's response did not meet certain requirements related to small business participation. The Company immediately requested a debriefing regarding the Department's basis for this decision. Prior to providing the Company a debriefing, on June 24, 2020, the Department awarded and signed contracts with five other companies in connection with the BPO solicitation. On July 13, 2020, the Company filed a protest with the GAO challenging on a number of bases the Department's determination that the Company's BPO response did not meet small business participation requirements. In addition, on July 20, 2020, the Company filed a supplemental protest challenging the Department's decision to proceed with awards of contracts for the BPO component, when it cancelled the EPS component and a new EPS solicitation is expected to be released. On July 24, 2020, the Department provided the Company a debriefing regarding the Department's June 18, 2020 decision to eliminate the Company from the BPO competition. On July 28, 2020, the Company filed a second supplemental protest challenging the Department's BPO decision. Under applicable law, contract awards to other parties for the BPO component are subject to a stay of performance until the protests are resolved. A decision by the GAO is due on or before October 22, 2020.

The Company cannot predict the outcome of the current protests regarding the BPO component, or the timing, nature, or ultimate outcome of the Department's NextGen contract procurement process.

13.  Fair Value

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

As of June 30, 2020 As of December 31, 2019
Level 1 Level 2 Total Level 1 Level 2 Total
Assets:
Investments:
Student loan asset-backed securities -<br>available-for-sale $ — 142,122 142,122 — 52,597 52,597
Equity securities 6 — 6 6 — 6
Equity securities measured at net asset value (a) 29,966 12,894
Debt securities - available-for-sale 103 — 103 104 — 104
Total investments 109 142,122 172,197 110 52,597 65,601
Total assets $ 109 142,122 172,197 110 52,597 65,601

(a) In accordance with the Fair Value Measurements Topic of the FASB Accounting Standards Codification, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

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

As of June 30, 2020
Fair value Carrying value Level 1 Level 2 Level 3
Financial assets:
Loans receivable $ 20,017,543 19,603,993 — — 20,017,543
Accrued loan interest receivable 856,880 856,880 — 856,880 —
Cash and cash equivalents 67,540 67,540 67,540 — —
Investments (at fair value) 172,197 172,197 109 142,122 —
Beneficial interest in loan securitizations 57,072 57,072 — — 57,072
Restricted cash 585,236 585,236 585,236 — —
Restricted cash – due to customers 268,539 268,539 268,539 — —
Financial liabilities:
Bonds and notes payable 19,064,071 19,726,158 — 19,064,071 —
Accrued interest payable 32,760 32,760 — 32,760 —
Due to customers 268,539 268,539 268,539 — —
As of December 31, 2019
--- --- --- --- --- --- ---
Fair value Carrying value Level 1 Level 2 Level 3
Financial assets:
Loans receivable $ 21,477,630 20,669,371 — — 21,477,630
Accrued loan interest receivable 733,497 733,497 — 733,497 —
Cash and cash equivalents 133,906 133,906 133,906 — —
Investments (at fair value) 65,601 65,601 110 52,597 —
Beneficial interest in loan securitizations 33,258 33,187 — — 33,258
Restricted cash 650,939 650,939 650,939 — —
Restricted cash – due to customers 437,756 437,756 437,756 — —
Financial liabilities:
Bonds and notes payable 20,479,095 20,529,054 — 20,479,095 —
Accrued interest payable 47,285 47,285 — 47,285 —
Due to customers 437,756 437,756 437,756 — —

The methodologies for estimating the fair value of financial assets and liabilities are described in note 21 of the notes to consolidated financial statements included in the 2019 Annual Report.

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Management’s Discussion and Analysis of Financial Condition and Results of Operations is for the three and six months ended June 30, 2020 and 2019. All dollars are in thousands, except per share amounts, unless otherwise noted.)

The following discussion and analysis provides information that the Company’s management believes is relevant to an assessment and understanding of the consolidated results of operations and financial condition of the Company. The discussion should be read in conjunction with the Company’s consolidated financial statements included in the 2019 Annual Report.

Forward-looking and cautionary statements

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

The forward-looking statements are based on assumptions and analyses made by management in light of management's experience and its perception of historical trends, current conditions, expected future developments, and other factors that management believes are appropriate under the circumstances. These statements are subject to known and unknown risks, uncertainties, assumptions, and other factors that may cause the actual results and performance to be materially different from any future results or performance expressed or implied by such forward-looking statements. These factors include, among others, the risks and uncertainties set forth in the “Risk Factors” section of the 2019 Annual Report and subsequent reports filed by the Company with the SEC, including the "Risk Factors" section of this report, and elsewhere in this report, and include such risks and uncertainties as:

•risks and uncertainties related to the severity, magnitude, and duration of the COVID-19 pandemic, including changes in the macroeconomic environment and consumer behavior, restrictions on business, educational, individual, or travel activities intended to slow the spread of the pandemic, and volatility in market conditions resulting from the pandemic, including interest rates, the value of equities, and other financial assets;

•risks related to the ability to successfully maintain and increase allocated volumes of student loans serviced by the Company under existing and any future servicing contracts with the U.S. Department of Education (the "Department"), which current contracts accounted for 30 percent of the Company's revenue in 2019, risks to the Company related to the Department's initiatives to procure new contracts for federal student loan servicing, including the pending and uncertain nature of the Department's NextGen procurement process (under which awards of new contracts have been made to other service providers) and the impact of the reported cancellation by the Department of the previous EPS component of NextGen, the uncertain timing and nature of the outcome of the Company's protests of the reported decision by the Department as to the Company's proposal for the BPO component of NextGen and a protest by another interested party regarding the BPO solicitation, the possibility that awards or other evaluations of proposals may be challenged by various interested parties and may not be finalized or implemented within the currently anticipated time frame or at all, risks that the Company may not be successful in obtaining any of such potential new contracts, and risks related to the Company's ability to comply with agreements with third-party customers for the servicing of Federal Direct Loan Program, Federal Family Education Loan Program (the "FFEL Program" or "FFELP"), and private education and consumer loans;

•loan portfolio risks such as interest rate basis and repricing risk resulting from the fact that the interest rate characteristics of the student loan assets do not match the interest rate characteristics of the funding for those assets, the risk of loss of floor income on certain student loans originated under the FFEL Program, risks related to the use of derivatives to manage exposure to interest rate fluctuations, uncertainties regarding the expected benefits from purchased securitized and unsecuritized FFELP, private education, and consumer loans and initiatives to purchase additional FFELP, private education, and consumer loans, and risks from changes in levels of loan prepayment or default rates;

•financing and liquidity risks, including risks of changes in the general interest rate environment, including the availability of any relevant money market index rate such as LIBOR or the relationship between the relevant money market index rate and the rate at which the Company's assets and liabilities are priced, and changes in the securitization and other financing markets for loans, including adverse changes resulting from unanticipated repayment trends on student loans in FFELP securitization trusts that could accelerate or delay repayment of the associated bonds, which may increase the costs or limit the availability of financings necessary to purchase, refinance, or continue to hold student loans;

•risks from changes in the terms of education loans and in the educational credit and services markets resulting from changes in applicable laws, regulations, and government programs and budgets, such as changes resulting from the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and the expected decline over time in FFELP loan interest income and fee-based revenues due to the discontinuation of new FFELP loan originations in 2010 and potential government initiatives or legislative proposals to consolidate existing FFELP loans to the Federal Direct Loan Program or otherwise allow FFELP loans to be refinanced with Federal Direct Loan Program loans;

•risks related to a breach of or failure in the Company's operational or information systems or infrastructure, or those of third-party vendors, including cybersecurity risks related to the potential disclosure of confidential loan borrower and other customer information, the potential disruption of the Company's systems or those of third-party vendors or customers, and/or the potential damage to the Company's reputation resulting from cyber-breaches;

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

•risks and uncertainties related to the ability of ALLO Communications LLC to successfully expand its fiber network and market share in existing service areas and additional communities and manage related construction risks;

•risks that the conditions to the reported approval of federal deposit insurance and an industrial bank charter for Nelnet Bank may not be satisfied within a reasonable timeframe or at all, thus delaying or preventing Nelnet Bank from commencing

operations, and the uncertain nature of the expected benefits from obtaining an industrial bank charter, including the ability to successfully launch banking operations and achieve expected market penetration;

•risks related to investments in solar projects, including risks of not being able to realize tax credits which remain subject to recapture by taxing authorities;

•risks and uncertainties related to other initiatives to pursue additional strategic investments, acquisitions, and other activities, including activities that are intended to diversify the Company both within and outside of its historical core education-related businesses; and

•risks and uncertainties associated with litigation matters and with maintaining compliance with the extensive regulatory requirements applicable to the Company's businesses, reputational and other risks, including the risk of increased regulatory costs, resulting from the politicization of student loan servicing, and uncertainties inherent in the estimates and assumptions about future events that management is required to make in the preparation of the Company's consolidated financial statements.

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

OVERVIEW

The Company is a diverse company with a purpose to serve others and a vision to make customers' dreams possible by delivering customer focused products and services. The largest operating businesses engage in loan servicing; education technology, services, and payment processing; and communications. A significant portion of the Company's revenue is net interest income earned on a portfolio of federally insured student loans. The Company also makes investments to further diversify both within and outside of its historical core education-related businesses, including, but not limited to, investments in real estate, early-stage and emerging growth companies, and renewable energy.

GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments

The Company prepares its financial statements and presents its financial results in accordance with U.S. GAAP. However, it also provides additional non-GAAP financial information related to specific items management believes to be important in the evaluation of its operating results and performance. A reconciliation of the Company's GAAP net income to net income, excluding derivative market value adjustments, and a discussion of why the Company believes providing this additional information is useful to investors, is provided below.

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
GAAP net income attributable to Nelnet, Inc. $ 86,482 24,619 45,950 66,210
Realized and unrealized derivative market value adjustments 3,911 37,060 24,513 67,635
Tax effect (a) (939) (8,894) (5,883) (16,232)
Net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b) $ 89,454 52,785 64,580 117,613
Earnings per share:
GAAP net income attributable to Nelnet, Inc. $ 2.21 0.61 1.16 1.65
Realized and unrealized derivative market value adjustments 0.10 0.93 0.62 1.68
Tax effect (a) (0.03) (0.22) (0.15) (0.41)
Net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b) $ 2.28 1.32 1.63 2.92

(a) The tax effects are calculated by multiplying the realized and unrealized derivative market value adjustments by the applicable statutory income tax rate.

(b) "Derivative market value adjustments" includes both the realized portion of gains and losses (corresponding to variation margin received or paid on derivative instruments that are settled daily at a central clearinghouse) and the unrealized portion of gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP. "Derivative market value adjustments" does not include "derivative settlements" that represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms.

The accounting for derivatives requires that changes in the fair value of derivative instruments be recognized currently in earnings, with no fair value adjustment of the hedged item, unless specific hedge accounting criteria is met. Management has structured all of the Company’s derivative transactions with the intent that each is economically effective; however, the Company’s derivative instruments do not qualify for hedge accounting. As a result, the change in fair value of derivative instruments is reported in current period earnings with no consideration for the corresponding change in fair value of the hedged item. Under GAAP, the cumulative net realized and unrealized gain or loss caused by changes in fair values of derivatives in which the Company plans to hold to maturity will equal zero over the life of the contract. However, the net realized and unrealized gain or loss during any given reporting period fluctuates significantly from period to period.

The Company believes these point-in-time estimates of asset and liability values related to its derivative instruments that are subject to interest rate fluctuations are subject to volatility mostly due to timing and market factors beyond the control of management, and affect the period-to-period comparability of the results of operations. Accordingly, the Company’s management utilizes operating results excluding these items for comparability purposes when making decisions regarding the Company’s performance and in presentations with credit rating agencies, lenders, and investors. Consequently, the Company reports this non-GAAP information because the Company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance.

GAAP net income increased for the three months ended June 30, 2020 compared to the same period in 2019 primarily due to the following factors:

•The recognition of a $51.0 million ($38.8 million after tax) gain to adjust the carrying value of the Company's investment in Hudl to reflect Hudl's May 2020 equity raise transaction value;

•The increase in loan spread on the Company's loan portfolio and related derivative settlements;

•A decrease in net losses related to changes in the fair values of derivative instruments that do not qualify for hedge accounting.

These factors were partially offset by the following items:

•The decrease in the average balance of loans due to the amortization of the FFELP loan portfolio; and

•The decrease in net income from the Company's Loan Servicing and Systems operating segment due to a decrease in revenue as a result of the COVID-19 pandemic and incurring additional costs to meet increased service and security standards under the Department servicing contracts.

GAAP net income decreased for the six months ended June 30, 2020 compared to the same period in 2019 primarily due to the following factors:

•The recognition of an incremental provision for loan losses totaling $63.0 million ($47.9 million after tax) in the first quarter of 2020 related to the increase in expected life of loan defaults as a result of the COVID-19 pandemic;

•The recognition of $34.1 million ($25.9 million after tax) of impairment charges in the first quarter of 2020 related to the Company's beneficial interest in consumer loan securitizations and certain venture capital investments due to adverse economic conditions resulting from the COVID-19 pandemic;

•The decrease in the average balance of loans due to the amortization of the FFELP loan portfolio;

•The decrease in loan spread on the Company's loan portfolio and related derivative settlements; and

•The decrease in net income from the Company's Loan Servicing and Systems operating segment due to a decrease in revenue as a result of the COVID-19 pandemic and incurring additional costs to meet increased service and security standards under the Department servicing contracts.

These factors were partially offset by the following items:

•The recognition of a $51.0 million ($38.8 million after tax) gain in the second quarter of 2020 to adjust the carrying value of the Company's investment in Hudl to reflect Hudl's May 2020 equity raise transaction value;

•The recognition of a $18.2 million ($13.8 million after tax) gain from the sale of consumer loans in the first quarter of 2020; and

•A decrease in net losses related to changes in the fair values of derivative instruments that do not qualify for hedge accounting.

Operating Results

The Company earns net interest income on its loan portfolio, consisting primarily of FFELP loans, in its Asset Generation and Management ("AGM") operating segment. This segment is expected to generate a stable net interest margin and significant amounts of cash as the FFELP portfolio amortizes. As of June 30, 2020, the Company had a $19.8 billion loan portfolio that management anticipates will amortize over the next approximately 20 years and has a weighted average remaining life of 10.8 years. The Company actively works to maximize the amount and timing of cash flows generated by its FFELP portfolio and seeks to acquire additional loan assets to leverage its servicing scale and expertise to generate incremental earnings and cash

flow. However, due to the continued amortization of the Company’s FFELP loan portfolio, over time, the Company's net income generated by the AGM segment will continue to decrease. The Company currently believes that in the short-term it will most likely not be able to invest the excess cash generated from the FFELP loan portfolio into assets that immediately generate the rates of return historically realized from that portfolio.

In addition, the Company earns fee-based revenue through the following reportable operating segments:

•Loan Servicing and Systems ("LSS") - referred to as Nelnet Diversified Services ("NDS")

•Education Technology, Services, and Payment Processing ("ETS&PP") - referred to as Nelnet Business Solutions ("NBS")

•Communications - referred to as ALLO Communications ("ALLO")

Other business activities and operating segments that are not reportable are combined and included in Corporate and Other Activities ("Corporate"). Corporate and Other Activities also includes income earned on certain investments and interest expense incurred on unsecured debt transactions.

The information below provides the operating results for each reportable operating segment for the three and six months ended June 30, 2020 and 2019 (dollars in millions). See "Results of Operations" for each reportable operating segment under this Item 2 for additional detail.

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(a) Revenue includes intersegment revenue.

(b) Total revenue includes "net interest income" and "total other income/expense" from the Company's segment statements of operations, excluding a COVID-19 related impairment expense during the six months ended June 30, 2020 of $26.3 million, and the impact from changes in fair values of derivatives. Net income excludes changes in fair values of derivatives, net of tax. For information regarding the exclusion of the impact from changes in fair values of derivatives, see "GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above.

Certain events and transactions from 2020, which have impacted, will impact, or could impact the operating results of the Company, are discussed below.

Impacts of COVID-19 Pandemic

The rapid outbreak of the respiratory disease caused by a novel strain of coronavirus, coronavirus 2019 or COVID-19 (“COVID-19”), was declared a global pandemic by the World Health Organization on March 11, 2020 and a national emergency by the President on March 13, 2020. Beginning on March 15, 2020, many businesses and schools closed or reduced hours throughout the U.S. to combat the spread of COVID-19, and states and local jurisdictions implemented various containment efforts, including lockdowns on non-essential business, stay-at-home orders, and shelter-in-place orders. The COVID-19 pandemic has caused significant disruption to the U.S. and world economies, including significantly higher unemployment and underemployment, significantly lower interest rates and equity market valuations, and extreme volatility in

the U.S. and world markets. As a result of the COVID-19 outbreak and federal, state, and local government responses to COVID-19, the Company has experienced and may in the future experience various disruptions and impacts to the Company's businesses and results of operations. The following provides a summary of how COVID-19 has impacted and may impact the Company's business and operating results.

Corporate

The Company has implemented adjustments to its operations designed to keep employees safe and comply with federal, state, and local guidelines, including those regarding social distancing. As of March 25, 2020, the majority of our 6,600 associates were working and continue to work from home. Substantially all Company associates working from home are able to connect to their work environment virtually and continue to serve our customers.

The Company has investments in real estate, early-stage and emerging growth companies (venture capital investments), and renewable energy (solar). The Company identified several venture capital investments that were negatively impacted by the distressed economic conditions resulting from the COVID-19 pandemic and recognized impairment charges on such investments of $7.8 million (pre-tax) during the first quarter of 2020.

Loan Servicing and Systems

The CARES Act, which was signed into law on March 27, 2020, among other things, provides broad relief for federal student loan borrowers. Under the CARES Act, federal student loan payments and interest accruals were suspended until September 30, 2020 for all borrowers that have loans owned by the Department. The Department instructed servicers to apply the benefits of the law retroactively to March 13, 2020, when the President declared a state of emergency related to COVID-19. Although the Company will receive less revenue per borrower through September 30, 2020 based on borrower status, the Company currently anticipates more borrowers being in a current status subsequent to September 30, 2020, at which time the Company's revenue per borrower will increase. Currently, the Company anticipates no adverse impact to the total amount of revenue earned during 2020 under the Department servicing contracts as a result of the CARES Act. However, servicing revenue was negatively impacted in the second quarter of 2020, is expected to be lower in the third quarter of 2020, and is currently expected to be higher in the fourth quarter of 2020, than in corresponding prior periods. While federal student loan payments are suspended, the Company's operating expenses have been and will continue to be lower due to a significant reduction of borrower statement printing and postage costs. In addition, during the second quarter of 2020, revenue from the Department for originating consolidation loans was adversely impacted as a result of borrowers receiving relief on their existing loans, thus not initiating a consolidation. The Company currently anticipates this revenue will continue to be negatively impacted while student loan payments and interest accruals are suspended.

During the second quarter of 2020, FFELP, private education, and consumer loan servicing revenue was adversely impacted by the COVID-19 pandemic due to reduced or eliminated delinquency outreach to borrowers, holds on claim filings, and reduced or eliminated late fees processing. In addition, origination fee revenue was negatively impacted as borrowers are less likely to refinance their loans when they are receiving certain relief measures from their current lender. The Company anticipates this trend will continue in future periods that are impacted by the COVID-19 pandemic, with the magnitude based on the extent to which existing or additional borrower relief policies and activities are implemented or extended by servicing customers.

If the student loan borrower relief provisions of the CARES Act were potentially extended past September 30, 2020 and/or new legislative or regulatory student loan borrower relief measures similar to such provisions of the CARES Act were to become effective, the levels and timing of future servicing revenues could continue to be impacted in a similar manner through the extended period of time that such provisions or measures are in effect.

Due to decreased servicing and transaction activity as a result of suspended payments under the CARES Act as discussed above, the Company has been able to transition associates to help state agencies process unemployment claims and conduct certain health tracing support activities. These contracts were awarded to the Company as a result of the Company's technology, security, compliance, and other capabilities needed to conduct such activities.

Education Technology, Services, and Payment Processing

This segment has been and will continue to be impacted by COVID-19 through lower interest rate levels, which reduce earnings for this business compared to recent historical results as the tuition funds held in custody for schools produce less interest earnings. If interest rates remain at current levels, the Company anticipates this segment will earn minimal interest income in future periods. In addition, as a result of COVID-19, demand for certain of the Company's products and services during the second quarter of 2020 was negatively impacted. Enrollment declines in higher education and K-12 schools, as a result of the COVID-19 pandemic, could continue to negatively impact schools' demand for the Company's products and services in future periods.

Communications

As a result of COVID-19, ALLO has experienced increased demand from new and existing residential customers to support connectivity needs primarily for work and learn from home applications. Along with offering 60 days free for eligible customers, ALLO has partnered with school districts to provide more connectivity to students, often at discounted rates. ALLO signed the FCC Keep Americans Connected Pledge and did not suspend customers for non-payment, charge late fees, and apply suspension fees during the period from March 15, 2020 to June 30, 2020.

A prolonged economic downturn as a result of the COVID-19 pandemic could adversely impact customers’ ability to pay for ALLO services. However, to date the impact has been minimal as the services ALLO provides are viewed as critical by both residential and business customers. Due to losses from COVID-19, in the future some businesses may not be able to re-open, which would adversely impact ALLO’s results of operations and cash flow.

In view of the importance of ALLO's technicians being able to connect new customers while maintaining social distance and protecting community and associate health and safety, ALLO has adjusted operational procedures by implementing associate health checks, following CDC and local health official safety protocols, facilitating customer screening, and adjusting the installation process to limit the time in the home or business as much as possible.

Asset Generation and Management

AGM's results were adversely impacted during the first quarter of 2020 as a result of COVID-19 due to:

•An incremental increase in the provision for loan losses of $63.0 million (pre-tax) resulting from an increase in expected life of loan defaults due to the COVID-19 pandemic.

•A $26.3 million (pre-tax) impairment charge recognized on the Company's beneficial interest in consumer loan securitizations. The Company's estimate of future cash flows from the beneficial interest in consumer loan securitizations was lower than originally anticipated due to the expectation of increased consumer loan defaults within such securitizations due to the distressed economic conditions resulting from the COVID-19 pandemic.

In addition, during the first quarter of 2020, variable loan spread on the Company's federal student loan portfolio decreased due to a widening of the basis between the asset and debt indices in which the Company earns interest on its loans and funds such loans. The significant widening during the first quarter of 2020 was the result of a significant decrease in interest rates in March 2020 as a result of COVID-19. In a declining interest rate environment, student loan spread is compressed, due to the timing of interest rate resets on the Company's assets occurring daily in contrast to the timing of the interest resets on the Company's debt that occurs either monthly or quarterly. As the Company's debt reset at lower interest rates during the second quarter of 2020, the Company's variable loan spread increased.

During the first half of the second quarter of 2020, interest rates continued to decrease. As the Company's debt continues to reset to these lower interest rates during the third quarter of 2020, the Company expects variable loan spread will continue to increase from current levels. In addition, as a result of the decrease in interest rates in March 2020 and the first half of the second quarter of 2020, the Company has received and anticipates to continue to receive an increase in fixed rate floor income earned on its federally insured student loan portfolio.

The CARES Act, among other things, provides broad relief, effective March 13, 2020, for borrowers that have student loans owned by the Department of Education. This relief package excluded FFELP, private education, and consumer loans. Although the Company’s loans are excluded from the provisions of the CARES Act, the Company is providing relief for its borrowers.

For the Company's federally insured and private education loans, effective March 13, 2020 through June 30, 2020, the Company proactively applied a 90 day natural disaster forbearance to any loan that was 31-269 days past due (for federally insured loans) and 80 days past due (for private education loans), and to any current loan upon request. Beginning July 1, 2020, the Company discontinued proactively applying 90 day natural disaster forbearances on past due loans. However, the Company will continue to apply a natural disaster forbearance with an end date of September 30, 2020, to any federally insured and private education loan upon request. Federally insured loans in forbearance increased to $5.4 billion, or 27.7% of the portfolio, at June 30, 2020, compared to $1.3 billion, or 6.6% of the portfolio, as of December 31, 2019. Private education loans in forbearance increased to $21.9 million, or 7.5% of the portfolio, at June 30, 2020, compared to $3.1 million, or 1.3% of the portfolio, at December 31, 2019. Federally insured and private education loans in forbearance declined in June 2020 from May peaks of $6.0 billion and $38.6 million, respectively. The Company anticipates that loans in forbearance will continue to decline in the third and fourth quarters of 2020, absent any intervening policy change, when borrowers are currently scheduled to exit forbearance. Despite the COVID-19 pandemic, most borrowers continue to make payments according to their payment plans.

In addition, for private education loans, effective March 13, 2020 through September 30, 2020, the Company is delaying final demand letters and default activity, while replacing collection calls with borrower outreach on relief options. For both federally insured and private education loans, effective March 13, 2020 through September 30, 2020, borrower late fees are being waived and borrower payments made after March 13, 2020 are refunded upon a borrower's request.

For the majority of the Company's consumer loans, borrowers are generally being offered, upon request and/or documented evidence of financial distress, a two-month deferral of payments, with an option of additional deferrals if the COVID-19 pandemic continues. In addition, effective March 13, 2020 through September 30, 2020, the majority of fees (non-sufficient funds, late charges, check fees) and credit bureau reporting are currently suspended. The specific relief terms on the Company's consumer loan portfolio vary depending on the loan program and servicer of such loans.

The Company will continue to review whether additional and/or extended borrower relief policies and activities are needed.

The Company is not contractually committed to acquire FFELP, private education, or consumer loans, so the Company has been and will continue to be selective as to which, if any, loans it purchases during the current period of economic uncertainty. As a result of the economic uncertainty, the Company has identified certain opportunities to deploy capital. In March and April 2020, the Company purchased residual interests in certain FFELP securitizations for $33.5 million. In addition, the Company has purchased $89.3 million of investments in student loan asset-backed securities during the six months ended June 30, 2020 (net of proceeds from sales of such securities). A majority of the student loan asset-backed securities purchases were funded via a participation agreement with Union Bank (a related party).

Liquidity

The Company currently believes its cash and anticipated cash generated from operations on an annual basis will be sufficient to fund its operating expenses and business activities for the foreseeable future. In addition, the Company does not currently believe the COVID-19 pandemic will have any impact regarding compliance with covenants on any of the Company's debt facilities, including its unsecured line of credit.

See further discussion regarding the Company’s strong liquidity position below.

Other Risks and Uncertainties

The COVID-19 pandemic is unprecedented and continues to evolve. The extent to which COVID-19 may impact the Company's businesses depends on future developments, which are highly uncertain, subject to various risks, and cannot be predicted with confidence, such as the ultimate spread, severity, and duration of the pandemic, travel restrictions, stay-at-home or other similar orders and social distancing in the United States and other countries, business and/or school closures and disruptions, and the effectiveness of actions taken in the United States and other countries to contain and treat the virus. For additional information on the risks and uncertainties regarding the impacts of COVID-19, see Part II, Item 1A. "Risk Factors - The COVID-19 pandemic has adversely impacted our results of operations, and could continue to adversely impact our results of operations, as well as adversely impact our businesses, financial condition, and/or cash flows" in this report.

Investment in Agile Sports Technologies, Inc. (doing business as "Hudl")

On May 20, 2020, the Company made an additional equity investment of approximately $26.0 million in Hudl, as one of the participants in an equity raise completed by Hudl. Prior to the additional 2020 investment, the Company had direct and indirect equity ownership interests in Hudl of less than 20%, which did not materially change as a result of this transaction. The Company accounts for its investment in Hudl using the measurement alternative method, which requires it to adjust its carrying value of the investment for changes resulting from observable market transactions. As a result of Hudl’s equity raise, the Company recognized a $51.0 million (pre-tax) gain during the three months ended June 30, 2020 to adjust its carrying value to reflect the May 20, 2020 transaction value. This gain is included in "other income" on the consolidated statements of income.

Department of Education NextGen Procurement

Nelnet Servicing, LLC ("Nelnet Servicing"), a subsidiary of the Company, earns loan servicing revenue from a servicing contract with the Department. Revenue earned by Nelnet Servicing related to this contract was $37.4 million and $40.5 million for the three months ended June 30, 2020 and 2019, and $76.0 million and $80.1 million for the six months ended June 30, 2020 and 2019, respectively. In addition, Great Lakes Educational Loan Services, Inc. ("Great Lakes"), which was acquired by the Company on February 7, 2018, also earns loan servicing revenue from a similar servicing contract with the Department. Revenue earned by Great Lakes related to this contract was $45.2 million and $46.0 million for the three months ended June 30, 2020 and 2019, and $91.7 million and $93.1 million for the six months ended June 30, 2020 and 2019, respectively.

Nelnet Servicing and Great Lakes' servicing contracts with the Department previously provided for expiration on June 16, 2019. On November 26, 2019, Nelnet Servicing and Great Lakes each received extensions from the Department on their contracts through December 14, 2020. The most current contract extensions also provide the potential for two additional six-month extensions at the Department's discretion through December 14, 2021.

The Department is conducting a contract procurement process entitled Next Generation Financial Services Environment (“NextGen”) for a new framework for the servicing of all student loans owned by the Department. On January 15, 2019, the Department issued solicitations for three NextGen components:

•NextGen Enhanced Processing Solution ("EPS")

•NextGen Business Process Operations ("BPO")

•NextGen Optimal Processing Solution ("OPS")

On April 1, 2019 and October 4, 2019, the Company responded to the EPS solicitation component. On January 16, 2020, the Department released an amendment to the EPS solicitation component and the Company responded on February 3, 2020. In addition, on August 1, 2019, the Company responded to the BPO solicitation component. On January 10, 2020, the Department released an amendment to the BPO solicitation component and the Company responded on January 30, 2020. The EPS solicitation component was for a transitional technology system and certain processing functions the Department planned to use under NextGen to service the Department's student loan customers for a period of time before eventually moving to OPS in the future. However, on April 3, 2020, the Department cancelled the OPS solicitation component. The BPO solicitation component is for the back office and call center operational functions for servicing the Department's student loan customers.

On March 30, 2020, the Company received a letter from the Department notifying the Company that the Company's proposal in response to the EPS component had been determined to be outside of the competitive range and would receive no further consideration for an award. On April 13, 2020, the Company filed a protest with the Government Accountability Office ("GAO") challenging the Department's decision to cancel the OPS solicitation component without amending the EPS solicitation component. On April 27, 2020, the Company filed a supplemental protest challenging a number of bases for the Department's competitive range exclusion of the Company's proposal from the EPS solicitation component. On July 10, 2020, the Department cancelled the solicitation for the EPS component. In its cancellation description, the Department indicated that it continues to be committed to the goals and vision of NextGen, and that it will be introducing a new solicitation to continue the NextGen strategy in the future. Based on the Department's cancellation of the EPS procurement, on July 14, 2020, the GAO dismissed the Company's protests as moot. The Company fully intends to compete for the servicing system solution as the Department proceeds with their NextGen strategy.

On June 18, 2020, the Company received a letter from the Department notifying the Company that the Company's proposal in response to the BPO solicitation component was determined to be ineligible for award, claiming the Company's response did not meet certain requirements related to small business participation. The Company immediately requested a debriefing regarding the Department's basis for this decision. Prior to providing the Company a debriefing, on June 24, 2020, the Department awarded and signed contracts with five other companies in connection with the BPO solicitation. On July 13, 2020, the Company filed a protest with the GAO challenging on a number of bases the Department's determination that the Company's BPO response did not meet small business participation requirements. In addition, on July 20, 2020, the Company filed a supplemental protest challenging the Department's decision to proceed with awards of contracts for the BPO component, when it cancelled the EPS component and a new EPS solicitation is expected to be released. On July 24, 2020, the Department provided the Company a debriefing regarding the Department's June 18, 2020 decision to eliminate the Company from the BPO competition. On July 28, 2020, the Company filed a second supplemental protest challenging the Department's BPO decision. Under applicable law, contract awards to other parties for the BPO component are subject to a stay of performance until the protests are resolved. A decision by the GAO is due on or before October 22, 2020.

The Company cannot predict the outcome of the current protests regarding the BPO component, or the timing, nature, or ultimate outcome of the Department's NextGen contract procurement process.

Adoption of New Accounting Standard for Credit Losses

On January 1, 2020, the Company adopted ASU No. 2016-13, Financial Instruments – Credit Losses (“ASC 326”), which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.

The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for financial assets measured at amortized cost at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses.

The new guidance primarily impacted the allowance for loan losses related to the Company’s loan portfolio. Upon adoption, the Company recorded an increase to the allowance for loan losses of $91.0 million, which included a reclassification of the non-accretable discount balance and premiums related to loans purchased with evidence of credit deterioration, and decreased retained earnings, net of tax, by $18.9 million. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 (recognizing estimated credit losses expected to occur over the asset's remaining life) while prior period amounts continue to be reported in accordance with previously applicable GAAP (recognizing estimated credit losses using an incurred loss model); therefore, the comparative information for 2019 is not comparable to the information presented for 2020.

Nelnet Bank

On March 18, 2020, the Company announced that it received notification of approval from the Federal Deposit Insurance Corporation (“FDIC”) Board of Directors for federal deposit insurance and the Utah Department of Financial Institutions (“UDFI”) in connection with the establishment of Nelnet Bank as a Utah-chartered industrial bank. Nelnet Bank would operate as an internet bank franchise focused on the private education loan marketplace, with a home office in Draper, Utah.

The approval from the FDIC and UDFI is subject to a number of conditions, including compliance with the terms of the orders from the FDIC and UDFI. In addition, Nelnet Bank will have to meet a readiness review by the FDIC and UDFI before commencing operations. Although a formal timeline has not been established for these items, the Company currently believes Nelnet Bank could be approved and operational by the fourth quarter of 2020.

On June 26, 2020, Nelnet Bank, Nelnet, Inc. (the parent), and Michael S. Dunlap (Nelnet, Inc.’s controlling shareholder) entered into a Capital and Liquidity Maintenance Agreement and a Parent Company Agreement with the FDIC in connection with Nelnet, Inc.’s role as a source of financial strength for Nelnet Bank. As part of the Capital and Liquidity Maintenance Agreement, Nelnet, Inc. is obligated to (i) contribute capital to Nelnet Bank for it to maintain capital levels that meet FDIC requirements for a “well capitalized” bank, including a leverage ratio of capital to total assets of at least 12 percent; (ii) provide and maintain a revolving line of credit for the benefit of Nelnet Bank in an amount equal to the greater of either 10 percent of Nelnet Bank’s total assets or such additional amount as agreed to by Nelnet Bank and Nelnet, Inc.; (iii) provide additional liquidity to Nelnet Bank in such amount and duration as may be necessary for Nelnet Bank to meet its ongoing liquidity obligations; and (iv) establish and maintain a pledged deposit of $40.0 million with Nelnet Bank.

During the three and six months ended June 30, 2020, the Company incurred incremental direct costs associated with Nelnet Bank of $1.3 million and $2.5 million, respectively. Nelnet Bank will be funded with an initial capital commitment of $100.0 million from the Company. Nelnet Bank will operate as a separate subsidiary of the Company, and the industrial bank charter will allow the Company to maintain its other diversified business offerings.

Liquidity

•As of June 30, 2020, the Company had cash and cash equivalents of $67.5 million. In addition, the Company had a portfolio of available-for-sale investments, consisting primarily of student loan asset-backed securities, with a fair value of $142.2 million as of June 30, 2020. As of June 30, 2020, the Company has participated $86.7 million of these securities, and such participation is reflected as debt on the Company's consolidated balance sheet.

•The Company has a $455.0 million unsecured line of credit with a maturity date of December 16, 2024. As of June 30, 2020, the unsecured line of credit had $30.0 million outstanding and $425.0 million was available for future use. The line of credit provides that the Company may increase the aggregate financing commitments, through the existing lenders and/or through new lenders, up to a total of $550.0 million, subject to certain conditions.

•The majority of the Company’s portfolio of student loans is funded in asset-backed securitizations that will generate significant earnings and cash flow over the life of these transactions. As of June 30, 2020, the Company currently expects future undiscounted cash flows from its securitization portfolio to be approximately $2.28 billion, of which approximately $1.51 billion will be generated over the next 5 1/2 years (through 2025).

•During the first six months of 2020, the Company completed three FFELP asset-backed securitizations totaling $1.1 billion.

•As of June 30, 2020, the Company had $348.9 million, $92.6 million, and $126.4 million of capacity under its FFELP, private education, and consumer loan warehouse facilities, respectively, to purchase additional loans.

Subsequent to June 30, 2020, the Company made the decision to sell an additional $60.8 million (par value) of consumer loans to an unrelated third party, who securitized such loans. As partial consideration received for the consumer loans sold, the Company received a 25.4 percent residual interest in the consumer loan securitization. The Company currently anticipates recognizing a gain in the third quarter of 2020 of $14.8 million (pre-tax) from the sale

of these loans. After the completion of this loan sale, $46.8 million was outstanding under the Company's consumer loan warehouse facility and $153.2 million was available for future funding.

•The Company has a stock repurchase program to purchase up to a total of five million shares of the Company’s Class A common stock during the three-year period ending May 7, 2022. Year to date, through June 30, 2020, the Company has repurchased 1,497,934 shares of stock for $68.5 million ($45.75 per share), of which the vast majority was purchased during the second quarter of 2020. As of June 30, 2020, 3.3 million shares remained authorized for repurchase under the Company's stock repurchase program.

•The Company paid a second quarter 2020 cash dividend on the Company's Class A and Class B common stock of $0.20 per share. In addition, the Company's Board of Directors has declared a third quarter 2020 cash dividend on the Company's outstanding shares of Class A and Class B common stock of $0.20 per share. The third quarter cash dividend will be paid on September 15, 2020 to shareholders of record at the close of business on September 1, 2020.

The Company intends to use its strong liquidity position to capitalize on market opportunities, including FFELP, private education, and consumer loan acquisitions; strategic acquisitions and investments, including anticipated capital commitments to Nelnet Bank; expansion of ALLO’s telecommunications network; and capital management initiatives, including stock repurchases, debt repurchases, and dividend distributions. The timing and size of these opportunities will vary and will have a direct impact on the Company’s cash and investment balances.

CONSOLIDATED RESULTS OF OPERATIONS

An analysis of the Company's operating results for the three and six months ended June 30, 2020 compared to the same periods in 2019 is provided below.

The Company’s operating results are primarily driven by the performance of its existing loan portfolio and the revenues generated by its fee-based businesses and the costs to provide such services. The performance of the Company’s portfolio is driven by net interest income (which includes financing costs) and losses related to credit quality of the assets, along with the cost to administer and service the assets and related debt.

The Company operates as distinct reportable operating segments as described above. For a reconciliation of the reportable segment operating results to the consolidated results of operations, see note 10 of the notes to consolidated financial statements included under Part I, Item 1 of this report. Since the Company monitors and assesses its operations and results based on these segments, the discussion following the consolidated results of operations is presented on a reportable segment basis.

Three months ended Six months ended
June 30, June 30,
2020 2019 2020 2019 Additional information
Loan interest $ 146,140 238,222 327,933 480,555 Decrease was due primarily to decreases in the gross yield earned on loans and the average balance of loans, partially offset by an increase in gross fixed rate floor income due to lower interest rates in 2020 as compared to 2019.
Investment interest 5,743 8,566 13,141 16,819 Includes income from unrestricted interest-earning deposits and investments and funds in asset-backed securitizations. Decrease was due to a decrease in interest rates.
Total interest income 151,883 246,788 341,074 497,374
Interest expense 85,248 186,963 219,366 378,733 Decrease was due primarily to a decrease in cost of funds and a decrease in the average balance of debt outstanding.
Net interest income 66,635 59,825 121,708 118,641 See table below for additional analysis.
Less provision for loan losses 2,999 9,000 79,297 16,000 The increase during the six months ended June 30, 2020 compared to the same period in 2019 was due to provision expense recognized in the first quarter of 2020 as a result of an increase in expected defaults as a result of the COVID-19 pandemic and an increased provision for loan losses on loans acquired in 2020 to reflect life of loan expected losses as compared to loans acquired in 2019 for which the provision for loan losses was recognized based upon an incurred loss methodology.
Net interest income after provision for<br> loan losses 63,636 50,825 42,411 102,641
Other income/expense:
LSS revenue 111,042 113,985 223,778 228,883 See LSS operating segment - results of operations.
ETS&PP revenue 59,304 60,342 142,979 139,502 See ETS&PP operating segment - results of operations.
Communications revenue 18,998 15,758 37,179 30,300 See Communications operating segment - results of operations.
Gain on sale of loans — 1,712 18,206 1,712 The Company sold a portfolio of consumer loans in the first quarter of 2020 and the second quarter of 2019 and recognized gains of $18.2 million and $1.7 million, respectively.
Other income 60,127 14,440 68,408 23,507 See table below for the components of "other income."
Impairment expense (332) — (34,419) — During the first quarter of 2020, the Company recognized impairments of $26.3 million and $7.8 million related to beneficial interest in consumer loan securitization investments and several venture capital investments, respectively. Such impairments were the result of impacts from the COVID-19 pandemic.
--- --- --- --- --- --- ---
Derivative settlements, net 5,821 12,972 10,058 32,007 The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative settlements for each applicable period should be evaluated with the Company's net interest income. See table below for additional analysis.
Derivative market value adjustments, net (3,911) (37,060) (24,513) (67,635) Includes the realized and unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP. The majority of the derivative market value adjustments related to the changes in fair value of the Company's floor income interest rate swaps. Such changes reflect that a decrease in the forward yield curve during a reporting period results in a decrease in the fair value of the Company's floor income interest rate swaps, and an increase in the forward yield curve during a reporting period results in an increase in the fair value of the Company's floor income interest rate swaps. During the first quarter of 2020 and first and second quarters of 2019, there were significant decreases in the forward yield curve resulting in decreases in the fair value of the Company's floor income interest rate swaps that resulted in a loss during these periods. Although the decrease in the forward yield curve was more substantial in 2020 as compared to 2019, the notional amount of derivatives outstanding during 2020 was much lower than compared to 2019.
Total other income/expense 251,049 182,149 441,676 388,276
Cost of services:
Cost to provide education technology, services, and payment processing services 15,376 15,871 38,181 36,930 Represents primarily direct costs to provide payment processing services in the ETS&PP operating segment.
Cost to provide communications services 5,743 5,101 11,325 9,860 Represents costs of services primarily associated with television programming costs in the Communications operating segment.
Total cost of services 21,119 20,972 49,506 46,790
Operating expenses:
Salaries and benefits 119,247 111,214 239,125 222,272 Increases were due to (i) increases in personnel in the LSS and corporate operating segments to meet increased service and security standards under the Department servicing contracts; (ii) increases in personnel in the LSS operating segment to develop a new private education and consumer loan servicing system; (iii) increases in personnel to support the growth in the customer base and the development of new technologies in the ETS&PP operating segment; and (iv) a decrease in the amount of salary and benefit costs capitalized in 2020 as compared to 2019 at ALLO. See each individual operating segment results of operations discussion for additional information.
Depreciation and amortization 29,393 24,484 57,041 48,697 Increases were primarily due to additional depreciation expense at ALLO.
Other expenses 37,052 45,417 80,439 89,233 Other expenses includes expenses necessary for operations, such as postage and distribution, consulting and professional fees, occupancy, communications, and certain information technology-related costs. Decreases were due to (i) cost savings in the LSS segment from an increase in the adoption of electronic borrower statements and correspondence and a decrease in printing and postage while loan payments were suspended as a result of COVID-19 borrower relief efforts; and (ii) reduction of travel expenses and the cancellation of on-site conferences in the ETS&PP segment. See each individual operating segment results of operations discussion for additional information.
Total operating expenses 185,692 181,115 376,605 360,202
Income before income taxes 107,874 30,887 57,976 83,925
Income tax expense 21,264 6,209 11,131 17,600 The effective tax rate was 19.7% and 20.1% for the three months ended June 30, 2020 and 2019, respectively, and 19.5% and 21.0% for the six months ended June 30, 2020 and 2019, respectively. The Company currently expects its effective tax rate for 2020 will range between 19 and 21 percent.
Net income 86,610 24,678 46,845 66,325
Net income attributable to noncontrolling interests (128) (59) (895) (115)
Net income attributable to<br> Nelnet, Inc. $ 86,482 24,619 45,950 66,210

The following table summarizes the components of “net interest income” and “derivative settlements, net.”

Derivative settlements represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms. Derivative accounting requires that net settlements with respect to derivatives that do not qualify for "hedge treatment" under GAAP be recorded in a separate income statement line item below net interest income. The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. As such, management believes derivative settlements for each applicable period should be evaluated with the Company’s net interest income as presented in the table below. Net interest income (net of settlements on derivatives) is a non-

GAAP financial measure, and the Company reports this non-GAAP information because the Company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance. See note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on the Company's derivative instruments, including the net settlement activity recognized by the Company for each type of derivative for the 2020 and 2019 periods presented in the table under the caption "Consolidated Financial Statement Impact Related to Derivatives - Statements of Income" in note 4 and in the table below.

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019 Additional information
Variable loan interest margin $ 30,133 44,310 60,499 88,260 Represents the yield the Company receives on its loan portfolio less the cost of funding these loans. Variable loan spread is also impacted by the amortization/accretion of loan premiums and discounts and the 1.05% per year consolidation loan rebate fee paid to the Department. See AGM operating segment - results of operations.
Settlements on associated derivatives 7,129 807 9,242 3,140 Represents the net settlements received related to the Company’s 1:3 basis swaps.
Variable loan interest margin, net of settlements on derivatives 37,262 45,117 69,741 91,400
Fixed rate floor income 31,866 10,840 50,625 21,265 The Company has a portfolio of student loans that are earning interest at a fixed borrower rate which exceeds the statutorily defined variable lender rates, generating fixed rate floor income. See Item 3, "Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk" for additional information.
Settlements on associated derivatives (1,308) 12,165 816 28,867 Represents the net settlements received (paid) related to the Company’s floor income interest rate swaps.
Fixed rate floor income, net of settlements on derivatives 30,558 23,005 51,441 50,132
Investment interest 5,743 8,566 13,141 16,819
Corporate debt interest expense (1,107) (3,891) (2,557) (7,703) Includes interest expense on the Junior Subordinated Hybrid Securities and unsecured line of credit. Decrease due to a decrease in interest rates and in the average balance outstanding on the Company's unsecured line of credit.
Net interest income (net of settlements on derivatives) $ 72,456 72,797 131,766 150,648

The following table summarizes the components of "other income."

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Gain on investments, net of losses (a) $ 53,151 4,258 49,286 3,831
Management fee revenue (b) 1,914 2,277 4,544 4,350
Investment advisory services (c) 922 731 3,724 1,441
Borrower late fee income (d) 319 3,161 3,506 6,674
Other 3,821 4,013 7,348 7,211
Other income $ 60,127 14,440 68,408 23,507

(a) During the second quarter of 2020, the Company recognized a $51.0 million (pre-tax) gain to adjust the carrying value of its investment in Hudl to reflect Hudl's May 2020 equity raise transaction value.

(b) Represents revenue earned from providing administrative support and marketing services primarily to Great Lakes’ former parent company in accordance with a contract that expires in January 2021. Decrease for the three months ended June 30, 2020 as compared to the same period in 2019 was due to a reduction in administrative support for Great Lakes’ former parent company. Increase for the six months ended June 30, 2020 as compared to the same period in 2019 was due to an increase in marketing and administrative support provided to other clients primarily in the first quarter of 2020.

(c) The Company provides investment advisory services through Whitetail Rock Capital Management, LLC ("WRCM"), the Company's SEC-registered investment advisor subsidiary, under various arrangements. WRCM earns annual fees of 25 basis points on the majority of the outstanding balance of asset-backed securities under management and up to 50 percent of the gains from the sale of asset-backed securities or asset-backed securities being called prior to the full contractual maturity for which it provides advisory services. As of June 30, 2020, the outstanding balance of asset-backed securities under management subject to these arrangements was $1.3 billion. In addition, WRCM earns annual management fees of five basis points for certain other investments under management. The increase in advisory fees in 2020 as compared to 2019 was the result of an increase in performance fees earned.

(d) Represents borrower late fees earned by the AGM operating segment. The decrease in borrower late fees for the three and six months ended June 30, 2020 as compared to the same periods in 2019 was due to the Company suspending borrower late fees effective March 13, 2020 to provide borrowers relief as a result of the COVID-19 pandemic.

LOAN SERVICING AND SYSTEMS OPERATING SEGMENT – RESULTS OF OPERATIONS

Loan Servicing Volumes

As of
December 31,<br>2018 March 31,<br>2019 June 30,<br>2019 September 30,<br>2019 December 31,<br>2019 March 31,<br>2020 June 30,<br>2020
Servicing volume (dollars in millions):
Nelnet:
Government $ 179,507 183,093 181,682 184,399 183,790 185,477 185,315
FFELP 36,748 35,917 35,003 33,981 33,185 32,326 31,392
Private and consumer 15,666 16,065 16,025 16,286 16,033 16,364 16,223
Great Lakes:
Government 232,694 237,050 236,500 240,268 239,980 243,205 243,609
Total $ 464,615 472,125 469,210 474,934 472,988 477,372 476,539
Number of servicing borrowers:
Nelnet:
Government 5,771,923 5,708,582 5,592,989 5,635,653 5,574,001 5,498,872 5,496,662
FFELP 1,709,853 1,650,785 1,588,530 1,529,392 1,478,703 1,423,286 1,370,007
Private and consumer 696,933 699,768 693,410 701,299 682,836 670,702 653,281
Great Lakes:
Government 7,458,684 7,385,284 7,300,691 7,430,165 7,396,657 7,344,509 7,346,691
Total 15,637,393 15,444,419 15,175,620 15,296,509 15,132,197 14,937,369 14,866,641
Number of remote hosted borrowers: 6,393,151 6,332,261 6,211,132 6,457,296 6,433,324 6,354,158 6,264,559

Nelnet Servicing and Great Lakes' servicing contracts with the Department previously provided for expiration on June 16, 2019. On November 26, 2019, Nelnet Servicing and Great Lakes each received extensions from the Department on their contracts through December 14, 2020. The most current contract extensions also provide the potential for two additional six-month extensions at the Department's discretion through December 14, 2021. The Department is conducting a contract procurement process for a new framework for the servicing of all student loans owned by the Department. See "Overview - Department of Education NextGen Procurement" above for additional information.

The Department currently allocates new loan volume among its servicers based on certain performance metrics that measure the satisfaction among separate customer groups, including borrowers and Department personnel who work with the servicers, and that measure the success of keeping borrowers in an on-time repayment status and helping borrowers avoid default. Under the most recently publicly announced performance metric measurements used by the Department for the quarterly periods July 1, 2019 through December 31, 2019, Great Lakes’ and Nelnet Servicing’s overall rankings among the nine current servicers for the Department were tied for first and tied for third, respectively. Based on these results, Great Lakes’ and Nelnet Servicing’s allocation of new student loan servicing volumes for the period March 1, 2020 through August 31, 2020 are 19 percent and 10 percent, respectively.

Summary and Comparison of Operating Results

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019 Additional information
Net interest income $ 24 531 296 1,028 Decrease was due to lower interest rates in 2020 as compared to 2019.
Loan servicing and systems revenue 111,042 113,985 223,778 228,883 See table below for additional information.
Intersegment servicing revenue 8,537 11,598 19,591 23,815 Represents revenue earned by the LSS operating segment as a result of servicing loans for the AGM operating segment. Decrease was due to the impact of borrower relief policies implemented by AGM in response to the COVID-19 pandemic and the expected amortization of AGM's FFELP portfolio. FFELP intersegment servicing revenue will continue to decrease as AGM's FFELP portfolio pays off.
Other income 1,914 2,277 4,544 4,350 Represents revenue earned from providing administrative support and marketing services primarily to Great Lakes’ former parent company in accordance with a contract that expires in January 2021. Decrease for the three months ended June 30, 2020 as compared to the same period in 2019 was due to a reduction in administrative support for Great Lakes’ former parent company. Increase for the six months ended June 30, 2020 as compared to the same period in 2019 was due to an increase in marketing and administrative support provided to other clients primarily in the first quarter of 2020.
Total other income 121,493 127,860 247,913 257,048
Salaries and benefits 68,401 66,496 138,894 132,715 Increase was due to an increase in headcount to provide enhanced service levels to borrowers under the Department servicing contracts, and to develop a new private education and consumer loan servicing system.
Depreciation and amortization 9,142 8,799 17,990 17,671
Other expenses 13,380 17,118 30,870 36,047 Decrease for the three and six months ended June 30, 2020 as compared to the same periods in 2019 was due to cost savings as a result of the impact of the COVID-19 pandemic and the resulting CARES Act, primarily associated with the fact that while student loan payments are suspended there is a significant reduction of borrower statement printing and postage costs. See "Overview - Impacts of COVID-19 Pandemic - Loan Servicing and Systems" above for additional information. Decrease was also due to cost savings from an increase in the adoption of electronic borrower statements and correspondence. Decrease for the six months ended June 30, 2020 as compared to the same period in 2019 was also due to a decrease in the provision for servicing losses.
Intersegment expenses 15,996 13,604 32,235 27,362 Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services. Increase was due to an increase in security service levels related to the Department servicing contracts.
Total operating expenses 106,919 106,017 219,989 213,795
Income before income taxes 14,598 22,374 28,220 44,281
Income tax expense (3,504) (5,370) (6,773) (10,628) Represents income tax expense at an effective tax rate of 24%.
Net income $ 11,094 17,004 21,447 33,653 The LSS segment incurred additional costs during 2020 to meet increased service and security standards under the Department servicing contracts. In addition, revenue in 2020 has been negatively impacted as a result of the COVID-19 pandemic. As a result, the segment's net income and operating margin decreased in 2020 as compared to the same periods in 2019.
Before tax operating margin 12.0 % 17.5 % 11.4 % 17.2 %

Loan servicing and systems revenue

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019 Additional information
Government servicing - Nelnet $ 37,360 40,459 76,010 80,099 Represents revenue from Nelnet Servicing's Department servicing contract. Decrease was due to a decrease in revenue from the administration of the Total and Permanent Disability (TPD) Discharge program, decrease in fees earned from the Department for originating consolidation loans, and decrease in revenue earned per borrower as a result of certain provisions included in the CARES Act. See "Overview - Impacts of COVID-19 Pandemic - Loan Servicing and Systems" above for additional information.
Government servicing - Great Lakes 45,213 45,973 91,660 93,050 Represents revenue from the Great Lakes' Department servicing contract. Decrease was due to a decrease in fees earned from the Department for originating consolidation loans and decrease in revenue earned per borrower as a result of certain provisions included in the CARES Act. See "Overview - Impacts of COVID-19 Pandemic - Loan Servicing and Systems" above for additional information.
Private education and consumer loan servicing 8,196 8,985 16,805 18,465 Decrease was due to a decrease in the number of borrowers serviced, a decrease in origination fees, and the impact of borrower relief policies implemented by private lenders in response to the COVID-19 pandemic. See "Overview - Impacts of COVID-19 Pandemic - Loan Servicing and Systems" above for additional information.
FFELP servicing 4,917 6,424 10,531 13,119 Decrease was due to a decrease in the number of borrowers serviced and the impact of borrower relief policies implemented by lenders in response to the COVID-19 pandemic. See "Overview - Impacts of COVID-19 Pandemic - Loan Servicing and Systems" above for additional information. Over time, FFELP servicing revenue will continue to decrease as third-party customers' FFELP portfolios pay off.
Software services 10,651 10,021 21,969 19,762 Increase was due to an increase in borrowers and services in which the Company provides hosted FFELP guarantee activities.
Outsourced services and other 4,705 2,123 6,803 4,388 The majority of this revenue relates to providing contact center outsourcing activities. Increase was due to providing temporary outsourcing services to state agencies to process unemployment claims and conduct certain health tracing support activities. See "Overview - Impacts of COVID-19 Pandemic - Loan Servicing and Systems" above for additional information.
Loan servicing and systems revenue $ 111,042 113,985 223,778 228,883

EDUCATION TECHNOLOGY, SERVICES, AND PAYMENT PROCESSING OPERATING SEGMENT – RESULTS OF OPERATIONS

As discussed further in the Company's 2019 Annual Report, this segment of the Company’s business is subject to seasonal fluctuations which correspond, or are related to, the traditional school year. Based on the timing of revenue recognition and when expenses are incurred, revenue and pre-tax operating margin are higher in the first quarter as compared to the remainder of the year.

Summary and Comparison of Operating Results

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019 Additional information
Net interest income $ 399 1,648 2,373 3,657 Decrease was due to a decrease in interest rates in 2020 as compared with 2019, including the significant drop in interest rates in March 2020 as a result of the COVID-19 pandemic. If interest rates remain at current levels, the Company anticipates this segment will earn minimal interest income in future periods.
Education technology, services, and payment processing revenue 59,304 60,342 142,979 139,502 See table below for additional information.
Intersegment revenue 3 — 14 —
Total other income 59,307 60,342 142,993 139,502
Cost to provide education technology, services, and payment processing services 15,376 15,871 38,181 36,930 See table below for additional information.
Salaries and benefits 24,522 22,823 48,218 45,830 Increase was due to an increase in headcount to support the growth of its customer base and investment in the development of new technologies. These increases were partially offset by a decrease in headcount due to operating efficiencies gained related to the acquisition of TMS in November 2018.
Depreciation and amortization 2,362 3,324 4,749 6,835 Amortization of intangible assets related to business acquisitions was $2.2 million and $3.2 million for the three months ended June 30, 2020 and 2019, respectively, and $4.4 million and $6.5 million for the six months ended June 30, 2020 and 2019, respectively.
Other expenses 2,326 5,805 8,418 11,116 Decrease was due to a reduction of travel expenses and the cancellation of on-site conferences as a result of the COVID-19 pandemic.
Intersegment expenses, net 3,429 3,148 6,756 6,447 Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.
Total operating expenses 32,639 35,100 68,141 70,228
Income before income taxes 11,691 11,019 39,044 36,001
Income tax expense (2,806) (2,645) (9,371) (8,640) Represents income tax expense at an effective tax rate of 24%.
Net income $ 8,885 8,374 29,673 27,361

Education technology, services, and payment processing revenue

The following table provides disaggregated revenue by service offering and before tax operating margin for each reporting period.

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019 Additional information
Tuition payment plan services $ 22,947 24,655 54,534 54,829 Revenue recognized during the first six months of 2020 is primarily related to payment plans for the 2019-2020 academic year for K-12 schools and the spring and summer 2020 semester for institutions of higher education. As a result, fees for the majority of payment plans were received and are based on school enrollments prior to the conditions arising from the COVID-19 pandemic. As a result of the COVID-19 pandemic, tuition payment plan services revenue for the three months ended June 30, 2020 decreased as compared to the same period in 2019. Enrollment declines in higher education and K-12 schools as a result of the COVID-19 pandemic could negatively impact tuition payment plan revenue in future periods.
Payment processing 21,168 21,311 52,910 50,290 Decrease in revenue for the three months ended June 30, 2020 as compared to the same period in 2019 was due to a decrease in the volume of payments processed as a result of the COVID-19 pandemic. Enrollment declines in higher education and K-12 schools as a result of the COVID-19 pandemic beginning with the fall 2020 academic term could result in a corresponding decline in the volume of payments processed, which would negatively impact payment processing revenue in future periods.
Education technology and services 14,927 14,096 34,980 33,805 Increase was due to an increase from FACTS Student Information System (“SIS”) software subscriptions and an increase in volume for the Nelnet Campus Commerce refunds service. The growth rate in the Company’s financial needs assessment service was flat compared to 2019, resulting in an overall growth rate that was lower than historical periods. The COVID-19 pandemic could negatively impact enrollments and schools’ demand for certain of the Company’s products and services, which would negatively impact the Company’s revenue in future periods.
Other 262 280 555 578
Education technology, services, and payment processing revenue 59,304 60,342 142,979 139,502
Cost to provide education technology, services, and payment processing services 15,376 15,871 38,181 36,930 Costs primarily relate to payment processing revenue and such costs decrease/increase in relationship to payment revenue.
Net revenue $ 43,928 44,471 104,798 102,572
Before tax operating margin 26.6 % 24.8 % 37.3 % 35.1 %

COMMUNICATIONS OPERATING SEGMENT – RESULTS OF OPERATIONS

Summary and Comparison of Operating Results

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019 Additional information
Net interest income $ — 1 — 3
Communications revenue 18,998 15,758 37,179 30,300 Communications revenue is derived primarily from the sale of pure fiber optic services to residential and business customers in Nebraska and Colorado, including internet, television, and telephone services. Increase was due to additional residential households and businesses served as a result of the completion of the Lincoln, Nebraska network build out in 2019 and continued maturity of ALLO's existing markets. See additional financial and operating data for ALLO in the tables below.
Other income 392 362 745 487
Total other income 19,390 16,120 37,924 30,787
Cost to provide communications services 5,743 5,101 11,325 9,860 Cost of services are primarily associated with television programming costs. Other costs include connectivity, franchise, and other regulatory costs directly related to providing internet and voice services.
Salaries and benefits 5,570 5,192 10,986 9,929 Certain salary and benefit costs qualify for capitalization as ALLO develops its network. Overall, there was a decrease in gross salaries and benefits paid in 2020 as compared to 2019 due to a decrease in headcount. However, the amount of costs capitalized in 2020 was lower than 2019, resulting in an overall increase in salaries and benefits, net of capitalized costs.
Depreciation and amortization 10,824 7,737 21,330 15,099 Depreciation reflects the allocation of the costs of ALLO's property and equipment over the period in which such assets are used. A significant amount of property and equipment purchases have been made to support the Lincoln, Nebraska network expansion. The gross property and equipment balances related to this segment as of June 30, 2020, December 31, 2019, June 30, 2019, and December 31, 2018 were $332.6 million, $315.3 million, $298.2 million and $273.9 million, respectively. Amortization reflects the allocation of costs related to intangible assets recorded at fair value as of the date the Company acquired ALLO over their estimated useful lives.
Other expenses 3,774 3,865 7,463 7,342 Other expenses includes selling, general, and administrative expenses necessary for operations, such as advertising, occupancy, professional services, construction materials, and personal property taxes. Decrease for the three months ended June 30, 2020 as compared to the same period in 2019 was due to a reduction in travel expenses related to the COVID-19 pandemic.
Intersegment expenses 536 716 1,160 1,380 Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.
Total operating expenses 20,704 17,510 40,939 33,750
Loss before income taxes (7,057) (6,490) (14,340) (12,820)
Income tax benefit 1,694 1,558 3,442 3,077 Represents income tax benefit at an effective tax rate of 24%.
Net loss $ (5,363) (4,932) (10,898) (9,743) The Company anticipates this operating segment will be dilutive to consolidated earnings as it continues to develop and add customers to its network in Lincoln, Nebraska and other communities, due to large upfront capital expenditures and associated depreciation and upfront customer acquisition costs.
Additional information:
Net loss $ (5,363) (4,932) (10,898) (9,743)
Net interest income — (1) — (3)
Income tax benefit (1,694) (1,558) (3,442) (3,077)
Depreciation and amortization 10,824 7,737 21,330 15,099
Earnings before interest, income<br><br>taxes, depreciation, and<br><br>amortization (EBITDA) $ 3,767 1,246 6,990 2,276 For additional information regarding this non-GAAP measure, see the table below.

Certain financial and operating data for ALLO is summarized in the tables below.

Three months ended June 30, Six months ended June 30, 2020
2020 2019 2020 2019
Residential revenue $ 14,209 74.8 % $ 11,890 75.5 % $ 27,766 74.6 % $ 22,955 75.7 %
Business revenue 4,619 24.3 3,816 24.2 9,091 24.5 7,230 23.9
Other revenue 170 0.9 52 0.3 322 0.9 115 0.4
Communications revenue $ 18,998 100.0 % $ 15,758 100.0 % $ 37,179 100.0 % $ 30,300 100.0 %
Internet $ 11,930 62.8 % $ 9,297 59.0 % $ 23,125 62.2 % $ 17,726 58.5 %
Television 4,218 22.2 4,050 25.7 8,440 22.7 7,939 26.2
Telephone 2,812 14.8 2,395 15.2 5,502 14.8 4,575 15.1
Other 38 0.2 16 0.1 112 0.3 60 0.2
Communications revenue $ 18,998 100.0 % $ 15,758 100.0 % $ 37,179 100.0 % $ 30,300 100.0 %
Net loss $ (5,363) (4,932) (10,898) (9,743)
EBITDA (a) 3,767 1,246 6,990 2,276
Capital expenditures 10,077 15,040 17,240 26,998
As of
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019 December 31, 2018
Residential customer information:
Households served 53,067 49,684 47,744 45,228 42,760 40,338 37,351
Households passed (b) 144,869 143,505 140,986 137,269 132,984 127,253 122,396
Households served/passed 36.6 % 34.6 % 33.9 % 32.9 % 32.2 % 31.7 % 30.5 %
Total households in current markets and new markets announced (c) 171,121 171,121 160,884 159,974 159,974 152,840 152,840

(a) Earnings before interest, income taxes, depreciation, and amortization ("EBITDA") is a supplemental non-GAAP performance measure that is frequently used in capital-intensive industries such as telecommunications. ALLO's management uses EBITDA to compare ALLO's performance to that of its competitors and to eliminate certain non-cash and non-operating items in order to consistently measure performance from period to period. EBITDA excludes interest and income taxes because these items are associated with a company's particular capitalization and tax structures. EBITDA also excludes depreciation and amortization expense because these non-cash expenses primarily reflect the impact of historical capital investments, as opposed to the cash impacts of capital expenditures made in recent periods, which may be evaluated through cash flow measures. The Company reports EBITDA for ALLO because the Company believes that it provides useful additional information for investors regarding a key metric used by management to assess ALLO's performance. There are limitations to using EBITDA as a performance measure, including the difficulty associated with comparing companies that use similar performance measures whose calculations may differ from ALLO's calculations. In addition, EBITDA should not be considered a substitute for other measures of financial performance, such as net income or any other performance measures derived in accordance with GAAP. A reconciliation of EBITDA from net income (loss) under GAAP is presented under "Summary and Comparison of Operating Results" in the table above.

(b) Represents the number of single residence homes, apartments, and condominiums that ALLO already serves and those in which ALLO has the capacity to connect to its network distribution system without further material extensions to the transmission lines, but have not been connected.

(c) During the first quarter of 2020, ALLO announced plans to expand its network to make services available in Norfolk, Nebraska. ALLO is now in twelve communities, including ten in Nebraska and two in Colorado.

ASSET GENERATION AND MANAGEMENT OPERATING SEGMENT – RESULTS OF OPERATIONS

Loan Portfolio

As of June 30, 2020, the Company had a $19.8 billion loan portfolio, consisting primarily of federally insured loans, that management anticipates will amortize over the next approximately 20 years and has a weighted average remaining life of 10.8 years. For a summary of the Company’s loan portfolio as of June 30, 2020 and December 31, 2019, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

Loan Activity

The following table sets forth the activity of loans:

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Beginning balance $ 20,605,065 22,082,643 20,798,719 22,520,498
Loan acquisitions:
Federally insured student loans 460,513 570,092 809,574 840,107
Private education loans 33,303 — 80,908 —
Consumer loans 22,980 114,633 85,811 184,754
Total loan acquisitions 516,796 684,725 976,293 1,024,861
Repayments, claims, capitalized interest, and other (1,124,686) (873,466) (1,437,265) (1,378,186)
Consolidation loans lost to external parties (166,778) (255,386) (383,105) (528,657)
Consumer loans sold — (47,680) (124,245) (47,680)
Ending balance $ 19,830,397 21,590,836 19,830,397 21,590,836

Allowance for Loan Losses and Loan Delinquencies

On January 1, 2020, the Company adopted ASU No. 2016-13, Financial Instruments – Credit Losses (“ASC 326”), which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.

The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for financial assets measured at amortized cost at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses.

Upon adoption, the Company recorded an increase to the allowance for loan losses of $91.0 million, which included a reclassification of the non-accretable discount balance and premiums related to loans purchased with evidence of credit deterioration, and decreased retained earnings, net of tax, by $18.9 million. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 (recognizing estimated credit losses expected to occur over the asset's remaining life) while prior period amounts continue to be reported in accordance with previously applicable GAAP (recognizing estimated credit losses using an incurred loss model); therefore, the comparative information for 2019 is not comparable to the information presented for 2020.

Management has determined that each of the federally insured, private education, and consumer loan portfolios meet the definition of a portfolio segment, which is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses.

For a summary of the activity in the allowance for loan losses for the three and six months ended June 30, 2020 and 2019, and a summary of the Company's loan status and delinquency amounts as of June 30, 2020, December 31, 2019, and June 30, 2019, see note 2 of the notes to consolidated financial statements included under Part 1, Item 1 of this report.

Provision for loan losses was $3.0 million and $9.0 million for the three months ended June 30, 2020 and 2019, respectively, and $79.3 million and $16.0 million for the six months ended June 30, 2020 and 2019, respectively. The increase in the provision for loan losses for the six months ended June 30, 2020 as compared to the same period in 2019 was due to an incremental provision recorded in the first quarter of 2020 of $63.0 million for the increase in expected defaults as a result of the COVID-19 pandemic and an increased provision for loan losses on loans acquired in 2020 to reflect life of loan expected losses as compared to loans acquired during 2019 in which the provision for loan losses was recognized based upon an incurred loss methodology.

The Company's provision expense for the three months ended June 30, 2020 was also impacted by the Company's estimate of certain improved economic conditions as of June 30, 2020 than what was used by the Company to determine the allowance for loan losses as of March 31, 2020. These improved economic conditions were partially offset by the Company extending its reversion period (to the Company's actual long-term historical loss experience) as of June 30, 2020, as the Company currently believes the economy will take longer to recover from the COVID-19 pandemic than what was originally estimated as of March 31, 2020.

The Company's total allowance for loan losses of $209.4 million at June 30, 2020 represents reserves equal to 0.7% of the Company's federally insured loans (or 29.1% of the risk sharing component of the loans that is not covered by the federal guaranty), 8.7% of the Company's private education loans, and 26.2% of the Company's consumer loans.

Loan Spread Analysis

The following table analyzes the loan spread on the Company’s portfolio of loans, which represents the spread between the yield earned on loan assets and the costs of the liabilities and derivative instruments used to fund the assets. The spread amounts included in the following table are calculated by using the notional dollar values found in the table under the caption "Net interest income after provision for loan losses, net of settlements on derivatives" below, divided by the average balance of loans or debt outstanding.

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Variable loan yield, gross 3.09 % 5.00 % 3.55 % 5.02 %
Consolidation rebate fees (0.84) (0.84) (0.83) (0.84)
Discount accretion, net of premium and deferred origination costs amortization 0.02 0.02 0.02 0.02
Variable loan yield, net 2.27 4.18 2.74 4.20
Loan cost of funds - interest expense (1.67) (3.42) (2.14) (3.44)
Loan cost of funds - derivative settlements (a) (b) 0.14 0.02 0.09 0.03
Variable loan spread 0.74 0.78 0.69 0.79
Fixed rate floor income, gross 0.63 0.20 0.49 0.19
Fixed rate floor income - derivative settlements (a) (c) (0.02) 0.23 0.01 0.27
Fixed rate floor income, net of settlements on derivatives 0.61 0.43 0.50 0.46
Core loan spread (d) 1.35 % 1.21 % 1.19 % 1.25 %
Average balance of loans $ 20,242,054 21,837,774 20,517,906 22,075,522
Average balance of debt outstanding 20,217,401 21,536,878 20,417,086 21,761,723

(a) Derivative settlements represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms. Derivative accounting requires that net settlements with respect to derivatives that do not qualify for "hedge treatment" under GAAP be recorded in a separate income statement line item below net interest income. The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. As such, management believes derivative settlements for each applicable period should be evaluated with the Company’s net interest income (loan spread) as presented in this table. The Company reports this non-GAAP information because it believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance. See note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on the Company's derivative instruments, including the net settlement activity recognized by the Company for each type of derivative for the 2020 and 2019 periods presented in the table under the caption "Consolidated Financial Statement Impact Related to Derivatives - Statements of Income" in note 4 and in this table.

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

derivative settlements follows.

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Core loan spread 1.35 % 1.21 % 1.19 % 1.25 %
Derivative settlements (1:3 basis swaps) (0.14) (0.02) (0.09) (0.03)
Derivative settlements (fixed rate floor income) 0.02 (0.23) (0.01) (0.27)
Loan spread 1.23 % 0.96 % 1.09 % 0.95 %

(b) Derivative settlements consist of net settlements received related to the Company’s 1:3 basis swaps.

(c) Derivative settlements consist of net settlements (paid) received related to the Company’s floor income interest rate swaps.

(d) Core loan spread, excluding consumer loans, would have been 1.24% and 1.16% for the three months ended June 30, 2020

and 2019, respectively, and 1.10% and 1.17% for the six months ended June 30, 2020 and 2019, respectively.

A trend analysis of the Company's core and variable loan spreads is summarized below.

nni-20200630_g2.jpg

(a) The interest earned on a large portion of the Company's FFELP student loan assets is indexed to the one-month LIBOR rate. The Company funds a portion of its assets with three-month LIBOR indexed floating rate securities. The relationship between the indices in which the Company earns interest on its loans and funds such loans has a significant impact on loan spread. This table (the right axis) shows the difference between the Company's liability base rate and the one-month LIBOR rate by quarter. See Item 3, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk,” which provides additional detail on the Company’s FFELP student loan assets and related funding for those assets.

Variable loan spread decreased during the three and six months ended June 30, 2020 as compared to the same periods in 2019 due to a widening of the basis between the asset and debt indices in which the Company earns interest on its loans and funds such loans (as reflected in the table above). The significant widening during the first and second quarters of 2020 was the result of the significant decrease in interest rates during March 2020 and the first half of the second quarter of 2020. In a declining interest rate environment, student loan spread is compressed, due to the timing of interest rate resets on the Company's assets occurring daily in contrast to the timing of the interest resets on the Company's debt that occurs either monthly or quarterly. As the Company's debt resets at lower interest rates, the Company expects variable loan spread to increase from current levels. See Item 3, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk,” which provides additional detail on the Company’s FFELP student loan assets and related funding for those assets.

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

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Fixed rate floor income, gross $ 31,866 10,840 50,625 21,265
Derivative settlements (a) (1,308) 12,165 816 28,867
Fixed rate floor income, net $ 30,558 23,005 51,441 50,132
Fixed rate floor income contribution to spread, net 0.61 % 0.43 % 0.50 % 0.46 %

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

The increase in gross fixed rate floor income for the three and six months ended June 30, 2020 compared to the same periods in 2019 was due to lower interest rates in 2020 as compared to 2019. The Company has a portfolio of derivative instruments in which the Company pays a fixed rate and receives a floating rate to economically hedge a portion of loans earning fixed rate floor income. The decrease in net derivative settlements received from the floor income interest rate swaps in 2020 as compared to 2019 was due to a decrease in the notional amount of derivatives outstanding and a decrease in interest rates. The Company anticipates receiving increased levels of gross fixed rate floor income in future periods as a result of the significant drop in interest rates in the first and second quarters of 2020. This increase will be partially offset by an increase in net settlements paid on derivatives used to hedge these loans. See Item 3, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk,” which provides additional detail on the Company’s portfolio earning fixed rate floor income and the derivatives used by the Company to hedge these loans.

Interest Rate Risk - Replacement of LIBOR as a Benchmark Rate

As of June 30, 2020, the interest earned on a principal amount of $18.0 billion in the Company’s FFELP student loan asset portfolio was indexed to one-month LIBOR, and the interest paid on a principal amount of $17.8 billion of the Company’s FFELP student loan asset-backed debt securities was indexed to one-month or three-month LIBOR. In addition, the majority of the Company’s derivative financial instrument transactions used to manage LIBOR interest rate risks are indexed to LIBOR. There is significant uncertainty regarding the availability of LIBOR as a benchmark rate after 2021, and any market transition away from the current LIBOR framework could result in significant changes to the interest rate characteristics of the Company's LIBOR-indexed assets and funding for those assets, as well as the Company’s LIBOR-indexed derivative instruments. See Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate" in the Company's 2019 Annual Report.

Summary and Comparison of Operating Results

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019 Additional information
Net interest income after provision for loan losses $ 63,095 50,260 39,475 101,328 See table below for additional analysis.
Gain on sale of loans — 1,712 18,206 1,712 The Company sold a portfolio of consumer loans in the first quarter of 2020 and second quarter of 2019 and recognized a gain of $18.2 million and $1.7 million, respectively.
Other income 732 3,176 3,947 6,701 Represents primarily borrower late fees. The decrease in borrower late fees for the three and six months ended June 30, 2020 as compared to the same periods in 2019 was due to the Company suspending borrower late fees effective March 13, 2020 to provide borrowers relief as a result of the COVID-19 pandemic. See "Overview - Impacts of COVID-19 Pandemic - Asset Generation and Management" above for additional information.
Impairment expense — — (26,303) — In March 2020, the Company recognized an impairment of its beneficial interest in consumer loan securitization investments as a result of the expected impacts of the COVID-19 pandemic. See note 5 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
Derivative settlements, net 5,821 12,972 10,058 32,007 The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative settlements for each applicable period should be evaluated with the Company's net interest income as reflected in the table below.
Derivative market value adjustments, net (3,911) (37,060) (24,513) (67,635) Includes the realized and unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP. The majority of the derivative market value adjustments related to the changes in fair value of the Company's floor income interest rate swaps. Such changes reflect that a decrease in the forward yield curve during a reporting period results in a decrease in the fair value of the Company's floor income interest rate swaps, and an increase in the forward yield curve during a reporting period results in an increase in the fair value of the Company's floor income interest rate swaps. During the first quarter of 2020 and first and second quarters of 2019, there were significant decreases in the forward yield curve resulting in decreases in the fair value of the Company's floor income interest rate swaps that resulted in a loss during these periods. Although the decreases in the forward yield curve were more substantial in 2020 as compared to 2019, the notional amount of derivatives outstanding during 2020 was much lower than compared to 2019.
--- --- --- --- --- --- ---
Total other income/expense 2,642 (19,200) (18,605) (27,215)
Salaries and benefits 421 382 863 760
Other expenses 4,863 6,207 8,581 10,044 The primary component of other expenses is servicing fees paid to third parties. During the second quarter of 2019, the Company recognized $1.8 million of expenses to extinguish asset-backed notes from certain securitizations prior to their contractual maturity. Excluding these costs, other expenses increased during the three and six months ended June 30, 2020 as compared to the same periods in 2019 due to an increase in third party servicing costs in connection with the Company's consumer loan portfolio.
Intersegment expenses 9,055 11,665 20,971 23,952 Amounts include fees paid to the LSS operating segment for the servicing of the Company’s loan portfolio. These amounts exceed the actual cost of servicing the loans. The decrease in servicing fees for the three and six months ended June 30, 2020 as compared to the same periods in 2019 was due to the expected amortization of the Company's FFELP portfolio and a decrease in certain servicing activities due to borrower relief initiatives and policies as a result of the COVID-19 pandemic. Intersegment expenses also include costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.
Total operating expenses 14,339 18,254 30,415 34,756 Total operating expenses, excluding the $1.8 million of expenses recognized in the second quarter of 2019 related to the extinguishment of debt prior to their contractual maturity (as described above), were 28 basis points and 30 basis points of the average balance of loans for the three months ended June 30, 2020 and 2019, respectively, and 30 basis points for both the six months ended June 30, 2020 and 2019.
Income (loss) before income taxes 51,398 12,806 (9,545) 39,357
Income tax (expense) benefit (12,336) (3,074) 2,291 (9,446) Represents income tax (expense) benefit at an effective tax rate of 24%.
Net income (loss) $ 39,062 9,732 (7,254) 29,911
Additional information:
Net income (loss) $ 39,062 9,732 (7,254) 29,911 See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP net income, excluding derivative market value adjustments. The increase in net income for the three months ended June 30, 2020 as compared to the same period in 2019 was due to (i) an increase in core loan spread; (ii) a decrease in operating expenses; and (iii) a decrease in provision for loan losses. These items were partially offset by (i) a decrease in the average balance of loans in 2020 as compared to 2019 and (ii) a decrease in borrower late fees. The decrease in net income for the six months ended June 30, 2020 as compared to the same period in 2019 was due to (i) the impairment of the Company's beneficial interest in consumer loan securitizations recognized in 2020; (ii) the decrease in core loan spread and the average balance of loans in 2020 as compared to 2019; (iii) an incremental provision for loan losses in 2020 of $63.0 million (pre-tax) related to the increase in expected defaults as a result of the COVID-19 pandemic; and (iv) an increased provision for loan losses on loans acquired in 2020 to reflect life of loan expected losses as compared to loans acquired during 2019 for which the provision for loan losses was recognized based upon an incurred loss methodology. These items were partially offset by a $18.2 million (pre-tax) gain in 2020 from the sale of consumer loans.
Derivative market value adjustments, net 3,911 37,060 24,513 67,635
Tax effect (939) (8,894) (5,883) (16,232)
Net income, excluding derivative market value adjustments $ 42,034 37,898 11,376 81,314

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

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

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019 Additional information
Variable interest income, gross $ 155,646 271,983 361,156 549,006 Decrease was due to a decrease in the gross yield earned on loans and a decrease in the average balance of loans.
Consolidation rebate fees (42,387) (45,647) (85,524) (92,138) Decrease was due to a decrease in the average consolidation loan balance.
Discount accretion, net of<br> premium and deferred<br> origination costs amortization 1,015 1,046 1,675 2,421 Net discount accretion is due to the Company's purchases of loans at a net discount over the last several years.
Variable interest income, net 114,274 227,382 277,307 459,289
Interest on bonds and notes<br> payable (84,141) (183,072) (216,808) (371,029) Decrease was due to a decrease in cost of funds and a decrease in the average balance of debt outstanding.
Derivative settlements, net (a) 7,129 807 9,242 3,140 Derivative settlements include the net settlements received related to the Company’s 1:3 basis swaps.
Variable loan interest margin,<br> net of settlements on<br> derivatives (a) 37,262 45,117 69,741 91,400
Fixed rate floor income, gross 31,866 10,840 50,625 21,265 Fixed rate floor income increased due to lower interest rates in 2020 as compared to 2019.
Derivative settlements, net (a) (1,308) 12,165 816 28,867 Derivative settlements include the settlements received (paid) related to the Company's floor income interest rate swaps. Decrease in settlements was due to a decrease in the notional amount of derivatives outstanding and lower interest rates in 2020 as compared to 2019.
Fixed rate floor income, net of<br> settlements on derivatives 30,558 23,005 51,441 50,132
Core loan interest income (a) 67,820 68,122 121,182 141,532
Investment interest 4,443 5,073 8,577 9,608 Decrease was due to lower interest rates in 2020 as compared to 2019.
Intercompany interest (348) (963) (929) (1,805)
Negative provision (provision) for<br> loan losses - federally insured<br> loans 1,950 (2,000) (37,373) (4,000) See "Allowance for Loan Losses and Loan Delinquencies" included above under "Asset Generation and Management Operating Segment - Results of Operations."
Provision for loan losses -<br> private education loans (2,322) — (12,121) —
Provision for loan losses -<br> consumer loans (2,627) (7,000) (29,803) (12,000)
Net interest income after provision<br> for loan losses (net of<br> settlements on derivatives) (a) $ 68,916 63,232 49,533 133,335 Net interest income after provision for loan losses (net of settlements on derivatives) increased for the three months ended June 30, 2020 as compared to the same period in 2019 due to an increase in core loan spread and a decrease in provision for loan losses, partially offset by a decrease in the average balance of loans. Excluding the incremental provision for loan losses recognized in the first quarter of 2020 of $63.0 million related to the increase in expected defaults as a result of the COVID-19 pandemic, net interest income after provision for loan losses (net of settlements on derivatives) for the six months ended June 30, 2020 would have been $112.5 million. The decrease in net interest income after provision for loan losses (net of settlements on derivatives), excluding this provision, for the six months ended June 30, 2020 as compared to the same period in 2019 was due to a decrease in core loan spread and the average balance of loans.

(a) Derivative settlements represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms. Derivative accounting requires that net settlements on derivatives that do not qualify for "hedge treatment" under GAAP be recorded in a separate income statement line item below net interest income. The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. As such, management believes derivative settlements for each applicable period should be evaluated with the Company’s net interest income as presented in this table. Core loan interest income and net interest income after provision for loan losses (net of settlements on derivatives) are non-GAAP financial measures, and the Company reports this non-GAAP information because the Company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance. See note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on the Company's derivative instruments, including the net settlement activity recognized by the Company for each type of derivative referred to in the "Additional information" column of this table, for the 2020 and 2019 periods presented in the table under the caption "Consolidated Financial Statement Impact Related to Derivatives - Statements of Income" in note 4 and in this table.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s Loan Servicing and Systems, and Education Technology, Services, and Payment Processing operating segments are non-capital intensive and both produce positive operating cash flows. As such, a minimal amount of debt and equity capital is allocated to these segments and any liquidity or capital needs are satisfied using cash flow from operations. Therefore, the Liquidity and Capital Resources discussion is concentrated on the Company’s liquidity and capital needs to meet existing debt obligations in the Asset Generation and Management operating segment and capital needs to expand ALLO's communications network in the Company's Communications operating segment.

Sources of Liquidity

As of June 30, 2020, the Company had cash and cash equivalents of $67.5 million. The Company also had a portfolio of available-for-sale investments, consisting primarily of student loan asset-backed securities, with a fair value of $142.2 million as of June 30, 2020. As of June 30, 2020, the Company has participated $86.7 million of these securities, and such participation is reflected as debt on the Company's consolidated balance sheet.

The Company also has a $455.0 million unsecured line of credit that matures on December 16, 2024. As of June 30, 2020, there was $30.0 million outstanding on the unsecured line of credit and $425.0 million was available for future use. The line of credit provides that the Company may increase the aggregate financing commitments, through the existing lenders and/or through new lenders, up to a total of $550.0 million, subject to certain conditions. In addition, the Company has a $22.0 million secured line of credit agreement that matures on May 30, 2022. As of June 30, 2020, the secured line of credit had $5.0 million outstanding and $17.0 million was available for future use.

In addition, the Company has repurchased certain of its own asset-backed securities (bonds and notes payable) in the secondary market. For accounting purposes, these notes are eliminated in consolidation and are not included in the Company's consolidated financial statements. However, these securities remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated by the trust estate. Upon a sale of these notes to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. As of June 30, 2020, the Company holds $14.6 million (par value) of its own asset-backed securities.

The Company intends to use its liquidity position to capitalize on market opportunities, including FFELP, private education, and consumer loan acquisitions; strategic acquisitions and investments, including anticipated capital commitments to Nelnet Bank; expansion of ALLO's telecommunications network; and capital management initiatives, including stock repurchases, debt repurchases, and dividend distributions. The timing and size of these opportunities will vary and will have a direct impact on the Company's cash and investment balances.

Cash Flows

On a calendar year annual basis, the Company has historically generated positive cash flow from operations. However, during the six months ended June 30, 2020, the Company used $105.6 million in operating activities, compared to using $17.8 million for the same period in 2019.

As part of the Company’s Education Technology, Services, and Payment Processing operating segment, the Company collects tuition payments and subsequently remits these payments to the appropriate schools. Cash collected for customers and the related liability are included in the Company’s consolidated balance sheet. These accounts fluctuate with the fall and spring school terms based on the timing of when the Company collects tuition payments from customers and remits such payments to schools, resulting in these balances being significantly lower as of June 30 as compared to the balances as of December 31. The “due to customers” liability account decreased $169.2 million and $90.7 million for the six months ended June 30, 2020 and 2019, respectively. These decreases negatively impacted cash used in operating activities in the Company’s consolidated statements of cash flows for these periods.

Excluding the impact of the decrease in the "due to customers" liability account, the Company generated $63.6 million from operating activities for the six months ended June 30, 2020, compared to generating $72.9 million from operating activities for the same period in 2019. The decrease in such cash flows from operating activities was due to:

•The decrease in net income;

•The adjustments to net income for derivative market value adjustments;

•Adjustments to net income for the impact of the gains from sale of loans and investments; and

•The impact of changes to accrued interest receivable and other liabilities during the six months ended June 30, 2020 as compared to the same period in 2019.

These factors were partially offset by:

•Adjustments to net income for the impact of the non-cash provision for loan losses and impairment charges;

•A decrease in net payments to the Company's clearinghouse for margin payments on derivatives; and

•The impact of changes to accounts receivable and other assets during the six months ended June 30, 2020 as compared to the same period in 2019.

The primary items included in the statement of cash flows for investing activities are the purchase and repayment of loans. The primary items included in financing activities are the proceeds from the issuance of and payments on bonds and notes payable used to fund loans. Cash provided by investing activities and used in financing activities for the six months ended June 30, 2020 was $717.3 million and $913.0 million, respectively. Cash provided by investing activities and used in financing activities for the six months ended June 30, 2019 was $855.5 million and $976.0 million, respectively. Investing and financing activities are further addressed in the discussion that follows.

Liquidity Needs and Sources of Liquidity Available to Satisfy Debt Obligations Secured by Loan Assets and Related Collateral

The following table shows the Company's debt obligations outstanding that are secured by loan assets and related collateral.

As of June 30, 2020
Carrying amount Final maturity
Bonds and notes issued in asset-backed securitizations $ 19,459,691 5/27/25 - 4/25/68
FFELP, private education, and consumer loan warehouse facilities 382,052 11/22/21 - 2/26/23
$ 19,841,743

Bonds and Notes Issued in Asset-backed Securitizations

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

As of June 30, 2020, 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 $2.28 billion as detailed below.

The forecasted cash flow presented below includes all loans funded in asset-backed securitizations as of June 30, 2020. As of June 30, 2020, the Company had $19.3 billion of loans included in asset-backed securitizations, which represented 97.3 percent of its total loan portfolio. The forecasted cash flow does not include cash flows that the Company expects to receive related to loans funded in its warehouse facilities as of June 30, 2020, private education and consumer loans funded with operating cash, and loans acquired subsequent to June 30, 2020.

Asset-backed Securitization Cash Flow Forecast

$2.28 billion

(dollars in millions)

nni-20200630_g3.jpg

The forecasted future undiscounted cash flows of approximately $2.28 billion include approximately $1.14 billion (as of June 30, 2020) of overcollateralization included in the asset-backed securitizations. These excess net asset positions are included in the consolidated balance sheets and included in the balances of "loans and accrued interest receivable" and "restricted cash." The difference between the total estimated future undiscounted cash flows and the overcollateralization of approximately $1.14 billion, or approximately $0.87 billion after income taxes based on the estimated effective tax rate, is expected to be accretive to the Company's June 30, 2020 balance of consolidated shareholders' equity.

Two of the Company’s asset-backed securitizations as of June 30, 2020 are structured as “Turbo Transactions” which require all cash generated from the student loans (including excess spread) to be directed toward payment of interest and any outstanding principal generally until such time as all principal on the notes has been paid in full. Once the notes in such transactions are paid in full, the remaining unencumbered student loans (and other remaining assets, if any) in the securitizations will be released to the Company, at which time the Company will have the option to refinance or sell these assets, or retain them on the balance sheet as unencumbered assets.

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

Prepayments:  The primary variable in establishing a life of loan estimate is the level and timing of prepayments. Prepayment rates equal the amount of loans that prepay annually as a percentage of the beginning of period balance, net of scheduled principal payments. A number of factors can affect estimated prepayment rates, including the level of consolidation activity, borrower default rates, and utilization of debt management options such as income-based repayment, deferments, and forbearance. Should any of these factors change, management may revise its assumptions, which in turn would impact the projected future cash flow. The Company’s cash flow forecast above assumes prepayment rates that are generally consistent with those utilized in the Company’s recent asset-backed securitization transactions. If management used a prepayment rate assumption two times greater than what was used to forecast the cash flow, the cash flow forecast would be reduced by approximately $180 million to $210 million.

Interest rates:  The Company funds a large portion of its student loans with three-month LIBOR indexed floating rate securities. Meanwhile, the interest earned on the Company’s student loan assets is indexed primarily to a one-month LIBOR rate. The different interest rate characteristics of the Company’s loan assets and liabilities funding these assets result in basis risk. The Company’s cash flow forecast assumes three-month LIBOR will exceed one-month LIBOR by 12 basis points for the life of the portfolio, which approximates the historical relationship between these indices. If the forecast is computed assuming

a spread of 24 basis points between three-month and one-month LIBOR for the life of the portfolio, the cash flow forecast would be reduced by approximately $25 million to $45 million. As the percentage of the Company's outstanding debt financed by three-month LIBOR declines, the Company's basis risk will be reduced.

There is significant uncertainty regarding the availability of LIBOR as a benchmark rate after 2021, and any market transition away from the current LIBOR framework could result in significant changes to the forecasted cash flows from the Company's asset-backed securitizations. See Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate" in the Company's 2019 Annual Report. In addition, the COVID-19 pandemic may impact forecasted cash flows from the Company's asset-backed securitizations. See Part II, Item 1A. "Risk Factors - The COVID-19 pandemic has adversely impacted our results of operations, and could continue to adversely impact our results of operations, as well as adversely impact our businesses, financial condition, and/or cash flows" in this report.

The Company uses the current forward interest rate yield curve to forecast cash flows. A change in the forward interest rate curve would impact the future cash flows generated from the portfolio. An increase in future interest rates will reduce the amount of fixed rate floor income the Company is currently receiving. The Company attempts to mitigate the impact of a rise in short-term rates by hedging interest rate risks. The forecasted cash flow does not include cash flows the Company expects to pay/receive related to derivative instruments used by the Company to manage interest rate risk. See Item 3, "Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk."

Warehouse Facilities

The Company funds a portion of its FFELP loan acquisitions using its FFELP warehouse facilities. Student loan warehousing allows the Company to buy and manage student loans prior to transferring them into more permanent financing arrangements. As of June 30, 2020, the Company had two FFELP warehouse facilities with an aggregate maximum financing amount available of $550.0 million, of which $201.1 million was outstanding and $348.9 million was available for additional funding. One warehouse facility has a static advance rate until the expiration date of the liquidity provisions (November 20, 2020). In the event the liquidity provisions are not extended, the valuation agent has the right to perform a one-time mark to market on the underlying loans funded in this facility, subject to a floor. The loans would then be funded at this new advance rate until the final maturity date of the facility (November 22, 2021). The other warehouse facility has a static advance rate that requires initial equity for loan funding and does not require increased equity based on market movements. As of June 30, 2020, the Company had $16.0 million advanced as equity support on these facilities. For further discussion of the Company's FFELP warehouse facilities outstanding at June 30, 2020, see note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

On February 13, 2020, the Company closed on a private education loan warehouse facility with an aggregate maximum financing amount available of $100.0 million. On March 20, 2020, the facility was amended to increase the maximum financing amount to $200.0 million. The facility has an advance rate of 80 to 90 percent, liquidity provisions through February 13, 2021, and a final maturity date of February 13, 2022. As of June 30, 2020, $107.4 million was outstanding under this warehouse facility and $92.6 million was available for future funding. Additionally, as of June 30, 2020, the Company had $12.4 million advanced as equity support under this facility.

The Company has a consumer loan warehouse facility that has an aggregate maximum financing amount available of $200.0 million, an advance rate of 70 or 75 percent depending on the type of collateral and subject to certain concentration limits, liquidity provisions to April 23, 2021, and a final maturity date of April 23, 2022. As of June 30, 2020, $73.6 million was outstanding under this facility and $126.4 million was available for future funding. Additionally, as of June 30, 2020, the Company had $24.7 million advanced as equity support under this facility.

Subsequent to June 30, 2020, the Company made the decision to sell an additional $60.8 million (par value) of consumer loans to an unrelated third party, who securitized such loans. As partial consideration received for the consumer loans sold, the Company received a 25.4 percent residual interest in the consumer loan securitization. The Company currently anticipates recognizing a gain in the third quarter of 2020 of $14.8 million (pre-tax) from the sale of these loans. After the completion of this loan sale, $46.8 million was outstanding under the Company's consumer loan warehouse facility and $153.2 million was available for future funding.

Upon termination or expiration of the warehouse facilities, the Company would expect to access the securitization market, obtain replacement warehouse facilities, use operating cash, consider the sale of assets, or transfer collateral to satisfy any remaining obligations.

Other Uses of Liquidity

The Company no longer originates new FFELP loans, but continues to acquire FFELP loan portfolios from third parties and believes additional loan purchase opportunities exist, including opportunities to purchase private education and consumer loans.

The Company plans to fund additional loan acquisitions using current cash and investments; using its Union Bank participation agreement (as described below); using its existing warehouse facilities (as described above); increasing the capacity under existing and/or establishing new warehouse facilities; and continuing to access the asset-backed securities market.

Union Bank Participation Agreement

The Company maintains an agreement with Union Bank, a related party, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in student loans. As of June 30, 2020, $925.3 million of loans were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. The agreement automatically renews annually and is terminable by either party upon five business days' notice. This agreement provides beneficiaries of Union Bank’s grantor trusts with access to investments in interests in student loans, while providing liquidity to the Company. The Company can participate loans to Union Bank to the extent of availability under the grantor trusts, up to $900.0 million or an amount in excess of $900.0 million if mutually agreed to by both parties. Loans participated under this agreement have been accounted for by the Company as loan sales. Accordingly, the participation interests sold are not included on the Company’s consolidated balance sheets.

Asset-backed Securities Transactions

During the first six months of 2020, the Company completed three FFELP asset-backed securitizations totaling $1.1 billion (par value). The proceeds from these transactions were used primarily to refinance student loans included in the Company's FFELP warehouse facilities. See note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on these securitizations.

The Company, through its subsidiaries, has historically funded student loans by completing asset-backed securitizations. Fitch Ratings, Standard & Poor's, and Moody's Investors Service have recently downgraded and placed numerous tranches of FFELP securitizations by various issuers, including certain tranches of prior FFELP securitizations issued by subsidiaries of the Company, on review for potential downgrade due to principal payments and prepayments on the underlying student loans coming in slower than initial expectations, and the resulting risk that certain principal maturities on those FFELP securitizations may not be met by the final maturity dates, which could result in an event of default under the underlying securitization agreements. The decrease in principal payments and prepayments is due to significant increases in forbearances resulting from a contraction in economic activity and an increase in unemployment due to the COVID-19 pandemic. Such rating actions have caused the spreads on FFELP securitizations in general to widen and have reduced the liquidity in the secondary market for FFELP securitizations.

The ultimate impact of these developments on the Company’s current and future securitizations is uncertain. Depending on future rating agency actions and market conditions, the Company currently anticipates continuing to access the asset-backed securitization market. Such asset-backed securitization transactions would be used to refinance student loans included in its warehouse facilities, loans purchased from third parties, and/or student loans in its existing asset-backed securitizations.

Liquidity Impact Related to Hedging Activities

The Company utilizes derivative instruments to manage interest rate sensitivity. By using derivative instruments, the Company is exposed to market risk which could impact its liquidity. Based on the derivative portfolio outstanding as of June 30, 2020, the Company does not currently anticipate any movement in interest rates having a material impact on its capital or liquidity profile, nor does the Company expect that any movement in interest rates would have a material impact on its ability to meet potential collateral deposits with its counterparties and/or make variation margin payments to its third-party clearinghouse. However, if interest rates move materially and negatively impact the fair value of the Company's derivative portfolio, the replacement of LIBOR as a benchmark rate has significant adverse impacts on the Company's derivatives, or if the Company enters into additional derivatives for which the fair value becomes negative, the Company could be required to deposit additional collateral with its derivative instrument counterparties and/or make variation margin payments to its third-party clearinghouse. The collateral deposits or variation margin, if significant, could negatively impact the Company's liquidity and capital resources. In addition, clearing rules require the Company to post amounts of liquid collateral when executing new derivative instruments, which could prevent or limit the Company from utilizing additional derivative instruments to manage interest rate sensitivity and risks. See note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on the Company's derivative portfolio.

Liquidity Impact Related to the Communications Operating Segment

ALLO has made significant investments in its communications network and currently provides fiber directly to homes and businesses in communities in Nebraska and Colorado. ALLO plans to continue to increase market share and revenue in its existing markets and is currently evaluating opportunities to expand to other communities in the Midwest. For the six months ended June 30, 2020, ALLO's capital expenditures were $17.2 million. The Company currently anticipates total ALLO network capital expenditures for the remainder of 2020 (July 1, 2020 - December 31, 2020) will be approximately $20 million. However, this amount could change based on customer demand for ALLO's services. The Company currently plans to use cash from operating activities and its third-party unsecured line of credit to fund ALLO's capital expenditures, as well as potentially other third-party financing alternatives.

Liquidity Impact Related to Nelnet Bank

On March 18, 2020, the Company announced that it received notification of approval from the FDIC Board of Directors for federal deposit insurance and the UDFI in connection with the establishment of Nelnet Bank as a Utah-chartered industrial bank. Nelnet Bank would operate as an internet bank franchise focused on the private education loan marketplace, with a home office in Draper, Utah.

The approval from the FDIC and UDFI is subject to a number of conditions, including compliance with the terms of the orders from the FDIC and UDFI. In addition, Nelnet Bank will have to meet a readiness review by the FDIC and UDFI before commencing operations. Although a formal timeline has not been established for these items, the Company currently believes Nelnet Bank could be approved and operational by the fourth quarter of 2020.

On June 26, 2020, Nelnet Bank, Nelnet, Inc. (the parent), and Michael S. Dunlap (Nelnet, Inc.’s controlling shareholder) entered into a Capital and Liquidity Maintenance Agreement and a Parent Company Agreement with the FDIC in connection with Nelnet, Inc.’s role as a source of financial strength for Nelnet Bank. As part of the Capital and Liquidity Maintenance Agreement, Nelnet, Inc. is obligated to (i) contribute capital to Nelnet Bank for it to maintain capital levels that meet FDIC requirements for a “well capitalized” bank, including a leverage ratio of capital to total assets of at least 12 percent; (ii) provide and maintain a revolving line of credit for the benefit of Nelnet Bank in an amount equal to the greater of either 10 percent of Nelnet Bank’s total assets or such additional amount as agreed to by Nelnet Bank and Nelnet, Inc.; (iii) provide additional liquidity to Nelnet Bank in such amount and duration as may be necessary for Nelnet Bank to meet its ongoing liquidity obligations; and (iv) establish and maintain a pledged deposit of $40.0 million with Nelnet Bank.

Nelnet Bank will be funded with an initial capital commitment of $100.0 million from the Company. Nelnet Bank will operate as a separate subsidiary of the Company, and the industrial bank charter will allow the Company to maintain its other diversified business offerings.

Other Debt Facilities

As discussed above, the Company has a $455.0 million unsecured line of credit with a maturity date of December 16, 2024. As of June 30, 2020, the unsecured line of credit had $30.0 million outstanding and $425.0 million was available for future use. The Company also has a $22.0 million secured line of credit agreement with a maturity date of May 30, 2022. As of June 30, 2020, the secured line of credit had $5.0 million outstanding with $17.0 million available for future use. The line of credit is secured by several Company-owned properties. Upon the maturity date of these facilities, there can be no assurance that the Company will be able to maintain these lines of credit, increase the amount outstanding under the lines, or find alternative funding if necessary.

The Company has issued Junior Subordinated Hybrid Securities (the "Hybrid Securities") that have a final maturity of September 15, 2061. The Hybrid Securities are unsecured obligations of the Company. As of June 30, 2020, the Company had $20.4 million of Hybrid Securities that remain outstanding.

During the second quarter of 2020, the Company entered into an agreement with Union Bank, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in student loan asset-backed securities. As of June 30, 2020, $86.7 million of student loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. This participation agreement has been accounted for by the Company as a secured borrowing. Upon termination or expiration of this agreement, the Company would expect to use operating cash, consider the sale of assets, or transfer collateral to satisfy any remaining obligations.

For further discussion of these debt facilities described above, see note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

Stock Repurchases

The Board of Directors has authorized a stock repurchase program to repurchase up to a total of five million shares of the Company's Class A common stock during the three-year period ending May 7, 2022. As of June 30, 2020, 3,335,819 shares remained authorized for repurchase under the Company's stock repurchase program. Shares may be repurchased from time to time depending on various factors, including share prices and other potential uses of liquidity. Shares repurchased by the Company during the three months ended March 31, 2020 and June 30, 2020 are shown below. Certain of these repurchases were made pursuant to a trading plan adopted by the Company in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934. For additional information on stock repurchases during the second quarter of 2020, see "Stock Repurchases" under Part II, Item 2 of this report.

Total shares repurchased Purchase price<br>(in thousands) Average price of shares repurchased (per share)
Quarter ended March 31, 2020 24,885 $ 1,253 50.36
Quarter ended June 30, 2020 1,473,049 67,274 45.67
Total 1,497,934 $ 68,527 45.75

Included in the shares repurchased during the quarter ended June 30, 2020 in the table above are a total of 100,000 shares of Class A common stock the Company purchased on May 27, 2020 from Shelby J. Butterfield, a significant shareholder of the Company. The shares were purchased at a discount to the closing market price of the Company's Class A common stock as of May 27, 2020, and the transaction was separately approved by the Company's Board of Directors. Immediately prior to the Company's repurchase of such shares from Ms. Butterfield, the repurchased shares were shares of the Company's Class B common stock that Ms. Butterfield converted to shares of Class A common stock.

Dividends

On June 15, 2020, the Company paid a second quarter 2020 cash dividend on the Company's Class A and Class B common stock of $0.20 per share. In addition, the Company's Board of Directors has declared a third quarter 2020 cash dividend on the Company's outstanding shares of Class A and Class B common stock of $0.20 per share. The third quarter cash dividend will be paid on September 15, 2020 to shareholders of record at the close of business on September 1, 2020.

The Company currently plans to continue making regular quarterly dividend payments, subject to future earnings, capital requirements, financial condition, and other factors. In addition, the payment of dividends is subject to the terms of the Company’s outstanding Hybrid Securities, which generally provide that if the Company defers interest payments on those securities it cannot pay dividends on its capital stock.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

(All dollars are in thousands, except share amounts, unless otherwise noted)

Interest Rate Risk

The Company’s primary market risk exposure arises from fluctuations in its borrowing and lending rates, the spread between which could impact the Company due to shifts in market interest rates.

The following table sets forth the Company’s loan assets and debt instruments by rate characteristics:

As of June 30, 2020 As of December 31, 2019
Dollars Percent Dollars Percent
Fixed-rate loan assets $ 6,905,489 34.8 % $ 3,647,365 17.5 %
Variable-rate loan assets 12,924,908 65.2 17,151,354 82.5
Total $ 19,830,397 100.0 % $ 20,798,719 100.0 %
Fixed-rate debt instruments $ 803,005 4.0 % $ 562,203 2.7 %
Variable-rate debt instruments 19,180,821 96.0 20,240,977 97.3
Total $ 19,983,826 100.0 % $ 20,803,180 100.0 %

FFELP loans originated prior to April 1, 2006 generally earn interest at the higher of the borrower rate, which is fixed over a period of time, or a floating rate based on the special allowance payment ("SAP") formula set by the Department. The SAP rate is based on an applicable index plus a fixed spread that depends on loan type, origination date, and repayment status. The

Company generally finances its student loan portfolio with variable rate debt. In low and/or declining interest rate environments, when the fixed borrower rate is higher than the SAP rate, the Company’s student loans earn at a fixed rate while the interest on the variable rate debt typically continues to reflect the low and/or declining interest rates. In these interest rate environments, the Company may earn additional spread income that it refers to as floor income.

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

As a result of the significant drop in interest rates in March 2020 and the first half of the second quarter of 2020, the Company earned $3.9 million and $4.8 million of variable-rate floor income on approximately $1.4 billion of FFELP loans during the three and six months ended June 30, 2020, respectively. The Company no longer earns such variable-rate floor income on these loans, since the borrower rate reset on July 1, 2020 to reflect the lower interest rate environment. No variable-rate floor income was earned by the Company in 2019.

A summary of fixed rate floor income earned by the Company follows.

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Fixed rate floor income, gross $ 31,866 10,840 50,625 21,265
Derivative settlements (a) (1,308) 12,165 816 28,867
Fixed rate floor income, net $ 30,558 23,005 51,441 50,132

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

Gross fixed rate floor income increased for the three and six months ended June 30, 2020 as compared to the same periods in 2019 due to lower interest rates in 2020 as compared to 2019.

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

The decrease in net derivative settlements received from the floor income interest rate swaps for the three and six months ended June 30, 2020 as compared to the same periods in 2019 was due to a decrease in the notional amount of derivatives outstanding and a decrease in interest rates.

The Company anticipates receiving increased levels of gross fixed rate floor income in future periods as a result of the significant drop in interest rates in March 2020 and the second quarter of 2020. This increase will be partially offset by an increase in net settlements paid on derivatives used to hedge these loans.

The following graph depicts fixed rate floor income for a borrower with a fixed rate of 6.75% and a SAP rate of 2.64%:

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The following table shows the Company’s federally insured student loan assets that were earning fixed rate floor income as of June 30, 2020.

Fixed interest rate range Borrower/lender weighted average yield Estimated variable conversion rate (a) Loan balance
3.0 - 3.49% 3.27 % 0.73 % $ 985,604
3.5 - 3.99% 3.66 % 1.02 % 1,374,119
4.0 - 4.49% 4.20 % 1.56 % 1,081,053
4.5 - 4.99% 4.71 % 2.07 % 678,431
5.0 - 5.49% 5.22 % 2.58 % 443,610
5.5 - 5.99% 5.67 % 3.03 % 302,021
6.0 - 6.49% 6.19 % 3.55 % 347,076
6.5 - 6.99% 6.70 % 4.06 % 339,097
7.0 - 7.49% 7.17 % 4.53 % 120,445
7.5 - 7.99% 7.71 % 5.07 % 216,190
8.0 - 8.99% 8.18 % 5.54 % 512,420
> 9.0% 9.05 % 6.41 % 195,264
$ 6,595,330

(a) The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to a variable rate. As of June 30, 2020, the weighted average estimated variable conversion rate was 2.35% and the short-term interest rate was 37 basis points.

The following table summarizes the outstanding derivative instruments as of June 30, 2020 used by the Company to economically hedge loans earning fixed rate floor income.

Maturity Notional amount Weighted average fixed rate paid by the Company (a)(d)
2021 $ 600,000 2.15 %
2022 (b) 500,000 0.94
2023 (c) 400,000 1.00
$ 1,500,000 1.44 %

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

(b) $250.0 million of these derivatives have forward effective start dates in each of August 2020 and June 2021.

(c) $250.0 million of these derivatives have forward effective start dates in July 2020.

(d) Excluding the derivatives with forward effective start dates, the weighted average fixed rate paid by the Company as of June 30, 2020 on its $750 million floor income derivative portfolio was 2.17%.

The Company is also exposed to interest rate risk in the form of basis risk and repricing risk because the interest rate characteristics of the Company’s assets do not match the interest rate characteristics of the funding for those assets. The following table presents the Company’s FFELP student loan assets and related funding for those assets arranged by underlying indices as of June 30, 2020.

Index Frequency of variable resets Assets Funding of student loan assets
1 month LIBOR (a) Daily $ 18,007,201 —
3 month H15 financial commercial paper Daily 786,316 —
3 month Treasury bill Daily 594,354 —
1 month LIBOR Monthly — 10,911,193
3 month LIBOR (a) Quarterly — 6,927,757
Fixed rate — — 760,063
Auction-rate (b) Varies — 757,925
Asset-backed commercial paper (c) Varies — 201,126
Other (d) — 1,408,662 1,238,469
$ 20,796,533 20,796,533

(a) The Company has certain basis swaps outstanding in which the Company receives three-month LIBOR and pays one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps"). The Company entered into these derivative instruments to better match the interest rate characteristics on its student loan assets and the debt funding such assets. The following table summarizes the 1:3 Basis Swaps outstanding as of June 30, 2020.

Maturity Notional amount (i)
2021 $ 250,000
2022 2,000,000
2023 750,000
2024 1,750,000
2026 1,150,000
2027 250,000
$ 6,150,000

(i) The weighted average rate paid by the Company on the 1:3 Basis Swaps as of June 30, 2020 was one-month LIBOR plus 9.1 basis points.

(b) As of June 30, 2020, the Company was sponsor for $757.9 million of outstanding asset-backed securities that were set and provide for interest rates to be periodically reset via a "dutch auction" (“Auction Rate Securities”). Since the auction feature has essentially been inoperable for substantially all auction rate securities since 2008, the Auction Rate Securities generally pay interest to the holder at a maximum rate as defined by the indenture. While these rates will vary, they will generally be based on a spread to LIBOR or Treasury Securities, or the Net Loan Rate as defined in the financing documents.

(c) The interest rates on the Company's warehouse facilities are indexed to asset-backed commercial paper rates.

(d) Assets include accrued interest receivable and restricted cash. Funding represents overcollateralization (equity) and other liabilities included in FFELP asset-backed securitizations and warehouse facilities.

There is significant uncertainty regarding the availability of LIBOR as a benchmark rate after 2021, and any market transition away from the current LIBOR framework could result in significant changes to the interest rate characteristics of the Company's LIBOR-indexed assets and funding for those assets. See Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate" in the Company's 2019 Annual Report.

Sensitivity Analysis

The following tables summarize the effect on the Company’s earnings, based upon a sensitivity analysis performed by the Company assuming hypothetical increases in interest rates of 100 basis points and 300 basis points while funding spreads remain constant. In addition, a sensitivity analysis was performed assuming the funding index increases 10 basis points and 30 basis points while holding the asset index constant, if the funding index is different than the asset index. The sensitivity analysis was performed on the Company’s variable rate assets (including loans earning fixed rate floor income) and liabilities. The analysis includes the effects of the Company’s derivative instruments in existence during these periods.

Interest rates Asset and funding index mismatches
Change from increase of<br>100 basis points Change from increase of<br>300 basis points Increase of<br>10 basis points Increase of<br>30 basis points
Dollars Percent Dollars Percent Dollars Percent Dollars Percent
Three months ended June 30, 2020
Effect on earnings:
Decrease in pre-tax net income before<br> impact of derivative settlements $ (16,334) (15.1) % $ (31,420) (29.1) % $ (1,780) (1.6) % $ (5,343) (5.0) %
Impact of derivative settlements 1,865 1.7 5,594 5.2 1,429 1.3 4,286 4.0
Increase (decrease) in net income<br> before taxes $ (14,469) (13.4) % $ (25,826) (23.9) % $ (351) (0.3) % $ (1,057) (1.0) %
Increase (decrease) in basic and <br> diluted earnings per share $ (0.28) $ (0.50) $ (0.01) $ (0.02)
Three months ended June 30, 2019
Effect on earnings:
Decrease in pre-tax net income before<br> impact of derivative settlements $ (4,352) (14.1) % $ (7,962) (25.8) % $ (2,429) (7.9) % $ (7,286) (23.6) %
Impact of derivative settlements 7,067 22.9 21,201 68.6 1,705 5.5 5,114 16.6
Increase (decrease) in net income<br> before taxes $ 2,715 8.8 % $ 13,239 42.8 % $ (724) (2.4) % $ (2,172) (7.0) %
Increase (decrease) in basic and<br> diluted earnings per share $ 0.05 $ 0.25 $ (0.01) $ (0.04)
Six months ended June 30, 2020
Effect on earnings:
Decrease in pre-tax net income before impact of derivative settlements $ (26,249) (45.3) % $ (47,972) (82.7) % $ (3,754) (6.5) % $ (11,267) (19.4) %
Impact of derivative settlements 6,216 10.7 18,647 32.2 3,020 5.2 9,060 15.6
Increase (decrease) in net income before taxes $ (20,033) (34.6) % $ (29,325) (50.5) % $ (734) (1.3) % $ (2,207) (3.8) %
Increase (decrease) in basic and<br><br>diluted earnings per share $ (0.38) $ (0.56) $ (0.01) $ (0.04)
Six months ended June 30, 2019
Effect on earnings:
Decrease in pre-tax net income before impact of derivative settlements $ (7,822) (9.3) % $ (13,246) (15.8) % $ (5,000) (6.0) % $ (14,999) (17.9) %
Impact of derivative settlements 16,190 19.3 48,571 57.9 3,554 4.2 10,662 12.6
Increase (decrease) in net income before taxes $ 8,368 10.0 % $ 35,325 42.1 % $ (1,446) (1.8) % $ (4,337) (5.2) %
Increase (decrease) in basic and<br><br>diluted earnings per share $ 0.16 $ 0.67 $ (0.03) $ (0.08)

Financial Statement Impact – Derivatives

For a table summarizing the effect of derivative instruments in the consolidated statements of income, including the components of "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of income, see note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company's principal executive and principal financial officers, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of June 30, 2020. Based on this evaluation, the Company’s principal executive and principal financial officers concluded that the Company's disclosure controls and procedures were effective as of June 30, 2020.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the fiscal quarter ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company has not experienced any material impact to its internal control over financial reporting despite the fact that the majority of its employees are working remotely due to the COVID-19 pandemic. The Company is continually monitoring and assessing the effect of the COVID-19 situation on its internal controls to minimize the impact on their design and operating effectiveness.

Effective January 1, 2020, the Company implemented ASU No. 2016-13, Financial Instruments - Credit Losses. As a result, management made the following significant modifications to the Company's internal control over financial reporting environment, including changes to accounting policies and procedures, operational processes, and documentation practices:

(a) Updated written policies and procedures addressing selected methods and policies for developing the allowance for loan losses and determining significant judgments, including the data used; assessment of risk; and identification of significant assumptions in the allowance estimation process.

(b) Developed a process to evaluate whether adjustments to the selected methodology are necessary based on historical information, current economic conditions, and reasonable and supportable forecasts.

(c) Updated documentation for assumptions and data used to develop its loss rates, including evaluation of the relevance and reliability of any external data; amount and timing of expected cash flows; and remaining life of loan methodologies.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There have been no material changes from the information set forth in the Legal Proceedings section of the Company's Annual Report on Form 10-K for the year ended December 31, 2019 under Item 3 of Part I of such Form 10-K.

ITEM 1A.  RISK FACTORS

The following risk factors provide supplements and updates to the risk factors described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 in response to Item 1A of Part I of such Form 10-K, and the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 in response to Item 1A of Part II of such Form 10-Q:

The COVID-19 pandemic has adversely impacted our results of operations, and could continue to adversely impact our results of operations, as well as adversely impact our businesses, financial condition, and/or cash flows.

The rapid outbreak of the respiratory disease caused by a novel strain of coronavirus, coronavirus 2019 or COVID-19 (“COVID-19”), was declared a global pandemic by the World Health Organization on March 11, 2020 and a national emergency by the President on March 13, 2020. Beginning on March 15, 2020, many businesses and schools closed or reduced hours throughout the U.S. to combat the spread of COVID-19, and states and local jurisdictions implemented various containment efforts, including lockdowns on non-essential business, stay-at-home orders, and shelter-in-place orders. The COVID-19 pandemic has caused significant disruption to the U.S. and world economies, including significantly higher unemployment and underemployment, significantly lower interest rates and equity market valuations, and extreme volatility in

the U.S. and world markets. These effects have adversely impacted our results of operations for the six months ended June 30, 2020, and if these effects continue for a prolonged period or result in sustained economic stress or recession, they could have a material adverse impact on us in a number of ways related to credit, interest rates, operations, and other risks as described in more detail below.

Credit Risks

COVID-19 is having far reaching, negative impacts on individuals, businesses, and, consequently, the overall economy. Specifically, COVID-19 has materially disrupted business operations, resulting in significantly higher levels of unemployment or underemployment. As a result, many individual student and consumer borrowers have experienced financial hardship, making it difficult, if not impossible, to meet loan payment obligations without temporary assistance, and we expect that more borrowers will be similarly affected the longer the COVID-19 pandemic continues. We are monitoring key metrics as early warning indicators of financial hardship, including changes in weekly unemployment claims, enrollment in auto-debit payments, requests for new forbearances, enrollment in hardship payment plans, and early delinquency metrics.

Due to these circumstances, in the first quarter of 2020, we recognized an increase to the expense provision for loan losses of $63.0 million (pre-tax) and an impairment charge on our beneficial interest in consumer loans securitizations of $26.3 million (pre-tax). The increase in the provision for loan losses and impairment expense were based on an evaluation of current and forecasted economic conditions, directly taking into consideration the negative impact of COVID-19 on the U.S. economy. We evaluated and considered several forecasted economic scenarios when making these adjustments. We also considered the characteristics of our loan portfolios and their expected behavior in the forecasted economic scenarios. We update our evaluation of current and forecasted economic conditions each reporting period and adjust our allowance for loan losses as appropriate. If future economic conditions as a result of COVID-19 are significantly worse than what was assumed as a part of these assessments, specifically related to the severity and length of the downturn and the timing and extent of subsequent recovery, it could result in additional allowance for loan losses and impairment charges being recorded in future periods.

Interest Rate Risks

Our net interest income and profitability have been and could further be negatively affected by volatility in interest rates caused by uncertainties stemming from COVID-19. In March 2020, the Federal Reserve lowered the target range for the federal funds rate to a range from 0 to 0.25 percent, citing concerns about the impact of COVID-19 on markets and stress in the energy sector. A prolonged period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies. Higher income volatility from changes in interest rates and spreads to benchmark indices has caused and could cause a loss of net interest income and adverse changes in current fair value measurements of our assets and liabilities. Fluctuations in interest rates have impacted and will continue to impact both the level of income and expense recorded on most of our assets and liabilities and the value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition.

For example, during the three and six months ended June 30, 2020, we experienced a decrease in variable loan spread due to a significant widening of the basis between the asset and debt indices in which we earn interest on our loans and fund such loans. This widening was the result of a significant decrease in interest rates beginning in March 2020 as a result of COVID-19. In a declining interest rate environment, student loan spread is compressed, due to the timing of interest rate resets on our assets occurring daily in contrast to the timing of the interest resets on our debt that occurs either monthly or quarterly. Although such compression is generally expected to be mitigated over time as interest rates on our debt are reset to reflect the lower interest rate environment, interest rate volatility may continue to have an adverse impact on us.

Operational Risks

The majority of our employees have had to move to a work-from-home environment. We have never had to run our operations to such extent remotely for an extended period of time, and it is possible we will encounter significant challenges to running our businesses. Our operations rely on the efficient and secure collection, processing, storage, and transmission of personal, confidential, and other information in a significant number of customer transactions on a continuous basis through our computer systems and networks and those of our third-party service providers. Unanticipated issues arising from handling personal, confidential, and other information from a less efficient work-from-home environment could adversely impact our operations and lead to greater risks for us, including cybersecurity risks.

Beginning in March 2020, schools largely moved to on-line classes for their students. It is unclear at this time how many schools will be back to on-campus learning beginning with the 2020/2021 academic year and/or if schools decide to conduct on-campus learning, if they will have to move back to on-line classes during the academic term if the COVID-19 pandemic increases in severity. Student loan application volumes have begun to decrease and our current expectation is that new student

loan volumes will decline in 2020 compared with 2019. The magnitude of the expected decline depends upon many factors, including the economic impact caused by the pandemic coupled with uncertainty regarding on-line versus in person classes. A decline in school enrollments has also reduced demand for our education technologies, services, and payment processing products and services, and continued declines over subsequent academic periods could have a similar impact.

Under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020, federal student loan payments and interest accruals were suspended on all loans owned by the Department of Education (the “Department”) until September 30, 2020. The Department instructed us and other student loan servicers to apply the benefits of the law retroactively to March 13, 2020, when the President declared a state of emergency related to COVID-19. Although we will receive less servicing revenue per borrower through September 30, 2020 based on borrower status, we currently anticipate more borrowers being in a current status subsequent to September 30, 2020, at which time our revenue per borrower is expected to increase. We do not currently anticipate an adverse impact from the CARES Act on the total amount of revenue to be earned during 2020 under our Department servicing contracts. However, servicing revenue was negatively impacted in the second quarter of 2020, is expected to be lower in the third quarter of 2020, and is currently expected to be higher in the fourth quarter of 2020, than in corresponding prior periods. While federal student loan payments are suspended, our operating expenses have been and will continue to be lower due to a significant reduction of borrower statement printing and postage costs. In addition, during the second quarter of 2020, revenue from the Department for originating consolidation loans was adversely impacted as a result of borrowers receiving relief on their existing loans, thus not initiating a consolidation. We currently anticipate this revenue will continue to be negatively impacted while student loan payments and interest accruals are suspended.

Beginning in the second quarter of 2020, FFELP, private education, and consumer loan servicing revenue was adversely impacted by the COVID-19 pandemic, due to reduced or eliminated delinquency outreach to borrowers, holds on claim filings, and reduced or eliminated late fees processing. In addition, origination fee revenue was negatively impacted as borrowers are less likely to refinance their loans when they are receiving certain relief measures from their current lender. We anticipate this trend will continue in future periods that are impacted by the COVID-19 pandemic, with the magnitude based on the extent to which existing or additional borrower relief policies and activities are implemented or extended by servicing customers.

If the student loan borrower relief provisions of the CARES Act were potentially extended past September 30, 2020 and/or new legislative or regulatory student loan borrower relief measures similar to such provisions of the CARES Act were to become effective, the levels and timing of future servicing revenues could continue to be impacted in a similar manner through the extended period of time that such provisions or measures are in effect.

Although the CARES Act does not apply to our FFELP loans, private education loans, or consumer loans, several states have announced various initiatives to suspend payment obligations for private education loan borrowers in those states, and we are proactively providing relief for our FFELP, private education, and consumer loan borrowers. In addition, there currently are federal legislative proposals that would provide borrower relief with respect to privately-held FFELP loans, such as our FFELP loans. Due to uncertainties regarding, among other things, the duration of the COVID-19 pandemic and any new legislation, regulations, guidance, or widely accepted practices with respect to relief to loan borrowers, we are not able to estimate the ultimate impact that debt relief measures will have on our results of operations.

The CARES Act and other COVID-19-related borrower relief measures have resulted in, and may continue to result in, certain processing and other changes within our loan servicing operations, including the processing of automatic forbearances, special payment instructions, and special credit reporting. Such changes involve additional regulatory and other complexities, uncertainties, and matters of interpretation. Currently, we are defending a putative class action brought by student loan borrowers alleging that Great Lakes furnishing of certain information to credit reporting agencies was inaccurate under the CARES Act. We deny any wrongdoing. In addition, such COVID-19 regulatory measures and associated operational changes increase the risk that noncompliance with applicable laws, regulations, and Consumer Financial Protection Bureau guidance could result in penalties, litigation, reputation damage, and a loss of customers.

Liquidity and Capital Resources

We currently believe our liquidity and capital resources position is strong, and we expect to be able to fund our business operations for the foreseeable future. We also currently plan to continue making regular quarterly dividend payments on our Class A and Class B common stock, subject to future earnings, capital requirements, financial condition, and other factors. However, if circumstances surrounding COVID-19 continue to change in significantly adverse ways and/or if the pandemic continues for an extended period of time, our liquidity and capital resources position could be materially and adversely affected, which could adversely impact our businesses, cash flows (including forecasted cash flows from our asset-backed securitizations), and overall financial condition, and could also result in a reduction, suspension, or discontinuation of quarterly dividend payments on our Class A and Class B common stock.

We have historically funded student loans by completing asset-backed securitizations. Fitch Ratings, Standard & Poor's, and Moody’s Investors Service have recently downgraded and placed numerous tranches of FFELP securitizations by various issuers, including certain tranches of prior FFELP securitizations issued by us, on review for potential downgrade due to principal payments and prepayments on the underlying student loans coming in slower than initial expectations, and the resulting risk that certain principal maturities on those FFELP securitizations may not be met by the final maturity dates, which could result in an event of default under the underlying securitization agreements. The decrease in principal payments and prepayments is due to significant increases in forbearances resulting from a contraction in economic activity and an increase in unemployment due to the COVID-19 pandemic. Such rating actions have caused the spreads on FFELP securitizations in general to widen and have reduced the liquidity in the secondary market for FFELP securitizations. Such actions could adversely affect our ability to access the asset-backed securities market, or make new securitization transactions more expensive by requiring us to pay a higher spread over LIBOR when pricing new bonds.

* * * * *

The extent to which the COVID-19 pandemic impacts our businesses, results of operations, financial condition, and/or cash flows will depend on future developments, which are highly uncertain and largely beyond our control, including, among others: the scope, severity, and duration of the pandemic; the number of our employees, borrowers, customers, and vendors adversely affected by the pandemic; the impact of the pandemic on schools, student enrollment, and the need for student and consumer loans; the broader public health and economic dislocations resulting from the pandemic; the actions taken by governmental authorities to limit the public health, financial, and economic impacts of the pandemic; any further legislative or regulatory changes that suspend or reduce payments or cancel or discharge obligations for student or consumer loan borrowers; any reputational damage related to the broader reception and perception of our response to the pandemic; and the impact of the pandemic on local, U.S., and world economies. However, as with many other businesses, the impact of the COVID-19 pandemic, or any other pandemic, on our businesses could be material and adverse. To the extent that the COVID-19 pandemic continues to adversely affect the U.S. and world economies and/or adversely affects our businesses, results of operations, financial condition, and/or cash flows, it may also have the effect of increasing the likelihood and/or magnitude of other risks described in the "Risk Factors" section of our 2019 Annual Report on Form 10-K or risks described in our other filings with the Securities and Exchange Commission.

Our largest fee-based customer, the Department of Education, represented 30 percent of our revenue in 2019. Failure to extend the Department contracts or obtain new Department contracts in the Department's NextGen procurement process, our inability to consistently surpass competitor performance metrics, or unfavorable contract modifications or interpretations, could significantly lower servicing revenue and hinder future service opportunities.

Our subsidiaries Nelnet Servicing, LLC (“Nelnet Servicing”) and Great Lakes Educational Loan Services, Inc. (“Great Lakes”) are two of four large private sector companies (referred to as Title IV Additional Servicers, or “TIVAS”) that have student loan servicing contracts awarded by the Department in June 2009 to provide additional servicing capacity for loans owned by the Department. The Department also has contracts with 31 not-for-profit (“NFP”) entities to service student loans, although currently five NFP servicers service the volume allocated to these 31 entities. As of June 30, 2020, Nelnet Servicing was servicing $185.3 billion of student loans for 5.5 million borrowers under its contract, and Great Lakes was servicing $243.6 billion of student loans for 7.3 million borrowers under its contract. For the year ended December 31, 2019, we recognized a total of $343.6 million in revenue from the Department under these contracts, which represented 30 percent of our revenue. For the three and six months ended June 30, 2020, we recognized a total of $82.6 million and $167.7 million in revenue from the Department under these contracts, respectively.

The current servicing contracts with the Department expire on December 14, 2020 and provide the potential for two additional six-month extensions at the Department’s discretion through December 14, 2021.

The Department is conducting a contract procurement process entitled Next Generation Financial Services Environment (“NextGen”) for a new framework for the servicing of all student loans owned by the Department. On January 15, 2019, the Department issued solicitations for three NextGen components:

•NextGen Enhanced Processing Solution ("EPS")

•NextGen Business Process Operations ("BPO")

•NextGen Optimal Processing Solution ("OPS")

On April 1, 2019 and October 4, 2019, we responded to the EPS solicitation component. On January 16, 2020, the Department released an amendment to the EPS solicitation component and we responded on February 3, 2020. In addition, on August 1, 2019, we responded to the BPO solicitation component. On January 10, 2020, the Department released an amendment to the BPO solicitation component and we responded on January 30, 2020. The EPS solicitation component was for a transitional

technology system and certain processing functions the Department planned to use under NextGen to service the Department's student loan customers for a period of time before eventually moving to OPS in the future. However, on April 3, 2020, the Department cancelled the OPS solicitation component. The BPO solicitation component is for the back office and call center operational functions for servicing the Department's student loan customers.

On March 30, 2020, we received a letter from the Department notifying us that our proposal in response to the EPS component had been determined to be outside of the competitive range and would receive no further consideration for an award. On April 13, 2020, we filed a protest with the Government Accountability Office ("GAO") challenging the Department's decision to cancel the OPS solicitation component without amending the EPS solicitation component. On April 27, 2020, we filed a supplemental protest challenging a number of bases for the Department's competitive range exclusion of our proposal from the EPS solicitation component. On July 10, 2020, the Department cancelled the solicitation for the EPS component. In its cancellation description, the Department indicated that it continues to be committed to the goals and vision of NextGen, and that it will be introducing a new solicitation to continue the NextGen strategy in the future. Based on the Department's cancellation of the EPS procurement, on July 14, 2020, the GAO dismissed our protests as moot. We fully intend to compete for the servicing system solution as the Department proceeds with their NextGen strategy.

On June 18, 2020, we received a letter from the Department notifying us that our proposal in response to the BPO solicitation component was determined to be ineligible for award, claiming our response did not meet certain requirements related to small business participation. We immediately requested a debriefing regarding the Department's basis for this decision. Prior to providing us a debriefing, on June 24, 2020, the Department awarded and signed contracts with five other companies in connection with the BPO solicitation. On July 13, 2020, we filed a protest with the GAO challenging on a number of bases the Department's determination that our BPO response did not meet small business participation requirements. In addition, on July 20, 2020, we filed a supplemental protest challenging the Department's decision to proceed with awards of contracts for the BPO component, when it cancelled the EPS component and a new EPS solicitation is expected to be released. On July 24, 2020, the Department provided us a debriefing regarding the Department's June 18, 2020 decision to eliminate us from the BPO competition. On July 28, 2020, we filed a second supplemental protest challenging the Department's BPO decision. Under applicable law, contract awards to other parties for the BPO component are subject to a stay of performance until the protests are resolved. A decision by the GAO is due on or before October 22, 2020.

In the event that our servicing contracts are not extended beyond the current expiration date or we are not chosen as a subsequent servicer, loan servicing revenue would decrease significantly. There are significant risks to us and uncertainties regarding the current Department contracts and potential future Department contracts, including the pending and uncertain nature of the Department's awards of new contracts to other service providers and its current NextGen contract procurement process and the impact of the cancellation by the Department of the EPS component, which could be subject to potential delays, further cancellations, or material changes to the structure of the contract procurement process; the uncertain timing and nature of the outcome of our protests related to the BPO component and a protest by another interested party regarding the BPO solicitation; the possibility that new contract awards and other evaluations of proposals may be challenged by various interested parties and may not be finalized or implemented within the currently anticipated time frame or at all; risks that we may not be successful in obtaining any new contracts with the Department; and risks and uncertainties as to the terms and requirements under a potential new contract or contracts with the Department. We cannot predict the outcome of the current protests regarding the BPO component, or the timing, nature, or ultimate outcome of the Department's NextGen contract procurement process.

New loan volume is currently allocated among the four TIVAS and five NFP servicers based on certain performance metrics established by the Department and compared among all loan servicers in this group. The amount of future allocations of new loan volume could be negatively impacted if we are unable to consistently surpass comparable competitor and/or other performance metrics.

In the event the current Department servicing contracts become subject to unfavorable modifications or interpretations by the Department, loan servicing revenue could decrease significantly and/or operating costs to serve the contracts could increase significantly. For example, as of January 2020, a change instituted by the Department required enrollment in the Ongoing Security Authorization (OSA) program that requires quarterly control assessments. The OSA program replaced the previous Authority to Operate (ATO) triennial assessment process. Because the OSA program is a novel process, we may encounter unforeseen issues with the Department, including differing interpretations on compliance controls and reporting requirements. Our inability to remediate any such issues to the satisfaction of the Department may cause a temporary or permanent injunction on servicing student loans under the contracts.

Additionally, we are partially dependent on the existing Department contracts to broaden servicing operations with the Department, other federal and state agencies, and commercial clients. The size and importance of these contracts provide us the scale and infrastructure needed to profitably expand into new business opportunities. Failure to extend the Department contracts

beyond the current expiration date, or obtain new Department contracts, could significantly hinder future opportunities, as well as result in potential restructuring charges that may be necessary to re-align our cost structure with our servicing operations.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Stock Repurchases

The following table summarizes the repurchases of Class A common stock during the second quarter of 2020 by the Company or any “affiliated purchaser” of the Company, as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934. Certain share repurchases included in the table below were made pursuant to a trading plan adopted by the Company in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934.

Period Total number of shares purchased (a) Average price paid per share Total number of shares purchased as part of publicly announced plans or programs (b) Maximum number of shares that may yet be purchased under the plans or programs (b)
April 1 - April 30, 2020 687,123 $ 44.30 686,601 4,117,276
May 1 - May 31, 2020 507,317 46.86 507,317 3,609,959
June 1 - June 30, 2020 278,609 46.87 274,140 3,335,819
Total 1,473,049 $ 45.67 1,468,058

(a) The total number of shares includes: (i) shares repurchased pursuant to the stock repurchase program discussed in footnote (b) below; and (ii) shares owned and tendered by employees to satisfy tax withholding obligations upon the vesting of restricted shares. Shares purchased pursuant to the applicable stock repurchase program discussed in footnote (b) below during May included a total of 100,000 shares of Class A common stock purchased from a certain significant shareholder in a privately negotiated transaction on May 27, 2020. Shares of Class A common stock tendered by employees to satisfy tax withholding obligations included 522 shares, 0 shares, and 4,469 shares in April, May, and June 2020, respectively. Unless otherwise indicated, shares owned and tendered by employees to satisfy tax withholding obligations were purchased at the closing price of the Company's shares on the date of vesting.

(b) On May 8, 2019, the Company announced that its Board of Directors authorized a stock repurchase program to repurchase up to a total of five million shares of the Company's Class A common stock during the three-year period ending May 7, 2022.

Working capital and dividend restrictions/limitations

The Company's $455.0 million unsecured line of credit, which is available through December 16, 2024, imposes restrictions on the payment of dividends through covenants requiring a minimum consolidated net worth and a minimum level of unencumbered cash, cash equivalent investments, and available borrowing capacity under the line of credit. In addition, trust indentures and other financing agreements governing debt issued by the Company's lending subsidiaries generally have limitations on the amounts of funds that can be transferred to the Company by its subsidiaries through cash dividends at certain times. Further, the payment of dividends by the Company is subject to the terms of the Company's outstanding junior subordinated hybrid securities, which generally provide that if the Company defers interest payments on those securities it cannot pay dividends on its capital stock. These provisions do not currently materially limit the Company's ability to pay dividends, and, based on the Company's current financial condition and recent results of operations, the Company does not currently anticipate that these provisions will materially limit the future payment of dividends.

ITEM 6.  EXHIBITS

31.1* Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer Jeffrey R. Noordhoek.
31.2* Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer James D. Kruger.
32** Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
10.1* SLABS Participation Agreement, dated effective as of May 5, 2020, by and between National Education Loan Network, Inc., and Union Bank and Trust Company, as Trustee.
10.2* Parent Company Agreement, dated as of June 26, 2020, by and among the Federal Deposit Insurance Corporation, Nelnet, Inc., Michael Dunlap, and Nelnet Bank.
10.3* Capital and Liquidity Maintenance Agreement, dated as of June 26, 2020, by and among the Federal Deposit Insurance Corporation, Nelnet, Inc., Michael Dunlap, and Nelnet Bank.
10.4*+ Appendix A, dated July 29, 2020, to Management Agreement dated effective as of October 27, 2015, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC.
10.5*+ Amended Appendix A, dated July 29, 2020, to Management Agreement dated effective as of March 23, 2017, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC.
10.6*+ Management Agreement dated effective as of July 29, 2020, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC.
101.INS* Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH* Inline XBRL Taxonomy Extension Schema Document
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document
104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
*   Filed herewith
** Furnished herewith
+ A schedule or similar attachment to this exhibit has been omitted pursuant to Item 601(a)(5) of Regulation S-K

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 thereunto duly authorized.

NELNET, INC.
Date: August 6, 2020 By: /s/ JEFFREY R. NOORDHOEK
Name: Jeffrey R. Noordhoek
Title: Chief Executive Officer<br><br>Principal Executive Officer
Date: August 6, 2020 By: /s/ JAMES D. KRUGER
--- --- --- ---
Name: James D. Kruger
Title: Chief Financial Officer<br><br>Principal Financial Officer and Principal Accounting Officer

77

exhibit101

1   SLABS Participation Agreement    SLABS PARTICIPATION AGREEMENT      This SLABS Participation Agreement (the “Agreement”) is made and entered into as of   the 5th day of May, 2020, by and between National Education Loan Network, Inc., a Nebraska   corporation, and its affiliates and subsidiaries (collectively, “Nelnet”), and Union Bank and Trust   Company, a Nebraska banking corporation and trust company, solely in its capacity as trustee of   various grantor trusts known as Short Term Federal Investment Trusts or other grantor trusts   (“UBATCO”).       WITNESSETH:      WHEREAS, Nelnet is or will be the owner of asset backed securities issued by entities   other than Nelnet (collectively, the “SLABS”) in the form of bonds or notes collateralized by   Federal Family Education Loan Program student loans or interests therein (“Eligible Loans”)   guaranteed and reinsured to the maximum extent permitted pursuant to the Higher Education Act   of 1965, as amended, and all regulations and rules promulgated thereunder (the “Act”), and title   to such Eligible Loans is held by an eligible lender trustee as required under the Act;      WHEREAS, Nelnet desires to sell, and UBATCO desires to purchase, an undivided   participation interest in Nelnet’s beneficial interest in certain of the SLABS on the terms and   conditions hereinafter set forth.      NOW, THEREFORE, in consideration of the mutual promises contained herein, the   parties hereto agree as follows:       I. PURCHASE OF PARTICIPATION INTEREST IN SLABS      Section 1.01. Purchase of Participation Interests.      A. Nelnet shall sell (or cause to be sold), and UBATCO shall   purchase, a participation interest in that portion of the SLABS which is   collateralized by the fully guaranteed portion of the Eligible Loans with an   aggregate unpaid principal balance in increments of $100,000.00 (unless   otherwise agreed by the parties hereto), up to a maximum aggregate total of up to   $100,000,000.00, or such total as the parties may otherwise mutually agree upon   from time to time. UBATCO shall pay to Nelnet or its designee the purchase price   of the participation interest to be sold herein, and such purchase price shall be   equal to the lesser of (i) one hundred percent (100%) of the pro rata portion of the   unpaid principal balances and accrued and unpaid interest thereon of the SLABS   as described in the participation certificate with respect to such SLABS, (ii) the   valuation determined by a third party valuation agent mutually agreed upon and   designated by the parties, or (iii) such other price as may be negotiated between   the parties based on the mutually agreed upon value of the interests in the   SLABS. The participation interest described herein shall include the securities   related to the SLABS, related bonds, promissory notes, offering memoranda,   CUSIP records or documents, and reports received by or on behalf of Nelnet in   connection with the SLABS. The participation interest purchased by UBATCO   DocuSign Envelope ID: 6BACE3D7-C8B4-48BB-A941-13A02CCE2080

2   SLABS Participation Agreement   shall represent a participation interest in each of the individual SLABS   specifically identified in the participation certificate with respect thereto;   UBATCO is not purchasing an interest in any fungible group of SLABS. The   purchase price shall be paid by wire transfer of immediately available funds from   UBATCO to Nelnet. Unless UBATCO gives prior written consent, any portion of   the SLABS in respect of Eligible Loans pledged as collateral to secure payment of   the SLABS, which is not guaranteed under the risk sharing provisions of the Act,   shall be retained by Nelnet and shall not be participated to UBATCO hereunder. It   is acknowledged that UBATCO will not purchase any participation interest in its   own right, but rather only in its capacity as trustee on behalf of various grantor   trusts.      B. The sale and purchase of SLABS participations under this   Agreement shall be without recourse against Nelnet. Nelnet and UBATCO   acknowledge and agree that this Agreement results in a pro rata sharing of credit   risk proportionate to the respective interests of Nelnet and UBATCO in the   SLABS, both before and after any defaults with respect to such SLABS or the   Eligible Loans pledged as collateral to secure payment of the SLABS.      Section 1.02. Participation Certificates. On the date of the first sale of a participation   interest with respect to a portfolio of SLABS, or thereafter as mutually agreed to by the parties,   Nelnet shall execute and deliver (or shall cause to be executed and delivered) to UBATCO a   participation certificate substantially in the form marked as Exhibit “A,” attached hereto and   incorporated herein by this reference, evidencing a participating equitable ownership interest in   the SLABS in that particular portfolio. Nelnet shall deliver or cause to be delivered to UBATCO   in addition to the executed original of Exhibit “A” a schedule of the securities identifying such   SLABS comprising the portfolio, title to which shall be retained by or on behalf of Nelnet. As   Nelnet sells additional participation interests in SLABS to UBATCO, additional schedules   identifying participated SLABS shall be issued accordingly.      Section 1.03. Distribution of Payments Received. Upon transfer of a participation   interest with respect to particular portfolio SLABS, UBATCO shall be entitled to one hundred   percent (100%) of payments and income received with respect to the participated portion of the   SLABS contained in such participation certificate, less a fee (“Nelnet’s Fee”) deducted and paid   to Nelnet equal to the difference between (i) the total of interest or other income received with   respect to such SLABS contained in a participation certificate, less (ii) the amount equal to the   product of (A) the annualized rate of 70 basis points (0.70%) over the one month London   Inter-Bank Offered Rate (LIBOR), multiplied by (B) the average quarterly aggregate outstanding   the participated portion of principal balances of the SLABS contained in the participation   certificate. Nelnet shall pay for all administration costs, all servicing costs incurred by its   servicing agent (“Servicer”) and any other costs incidental to or associated with ownership,   administration, servicing, and collection of the SLABS; all such costs shall be deducted from and   paid from Nelnet’s Fee. Nelnet’s Fee shall be payable to Nelnet on a quarterly basis. Nelnet   agrees to account and deliver to UBATCO, all sums of principal, interest other income received   by Nelnet on account of the SLABS during the term of the participation certificates. Nelnet shall   forward such payments of UBATCO’s portion of income as are due to UBATCO in accordance   with the terms of this Agreement no less frequently than on a quarterly basis, or as otherwise   DocuSign Envelope ID: 6BACE3D7-C8B4-48BB-A941-13A02CCE2080

3   SLABS Participation Agreement   mutually agreed upon by the parties hereto. Nelnet shall furnish or cause to be furnished to   UBATCO a statement showing the amount of the balances of each of the SLABS covered by a   participation certificate, and specific information on the individual SLABS as UBATCO may   reasonably require from time to time, if reasonably available to Nelnet. UBATCO shall have   access to inspect documents in connection with the SLABS covered by a participation certificate   on a day-to-day basis. In no event shall any payments required under this Agreement be   construed as fees to be paid in excess of any amounts as may be otherwise permitted under the   SLABS or applicable laws and regulations.      Section 1.04. Possession and Control of the SLABS. Nelnet shall cause all of the   SLABS to be administered, serviced and collected in accordance with the requirements of the   SLABS and applicable laws and regulations. Nelnet may engage one or more custodians to hold   possession of the documentation related to the SLABS. The costs and expenses associated with   the administration, servicing and collection of the SLABS shall be paid by Nelnet. Promissory   notes, bonds, CUSIP records and other documents evidencing or relating to the Eligible Loans   shall be retained by Nelnet or its custodian for the benefit of UBATCO. Nelnet shall segregate   the SLABS in a separate portfolio for administration purposes for the benefit of UBATCO. After   purchase of the participation interests pursuant to this Agreement, all actions and decisions   concerning the SLABS so participated shall be made by Nelnet, subject to Nelnet conferring   with UBATCO, and such decisions shall be binding upon UBATCO. Nelnet will maintain   customary books and records relating to the SLABS participated hereunder, which shall be made   available to UBATCO for inspection or copying.      Section 1.05. Characteristics of SLABS. Each of the SLABS shall be secured by   Eligible Loans pledged as collateral, and there is in force and effect for each of the Eligible   Loans, a guarantee (to the maximum extent permitted under the Act of the principal and interest   of each of the Eligible Loans) from a guarantee agency which has entered into a contract of   federal reinsurance with the Secretary of Education as to the Eligible Loans. In addition, the   Eligible Loans pledged as collateral to secure the SLABS shall have all of the characteristics   which Nelnet warrants and represents in Section 2.03 of this Agreement. Each of the SLABS   participated pursuant to this Agreement shall have been issued by an issuer other than Nelnet.      Section 1.06. Volume of Participations. Nelnet shall cause the principal amount of   SLABS participated hereunder not to exceed the aggregate amount as set forth in Section   1.01(A) hereof, and may reduce the principal amount of SLABS participated hereunder to the   aggregate amount of $0.       II. REPRESENTATIONS, WARRANTIES AND COVENANTS OF NELNET      Nelnet hereby represents and warrants to UBATCO as follows:      Section 2.01. Title to SLABS. Nelnet is the legal owner of the SLABS participated to   UBATCO pursuant to this Agreement, and neither the SLABS nor participation interests therein   are subject to any lien, pledge, participation, or encumbrance other than the participation interest   being sold pursuant to this Agreement. Nelnet may, in its discretion, approve and accomplish any   sale, assignment, transfer, encumbrance, or other disposition of the SLABS, following the sale of   the participation interest contemplated herein, in which event Nelnet shall give prior written   DocuSign Envelope ID: 6BACE3D7-C8B4-48BB-A941-13A02CCE2080

4   SLABS Participation Agreement   notice of such disposition to UBATCO and shall pay to UBATCO the pro rata interest of   UBATCO in and to such SLABS subject to such disposition.      Section 2.02. Validity of SLABS. Each of the SLABS is, to the knowledge of Nelnet,   the valid and binding obligation of the issuer thereof, enforceable in accordance with its terms,   except to the extent that enforceability may be affected by any applicable bankruptcy,   insolvency, reorganization or other similar laws or enactments now or hereafter enacted by state   or federal government affecting the enforcement of creditors rights generally, regardless of   whether such enforceability is considered a proceeding in equity or at law.      Section 2.03. Characteristics of Eligible Loans Securing SLABS. Payment of interest or   principal on none of the SLABS as of the date of this Agreement shall be delinquent. To the   knowledge of Nelnet, each of the Eligible Loans pledged as collateral to secure payment of the   SLABS is guaranteed by a guarantee contract with a guarantee agency in accordance with the   Act. Title to the Eligible Loans pledged as collateral to secure payment of the SLABS shall be   held by an “Eligible Lender” under the Act during the terms of this Agreement. To the   knowledge of Nelnet, each of the Eligible Loans pledged as collateral to secure payment of the   SLABS complies with the representations and warranties as set forth in the offering disclosures   related to the SLABS.      Section 2.04. Authorization; Conflict. Execution, delivery and performance of this   Agreement by Nelnet (i) have been duly authorized or ratified effective as of the date of   execution by all necessary corporate action on the part of Nelnet; (ii) does not and will not   contravene the laws of the State of Nebraska, providing for the organization and governing of   Nelnet; (iii) does not and will not conflict with, or result in a violation of, any applicable laws or   regulations; (iv) does not and will not require any consent or approval of any creditor or   constitute a violation of or default under any agreement or instrument to which Nelnet is a party   whereby it or any of its property may be bound.       III. REPRESENTATIONS AND WARRANTIES OF UBATCO.      UBATCO hereby represents and warrants to Nelnet as follows:      Section 3.01. Authorization; Conflict. The execution, delivery and performance of this   Agreement by UBATCO (i) have been duly authorized by all necessary corporate action on the   part of UBATCO; (ii) does not and will not contravene the laws of the State of Nebraska   providing for the organization and governing of UBATCO; (iii) does not and will not conflict   with, or result in a violation, any applicable laws or regulations; (iv) does not and will not require   any consent or approval of any creditor or constitute a violation of or default under any   agreement or instrument to which UBATCO is a party whereby it or any of its property may be   bound.   DocuSign Envelope ID: 6BACE3D7-C8B4-48BB-A941-13A02CCE2080

5   SLABS Participation Agreement   IV. TERM OF AGREEMENT      Section 4.01. The term of this Agreement shall be 364 days from the date of execution   of this Agreement. The term of this Agreement or any portions thereof, may be terminated earlier   by UBATCO or Nelnet upon five (5) business days prior notice to the other party. This   Agreement shall automatically renew for successive 364-day terms, without necessity of any   further documentation, unless either party hereto gives notice to the other party of intent to   terminate at the end of the then current term or renewal. Upon termination of the participation   certificate, Nelnet shall have the option, without the obligation, to purchase back from UBATCO   the participation interest in the SLABS comprising the terminated participation certificate for a   purchase price equal the product of the purchase price percentage (as determined from the   original purchase of the participation interest in Section 1.01(A) hereof), multiplied by the   aggregate of the full unpaid principal balances and accrued and unpaid interest thereon of the   participated portion of all the SLABS covered in the terminated participation certificate. In order   to exercise such option to purchase, Nelnet must give written notice to UBATCO at least three   days prior to termination of the participation certificate; if the option is exercised, such purchase   shall be closed upon the termination of the participation certificate. In the event Nelnet does not   exercise its option to purchase SLABS contained in any participation certificate, upon the   termination of the participation certificate, Nelnet shall immediately transfer or cause its   custodian to transfer to UBATCO or its designee legal title and any unparticipated beneficial   interest to the underlying SLABS comprising the participation certificate, or Nelnet’s   participation interest therein, and Nelnet shall immediately deliver or cause its custodian to   deliver to UBATCO an executed bill of sale, possession of the promissory notes, bonds and   SLABS files, all payments and income yielded from the underlying SLABS, and other   documentation reasonably required by UBATCO and acceptable in form to UBATCO which is   effective to transfer all of Nelnet’s right, title and interest in and to such underlying SLABS or   Nelnet’s participation interest therein, to UBATCO, free and clear of any lien or encumbrances   of any nature and without payment of further consideration; UBATCO shall pay to Nelnet any   outstanding principal and interest representing previously unparticipated portions of such   SLABS. If Nelnet exercises its option to purchase the participated SLABS as permitted above,   Nelnet may deal in the same as it deems proper. The parties agree that this Agreement has not   been undertaken for the purpose of recognizing gains or decreasing losses resulting from market   value changes in the SLABS. In the event Nelnet sells, transfers or otherwise disposes of any   of the SLABS participated hereunder or interests therein to any third party, UBATCO shall not   be entitled to receive or share in any gain recognized upon such sale or any portion thereof.       V. MISCELLANEOUS      Section 5.01. Assignment. The rights of UBATCO under this Agreement are assignable   or may be sub-participated, pledged, exchanged or otherwise disposed of in whole or in part,   without the prior written consent of Nelnet, but any such disposition shall be solely to   beneficiaries of the grantor trusts for which UBATCO serves as trustee on or after the date of   this Agreement. The rights and obligations of Nelnet under this Agreement may not be assigned   in whole or in part without the prior written consent of UBATCO. This Agreement shall be   binding upon the parties hereto, and their permitted successors and assigns.      DocuSign Envelope ID: 6BACE3D7-C8B4-48BB-A941-13A02CCE2080

6   SLABS Participation Agreement   Section 5.02. Applicable Laws. This Agreement shall be governed by and construed in   accordance with the laws of the State of Nebraska.      Section 5.03. No Partnership. This Agreement shall not be construed to create a   partnership or joint venture between UBATCO and Nelnet. The transaction evidenced by this   Agreement is a participation transaction pursuant to which UBATCO and Nelnet are   participating in the SLABS.      Section 5.04. Amendment. This Agreement may be modified or otherwise amended   only if such modification or amendment is in writing and signed by both NELnet and UBATCO.      Section 5.05. Notices. All notices and other communications under this Agreement shall   be deemed to have been duly given if emailed or delivered or mailed by regular United States   mail, sufficient postage pre-paid, addressed as follows:       If to Nelnet:      National Education Loan Network, Inc.   ATTN: James D. Kruger   121 S. 13th Street   Suite #100   Lincoln, NE 68508   Email: jim.kruger@nelnet.net      and if to UBATCO:      Union Bank and Trust Company   ATTN: Mark Portz   6801 S. 27th Street   Lincoln, NE 68512   Email: mark.portz@ubt.com      or to any such address as either party may direct in writing delivered to the other party as set   forth herein.      Section 5.06. Continuing Representations. The warranties and representations of the   parties contained in Articles II and III herein shall survive execution of this Agreement and bind   the parties hereto as continuing covenants.                   [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]   DocuSign Envelope ID: 6BACE3D7-C8B4-48BB-A941-13A02CCE2080

7   SLABS Participation Agreement      IN WITNESS WHEREOF, the parties have caused this SLABS Participation Agreement   to be executed by officers duly authorized as of the day first above written.      National Education Loan Network, Inc., a   Nebraska corporation         By: ________________________________   Title: ________________________________      UNION BANK AND TRUST COMPANY,   a Nebraska banking corporation and trust   company, in Its Capacity as Trustee         By: ________________________________   Title: ________________________________            DocuSign Envelope ID: 6BACE3D7-C8B4-48BB-A941-13A02CCE2080   1st VP   Executive Chairman

8   SLABS Participation Agreement    EXHIBIT A      PARTICIPATION CERTIFICATE      Pursuant to that certain SLABS Participation Agreement (the “Agreement”) dated May   ___, 2020, by and between Union Bank and Trust Company in its capacity as trustee and   National Education Loan Network, Inc., and its affiliates and subsidiaries (collectively,   “Nelnet”), Nelnet hereby issues and delivers this Participation Certificate to evidence Union   Bank and Trust Company as Trustee’s participation interests in student loan asset backed   securities (“SLABS”), which are identified by the schedule marked as Schedule “A”, attached   hereto and incorporated herein by this reference, which loans or participation interests therein are   owned by or on behalf of Nelnet and designated a separate account, in accordance with the   Agreement. This Participation Certificate shall be governed, in all respects, by the Agreement,   the terms of which are incorporated herein by this reference as if fully stated herein.      DATED the _____ day of __________, 2020.      National Education Loan Network, Inc., a   Nebraska corporation         By: ________________________________   Title: ________________________________         Accepted this ____ day of ___________, 2020.      UNION BANK AND TRUST COMPANY,   a Nebraska banking corporation and trust   company, in Its Capacity as Trustee         By: ________________________________   Title: ________________________________                  DocuSign Envelope ID: 6BACE3D7-C8B4-48BB-A941-13A02CCE2080

9   SLABS Participation Agreement                SCHEDULE “A”       Schedule of Student Loan Asset Backed Securities   DocuSign Envelope ID: 6BACE3D7-C8B4-48BB-A941-13A02CCE2080

exhibit102nelnetparentco

DocuSign Envelope ID: 46683508-267C-4318-8B83-D004D7A5098C PARENT COMPANY AGREEMENT This PARENT COMPANY AGREEMENT (the "Agreement"), dated as of , is made and entered into by and among the FEDERAL DEPOSIT INSURANCE CORPORATION, a Federal banking agency existing under the laws of the United States and having its principal office in Washington, DC (the "FDIC"); NELNET, INC., a corporation duly organized and existing under the laws of the State of Nebraska with headquarters at 121 South 13th Street, Suite 100, Lincoln, NE, 68508 (the "Parent Company"); MICHAEL DUNLAP, controlling shareholder of the Parent Company (the "Controlling Shareholder"); and NELNET BANK, a proposed Utah-cha~~tered industrial bank, located at 13907 S. Minuteman Drive, Draper, Salt Lalce County, Utah 84020 (the "Applicant"). WITNESSETH: WHEREAS, the FDIC is authorized by sections 5, 6 and 11 of the Federal Deposit Insurance Act (the "FDI Act"), 12 U,S.C. §§ 1815, 1816, and 1821, to act on all applications for Federal Deposit Insurance by depository institutions and to insure the deposits of all such institutions entitled to the benefits of Federal Deposit Insurance; WHEREAS, the Applicant is a proposed Utah-chartered industrial bank being foamed as a wholly-owned subsidiary of the Parent Company that has submitted to the FDIC an application for Federal Deposit Insurance (the "Application"); WHEREAS, the Parent Company is a publicly traded company and desires to organize the Applicant to originate, refinance and service private student and consumer loans, and to offer deposit products; WHEREAS, the FDIC has determined that this Agreement is necessary to better address the potential risks to the Applicant and the Deposit Insurance Fund; WHEREAS, the FDIC is required by section 38A(b) of the FDI Act, 12 U.S.C. § 18310- 1(b), to require the Parent Company to serve as a source of financial strength to the Applicant; WHEREAS, the Applicant, the Parent Company, and the Controlling Shareholder have expressed their willingness to submit to such conditions as the FDIC inay determine are reasonable and necessary for this purpose; NOW, THEREFORE, in consideration of the premises, terms, and conditions contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

DocuSign Envelope ID: 46883508-2B7C-4318-8883-D004D7A5098C 1. Effectiveness; Approval of the FDIC. Upon approval of the Application by the FDIC, this Agreement shall become fully effective and binding upon the parties hereto. 2. Obligations of the Parent Company. a) Capital and Liquidity. Parent Company shall (or the Controlling Shareholder shall cause the Parent Company to) maintain the Applicant's capital and liquidity at such levels as the FDIC deems appropriate, as reflected in the terms of a Capital and Liquidity Maintenance Agreement (CALMA) entered into by and among the Parent Company, the Controlling Shareholder, the FDIC, and the Applicant; and take such other actions as the FDIC deems appropriate to provide the Applicant with resources for additional capital and liquidity. b) Subsidiary Listing. The Parent Company shall submit to the FDIC annually a listing of all of its subsidiaries and affiliates. Such listing should be submitted by March 31 of each year following approval of this Application for the prior year-end. c) Examination. The Parent Company consents to examination by the FDIC of the Parent Company and each of its subsidiaries to monitor compliance with this Agreement, the CALMA, and the provisions of the FDI Act or any other Federal law that the FDIC has specific jurisdiction to enforce against the Parent Company or its subsidiaries and affiliates. d) Reports. The Parent Company shall submit to the FDIC such reports as may be requested by the FDIC to keep the FDIC informed as to the Parent Company's financial condition, systems for monitoring and controlling financial, compliance, and operating risks, and transactions with the Applicant; and as to compliance by Parent Company and its subsidiaries and affiliates, including the Applicant, with applicable provisions of the FDI Act or other Federal laws that the FDIC has specific jurisdiction to enforce against the Parent Company and its subsidiaries, including, without limitation, those laws and regulations governing transactions and relationships between any depository institution and its affiliates. e) Records. The Parent Company shall maintain such records as the FDIC may deem necessary to assess the risks to the Applicant or the Deposit Insurance Fund. ~ Board Representation. The Parent Company shall limit its representation, and the representation of its subsidiaries and affiliates, direct and indirect, on the Board of Directors of the Applicant to no snore than twenty-five (25) percent of the members of such Board of Directors, g) Control. The Parent Company shall provide written notification to the FDIC within thirty (30) calendar days of becoming aware of any person who newly acquires or

DocuSign Envelope ID: 46663508-267C-4318-8683-D004D7A5098C reacquires control, directly or indirectly, by owning, controlling, or holding the power to vote ten (10) percent or more of any class of voting shares of the Parent Company or acquires the ability to vote teii (10) percent or more of the votes available to be cast in a shareholder vote. h) Non-Compliance with Agreements. Parent Company shall notify the FDIC within ten (10) calendar days of any non-compliance with any of the covenants in (i) any agreements with its lenders or investors, including credit agreements, bond indentures, or similar documents; or (ii) any funding or similar agreements. 3. Contin~encv Planning. a) Contingency Plan Required. No later than thirty (30) calendar days prior to the Applicant opening for business, the Parent Company shall submit a written Contingency Plan to the FDIC, seeking the FDIC's written determination of no supervisory objection thereto. Such Contingency Plan shall contain the information required under paragraph 3 c) hereof. b) Adoption of the Contingency Plan. Within ten (10) calendar days of receipt by the Parent Company of the FDIC's non-objection to the Contingency Plan, the Parent Company shall adopt and thereafter implement and adhere to such Contingency Plan. Within ten (10) calendar days of adopting the Contingency Plan, the Parent Company shall submit to the FDIC a certified copy of a resolution by the Parent Company's Board of Directors approving and adopting the Contingency Plan and committing that in the future the Parent Company will take such actions as may be needed for the Applicant to successfully implement any recovery actions or disposition strategies provided in the Contingency Plan, c) Contents of Contingency Plan. The Contingency Plan shall: i) Describe the overall organizational and legal structure of the Parent Company and of the Applicant; ii) Identify scenarios in which each of the Parent Company and the Applicant would be likely to experience significant financial or operational stress; iii) Describe the Applicant's core business lines and any of the Applicant's operations that may be critical in maintaining the financial strength and viability of the Applicant or the Parent Company ("critical operations"); iv) Identify specific indicators of risk or severe stress that could negatively impact the Parent Company's ability to serve as a source of strength for the Applicant and describe actions that would be taken by the Parent Company to improve the Patent Company's ability to serve as a source of strength for the Applicant;

DocuSign Envelope ID: 46B63508-2B7C-4318-8683-D004D7A5098C v) Identify specific indicators of risk or severe stress that could threaten the Applicant's critical operations or otherwise result in the failure or insolvency of the Applicant and describe actions that would be taken by the Applicant, or the Parent Company, to enable the Applicant to recover from such risk or severe stress ("recovery actions"); vi) Describe the strategy for ensuring the Applicant is adequately protected from risks that may arise from the activities of the Parent Company and any of its subsidiaries and affiliates at the time, and for the duration, of any recovery actions; vii) Identify the points) at which further recovery actions are unlikely to restore the Applicant to financial strength and viability or otherwise remedy financial or operational sh~ess; viii) Set forth options for the orderly wind down of the Applicant through liquidation, sale, or merger, without the appointment of a conservator or receiver (each, a "disposition strategy"), through the description of the specific steps, including a projected timeline, for the execution of each disposition strategy; and ix) Estimate the amount of capital and liquidity that would be required for the Applicant to successfully complete each disposition strategy, including but not limited to the source of funds to pay operating expenses and the source of funds to pay deposits, other debt, and other obligations. d) Material Event. The Parent Company shall submit to the FDIC for determination of no supervisory objection an updated Contingency Plan upon the occurrence of any event that materially alters: i) the organizational or legal structure of the Parent Company or the Applicant; ii) the core business lines or critical operations of the Applicant; or iii) the financial condition of the Parent Company or the Applicant. 4. Miscellaneous Provisions. a) Definitions. The term "Board of Directors" includes, for a corporation, the board of directors, and for a limited liability company, the board of managers or the managing members, as appropriate. The term "subsidiary" means any company that is directly or indirectly controlled by another company, and "control" has the meaning given it in section 7(j)(8)(B) of the FDI Act, 12 U.S.C. § 1817(j)(8)(B), and includes the presumption of control reflected in section 303.82(b)(1) of the FDIC's Rules and Regulations, 12 C.F.R. § 303.82(b)(1). Other terms used in this Agreement that are not 4

DocuSign Envelope ID: 46863508-267C-4318-8683-D004D7A5098C otherwise defined herein have the meanings given to them in section 3 of the FDI Act, 12 U.S.C. § 1813. b) Enforceability as a Written Agreement. In addition to any other remedies provided by law, the parties agree that this Agreement is binding and enforceable by the FDIC as a written agreement pursuant to sections 8 and 50 of the FDI Act, 12 U.S.C. §§ 1818 and 1831aa, against the Applicant, the Parent Company, the Controlling Shareholdet~, and their successors and assigns. c) Conservatorship or Receivership of tl~e Applicant. In the event of the appointment of a conservator or receiver for the Applicant, the obligations of the Parent Company hereunder shall survive said appointment and be enforceable by the FDIC as conservator or receiver. d) Bankruptcy Treatment of Commitments. The parties agree that obligations of the Patent Company and the Applicant contained in this Agreement include commitments to maintain the capital and liquidity of the Applicant and, if a bankruptcy petition is filed by or against the Parent Company, the obligations of the Parent Company contained in this Agreement shall be immediately cured by the Parent Company pursuant to 11 U.S,C. § 365(0), and any claim for a subsequent breach of the Parent Company's obligations herein shall be entitled to priority under ll U.S.C. § 507(a)(9). e) Authority of the Parent Company and the Applicant. The'Board of Directors of each of the Parent Company and the Applicant have each approved a Resolution authorizing the Parent Company and the Applicant to enter into this Agreement. A certified copy of each duly adopted Resolution is attached hereto and is incorporated herein by reference. ~ Governing Law. This Agreement and the rights and obligations hereunder shall be governed by, and shall be construed in accordance with, the Federal laws of the United States, and in the absence of controlling Federal laws, in accordance with the laws of the State of Delaware. g) No Waiver. No failure or delay in the exercise of any right or remedy on the part of any of the parties hereto shall operate as a waiver or termination thereof, nor shall any exercise or partial exercise of any right or remedy preclude any other or further exercise of such right or remedy or any other right or remedy. h) Severability. In the event any one or more of the provisions contained herein should be held invalid, illegal, or unenforceable in any respect, the validity, legality, and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. The parties shall endeavor in good faith to replace the invalid, illegal, or unenforceable provision with a valid provision, the effect of which comes as close as possible to that of the invalid, illegal, or unenforceable provision.

DocuSign Envelope ID: 46BB3508-2B7C-4318-8683-D004D7A5098C i) Modifications. This Agreement may not be modified, amended, changed, discharged, terminated, released, renewed, or extended in any manner except by a writing signed by all of the parties. j) Addresses for and Receipt of Notice. Any notice, correspondence, or submission required by this Agreement shall be provided in writing and shall be delivered by hand or sent by United States express mail or commercial express mail, postage prepaid, and addressed as follows: If to the Parent Company: Nelnet, Inc. Attn: Timothy Tewes, President 1248 "O" Street, Suite 900 Lincoln, NE 68508 If to the Controlling Shareholder Michael S. Dunlap 1248 "O" Street, Ste. 900 Lincoln, NE 68508 If to the Applicant: Nelnet Banlc Attn: Timothy Tewes 1248 "O" Street, Ste. 900 Lincoln, NE 68508 If to the FDIC: Associate Director, Division of Risk Management Supervision Risk Management Examination Branch Federal Deposit Insurance Corporation 550 17t~' Street, NW Washington, DC 20429 k) No Assignment. This agreement may not be assigned or transferred, in whole or in part, without the prior written consent of the FDIC. 1) Binding on Parties, Successors and Assigns. This Agreement is binding on the parties hereto, their successors and assigns. m) Joint and Several Liability. The obligations, liabilities, agreements, and commitments of the parties contained herein are joint and several, and the FDIC may pursue any right

DocuSign Envelope ID; 46683508-267C-4318-8683-D004D7A5098C or remedy that it may have against one or more of the other parties without releasing or discharging any other party. n) Complete Agreement. This Agreement is the complete and exclusive statement of the agreement between the parties concerning the commitments set forth in the Agreement, and supersedes all prior written or oral communications, representations, and agreements relating to the subject matter of the Agreement, except that this Agreement does not affect or otherwise alter the CALMA, o) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all such counterparts taken together shall constitute one and the same Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year indicated above. 9ned~ b N~ , B3' ocseceoac000aoz.~eff Noordhoel< Name: Title: cEo MI ~~,9 By:~ ~a~ 39A188C794CE407... Mile Dunlap Name: Title: N ~~'~~il'~K By Qw~I,vY,a, ~t.ass e5szze~oeccFa22... Andrea Moss Name: rest en o T1tle: FEDERAL DEPOSIT INSURANCE CORPORATION By: , Nye: ~' Title: ~ F ~=- 7

exhibit103nelnetcapitala

DocuSign Envelope ID: 46BB3508-267C-4318-8883-D004D7A5098C CAPITAL AND LIQUIDITY MAINTENANCE AGREEMENT This CAPITAL AND LIQUIDITY MAINTENANCE AGREEMENT (the "Agreement"), dated as of , is made and entered into by and among the FEDERAL DEPOSIT IAISURANCE CORPORATION, a Federal banking agency existing under the laws of the United States and having its principal office in Washington, DC (the "FDIC"); NELNET, INC., a corporation duly organized and existing under the laws of the State of Nebraska with headquarters at 121 South 13t~' Street, Suite 100, Lincoln, NE, 68508 (the "Parent Company"); MICI3AEL DUNLAP, controlling shareholder of the Parent Company (the "Controlling Shareholder"); and NELNET BANK, a proposed Utah-chartered industrial bank, located at 13907 S. Minuteman Drive, Draper, Salt Lake County, Utah 84020 (the "Applicant"). WITNESSETH: WHEREAS, the FDIC Board of Directors is charged by section 5 of the Federal Deposit Insurance Act (the "FDI Act"), 12 U.S.C. § 1815, with the responsibility of acting upon applications for Federal Deposit Insurance by all depository institutions; WHEREAS, the Applicant is a proposed Utah-chartered industrial bank being formed as a wholly-owned subsidiary of the Parent Company; WHEREAS, the Parent Company is a publicly traded company and desires to organize the Applicant to originate, refinance and service private student and consumer loans, and to offer deposit products; WHEREAS, the Applicant submitted an application for Federal deposit insurance (the "Application") to the FDIC pursuant to section 5 of the FDI Act on November 12, 2019; WHEREAS, the FDIC is required to consider, among other things, the statutory factors described in section 6 of the FDI Act, 12 U.S.C. § 1816, (the "Statutory Factors") and will generally grant an application for Federal deposit insurance if it finds favorably upon all of the Statutory Factors; and as a pant of the application process, the FDIC also considers the financial resources of a parent company when evaluating the adequacy of an applicant's capital; WHEREAS, the FDIC is required by section 38A(b) of the FDI Act, 12 U.S.C. § 18310-1(b), to require the Parent Company to serve as a source of financial strength to the Applicant; WHEREAS, the Applicant, the Parent Company, and the Controlling Shareholder have expressed their willingness to submit to such conditions as the FDIC may determine are reasonable and necessary to ensure the adequacy of the Applicant's capital and maintain sufficient liquidity;

DocuSign Envelope ID: 46BB3508-2B7C-4318-8683-D004D7A5098C WHEREAS, paragraphs 5 and 6 hereof are intended to provide separate and independent mechanisms to ensure that Parent Company serves as a source of financial strength to the Applicant; WHEREAS, the FDIC is unable to find favorably on the Statutory Factors if the Applicant, the Parent Company, and the Controlling Shareholder do not enter into and comply with the terms of this Agreement; NOW, THEREFORE, in consideration of the premises, terms, and conditions contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Effectiveness; Approval by FDIC. Upon approval of the Application by the FDIC, this Agreement shall become fully effective and binding upon the parties hereto. 2. Capital• The Parent Company shall maintain the capital levels of the Applicant at all times such that the Applicant's capital satisfies the following conditions (the capital requirements contained in this paragraph are referred to herein as the "Minimum Capital Ratios."); ~ Meets or exceeds the levels required for the Applicant to be considered "well capitalized" under section 324.403(b) of the FDIC's Rules and Regulations, 12 C.F.R. § 324.403(b); • In no event shall the Leverage ratio (as defined in the FDIC's capital regulations) be maintained at less than twelve percent (12%); and • The Applicant shall also maintain an adequate allowance for loan and lease losses. a) Maintenance of Required Minimum Capital Ratios. If at any time the Applicant's capital ratios fall below the Minimum Capital Ratios, the Parent Company shall (or the Controlling Shareholder shall cause the Parent Company to) immediately contribute sufficient additional capital to the Applicant to comply with the Minimum Capital Ratios. b) Maintenance of Revised Capital Ratios. If the FDIC determines it necessary, pursuant to its regulatory authority, for the Applicant to maintain capital ratios that are greater than the Minimum Capital Ratios (the "Revised Capital Ratios"), it shall provide written notice of such determination to the Applicant, the Controlling Shareholder, and the Parent Company. Within thirty (30) days after the FDIC issues such notice, if the Applicant has not met the Revised Capital Ratios, the Parent Company shall (or the Controlling Shareholdet~ shall cause the Parent Company to) immediately contribute sufficient additional capital to the Applicant to comply with the Revised Capital Ratios specified by the FDIC.

DocuSign Envelope ID: 46863508-2B7C-4318-8883-D004D7A5098C c) Capital Contributions. All capital contributions from the Parent Company to the Applicant will be in the form of cash, or if appropriate and approved by the FDIC, other assets acceptable to the FDIC. Any and ail such capital contributions shall be credited to the Applicant's surplus account. Li uidi .The Parent Company shall (or the Controlling Shareholder shall cause the Parent Company to) maintain the Applicant's liquidity at such levels as the FDIC deems appropriate and take such other actions as the FDIC deems appropriate to provide the Applicant with a source of additional liquidity. In particular, the Parent Company shall (or the Controlling Shareholder shall cause the Parent Company to) provide the Applicant with financial assistance, as specified below, to permit the Applicant to meet its short- and long-term liquidity demands. a) Short-Term Liquidity. The Parent Company shall provide and maintain a Revolving Line of Credit ("Line of Credit") for the benefit of the Applicant that provides the greater of: Ten (10) percent of the Applicant's total assets as of the most recent Call Report date; or • Such additional amount as may later be negotiated between the Parent Company and the Applicant. The Applicant may draw on the Line of Credit provided by the Parent Company at any time the Applicant or the FDIC considers it necessary, .Any and all agreements related to the Line of Credit must contain only such terms and conditions as the FDIC, in its sole discretion, finds acceptable, At a minimum, the Line of Credit is subject to the restrictions of section 23B of the Federal Reserve Act, 12 U.S.C. § 371c-1, and cannot contain terms and conditions that are less favorable to the Applicant than a comparable transaction with an unaffiliated third party. b) Long-Term Liquidity. If the Applicant identifies liquidity requirements that it cannot satisfy, then at the written request of the Applicant or the FDIC, the Parent Company, within ten (10) days of receiving such request, shall provide the Applicant with financial support, including cash, in such amount and for such duration as may be necessary for the Applicant to meet its ongoing liquidity obligations. 4. Enhanced Safeguard (Pledged Deposit-Other Limitations). To further ensure that the Parent Company selves as a source of financial strength for the Applicant, the Patent Company shall (or the Controlling Shareholder shall cause the Parent Company to) establish and, at all times, maintain a pledged deposit (the "PD") of $40,000,000 in cash with the Applicant as part of the Parent Company's obligations under paragraphs 2 and 3 hereof; provided however, that the establishment of the PD does not relieve the Parent

DocuSign Envelope ID: 46863508-2B7C-4318-8883-D004D7A5098C Company of its responsibility to (or relieve the Controlling Shareholder of causing the Parent Company to) serve such other support obligations identified herein. a) The PD shall be in the name of the Parent Company earmarked for the sole benefit of the Applicant and to be used by the Applicant in the event the Parent Company fails to provide the support required under paragraphs 2 and 3 hereof. b) If at any time the Applicant's capital ratios fall below any of the Minimum Capital Ratios or Revised Capital Ratios (as appropriate), or the Parent Company ceases to provide the Line of Credit of at least the amounts specified in paragraph 3 a) hereof, the Applicant shall immediately provide written notice to the Parent Company and the Controlling Shareholder demanding the Parent Company provide sufficient funds to restore the Applicant's capital levels or reinstate the Line of Credit to meet the requirements under paragraph 3 hereof. c) If, within five (5) calendar days, the Parent Company does not provide sufficient funds to restore the Applicant's capital levels to the Minimum Capital Ratios or Revised Capital Ratios (as appropriate) or reinstate the Line of Credit, the Applicant shall immediately draw upon the PD in such amounts as is necessary to restore the Applicant's capital levels to the Minimum Capital Ratios or Revised Capital Ratios (as appropriate) or as necessary to meet the Applicant's liquidity needs. d) The Applicant shall immediately provide the FDIC with written notification whenever notice is provided to the Parent Company and the Controlling Shareholder in accordance with paragraph 4 b) hereof and whenever the Applicant draws upon the PD in accordance with paragraphs 4 c) hereof. e) In the event that the Applicant draws on the PD, the Parent Company shall immediately take such steps as are necessary to replenish the PD to the amount of $40,000,000 in cash or unencumbered readily-marketable securities acceptable to the FDIC. ~j Any and all agreements related to the PD shall only be made with the prior written approval of the FDIC and upon such terms and conditions as the FDIC, in its discretion, finds acceptable. g) Other Limitations. In the event the Parent Company fails to provide the support required under paragraphs 2 and 3 hereof, the Parent Company and the Applicant shall further take the following actions in order to ensure the continued safe and sound operation of the Applicant: • The Applicant shall not make, without the prior written consent of the FDIC, any "extension of credit" (as defined in section 215,3 of the Regulations of the Board of Governors of the Federal Reserve, 12 C.F.R. § 215,3) to the Parent Company or to any affiliate, and shall not enter into any "covered transaction" (as defined in sections 23A and 23B of the Federal Reserve Act, 12 U.S.C. §§ 371c and 3710-1) with the Parent Company or any affiliate. • The Applicant shall not, without the prior written consent of the FDIC, declare or pay any dividends. • The Applicant shall not, without the prior written consent of the FDIC, permit the amount of "brokered deposits" (as defined by part 337 of the FDIC's Rules and 4

DocuSign Envelope ID: 46663508-267C-4318-8683-D004D7A5098C Regulations, 12 C.F.R. part 337) held by the Applicant to exceed the amount held as of the date that these limitations are implemented. 5, Authority of the Parent Company and the Applicant. The governing boards of the Parent Company and the Applicant have each approved a resolution ("Resolution") authorizing the execution and performance of this Agreement. A certified copy of each Resolution is attached hereto and incorporated herein by reference. 6. Miscellaneous. a) Enforceability as a Written Agreement. In addition to any other remedies provided by law, the parties agree that this Agreement is binding and enforceable by the FDIC as a written agreement pursuant to sections 8 and 50 of the FDI Act, 12 U.S.C. §§ 1818 and 1831aa, against the Applicant, the Parent Company, and the Controlling Shareholder, and their successors and assignees. b) Bankruptcy Treatment of Commitments. The parties agree that obligations of the Parent Company and the Applicant contained in this Agreement include commitments to maintain the capital and liquidity of the Applicant and, if a bankruptcy petition is filed by or against the Parent Coinpariy, the obligations of the Parent Company contained in this Agreement shall be immediately cured by the Parent Company pursuant to 11 U.S.C. § 365(0) and any claim for a subsequent breach of the Parent Company's obligations herein shall be entitled to priority under 11 U.S.C. § 507(a)(9), c) Conservatorship or Receivership. In the event of the appointment of a conservator or receiver for the Applicant, the obligations of the Applicant, the Parent Company, and the Controlling Shareholder hereunder shall survive said appointment and be enforceable by the FDIC as conservator or receiver. d) Change in Control. i) In event that the Controlling Shareholder disposes of some or all of the voting securities of the Parent Company so that the Controlling Shareholder no longer controls (as that term is used in Section 7(j) of the FDI Act and in the presumptions of control 12 CFR §303.82(b)) the Parent Company, then upon notification to the FDIC, the Controlling Shareholder may request a release from this Agreement. ii) The FDIC may grant a release if the following conditions are met to the FDIC's satisfaction at the time of the release: 1) the Conteolling Shareholder has performed all obligations under the provisions of this Agreement; 2) the FDIC has issued a non- objection to any notices pursuant to the Change in Banlc Control Act if the transfer of Controlling Shareholder's voting securities occurs in a transaction that requires one or more persons to file such a notice with the FDIC; 3) any other necessary and final

DocuSign Envelope ID: 46663508-267C-4318-8683-D004D7A5098C regulatory approvals have been obtained; and 4) any successor controlling shareholder of the Parent Company has agreed to the terms of this Agreement. e) Governing Laws. This Agreement and the rights and obligations hereunder shall be governed by, and shall be construed in accordance with the Federal laws of the United States and, in the absence of controlling Federal laws, in accordance with the laws of the State of Delaware. fj No Waiver. No failure or delay in the exercise of any right or remedy on the part of any of the parties hereto shall operate as a waiver or termination thereof, nor shall any exercise or partial exercise of any right or remedy preclude any other or further exercise of such right oc remedy or any other right or remedy. g) Fees and Expenses, The Parent Company shall (or the Controlling Shareholder shall cause the Parent Company to) pay any attorneys' fees and other reasonable expenses incurred by the Applicant in exercising its rights or seeking any remedies hereunder. h) Severability. In the event any one or more of the provisions contained herein should be held invalid, illegal, or unenforceable in any respect, the validity, legality, and enforceability of the remaining provisions contained herein shall not in any way be affected or unpaired thereby. The patties shall endeavor in good faith to replace the invalid, illegal, or unenforceable provision with a valid provision, the effect of which comes as close as possible to that of the invalid, illegal, or unenforceable provision. i) Enforcement by Applicant. The Applicant may, in its discretion, enforce this Agreement against the Parent Company. j) Modification. This Agreement may not be modified, amended, changed, discharged, terminated, released, renewed, or extended in any manner except by a writing signed by all of the parties. lc) Addresses for aYid Receipt of Notice. Any notice hereunder shall be in writing and shall be delivered by hand or sent by United States express mail or commercial express mail, postage prepaid, and addressed as follows:

DocuSign Envelope ID: 46683508-2B7C-4318-8B83-D004D7A5098C If to the Parent Company: Nelnet, Inc. Attn: Timothy Tewes, President 1248 "O" Street, Ste. 900 Lincoln, NE 68508 If to the Controlling Shareholder: Michael S. Dunlap 1248 "O" Street, Ste. 900 Lincoln, NE 68508 If to the Applicant: Nelnet Bank Attn: Timothy Tewes 1248 "O" Stt•eet, Ste. 900 Lincoln, NE 68508 If to the FDIC: Associate Director, Division of Rislc Management Supervision Rislc Management Examination Branch Federal Deposit Insurance Corporation 550 17`h Street, NW Washington, DC 20429 1) No Assignment. This Agreement inay not be assigned or transferred, in whole or in part, without the prior written consent of the FDIC. m) Binding on Parties, Successors and Assigns. This Agreement is binding on the panties hereto, their successors and assigns. n) Complete Agreement. This Agreement is the complete and exclusive statement of the agreement between the parties concerning the commitments set forth in the Agreement, and supersedes all -prior written or oral communications, representations and agreements relating to the subject matter of the Agreement, except that this Agreement does not affect or otherwise alter the Parent Company Agreement entered into by and among the FDIC, the Parent Company, the Controlling Shareholder, and the Applicant. o) Counterparts. This agreement may be executed in two or more counterparts, each of which shall be deemed an original and all such counterparts taken together shall constitute one and the same Agreement.

DocuSign Envelope ID: 46BB3508-2B7C-4318-8683-D004D7A5098C IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year indicated above. N ~9ned B ocsecsoac000a~z...~eff Noot'dhoel< Name: Title: cEo MI By:~~~a~~ 39A188C794CE407... Mile Dunlap Name: Title: N o~ ~~~ed b : A~T~~ TT B~tn,~VY,oi, I~I.bSS assz2EeoeccFazz...Andrea Moss Name: Press ent CEO Tltle: FEDERAL DEP~SI~ INSURANCE CORPORATION _u, By: Name: Title: -- — ~ a

Document

Exhibit 10.4

APPENDIX A

TRUST AGREEMENTS:

The various trust agreements listed in Schedule 1 to this Appendix A, which include the trusts listed in the Management Agreement referred to below and new trusts added since the adoption of said Management Agreement effective October 27, 2015, are and shall be subject to said Management Agreement. Such list of the various trust agreements subject to said Management Agreement may be amended from time to time.

Pursuant to the Management Agreement between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC dated effective as of October 27, 2015, this Appendix A is accepted this 29th day of July, 2020, and becomes part of said Management Agreement.

Whitetail Rock Capital Management, LLC

By: /s/ Matthew J. Brinkman

Title: Chief Compliance Officer

Union Bank and Trust Company

By: /s/ Nate Wieting

Title: AVP & Trust Officer

Document

Exhibit 10.5

APPENDIX A

TRUST AGREEMENTS:

The various trust agreements subject to the Management Agreement referred to below, including new trusts added since the most recent prior version of this Appendix A dated May 8, 2019, are listed in Schedule 1 to this Appendix A.

As authorized by the Management Agreement between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC dated effective as of March 23, 2017, this Appendix A is accepted this 29th day of July, 2020, and becomes part of said Management Agreement.

Whitetail Rock Capital Management, LLC

By: /s/ Matthew J. Brinkman

Title: Chief Compliance Officer

Union Bank and Trust Company

By: /s/ Nate Wieting

Title: AVP & Trust Officer

exhibit106

A-1   DMWEST #8696531 v2   MANAGEMENT AGREEMENT   This MANAGEMENT AGREEMENT (the “Agreement”), effective as of this 29th day   of July, 2020, by and between Union Bank and Trust Company, a Nebraska banking corporation   and trust company, not in its individual capacity, but solely as trustee under the Trust   Agreements (as defined below) (the “Trustee”), and Whitetail Rock Capital Management, LLC,   a Nebraska limited liability company and registered investment adviser (the “Manager”).   WHEREAS, the Trustee has entered into various trust agreements for trusts established   by Angela L. Muhleisen and Dan D. Muhleisen (each, a “Trust Agreement” and collectively, the   “Trust Agreements”) listed on Appendix A, as may be amended from time to time, (each, a   “Trust” and collectively, the “Trusts”);   WHEREAS, the Trustee is authorized to engage an investment adviser to manage the   assets of the Trusts pursuant to the terms of the Trust Agreements; and   WHEREAS, the Trustee wishes to engage the Manager to act as Investment Adviser   under the terms of this Agreement and in accordance with the Trust Agreements.   NOW, THEREFORE, in consideration of the mutual covenants and promises contained   herein, the parties, intending to be legally bound, hereby agree as follows:   1. Services. The Manager agrees to act as investment adviser with respect to the   assets of each Trust in accordance with the investment objectives and limitations set forth in each   Trust Agreement. Manager shall provide the services of those of its officers or employees as   may be required to furnish the services requested by the Trustee under this Agreement.   2. Term and Termination. The initial term of this Agreement shall be for the period   commencing on the date first set forth above, and ending on the first anniversary thereof (such   period, as it may be extended, being referred to as the “Management Period”), unless sooner   terminated in accordance with the provisions of this Section 2. The Management Period shall   automatically renew for successive one-year periods after the initial Management Period without   necessity of documentation unless both parties mutually agree to terminate.   Either party may terminate this Agreement at any time, without penalty, by giving the   other party at least 60 days’ prior written notice. Termination of this Agreement will not affect   the liabilities or obligations of the parties from transactions initiated before termination of this   Agreement or Trustee's obligation to pay advisory fees as set forth in this Agreement. Upon the   termination of this Agreement, Manager will have no obligation to recommend or take any   action with regard to the securities, cash or other investments held by the Trustee pursuant to the   Trust Agreements.   3. Compensation.   (a) Fees. The Trustee shall pay to the Manager annual fees in an amount   equal to five basis points (0.05%) per annum of the aggregate value of the assets of the   Trusts as calculated by the Manager as of the last day of each calendar quarter. Fees are   payable quarterly in arrears. The Trustee and Manager acknowledge that the initial assets

A-2   DMWEST #8696531 v2   of the Trusts consist of Class B shares of Nelnet, Inc. common stock (the “Class B   Shares”), which are freely convertible into Class A shares of Nelnet, Inc. common stock.   The parties agree that the value of any Class B Shares held in the trusts will be based   upon the most recent closing price for Nelnet, Inc. Class A shares of common stock on   the New York Stock Exchange or such other national securities exchange on which   Nelnet, Inc. common stock trades.   (b) Reimbursement of Expenses. The Trustee shall reimburse Manager for all   reasonable and necessary expenses incurred or paid by Manager in connection with, or   related to, the performance of its services under this Agreement. Manager shall submit to   the Trustee itemized monthly statements, in a form satisfactory to the Trustee, of such   expenses incurred in the previous month. The Trustee shall pay to Manager amounts   shown on each such statement within 30 days after receipt thereof.   4. Cooperation. The Trustee shall provide such access to its information and   property as may be reasonably required in order to permit Manager to perform its obligations   hereunder.   5. Standard of Care and Liability. In providing services hereunder, Manager shall   act with the care, skill, prudence and diligence under the circumstances then prevailing that a   prudent person acting in a like capacity and familiar with such matters would use in the conduct   of an enterprise of a like character and with like aims. Except when otherwise specifically   required by law, Manager shall only be liable to Trustee for any direct and foreseeable losses,   including reasonable attorney’s fees, resulting from negligence or willful misconduct of Manager   or breach of this Agreement by the Manager. Except as may otherwise be provided by law,   Manager will not be liable to Trustee for any act or failure to act by the Trustee, any broker-   dealer to which transactions are directed, or by any other third party. The federal and state   securities laws impose liabilities under certain circumstances on persons who act in good faith,   and therefore nothing in this Agreement will waive or limit any rights that Trustee may have   under those laws. Trustee and Manager acknowledge and agree that each of the Trust   Agreements contains provisions regarding investment of the Trusts’ assets and that nothing   contained herein will be deemed to impose liability on Manager for managing the Trusts’ assets   in accordance with the Trust Agreements.   6. Proprietary Information.   (a) Proprietary Information.   (i) Manager acknowledges that its relationship with the Trustee is one of trust   and confidence and that in the course of providing services to the Trustee,   Manager will have access to and contact with Proprietary Information, as defined   below. Manager will not, during the Management Period or at any time   thereafter, disclose to others, or use for its benefit or the benefit of others, any   Proprietary Information.   (ii) For purposes of this Agreement, Proprietary Information shall mean, by   way of illustration and not limitation, all information (whether or not patentable   DocuSign Envelope ID: 01A18C94-F809-4ADA-A9DD-362CEA18EAA6

A-3   DMWEST #8696531 v2   and whether or not copyrightable) owned, possessed or used by the Trustee,   including, without limitation, any invention, formula, vendor information,   customer information, apparatus, equipment, trade secret, process, research,   report, technical data, know-how, computer program, software, software   documentation, hardware design, technology, marketing or business plan,   forecast, unpublished financial statement, budget, license, price, cost and   employee list that is communicated to, learned of, developed or otherwise   acquired by Manager in the course of its service as a consultant to the Trustee.   (iii) Manager’s obligations under this Section 5(a) shall not apply to any   information that (a) is or becomes known to the general public under   circumstances involving no breach by Manager or others of the terms of this   Section 5(a), (b) is generally disclosed to third parties by the Trustee without   restriction on such third parties, or (c) is approved for release by written   authorization of the Board of Directors of the Trustee.   (iv) Upon termination of this Agreement or at any other time upon request by   the Trustee, Manager shall promptly deliver to the Trustee all records, files,   memoranda, notes, designs, data, reports, price lists, customer lists, drawings,   plans, computer programs, software, software documentation, sketches, research   notebooks and other documents (and all copies or reproductions of such   materials) relating to the business of the Trustee.   (v) Manager represents that its performance under this Agreement does not,   and shall not, breach any agreement that obligates it to keep in confidence any   trade secrets or confidential or proprietary information of it or of any other party   or to refrain from competing, directly or indirectly, with the business of any other   party. Manager shall not disclose to the Trustee any trade secrets or confidential   or proprietary information of any other party.   (b) Remedies. Manager acknowledges that any breach of the provisions of   this Section 6 shall result in serious and irreparable injury to the Trustee for which the   Trustee cannot be adequately compensated by monetary damages alone. Manager agrees,   therefore, that, in addition to any other remedy it may have, the Trustee shall be entitled   to enforce the specific performance of this Agreement by Manager and to seek both   temporary and permanent injunctive relief (to the extent permitted by law) without the   necessity of proving actual damages.   7. Independent Contractor Status. Manager shall perform all services under this   Agreement as an “independent contractor.”   8. Proxy Voting. Trustee hereby designates and authorizes Manager to vote all   proxies for securities held in the Trusts in accordance with Manager’s written proxy voting   policy. In connection with such voting, Manager is authorized to take into account the wishes of   the settlor of the Trusts. Trustee will forward promptly to Manager copies of all proxies and   shareholder communications relating to securities in the Trusts. Trustee agrees that Manager   DocuSign Envelope ID: 01A18C94-F809-4ADA-A9DD-362CEA18EAA6

A-4   DMWEST #8696531 v2   will not be liable for failing to vote any proxies or take any other action when it has not received   such proxies or other shareholder communications on a timely basis.   9. Services to Other Clients. Trustee understands that Manager may perform   investment management services for other clients with various investment objectives and   policies. Trustee acknowledges that Manager may give advice and take action with respect to   such clients which may differ from advice given, or the timing or nature of action taken under   this Agreement. Trustee acknowledges that Manager may recommend the purchase or sale of   securities or other investments held under the Trust Agreements that affiliates of the Manager   (“Affiliated Persons”) may also purchase or sell for their own account. Trustee further   acknowledges that Manager shall have no obligation to recommend for purchase or sale by the   Trustee, any security or other investment that Affiliated Persons may purchase or sell for its or   their own account or any other client accounts. This Agreement does not limit or restrict in any   way Manager or any of its Affiliated Persons from buying, selling or trading in any securities or   other investments for their own accounts.   Manager or its Affiliated Persons may provide services for, or solicit business from   various companies, including issuers of securities that Manager may recommend for purchase or   sale by Trustee. In providing these services, Manager or its Affiliated Persons may obtain   material, nonpublic or other confidential information that, if disclosed, might affect an investor’s   decision to buy, sell or hold a security. Under applicable law, Manager and its Affiliated Persons   cannot improperly disclose or use this information for their personal benefit or for the benefit of   any person, including clients of Manager. If Manager or any Affiliated Person obtains material,   nonpublic or other confidential information about any issuer, Manager is prohibited from   disclosing the information to Trustee or using it for Trustee’s benefit.   10. Notices. All notices required or permitted under this Agreement shall be in   writing and shall be deemed effective upon personal delivery or upon deposit in the United   States Mail, by registered or certified mail, postage prepaid, addressed to the other party as set   forth below:   (a) If to Manager:    Whitetail Rock Capital Management, LLC    c/o Matthew Brinkman    121 South 13th Street, Suite 121    Lincoln, NE 68508   If to the Trustee:    Union Bank and Trust Company    c/o Nate Wieting    6801 South 27th Street    Lincoln, NE 68512   11. Entire Agreement. This Agreement constitutes the entire agreement between the   parties and supersedes all prior agreements and understandings, whether written or oral, relating   to the subject matter of this Agreement.   DocuSign Envelope ID: 01A18C94-F809-4ADA-A9DD-362CEA18EAA6

A-5   DMWEST #8696531 v2   12. Amendment. This Agreement may be amended or modified only by a written   instrument executed by both the Trustee and Manager.   13. Governing Law. This Agreement shall be construed, interpreted and enforced in   accordance with the laws of the State of Nebraska.   14. Assignment. Except as otherwise provided herein, none of the rights, duties or   obligations of either party to this Agreement may be assigned without the consent of the other.   “Assignment” shall have the definition given under the Investment Advisers Act of 1940 (the   "Advisors Act").   15. Miscellaneous.   (a) No delay or omission by the Trustee in exercising any right under this   Agreement shall operate as a waiver of that or any other right. A waiver or consent given   by the Trustee on any one occasion shall be effective only in that instance and shall not   be construed as a bar or waiver of any right on any other occasion.   (b) The captions of the sections of this Agreement are for convenience of   reference only and in no way define, limit or affect the scope or substance of any section   of this Agreement.   (c) In the event that any provision of this Agreement shall be invalid, illegal   or otherwise unenforceable, the validity, legality and enforceability of the remaining   provisions shall in no way be affected or impaired thereby.   IN WITNESS WHEREOF, the parties hereto have executed this Management Agreement as   of the day and year set forth above.    Whitetail Rock Capital Management, LLC    By:    Title:    Union Bank and Trust Company    By:    Title:   DocuSign Envelope ID: 01A18C94-F809-4ADA-A9DD-362CEA18EAA6   AVP & TRUST OFFICER   Chief Compliance Officer

Document

Exhibit 31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jeffrey R. Noordhoek, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Nelnet, Inc. (the “Company”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 6, 2020 /s/ JEFFREY R. NOORDHOEK
Jeffrey R. Noordhoek Chief Executive Officer<br>Principal Executive Officer

Document

Exhibit 31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, James D. Kruger, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Nelnet, Inc. (the “Company”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 6, 2020 /s/ JAMES D. KRUGER
James D. Kruger<br><br>Chief Financial Officer<br><br>Principal Financial Officer and Principal Accounting Officer

Document

Exhibit 32

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Nelnet, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 6, 2020 By: /s/ JEFFREY R. NOORDHOEK
Name: Jeffrey R. Noordhoek<br><br>Title:   Chief Executive Officer<br><br>Principal Executive Officer
By: /s/ JAMES D. KRUGER
Name: James D. Kruger<br><br>Title:   Chief Financial Officer<br><br>Principal Financial Officer and Principal Accounting Officer

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