SEC Info - Nelnet Inc. - ‘10-K’ for 12/31/20

ITEM 9B. OTHER INFORMATION

During the fourth quarter of 2020, no information was required to be disclosed in a report on Form 8-K, but not reported.

PART III.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The information as to the directors, executive officers, and corporate governance of the Company set forth under the captions “PROPOSAL 1 - ELECTION OF DIRECTORS,” “EXECUTIVE OFFICERS,” and “CORPORATE GOVERNANCE,” and the information as to any delinquent report under Section 16(a) of the Securities Exchange Act of 1934 set forth under the caption “SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS, AND PRINCIPAL SHAREHOLDERS - Delinquent Section 16(a) Reports," to the extent any such disclosure is required, in the definitive Proxy Statement to be filed on Schedule 14A with the SEC, no later than 120 days after the end of the Company's fiscal year, relating to the Company's 2021 Annual Meeting of Shareholders scheduled to be held on May 20, 2021 (the “Proxy Statement”), is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information set forth under the caption “SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS, AND PRINCIPAL SHAREHOLDERS - Stock Ownership” in the Proxy Statement is incorporated herein by reference. There are no arrangements known to the Company, the operation of which may at a subsequent date result in a change in the control of the Company.

The following table summarizes information about compensation plans under which equity securities are authorized for issuance.

Equity Compensation Plan Information


	As of December 31, 2020
Plan category	Number of shares to be issued upon exercise of outstanding options, warrants, and rights (a)	Weighted-average exercise price of outstanding options, warrants, and rights (b)	Number of shares remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by shareholders	—	—	1,770,260	(1)
Equity compensation plans not approved by shareholders	—	—	—
Total	—	—	1,770,260

(1) Includes 1,308,874, 68,445, and 392,941 shares of Class A Common Stock remaining available for future issuance under the Nelnet, Inc. Restricted Stock Plan, Nelnet, Inc. Directors Stock Compensation Plan, and Nelnet, Inc. Employee Share Purchase Plan, respectively.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

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

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

PART IV.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) 1. Consolidated Financial Statements

The following consolidated financial statements of Nelnet, Inc. and its subsidiaries and the Report of Independent Registered Public Accounting Firm thereon are included in Item 8 above:

2. Financial Statement Schedules

All schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

3. Exhibits

The exhibits listed in the accompanying index to exhibits are filed, furnished, or incorporated by reference as part of this report.

(b) Exhibits

Exhibit Index


Exhibit No.			Description

2.1 ++			Stock Purchase Agreement dated as of October 18, 2017, among Nelnet Diversified Solutions, LLC, as Purchaser, Nelnet, Inc., as Purchaser Parent, and Great Lakes Higher Education Corporation, as Seller, filed as Exhibit 2.1 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference.

2.2			First Amendment to Stock Purchase Agreement dated as of February 1, 2018, among Nelnet Diversified Solutions, LLC, as Purchaser, Nelnet, Inc., as Purchaser Parent, and Great Lakes Higher Education Corporation, as Seller, filed as Exhibit 2.2 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference.

2.3			Second Amendment to Stock Purchase Agreement dated as of February 1, 2018, among Nelnet Diversified Solutions, LLC, as Purchaser, Nelnet, Inc., as Purchaser Parent, and Great Lakes Higher Education Corporation, as Seller, filed as Exhibit 2.3 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference.

3.1			Composite Third Amended and Restated Articles of Incorporation of Nelnet, Inc., as amended on May 23, 2019, filed as Exhibit 3.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and incorporated herein by reference.

3.2			Ninth Amended and Restated Bylaws of Nelnet, Inc., as amended as of May 24, 2018, filed as Exhibit 3.2 to the registrant's Current Report on Form 8-K filed on May 24, 2018 and incorporated herein by reference.

4.1			Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934, filed as Exhibit 4.1 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2019 and incorporated herein by reference.

4.2			Form of Class A Common Stock Certificate of Nelnet, Inc., filed on November 24, 2003 as Exhibit 4.1 to the registrant’s Registration Statement on Form S-1 (Registration No. 333-108070) and incorporated herein by reference.


4.3			Certain instruments, including indentures of trust, defining the rights of holders of long-term debt of the registrant and its consolidated subsidiaries, none of which instruments authorizes a total amount of indebtedness thereunder in excess of 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis, are omitted from this Exhibit Index pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. Certain of such instruments have been previously filed with the Securities and Exchange Commission, and the registrant hereby agrees to furnish a copy of any such instrument to the Commission upon request.

4.4			Registration Rights Agreement, dated as of December 16, 2003, by and among Nelnet, Inc. and the shareholders of Nelnet, Inc. signatory thereto, filed on November 24, 2003 as Exhibit 4.11 to the registrant’s Registration Statement on Form S-1 (Registration No. 333-108070) and incorporated herein by reference.

10.1			Composite Form of Amended and Restated Participation Agreement, dated as of June 1, 2001, between NELnet, Inc. (subsequently renamed National Education Loan Network, Inc.) and Union Bank and Trust Company, as amended by the First Amendment thereto dated as of December 19, 2001 through the Cancellation of the Fifteenth Amendment thereto dated as of March 16, 2011 (such Participation Agreement and each amendment through the Cancellation of the Fifteenth Amendment thereto have been previously filed as set forth in the Exhibit Index for the registrant’s Annual Report on Form 10-K for the year ended December 31, 2012, and are incorporated herein by reference), filed as Exhibit 10.1 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2013 and incorporated herein by reference.

10.2			Sixteenth Amendment of Amended and Restated Participation Agreement, dated as of March 23, 2012, by and between Union Bank and Trust Company and National Education Loan Network, Inc., filed as Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 and incorporated herein by reference.

10.3			Seventeenth Amendment of Amended and Restated Participation Agreement, dated as of August 1, 2019, by and between Union Bank and Trust Company and National Education Loan Network, Inc., filed as Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 and incorporated herein by reference.

10.4			Guaranteed Purchase Agreement, dated as of March 19, 2001, by and between NELnet, Inc. (subsequently renamed National Education Loan Network, Inc.) and Union Bank and Trust Company, filed on September 25, 2003 as Exhibit 10.36 to the registrant’s Registration Statement on Form S-1 (Registration No. 333-108070) and incorporated herein by reference.

10.5			First Amendment of Guaranteed Purchase Agreement, dated as of February 1, 2002, by and between NELnet, Inc. (subsequently renamed National Education Loan Network, Inc.) and Union Bank and Trust Company, filed on September 25, 2003 as Exhibit 10.37 to the registrant’s Registration Statement on Form S-1 (Registration No. 333-108070) and incorporated herein by reference.

10.6			Second Amendment of Guaranteed Purchase Agreement, dated as of December 1, 2002, by and between Nelnet, Inc. (f/k/a/ NELnet, Inc.) (subsequently renamed National Education Loan Network, Inc.) and Union Bank and Trust Company, filed on September 25, 2003 as Exhibit 10.38 to the registrant’s Registration Statement on Form S-1 (Registration No. 333-108070) and incorporated herein by reference.

10.7			Guaranteed Purchase Agreement, dated as of September 1, 2010, by and between Nelnet, Inc. and Union Bank and Trust Company, filed as Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 and incorporated herein by reference.

10.8			First Amendment of Guaranteed Purchase Agreement, dated as of March 22, 2011, by and between Nelnet, Inc. and Union Bank and Trust Company, filed as Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 and incorporated herein by reference.

10.9			Amendment of Agreements dated as of February 4, 2005, by and between National Education Loan Network, Inc. and Union Bank and Trust Company, filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on February 10, 2005 and incorporated herein by reference.

10.10+			Nelnet, Inc. Employee Share Purchase Plan, as amended through March 17, 2011, filed as Exhibit 10.4 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 and incorporated herein by reference.

10.11			Office Building Lease dated June 21, 1996 between Miller & Paine and Union Bank and Trust Company, filed as Exhibit 10.3 to the registrant's Current Report on Form 8-K filed on October 16, 2006 and incorporated herein by reference.

10.12			Amendment to Office Building Lease dated June 11, 1997 between Miller & Paine and Union Bank and Trust Company, filed as Exhibit 10.4 to the registrant's Current Report on Form 8-K filed on October 16, 2006 and incorporated herein by reference.

10.13			Lease Amendment Number Two dated February 8, 2001 between Miller & Paine and Union Bank and Trust Company, filed as Exhibit 10.5 to the registrant's Current Report on Form 8-K filed on October 16, 2006 and incorporated herein by reference.



10.14			Lease Amendment Number Three dated May 23, 2005 between Miller & Paine, LLC and Union Bank and Trust Company, filed as Exhibit 10.6 to the registrant's Current Report on Form 8-K filed on October 16, 2006 and incorporated herein by reference.

10.15			Lease Amendment Number Four dated November 13, 2007 between M & P Building, LLC and Union Bank and Trust Company, filed as Exhibit 10.14 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference.

10.16			Lease Amendment Number Five entered into in September 2008 between M & P Building, LLC and Union Bank and Trust Company, filed as Exhibit 10.15 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference.

10.17			Lease Amendment Number Six dated December 15, 2017 between Nelnet Real Estate Ventures, Inc. and Union Bank and Trust Company, filed as Exhibit 10.16 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference.

10.18			Lease Agreement dated May 20, 2005 between Miller & Paine, LLC and Union Bank and Trust Company, filed as Exhibit 10.7 to the registrant's Current Report on Form 8-K filed on October 16, 2006 and incorporated herein by reference.

10.19			Office Sublease dated April 30, 2001 between Union Bank and Trust Company and Nelnet, Inc., filed as Exhibit 10.8 to the registrant's Current Report on Form 8-K filed on October 16, 2006 and incorporated herein by reference.

10.20+			Nelnet, Inc. Restricted Stock Plan, as amended through May 22, 2014, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on May 28, 2014 and incorporated herein by reference.

10.21+			Amendment to Nelnet, Inc. Restricted Stock Plan, effective as of February 11, 2020 , filed as Exhi bit 10.21 to the registrant ’s Annual Report on Form 10-K for the year ended December 31, 2019 and incorporated herein by reference .

10.22+			Nelnet, Inc. Directors Stock Compensation Plan, as amended through March 21, 2018, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on May 24, 2018 and incorporated herein by reference.

10.23+			Nelnet, Inc. Executive Officers Incentive Compensation Plan, effective as of January 1, 2019, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on May 23, 2019 and incorporated herein by reference.

10.24			Loan Purchase Agreement, dated as of November 25, 2008, by and between Nelnet Education Loan Funding, Inc., f/k/a NEBHELP, INC., acting, where applicable, by and through Wells Fargo Bank, National Association, not individually but as Eligible Lender Trustee for the Seller under the Warehouse Agreement or Eligible Lender Trust Agreement, and Union Bank and Trust Company, acting in its individual capacity and as trustee, filed as Exhibit 10.71 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference.

10.25			Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 and incorporated herein by reference.

10.26			Modification of Contract dated effective as of June 17, 2014 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on June 18, 2014 and incorporated herein by reference.

10.27			Modification of Contract dated effective as of September 1, 2014 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on September 2, 2014 and incorporated herein by reference.

10.28			Modification of Contract dated effective as of June 16, 2019 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on May 17, 2019 and incorporated herein by reference.

10.29			Modification of Contract dated effective as of November 25, 2019 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on November 27, 2019 and incorporated herein by reference.

10.30			Modification of Contract dated effective as of December 15, 2020 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on December 15, 2020 and incorporated herein by reference.

10.31			Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.6 to the registrant's Current Report on Form 8-K filed on May 17, 2019 and incorporated herein by reference.


10.32			Modification of Contract dated effective as of May 21, 2014 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.7 to the registrant's Current Report on Form 8-K filed on May 17, 2019 and incorporated herein by reference.

10.33			Modification of Contract dated effective as of September 1, 2014 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.8 to the registrant's Current Report on Form 8-K filed on May 17, 2019 and incorporated herein by reference.

10.34			Modification of Contract dated effective as of June 16, 2019 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.2 to the registrant's Current Report on Form 8-K filed on May 17, 2019 and incorporated herein by reference.

10.35			Modification of Contract dated effective as of November 25, 2019 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.2 to the registrant's Current Report on Form 8-K filed on November 27, 2019 and incorporated herein by reference.

10.36			Modification of Contract dated effective as of December 15, 2020 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on December 15, 2020 and incorporated herein by reference.

10.37			Management Agreement, dated effective as of May 1, 2011, by Whitetail Rock Capital Management, LLC and Union Bank and Trust Company, filed as Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 and incorporated herein by reference.

10.38			Management Agreement, dated effective as of January 20, 2012, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.58 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2011 and incorporated herein by reference.

10.39			Management Agreement, dated effective as of October 27, 2015, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.25 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2015 and incorporated herein by reference.

10.40#			Appendix A, dated July 29, 2020, to Management Agreement dated effective as of October 27, 2015, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.4 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference.

10.41			Management Agreement, dated effective as of January 4, 2016, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 and incorporated herein by reference.

10.42			Management Agreement, dated effective as of March 23, 2017, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 and incorporated herein by reference.

10.43			Amended Appendix A, dated May 8, 2019, to Management Agreement, dated effective as of March 23, 2017, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 and incorporated herein by reference.

10.44#			Amended Appendix A, dated July 29, 2020, to Management Agreement dated effective as of March 23, 2017, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.5 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference.

10.45#			Management Agreement dated effective as of July 29, 2020, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.6 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference.

10.46			Investment Management Agreement, dated effective as of February 10, 2012, by and among Whitetail Rock SLAB Fund I, LLC, Whitetail Rock Fund Management, LLC, and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.4 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 and incorporated herein by reference.

10.47			Investment Management Agreement, dated effective as of February 14, 2013, by and among Whitetail Rock SLAB Fund III, LLC, Whitetail Rock Fund Management, LLC, and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.31 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2013 and incorporated herein by reference.


10.48			Form of Custodian Agreement for Whitetail Rock SLAB Funds by and among the Fund, Whitetail Rock Fund Management, LLC, and Union Bank and Trust Company, filed as Exhibit 10.27 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference.

10.49			Form of Administrative Services Agreement for Whitetail Rock SLAB Funds by and among the Fund, Whitetail Rock Fund Management, LLC, Adminisystems, Inc., and Union Bank and Trust Company, filed as Exhibit 10.28 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference.

10.50			Management Agreement dated as of August 8, 2019 between 1867 – Riley Road, LLC (of which Farmers & Merchants Investment Inc., North Central Bancorp, Inc., and Nelnet Solar, LLC are members) and 1867 Capital-1, LLC (a wholly owned subsidiary of Nelnet, Inc.), filed as Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 and incorporated herein by reference.

10.51			Subordination Agreement effective as of July 26, 2019, by and between Union Bank and Trust Company, Nelnet, Inc., and Agile Sports Technologies, Inc., filed as Exhibit 10.7 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and incorporated herein by reference.

10.52			Second Amended and Restated Credit Agreement dated as of December 16, 2019, among Nelnet, Inc., U.S. Bank National Association, as Administrative Agent; Wells Fargo Bank, National Association, as Syndication Agent; Citibank, N.A. and Royal Bank of Canada, as Co-Documentation Agents; U.S. Bank National Association and Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Book Runners; and various lender parties thereto, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on December 16, 2019 and incorporated herein by reference.

10.53			Amendment No. 1 to Second Amended and Restated Credit Agreement dated as of October 1, 2020, among Nelnet, Inc., the various Lenders signatory thereto, and U.S. Bank National Association, as Administrative Agent for the Lenders, filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on October 2, 2020 and incorporated herein by reference.

10.54			Second Amended and Restated Guaranty dated as of December 16, 2019, by each of the subsidiaries of Nelnet, Inc. signatories thereto, in favor of U.S. Bank National Association, as Administrative Agent, filed as Exhibit 10.2 to the registrant's Current Report on Form 8-K filed on December 16, 2019 and incorporated herein by reference.

10.55			Agreement for Purchase and Sale of Interest in Aircraft dated as of December 31, 2018, by and between National Education Loan Network, Inc. and Union Financial Services, Inc., filed as Exhibit 10.42 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference.

10.56			Aircraft Joint Ownership Agreement dated as of January 1, 2019, by and between National Education Loan Network, Inc. and MSD711, LLC, filed as Exhibit 10.43 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference.

10.57			Aircraft Management Agreement, dated as of January 1, 2019, by and between Duncan Aviation, Inc. and National Education Loan Network, Inc. and MSD711, LLC, filed as Exhibit 10.44 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference.

10.58			Amended and Restated Consulting and Services Agreement made and entered into as of October 1, 2013, by and between Nelnet, Inc. and Union Bank and Trust Company, filed as Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 and incorporated herein by reference.

10.59			Master Private Loan Program Agreement dated as of August 22, 2018, by and between Union Bank and Trust Company and Nelnet, Inc., filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 and incorporated herein by reference.

10.60±			Education Loan Marketing Agreement dated as of August 22, 2018, by and between Nelnet Consumer Finance, Inc. and Union Bank and Trust Company, filed as Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 and incorporated herein by reference.

10.61±			Private Student Loan Origination and Servicing Agreement dated as of August 22, 2018, by and between Nelnet Servicing, LLC, d/b/a Firstmark Services, and Union Bank and Trust Company, filed as Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 and incorporated herein by reference.

10.62±±			Private Student Loan Purchase Agreement dated as of November 19, 2019, by and among National Education Loan Network, Inc., as Purchaser, Union Bank and Trust Company, as Purchaser Lender Trustee, and Union Bank and Trust Company, as Seller, filed as Exhibit 10.56 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2019 and incorporated herein by reference.


10.63			Private Loan Sale Agreement dated as of October 9, 2014, by and between Nelnet, Inc. and Union Bank and Trust Company, filed as Exhibit 10.47 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference.

10.64			Private Student Loan Servicing Agreement dated as of October 9, 2014, by and between Nelnet Servicing, LLC and Union Bank and Trust Company, filed as Exhibit 10.48 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference.

10.65			First Amendment of Loan Servicing Agreement dated as of September 27, 2013, by and between Nelnet, Inc. and Union Bank and Trust Company, filed as Exhibit 10.49 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference.

10.66			Private Loan Servicing Letter Agreement dated as of February 27, 2017, by and between Nelnet Servicing, LLC and Union Bank and Trust Company, filed as Exhibit 10.54 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference.

10.67			Form of Trust/Custodial/Safekeeping Agreement by and between National Education Loan Network, Inc., as Principal, and Union Bank and Trust Company, as Trustee, filed as Exhibit 10.55 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference.

10.68			Form of Special Investment Directions by National Education Loan Network, Inc. and its affiliates, as Principal under the Form of Trust/Custodial/Safekeeping Agreement between Principal and Union Bank and Trust Company, as Trustee, filed as Exhibit 10.56 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference.

10.69			Loan Participation Agreement dated as of January 1, 2018 between Union Bank and Trust Company and Union Bank and Trust Company as trustee for National Education Loan Network, Inc., filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 and incorporated herein by reference.

10.70			Amended and Restated Trust Agreement dated as of December 21, 2018 among Nelnet Private Student Loan Financing Corporation, as Depositor, Union Bank and Trust Company, as Trustee, and U.S. Bank Trust National Association, as Delaware Trustee, filed as Exhibit 10.57 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference.

10.71±±			Amended and Restated Trust Agreement, dated effective as of January 11, 2019, by and among Nelnet Private Student Loan Financing Corporation, as Depositor, Union Bank and Trust Company, as Trustee, National Education Loan Network, Inc., as Administrator, and U.S. Bank Trust National Association, as Delaware Trustee, filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and incorporated herein by reference.

10.72±±			Interim Trust Agreement, dated effective as of January 11, 2019, by and among ACM F Acquisition, LLC, as ACM Seller, National Education Loan Network, Inc., as NELN Seller, and Union Bank and Trust Company, as Interim Trustee, filed as Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and incorporated herein by reference.

10.73			SLABS Participation Agreement, dated effective as of May 5, 2020, by and between National Education Loan Network, Inc., and Union Bank and Trust Company, as Trustee, filed as Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference.

10.74			Parent Company Agreement, dated as of June 26, 2020, by and among the Federal Deposit Insurance Corporation, Nelnet, Inc., Michael Dunlap, and Nelnet Bank, filed as Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference.

10.75			Capital and Liquidity Maintenance Agreement, dated as of June 26, 2020, by and among the Federal Deposit Insurance Corporation, Nelnet, Inc., Michael Dunlap, and Nelnet Bank, filed as Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference.

10.76++			Master Agreement entered into as of October 1, 2020, by and among SDC Allo Holdings, LLC, Nelnet, Inc., and ALLO Communications LLC, filed as Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 and incorporated herein by reference.

10.77++			Membership Unit Purchase Agreement, dated as of October 1, 2020, by and among SDC Allo Holdings, LLC, Nelnet, Inc., and ALLO Communications LLC, filed as Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 and incorporated herein by reference.

10.78			Omnibus Amendment dated as of October 15, 2020 to the Master Agreement and the Membership Unit Purchase Agreement, by and among SDC Allo Holdings, LLC, Nelnet, Inc., and ALLO Communications LLC, filed as Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 and incorporated herein by reference.


21.1*			Subsidiaries of Nelnet, Inc.

23.1*			Consent of KPMG LLP, Independent Registered Public Accounting Firm.

31.1*			Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer Jeffrey R. Noordhoek.

31.2*			Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer James D. Kruger.

32**			Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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

ITEM 16. FORM 10-K SUMMARY

The Company has elected not to include an optional summary of information required by Form 10-K.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Dated:	February 25, 2021
		NELNET, INC.

		By:	/s/ *JEFFREY R. NOORDHOEK*
		Name:	Jeffrey R. Noordhoek
		Title:	Chief Executive Officer
			(Principal Executive Officer)

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

Signature

Title

Date

/s/ JEFFREY R. NOORDHOEK

Chief Executive Officer (Principal Executive Officer)

Jeffrey R. Noordhoek

/s/ JAMES D. KRUGER

Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

James D. Kruger

/s/ MICHAEL S. DUNLAP

Executive Chairman

Michael S. Dunlap

/s/ JAMES P. ABEL

Director

James P. Abel

/s/ PREETA D. BANSAL

Director

Preeta D. Bansal

/s/ WILLIAM R. CINTANI

Director

William R. Cintani

/s/ KATHLEEN A. FARRELL

Director

Kathleen A. Farrell

/s/ DAVID S. GRAFF

Director

David S. Graff

/s/ THOMAS E. HENNING

Director

Thomas E. Henning

/s/ JOANN M. MARTIN

Director

JoAnn M. Martin

/s/ KIMBERLY K. RATH

Director

Kimberly K. Rath

NELNET, INC. AND SUBSIDIARIES

Index to Consolidated Financial Statements

F - 1

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Nelnet, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Nelnet, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2020, and the related notes collectively, the consolidated financial statements. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 25, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASU 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and its related amendments.”

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of the allowance for loan losses

As discussed in Note 3 to the consolidated financial statements, the Company adopted ASU No. 2016-13, Financial Instruments — Credit Losses (ASC Topic 326), as of January 1, 2020. The allowance for loan losses as of January 1, 2020 was $152.9 million (the January 1, 2020 ALL). As discussed in Note 4 to the consolidated financial statements, the Company’s allowance for loan losses as of December 31, 2020 was $175.7 million (the December 31, 2020 ALL). The January 1, 2020 ALL and December 31, 2020 ALL, collectively the ALL, is the measure of expected credit losses on a pooled basis for those loans that share similar risk characteristics. The Company estimated the ALL using an undiscounted cash flow model on its federally insured and private education loan portfolios and a remaining life method for its consumer loan portfolio. The Company’s methodologies are based on relevant available information,

F - 2

from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. For the undiscounted cash flow models, the expected credit losses are the product of multiplying the Company’s estimates of probability of default (PD), loss given default (LGD), and the exposure at default (EAD) over the expected life of the loans. For the remaining life method, the expected credit losses are the product of multiplying the Company’s estimated net loss rate by the EAD over the expected life of the loans. Both the undiscounted model and remaining life method incorporate current and forecasted economic scenarios over the reasonable and supportable forecast periods. After the reasonable and supportable forecast periods, the Company reverts to their actual long-term historical loss experience in the historical observation period. A portion of the ALL is comprised of qualitative adjustments to historical loss experience.

We identified the assessment of the January 1, 2020 ALL and the December 31, 2020 ALL as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the ALL methodology, including the methods and models used to estimate the PD, LGD, and net loss rates used in the remaining life method, and their significant assumptions. Such assumptions included segmentation of loans with similar risk characteristics, the current and forecasted economic scenarios, the reasonable and supportable forecast period, and the historical observation period. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the ALL estimates, including controls over the:

•development of the ALL methodology

•development of the PD and LGD models

•identification and determination of the significant assumptions used in the PD and LGD models, and the net loss rates used in the remaining life method

•performance monitoring of the PD and LGD models, and net loss rates used in the remaining life method for the December 31, 2020 ALL

•analysis of the ALL results, trends, and ratios.

We evaluated the Company’s process to develop the ALL estimates by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:

•evaluating the Company’s ALL methodology for compliance with U.S. generally accepted accounting principles

•evaluating judgments made by the Company relative to the development and performance testing of the PD and LGD models, and net loss rates used in the remaining life method

•assessing the conceptual soundness and performance testing of the PD and LGD models by inspecting the model documentation to determine whether the models are suitable for their intended use

•evaluating the methodology used to develop the economic forecast scenarios and underlying assumptions by comparing it to the Company’s business environment and relevant industry practices

•assessing the economic forecast scenarios through comparison to publicly available forecasts

•evaluating the length of the historical observation period and reasonable and supportable forecast period by comparing to specific portfolio risk characteristics and trends

•determining whether the loan portfolio is segmented by similar risk characteristics by comparing to the Company’s business environment and relevant industry practices.

We also assessed the cumulative results of the procedures performed to assess the sufficiency of the audit evidence obtained related to the ALL by evaluating the:

•cumulative results of the audit procedures

•qualitative aspects of the Company’s accounting practices

•potential bias in the accounting estimate.

/s/ KPMG LLP

We have served as the Company’s auditor since 1998.

Lincoln, Nebraska

F - 3


NELNET, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31, 2020 and 2019
	2020		2019
	(Dollars in thousands, except share data)
Assets:
Loans and accrued interest receivable (net of allowance for loan losses of $ i 175,698 and $ i 61,914, respectively)	$	i 20,185,656	i 21,402,868
Cash and cash equivalents:
Cash and cash equivalents - not held at a related party	i 33,292		i 13,922
Cash and cash equivalents - held at a related party	i 87,957		i 119,984
Total cash and cash equivalents	i 121,249		i 133,906
Investments	i 992,940		i 247,099
Restricted cash	i 553,175		i 650,939
Restricted cash - due to customers	i 283,971		i 437,756
Accounts receivable (net of allowance for doubtful accounts of $ i 1,824 and $ i 4,455, respectively)	i 76,460		i 115,391
Goodwill	i 142,092		i 156,912
Intangible assets, net	i 75,070		i 81,532
Property and equipment, net	i 123,527		i 348,259
Other assets	i 92,020		i 134,308

Total assets	$	i 22,646,160	i 23,708,970
Liabilities:
Bonds and notes payable	$	i 19,320,726	i 20,529,054
Accrued interest payable	i 28,701		i 47,285
Bank deposits	i 54,633		i —
Other liabilities	i 312,280		i 303,781
Due to customers	i 301,471		i 437,756

Total liabilities	i 20,017,811		i 21,317,876
Commitments and contingencies	i		i
Equity:
Nelnet, Inc. shareholders' equity:
Preferred stock, $ i i 0.01 / par value. Authorized i i 50,000,000 / shares; i i i i no / / / shares issued or outstanding	i —		i —
Common stock:
Class A, $ i i 0.01 / par value. Authorized i i 600,000,000 / shares; issued and outstanding i i 27,193,154 / shares and i i 28,458,495 / shares, respectively	i 272		i 285
Class B, convertible, $ i i 0.01 / par value. Authorized i i 60,000,000 / shares; issued and outstanding i i 11,155,571 / shares and i i 11,271,609 / shares, respectively	i 112		i 113
Additional paid-in capital	i 3,794		i 5,715
Retained earnings	i 2,621,762		i 2,377,627
Accumulated other comprehensive earnings	i 6,102		i 2,972
Total Nelnet, Inc. shareholders' equity	i 2,632,042		i 2,386,712
Noncontrolling interests	( i 3,693)		i 4,382
Total equity	i 2,628,349		i 2,391,094
Total liabilities and equity	$	i 22,646,160	i 23,708,970

Supplemental information - assets and liabilities of consolidated education and other lending variable interest entities:
Loans and accrued interest receivable	$	i 20,132,996	i 21,399,382
Restricted cash	i 499,223		i 639,847

Bonds and notes payable	( i 19,355,375)		( i 20,742,798)
Accrued interest payable and other liabilities	( i 83,127)		( i 162,494)

Net assets of consolidated education and other lending variable interest entities	$	i 1,193,717	i 1,133,937

See accompanying notes to consolidated financial statements.

F - 4

NELNET, INC. AND SUBSIDIARIES

Consolidated Statements of Income

Years ended December 31, 2020, 2019, and 2018

2020

2019

2018

(Dollars in thousands, except share data)

Interest income:

Loan interest

i 595,113

i 914,256

i 897,666

Investment interest

i 24,543

i 34,421

i 26,600

Total interest income

i 619,656

i 948,677

i 924,266

Interest expense:

Interest on bonds and notes payable and bank deposits

i 330,071

i 699,327

i 669,906

Net interest income

i 289,585

i 249,350

i 254,360

Less provision for loan losses

i 63,360

i 39,000

i 23,000

Net interest income after provision for loan losses

i 226,225

i 210,350

i 231,360

Other income/expense:

Loan servicing and systems revenue

i 451,561

i 455,255

i 440,027

Education technology, services, and payment processing revenue

i 282,196

i 277,331

i 221,962

Communications revenue

i 76,643

i 64,269

i 44,653

Other

i 57,561

i 47,918

i 54,805

Gain on sale of loans

i 33,023

i 17,261

i —

Gain from deconsolidation of ALLO

i 258,588

i —

Impairment expense and provision for beneficial interests

( i 24,723)

i —

( i 11,721)

Derivative market value adjustments and derivative settlements, net

( i 24,465)

( i 30,789)

i 71,085

Total other income/expense

i 1,110,384

i 831,245

i 820,811

Cost of services:

Cost to provide education technology, services, and payment processing services

i 82,206

i 81,603

i 59,566

Cost to provide communications services

i 22,812

i 20,423

i 16,926

Total cost of services

i 105,018

i 102,026

i 76,492

Operating expenses:

Salaries and benefits

i 501,832

i 463,503

i 436,179

Depreciation and amortization

i 118,699

i 105,049

i 86,896

Other expenses

i 160,574

i 194,272

i 166,310

Total operating expenses

i 781,105

i 762,824

i 689,385

Income before income taxes

i 450,486

i 176,745

i 286,294

Income tax expense

i 100,860

i 35,451

i 58,770

Net income

i 349,626

i 141,294

i 227,524

Net loss attributable to noncontrolling interests

i 2,817

i 509

i 389

Net income attributable to Nelnet, Inc.

i 352,443

i 141,803

i 227,913

Earnings per common share:

Net income attributable to Nelnet, Inc. shareholders - basic and diluted

i 9.02

i 3.54

i 5.57

Weighted average common shares outstanding - basic and diluted

i 39,059,588

i 40,047,402

i 40,909,022

See accompanying notes to consolidated financial statements.

F - 5

NELNET, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

Years ended December 31, 2020, 2019, and 2018

2020

2019

2018

(Dollars in thousands)

Net income

i 349,626

i 141,294

i 227,524

Other comprehensive income (loss):

Available-for-sale securities:

Unrealized holding gains (losses) arising during period, net

i 6,637

( i 1,199)

i 1,056

Reclassification adjustment for gains recognized in net income, net of losses

( i 2,521)

i —

( i 978)

Income tax effect

( i 986)

i 288

( i 69)

Total other comprehensive income (loss)

i 3,130

( i 911)

i 9

Comprehensive income

i 352,756

i 140,383

i 227,533

Comprehensive loss attributable to noncontrolling interests

i 2,817

i 509

i 389

Comprehensive income attributable to Nelnet, Inc.

i 355,573

i 140,892

i 227,922

See accompanying notes to consolidated financial statements.

F - 6

NELNET, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders' Equity

Years ended December 31, 2020, 2019, and 2018

Nelnet, Inc. Shareholders

Preferred stock shares

Common stock shares

Preferred stock

Class A common stock

Class B common stock

Additional paid-in capital

Retained earnings

Accumulated other comprehensive earnings

Noncontrolling interests

Total equity

Class A

Class B

(Dollars in thousands, except share data)

Balance as of December 31, 2017

i —

i 29,341,517

i 11,468,587

i —

i 293

i 115

i 521

i 2,143,983

i 4,617

i 15,858

i 2,165,387

Issuance of noncontrolling interests

—

i 1,023

Net income (loss)

—

i 227,913

—

( i 389)

i 227,524

Other comprehensive income

—

i 9

—

i 9

Distribution to noncontrolling interests

—

( i 525)

Cash dividends on Class A and Class B common stock - $ i i 0.66 / per share

—

( i 26,839)

—

( i 26,839)

Issuance of common stock, net of forfeitures

—

i 316,148

—

i 3

—

i 5,171

—

i 5,174

Compensation expense for stock based awards

—

i 6,194

—

i 6,194

Repurchase of common stock

—

( i 868,147)

—

( i 8)

—

( i 11,264)

( i 34,059)

—

( i 45,331)

Impact of adoption of new accounting standards

—

i 2,007

( i 743)

—

i 1,264

Conversion of common stock

—

i 8,946

( i 8,946)

—

Acquisition of noncontrolling interest

—

( i 13,449)

—

( i 5,652)

( i 19,101)

Balance as of December 31, 2018

i —

i 28,798,464

i 11,459,641

i —

i 288

i 115

i 622

i 2,299,556

i 3,883

i 10,315

i 2,314,779

Issuance of noncontrolling interests

—

i 4,756

Net income (loss)

—

i 141,803

—

( i 509)

i 141,294

Other comprehensive loss

—

( i 911)

—

( i 911)

Distribution to noncontrolling interests

—

( i 4,103)

Cash dividends on Class A and Class B common stock - $ i i 0.74 / per share

—

( i 29,485)

—

( i 29,485)

Issuance of common stock, net of forfeitures

—

i 198,272

—

i 2

—

i 4,849

—

i 4,851

Compensation expense for stock based awards

—

i 6,401

—

i 6,401

Repurchase of common stock

—

( i 726,273)

—

( i 7)

—

( i 6,157)

( i 34,247)

—

( i 40,411)

Impact of adoption of new accounting standard

—

( i 6,077)

Conversion of common stock

—

i 188,032

( i 188,032)

—

i 2

( i 2)

—

Balance as of December 31, 2019

i —

i 28,458,495

i 11,271,609

i —

i 285

i 113

i 5,715

i 2,377,627

i 2,972

i 4,382

i 2,391,094

Issuance of noncontrolling interests

—

i 219,265

Net income (loss)

—

i 352,443

—

( i 2,817)

i 349,626

Other comprehensive income

—

i 3,130

—

i 3,130

Distribution to noncontrolling interests

—

( i 16,123)

Cash dividends on Class A and Class B common stock - $ i i 0.82 / per share

—

( i 31,778)

—

( i 31,778)

Issuance of common stock, net of forfeitures

—

i 213,015

—

i 2

—

i 5,626

—

i 5,628

Compensation expense for stock based awards

—

i 7,290

—

i 7,290

Repurchase of common stock

—

( i 1,594,394)

—

( i 16)

—

( i 14,837)

( i 58,505)

—

( i 73,358)

Impact of adoption of new accounting standard

—

( i 18,868)

—

( i 18,868)

Conversion of common stock

—

i 116,038

( i 116,038)

—

i 1

( i 1)

—

Acquisition of noncontrolling interest

—

( i 375)

—

( i 225)

( i 600)

Deconsolidation of noncontrolling interest - ALLO

—

( i 208,175)

Other equity transactions, net of costs incurred to sell shares of subsidiary

—

i 1,218

—

i 1,218

Balance as of December 31, 2020

i —

i 27,193,154

i 11,155,571

i —

i 272

i 112

i 3,794

i 2,621,762

i 6,102

( i 3,693)

i 2,628,349

See accompanying notes to consolidated financial statements.

F - 7

NELNET, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2020, 2019, and 2018

2020

2019

2018

(Dollars in thousands)

Net income attributable to Nelnet, Inc.

i 352,443

i 141,803

i 227,913

Net loss attributable to noncontrolling interests

( i 2,817)

( i 509)

( i 389)

Net income

i 349,626

i 141,294

i 227,524

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs

i 198,473

i 192,662

i 184,682

Loan discount accretion

( i 35,285)

( i 35,824)

( i 40,800)

Provision for loan losses

i 63,360

i 39,000

i 23,000

Derivative market value adjustments

i 28,144

i 76,195

( i 1,014)

(Payments to) proceeds from termination of derivative instruments, net

i —

( i 12,530)

i 10,283

(Payments to) proceeds from clearinghouse - initial and variation margin, net

( i 26,747)

( i 70,685)

i 40,382

Gain from deconsolidation of ALLO, including cash impact

( i 287,579)

i —

Gain from sale of loans

( i 33,023)

( i 17,261)

i —

Gain from investments, net

( i 14,055)

( i 3,095)

( i 8,139)

(Gain from) loss on repurchases and extinguishment of debt, net

( i 1,924)

i 16,553

( i 359)

Deferred income tax expense (benefit)

i 7,974

( i 7,265)

i 10,981

Non-cash compensation expense

i 16,739

i 6,781

i 6,539

Impairment expense and provision for beneficial interests

i 24,723

i —

i 11,721

Other

i 186

i 584

( i 2,551)

Increase in loan and investment accrued interest receivable

( i 61,090)

( i 54,586)

( i 248,869)

Decrease (increase) in accounts receivable

i 40,880

( i 55,949)

i 3,059

Decrease (increase) in other assets, net

i 59,182

( i 19,858)

( i 4,069)

Decrease in the carrying amount of ROU asset

i 11,594

i 8,793

i —

(Decrease) increase in accrued interest payable

( i 18,584)

( i 14,394)

i 11,640

Increase (decrease) in other liabilities

i 35,907

i 49,100

( i 12,506)

Decrease in the carrying amount of lease liability

( i 9,401)

( i 8,678)

i —

(Decrease) increase in due to customers

( i 136,285)

i 68,078

i 59,388

Net cash provided by operating activities

i 212,815

i 298,915

i 270,892

Cash flows from investing activities, net of acquisitions:

Purchases of loans

( i 1,459,696)

( i 1,906,669)

( i 3,847,553)

Purchases of loans from a related party

( i 147,539)

( i 101,538)

( i 74,698)

Net proceeds from loan repayments, claims, and capitalized interest

i 2,644,347

i 3,462,391

i 3,322,783

Proceeds from sale of loans

i 136,126

i 196,564

i 23,712

Purchases of available-for-sale securities

( i 471,510)

( i 1,010)

( i 46,424)

Proceeds from sales of available-for-sale securities

i 173,784

i 105

i 71,415

Proceeds from beneficial interest in loan securitizations

i 44,213

i 6,593

i —

Purchases of other investments

( i 168,216)

( i 103,250)

( i 67,040)

Proceeds from other investments

i 13,011

i 63,879

i 23,039

Purchases of property and equipment

( i 113,312)

( i 92,499)

( i 125,023)

Business acquisitions, net of cash and restricted cash acquired

( i 29,989)

i —

( i 12,562)

Net cash provided by (used in) investing activities

i 621,219

i 1,524,566

( i 732,351)

F - 8

NELNET, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)

2020

2019

2018

(Dollars in thousands)

Cash flows from financing activities:

Payments on bonds and notes payable

( i 3,129,485)

( i 4,698,878)

( i 3,113,503)

Proceeds from issuance of bonds and notes payable

i 1,884,689

i 2,997,972

i 3,922,962

Payments of debt issuance costs

( i 8,674)

( i 14,406)

( i 13,808)

Payments to extinguish debt

i —

( i 14,030)

i —

Increase in bank deposits, net

i 54,633

i —

Dividends paid

( i 31,778)

( i 29,485)

( i 26,839)

Repurchases of common stock

( i 73,358)

( i 40,411)

( i 45,331)

Proceeds from issuance of common stock

i 1,653

i 1,552

i 1,359

Acquisition of noncontrolling interest

( i 600)

i —

( i 13,449)

Issuance of noncontrolling interests

i 205,768

i 4,650

i 918

Distribution to noncontrolling interests

( i 1,088)

( i 235)

( i 525)

Net cash (used in) provided by financing activities

( i 1,098,240)

( i 1,793,271)

i 711,784

Net (decrease) increase in cash, cash equivalents and restricted cash

( i 264,206)

i 30,210

i 250,325

Cash, cash equivalents, and restricted cash, beginning of year

i 1,222,601

i 1,192,391

i 942,066

Cash, cash equivalents, and restricted cash, end of year

i 958,395

i 1,222,601

i 1,192,391

Supplemental disclosures of cash flow information:

Cash disbursements made for interest

i 301,570

i 657,436

i 591,394

Cash disbursements made for income taxes, net of refunds and credits received (a)

i 29,685

i 17,672

i 473

Cash disbursements made for operating leases

i 11,488

i 9,966

i —

Noncash operating, investing, and financing activity:

ROU assets obtained in exchange for lease obligations

i 4,282

i 8,731

i —

Receipt of beneficial interest in consumer loan securitizations

i 52,501

i 39,780

i —

Distribution to noncontrolling interest

i 15,035

i 3,868

i —

(a) For 2020, 2019, and 2018 the Company utilized $ i 53.9 million, $ i 31.8 million, and $ i 14.7 million of federal and state tax credits, respectively, related primarily to renewable energy.

Supplemental disclosures of noncash activities regarding the adoption of the new accounting standard for measurement of credit losses on January 1, 2020 are contained in note 3.

Supplemental disclosures of noncash activities regarding the Company's recapitalization of ALLO in 2020 and business acquisitions during 2020 and 2018 are contained in note 2 and note 8, respectively.

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

As of

Total cash and cash equivalents

i 121,249

i 133,906

i 121,347

i 66,752

Restricted cash

i 553,175

i 650,939

i 701,366

i 688,193

Restricted cash - due to customers

i 283,971

i 437,756

i 369,678

i 187,121

Cash, cash equivalents, and restricted cash

i 958,395

i 1,222,601

i 1,192,391

i 942,066

See accompanying notes to consolidated financial statements.

F - 9

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

1. i Description of Business

Nelnet, Inc. and its subsidiaries (“Nelnet” or 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 and education technology, services, and payment processing, and the Company also has a significant investment in communications. A significant portion of the Company's revenue is net interest income earned on a portfolio of federally insured student loans. The Company also makes investments to further diversify the Company both within and outside of its historical core education-related businesses, including, but not limited to, investments in real estate, early-stage and emerging growth companies, and renewable energy. Substantially all revenue from external customers is earned, and all long-lived assets are located, in the United States.

The Company was formed as a Nebraska corporation in 1978 to service federal student loans for two local banks. The Company built on this initial foundation as a servicer to become a leading originator, holder, and servicer of federal student loans, principally consisting of loans originated under the Federal Family Education Loan Program (“FFELP” or “FFEL Program”) of the U.S. Department of Education (the “Department”).

The Health Care and Education Reconciliation Act of 2010 (the “Reconciliation Act of 2010”) discontinued new loan originations under the FFEL Program, effective July 1, 2010, and requires that all new federal student loan originations be made directly by the Department through the Federal Direct Loan Program. This law does not alter or affect the terms and conditions of existing FFELP loans. As a result of this law, the Company no longer originates new FFELP loans. To reduce its reliance on interest income on student loans, the Company has expanded its services and products. This expansion has been accomplished through internal growth and innovation as well as business acquisitions.

The Company's reportable operating segments include:

• Loan Servicing and Systems (“LSS”)

• Education Technology, Services, and Payment Processing (“ETS&PP”)

• Communications

• Asset Generation and Management (“AGM”)

• Nelnet Bank

A description of each reportable operating segment is included below. See note 15 for additional information on the Company's segment reporting.

Loan Servicing and Systems

The primary service offerings of the Loan Servicing and Systems operating segment include:

•Servicing federally-owned student loans for the Department of Education

•Servicing FFELP loans

•Originating and servicing private education and consumer loans

•Backup servicing for FFELP, private education and consumer loans

•Providing student loan servicing software and other information technology products and services

•Customer acquisition, management services, and backup servicing for community solar developers

•Providing outsourced services including call center, processing, and marketing services

LSS provides for the servicing of the Company's student loan portfolio and the portfolios of third parties. The loan servicing activities include loan conversion activities, application processing, borrower updates, customer service, payment processing, due diligence procedures, funds management reconciliations, and claim processing. These activities are performed internally for the Company's portfolio in addition to generating external fee revenue when performed for third-party clients. In addition, LSS provides backup servicing to third-parties, which allows a transfer of the customer’s servicing volume to the Company’s platform and becoming a full servicing customer if their existing servicer cannot perform their duties.

On February 7, 2018, NDS acquired Great Lakes Educational Loan Services, Inc. (“Great Lakes”). See note 8 for additional information related to this acquisition. Nelnet Servicing, LLC, (“Nelnet Servicing”), a subsidiary of the Company, and Great Lakes are two of four large private sector companies (referred to as Title IV Additional Servicers, or “TIVAS”) awarded a student loan servicing contract by the Department to provide additional servicing capacity for loans owned by the Department.

F - 10

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

This segment also provides student loan servicing software, which is used internally and licensed to third-party student loan holders and servicers. These software systems have been adapted so that they can be offered as hosted servicing software solutions usable by third parties to service various types of student loans, including Federal Direct Loan Program and FFEL Program loans.

This segment also provides business process outsourcing primarily specializing in contact center management. The contact center solutions and services include taking inbound calls, helping with outreach campaigns and sales, interacting with customers through multi-channels, and processing and technology services.

Education Technology, Services, and Payment Processing

The Education Technology, Services, and Payment Processing segment (known as Nelnet Business Solutions (“NBS”)) provides service and technology to administrators, teachers, students, and families of K-12 schools and higher education institutions. The Company's payment processing services and technologies also serve customers outside of education.

In the K-12 market, the Company (known as FACTS) offers (i) financial management, including tuition payment plans, financial needs assessment (grant and aid), incidental billing, advanced accounting, and payment forms; (ii) school administration solutions, including school information system software that automates the flow of information between school administrators, teachers, and parents and includes administrative processes such as admissions, enrollment, scheduling, cafeteria management, attendance, and grade book management; (iii) advancement (giving management), including a comprehensive donation platform that streamlines donor communications, organizes donor information, and provides access to data analysis and reporting; (iv) enrollment and communications, including website design and cost effective admissions software; (v) professional development and educational instruction services; and (vi) innovative technology products that aid in teacher and student evaluations. In the higher education market, the Company (known as Nelnet Campus Commerce) offers solutions including (i) tuition payment plans and (ii) payment technology and processing.

Outside of the education market, the Company also offers technology and payment services including electronic transfer and credit card processing, reporting, billing and invoicing, mobile and virtual terminal solutions, and specialized integrations to business software. In addition, this operating segment offers mobile first technology focused on increasing engagement, online giving, and communication for church and not-for-profit customers. Additionally, the Company may earn revenue for payment processing fees when families make tuition payments.

Communications

ALLO Communications LLC (“ALLO”) provides pure fiber optic service to homes and businesses for internet, television, and telephone services. ALLO derives its revenue primarily from the sale of communication services to residential, governmental, and business customers in Nebraska and Colorado. Internet and television services include revenue from residential and business customers for subscriptions to ALLO's data and video products. ALLO data services provide high-speed internet access over ALLO's all-fiber network at various symmetrical speeds of up to 1 gigabit per second for residential customers and is capable of providing symmetrical speeds of over 1 gigabit per second for business customers. Telephone services include local and long distance telephone service, hosted PBX services, and other services.

On December 21, 2020 the Company deconsolidated ALLO from the Company’s consolidated financial statements due to ALLO’s recapitalization. The recapitalization of ALLO is not considered a strategic shift in the Company’s involvement with ALLO and ALLO’s results of operations, prior to deconsolidation, are presented by the Company as a reportable operating segment. See note 2, “Recent Developments - ALLO Recapitalization,” for a description of this transaction and the Company’s continued involvement.

Asset Generation and Management

The Company's Asset Generation and Management operating segment includes the acquisition, management, and ownership of the Company's loan assets (excluding loan assets held by Nelnet Bank). Substantially all loan assets included in this segment are student loans originated under the FFEL Program, including the Stafford Loan Program, the PLUS Loan program, and loans that reflect the consolidation into a single loan of certain previously separate borrower obligations (“Consolidation” loans). AGM also acquires private education and consumer loans. AGM generates a substantial portion of its earnings from the spread, referred to as the Company's loan spread, between the yield it receives on its loan portfolio and the associated costs to finance such portfolio. The loan assets are held in a series of lending subsidiaries and associated securitization trusts designed specifically for this purpose. In addition to the loan spread earned on its portfolio, all costs and activity associated with managing the portfolio, such as servicing of the assets and debt maintenance, are included in this segment.

F - 11

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Nelnet Bank

Corporate and Other Activities

Other business activities and operating segments that are not reportable are combined and included in Corporate and Other Activities. Corporate and Other Activities include the following items:

•The operating results of Whitetail Rock Capital Management, LLC (“WRCM”), the Company's SEC-registered investment advisor subsidiary

•Income earned on certain investment activities, including renewable energy (solar) and real estate

•Interest expense incurred on unsecured and certain other corporate related debt transactions

•Other product and service offerings that are not considered reportable operating segments

2. i Recent Developments - ALLO Recapitalization

On October 1, 2020, the Company entered into various agreements with SDC Allo Holdings, LLC (“SDC”), a third party global digital infrastructure investor, and ALLO, then a majority owned communications subsidiary of the Company, for various transactions contemplated by the parties in connection with a recapitalization and additional funding for ALLO.

The agreements provided for a series of interrelated transactions, whereby on October 15, 2020, ALLO received proceeds of $ i 197.0 million from SDC as the purchase price for the issuance of non-voting preferred membership units of ALLO, and redeemed $ i 160.0 million of non-voting preferred membership units of ALLO held by the Company. On December 21, 2020, the non-voting preferred membership units of ALLO held by SDC automatically converted into voting membership units of ALLO pursuant to the terms of the agreements upon the receipt on December 21, 2020 of the required approvals from applicable regulatory authorities. As a result of such conversion, SDC, the Company, and members of ALLO’s management own approximately i 48 percent, i 45 percent, and i 7 percent, respectively, of the outstanding voting membership interests of ALLO, and the Company deconsolidated ALLO from the Company’s consolidated financial statements.

Upon the deconsolidation of ALLO, the Company recorded its i 45 percent voting membership interests in ALLO at fair value, and accounts for such investment under the Hypothetical Liquidation at Book Value (“HLBV”) method of accounting. In addition, the Company recorded its remaining non-voting preferred membership units in ALLO at fair value, and accounts for such investment as a separate equity investment. i As a result of the deconsolidation of ALLO, the Company recognized a gain of $ i 258.6 million in the fourth quarter of 2020 as summarized below. /

F - 12

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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


	As of December 21, 2020
Voting interest/equity method investment - recorded at fair value	$	i 132,960
Preferred membership interest investment - recorded at fair value	i 228,530
Less: ALLO assets deconsolidated:
Cash and cash equivalents – not held at a related party	( i 299)
Cash and cash equivalents – held at a related party	( i 28,692)
Accounts receivable	( i 4,138)
Goodwill	( i 21,112)
Intangible assets	( i 6,083)
Property and equipment, net	( i 245,295)
Other assets	( i 29,643)
Other liabilities	i 24,185
Noncontrolling interests	i 208,175
Gain recognized upon deconsolidation of ALLO	$	i 258,588

The agreements between the Company, SDC, and ALLO provide that they will use commercially reasonable efforts (which expressly excludes requiring ALLO to raise any additional equity financing or sell any assets) to cause ALLO to redeem, on or before April 2024, the remaining preferred membership units of ALLO held by the Company, plus the amount of accrued and unpaid preferred return on such units. As of December 31, 2020, the outstanding preferred membership units of ALLO held by the Company was $ i 228.9 million. The preferred membership units earn a preferred annual return of i 6.25 percent.

The impact to the Company’s 2020 operating results as a result of the ALLO recapitalization is summarized below:


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

Note 1: On October 1, 2020 (prior to the deconsolidation of ALLO), ALLO recognized compensation expense related to the modification of certain equity awards previously granted to members of ALLO’s management.

Note 2: As part of the ALLO recapitalization transaction, the Company and SDC entered into an agreement, in which the Company has a contingent payment obligation to pay SDC a contingent payment amount of $ i 25.0 million to $ i 35.0 million in the event the Company disposes of its voting membership units of ALLO that it holds and realizes from such disposition certain targeted return levels. The Company recognized the estimated fair value of the contingent payment as of December 31, 2020 to be $ i 2.3 million, which is included in “other liabilities” on the consolidated balance sheet.

3. i Summary of Significant Accounting Policies and Practices

Consolidation

The consolidated financial statements include the accounts of Nelnet, Inc. and its consolidated subsidiaries. In addition, the accounts of all variable interest entities (“VIEs”) of which the Company has determined that it is the primary beneficiary are included in the consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation.

Variable Interest Entities

The Company assesses its partnerships and joint ventures to determine if the entity meets the qualifications of a VIE. The Company performs a qualitative assessment of each VIE to determine if it is the primary beneficiary. The primary beneficiary is the entity which has both: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the

F - 13

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

VIE. The Company examines specific criteria and uses judgment when determining whether an entity is a VIE and whether it is the primary beneficiary. The Company performs this review initially at the time it enters into a partnership or joint venture agreement and reassess upon reconsideration events.

VIEs - Consolidated

The Company is required to consolidate VIEs in which it has determined it is the primary beneficiary.

The Company's education and other lending subsidiaries are engaged in the securitization of finance assets. These lending subsidiaries hold beneficial interests in eligible loans, subject to creditors with specific interests. The liabilities of the Company's lending subsidiaries are not the direct obligations of Nelnet, Inc. or any of its other subsidiaries. Each lending subsidiary is structured to be bankruptcy remote, meaning that it should not be consolidated in the event of bankruptcy of the parent company or any other subsidiary. The Company is generally the administrator and master servicer of the securitized assets held in its lending subsidiaries and owns the residual interest of the securitization trusts. For accounting purposes, the transfers of loans to the securitization trusts do not qualify as sales. Accordingly, all the financial activities and related assets and liabilities, including debt, of the securitizations are reflected in the Company's consolidated financial statements and are summarized as supplemental information on the balance sheet.

VIEs - Not consolidated

The Company is not required to consolidate VIEs in which it has determined it is not the primary beneficiary.

The Company makes investments in entities that promote renewable energy sources (solar). The Company’s investments in these entities generate a return primarily through the realization of federal income tax credits, operating cash flows, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods. These investments are included in "investments" on the consolidated balance sheets and accounted for under the HLBV method of accounting. The carrying value of these investments are reduced by tax credits earned when the solar project is placed in service. The Company’s unfunded capital and other commitments related to these unconsolidated VIEs are included in “other liabilities” on the consolidated balance sheet. The Company’s maximum exposure to loss from these unconsolidated VIEs include the investment, unfunded capital commitments, and previously recorded tax credits which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level. The tax credit recapture period ratably decreases over five years from when the project is placed in service. While the Company believes potential losses from these investments are remote, the maximum exposure was determined by assuming a scenario where the energy-producing projects completely fail and do not meet certain government compliance requirements resulting in recapture of the related tax credits.

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


	As of December 31,
	2020		2019
Investment carrying amount	$	( i 30,373)	i 7,562
Tax credits subject to recapture	i 117,740		i 67,069
Unfunded capital and other commitments	i 17,462		i 14,006
Maximum exposure to loss (a)	$	i 104,829	i 88,637

(a) Amounts include $ i 15.6 million and $ i 3.0 million as of December 31, 2020 and 2019, respectively, syndicated to other investors in certain solar projects.

As of December 31, 2020, the Company owned i 45 percent of the economic rights of ALLO Communications LLC and has a disproportional i 43 percent of the voting rights related to all operating decisions for ALLO's business. See note 1, “Description of Business,” for a description of ALLO, including the primary services offered. See note 2, “Recent Developments - ALLO Recapitalization,” for disclosure of ALLO’s recapitalization and the Company’s recognition of its voting interest/equity method and non-voting preferred membership investments, which is the Company’s maximum exposure to loss.

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

F - 14

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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 $ i 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 $ i 18.9 million. i The following table illustrates the impact of the adoption of ASC 326.

Balances at
December 31, 2019

Impact of ASC 326 adoption

Balances at
January 1, 2020

Assets

Loans and accrued interest receivable, net of allowance

Loans receivable

i 20,798,719

i —

i 20,798,719

Accrued interest receivable

i 733,497

i —

i 733,497

Loan discount, net

( i 35,036)

i 33,790

( i 1,246)

Non-accretable discount

( i 32,398)

i 32,398

i —

Allowance for loan losses

( i 61,914)

( i 91,014)

( i 152,928)

Loans and accrued interest receivable, net of allowance

i 21,402,868

( i 24,826)

i 21,378,042

Liabilities

Other liabilities (deferred taxes)

i 303,781

( i 5,958)

i 297,823

Equity

Retained earnings

i 2,377,627

( i 18,868)

i 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 $ i 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

F - 15

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

recoveries of amounts previously charged off, not to exceed the aggregate of the amount previously charged off, are included in the estimate of the allowance for loan losses at the balance sheet date.

The Company aggregates loans with similar risk characteristics into pools to estimate its expected credit losses. The Company evaluates such pooling decisions each quarter and makes adjustments as risk characteristics change.

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

Loans receivable

Management has determined that the federally insured, private education, and consumer loan portfolios each meet the definition of a portfolio segment, which is defined as the level at which an entity develops and documents a systematic method for determining its allowance for loan losses. Accordingly, the portfolio segment disclosures are presented on this basis in note 4 for each of these portfolios. The Company does not disaggregate its portfolio segment loan portfolios into classes of financing receivables.

The Company utilizes an undiscounted cash flow methodology in determining its lifetime expected credit losses on its federally insured and private education loan portfolios and a remaining life methodology for its consumer loan portfolio. For the undiscounted cash flow models, the expected credit losses are the product of multiplying the Company’s estimates of probability of default and loss given default and the exposure of default over the expected life of the loans. For the remaining life method, the expected credit losses are the product of multiplying the Company’s estimated net loss rate by the exposure at default over the expected life of the loans. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current economic conditions, and reasonable and supportable forecasts. The Company has determined that, for modeling current expected credit losses, the Company can reasonably estimate expected losses that incorporate current economic conditions and forecasted probability weighted economic scenarios up to a one-year period. Macroeconomic factors used in the models include such variables as unemployment rates, gross domestic product, and consumer price index. After the "reasonable and supportable" period, the Company reverts to its actual long-term historical loss experience in the historical observation period. The Company uses a straight line reversion method over two years. Historical credit loss experience provides the basis for the estimation of expected credit losses. A portion of the allowance is comprised of qualitative adjustments to historical loss experience.

Qualitative adjustments consider the following factors, as applicable, for each of the Company’s loan portfolios: student loans in repayment versus those in nonpaying status; delinquency status; type of private education or consumer loan program; trends in defaults in the portfolio based on Company and industry data; past experience; trends in federally insured student loan claims rejected for payment by guarantors; changes in federal student loan programs; and other relevant qualitative factors.

Changes in the allowance for the year ended December 31, 2020 were primarily a result of the adoption of ASC 326 and changes in macroeconomic factors that were impacted by COVID-19.

The federal government guarantees 97 percent of the principal of and the interest on federally insured student loans disbursed on and after July 1, 2006 (and 98 percent for those loans disbursed on and after October 1, 1993 and prior to July 1, 2006), which limits the Company’s loss exposure on the outstanding balance of the Company’s federally insured portfolio. Federally insured student loans disbursed prior to October 1, 1993 are fully insured. Private education and consumer loans are unsecured, with neither a government nor a private insurance guarantee. Accordingly, the Company bears the full risk of loss on these loans if the borrower and co-borrower, if applicable, default. The Company places private education 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. 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

F - 16

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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.

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";

•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; and

•Reclassifying “impairment expense” that was previously included in “other expenses” to a new line on the Company’s consolidated statements of income.

Noncontrolling Interests

Amounts for noncontrolling interests reflect the proportionate share of membership interest (equity) and net income attributable to the holders of minority membership interests in the following entities:

•Whitetail Rock Capital Management, LLC - WRCM is the Company’s SEC-registered investment advisor subsidiary. WRCM issued i 10 percent minority membership interests on January 1, 2012.

In addition, the Company has established multiple entities for the purpose of investing in renewable energy (solar) and federal opportunity zone programs in which it has noncontrolling members.

/ i

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities, reported amounts of revenues and expenses, and other disclosures. Actual results may differ from those estimates.

Loans Receivable

Loans consist of federally insured student loans, private education loans, and consumer loans. If the Company has the ability and intent to hold loans for the foreseeable future, such loans are held for investment and carried at amortized cost. Amortized cost includes the unamortized premium or discount and capitalized origination costs and fees, all of which are amortized to interest income. Loans which are held-for-investment also have an allowance for loan loss as needed. Any loans the Company has the ability and intent to sell are classified as held for sale and are carried at the lower of cost or fair value. Loans which are held for sale do not have the associated premium or discount and origination costs and fees amortized into interest income and there is also no related allowance for loan losses. There were i no loans classified as held for sale as of December 31, 2020 and 2019.

F - 17

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Federally insured loans were originated under the FFEL Program by certain eligible lenders as defined by the Higher Education Act of 1965, as amended (the “Higher Education Act”). These loans, including related accrued interest, are guaranteed at their maximum level permitted under the Higher Education Act by an authorized guaranty agency, which has a contract of reinsurance with the Department. The terms of the loans, which vary on an individual basis, generally provide for repayment in monthly installments of principal and interest. Generally, Stafford and PLUS loans have repayment periods between five and i ten years. Consolidation loans have repayment periods of twelve to i thirty years. FFELP loans do not require repayment while the borrower is in-school, and during the grace period immediately upon leaving school. Under the Higher Education Act a borrower may also be granted a deferment or forbearance for a period of time based on need, during which time the borrower is not considered to be in repayment. Interest continues to accrue on loans in the in-school, deferment, and forbearance program periods. In addition, eligible borrowers may qualify for income-driven repayment plans offered by the Department. These plans determine the borrower's payment amount based on their discretionary income and may extend their repayment period. Interest rates on federally insured student loans may be fixed or variable, dependent upon the type of loan, terms of the loan agreements, and date of origination.

Substantially all FFELP loan principal and related accrued interest is guaranteed as provided by the Higher Education Act. These guarantees are subject to the performance of certain loan servicing due diligence procedures stipulated by applicable Department regulations. If these due diligence requirements are not met, affected student loans may not be covered by the guarantees in the event of borrower default. Such student loans are subject to “cure” procedures and reinstatement of the guarantee under certain circumstances.

Loans also include private education and consumer loans. Private education loans are loans to students or their families that are non-federal loans and loans not insured or guaranteed under the FFEL Program. These loans are used primarily to bridge the gap between the cost of higher education and the amount funded through financial aid, federal loans, or borrowers' personal resources. The terms of the private education loans, which vary on an individual basis, generally provide for repayment in monthly installments of principal and interest over a period of up to i thirty years. The private education loans are not covered by a guarantee or collateral in the event of borrower default. Consumer loans are unsecured loans to an individual for personal, family, or household purposes. The terms of the consumer loans, which vary on an individual basis, generally provide for repayment in weekly or monthly installments of principal and interest over a period of up to i six years.

Allowance for Loan Losses – Prior to Adoption of ASC 326

Prior to the adoption of ASC 326 effective January 1, 2020, the allowance for loan losses represented management's estimate of probable losses on loans. The provision for loan losses for periods ended prior to January 1, 2020 reflected the activity for the applicable period and provided an allowance at a level that the Company's management believed was appropriate to cover probable losses inherent in the loan portfolio. The Company evaluated the adequacy of the allowance for loan losses using a historical loss rate methodology adjusted for qualitative factors separately on each of its federally insured, private education, and consumer loan portfolios. These evaluation processes were subject to numerous judgments and uncertainties including the selection of loss rates over time and determination of the loss emergence period.

In determining the appropriate allowance for loan losses, the Company considered several factors, as applicable, for each of the Company’s loan portfolios, including: loans in repayment versus those in a 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 to federal student loan programs, type of program, current economic conditions, and other relevant qualitative factors.

For loans purchased where there was evidence of credit deterioration since the origination of the loan, the Company recorded a credit discount, separate from the allowance for loan losses, which was non-accretable to interest income. Remaining discounts and premiums for purchased loans were recognized in interest income over the remaining estimated lives of the loans. The Company continued to evaluate credit losses associated with purchased loans based on current information and changes in expectations to determine if additional allowance for loan losses on such portfolios were needed.

Cash and Cash Equivalents and Statements of Cash Flows

For purposes of the consolidated statements of cash flows, the Company considers all investments with original maturities of three months or less to be cash equivalents.

Accrued interest on loans purchased and sold is included in cash flows from operating activities in the respective period. Net purchased loan accrued interest was $ i 92.3 million, $ i 112.9 million, and $ i 181.0 million in 2020, 2019, and 2018, respectively.

F - 18

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Investments

The Company classifies its debt securities, primarily student loan and other asset-backed securities, as available-for-sale. These securities are carried at fair value, with the changes in fair value, net of taxes, carried as a separate component of shareholders’ equity. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts, which are amortized using the effective interest rate method. When an investment is sold, the cost basis is determined through specific identification of the security sold.

The Company classifies its residual interest in federally insured and consumer loan securitizations as held-to-maturity beneficial interest investments. The Company measures accretable yield initially as the excess of all cash flows expected to be collected attributable to the beneficial interest estimated at the acquisition/transaction date over the initial investment and recognizes interest income over the life of the beneficial interest using the effective interest method. The Company continues to update, over the life of the beneficial interest, the expectation of cash flows to be collected. Beneficial interest investments are evaluated for impairment by comparing the present value of the remaining cash flows as estimated at the initial transaction date (or the last date previously revised) to the present value of the cash flows expected to be collected at the current financial reporting date, both discounted using the same effective rate equal to the current yield used to accrete the beneficial interest. If the present value of remaining cash flows is less than the present value of cash flows expected to be collected, the Company records an allowance for credit losses for the difference. Subsequent favorable changes, if any, decreases the allowance for credit losses. The Company reflects the changes in the allowance for credit losses in provision for beneficial interests on the consolidated statements of income.

Equity investments with readily determinable fair values are measured at fair value, with changes in the fair value recognized through net income (other than those equity investments accounted for under the equity method of accounting or those that result in consolidation of the investee).

For equity investments without readily determinable fair value, the Company uses the measurement alternative of cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The Company uses qualitative factors to identify impairment on these investments.

The Company accounts for equity investments over which it has significant influence but not a controlling financial interest using the equity method of accounting. Equity method investments are recorded at cost and subsequently increased or decreased by the amount of the Company’s proportionate share of the net earnings or losses and other comprehensive income of the investee. Equity method investments are evaluated for other-than-temporary impairment using certain impairment indicators such as a series of operating losses of an investee or other factors. These factors may indicate that a decrease in value of the investment has occurred that is other-than-temporary and shall be recognized.

The Company accounts for its solar investments and equity investments in ALLO under the HLBV method of accounting. The HLBV method of accounting is used by the Company for equity method investments when the liquidation rights and priorities as defined by an equity investment agreement differ from what is reflected by the underlying percentage ownership or voting interests. The Company applies the HLBV method using a balance sheet approach. A calculation is prepared at each balance sheet date to determine the amount that the Company would receive if an equity investment entity were to liquidate its net assets and distribute that cash to the investors based on the contractually defined liquidation priorities. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period, after adjusting for capital contributions and distributions, is the amount the Company recognizes for its share of the earnings or losses from the equity investment for the period.

Restricted Cash

Restricted cash primarily includes amounts for student loan securitizations and other secured borrowings. This cash must be used to make payments related to trust obligations. Amounts on deposit in these accounts are primarily the result of timing differences between when principal and interest is collected on the student loans held as trust assets and when principal and interest is paid on the trust's asset-backed debt securities. Restricted cash also includes collateral deposits with derivative third-party clearinghouses.

Restricted Cash - Due to Customers

As a servicer of student loans, the Company collects student loan remittances and subsequently disburses these remittances to the appropriate lending entities. In addition, as part of the Company's Education Technology, Services, and Payment Processing

F - 19

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

operating segment, the Company collects tuition payments and subsequently remits these payments to the appropriate schools. Cash collected for customers and the related liability are included in the accompanying consolidated balance sheets.

Accounts Receivable

Accounts receivable are presented at their net realizable values, which include allowances for doubtful accounts. Allowance estimates are based upon individual customer experience, as well as the age of receivables and likelihood of collection.

i Business Combinations

The Company uses the acquisition method in accounting for acquired businesses. Under the acquisition method, the financial statements reflect the operations of an acquired business starting from the completion of the acquisition. The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of acquisition. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. All contingent consideration is measured at fair value on the acquisition date and included in the consideration transferred in the acquisition. Contingent consideration classified as a liability is remeasured to fair value at each reporting date until the contingency is resolved, and changes in fair value are recognized in earnings.

Goodwill

The Company reviews goodwill for impairment annually (as of November 30) and whenever triggering events or changes in circumstances indicate its carrying value may not be recoverable. Goodwill is tested for impairment using a fair value approach at the reporting unit level. A reporting unit is the operating segment, or a business one level below that operating segment if discrete financial information is prepared and regularly reviewed by segment management. However, components are aggregated as a single reporting unit if they have similar economic characteristics.

The Company tests goodwill for impairment in accordance with applicable accounting guidance. The guidance provides an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the estimated fair value of a reporting unit is less than its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform a quantitative impairment test, otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test.

For the 2020, 2019, and 2018 annual reviews of goodwill, the Company assessed qualitative factors and concluded it was not more likely than not that the fair value of its reporting units were less than their carrying amount. As such, the Company was not required to perform further impairment testing and concluded there was no impairment of goodwill.

Intangible Assets

The Company uses estimates to determine the fair value of acquired assets to allocate the purchase price to acquired intangible assets. Such estimates are generally based on estimated future cash flows or cost savings associated with particular assets and are discounted to present value using an appropriate discount rate. The estimates of future cash flows associated with intangible assets are generally prepared using a cost savings method, a lost income method, or an excess return method, as appropriate. In utilizing such methods, management must make certain assumptions about the amount and timing of estimated future cash flows and other economic benefits from the assets, the remaining economic useful life of the assets, and general economic factors concerning the selection of an appropriate discount rate. The Company may also use replacement cost or market comparison approaches to estimate fair value if such methods are determined to be more appropriate.

Intangible assets with finite lives are amortized over their estimated lives. Such assets are amortized using a method of amortization that reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up. If that pattern cannot be reliably determined, the Company uses a straight-line amortization method.

The Company evaluates the estimated remaining useful lives of purchased intangible assets and whether events or changes in circumstances warrant a revision to the remaining periods of amortization.

Property and Equipment

Property and equipment are carried at cost, net of accumulated depreciation. Maintenance and repairs are charged to expense as incurred, and major improvements, including leasehold improvements, are capitalized. Gains and losses from the sale of

F - 20

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

property and equipment are included in determining net income. The Company uses the straight-line method for recording depreciation and amortization. Leasehold improvements are amortized straight-line over the shorter of the lease term or estimated useful life of the asset.

Leases

At the inception of an arrangement, the Company determines if the arrangement is, or contains, a lease and records the lease in the consolidated financial statements upon lease commencement, which is the date when the underlying asset is made available by the lessor. The Company primarily leases office and data center space. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The lease expense for these leases is recognized on a straight-line basis over the lease term. All other lease assets (ROU assets) and lease liabilities are recognized based on the present value of lease payments over the lease term at the commencement date. The Company classifies each lease as operating or financing, with the income statement reflecting lease expense for operating leases and amortization/interest expense for financing leases. When the discount rate implicit in the lease cannot be readily determined, the Company uses its incremental borrowing rate.

The Company accounts for lease and non-lease components together as a single, combined lease component for its office and data center space. In addition, the Company identified itself as the lessor in its Communications operating segment for services provided to customers that include customer-premise equipment. The Company accounts for those services and associated leases as a single, combined component. The non-lease services are 'predominant' in those contracts. Therefore, the combined component is considered a single performance obligation under ASC Topic 606, Revenue from Contracts with Customers.

Most leases include one or more options to renew, with renewal terms that can be extended. The exercise of lease renewal options for the majority of leases is at the Company's discretion. Renewal options that the Company is reasonably certain to exercise are included in the lease term.

Certain leases include escalating rental payments or rental payments adjusted periodically for inflation. None of the lease agreements include any residual value guarantees, a transfer of title, or a purchase option that is reasonably certain to be exercised.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets, such as ROU assets, property and equipment, and purchased intangibles subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Assumptions and estimates about future cash flows generated by, remaining useful lives of, and fair values of the Company's intangible and other long-lived assets are complex and subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in the Company's business strategy and internal forecasts. Although the Company believes the historical assumptions and estimates used are reasonable and appropriate, different assumptions and estimates could materially impact the reported financial results.

Fair Value Measurements

The Company uses estimates of fair value in applying various accounting standards for its financial statements.

Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company's policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value, such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates, and credit spreads, relying first on observable data from active markets. Depending on current market conditions, additional adjustments to fair value may be based on factors such as liquidity, credit, and bid/offer spreads. In some cases fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Transaction costs are not included in the determination of fair value. When possible, the Company seeks to validate the model's output to market transactions. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. Additionally, there may be inherent weaknesses in any calculation

F - 21

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the estimates of current or future values.

The Company categorizes its fair value estimates based on a hierarchical framework associated with three levels of price transparency utilized in measuring assets and liabilities at fair value. Classification is based on the lowest level of input that is significant to the fair value of the instrument. The three levels include:

•Level 1: Quoted prices for identical instruments in active markets. The types of financial instruments included in Level 1 are highly liquid instruments with quoted prices.

•Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose primary value drivers are observable.

•Level 3: Instruments whose primary value drivers are unobservable. Inputs are developed based on the best information available; however, significant judgment is required by management in developing the inputs.

Revenue Recognition

The Company applies the provisions of ASC Topic 606, Revenue from Contracts with Customers ("ASC Topic 606"), to its fee-based operating segments. The majority of the Company’s revenue earned in its Asset Generation and Management operating segment, including loan interest and derivative activity, is explicitly excluded from the scope of ASC Topic 606. The Company recognizes revenue under the core principle of ASC Topic 606 to depict the transfer of control of products and services to the Company’s customers in an amount reflecting the consideration to which the Company expects to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.

Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records deferred revenue when revenue is received or receivable in advance of the delivery of service. For multi-year contracts, the Company generally invoices customers annually at the beginning of each annual coverage period. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined its contracts do not include a significant financing component.

The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year. The Company has determined that certain sales incentive programs and pre-production contract fulfillment costs meet the requirements to be capitalized. Total capitalized costs to obtain a contract were immaterial during the periods presented and are included in “other assets” on the consolidated balance sheets.

Additional information related to revenue earned in its Asset Generation and Management operating segment is provided below. See note 16, "Disaggregated Revenue and Deferred Revenue" for additional information related to the Company's fee-based operating segments.

Loan interest income - Loan interest on federally insured student loans is paid by the Department or the borrower, depending on the status of the loan at the time of the accrual. The Department makes quarterly interest subsidy payments on certain qualified FFELP loans until the student is required under the provisions of the Higher Education Act to begin repayment. Borrower repayment of FFELP loans normally begins within six months after completion of the borrower's course of study, leaving school, or ceasing to carry at least one-half the normal full-time academic load, as determined by the educational institution. Borrower repayment of PLUS and Consolidation loans normally begins within 60 days from the date of loan disbursement. Borrower repayment of private education loans typically begins six months following the borrower's graduation from a qualified institution, and the interest is either paid by the borrower or capitalized annually or at repayment. Repayment of consumer loans typically starts upon origination of the loan.

The Department provides a special allowance to lenders participating in the FFEL Program. The special allowance is accrued based upon the fiscal quarter average rate of 13-week Treasury Bill auctions (for loans originated prior to January 1, 2000), the

F - 22

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

fiscal quarter average rate of the daily three-month financial commercial paper rates (for loans originated on and after January 1, 2000), or the fiscal quarter average rate of daily one-month LIBOR rates (for loans originated on and after January 1, 2000, and for lenders which elected to change the special allowance index to one-month LIBOR effective April 1, 2012) relative to the yield of the student loan.

The Company recognizes loan interest income as earned, net of amortization of loan premiums and deferred origination costs and the accretion of loan discounts. Loan interest income is recognized based upon the expected yield of the loan after giving effect to interest rate reductions resulting from borrower utilization of incentives such as timely payments ("borrower benefits") and other yield adjustments. Loan premiums or discounts, deferred origination costs, and borrower benefits are amortized/accreted over the estimated life of the loans, which includes an estimate of forecasted payments in excess of contractually required payments (the constant prepayment rate). The constant prepayment rate used by the Company to amortize/accrete federally insured loan premiums/discounts is i 5 percent for Stafford loans and i 3 percent for Consolidation loans. The Company periodically evaluates the assumptions used to estimate the life of the loans and prepayment rates. In instances where there are changes to the assumptions, amortization/accretion is adjusted on a cumulative basis to reflect the change since the acquisition of the loan.

The Company also pays the Department an annual i 105 basis point rebate fee on Consolidation loans. These rebate fees are netted against loan interest income.

i Interest Expense

Interest expense is based upon contractual interest rates, adjusted for the amortization of debt issuance costs and the accretion of discounts. The amortization of debt issuance costs and accretion of discounts are recognized using the effective interest method.

i Transfer of Financial Assets and Extinguishments of Liabilities

The Company accounts for loan sales and debt repurchases in accordance with applicable accounting guidance. If a transfer of loans qualifies as a sale, the Company derecognizes the loan and recognizes a gain or loss as the difference between the carrying basis of the loan sold and the consideration received. The Company from time to time repurchases its outstanding debt and records a gain or loss on the early extinguishment of debt based upon the difference between the carrying amount of the debt and the amount paid to the third party. The Company recognizes the results of a transfer of loans and the extinguishment of debt based upon the settlement date of the transaction.

Derivative Accounting

All over-the-counter derivative contracts executed by the Company are cleared post-execution at the Chicago Mercantile Exchange (“CME”), a regulated clearinghouse. Substantially all of the Company’s outstanding derivatives are over-the-counter contracts. Clearing is a process by which a third-party, the clearinghouse, steps in between the original counterparties and guarantees the performance of both, by requiring that each post liquid collateral on an initial (initial margin) and mark-to-market (variation margin) basis to cover the clearinghouse’s potential future exposure in the event of default.

The CME legally characterizes variation margin payments for over-the-counter derivatives they clear as settlements of the derivatives’ exposure rather than collateral against the exposure. For accounting and presentation purposes, the Company considers variation margin and the corresponding derivative instrument as a single unit of account. As such, variation margin payments are considered in determining the fair value of the centrally cleared derivative portfolio. The Company records derivative contracts on its balance sheet with a fair value of zero due to the payment or receipt of variation margin between the Company and the CME settling the outstanding mark-to-market exposure on such derivatives to a balance of zero on a daily basis. Management has structured all of the Company's derivative transactions with the intent that each is economically effective; however, the Company's derivative instruments do not qualify for hedge accounting. As a result, the change in market value of derivative instruments is reported in current period earnings. Changes or shifts in the forward yield curve can significantly impact the valuation of the Company’s derivatives, and therefore impact the results of operations of the Company. The changes in fair value of derivative instruments, as well as the settlement payments made on such derivatives, are included in “derivative market value adjustments and derivative settlements, net” on the consolidated statements of income.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are

F - 23

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company uses the deferred method of accounting for its credits related to state tax incentives and investments that generate investment tax credits. The investment tax credits are recognized as a reduction to the related asset.

Income tax expense includes deferred tax expense, which represents a portion of the net change in the deferred tax asset or liability balance during the year, plus any change made in the valuation allowance, and current tax expense, which represents the amount of tax currently payable to or receivable from a tax authority plus amounts for expected tax deficiencies.

Compensation Expense for Stock Based Awards

The Company has a restricted stock plan that is intended to provide incentives to attract, retain, and motivate employees in order to achieve long term growth and profitability objectives. The restricted stock plan provides for the grant to eligible employees of awards of restricted shares of Class A common stock. The fair value of restricted stock awards is determined on the grant date based on the Company's stock price and is amortized to compensation cost over the related vesting periods, which range up to i ten years. For those awards with only service conditions that have graded vesting schedules, the Company recognizes compensation expense on a straight-line basis over the requisite service period for each separately vesting portion of the award, as if the award was, in substance, multiple awards. Holders of restricted stock are entitled to receive dividends from the date of grant whether or not vested. The Company accounts for forfeitures as they occur.

The Company also has a directors stock compensation plan pursuant to which non-employee directors can elect to receive their annual retainer fees in the form of fully vested shares of Class A common stock, and also elect to defer receipt of such shares until the termination of their service on the board of directors. The fair value of grants under this plan is determined on the grant date based on the Company's stock price, and is expensed over the board member's annual service period.

4. i Loans and Accrued Interest Receivable and Allowance for Loan Losses

Loans and accrued interest receivable consisted of the following:


	As of December 31,
	2020		2019
Federally insured student loans:
Stafford and other	$	i 4,383,000	i 4,684,314
Consolidation	i 14,746,173		i 15,644,229
Total	i 19,129,173		i 20,328,543
Private education loans	i 338,132		i 244,258
Consumer loans	i 109,346		i 225,918
	i 19,576,651		i 20,798,719
Accrued interest receivable	i 794,611		i 733,497
Loan discount, net of unamortized loan premiums and deferred origination costs	( i 9,908)		( i 35,036)
Non-accretable discount	i —		( i 32,398)
Allowance for loan losses:
Federally insured loans	( i 128,590)		( i 36,763)
Private education loans	( i 19,852)		( i 9,597)
Consumer loans	( i 27,256)		( i 15,554)
	$	i 20,185,656	i 21,402,868

On January 30, 2020 and July 29, 2020, the Company sold $ i 124.2 million (par value) and $ i 60.8 million (par value), respectively, of consumer loans to an unrelated third party who securitized such loans. The Company recognized a gain of $ i 18.2 million (pre-tax) and $ i 14.8 million (pre-tax), respectively, as part of these transactions. As partial considerations received for the consumer loans sold, the Company received a i 31.4 percent and i 25.4 percent residual interest, respectively, in the consumer loan securitizations that are included in "investments" on the Company's consolidated balance sheet.

F - 24

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Activity in the Allowance for Loan Losses

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

Balance at beginning of period

Impact of ASC 326 adoption

Provision for loan losses

Charge-offs

Recoveries

Initial allowance on loans purchased with credit deterioration (a)

Loan sale and other

Balance at end of period

Year ended December 31, 2020

Federally insured loans

i 36,763

i 72,291

i 18,691

( i 14,955)

i —

i 15,800

i —

i 128,590

Private education loans

i 9,597

i 4,797

i 6,486

( i 1,659)

i 631

i —

i 19,852

Consumer loans

i 15,554

i 13,926

i 38,183

( i 12,115)

i 1,132

i —

( i 29,424)

i 27,256

i 61,914

i 91,014

i 63,360

( i 28,729)

i 1,763

i 15,800

( i 29,424)

i 175,698

Year ended December 31, 2019

Federally insured loans

i 42,310

i —

i 8,000

( i 13,547)

i —

i 36,763

Private education loans

i 10,838

i —

( i 1,965)

i 724

i —

i 9,597

Consumer loans

i 7,240

i —

i 31,000

( i 12,498)

i 812

i —

( i 11,000)

i 15,554

i 60,388

i —

i 39,000

( i 28,010)

i 1,536

i —

( i 11,000)

i 61,914

Year ended December 31, 2018

Federally insured loans

i 38,706

i —

i 14,000

( i 11,396)

i —

i 1,000

i 42,310

Private education loans

i 12,629

i —

( i 2,415)

i 624

i —

i 10,838

Consumer loans

i 3,255

i —

i 9,000

( i 5,056)

i 41

i —

i 7,240

i 54,590

i —

i 23,000

( i 18,867)

i 665

i —

i 1,000

i 60,388

(a) During the year ended December 31, 2020, the Company acquired $ i 835.0 million (par value) of federally insured rehabilitation loans that met the definition of PCD loans when they were purchased by the Company.

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. i 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.

F - 25

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

As of December 31,

2020

2019

2018

Federally insured loans:

Loans in-school/grace/deferment (a)

i 1,036,028

i 5.4

i 1,074,678

i 5.3

i 1,298,493

i 5.9

Loans in forbearance (b)

i 1,973,175

i 10.3

i 1,339,821

i 6.6

i 1,430,291

i 6.4

Loans in repayment status:

Loans current

i 13,683,054

i 84.9

i 15,410,993

i 86.0

i 16,882,252

i 86.9

Loans delinquent 31-60 days (c)

i 633,411

i 3.9

i 650,796

i 3.6

i 683,084

i 3.5

Loans delinquent 61-90 days (c)

i 307,936

i 1.9

i 428,879

i 2.4

i 427,764

i 2.2

Loans delinquent 91-120 days (c)

i 800,257

i 5.0

i 310,851

i 1.7

i 283,831

i 1.5

Loans delinquent 121-270 days (c)

i 674,975

i 4.2

i 812,107

i 4.5

i 806,692

i 4.2

Loans delinquent 271 days or greater (c)(d)

i 20,337

i 0.1

i 300,418

i 1.8

i 343,489

i 1.7

Total loans in repayment

i 16,119,970

i 84.3

i 100.0

i 17,914,044

i 88.1

i 100.0

i 19,427,112

i 87.7

i 100.0

Total federally insured loans

i 19,129,173

i 100.0

i 20,328,543

i 100.0

i 22,155,896

i 100.0

Accrued interest receivable

i 791,453

i 730,059

i 675,898

Loan discount, net of unamortized premiums and deferred origination costs

( i 14,505)

( i 35,822)

( i 54,546)

Non-accretable discount (e)

i —

( i 28,036)

( i 23,833)

Allowance for loan losses

( i 128,590)

( i 36,763)

( i 42,310)

Total federally insured loans and accrued interest receivable, net of allowance for loan losses

i 19,777,531

i 20,957,981

i 22,711,105

Private education loans:

Loans in-school/grace/deferment (a)

i 5,049

i 1.5

i 4,493

i 1.8

i 4,320

i 1.9

Loans in forbearance (b)

i 2,388

i 0.7

i 3,108

i 1.3

i 1,494

i 0.7

Loans in repayment status:

Loans current

i 327,550

i 99.1

i 227,013

i 95.9

i 208,977

i 95.0

Loans delinquent 31-60 days (c)

i 1,099

i 0.3

i 2,814

i 1.2

i 3,626

i 1.6

Loans delinquent 61-90 days (c)

i 675

i 0.2

i 1,694

i 0.7

i 1,560

i 0.7

Loans delinquent 91 days or greater (c)

i 1,371

i 0.4

i 5,136

i 2.2

i 5,998

i 2.7

Total loans in repayment

i 330,695

i 97.8

i 100.0

i 236,657

i 96.9

i 100.0

i 220,161

i 97.4

i 100.0

Total private education loans

i 338,132

i 100.0

i 244,258

i 100.0

i 225,975

i 100.0

Accrued interest receivable

i 2,157

i 1,558

i 1,126

Loan premium, net of unaccreted discount

i 2,957

i 46

( i 1,245)

Non-accretable discount (e)

i —

( i 4,362)

( i 5,563)

Allowance for loan losses

( i 19,852)

( i 9,597)

( i 10,838)

Total private education loans and accrued interest receivable, net of allowance for loan losses

i 323,394

i 231,903

i 209,455

Consumer loans:

Loans in deferment

i 829

i 0.8

—

Loans in repayment status:

Loans current

i 105,650

i 97.4

i 220,404

i 97.5

i 136,130

i 98.2

Loans delinquent 31-60 days (c)

i 954

i 0.9

i 2,046

i 0.9

i 1,012

i 0.7

Loans delinquent 61-90 days (c)

i 804

i 0.7

i 1,545

i 0.7

i 832

i 0.6

Loans delinquent 91 days or greater (c)

i 1,109

i 1.0

i 1,923

i 0.9

i 653

i 0.5

Total loans in repayment

i 108,517

i 99.2

i 100.0

i 225,918

i 100.0

i 138,627

i 100.0

Total consumer loans

i 109,346

i 100.0

i 225,918

i 138,627

Accrued interest receivable

i 1,001

i 1,880

i 665

Loan premium

i 1,640

i 740

i 2,219

Allowance for loan losses

( i 27,256)

( i 15,554)

( i 7,240)

Total consumer loans and accrued interest receivable, net of allowance for loan losses

i 84,731

i 212,984

i 134,271

F - 26

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

(a) Loans for borrowers who still may be attending school or engaging in other permitted educational activities and are not yet required to make payments on the loans, e.g., residency periods for medical students or a grace period for bar exam preparation for law students.

(b) Loans for borrowers who have temporarily ceased making full payments due to hardship or other factors, according to a schedule approved by the servicer consistent with the established loan program servicing procedures and policies.

(c) The period of delinquency is based on the number of days scheduled payments are contractually past due and relate to repayment loans, that is, receivables not charged off, and not in school, grace, deferment, or forbearance.

(d) A portion of loans included in loans delinquent 271 days or greater includes loans in claim status, which are loans that have gone into default and have been submitted to the guaranty agency.

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

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. As a result of COVID-19, effective March 13, 2020 through June 30, 2020, the Company proactively applied a 90 day natural disaster forbearance to any loan that was 31-269 days past due (for federally insured loans) and 80 days past due (for private education loans), and to any current loan upon request. Beginning July 1, 2020, the Company discontinued proactively applying 90 day natural disaster forbearances on past due loans. However, the Company will continue to apply a natural disaster forbearance in 90 day increments to any federally insured and private education loan upon request through September 30, 2021.

The Company will continue to review whether additional and/or extended borrower relief policies and activities are needed. All relief provided to borrowers by the Company through December 31, 2020 have been delays in payment that the Company considers to be insignificant and the modifications have not been accounted for as troubled debt restructuring.

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, 2020, 2019, and 2018 was not material.

F - 27

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Amortized Cost Basis by Origination Year

The following table presents the amortized cost of the Company's private education and consumer loans by loan status and delinquency amount as of December 31, 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.

2020

2019

2018

2017

2016

Prior years

Total

Private education loans:

Loans in school/grace/deferment

i 638

i 1,518

i —

i 206

i 2,687

i 5,049

Loans in forbearance

i 392

i 313

i —

i 305

i 1,378

i 2,388

Loans in repayment status:

Loans current

i 112,783

i 79,161

i 958

i —

i 5,444

i 129,204

i 327,550

Loans delinquent 31-60 days

i —

i 24

i —

i 28

i 1,047

i 1,099

Loans delinquent 61-90 days

i 94

i —

i 581

i 675

Loans delinquent 91 days or greater

i —

i 1,371

Total loans in repayment

i 112,877

i 79,185

i 958

i —

i 5,472

i 132,203

i 330,695

Total private education loans

i 113,907

i 81,016

i 958

i —

i 5,983

i 136,268

i 338,132

Accrued interest receivable

i 2,157

Loan premium, net of unaccreted discount

i 2,957

Allowance for loan losses

( i 19,852)

Total private education loans and accrued interest receivable, net of allowance for loan losses

i 323,394

Consumer loans:

Loans in deferment

i 62

i 447

i 317

i 3

i —

i 829

Loans in repayment status:

Loans current

i 58,738

i 22,213

i 22,098

i 2,601

i —

i 105,650

Loans delinquent 31-60 days

i 405

i 371

i 159

i 19

i —

i 954

Loans delinquent 61-90 days

i 264

i 390

i 130

i 20

i —

i 804

Loans delinquent 91 days or greater

i 93

i 452

i 550

i 14

i —

i 1,109

Total loans in repayment

i 59,500

i 23,426

i 22,937

i 2,654

i —

i 108,517

Total consumer loans

i 59,562

i 23,873

i 23,254

i 2,657

i —

i 109,346

Accrued interest receivable

i 1,001

Loan premium

i 1,640

Allowance for loan losses

( i 27,256)

Total consumer loans and accrued interest receivable, net of allowance for loan losses

i 84,731

F - 28

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

5. i Bonds and Notes Payable

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

Carrying

amount

Interest rate

range

Final maturity

Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:

Bonds and notes based on indices

i 17,127,643

i 0.28% - i 2.05%

5/27/25 - 10/25/68

Bonds and notes based on auction

i 749,925

i 1.12% - i 2.14%

3/22/32 - 11/26/46

Total FFELP variable-rate bonds and notes

i 17,877,568

Fixed-rate bonds and notes issued in FFELP loan asset-backed
securitizations

i 923,076

i 1.42% - i 3.45%

10/25/67 - 8/27/68

FFELP warehouse facilities

i 252,165

i 0.27% / i 0.31%

5/20/22 / 2/26/23

Private education loan warehouse facility

i 150,397

i 0.28%

2/13/22

Consumer loan warehouse facility

i 25,809

i 0.28%

4/23/22

Variable-rate bonds and notes issued in private education loan asset-backed securitizations

i 49,025

i 1.65% / i 1.90%

12/26/40 / 6/25/49

Fixed-rate bonds and notes issued in private education loan asset-backed securitization

i 37,251

i 3.60% / i 5.35%

12/26/40 / 12/28/43

Unsecured line of credit

i 120,000

i 1.65%

12/16/24

Other borrowings

i 123,558

i 0.84% / i 1.90%

5/4/21 / 5/30/22

i 19,558,849

Discount on bonds and notes payable and debt issuance costs

( i 238,123)

Total

i 19,320,726

Carrying

amount

Interest rate

range

Final maturity

Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:

Bonds and notes based on indices

i 18,428,998

i 1.98% - i 3.61%

5/27/25 - 1/25/68

Bonds and notes based on auction

i 768,626

i 2.75% - i 3.60%

3/22/32 - 11/26/46

Total FFELP variable-rate bonds and notes

i 19,197,624

Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations

i 512,836

i 2.00% - i 3.45%

10/25/67 / 11/25/67

FFELP warehouse facilities

i 778,094

i 1.98% / i 2.07%

5/20/21 / 5/31/22

Consumer loan warehouse facility

i 116,570

i 1.99%

4/23/22

Variable-rate bonds and notes issued in private education loan asset-backed securitizations

i 73,308

i 3.15% / i 3.54%

12/26/40 / 6/25/49

Fixed-rate bonds and notes issued in private education loan asset-backed securitization

i 49,367

i 3.60% / i 5.35%

12/26/40 / 12/28/43

Unsecured line of credit

i 50,000

i 3.29%

12/16/24

Unsecured debt - Junior Subordinated Hybrid Securities

i 20,381

i 5.28%

9/15/61

Other borrowings

i 5,000

i 3.44%

5/30/22

i 20,803,180

Discount on bonds and notes payable and debt issuance costs

( i 274,126)

Total

i 20,529,054

F - 29

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Secured Financing Transactions

The Company has historically relied upon secured financing vehicles as its most significant source of funding for loans. The net cash flow the Company receives from the securitized loans generally represents the excess amounts, if any, generated by the underlying loans over the amounts required to be paid to the bondholders, after deducting servicing fees and any other expenses relating to the securitizations. The Company’s rights to cash flow from securitized loans are subordinate to bondholder interests, and the securitized loans may fail to generate any cash flow beyond what is due to bondholders. The Company’s secured financing vehicles during the periods presented include loan warehouse facilities and asset-backed securitizations.

The majority of the bonds and notes payable are primarily secured by the loans receivable, related accrued interest, and by the amounts on deposit in the accounts established under the respective bond resolutions or financing agreements.

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 December 31, 2020, the Company had two FFELP warehouse facilities as summarized below.

NFSLW-I

NHELP-II

Total

Maximum financing amount

i 260,000

i 50,000

i 310,000

Amount outstanding

i 252,165

i —

i 252,165

Amount available

i 7,835

i 50,000

i 57,835

Expiration of liquidity provisions

Final maturity date

Advanced as equity support

i 21,209

i —

i 21,209

The FFELP warehouse facilities are supported by liquidity provisions, which are subject to the respective expiration date shown in the above table. In the event the Company is unable to renew the liquidity provisions by such date, the facility would become a term facility at a stepped-up cost, with no additional student loans being eligible for financing, and the Company would be required to refinance the existing loans in the facility by the facility's final maturity date. The NFSLW-I warehouse facility has a static advance rate until the expiration date of the liquidity provisions. 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. The NHELP-II warehouse facility has a static advance rate that requires initial equity for loan funding and does not require increased equity based on market movements.

The FFELP warehouse facilities contain financial covenants relating to levels of the Company’s consolidated net worth, ratio of recourse indebtedness to adjusted EBITDA, and unencumbered cash. Any noncompliance with these covenants could result in a requirement for the immediate repayment of any outstanding borrowings under the facilities.

F - 30

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Asset-backed securitizations

The following tables summarize the asset-backed securitization transactions completed in 2020 and 2019.

Securitizations completed during the year ended December 31, 2020

2020-1

2020-2

2020-3

2020-4 (a)

2020-5 (a)

Total

Date securities issued

2/20/20

3/11/20

3/19/20

8/27/20

10/1/20

Total original principal amount

i 435,600

i 272,100

i 352,600

i 191,300

i 295,000

i 1,546,600

Class A senior notes:

Total principal amount

i 424,600

i 264,300

i 343,600

i 191,300

i 295,000

i 1,518,800

Bond discount

i —

( i 44)

( i 1,503)

( i 19)

i —

( i 1,566)

Issue price

i 424,600

i 264,256

i 342,097

i 191,281

i 295,000

i 1,517,234

Cost of funds

1-month LIBOR plus i 0.74%

i 1.83%

1-month LIBOR plus i 0.92%

i 1.42%

1-month LIBOR plus i 0.88%

Final maturity date

3/26/68

4/25/68

3/26/68

8/27/68

10/25/68

Class B subordinated notes:

Total principal amount

i 11,000

i 7,800

i 9,000

i 27,800

Bond discount

i —

( i 574)

( i 284)

( i 858)

Issue price

i 11,000

i 7,226

i 8,716

i 26,942

Cost of funds

1-month LIBOR plus i 1.75%

i 2.50%

1-month LIBOR plus i 1.90%

Final maturity date

3/26/68

4/25/68

3/26/68

(a) Total original principal amount excludes the Class B subordinated tranche for the 2020-4 and 2020-5 transactions, totaling $ i 5.0 million and $ i 7.5 million, respectively, that was retained by the Company at issuance. As of December 31, 2020, the Company had a total of $ i 40.1 million (par value) of its own asset-backed securities that were retained upon initial issuance or repurchased in the secondary market. For accounting purposes, these notes are eliminated in consolidation and are not included in the Company's consolidated financial statements. However, these securities remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated in the trust estate. Upon a sale of these notes to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. Upon sale, these notes would be shown as "bonds and notes payable" in the Company's consolidated balance sheet. The Company believes the market value of such notes is currently less than par value. Any excess of the par value over the market value on the date of sale would be recognized by the Company as interest expense over the life of the bonds.

F - 31

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Securitizations completed during the year ended December 31, 2019

2019-1

2019-2

Private education loan
2019-A

2019-3

2019-4

2019-5

2019-6

2019-7

Total

Class A-1 Notes

Class A-2 Notes

2019-1 total

Class A-1 Notes

Class A-2 Notes

2019-7 total

Date securities issued

2/27/19

4/30/19

6/25/19

7/24/19

8/22/19

9/25/19

10/30/19

12/19/19

Total original principal amount

i 35,700

i 448,000

i 496,800

i 416,100

i 47,159

i 498,300

i 418,600

i 374,500

i 145,200

i 210,300

i 200,000

i 420,800

i 2,817,459

Class A senior notes:

Total principal amount

i 35,700

i 448,000

i 483,700

i 405,000

i 47,159

i 485,800

i 408,000

i 364,500

i 140,200

i 210,300

i 200,000

i 410,300

i 2,744,659

Bond discount

i —

( i 114)

( i 26)

i —

( i 140)

Issue price

i 35,700

i 448,000

i 483,700

i 405,000

i 47,159

i 485,800

i 408,000

i 364,386

i 140,174

i 210,300

i 200,000

i 410,300

i 2,744,519

Cost of funds

1-month LIBOR plus i 0.30%

1-month LIBOR plus i 0.75%

1-month LIBOR plus i 0.90%

Prime rate less i 1.60%

1-month LIBOR plus i 0.80%

1-month LIBOR plus i 0.87%

i 2.53%

i 2.46%

1-month LIBOR plus i 0.50%

1-month LIBOR plus i 1.00%

Final maturity date

4/25/67

6/27/67

6/25/49

8/25/67

9/26/67

10/25/67

11/25/67

1/25/68

Class B subordinated notes:

Total principal amount

i 13,100

i 11,100

i 12,500

i 10,600

i 10,000

i 5,000

i 10,500

i 72,800

Bond discount

i —

( i 4)

( i 913)

i —

( i 917)

Issue price

i 13,100

i 11,100

i 12,500

i 10,600

i 9,996

i 4,087

i 10,500

i 71,883

Cost of funds

1-month LIBOR plus i 1.40%

1-month LIBOR plus i 1.50%

1-month LIBOR plus i 1.55%

1-month LIBOR plus i 1.65%

i 3.45%

i 2.00%

1-month LIBOR plus i 1.75%

Final maturity date

4/25/67

6/27/67

8/25/67

9/26/67

10/25/67

11/25/67

1/25/68

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

Auction Rate Securities

The interest rates on certain of the Company's FFELP asset-backed securities were set and provide for interest rates to be periodically reset via a "dutch auction" ("Auction Rate Securities"). As of December 31, 2020, the Company is currently the sponsor on $ i 749.9 million of 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.

Private Education Loan Warehouse Facility

During 2020, the Company obtained a private education loan warehouse facility. As of December 31, 2020, the facility has an aggregate maximum financing amount available of $ i 200.0 million, an advance rate of i 80 to i 90 percent, liquidity provisions through February 13, 2021, and a final maturity date of February 13, 2022. As of December 31, 2020, $ i 150.4 million was outstanding under this warehouse facility, $ i 49.6 million was available for future funding, and the Company had $ i 16.4 million advanced as equity support.

Consumer Loan Warehouse Facility

The Company has a consumer loan warehouse facility that has an aggregate maximum financing amount available of $ i 100.0 million, an advance rate of i 70 or i 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 December 31, 2020, $ i 25.8 million was

F - 32

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

outstanding under this warehouse facility, $ i 74.2 million was available for future funding, and the Company had $ i 11.5 million advanced as equity support.

Unsecured Line of Credit

The Company has a $ i 455.0 million unsecured line of credit that has a maturity date of December 16, 2024. 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 $ i 550.0 million, subject to certain conditions. As of December 31, 2020, $ i 120.0 million was outstanding on the line of credit and $ i 335.0 million was available for future use. Interest on amounts borrowed under the line of credit is payable, at the Company's election, at an alternate base rate or a Eurodollar rate, plus a variable rate (LIBOR), in each case as defined in the credit agreement. As of December 31, 2020, the Company has selected the Eurodollar rate. The initial margin applicable to Eurodollar borrowings is i 150 basis points and may vary from i 100 to i 200 basis points depending on the Company's credit rating.

The line of credit agreement contains certain financial covenants that, if not met, lead to an event of default under the agreement. The covenants include, among others, maintaining:

•A minimum consolidated net worth

•A minimum recourse indebtedness to adjusted EBITDA (over the last four rolling quarters)

•A limitation on recourse indebtedness

•A limitation on the amount of unsecuritized private education and consumer loans in the Company’s portfolio

•A limitation on permitted investments, including business acquisitions that are not in one of the Company's existing lines of business

As of December 31, 2020, the Company was in compliance with all of these requirements. Many of these covenants are duplicated in the Company's other lending facilities, including its warehouse facilities.

The Company's operating line of credit does not have any covenants related to unsecured debt ratings. However, changes in the Company's ratings have modest implications on the pricing level at which the Company obtains funds.

A default on the Company's other debt facilities would result in an event of default on the Company's unsecured line of credit that would result in the outstanding balance on the line of credit becoming immediately due and payable.

Junior Subordinated Hybrid Securities

During 2020, the Company redeemed all the outstanding $ i 20.4 million of Hybrid Securities at par.

Other Borrowings

During 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 December 31, 2020, $ i 118.6 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 $ i 100.0 million or an amount in excess of $ i 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.

During 2019, the Company entered into a $ i 22.0 million secured line of credit agreement with a maturity date of May 30, 2022 and an interest rate of one-month LIBOR plus i 1.75%. As of December 31, 2020, $ i 5.0 million was outstanding under this line of credit and $ i 17.0 million was available for future use. The line of credit is secured by several Company-owned properties.

Debt Covenants

Certain bond resolutions and related credit agreements contain, among other requirements, covenants relating to restrictions on additional indebtedness, limits as to direct and indirect administrative expenses, and maintaining certain financial ratios. Management believes the Company is in compliance with all covenants of the bond indentures and related credit agreements as of December 31, 2020.

F - 33

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Maturity Schedule

Bonds and notes outstanding as of December 31, 2020 are due in varying amounts as shown below.


2021	$	i 118,558
2022	i 433,371
2023	i —
2024	i 120,000
2025	i 98,761
2026 and thereafter	i 18,788,159
	$	i 19,558,849

Generally, the Company's secured financing instruments can be redeemed on any interest payment date at par plus accrued interest. Subject to certain provisions, all bonds and notes are subject to redemption prior to maturity at the option of certain lending subsidiaries.

Debt Repurchases

The following table summarizes the Company's repurchases of its own debt. Gains recorded by the Company from the repurchase of debt are included in "other income" on the Company’s consolidated statements of income.

Year ended December 31,

2020

2019

2018

Par value

i 27,445

i —

i 12,905

Purchase price

( i 25,521)

i —

( i 12,546)

Gain

i 1,924

i —

i 359

6. i Derivative Financial Instruments

The Company uses derivative financial instruments primarily to manage interest rate risk. The Company is exposed to interest rate risk in the form of basis risk and repricing risk because the interest rate characteristics of the Company's assets do not match the interest rate characteristics of the funding for those assets. The Company periodically reviews the mismatch related to the interest rate characteristics of its assets and liabilities together with the Company's outlook as to current and future market conditions. Based on those factors, the Company uses derivative instruments as part of its overall risk management strategy. Derivative instruments used as part of the Company's interest rate risk management strategy are discussed below.

Basis Swaps

Interest earned on the majority of the Company's FFELP student loan assets is indexed to the one-month LIBOR rate. Meanwhile, the Company funds a portion of its FFELP loan assets with three-month LIBOR indexed floating rate securities. The differing interest rate characteristics of the Company's loan assets versus the liabilities funding these assets results in basis risk, which impacts the Company's excess spread earned on its loans.

The Company also faces repricing risk due to the timing of the interest rate resets on its liabilities, which may occur as infrequently as once a quarter, in contrast to the timing of the interest rate resets on its assets, which generally occur daily.

As of December 31, 2020, the Company had $ i 17.8 billion, $ i 0.7 billion, and $ i 0.6 billion of FFELP loans indexed to the one-month LIBOR rate, three-month commercial paper rate, and the three-month treasury bill rate, respectively, the indices for which reset daily, and $ i 6.5 billion of debt indexed to three-month LIBOR, the indices for which reset quarterly, and $ i 10.7 billion of debt indexed to one-month LIBOR, the indices for which reset monthly.

The Company has used derivative instruments to hedge its basis risk and repricing risk. The Company has entered into basis swaps in which the Company receives three-month LIBOR set discretely in advance and pays one-month LIBOR plus or minus a spread as defined in the agreements (the 1:3 Basis Swaps).

F - 34

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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

As of December 31,

2020

2019

Maturity

Notional amount

2020

i —

i 1,000,000

2021

i 250,000

2022

i 2,000,000

2023

i 750,000

2024

i 1,750,000

2026

i 1,150,000

2027

i 250,000

i 6,150,000

i 7,150,000

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

Interest rate swaps – floor income hedges

FFELP loans originated prior to April 1, 2006 generally earn interest at the higher of the borrower rate, which is fixed over a period of time, or a floating rate based on the Special Allowance Payments ("SAP") formula set by the Department. The SAP rate is based on an applicable index plus a fixed spread that depends on loan type, origination date, and repayment status. The Company generally finances its student loan portfolio with variable rate debt. In low and/or certain declining interest rate environments, when the fixed borrower rate is higher than the SAP rate, these student loans earn at a fixed rate while the interest on the variable rate debt typically continues to reflect the low and/or declining interest rates. In these interest rate environments, the Company may earn additional spread income that it refers to as floor income.

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

As of December 31, 2020 and 2019, the Company had $ i 8.4 billion and $ i 3.3 billion, respectively, of FFELP student loan assets that were earning fixed rate floor income, of which the weighted average estimated variable conversion rate for these loans, which is the estimated short-term interest rate at which loans would convert to a variable rate, was i 1.94% and i 3.72%, respectively.

F - 35

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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

Maturity

Notional amount

Weighted average fixed rate paid by the Company (a)

Notional amount

Weighted average fixed rate paid by the Company (a)

2020

i —

i 1,500,000

i 1.01

2021

i 600,000

i 2.15

i 600,000

i 2.15

2022 (b)

i 500,000

i 0.94

i 250,000

i 1.65

2023

i 900,000

i 0.62

i 150,000

i 2.25

2024 (c)

i 2,000,000

i 0.32

i —

2025

i 500,000

i 0.35

i —

i 4,500,000

i 0.70

i 2,500,000

i 1.42

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

(b) $ i i 250.0 / million of the derivatives outstanding at December 31, 2020 and 2019 have forward effective start dates in June 2021.

Consolidated Financial Statement Impact Related to Derivatives - Statements of Income

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

Year ended December 31,

2020

2019

2018

Settlements:

1:3 basis swaps

i 10,378

i 5,214

i 5,577

Interest rate swaps - floor income hedges

( i 6,699)

i 40,192

i 64,901

Other

i —

( i 407)

Total settlements - income

i 3,679

i 45,406

i 70,071

Change in fair value:

1:3 basis swaps

( i 7,462)

i 1,515

i 12,573

Interest rate swaps - floor income hedges

( i 20,682)

( i 77,027)

( i 10,962)

Other

i —

( i 683)

( i 597)

Total change in fair value - (expense) income

( i 28,144)

( i 76,195)

i 1,014

Derivative market value adjustments and derivative settlements, net - (expense) income

( i 24,465)

( i 30,789)

i 71,085

Derivative Instruments - Credit and Market Risk

Interest rate movements have an impact on the amount of variation margin the Company may be required to pay to its third-party clearinghouse. The Company attempts to manage market risk associated with interest rates by establishing and monitoring limits as to the types and degree of risk that may be undertaken. The Company's derivative portfolio and hedging strategy is reviewed periodically by its internal risk committee and board of directors' Risk and Finance Committee. With the Company's current derivative portfolio, the Company does not currently anticipate any movement in interest rates having a material impact on its liquidity or capital resources, nor expects future movements in interest rates to have a material impact on its ability to meet variation margin payments to its third-party clearinghouse. Due to the existing low interest rate environment, the Company's exposure to downward movements in interest rates on its interest rate swaps is limited. In addition, the historical high correlation between one-month and three-month LIBOR limits the Company's exposure to interest rate movements on the 1:3 Basis Swaps.

F - 36

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

7. i Investments

A summary of the Company's investments follows:

Amortized cost

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)

i 340,578

i 8,042

( i 13)

i 348,607

i 48,790

i 3,911

i —

i 52,701

Equity securities

i 36,227

i 8,768

( i 2,954)

i 42,041

i 9,622

i 4,561

( i 1,283)

i 12,900

Total investments (at fair value)

i 376,805

i 16,810

( i 2,967)

i 390,648

i 58,412

i 8,472

( i 1,283)

i 65,601

Other Investments (not measured at fair value):

Venture capital and funds:

Measurement alternative (b)

i 144,795

i 72,760

Equity method

i 14,018

i 15,379

Other

i 894

i 1,301

Total venture capital and funds

i 159,707

i 89,440

Real estate:

Equity method

i 50,291

i 44,159

Other

i 847

i 867

Total real estate

i 51,138

i 45,026

Investment in ALLO:

Voting interest/equity method

i 129,396

i —

Preferred membership interest

i 228,916

i —

Total investment in ALLO

i 358,312

i —

Solar (c)

( i 30,373)

i 7,562

Beneficial interest in federally insured loan securitizations (d)

i 30,377

i —

Beneficial interest in consumer loan securitizations, net of allowance for credit losses of $ i 4,449 as of December 31, 2020 (d)

i 27,954

i 33,187

Tax liens and affordable housing

i 5,177

i 6,283

Total investments (not measured at fair value)

i 602,292

i 181,498

Total investments

i 992,940

i 247,099

(a) As of December 31, 2020, $ i 118.6 million (par value) of student loan asset-backed securities were subject to participation interests held by Union Bank, as discussed in note 5 under "Other Borrowings."

As of December 31, 2020, the stated maturities of a majority of the Company's student loan asset-backed and other debt securities classified as available-for-sale were greater than 10 years; however, such securities with a fair value of $ i 58.6 million as of December 31, 2020 are scheduled to mature within the next 10 years, including $ i 2.6 million, $ i 31.2 million, and $ i 24.8 million scheduled to mature within the next one year, 1-5 years, and 6-10 years, respectively.

F - 37

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

(b) The Company has an investment in Agile Sports Technologies, Inc. (doing business as “Hudl”) that is included in “venture capital and funds” in the above table. On May 20, 2020, the Company made an additional equity investment of approximately $ i 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 i 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 $ i 51.0 million (pre-tax) gain during the second quarter of 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. As of December 31, 2020, the carrying amount of the Company’s investment in Hudl is $ i 128.6 million.

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

(c) The Company makes investments in entities that promote renewable energy sources (solar). The Company’s investments in these entities generate a return primarily through the realization of federal income tax credits, operating cash flows, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods which range from i 5 to i 6 years. As of December 31, 2020, the Company has funded $ i 148.6 million in solar investments. The carrying value of the Company’s solar investments are reduced by tax credits earned when the solar project is placed in service. The solar investment balance at December 31, 2020 represents total tax credits earned on solar projects placed in service through December 31, 2020 being larger than total payments made by the Company on such projects. The Company is committed to fund an additional $ i 17.5 million on these projects.

The Company accounts for its solar investments using the Hypothetical Liquidation at Book Value (“HLBV”) method of accounting. For the majority of the Company’s solar investments, the HLBV method of accounting results in accelerated losses in the initial years of investment. During the years ended December 31, 2020 and 2019, the Company recognized pre-tax losses of $ i 37.4 million and $ i 2.2 million, respectively, on its solar investments. These losses are included in "other income" in the consolidated statements of income.

(d) 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 December 31, 2020, the Company's ownership correlates to approximately $ i 500 million and $ i 280 million of federally insured and consumer loans, respectively, included in these securitizations.

Impairment Expense and Provision for Beneficial Interests

During the first quarter of 2020, the Company recorded a $ i 26.3 million provision charge related to the Company's beneficial interest in consumer loan securitizations. As of March 31, 2020, the Company's estimate of future cash flows from the beneficial interest in consumer loan securitizations was lower than previously anticipated due to the expectation of increased consumer loan defaults within such securitizations due to the distressed economic conditions resulting from the COVID-19 pandemic and recorded an allowance for credit losses of $ i 26.3 million. Additionally, during the first quarter of 2020, the Company recorded a $ i 7.8 million impairment charge related to several of its venture capital investments. The Company identified several venture capital investments, a majority of which were accounted for under the measurement alternative, that were also negatively impacted by the distressed economic conditions resulting from the COVID-19 pandemic, and estimated that the fair value of such investments was significantly reduced from their previous carrying value. During the fourth quarter of 2020, due to improved economic conditions, the Company reduced the allowance for credit losses related to the consumer loan beneficial interests by $ i 9.7 million. The activity described above is included in “impairment expense and provision for beneficial interests” on the consolidated statements of income.

8. i Business Combinations

Great Lakes Educational Loan Services, Inc. ("Great Lakes")

On February 7, 2018, the Company acquired i 100 percent of the outstanding stock of Great Lakes for total cash consideration of $ i 150.0 million. Great Lakes provides servicing for federally-owned student loans for the Department of Education, FFELP loans, and private education loans. The acquisition of Great Lakes has expanded the Company's portfolio of loans it services. The operating results of Great Lakes are included in the Loan Servicing and Systems operating segment.

As part of the acquisition, the Company acquired the remaining i 50 percent ownership in GreatNet Solutions, LLC ("GreatNet"), a joint venture formed prior to the acquisition between Nelnet Servicing, a subsidiary of the Company, and Great Lakes. Prior to the acquisition of the remaining i 50 percent of GreatNet, the Company consolidated the operating results of GreatNet, as the Company was deemed to have control over the joint venture. The proportionate share of membership interest (equity) and net

F - 38

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

loss of GreatNet that was attributable to Great Lakes was reflected as a noncontrolling interest in the Company's consolidated financial statements. The Company recognized a $ i 19.1 million reduction to consolidated shareholders' equity as a result of acquiring Great Lakes' i 50 percent ownership in GreatNet. This transaction resulted in a $ i 5.7 million decrease in noncontrolling interests and a $ i 13.4 million decrease in retained earnings.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. The fair value assigned to the acquisition of the noncontrolling interest in GreatNet reduced the total consideration allocated to the assets acquired and liabilities assumed of Great Lakes from $ i 150.0 million to $ i 136.6 million.


Cash and cash equivalents	$	i 27,399
Accounts receivable	i 23,708
Property and equipment	i 35,919
Other assets	i 14,018
Intangible assets	i 75,329
Excess cost over fair value of net assets acquired (goodwill)	i 15,043
Other liabilities	( i 54,865)
Net assets acquired	$	i 136,551

The $ i 75.3 million of acquired intangible assets on the date of acquisition had a weighted-average useful life of approximately i 4 years. The intangible assets that made up this amount include customer relationships of $ i 70.2 million ( i 4-year average useful life) and a trade name of $ i 5.1 million ( i 7-year useful life).

The $ i 15.0 million of goodwill was assigned to the Loan Servicing and Systems operating segment and is not expected to be deductible for tax purposes. The amount allocated to goodwill was primarily attributed to the deferred tax liability related to the difference between the carrying amount and tax bases of acquired identifiable intangible assets and the synergies and economies of scale expected from combining the operations of the Company and Great Lakes.

The pro forma impacts of the Great Lakes acquisition on the Company’s 2018 historical results prior to the acquisition were not material.

Tuition Management Systems, LLC ("TMS")

On November 20, 2018, the Company acquired i 100 percent of the membership interests of TMS for total cash consideration of $ i 27.0 million. TMS provides tuition payment plans, billing services, payment technology solutions, and refund management to educational institutions. The TMS acquisition added both K-12 and higher education schools to the Company's existing customer base, further enhancing the Company's market share leading position with private faith based K-12 schools and advancing to a market leading position in higher education. The operating results of TMS are included in the Education Technology, Services, and Payment Processing operating segment from the date of acquisition.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date.


Cash and cash equivalents	$	i 438
Restricted cash - due to customers	i 123,169
Accounts receivable	i 1,019
Other assets	i 381
Intangible assets	i 26,390
Excess cost over fair value of net assets acquired (goodwill)	i 3,110
Other liabilities	( i 4,321)
Due to customers	( i 123,169)
Net assets acquired	$	i 27,017

F - 39

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

The $ i 26.4 million of acquired intangible assets on the date of acquisition had a weighted-average useful life of approximately i 10 years. The intangible assets that made up this amount include customer relationships of $ i 25.4 million ( i 10-year useful life) and computer software of $ i 1.0 million ( i 2-year useful life).

The $ i 3.1 million of goodwill was assigned to the Education Technology, Services, and Payment Processing operating segment and is expected to be deductible for tax purposes. The amount allocated to goodwill was primarily attributed to the synergies and economies of scale expected from combining the operations of the Company and TMS.

The pro forma impacts of the TMS acquisition on the Company's historical results prior to the acquisition were not material.

HigherSchool Publishing Company ("HigherSchool")

On December 31, 2020, the Company acquired i 100 percent of the outstanding stock of HigherSchool for total cash consideration of $ i 24.7 million. HigherSchool provides supplemental instructional services and educational professional development for K-12 schools. The acquisition of HigherSchool has expanded the Company's professional development and educational instruction services. The operating results of HigherSchool are included in the Education Technology, Services, and Payment Processing operating segment from the date of acquisition.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date.


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

The acquired intangible assets were customer relationships of $ i 24.2 million ( i 10-year useful life).

The $ i 6.3 million of goodwill was assigned to the Education Technology, Services, and Payment Processing operating segment and is not expected to be deductible for tax purposes. The amount allocated to goodwill was primarily attributed to the deferred tax liability related to the difference between the carrying amount and tax basis of acquired identifiable intangible assets.

The pro forma impacts of the HigherSchool acquisition on the Company's historical results prior to the acquisition were not material.

9. i Intangible Assets

Intangible assets consist of the following:

Weighted average remaining useful life as of

December 31, 2020 (months)

As of December 31,

2020

2019

Amortizable intangible assets, net:

Customer relationships (net of accumulated amortization of $ i 83,419 and $ i 60,553, respectively)

i 99

i 66,974

i 71,900

Computer software (net of accumulated amortization of $ i 4,127 and $ i 3,233, respectively)

i 35

i 6,430

i 2,154

Trade names (net of accumulated amortization of $ i 3,455 and $ i 2,792, respectively)

i 6

i 1,666

i 7,478

Total - amortizable intangible assets, net

i 91

i 75,070

i 81,532

F - 40

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

The Company recorded amortization expense on its intangible assets of $ i 30.8 million, $ i 32.8 million, and $ i 30.2 million during the years ended December 31, 2020, 2019, and 2018, respectively. The Company will continue to amortize intangible assets over their remaining useful lives. i As of December 31, 2020, the Company estimates it will record amortization expense as follows:


2021	$	i 23,042
2022	i 9,939
2023	i 9,830
2024	i 7,457
2025	i 4,644
2026 and thereafter	i 20,158
	$	i 75,070

10. i Goodwill

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

Loan Servicing and Systems

Education Technology, Services, and Payment Processing

Communications

Asset Generation and Management (a)

Corporate and Other Activities

Total

Balance as of December 31, 2018 and 2019

i 23,639

i 70,278

i 21,112

i 41,883

i —

i 156,912

Goodwill acquired

i —

i 6,292

i —

i 6,292

Deconsolidation of ALLO

i —

( i 21,112)

i —

( i 21,112)

Balance as of December 31, 2020

i 23,639

i 76,570

i —

i 41,883

i —

i 142,092

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

F - 41

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

11. i Property and Equipment

Property and equipment consisted of the following:

As of December 31,

Useful life

2020

2019

Non-communications:

Computer equipment and software

i 1- i 5 years

i 172,664

i 160,319

Building and building improvements

i 5- i 48 years

i 52,444

i 37,904

Office furniture and equipment

i 1- i 10 years

i 21,899

i 21,245

Leasehold improvements

i 1- i 15 years

i 9,168

i i 9,517 /

Transportation equipment

i 5- i 10 years

i 4,857

i 5,049

Land

—

i 3,642

i 1,400

Construction in progress

—

i 18,478

i 13,738

i 283,152

i 249,172

Accumulated depreciation - non-communications

( i 159,625)

( i 142,270)

Non-communications, net property and equipment

i 123,527

i 106,902

Communications:

Network plant and fiber

i 4- i 15 years

i —

i 254,560

Customer located property

i 2- i 4 years

i —

i 27,011

Central office

i 5- i 15 years

i —

i 17,672

Transportation equipment

i 4- i 10 years

i —

i 6,611

Computer equipment and software

i 1- i 5 years

i —

i 5,574

Other

i 1- i 39 years

i —

i 3,702

Land

—

i —

i 70

Construction in progress

—

i —

i 54

i —

i 315,254

Accumulated depreciation - communications

i —

( i 73,897)

Communications, net property and equipment

i —

i 241,357

Total property and equipment, net

i 123,527

i 348,259

The Company recorded depreciation expense on its property and equipment of $ i 87.9 million, $ i 72.3 million, and $ i 56.7 million during the years ended December 31, 2020, 2019, and 2018, respectively.

On December 21, 2020, the Company deconsolidated ALLO from the Company’s consolidated financial statements. See note 2, “Recent Developments - ALLO Recapitalization,” for a description of the transaction and a summary of the deconsolidation impact.

Impairment charges

As part of integrating technology and becoming more efficient and effective in meeting borrower needs, the Company continues to evaluate the best use of its servicing systems on a post-Great Lakes acquisition basis. As a result of this evaluation, in 2018, the Company recorded an impairment charge of $ i 3.9 million (pre-tax) within its Loan Servicing and Systems operating segment related to certain external software development costs that were previously capitalized.

On October 16, 2018, the Company terminated its investment in a proprietary payment processing platform. This decision was made as a result of decreases in price and advancements of technology by established processors in the industry. As a result of this decision, in 2018, the Company recorded an impairment charge of $ i 7.8 million (pre-tax) within its Education Technology, Services, and Payment Processing operating segment. The charge primarily represents computer equipment and external software development costs related to the payment processing platform.

The above impairment charges are included in "impairment expense, net of recoveries" in the consolidated statements of income.

F - 42

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

12. i Shareholders’ Equity

Classes of Common Stock

The Company's common stock is divided into two classes. The Class B common stock has i ten votes per share and the Class A common stock has i one vote per share on all matters to be voted on by the Company's shareholders. Each Class B share is convertible at any time at the holder's option into one Class A share. With the exception of the voting rights and the conversion feature, the Class A and Class B shares are identical in terms of other rights, including dividend and liquidation rights.

Stock Repurchases

The Company has a stock repurchase program that expires on May 7, 2022 in which it can repurchase up to i five million shares of its Class A common stock on the open market, through private transactions, or otherwise. As of December 31, 2020, i 3.2 million shares may still be purchased under the Company's stock repurchase program. i Shares repurchased by the Company during 2020, 2019, and 2018 are shown in the table below. In accordance with the corporate laws of the state in which the Company is incorporated, all shares repurchased by the Company are legally retired upon acquisition by the Company.

Total shares repurchased

Purchase price
(in thousands)

Average price of shares repurchased (per share)

Year ended December 31, 2020

i 1,594,394

i 73,358

i 46.01

Year ended December 31, 2019

i 726,273

i 40,411

i 55.64

Year ended December 31, 2018

i 868,147

i 45,331

i 52.22

13. i Earnings per Common Share

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

Year ended December 31,

2020

2019

2018

Common shareholders

Unvested restricted stock shareholders

Total

Common shareholders

Unvested restricted stock shareholders

Total

Common shareholders

Unvested restricted stock shareholders

Total

Numerator:

Net income attributable to Nelnet, Inc.

i 347,451

i 4,992

i 352,443

i 139,946

i 1,857

i 141,803

i 225,170

i 2,743

i 227,913

Denominator:

Weighted-average common shares outstanding - basic and diluted

i 38,506,351

i 553,237

i 39,059,588

i 39,523,082

i 524,320

i 40,047,402

i 40,416,719

i 492,303

i 40,909,022

Earnings per share - basic and diluted

i 9.02

i 3.54

i 5.57

Unvested restricted stock awards are the Company's only potential common shares and, accordingly, there were no awards that were antidilutive and not included in average shares outstanding for the diluted earnings per share calculation.

As of December 31, 2020, a cumulative amount of i 209,924 shares have been deferred by non-employee directors under the Directors Stock Compensation Plan and will become issuable upon the termination of service by the respective non-employee director on the board of directors. These shares are included in the Company's weighted average shares outstanding calculation.

F - 43

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

14. i Income Taxes

The Company is subject to income taxes in the United States, Canada, and Australia. Significant judgment is required in evaluating the Company's tax positions and determining the provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain.

As required by the Income Taxes Topic of the FASB Accounting Standards Codification ("ASC Topic 740"), the Company recognizes in the consolidated financial statements only those tax positions determined to be more likely than not of being sustained upon examination, based on the technical merits of the positions. It further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the period of such change.

As of December 31, 2020, the total amount of gross unrecognized tax benefits (excluding the federal benefit received from state positions) was $ i 20.3 million, which is included in “other liabilities” on the consolidated balance sheet. Of this total, $ i 16.0 million (net of the federal benefit on state issues) represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in future periods. The Company currently anticipates uncertain tax positions will decrease by $ i 6.7 million prior to December 31, 2021 as a result of a lapse of applicable statutes of limitations, settlements, correspondence with examining authorities, and recognition or measurement considerations with federal and state jurisdictions; however, actual developments in this area could differ from those currently expected. Of the anticipated $ i 6.7 million decrease, $ i 5.3 million, if recognized, would favorably affect the Company's effective tax rate. i A reconciliation of the beginning and ending amount of gross unrecognized tax benefits follows:


	Year ended December 31,
	2020		2019
Gross balance - beginning of year	$	i 20,148	i 23,445
Additions based on tax positions of prior years	i 634		i 651
Additions based on tax positions related to the current year	i 2,523		i 1,339
Settlements with taxing authorities	i —		( i 1,810)
Reductions for tax positions of prior years	( i 69)		( i 380)

Reductions due to lapse of applicable statutes of limitations	( i 2,918)		( i 3,097)
Gross balance - end of year	$	i 20,318	i 20,148

All the reductions shown in the table above that are due to prior year tax positions, settlements, and the lapse of statutes of limitations impacted the effective tax rate.

The Company's policy is to recognize interest and penalties accrued on uncertain tax positions as part of interest expense and other expense, respectively. As of December 31, 2020 and 2019, $ i 5.4 million and $ i 5.0 million in accrued interest and penalties, respectively, were included in “other liabilities” on the consolidated balance sheets. The Company recognized interest expense of $ i 0.4 million, $ i 0.1 million, and $ i 0.4 million related to uncertain tax positions for the years ended December 31, 2020, 2019, and 2018, respectively. The impact to the consolidated statements of income related to penalties for uncertain tax positions was not significant for the years 2020, 2019, and 2018. The impact of timing differences and tax attributes are considered when calculating interest and penalty accruals associated with the unrecognized tax benefits.

The Company and its subsidiaries file a consolidated federal income tax return in the U.S. and the Company or one of its subsidiaries files income tax returns in various state, local, and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years prior to 2017. The Company is no longer subject to U.S. state and local income tax examinations by tax authorities prior to 2010. As of December 31, 2020, the Company has tax uncertainties that remain unsettled in the jurisdiction of California (2010 through 2017).

F - 44

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

The provision for income taxes consists of the following components:

Year ended December 31,

2020

2019

2018

Current:

Federal

i 82,832

i 38,931

i 45,822

State

i 9,815

i 3,546

i 1,969

Foreign

i 239

( i 2)

Total current provision

i 92,886

i 42,716

i 47,789

Deferred:

Federal

i 7,269

( i 4,280)

i 11,783

State

i 718

( i 2,922)

( i 883)

Foreign

( i 13)

( i 63)

i 81

Total deferred provision

i 7,974

( i 7,265)

i 10,981

Provision for income tax expense

i 100,860

i 35,451

i 58,770

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

Year ended December 31,

2020

2019

2018

Tax expense at federal rate

i 21.0

Increase (decrease) resulting from:

State tax, net of federal income tax benefit

i 2.8

i 2.5

i 2.4

Tax credits

( i 1.1)

( i 3.0)

( i 1.9)

Provision for uncertain federal and state tax matters

( i 0.2)

( i 0.7)

( i 1.0)

Other

( i 0.2)

i 0.2

i —

Effective tax rate

i 22.3

i 20.0

i 20.5

F - 45

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

The tax effect of temporary differences that give rise to deferred tax assets and liabilities include the following:


	As of December 31,
	2020		2019
Deferred tax assets:
Student loans	$	i 26,894	i 15,479
Deferred revenue	i 18,081		i 18,037
Accrued expenses	i 10,661		i 4,112
Tax credit carryforwards	i 5,987		i 9,394
Basis in certain derivative contracts	i 5,061		i —
Lease liability	i 4,123		i 5,891
Stock compensation	i 2,546		i 2,167
Securitizations	i 694		i 1,261
Net operating losses	i 647		i 551


Total gross deferred tax assets	i 74,694		i 56,892
Less valuation allowance	( i 569)		( i 548)
Net deferred tax assets	i 74,125		i 56,344
Deferred tax liabilities:
Partnership basis	i 64,023		i 56,741
Debt and equity investments	i 20,538		i 3,775
Depreciation	i 14,092		i 11,489
Intangible assets	i 7,703		i 5,399
Loan origination services	i 5,040		i 4,647
Lease right of use asset	i 4,037		i 5,684
Basis in certain derivative contracts	i —		i 2,730


Other	i 661		i 1,003
Total gross deferred tax liabilities	i 116,094		i 91,468
Net deferred tax asset (liability)	$	( i 41,969)	( i 35,124)

The Company has performed an evaluation of the recoverability of deferred tax assets. In assessing the realizability of the Company's deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible or eligible for utilization of a tax credit carryforward. Management considers the scheduled reversals of deferred tax liabilities, projected taxable income, carry back opportunities, and tax planning strategies in making the assessment of the amount of the valuation allowance. With the exception of a portion of the Company's state net operating losses, it is management's opinion that it is more likely than not that the deferred tax assets will be realized and should not be reduced by a valuation allowance. The amount of deferred tax assets considered realizable could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.

As of December 31, 2020 and 2019, the Company had a current income tax receivable of $ i 21.5 million and $ i 27.3 million, respectively, that is included in "other assets" on the consolidated balance sheets.

F - 46

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

15. i Segment Reporting

The Company's reportable operating segments include:

• Loan Servicing and Systems

• Education Technology, Services, and Payment Processing

• Communications

• Asset Generation and Management

• Nelnet Bank

The Company earns fee-based revenue through its Loan Servicing and Systems and Education Technology, Services, and Payment Processing operating segments and earned revenue from its Communications operating segment prior to its deconsolidation on December 21, 2020. In addition, the Company earns interest income on its loan portfolio in its Asset Generation and Management operating segment. On November 2, 2020, the Company launched operations of Nelnet Bank. Nelnet bank operates as an internet bank franchise focused primarily on the private education loan marketplace.

The Company’s operating segments are defined by the products and services they offer and the types of customers they serve, and they reflect the manner in which financial information is currently evaluated by management. See note 1, "Description of Business," for a description of each operating segment, including the primary products and services offered.

The management reporting process measures the performance of the Company’s operating segments based on the management structure of the Company, as well as the methodology used by management to evaluate performance and allocate resources. Executive management (the "chief operating decision maker") evaluates the performance of the Company’s operating segments based on their financial results prepared in conformity with U.S. GAAP.

The accounting policies of the Company’s operating segments are the same as those described in the summary of significant accounting policies. Intersegment revenues are charged by a segment that provides a product or service to another segment. Intersegment revenues and expenses are included within each segment consistent with the income statement presentation provided to management. Income taxes are allocated based on i 24% of income before taxes for each individual operating segment. The difference between the consolidated income tax expense and the sum of taxes calculated for each operating segment is included in income taxes in Corporate and Other Activities.

Corporate and Other Activities

Other business activities and operating segments that are not reportable are combined and included in Corporate and Other Activities. Corporate and Other Activities includes the following items:

•Income earned on certain investment activities, including renewable energy (solar) and real estate

•Interest expense incurred on unsecured and certain other corporate related debt transactions

•Other product and service offerings that are not considered reportable operating segments including, but not limited to, WRCM, the SEC-registered investment advisor subsidiary

Corporate and Other Activities also includes certain corporate activities and overhead functions related to executive management, internal audit, human resources, accounting, legal, enterprise risk management, information technology, occupancy, and marketing. These costs are allocated to each operating segment based on estimated use of such activities and services.

Segment Results

i The following tables include the results of each of the Company's reportable operating segments reconciled to the consolidated financial statements.

F - 47

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Year ended December 31, 2020

Loan Servicing and Systems

Education Technology, Services, and Payment Processing

Communications (a)

Asset
Generation and
Management

Nelnet Bank

Corporate and Other Activities

Eliminations

Total

Total interest income

i 436

i 3,036

i 2

i 611,474

i 414

i 5,775

( i 1,480)

i 619,656

Interest expense

i 121

i 54

i —

i 328,157

i 41

i 3,178

( i 1,480)

i 330,071

Net interest income (expense)

i 315

i 2,982

i 2

i 283,317

i 373

i 2,597

i —

i 289,585

Less provision for loan losses

i —

i 63,029

i 330

i —

i 63,360

Net interest income after provision for loan losses

i 315

i 2,982

i 2

i 220,288

i 43

i 2,597

i —

i 226,225

Other income/expense:

Loan servicing and systems revenue

i 451,561

i —

i 451,561

Intersegment revenue

i 36,520

i 20

i —

( i 36,540)

i —

Education technology, services, and payment processing revenue

i —

i 282,196

i —

i 282,196

Communications revenue

i —

i 76,643

i —

i 76,643

Other

i 9,421

i 373

i 1,561

i 7,189

i 48

i 38,969

i —

i 57,561

Gain on sale of loans

i —

i 33,023

i —

i 33,023

Gain from deconsolidation of ALLO

i —

i 258,588

i —

i 258,588

Impairment expense and provision for beneficial interests

i —

( i 16,607)

i —

( i 8,116)

i —

( i 24,723)

Derivative settlements, net

i —

i 3,679

i —

i 3,679

Derivative market value adjustments, net

i —

( i 28,144)

i —

( i 28,144)

Total other income/expense

i 497,502

i 282,589

i 78,204

( i 860)

i 48

i 289,441

( i 36,540)

i 1,110,384

Cost of services:

Cost to provide education technology, services, and payment processing services

i —

i 82,206

i —

i 82,206

Cost to provide communications services

i —

i 22,812

i —

i 22,812

Total cost of services

i —

i 82,206

i 22,812

i —

i 105,018

Operating expenses:

Salaries and benefits

i 285,526

i 98,847

i 30,935

i 1,747

i 36

i 84,741

i —

i 501,832

Depreciation and amortization

i 37,610

i 9,459

i 42,588

i —

i 29,043

i —

i 118,699

Other expenses

i 57,420

i 14,566

i 13,327

i 15,806

i 135

i 59,320

i —

i 160,574

Intersegment expenses, net

i 63,886

i 14,293

i 1,732

i 39,172

i —

( i 82,543)

( i 36,540)

i —

Total operating expenses

i 444,442

i 137,165

i 88,582

i 56,725

i 171

i 90,561

( i 36,540)

i 781,105

Income (loss) before income taxes

i 53,375

i 66,200

( i 33,188)

i 162,703

( i 80)

i 201,477

i —

i 450,486

Income tax (expense) benefit

( i 12,810)

( i 15,888)

i 7,965

( i 39,049)

i 20

( i 41,098)

i —

( i 100,860)

Net income (loss)

i 40,565

i 50,312

( i 25,223)

i 123,654

( i 60)

i 160,379

i —

i 349,626

Net loss (income) attributable to noncontrolling interests

i —

i 2,817

i —

i 2,817

Net income (loss) attributable to Nelnet, Inc.

i 40,565

i 50,312

( i 25,223)

i 123,654

( i 60)

i 163,196

i —

i 352,443

Total assets as of December 31, 2020

i 190,297

i 436,702

i —

i 20,773,968

i 216,937

i 1,225,790

( i 197,534)

i 22,646,160

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

F - 48

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Year ended December 31, 2019

Loan Servicing and Systems

Education Technology, Services, and Payment Processing

Communications

Asset
Generation and
Management

Nelnet Bank

Corporate and Other Activities

Eliminations

Total

Total interest income

i 2,031

i 9,244

i 3

i 931,963

i —

i 9,232

( i 3,796)

i 948,677

Interest expense

i 115

i 46

i —

i 693,375

i —

i 9,587

( i 3,796)

i 699,327

Net interest income (expense)

i 1,916

i 9,198

i 3

i 238,588

i —

( i 355)

i —

i 249,350

Less provision for loan losses

i —

i 39,000

i —

i 39,000

Net interest income after provision for loan losses

i 1,916

i 9,198

i 3

i 199,588

i —

( i 355)

i —

i 210,350

Other income/expense:

Loan servicing and systems revenue

i 455,255

i —

i 455,255

Intersegment revenue

i 46,751

i —

( i 46,751)

i —

Education technology, services, and payment processing revenue

i —

i 277,331

i —

i 277,331

Communications revenue

i —

i 64,269

i —

i 64,269

Other

i 9,736

i 259

i 1,509

i 13,088

i —

i 23,327

i —

i 47,918

Gain on sale of loans

i —

i 17,261

i —

i 17,261

Gain from deconsolidation of ALLO

i —

Impairment expense and provision for beneficial interests

i —

Derivative settlements, net

i —

i 45,406

i —

i 45,406

Derivative market value adjustments, net

i —

( i 76,195)

i —

( i 76,195)

Total other income/expense

i 511,742

i 277,590

i 65,778

( i 440)

i —

i 23,327

( i 46,751)

i 831,245

Cost of services:

Cost to provide education technology, services, and payment processing services

i —

i 81,603

i —

i 81,603

Cost to provide communications services

i —

i 20,423

i —

i 20,423

Total cost of services

i —

i 81,603

i 20,423

i —

i 102,026

Operating expenses:

Salaries and benefits

i 276,136

i 94,666

i 21,004

i 1,545

i —

i 70,152

i —

i 463,503

Depreciation and amortization

i 34,755

i 12,820

i 37,173

i —

i 20,300

i —

i 105,049

Other expenses

i 71,064

i 22,027

i 15,165

i 34,445

i —

i 51,571

i —

i 194,272

Intersegment expenses, net

i 54,325

i 13,405

i 2,962

i 47,362

i —

( i 71,303)

( i 46,751)

i —

Total operating expenses

i 436,280

i 142,918

i 76,304

i 83,352

i —

i 70,720

( i 46,751)

i 762,824

Income (loss) before income taxes

i 77,378

i 62,267

( i 30,946)

i 115,796

i —

( i 47,748)

i —

i 176,745

Income tax (expense) benefit

( i 18,571)

( i 14,944)

i 7,427

( i 27,792)

i —

i 18,428

i —

( i 35,451)

Net income (loss)

i 58,807

i 47,323

( i 23,519)

i 88,004

i —

( i 29,320)

i —

i 141,294

Net loss (income) attributable to noncontrolling interests

i —

i 509

i —

i 509

Net income (loss) attributable to Nelnet, Inc.

i 58,807

i 47,323

( i 23,519)

i 88,004

i —

( i 28,811)

i —

i 141,803

Total assets as of December 31, 2019

i 290,311

i 506,382

i 303,347

i 22,128,917

i —

i 627,897

( i 147,884)

i 23,708,970

F - 49

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Year ended December 31, 2018

Loan Servicing and Systems

Education Technology, Services, and Payment Processing

Communications

Asset
Generation and
Management

Nelnet Bank

Corporate and Other Activities

Eliminations

Total

Total interest income

i 1,351

i 4,453

i 4

i 911,502

i —

i 19,944

( i 12,989)

i 924,266

Interest expense

i —

i 9

i 9,987

i 662,360

i —

i 10,540

( i 12,989)

i 669,906

Net interest income (expense)

i 1,351

i 4,444

( i 9,983)

i 249,142

i —

i 9,404

i —

i 254,360

Less provision for loan losses

i —

i 23,000

i —

i 23,000

Net interest income after provision for loan losses

i 1,351

i 4,444

( i 9,983)

i 226,142

i —

i 9,404

i —

i 231,360

Other income/expense:

Loan servicing and systems revenue

i 440,027

i —

i 440,027

Intersegment revenue

i 47,082

i —

( i 47,082)

i —

Education technology, services, and payment processing revenue

i —

i 221,962

i —

i 221,962

Communications revenue

i —

i 44,653

i —

i 44,653

Other

i 7,284

i —

i 1,075

i 12,723

i —

i 33,724

i —

i 54,805

Gain on sale of loans

i —

Gain from deconsolidation of ALLO

i —

Impairment expense and provision for beneficial interests

( i 3,906)

( i 7,815)

i —

( i 11,721)

Derivative settlements, net

i —

i 70,478

i —

( i 407)

i —

i 70,071

Derivative market value adjustments, net

i —

( i 2,159)

i —

i 3,173

i —

i 1,014

Total other income/expense

i 490,487

i 214,147

i i 45,728 /

i 81,042

i —

i 36,490

( i 47,082)

i 820,811

Cost of services:

Cost to provide education technology, services, and payment processing services

i —

i 59,566

i —

i 59,566

Cost to provide communications services

i —

i 16,926

i —

i 16,926

Total cost of services

i —

i 59,566

i 16,926

i —

i 76,492

Operating expenses:

Salaries and benefits

i 267,458

i 81,080

i 18,779

i 1,526

i —

i 67,336

i —

i 436,179

Depreciation and amortization

i 32,074

i 13,484

i 23,377

i —

i 17,960

i —

i 86,896

Other expenses

i 63,430

i 20,322

i 11,900

i 15,961

i —

i 54,697

i —

i 166,310

Intersegment expenses, net

i 59,042

i 10,681

i 2,578

i 47,870

i —

( i 73,088)

( i 47,082)

i —

Total operating expenses

i 422,004

i 125,567

i 56,634

i 65,357

i —

i 66,905

( i 47,082)

i 689,385

Income (loss) before income taxes

i 69,834

i 33,458

( i 37,815)

i 241,827

i —

( i 21,011)

i —

i 286,294

Income tax (expense) benefit

( i 16,954)

( i 8,030)

i 9,075

( i 58,038)

i —

i 15,177

i —

( i 58,770)

Net income (loss)

i 52,880

i 25,428

( i 28,740)

i 183,789

i —

( i 5,834)

i —

i 227,524

Net loss (income) attributable to noncontrolling interests

i 808

i —

( i 419)

i —

i 389

Net income (loss) attributable to Nelnet, Inc.

i 53,688

i 25,428

( i 28,740)

i 183,789

i —

( i 6,253)

i —

i 227,913

Total assets as of December 31, 2018

i 226,445

i 471,719

i 286,816

i 23,806,321

i —

i 563,841

( i 134,174)

i 25,220,968

F - 50

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

16. i Disaggregated Revenue and Deferred Revenue

The following provides additional revenue recognition information for the Company’s fee-based reportable operating segments.

Loan Servicing and Systems Revenue

Loan servicing and systems revenue consists of the following items:

•Loan servicing revenue - Loan servicing revenue consideration is determined from individual contracts with customers and is calculated monthly based on the dollar value of loans, number of loans, number of borrowers serviced for each customer, or number of transactions. Loan servicing requires a significant level of integration and the individual components are not considered distinct. The Company performs various services, including, but not limited to, (i) application processing, (ii) monthly servicing, (iii) conversion processing, and (iv) fulfillment services, during each distinct service period. Even though the mix and quantity of activities that the Company performs each period may differ, the nature of the activities are substantially the same. Revenue is allocated to the distinct service period, typically a month, and recognized as control transfers as customers simultaneously receive and consume benefits.

•Software services revenue - Software services revenue consideration is determined from individual contracts with customers and includes license and maintenance fees associated with loan software products, generally in a remote hosted environment, and computer and software consulting. Usage-based revenue from remote hosted licenses is allocated to the distinct service period, typically a month, and recognized as control transfers as customers simultaneously receive and consume benefits. Revenue from any non-refundable up-front fee is recognized ratably over the contract period, as the fee relates to set-up activities that provide no incremental benefit to the customers. Computer and software consulting is also capable of being distinct and accounted for as a separate performance obligation. Revenue allocated to computer and software consulting is recognized as services are provided.

•Outsourced services revenue - Outsourced services revenue consideration is determined from individual contracts with customers and is calculated monthly based on the volume of services. Revenue is allocated to the distinct service period, typically a month, and recognized as control transfers as customers simultaneously receive and consume benefits.

The following table provides disaggregated revenue by service offering:

Year ended December 31,

2020

2019

2018

Government servicing - Nelnet

i 146,798

i 157,991

i 157,091

Government servicing - Great Lakes

i 179,872

i 185,656

i 168,298

Private education and consumer loan servicing

i 32,492

i 36,788

i 41,474

FFELP servicing

i 20,183

i 25,043

i 31,542

Software services

i 41,999

i 41,077

i 32,929

Outsourced services and other

i 30,217

i 8,700

i 8,693

Loan servicing and systems revenue

i 451,561

i 455,255

i 440,027

Education Technology, Services, and Payment Processing Revenue

Education technology, services, and payment processing revenue consists of the following items:

•Tuition payment plan services - Tuition payment plan services consideration is determined from individual plan agreements, which are governed by plan service agreements, and includes access to a remote hosted environment and management of payment processing. The management of payment processing is considered a distinct performance obligation when sold with the remote hosted environment. Revenue for each performance obligation is allocated to the distinct service period, the academic school term, and recognized ratably over the service period as customers simultaneously receive and consume benefits.

•Payment processing - Payment processing consideration is determined from individual contracts with customers and includes electronic transfer and credit card processing, reporting, virtual terminal solutions, and specialized

F - 51

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

integrations to business software for education and non-education markets. Volume-based revenue from payment processing is allocated and recognized to the distinct service period, based on when each transaction is completed, and recognized as control transfers as customers simultaneously receive and consume benefits. The electronic transfer and credit card processing consideration is recognized as revenue on a gross basis as the Company is the principal in the delivery of the payment processing. The Company has concluded it is the principal as it controls the services before delivery to the educational institution or business, it is primarily responsible for the delivery of the services, and it has discretion in setting prices charged to its customers. In addition, the Company has the unilateral ability to accept or reject a transaction based on criteria established by the Company. The Company is liable for the costs of processing the transactions and records such costs within "cost to provide education technology, services, and payment processing services."

•Education technology and services - Education technology and services consideration is determined from individual contracts with customers and is based on the services selected by the customer. Services in K-12 private and faith based schools primarily includes (i) assistance with financial needs assessment, (ii) school information system software that automates administrative processes such as admissions, enrollment, scheduling, cafeteria management, attendance, and grade book management, and (iii) professional development and educational instruction services. Revenue for these services is recognized for the consideration the Company has a right to invoice, the amount of which corresponds directly with the value provided to the customer based on the performance completed. Services provided to the higher education market include payment technology and processing that allow for electronic billing and payment of campus charges. These services are considered distinct performance obligations. Revenue for each performance obligation is allocated to the distinct service period, typically a month or based on when each transaction is completed, and recognized as control transfers as customers simultaneously receive and consume benefits.

The following table provides disaggregated revenue by service offering:

Year ended December 31,

2020

2019

2018

Tuition payment plan services

i 100,674

i 106,682

i 85,381

Payment processing

i 114,304

i 110,848

i 84,289

Education technology and services

i 65,885

i 58,578

i 51,155

Other

i 1,333

i 1,223

i 1,137

Education technology, services, and payment processing revenue

i 282,196

i 277,331

i 221,962

Cost to provide education technology, services, and payment processing services is primarily associated with providing payment processing services. Interchange and payment network fees are charged by the card associations or payment networks. Depending upon the transaction type, the fees are a percentage of the transaction’s dollar value, a fixed amount, or a combination of the two methods. Other items included in cost to provide education technology, services, and payment processing services include salaries and benefits and third-party professional service costs directly related to providing professional development and educational instruction services to teachers, school leaders, and students.

Communications Revenue

Communications revenue is derived principally from internet, television, and telephone services and is billed as a flat fee in advance of providing the service. Revenues for usage-based services, such as access charges billed to other telephone carriers for originating and terminating long-distance calls on the Company's network, are billed in arrears. These are each considered distinct performance obligations. Revenue is recognized monthly for the consideration the Company has a right to invoice, the amount of which corresponds directly with the value provided to the customer based on the performance completed. The Company recognizes revenue from these services in the period the services are rendered rather than billed. Revenue received or receivable in advance of the delivery of services is included in deferred revenue. Earned but unbilled usage-based services are recorded in accounts receivable.

F - 52

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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

Period from January 1 2020 - December 21, 2020

Year ended December 31,

2019

2018

Internet

i 48,362

i 38,239

i 24,069

Television

i 17,091

i 16,196

i 12,949

Telephone

i 11,037

i 9,705

i 7,546

Other

i 153

i 129

i 89

Communications revenue

i 76,643

i 64,269

i 44,653

Residential revenue

i 58,029

i 48,344

i 33,434

Business revenue

i 18,038

i 15,689

i 10,976

Other

i 576

i 236

i 243

Communications revenue

i 76,643

i 64,269

i 44,653

Cost to provide communications services is primarily associated with television programming costs. The Company has various contracts to obtain television programming from programming vendors whose compensation is typically based on a flat fee per customer. The cost of the right to exhibit network programming under such arrangements is recorded in the month the programming is available for exhibition. Programming costs are paid each month based on calculations performed by the Company and are subject to periodic audits performed by the programmers. Other items in cost to provide communications services include connectivity, franchise, and other regulatory costs directly related to providing internet and telephone services.

Other Income

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

Year ended December 31,

2020

2019

2018

Gain on remeasurement of HUDL investment

i 51,018

i —

Investment advisory services

i 10,875

i 2,941

i 6,009

Management fee revenue

i 9,421

i 9,736

i 7,284

Borrower late fee income

i 5,194

i 12,884

i 12,302

Income/gains from investments, net

i 2,205

i 8,356

i 9,579

Loss from solar investments

( i 37,423)

( i 2,220)

i —

Other

i 16,271

i 16,221

i 19,631

Other income

i 57,561

i 47,918

i 54,805

•Investment advisory fees - Investment advisory services are provided by WRCM, the Company's SEC-registered investment advisor subsidiary, under various arrangements. The Company earns monthly fees based on the monthly outstanding balance of investments and certain performance measures, which are recognized monthly as the uncertainty of the transaction price is resolved.

•Management fee revenue - Management fee revenue is earned for providing administrative support and marketing services provided primarily to Great Lakes' former parent company. Revenue is allocated to the distinct service period, based on when each transaction is completed.

•Borrower late fee income - Late fee income is earned by the education lending subsidiaries. Revenue is allocated to the distinct service period, based on when each transaction is completed.

F - 53

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Deferred Revenue

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

Loan Servicing and Systems

Education, Technology, Services, and Payment Processing

Communications

Corporate and Other Activities

Total

Balance as of December 31, 2017

i 4,968

i 24,164

i 1,665

i 1,479

i 32,276

Deferral of revenue

i 5,117

i 77,297

i 25,325

i 5,553

i 113,292

Recognition of revenue

( i 5,672)

( i 70,905)

( i 24,439)

( i 5,430)

( i 106,446)

Balance as of December 31, 2018

i 4,413

i 30,556

i 2,551

i 1,602

i 39,122

Deferral of revenue

i 3,585

i 93,373

i 36,024

i 3,505

i 136,487

Recognition of revenue

( i 5,286)

( i 91,855)

( i 35,343)

( i 3,479)

( i 135,963)

Balance as of December 31, 2019

i 2,712

i 32,074

i 3,232

i 1,628

i 39,646

Deferral of revenue

i 2,490

i 90,183

i 43,596

i 3,209

i 139,478

Recognition of revenue

( i 3,824)

( i 90,409)

( i 42,903)

( i 3,286)

( i 140,422)

Deconsolidation of ALLO

i —

( i 3,925)

i —

( i 3,925)

Business acquisition

i —

i 1,419

i —

i 1,419

Balance as of December 31, 2020

i 1,378

i 33,267

i —

i 1,551

i 36,196

17. i Major Customer

Nelnet Servicing earns loan servicing revenue from a servicing contract with the Department. Revenue earned by Nelnet Servicing related to this contract was $ i 146.8 million, $ i 158.0 million, and $ i 157.1 million for the years ended December 31, 2020, 2019, and 2018, respectively.

In addition, 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 $ i 179.9 million and $ i 185.7 million for the years ended December 31, 2020 and 2019, respectively. Revenue of $ i 168.3 million was earned for the period from February 7, 2018 to December 31, 2018.

The current servicing contracts with the Department are currently scheduled to expire on June 14, 2021, but provide the potential for an additional i six-month extension at the Department’s discretion through December 14, 2021. The Consolidated Appropriations Act, 2021, signed into law on December 27, 2020, provides that the Department may extend the period of performance for the servicing contracts scheduled to expire on December 14, 2021 for up to two additional years to December 14, 2023.

F - 54

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Consolidated Appropriations Act, 2021 contains provisions directing certain aspects of the NextGen process, including that any new federal student loan servicing environment shall provide for the participation of multiple student loan servicers and the allocation of borrower accounts to eligible student loan servicers based on performance, and directed the suspension of awarding any ISS contract for at least 90 days. On January 9, 2021, the Department suspended the ISS solicitation. In the Department’s description of the suspension, it indicated that in consideration of the Consolidated Appropriations Act, 2021, the Government is reassessing its needs and will amend or cancel the subject solicitation in the future.

18. i Leases

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


	As of December 31,
	2020		2019
Operating lease ROU assets, which is included in "other assets" on the consolidated balance sheet	$	i 18,301	i 32,770
Operating lease liabilities, which is included in "other liabilities" on the consolidated balance sheet	$	i 18,733	i 33,689

/ i

The following table provides components of lease expense:


	Year ended December 31,
	2020		2019
Rental expense, which is included in "other expenses" on the consolidated statements of income (a)	$	i 11,885	i 11,171
Rental expense, which is included in "cost to provide communications services" on the consolidated statements of income (a)	i 1,997		i 1,609
Total operating rental expense	$	i 13,882	i 12,780

(a) Includes short-term and variable lease costs, which are immaterial.

Weighted average remaining lease term and discount rate are shown below:


	As of December 31,
	2020		2019
Weighted average remaining lease term (years)	i 5.65		i 7.29
Weighted average discount rate	i 2.43	%	i 3.93	%

/ i

Maturity of lease liabilities are shown below:


2021	$	i 6,578
2022	i 3,857
2023	i 2,938
2024	i 1,562
2025	i 1,424
2026 and thereafter	i 4,437
Total lease payments	i 20,796
Imputed interest	( i 2,063)
Total	$	i 18,733

F - 55

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

The Company adopted the new lease standard using the effective date as its date of initial application (January 1, 2019) as noted above, and as required, the following disclosure is provided for periods prior to adoption. i Future minimum lease payments as of December 31, 2018 are shown below:


2019	$	i 9,181
2020	i 8,261
2021	i 5,776
2022	i 3,745
2023	i 2,904
2024 and thereafter	i 5,479
Total minimum lease payments	$	i 35,346

Total rental expense incurred by the Company prior to the adoption of the new lease standard was $ i 8.4 million during 2018.

19. i Defined Contribution Benefit Plan

The Company has a 401(k) savings plan that covers substantially all of its employees. Employees may contribute up to i 100 percent of their pre-tax salary, subject to IRS limitations. The Company matches up to i 100 percent on the first i 3 percent of contributions and i 50 percent on the next i 2 percent. The Company made contributions to the plan of $ i 11.6 million, $ i 10.8 million, and $ i 9.8 million during the years ended December 31, 2020, 2019, and 2018, respectively.

20. i Stock Based Compensation Plans

Restricted Stock Plan

The following table summarizes restricted stock activity:

Year ended December 31,

2020

2019

2018

Non-vested shares at beginning of year

i i 549,845 /

i 532,336

i 398,210

Granted

i 151,639

i 186,281

i 279,441

Vested

( i 114,282)

( i 109,651)

( i 100,035)

Canceled

( i 34,746)

( i 59,121)

( i 45,280)

Non-vested shares at end of year

i 552,456

i 549,845

i 532,336

/ i

As of December 31, 2020, there was $ i 16.2 million of unrecognized compensation cost included in equity on the consolidated balance sheet related to restricted stock, which is expected to be recognized as compensation expense in future periods as shown in the table below.


2021	$	i 5,912
2022	i 3,787
2023	i 2,488
2024	i 1,604
2025	i 1,009
2026 and thereafter	i 1,374
	$	i 16,174

For the years ended December 31, 2020, 2019, and 2018, the Company recognized compensation expense of $ i 7.3 million, $ i 6.4 million, and $ i 6.2 million, respectively, related to shares issued under the restricted stock plan, which is included in "salaries and benefits" on the consolidated statements of income.

F - 56

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Employee Share Purchase Plan

The Company has an employee share purchase plan pursuant to which employees are entitled to purchase Class A common stock from payroll deductions at a i 15 percent discount from market value. During the years ended December 31, 2020, 2019, and 2018, the Company recognized compensation expense of $ i 0.4 million, $ i 0.3 million, and $ i 0.3 million, respectively, in connection with issuing i 36,687 shares, i 33,250 shares, and i 28,744 shares, respectively, under this plan, which is included in "salaries and benefits" on the consolidated statements of income.

Non-employee Directors Compensation Plan

The Company has a compensation plan for non-employee directors pursuant to which non-employee directors can elect to receive their annual retainer fees in the form of cash or Class A common stock. If a non-employee director elects to receive Class A common stock, the number of shares of Class A common stock that are awarded is equal to the amount of the annual retainer fee otherwise payable in cash divided by i 85 percent of the fair market value of a share of Class A common stock on the date the fee is payable. Non-employee directors who choose to receive Class A common stock may also elect to defer receipt of the Class A common stock until termination of their service on the board of directors.

For the years ended December 31, 2020, 2019, and 2018, the Company recognized $ i 1.2 million, $ i 1.2 million, and $ i 1.0 million, respectively, of expense related to this plan, which is included in "other expenses" on the consolidated statements of income. i The following table provides the number of shares awarded under this plan for the years ended December 31, 2020, 2019, and 2018.

Shares issued -
not deferred

Shares issued-
deferred

Total

Year ended December 31, 2020

i 12,740

i 16,513

i 29,253

Year ended December 31, 2019

i 9,588

i 11,212

i 20,800

Year ended December 31, 2018

i 8,029

i 10,680

i 18,709

As of December 31, 2020, a cumulative amount of i 209,924 shares have been deferred by directors and will be issued upon the termination of their service on the board of directors. These shares are included in the Company's weighted average shares outstanding calculation.

21. i Related Parties (dollar amounts in this note are not in thousands)

Transactions with Union Bank and Trust Company

Union Bank and Trust Company ("Union Bank") is controlled by Farmers & Merchants Investment Inc. (“F&M”), which owns a majority of Union Bank's common stock and a minority share of Union Bank's non-voting non-convertible preferred stock. Michael S. Dunlap, Executive Chairman and a member of the board of directors and a significant shareholder of the Company, along with his spouse and children, owns or controls a significant portion of the stock of F&M, and Mr. Dunlap's sister, Angela L. Muhleisen, along with her spouse and children, also owns or controls a significant portion of F&M stock. Mr. Dunlap serves as a Director and Chairman of F&M, and as a Director of Union Bank. Ms. Muhleisen serves as a Director and Chief Executive Officer of F&M and as a Director, Chairperson, President, and Chief Executive Officer of Union Bank. Union Bank is deemed to have beneficial ownership of a significant number of shares of the Company because it serves in a capacity of trustee or account manager for various trusts and accounts holding shares of the Company, and may share voting and/or investment power with respect to such shares. Mr. Dunlap and Ms. Muhleisen beneficially own a significant percent of the voting rights of the Company's outstanding common stock.

The Company has entered into certain contractual arrangements with Union Bank. These transactions are summarized below.

Loan Purchases

The Company purchased $ i 144.9 million (par value) and $ i 67.7 million (par value) of private education loans from Union Bank in 2020 and 2019, respectively. There were i no private education loan purchases in 2018. In addition, the Company purchased $ i 32.6 million (par value) and $ i 74.7 million (par value) of consumer loans from Union Bank in 2019 and 2018, respectively. There were i no consumer loan purchases in 2020. The net premiums paid by the Company on the loan acquisitions was $ i 2.6 million and $ i i 1.2 / million in 2020 and 2019, respectively. The premiums paid by the Company in 2018 were i not significant.

F - 57

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

The Company has an agreement with Union Bank in which the Company provides marketing, origination, and loan servicing services to Union Bank related to private education loans. Union Bank paid $ i 2.0 million and $ i 1.8 million in marketing fees to the Company in 2020 and 2019, respectively, under this agreement. Marketing fees paid in 2018 were not significant.

Loan Servicing

The Company serviced $ i 331.3 million, $ i 395.5 million, and $ i 405.5 million of FFELP and private education loans for Union Bank as of December 31, 2020, 2019, and 2018, respectively. Servicing and origination fee revenue earned by the Company from servicing loans for Union Bank was $ i 0.7 million, $ i 0.6 million, and $ i 0.5 million for the years ended December 31, 2020, 2019, and 2018, respectively.

Funding - Participation Agreements

The Company maintains an agreement with Union Bank, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in student loans (the “FFELP Participation Agreement”). The Company uses this facility as a source to fund FFELP student loans. As of December 31, 2020 and 2019, $ i 874.2 million and $ i 749.6 million, respectively, of loans were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. The agreement automatically renews annually and is terminable by either party upon five business days' notice. This agreement provides beneficiaries of Union Bank's grantor trusts with access to investments in interests in student loans, while providing liquidity to the Company on a short-term basis. The Company can participate loans to Union Bank to the extent of availability under the grantor trusts, up to $ i 900 million or an amount in excess of $ i 900 million if mutually agreed to by both parties. Loans participated under this agreement have been accounted for by the Company as loan sales. Accordingly, the participation interests sold are not included on the Company's consolidated balance sheets.

The Company maintains an agreement with Union Bank, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in student loan asset-backed securities. As of December 31, 2020, $ i 118.6 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 $ i 100.0 million or an amount in excess of $ i 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.

Funding - Real Estate

401 Building, LLC (“401 Building”) is an entity that was established in 2015 for the sole purpose of acquiring, developing, and owning a commercial real estate property in Lincoln, Nebraska. The Company owns i 50% of 401 Building. On May 1, 2018, Union Bank, as lender, received a $ i 1.5 million promissory note from 401 Building. The promissory note carries an interest rate of i 6.00% and has a maturity date of December 1, 2032.

330-333, LLC (“330-333”) is an entity that was established in 2016 for the sole purpose of acquiring, developing, and owning a commercial real estate property in Lincoln, Nebraska. The Company owns i 50% of 330-333. On October 22, 2019, Union Bank, as lender, received a $ i 162,000 promissory note from 330-333. The promissory note carries an interest rate of i 6.00% and has a maturity date of December 1, 2032.

12100.5 West Center, LLC ("West Center") is an entity that was established in 2016 for the sole purpose of acquiring, developing, and owning a commercial real estate property in Omaha, Nebraska. The Company owns i 33.33% of West Center. On October 29, 2019, Union Bank, as lender, received a $ i 2.9 million promissory note from West Center. The promissory note carries an interest rate of i 3.85% and has a maturity date of October 30, 2024.

Operating Cash Accounts

The majority of the Company's cash operating accounts are maintained at Union Bank. The Company also invests amounts in the Short term Federal Investment Trust (“STFIT”) of the Student Loan Trust Division of Union Bank, which are included in “cash and cash equivalents - held at a related party” and “restricted cash - due to customers” on the accompanying consolidated balance sheets. As of December 31, 2020 and 2019, the Company had $ i 285.6 million and $ i 390.5 million, respectively, invested in the STFIT or deposited at Union Bank in operating accounts, of which $ i 197.6 million and $ i 270.5 million as of December 31, 2020 and 2019, respectively, represented cash collected for customers. Interest income earned by the Company on the amounts

F - 58

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

invested in the STFIT and in cash operating accounts for the years ended December 31, 2020, 2019, and 2018, was $ i 0.5 million, $ i 1.6 million, and $ i 1.0 million, respectively.

529 Plan

The Company provides certain 529 Plan administration services to certain college savings plans (the “College Savings Plans”) through a contract with Union Bank, as the program manager. Union Bank is entitled to a fee as program manager pursuant to its program management agreement with the College Savings Plans. For the years ended December 31, 2020, 2019, and 2018, the Company has received fees of $ i 1.3 million, $ i 3.7 million, and $ i 3.2 million, respectively, from Union Bank related to the administration services provided to the College Savings Plans.

During 2020, certain call center services were provided by the Company to Union Bank for College Savings Plan clients. Fees received from Union Bank for such services were not significant.

Additionally, Union Bank, as the program manager for the College Savings Plans, has agreed to allocate plan bank deposits to Nelnet Bank. As of December 31, 2020, Nelnet Bank had received $ i 48.4 million in deposits from the funds offered under the College Savings Plans.

Lease Arrangements

Union Bank leases approximately i 4,000 square feet in the Company's corporate headquarters building. Union Bank paid the Company approximately $ i 80,000, $ i 79,000, and $ i 76,000 for commercial rent and storage income during 2020, 2019, and 2018, respectively. The lease agreement expires on June 30, 2023.

Other Fees Paid to Union Bank

During the years ended December 31, 2020, 2019, and 2018, the Company paid Union Bank approximately $ i 279,000, $ i 213,000, and $ i 128,000, respectively, in cash management, trustee, and health savings account maintenance fees.

Other Fees Received from Union Bank

During the years ended December 31, 2020, 2019, and 2018, Union Bank paid the Company approximately $ i 317,000, $ i 317,000, and $ i 231,000, respectively, under certain employee sharing arrangements. During the years ended December 31, 2020, 2019, and 2018, Union Bank paid the Company approximately $ i 273,000, $ i 92,000, and $ i 34,000, respectively, for communications services. In addition, during the years ended December 31, 2019 and 2018, Union Bank paid the Company approximately $ i 1,000 and $ i 4,000 in payment processing fees (net of merchant fees of approximately $ i 4,000 and $ i 13,000), respectively. i No such fees were received from Union Bank during 2020.

401(k) Plan Administration

Union Bank administers the Company's 401(k) defined contribution plan. Fees paid to Union Bank to administer the plan are paid by the plan participants and were approximately $ i 447,000, $ i 366,000, and $ i 313,000 during the years ended December 31, 2020, 2019, and 2018, respectively.

Investment Services

Union Bank has established various trusts whereby Union Bank serves as trustee for the purpose of purchasing, holding, managing, and selling investments in student loan asset-backed securities. WRCM, an SEC-registered investment advisor and a subsidiary of the Company, has a management agreement with Union Bank under which WRCM performs various advisory and management services on behalf of Union Bank with respect to investments in securities by the trusts, including identifying securities for purchase or sale by the trusts. The agreement provides that Union Bank will pay to WRCM annual fees of i 25 basis points on the outstanding balance of the investments in the trusts. As of December 31, 2020, the outstanding balance of investments in the trusts was $ i 1.2 billion. In addition, Union Bank will pay additional fees to WRCM of up to i 50 percent of the gains from the sale of securities from the trusts or securities being called prior to the full contractual maturity. For the years ended December 31, 2020, 2019, and 2018, the Company earned $ i 9.8 million, $ i 1.8 million, and $ i 4.5 million, respectively, of fees under this agreement.

WRCM also has management agreements with Union Bank under which it is designated to serve as investment advisor with respect to the assets (principally Nelnet stock) within several trusts established by Mr. Dunlap and his spouse, and Ms. Muhleisen and her spouse. Union Bank serves as trustee for the trusts. Per the terms of the agreements, Union Bank pays

F - 59

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

WRCM i five basis points of the aggregate value of the assets of the trusts as of the last day of each calendar quarter. As of December 31, 2020, WRCM was the investment advisor with respect to a total i 480,000 shares and i 4.8 million shares of the Company's Class A and Class B common stock, respectively, held directly by these trusts. For the years ended December 31, 2020, 2019, and 2018, the Company earned approximately $ i 141,000, $ i 144,000, and $ i 141,000, respectively, of fees under these agreements.

WRCM has established private investment funds for the primary purpose of purchasing, selling, investing, and trading, directly or indirectly, in student loan asset-backed securities, and to engage in financial transactions related thereto. Mr. Dunlap, Jeffrey R. Noordhoek (an executive officer of the Company), Ms. Muhleisen and her spouse, and WRCM have invested in certain of these funds. Based upon the current level of holdings by non-affiliated limited partners, the management agreements provide non-affiliated limited partners the ability to remove WRCM as manager without cause. WRCM earns i 50 basis points (annually) on the outstanding balance of the investments in these funds, of which WRCM pays approximately i 50 percent of such amount to Union Bank as custodian. As of December 31, 2020, the outstanding balance of investments in these funds was $ i 134.3 million. The Company paid Union Bank $ i i 0.3 / million in each of 2020, 2019, and 2018, as custodian of the funds.

Nelnet Bank

Upon its establishment on November 2, 2020, Nelnet Bank entered into agreements with Union Bank in which Union Bank provides investment custodial services and correspondent bank services. Fees paid during 2020 by Nelnet Bank to Union Bank under these agreements were not significant.

Transactions with F&M

The Company, F&M, and the holding company of BankFirst of Norfolk, Nebraska ("BankFirst"), of which Mr. Dunlap is a member of the Board of Directors, have co-invested a total of $ i 10.3 million, $ i 4.6 million, and $ i 1.7 million, respectively, in a Company-managed limited liability company that invests in renewable energy (solar). As part of these transactions, the Company receives management and performance fees under a management agreement. For the years ended December 31, 2020 and 2019, the Company earned approximately $ i 46,000 and $ i 69,000 and approximately $ i 15,000 and $ i 69,000 of management fees from F&M and BankFirst, respectively, under this agreement.

Transactions with Union Financial Services (“UFS”)

UFS is owned i 50 percent by Mr. Dunlap. Historically, the Company owned a i 65 percent interest in an aircraft due to the frequent business travel needs of the Company's executives and the limited availability of commercial flights in Lincoln, Nebraska, where the Company's headquarters are located. UFS owned the remaining interest in the same aircraft. On December 31, 2018, the Company purchased an additional i 17.5 percent interest in the aircraft from UFS for $ i 717,500, which reflected what available information indicated was the aircraft's fair market value at the time of sale. As a result of this transaction, the Company's ownership in the aircraft increased to i 82.5 percent. On December 31, 2018, UFS also contributed a i 17.5 percent interest in the aircraft to an entity owned by Mr. Dunlap.

Transactions with Agile Sports Technologies, Inc. (doing business as "Hudl")

David Graff, who has served on the Company's Board of Directors since 2014, is CEO, co-founder, and a director of Hudl. On May 20, 2020, the Company made an additional equity investment in Hudl, as one of the participants in an equity raise completed by Hudl. See Note 7, “Investments” for additional information on this equity raise. The Company and Mr. Dunlap, along with his children, currently hold combined direct and indirect equity ownership interests in Hudl of i 19.6% and i 3.7%, respectively, which did not materially change as a result of the May 2020 transaction. The Company's and Mr. Dunlap's direct and indirect equity ownership interests in Hudl consist of preferred stock with certain liquidation preferences that are considered substantive. Accordingly, for accounting purposes, the Company's and Mr. Dunlap's equity ownership interests are not considered in-substance common stock and the Company is accounting for its equity investment in Hudl using the measurement alternative method.

On July 26, 2019, the Company, as lender, received a $ i 16.0 million promissory note from Hudl. The promissory note carried a i 14 percent interest rate and was due i 180 days from the date of issuance. In connection with this promissory note, the Company entered into a Subordination Agreement with Union Bank, effective as of July 26, 2019, which required the Company to subordinate its promissory note from Hudl to existing notes Union Bank holds from Hudl. The $ i 16.0 million promissory note from Hudl was paid in full to the Company in August 2019.

F - 60

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

The Company makes investments to further diversify the Company both within and outside of its historical core education-related businesses, including investments in real estate. Recent real estate investments have been focused on the development of commercial properties in the Midwest, and particularly in Lincoln, Nebraska, where the Company's headquarters are located. One investment includes the development of a building in Lincoln's Haymarket District that is the headquarters of Hudl, in which Hudl is the primary tenant in this building.

Transaction with Assurity Life Insurance Company ("Assurity")

Thomas Henning, who has served on the Company's Board of Directors since 2003, is the President and Chief Executive Officer of Assurity. During the years ended December 31, 2020, 2019, and 2018, Nelnet Business Services, a subsidiary of the Company, paid $ i 1.8 million, $ i 1.7 million, and $ i 1.7 million, respectively, to Assurity for insurance premiums for insurance on certain tuition payment plans. As part of providing the tuition payment plan insurance to Nelnet Business Services, Assurity entered into a reinsurance agreement with the Company's insurance subsidiary, under which Assurity paid the Company's insurance subsidiary reinsurance premiums of $ i 1.4 million, $ i 1.3 million, and $ i 1.3 million in 2020, 2019, and 2018, respectively, and the Company's insurance subsidiary paid claims on such reinsurance to Assurity of $ i 1.0 million, $ i 0.9 million, and $ i 0.9 million in 2020, 2019, and 2018, respectively. In addition, Assurity pays Nelnet Business Services a partial refund annually based on claim experience, which was approximately $ i 64,000, $ i 56,000, and $ i 84,000 for the years ended December 31, 2020, 2019, and 2018, respectively.

During 2020, Assurity invested approximately $ i 1.2 million in a Company-managed limited liability company that invests in renewable energy (solar). As part of this transaction, the Company receives management and performance fees under a management agreement. During the year ended December 31, 2020, the Company earned approximately $ i 12,000 in management fees from Assurity under this agreement.

22. i Fair Value

The following tables present the Company’s financial assets and liabilities that are measured at fair value on a recurring basis. There were no transfers into or out of level 1, level 2, or level 3 for the year ended December 31, 2020.

Level 1

Level 2

Total

Level 1

Level 2

Total

Assets:

Investments (a):

Student loan asset-backed and other debt securities - available-for-sale

i —

i 348,504

i —

i 52,597

Equity securities

i 10,114

i —

i 10,114

i 6

i —

i 6

Equity securities measured at net asset value (b)

i 31,927

i 12,894

Debt securities - available-for-sale

i 103

i —

i 103

i 104

i —

i 104

Total investments

i 10,217

i 348,504

i 390,648

i 110

i 52,597

i 65,601

Total assets

i 10,217

i 348,504

i 390,648

i 110

i 52,597

i 65,601

(a) Investments represent investments recorded at fair value on a recurring basis. Level 1 investments are measured based upon quoted prices and include investments traded on an active exchange, such as the New York Stock Exchange, and corporate bonds, mortgage-backed securities, U.S. government bonds, and U.S. Treasury securities that trade in active markets. Level 2 investments include student loan asset-backed securities and municipal bonds. The fair value for the student loan asset-backed securities is determined using indicative quotes from broker-dealers or an income approach valuation technique (present value using the discount rate adjustment technique) that considers, among other things, rates currently observed in publicly traded debt markets for debt of similar terms issued by companies with comparable credit risk.

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

F - 61

NELNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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

Fair value

Carrying value

Level 1

Level 2

Level 3

Financial assets:

Loans receivable

i 20,454,132

i 19,391,045

i —

i 20,454,132

Accrued loan interest receivable

i 794,611

i —

i 794,611

i —

Cash and cash equivalents

i 121,249

i —

Investments (at fair value)

i 390,648

i 10,217

i 348,504

i —

Beneficial interest in loan securitizations

i 58,709

i 58,331

i —

i 58,709

Restricted cash

i 553,175

i —

Restricted cash – due to customers

i 283,971

i —

Financial liabilities:

Bonds and notes payable

i 19,270,810

i 19,320,726

i —

i 19,270,810

i —

Accrued interest payable

i 28,701

i —

i 28,701

i —

Bank deposits

i 54,599

i 54,633

i 48,422

i 6,177

i —

Due to customers

i 301,471

i —