UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(MARK ONE)
     |X|        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004

                                       OR

     |_|     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


              FOR THE TRANSITION PERIOD FROM _______ TO_________ .



                        COMMISSION FILE NUMBER 333-104736

                 -------------------------------------------------

                       NELNET EDUCATION LOAN FUNDING, INC.
             (Exact name of registrant as specified in its charter)

             NEBRASKA                                          47-0809600
 (State or other jurisdiction of                           (I.R.S. Employer
   incorporation or organization)                          Identification No.)

                     121 SOUTH 13TH STREET, SUITE 201 68508
                          LINCOLN, NEBRASKA (Zip Code)
                    (Address of principal executive offices)

                          (402) 458-2370 (Registrant's
                     telephone number, including area code)


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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

As of October 31, 2004, there are 111 shares of common stock, $100 par value,
outstanding.

The registrant meets the condition set forth in General Instructions H(1)(a) and
(b) of Form 10-Q and is therefore filing this form with the reduced disclosure
format.


<PAGE>

                       NELNET EDUCATION LOAN FUNDING, INC.
                                    FORM 10-Q
                                      INDEX
                               SEPTEMBER 30, 2004


PART I. FINANCIAL INFORMATION
        Item 1. Financial Statements...........................................2
        Item 2. Management's Discussion and Analysis of Financial Condition
                and Results of Operations......................................8
        Item 3. Quantitative and Qualitative Disclosures about Market Risk....15
        Item 4. Controls and Procedures.......................................16

PART II. OTHER INFORMATION
        Item 1. Legal Proceedings.............................................16
        Item 2. Changes in Securities and Use of Proceeds.....................16
        Item 3. Defaults Upon Senior Securities...............................16
        Item 4. Submission of Matters to a Vote of Security Holders...........16
        Item 5. Other Information.............................................17
        Item 6. Exhibits......................................................17


SIGNATURES....................................................................18


<PAGE>



                       PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                       NELNET EDUCATION LOAN FUNDING, INC.
      (A WHOLLY OWNED SUBSIDIARY OF NATIONAL EDUCATION LOAN NETWORK, INC.)
                                 BALANCE SHEETS
                                                                 SEPTEMBER 30,    DECEMBER 31,
                                                                     2004             2003
                                                               ---------------- ----------------
                                                                 (UNAUDITED)
                                                           (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                                              <C>                  <C>
ASSETS:
Student loans receivable (net of allowance for loan losses of
      $37 and $2,574, respectively).............................$ 4,428,966          3,213,660
Cash and cash equivalents:
      Cash and cash equivalents - not held at a related party...         --              9,150
      Cash and cash equivalents - held at a related party.......        765                 --
                                                               -------------      -------------
Total cash and cash equivalents.................................        765              9,150
Restricted cash.................................................    119,400             90,726
Restricted investments .........................................    156,769             73,676
Accrued interest receivable.....................................     88,106             58,091
Other assets....................................................     12,587              6,722
                                                               -------------      -------------
      Total assets..............................................$ 4,806,593          3,452,025
                                                               =============      =============

LIABILITIES:
Bonds and notes payable.........................................$ 4,636,142          3,378,050
Accrued interest payable........................................      9,088              3,790
Other liabilities, including deferred taxes.....................     34,742             54,207
Income taxes payable to parent..................................     20,995                259
                                                               -------------      -------------
      Total liabilities.........................................  4,700,967          3,436,306
                                                               -------------      -------------
STOCKHOLDER'S EQUITY:
Common stock, $100 par value. Authorized 1,000 shares; issued
      and outstanding 111 shares................................         11                 11
Additional paid-in capital......................................      1,535              5,652
Retained earnings...............................................    104,080             10,056
                                                               -------------      -------------

      Total stockholder's equity................................    105,626             15,719
                                                               -------------      -------------

      Total liabilities and stockholder's equity................$ 4,806,593          3,452,025
                                                               =============      ==============
</TABLE>

 See accompanying notes to financial statements.

                                       2
<PAGE>
<TABLE>
<CAPTION>

                       NELNET EDUCATION LOAN FUNDING, INC.
      (A WHOLLY OWNED SUBSIDIARY OF NATIONAL EDUCATION LOAN NETWORK, INC.)
                              STATEMENTS OF INCOME
                                   (UNAUDITED)


                                                               THREE MONTHS ENDED          NINE MONTHS ENDED
                                                                 SEPTEMBER 30,               SEPTEMBER 30,
                                                            -------------------------   ------------------------
                                                               2004           2003          2004         2003
                                                            -----------   -----------   -----------  -----------
                                                                            (DOLLARS IN THOUSANDS)
<S>                                                         <C>               <C>          <C>           <C>
Interest income:
    Loan interest...........................................$   78,938        21,057       268,569       47,931
    Investment interest.....................................     1,572           959         3,375        2,601
                                                            -----------   -----------   -----------  -----------
       Total interest income................................    80,510        22,016       271,944       50,532

INTEREST EXPENSE:
    Interest on bonds and notes payable.....................    23,502         9,823        56,690       23,801
                                                            -----------   -----------   -----------  -----------
        Net interest income..................................   57,008        12,193       215,254       26,731

Less provision (recovery) for loan losses...................       (15)          800        (2,200)         950
                                                            -----------   -----------   -----------  -----------
       Net interest income after provision (recovery) for
         loan losses........................................    57,023        11,393       217,454       25,781
                                                            -----------   -----------   -----------  -----------
OTHER INCOME (EXPENSE):
    Derivative market value adjustment......................    (3,226)           --        (5,431)          --
    Other...................................................       288           147           753          343
                                                            -----------   -----------   -----------  -----------
       Total other income (expense).........................    (2,938)          147        (4,678)         343
                                                            -----------   -----------   -----------  -----------
OPERATING EXPENSES:
       Trustee and other debt related fees..................     1,019           908         3,314        2,074
       Loan servicing fees to related party.................     7,785         4,477        22,482       10,825
       Loan servicing fees..................................       115           100           324          305
       Administrative fees to parent........................     2,655         1,476         7,710        4,366
       Professional services................................        15            19           127           98
                                                            -----------   -----------   -----------  -----------
         Total operating expenses...........................    11,589         6,980        33,957       17,668
                                                            -----------   -----------   -----------  -----------
         Income before income tax expense...................    42,496         4,560       178,819        8,456

Income tax expense..........................................    14,936         1,676        65,093        3,078
                                                            -----------   -----------   -----------  -----------
         Net income.........................................$   27,560         2,884       113,726        5,378
                                                            ===========   ===========   ===========  ===========
</TABLE>

See accompanying notes to financial statements.

                                       3
<PAGE>
<TABLE>
<CAPTION>

                         NELNET EDUCATION LOAN FUNDING, INC.
         (A WHOLLY OWNED SUBSIDIARY OF NATIONAL EDUCATION LOAN NETWORK, INC.)
                               STATEMENTS OF CASH FLOWS
                                     (UNAUDITED)

                                                                               NINE MONTHS ENDED
                                                                                  SEPTEMBER 30,
                                                                         -------------------------------
                                                                              2004             2003
                                                                         ---------------   -------------
                                                                               (DOLLARS IN THOUSANDS)
<S>                                                                      <C>                     <C>
Net income...............................................................$    113,726            5,378
Adjustments to reconcile net income to net cash
provided by operating activities:
      Amortization, including premiums and
       deferred origination costs........................................       9,442            4,730
      Derivative market value adjustment.................................       5,431               --
      Deferred income tax expense (benefit)..............................       1,274             (547)
      (Recovery) provision for loan losses...............................      (2,200)             950
      Increase in accrued interest receivable............................     (30,015)         (29,908)
      Decrease in other assets...........................................       2,223              476
      Increase in accrued interest payable...............................       5,298            2,937
      (Decrease) increase in other liabilities...........................     (20,739)          19,242
      Increase in income taxes payable to parent.........................      20,736            1,636
                                                                         ---------------   -------------
         Net cash provided by operating activities.......................     105,176            4,894
                                                                         ---------------   -------------
Cash flows from investing activities:
      Originations, purchases, and consolidations of
         student loans, including premiums
         and deferred origination costs..................................  (3,066,301)      (1,647,078)
      Net proceeds from student loan principal payments and
        loan consolidations..............................................     376,259          212,077
      Purchases of student loans, including premiums, from affiliates....     (95,589)      (1,166,096)
      Proceeds from sales of student loans to affiliates.................   1,778,117        1,021,356
      Payments on loan participations....................................    (213,994)         (63,572)
      Increase in restricted cash........................................     (28,674)         (15,576)
      Purchases of restricted investments................................    (643,100)        (231,352)
      Proceeds from maturities of restricted investments.................     560,007          234,444
                                                                         ---------------   -------------
         Net cash used in investing activities...........................  (1,333,275)      (1,655,797)
                                                                         ---------------   -------------
Cash flows from financing activities:
      Proceeds from issuance of bonds and notes payable..................   2,027,700        2,009,794
      Payments on bonds and notes payable................................    (769,608)        (350,853)
      Payment for debt issuance costs....................................      (6,159)          (4,911)
      Premiums paid for interest rate caps...............................      (8,400)              --
      Proceeds from capital contributions from parent....................      14,380           15,963
      Payments for return of capital to parent...........................     (26,982)         (16,721)
      Dividends paid to parent...........................................     (11,217)         (10,651)
                                                                         ---------------   -------------
         Net cash provided by financing activities.......................   1,219,714        1,642,621
                                                                         ---------------   -------------
         Net decrease in cash and cash equivalents.......................      (8,385)          (8,282)

Cash and cash equivalents, beginning of period...........................       9,150            9,294
                                                                         ---------------   -------------
Cash and cash equivalents, end of period.................................$        765            1,012
                                                                         ===============   =============
Supplemental disclosure of cash flow information:
      Interest paid......................................................$     50,352           20,434
                                                                         ===============   =============
      Income taxes paid..................................................$     43,085            1,437
                                                                         ===============   =============
</TABLE>

See accompanying notes to financial statements.

                                       4
<PAGE>

                       NELNET EDUCATION LOAN FUNDING, INC.
      (A WHOLLY OWNED SUBSIDIARY OF NATIONAL EDUCATION LOAN NETWORK, INC.)
                          NOTES TO FINANCIAL STATEMENTS
             (INFORMATION AS OF SEPTEMBER 30, 2004 AND FOR THE THREE
                    AND NINE MONTHS ENDED SEPTEMBER 30, 2004
                             AND 2003 IS UNAUDITED)

1.      BASIS OF PRESENTATION

Nelnet Education Loan Funding, Inc. (the "Company") is a wholly owned subsidiary
of National Education Loan Network, Inc. ("NELN" or the "Parent") and a wholly
owned indirect subsidiary of Nelnet, Inc. ("Nelnet"). The Parent is a holding
company organized for the purpose of establishing and owning the stock of
corporations like the Company engaged in the securitization of financial assets.
The Parent also provides managerial and administrative support to the Company.
The Company contracts the majority of its loan servicing with Nelnet. In
addition, the Company files a consolidated tax return with Nelnet, the legal
parent of NELN. The financial statements reflect income taxes computed as if the
Company filed a separate tax return. Current income tax liabilities are recorded
by the Company to its Parent as if the Company were a separate tax-paying
entity.

The accompanying unaudited financial statements of the Company as of September
30, 2004 and for the three and nine months ended September 30, 2004 and 2003
have been prepared on the same basis as the audited financial statements for the
year ended December 31, 2003 and, in the opinion of the Company's management,
the unaudited financial statements reflect all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of results of
operations which might be expected for the entire year. The preparation of
financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates. Operating results for the three and
nine months ended September 30, 2004 are not necessarily indicative of the
results for the year ending December 31, 2004. The unaudited financial
statements should be read in conjunction with the Company's Annual Report on
Form 10-K for the year ended December 31, 2003. Certain amounts from 2003 have
been reclassified to conform to the current period presentation.

2.      RECENT DEVELOPMENTS

A portion of the Company's Federal Family Education Loan Program ("FFELP" or
"FFEL Program") loan portfolio is comprised of loans that are currently or were
previously financed with tax-exempt obligations issued prior to October 1, 1993.
Based upon provisions of the Higher Education Act of 1965, as amended, and
related interpretations by the U.S. Department of Education (the "Department"),
the Company is entitled to receive special allowance payments on these loans
providing the Company with a 9.5% minimum rate of return. In May 2003, the
Company sought confirmation from the Department regarding whether it was allowed
to recognize these special allowance payments as income based on the 9.5%
minimum rate of return. While pending satisfactory resolution of this issue with
the Department, the Company deferred recognition of the interest income that was
generated by these loans in excess of income based upon the standard special
allowance rate. In June 2004, after consideration of certain clarifying
information received in connection with the guidance it had sought, including
written and verbal communications with the Department, the Company concluded
that the earnings process had been completed related to the special allowance
payments on these loans and recognized $123.9 million of interest income. At
December 31, 2003, the amount of deferred excess interest income on these loans
was approximately $43 million and was included in other liabilities on the
Company's balance sheet.

Following Nelnet's disclosures related to recognition of such income, Senator
Edward M. Kennedy, by letter to the Secretary of Education dated August 26,
2004, requested information as to whether the Department had approved of
Nelnet's receipt of this income and, if not, why the Department had not sought
to recover claimed subsidies under this provision. By letter dated September 10,
2004, Nelnet furnished to the Department certain background information
concerning the growth of the 9.5% Floor loans in its portfolio, which
information had been requested by the Department. Senator Kennedy, in a second
letter to the Securities and Exchange Commission ("SEC") dated September 21,
2004, requested that the SEC investigate Nelnet's activities related to the
income recognized on these loans. More specifically, Senator Kennedy raised
concerns about Nelnet's disclosures in connection with its decision to recognize

                                       5
<PAGE>

the previously deferred income, and trading of Nelnet securities by Nelnet
executives following such disclosures. On September 27, 2004, Nelnet voluntarily
contacted the SEC to request a meeting with the SEC Staff. Nelnet's request was
granted, and representatives of Nelnet met with representatives of the SEC Staff
on October 12, 2004. Nelnet representatives offered to provide to the SEC
information that the SEC Staff wished to have relating to the issues raised in
Senator Kennedy's letter. By letter dated October 14, 2004, the SEC Staff
requested that, in connection with an informal investigation, Nelnet provide
certain identified information. Nelnet is furnishing to the SEC Staff the
information it has requested and is fully cooperating with the SEC Staff in its
informal investigation.

Nelnet and the Company continue to believe that the concerns expressed to the
SEC by Senator Kennedy are entirely unfounded, but it is not appropriate or
feasible to determine or predict the ultimate outcome of the SEC's informal
investigation. Costs, if any, associated with an adverse outcome or resolution
of that matter, in a manner that is currently indeterminate and inherently
unpredictable, could adversely affect Nelnet and the Company's financial
condition and results of operations. Although it is possible that an adverse
outcome in certain circumstances could have a material adverse effect, based on
information currently known by Nelnet and the Company's management, in its
opinion, the outcome of such pending informal investigation is not likely to
have such an effect.

3.      ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is estimated and established through a provision
charged to expense. Losses are charged against the allowance when management
believes the collectibility of the loan principal is unlikely. Recovery of
amounts previously charged off is credited to the allowance for loan losses.

The allowance for the Company's federally insured loan portfolio is based on
periodic evaluations of the Company's loan portfolio considering past
experience, trends in student loan claims rejected for payment by guarantors,
changes to federal student loan programs, current economic conditions, and other
relevant factors. The federal government generally guarantees 98 percent of
principal and interest of federally insured student loans, which limits the
Company's loss exposure to two percent of the outstanding balance of the
Company's federally insured portfolio.

Effective June 1, 2004, Nelnet was designated as an Exceptional Performer by the
Department in recognition of its exceptional level of performance in servicing
FFEL Program loans. As a result of this designation, Nelnet's servicing
customers receive 100 percent reimbursement on all eligible FFEL Program default
claims submitted for reimbursement during the 12-month period following the
effective date of its designation. Only FFEL Program loans that are serviced by
Nelnet, as well as loans owned by the Company and serviced by other service
providers designated as Exceptional Performers by the Department, are subject to
the 100 percent reimbursement. In June 2004, the Company's allowance for loan
losses balance was reduced by $3.7 million and the provision for loan losses was
similarly reduced to account for the estimated effects of the Exceptional
Performance designations achieved by the Company's service providers.

As of September 30, 2004, service providers designated as an Exceptional
Performer serviced the majority of the Company's loans. The majority of these
loans (95 percent) are serviced by Nelnet. The Company is entitled to receive
this benefit as long as its service providers continue to meet the required
servicing standards published by the Department. Compliance with such standards
is assessed on a quarterly basis.

4.      BONDS AND NOTES PAYABLE AND ACCOUNTING FOR DERIVATIVES

On January 15, 2004 and April 29, 2004, the Company consummated debt offerings
of student loan asset-backed notes of $1.0 billion each, with final maturity
dates ranging from 2009 through 2039. The majority of notes issued in these
transactions have variable interest rates based on a spread to LIBOR or reset
under auction procedures. In conjunction with these offerings, the Company
entered into certain interest rate cap financial instruments. The Company
executed a 5.25% interest rate cap, effective January 30, 2004, with a notional
amount of $800.0 million that terminates in February 2006. In addition, the
Company executed two interest rate caps, effective April 29, 2004, with notional
amounts of $450.0 million and $651.0 million that terminate in May 2006 and
August 2019, respectively. The interest rate caps on these derivatives are 5.0%
and 7.10%, respectively.

                                       6
<PAGE>

The Company accounts for these interest rate caps under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS No. 133"). SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
hedging activities, as defined, including certain derivative instruments
embedded in other contracts, and requires that an entity recognize all
derivatives as either an asset or liability on the balance sheet and measure
them at fair value. The fair value of the Company's interest rate caps are
determined from market quotes from independent security brokers. At September
30, 2004, the fair market value of the Company's outstanding interest rate caps
was $3.0 million, which is included in other assets on the accompanying balance
sheet.

The Company incorporates the use of derivative instruments to minimize the
economic effect of interest rate volatility. The Company's goal is to manage
interest rate sensitivity by modifying the repricing characteristics of certain
liabilities so that movements in interest rates do not, on a material basis,
adversely affect interest expense. The Company views this strategy as a prudent
management of interest rate sensitivity. Management believes its derivative
transactions are economically effective; however, they do not qualify for hedge
accounting under SFAS No. 133. Changes in the fair value of derivative
instruments that do not qualify for hedge accounting are reported in current
period earnings. For the three and nine months ended September 30, 2004, the
Company recorded losses of $3.2 million and $5.4 million, respectively, related
to the change in fair value of its outstanding interest rate caps.

By using derivative instruments, the Company is exposed to credit and market
risk. If the counterparty fails to perform, credit risk is equal to the extent
of the fair value gain in a derivative. When the fair value of a derivative
contract is positive, this generally indicates that the counterparty would owe
the Company if the derivative was terminated. When the fair value of a
derivative contract is negative, the Company would owe the counterparty if the
derivative was terminated and, therefore, it has no credit risk. The Company
minimizes the credit (or repayment) risk in derivative instruments by entering
into transactions with high-quality counterparties that are reviewed
periodically by the Company's risk committee. The Company also maintains a
policy of requiring that an International Swaps and Derivative Association
Master Agreement govern all derivative contracts.

Market risk is the adverse effect that a change in interest rates, or implied
volatility rates, has on the value of a financial instrument. The Company
manages market risk associated with interest rates by establishing and
monitoring limits as to the types and degree of risk that may be undertaken.


                                       7
<PAGE>

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

The following discussion and analysis provides information that the Company's
management believes is relevant to an assessment and understanding of the
results of operations and financial condition of the Company. The discussion
should be read in conjunction with the Company's financial statements included
in the Company's Annual Report on Form 10-K for the year ended December 31,
2003.

This report contains forward-looking statements and information that are based
on management's current expectations as of the date of this document. When used
in this report, the words "anticipate," "believe," "estimate," "intend,"
"expect," and similar expressions are intended to identify forward-looking
statements. These forward-looking statements are subject to risks,
uncertainties, assumptions, and other factors that may cause the actual results
to be materially different from those reflected in such forward-looking
statements. These factors include, among others, changes in the terms of student
loans and the educational credit marketplace arising from the implementation of
applicable laws and regulations and from changes in these laws and regulations,
which may reduce the volume, average term, and costs of yields on student loans
under the Federal Family Education Loan Program ("FFEL Program" or "FFELP") or
result in loans being originated or refinanced under non-FFELP programs or may
affect the terms upon which banks and others agree to sell FFELP loans to the
Company. The Company could also be affected by changes in the demand for
educational financing or in financing preferences of lenders, educational
institutions, students and their families; changes in the general interest rate
environment and in the securitization markets for education loans, which may
increase the costs or limit the availability of financings necessary to
initiate, purchase, or carry education loans; losses from loan defaults; and
changes in prepayment rates and credit spreads. The reader should not place
undue reliance on forward-looking statements, which speak only as of the date of
this Quarterly Report on Form 10-Q. The Company is not obligated to publicly
release any revisions to forward-looking statements to reflect events after the
date of this Quarterly Report on Form 10-Q or unforeseen events.

THE COMPANY

The Company is a bankruptcy remote, special purpose corporation formed under the
laws of the State of Nebraska. The Company was organized in 1998 to acquire the
student loan assets and liabilities of Nebraska Higher Education Loan Program,
Inc., a non-profit corporation that had previously operated as a qualified
scholarship funding corporation under Section 150(d) of the Internal Revenue
Code. In connection with that transaction, the Company assumed the obligations
of Nebraska Higher Education Loan Program, Inc. to pay the principal and
interest due on its outstanding student loan revenue bonds. When those
obligations were assumed, the Company also received from Nebraska Higher
Education Loan Program, Inc. an assignment of all of the student loans and other
assets that had been pledged to secure their repayment, and certain other
related assets. Since completing that transaction, the Company has issued
additional series of student loan asset-backed notes and used the proceeds of
those notes to finance additional portfolios of student loans.

The Company is a wholly owned subsidiary of National Education Loan Network,
Inc., which is a wholly owned subsidiary of Nelnet, Inc. ("Nelnet"), a reporting
company under the Securities Exchange Act of 1934. Prior to April 21, 2003, the
Company was named NEBHELP, INC.

GENERAL DESCRIPTION OF THE BUSINESS OF THE COMPANY

The Company is a special purpose corporation formed to engage in the business of
originating, acquiring, financing, holding, and managing guaranteed education
loans made to students and to parents of students under the Higher Education Act
of 1965, as amended (the "Higher Education Act"). As a special purpose
corporation, the Company may not engage in any activity other than:

o    originating, acquiring, financing, holding, and managing student loans
     and the other related assets, and the proceeds there from;

o    issuing bonds and notes; and

o    engaging in other activities related to the activities listed above.

                                       8
<PAGE>

As of September 30, 2004, the Company held a student loan portfolio of $4.4
billion, consisting entirely of loans originated under the FFEL Program. As of
September 30, 2004, the Company had issued and outstanding $4.6 billion of debt
obligations, the proceeds of which were used to finance its student loan
portfolio. The Company's student loans, and certain other assets, are pledged to
secure payment of its debt obligation under various indentures of trust.

The Company originates new student loans for its portfolio, participates in
student loans, and purchases student loans from other holders, including
affiliated companies. When the Company originates student loans or when it
acquires student loans from other holders, the Company engages one or more
"eligible lenders," as defined in the Higher Education Act, to act as trustees
to hold title to all such originated and acquired student loans. These eligible
lender trustees hold the legal title to the student loans, and the Company holds
100% of the beneficial interests in those loans.

SIGNIFICANT DRIVERS AND TRENDS

The Company's earnings and earnings growth are directly affected by the size of
its portfolio of student loans, the interest rate characteristics of its
portfolio, the costs associated with financing and managing its portfolio, and
the costs associated with the origination and acquisition of the student loans
in the portfolio. In addition to the impact of growth of the Company's student
loan portfolio, the Company's results of operations and financial condition may
be materially affected by, among other things, changes in:

o    applicable laws and regulations that may affect the volume, terms,
     effective yields, or refinancing options of education loans;

o    demand for education financing and competition within the student loan
     industry;

o    the interest rate environment, funding spreads on the Company's
     financing programs, and access to capital markets; and

o    prepayment rates on student loans, including prepayments relating to
     loan consolidations.

RECENT DEVELOPMENTS

As previously discussed, based on provisions of the Higher Education Act of
1965, as amended, and related interpretations, education lenders may receive
special allowance payments providing a minimum 9.5% rate (the "9.5% Floor") on
loans currently or previously financed with proceeds of tax-exempt obligations
issued prior to October 1, 1993. The Company holds FFELP loans which are
receiving special allowance payments based upon the 9.5% Floor with an aggregate
outstanding balance of approximately $3.1 billion as of September 30, 2004. The
Company had previously sought confirmation regarding whether it was allowed to
receive the special allowance income based on the 9.5% Floor on such loans
following refinancing with proceeds of taxable obligations. For periods through
March 31, 2004, the Company had deferred recognition of a portion of the income
from the 9.5% Floor which exceeded ordinary special allowance payment rates
generated by these loans, pending satisfactory resolution of this issue. As
previously disclosed, after consideration of certain clarifying information
received in connection with the guidance it had sought and based on written and
verbal communications with the Department, the Company concluded that the
earnings process had been completed and determined to recognize the related
income.

Following Nelnet's disclosures related to recognition of such income, Senator
Edward M. Kennedy, by letter to the Secretary of Education dated August 26,
2004, requested information as to whether the Department had approved of
Nelnet's receipt of the 9.5% Floor income and, if not, why the Department had
not sought to recover claimed subsidies under the 9.5% Floor. By letter dated
September 10, 2004, Nelnet furnished to the Department certain background
information concerning the growth of the 9.5% Floor loans in its portfolio,
which information had been requested by the Department. Senator Kennedy, in a
second letter to the Securities and Exchange Commission ("SEC") dated September
21, 2004, requested that the SEC investigate Nelnet's activities related to the
9.5% Floor. More specifically, Senator Kennedy raised concerns about Nelnet's
disclosures in connection with its decision to recognize the previously deferred
income, and trading of Nelnet securities by Nelnet executives following such
disclosures. On September 27, 2004, Nelnet voluntarily contacted the SEC to
request a meeting with the SEC Staff. Nelnet's request was granted, and
representatives of Nelnet met with representatives of the SEC Staff on October
12, 2004. Nelnet representatives offered to provide to the SEC information that
the SEC Staff wished to have relating to the issues raised in Senator Kennedy's
letter. By letter dated October 14, 2004, the SEC Staff requested that, in
connection with an informal investigation, Nelnet provide certain identified
information. Nelnet is furnishing to the SEC Staff the information it has
requested and is fully cooperating with the SEC Staff in its informal
investigation.

                                       9
<PAGE>

Nelnet and the Company continues to believe that the concerns expressed to the
SEC by Senator Kennedy are entirely unfounded, but it is not appropriate or
feasible to determine or predict the ultimate outcome of the SEC's informal
investigation. Costs, if any, associated with an adverse outcome or resolution
of that matter, in a manner that is currently indeterminate and inherently
unpredictable, could adversely affect Nelnet and the Company's financial
condition and results of operations. Although it is possible that an adverse
outcome in certain circumstances could have a material adverse effect, based on
information currently known by Nelnet and the Company's management, in its
opinion, the outcome of such pending informal investigation is not likely to
have such an effect.

Certain recent legislative developments have occurred in connection with the
Higher Education Act, as amended. As the Higher Education Act was set to expire
on September 30, 2004, Congress passed a one-year extension of the Higher
Education Act. Reauthorization of the Higher Education Act for a period of five
years is now anticipated to be addressed prior to the lapse of the one-year
extension on September 30, 2005. The Company cannot guarantee that
reauthorization will occur or what form reauthorization will take.

In October 2004, Congress passed and President Bush signed into law the
Taxpayer-Teacher Protection Act of 2004 (the "October Act"), which prospectively
suspended eligibility for the 9.5% Floor on any loans refinanced with proceeds
of taxable obligations between September 30, 2004 and January 1, 2006. The
Company's FFELP loans, which have been refinanced with proceeds of taxable
obligations and are receiving special allowance payments under the 9.5% Floor,
were all refinanced with proceeds of taxable obligations well prior to
September 30, 2004. The Company had ceased adding to its portfolio of loans
receiving special allowance payments subject to the 9.5% Floor in May 2004, and
thus the language in the October Act should not have an effect upon the
eligibility of such loans for the 9.5% Floor, nor should it have a material
effect upon the Company's financial condition or results of operation.

Senator Kennedy and others have been proponents of legislation which could act
to retroactively remove eligibility for the 9.5% Floor from FFELP loans that
have, prior to September 30, 2004, been refinanced with proceeds of taxable
obligations. The Company cannot predict whether such legislation seeking to
retroactively eliminate the 9.5% Floor will be advanced in the future. If such
retroactive legislation were to be enacted and withstand legal challenge, it
would have a material adverse effect upon the Company's financial condition and
results of operations. Senator Kennedy and others in congressional debate in
October 2004 called for such retroactive legislation. However, the Department
has indicated that receipt of the 9.5% Floor income is permissible under current
law and previous interpretations thereof. The Company cannot predict whether the
Department will maintain its position in the future on the permissibility of the
9.5% Floor.

RESULTS OF OPERATIONS

The Company's results of operations consist of the following components:

NET INTEREST INCOME

The Company generates the majority of its earnings from the spread between the
yield the Company receives on its portfolio of student loans and the cost of
funding these loans. This spread income is reported on the Company's income
statement as net interest income. While the spread between the yield the Company
receives on its student loan portfolio and the cost of funding those loans may
vary due to fluctuations in interest rates, special allowance payments from the
federal government ensure that the Company receives a minimum yield on its
student loans, so long as certain requirements are met. The amortization and
write-offs of premiums or discounts, including capitalized costs of origination,
the consolidation loan rebate fee, and yield adjustments from borrower benefit
programs, are netted against loan interest income on the Company's income
statement. The amortization and write-offs of debt issuance costs are included
in interest expense on the Company's income statement.

The Company's portfolio of FFELP loans generally earns interest at the higher of
a variable rate based on the special allowance payment, or SAP, formula set by
the Department and the borrower rate, which is fixed over a period of time. The
SAP formula is based on an applicable index plus a fixed spread that is
dependent upon when the loan was originated, the loan's repayment status, and
funding sources for the loan. Depending on the type of student loan and when the
loan was originated, the borrower rate is either fixed to term or is reset to a
market rate each July 1. The larger the reduction in rates subsequent to the
July 1 annual borrower interest rate reset date, the greater the Company's
opportunity to earn variable-rate floor income. In declining interest rate


                                       10
<PAGE>

environments, the Company can earn significant amounts of such income.
Conversely, as the decline in rates abates, or in environments where interest
rates are rising, the Company's opportunity to earn variable-rate floor income
can be reduced, in some cases substantially. Since the borrower rates are reset
annually, the Company views earnings on variable-rate floor income as temporary
and not necessarily sustainable. The Company's ability to earn variable-rate
floor income in the future periods is dependent upon the interest rate
environment following the annual reset of borrower rates, and the Company cannot
assure the nature of such environment in the future.

On those student loans with fixed-term borrower rates, primarily consolidation
loans, the Company earns interest at the greater of the borrower rate or a
variable rate based on the SAP formula. Since the Company finances the majority
of its student loan portfolio with variable-rate debt, the Company may earn
excess spread on these loans for an extended period of time.

On most consolidation loans, the Company must pay a 1.05% per year rebate fee to
the Department. Those consolidation loans that have variable interest rates
based on the SAP formula earn an annual yield less than that of a Stafford loan.
Those consolidation loans that have fixed interest rates less than the sum of
1.05% and the variable rate based on the SAP formula also earn an annual yield
less than that of a Stafford loan. As a result, as consolidation loans matching
these criteria become a larger portion of the Company's loan portfolio, there
will be a lower yield on the Company's loan portfolio in the short term.
However, due to the extended terms of consolidation loans, the Company expects
to earn the yield on these loans for a longer duration, making them beneficial
to the Company in the long term.

Because the Company generates the majority of its earnings from the spread
between the yield on its portfolio of student loans and the cost of financing
these loans, the interest rate sensitivity of the Company's balance sheet is
very important to its operations. The current and future interest rate
environment can and will affect the Company's interest earnings, net interest
income, and net income.

Investment interest income includes income from restricted cash and investments
and income from unrestricted interest-earning deposits and funds pledged to
secure repayment of the bonds and notes payable.

PROVISION FOR LOAN LOSSES

The allowance for loan losses is estimated and established through a provision
charged to expense. Losses are charged against the allowance when management
believes the collectibility of the loan principal is unlikely. Recovery of
amounts previously charged off is credited to the allowance for loan losses. The
Company maintains an allowance for loan losses associated with its student loan
portfolio at a level that is based on the performance characteristics of the
underlying loans.

The allowance for the federally insured loan portfolio is based on periodic
evaluations of the Company's loan portfolio considering past experience, trends
in student loan claims rejected for payment by guarantors, changes to federal
student loan programs, current economic conditions, and other relevant factors.
The federal government generally guarantees 98 percent of principal and interest
of federally insured student loans, which limits the Company's loss exposure to
two percent of the outstanding balance of the Company's federally insured
portfolio.

Effective June 1, 2004, Nelnet was designated as an Exceptional Performer by the
Department in recognition of its exceptional level of performance in servicing
FFEL Program loans. As a result of this designation, Nelnet's servicing
customers receive 100 percent reimbursement on all eligible FFEL Program default
claims submitted for reimbursement during the 12-month period following the
effective date of its designation. Only FFEL Program loans that are serviced by
Nelnet, as well as loans owned by the Company and serviced by other service
providers designated as Exceptional Performers by the Department, are subject to
the 100 percent reimbursement. In June 2004, the Company's allowance for loan
losses balance was reduced by $3.7 million and the provision for loan losses was
similarly reduced to account for the estimated effects of the Exceptional
Performance designations achieved by the Company's service providers.

As of September 30, 2004, service providers designated as an Exceptional
Performer serviced the majority of the Company's loans. The majority of these
loans (95 percent) are serviced by Nelnet. The Company is entitled to receive
this benefit as long as its service providers continue to meet the required
servicing standards published by the Department. Compliance with such standards
is assessed on a quarterly basis.

                                       11
<PAGE>

The evaluation of the provision for loan losses is inherently subjective, as it
requires material estimates that may be subject to significant changes. The
provision for loan losses reflects the activity for the applicable period and
provides an allowance at a level that management believes is adequate to cover
probable losses inherent in the loan portfolio.

OTHER INCOME (EXPENSE)

Other income (expense) primarily includes the derivative market value adjustment
related to the Company's interest rate caps.

OPERATING EXPENSES

Operating expenses include costs incurred to manage and administer the Company's
student loan portfolio and its financing transactions, costs incurred to
generate and acquire student loans, and administrative expenses.

The Company does not believe inflation has a significant effect on its
operations.

RESULTS OF OPERATIONS
<TABLE>
<CAPTION>

THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2003

                                                           THREE MONTHS ENDED
                                                              SEPTEMBER 30,
                                                        ------------------------
                                                            2004         2003        $ CHANGE    % CHANGE
                                                        -----------  -----------    ----------  ----------
                                                         (DOLLARS IN THOUSANDS)
<S>                                                     <C>          <C>          <C>             <C>
INTEREST INCOME:
    Loan interest.......................................$   81,776   $  22,796    $  58,980       258.7 %
    Amortization of loan premiums and
      deferred origination costs........................    (2,838)     (1,739)      (1,099)      (63.2)
    Investment interest.................................     1,572         959          613        63.9
                                                        -----------  ----------   ----------  ----------
      Total interest income.............................    80,510      22,016       58,494       265.7
INTEREST EXPENSE:
    Interest on bonds and notes payable.................    23,502       9,823       13,679       139.3
                                                        -----------  ----------   ----------  ----------
      Net interest income...............................    57,008      12,193       44,815       367.5
Less provision (recovery) for loan losses...............       (15)        800         (815)     (101.9)
                                                        -----------  ----------   ----------  ----------
      Net interest income after provision (recovery)
           for loan losses..............................    57,023      11,393       45,630       400.5
                                                        -----------  ----------   ----------  ----------
OTHER INCOME (EXPENSE):
    Derivative market value adjustment..................    (3,226)         --       (3,226)    (100.0)
    Other...............................................       288         147          141        95.9
                                                        -----------  ----------   ----------  ----------
      Total other income (expense)......................    (2,938)        147       (3,085)   (2,098.6)
                                                        -----------  ----------   ----------  ----------
OPERATING EXPENSES:
      Trustee and other debt related fees...............     1,019         908          111        12.2
      Loan servicing fees to related parties............     7,785       4,477        3,308        73.9
      Loan servicing fees...............................       115         100           15        15.0
      Administrative fees to parent.....................     2,655       1,476        1,179        79.9
      Professional services.............................        15          19           (4)      (21.1)
                                                        -----------  ----------   ----------  ----------
           Total operating expenses.....................    11,589       6,980        4,609        66.0
                                                        -----------  ----------   ----------  ----------
           Income before income tax expense.............    42,496       4,560       37,936       831.9
Income tax expense......................................    14,936       1,676       13,260       791.2
                                                        -----------  ----------   ----------  ----------
           NET income...................................$   27,560   $   2,884    $  24,676       855.6 %
                                                        ===========  ==========   ==========  ==========
</TABLE>

                                       12
<PAGE>

NET INTEREST INCOME. Total loan interest, including amortization of loan
premiums and deferred origination costs, increased as a result of an increase in
the size of the student loan portfolio and the special allowance yield
adjustment, offset by changes in the interest rate environment and in the
pricing characteristics of the Company's student loan assets. The special
allowance yield adjustment of $43.5 million, offset by lower average interest
rates on loans, caused an increase in the student loan net yield on the
Company's student loan portfolio to 7.24% from 3.98%. The weighted average
interest rate on the student loan portfolio increased due to the special
allowance yield adjustment, offset by lower interest rates and the increase in
the number of lower yielding consolidation loans, resulting in an increase in
loan interest income of approximately $17.7 million. Consolidation loan activity
also increased the consolidation rebate fee and the amortization and write-off
of premiums and deferred origination costs, overall reducing loan interest
income approximately $6.7 million. There was no variable-rate floor income
during the three months ended September 30, 2004 and 2003. The increase in loan
interest income was also a result of an increase in the Company's portfolio of
student loans. As of September 30, 2004, the average student loan portfolio
increased by $2.2 billion, or 106.0%, compared to the comparable period in 2003,
which increased loan interest income by approximately $46.9 million.

Interest expense on bonds and notes payable increased as average total debt
increased approximately $2.7 billion. Average variable-rate debt increased $2.7
billion, which increased interest expense by approximately $11.4 million. The
Company reduced average fixed-rate debt by $10.4 million, which decreased the
Company's interest expense by approximately $163,000. The increase in average
debt also resulted in an increase in amortization of bond issuance costs of
approximately $235,000. The increase in interest rates, specifically LIBOR and
auction rates, increased the Company's average cost of funds to 1.86% from
1.68%, which increased interest expense approximately $2.5 million.

Net interest income, excluding the effects of the special allowance yield
adjustment, increased approximately $1.3 million, or 10.8%, to approximately
$13.5 million from approximately $12.2 million.

PROVISION FOR LOAN LOSSES. The provision for loan losses for student loans
decreased $0.8 million from an expense of $0.8 million to a recovery of $15,000
because of the result of the Exceptional Performer designations previously
discussed.

OTHER INCOME (EXPENSE). The Company began utilizing interest rate caps in
January 2004. The Company recorded a loss of $3.2 million related to the change
in fair value of its outstanding interest rate caps for the three months ended
September 30, 2004.

OPERATING EXPENSES. Total operating expenses increased as a result of the growth
in the Company's assets and liabilities. Trustee and other debt related fees
increased as result of the increase in average total debt outstanding. Loan
servicing fees to related parties and administrative fees to parent increased as
a result of the increase in average student loans outstanding.

INCOME TAX EXPENSE. Income tax expense increased due to the increase in income
before income taxes. The Company's effective tax rate was 35.1% and 36.8% during
the three months ended September 30, 2004 and 2003, respectively.


                                       13
<PAGE>
<TABLE>
<CAPTION>

NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 2003
                                                            NINE MONTHS ENDED
                                                              SEPTEMBER 30,
                                                        --------------------------
                                                            2004         2003         $ CHANGE     % CHANGE
                                                        ------------  ------------   ------------  ----------
                                                         (DOLLARS IN THOUSANDS)
<S>                                                     <C>          <C>           <C>              <C>
INTEREST INCOME:
    Loan interest, excluding variable-rate floor income $  276,909   $   50,794    $  226,115       445.2 %
    Variable-rate floor income...........................       62        1,437        (1,375)      (95.7)
    Amortization of loan premiums and deferred
      origination costs..................................  (8,402)      (4,300)        (4,102)      (95.4)
    Investment interest..................................    3,375        2,601           774        29.8
                                                        -----------  -----------   -----------  ----------
      Total interest income..............................  271,944       50,532       221,412       438.2
INTEREST EXPENSE:
    Interest on bonds and notes payable..................   56,690       23,801        32,889       138.2
                                                        -----------  -----------   -----------  ----------
      Net interest income................................  215,254       26,731       188,523       705.3
Less provision (recovery) for loan losses................   (2,200)         950        (3,150)     (331.6)
                                                        -----------  -----------   -----------  ----------
      Net interest income after provision (recovery) for
           loan losses...................................  217,454       25,781       191,673       743.5
                                                        -----------  -----------   -----------  ----------
OTHER INCOME (EXPENSE):
    Derivative market value adjustment...................   (5,431)          --        (5,431)     (100.0)
    Other................................................      753          343           410       119.5
                                                        -----------  -----------   -----------  ----------
      Total other income (expense).......................   (4,678)         343        (5,021)   (1,463.8)
                                                        -----------  -----------   -----------  ----------
OPERATING EXPENSES:
      Trustee and other debt related fees................    3,314        2,074         1,240        59.8
      Loan servicing fees to related parties.............   22,482       10,825        11,657       107.7
      Loan servicing fees................................      324          305            19         6.2
      Administrative fees to parent......................    7,710        4,366         3,344        76.6
      Professional services..............................      127           98            29        29.6
                                                        -----------  -----------   -----------  ----------
           Total operating expenses......................   33,957       17,668        16,289        92.2
                                                        -----------  -----------   -----------  ----------
           Income before income tax expense..............  178,819        8,456       170,363     2,014.7
Income tax expense.......................................   65,093        3,078        62,015     2,014.8
                                                        -----------  -----------   -----------  ----------
           NET income...................................$  113,726   $    5,378    $  108,348     2,014.7 %
                                                        ===========  ===========   ===========  ==========
</TABLE>

NET INTEREST INCOME. Total loan interest, including variable-rate floor income
and amortization of loan premiums and deferred origination costs, increased as a
result of an increase in the size of the student loan portfolio and the special
allowance yield adjustment, offset by changes in the interest rate environment
and in the pricing characteristics of the Company's student loan assets. The
special allowance yield adjustment of $167.4 million, offset by lower average
interest rates on loans, caused an increase in the student loan net yield to
8.68% from 4.44%. Variable-rate floor income decreased due to the timing and
relative change in interest rates during the periods. Essentially, prevailing
interest rates declined subsequent to the July 1, 2002 annual borrower interest
rate reset date compared to their less substantial decline following the reset
of rates on July 1, 2003. Consequently, the Company realized approximately
$62,000 in variable-rate floor income during the nine months ended September 30,
2004 as compared to $1.4 million during the comparable period in 2003. The
weighted average interest rate on the student loan portfolio increased due to
the special allowance yield adjustment offset by lower interest rates and the
increase in the number of lower yielding consolidation loans. The higher
weighted average loan interest rate resulted in an increase in loan interest
income of approximately $48.9 million. Consolidation loan activity also
increased the consolidation rebate fee and the amortization and write-offs of
premiums and deferred origination costs, reducing loan interest income
approximately $24.4 million. The increase in loan interest income was also a
result of an increase in the Company's portfolio of student loans. As of
September 30, 2004, the average student loan portfolio increased by $2.7
billion, or 186.8%, as compared to the comparable period in 2003, which
increased loan interest income by approximately $197.7 million.

                                       14
<PAGE>

Interest expense on bonds and notes payable increased as average total debt
increased approximately $3.0 billion. Average variable-rate debt increased $3.0
billion, which increased interest expense by approximately $32.6 million. The
Company reduced average fixed-rate debt by $10.9 million, which decreased the
Company's overall interest expense by approximately $512,000. The increase in
average debt also resulted in an increase in amortization of bond issuance costs
of approximately $610,000. The nominal average increase in interest rates,
specifically LIBOR and auction rates, increased interest expense approximately
$358,000. The nominal average increase in interest rates was offset by improved
pricing on the large LIBOR based securitizations and decrease in the auction
rate debt financings. Therefore, these improved pricings on debt
securitizations, coupled with the decreases in fixed rate debt resulted in the
decrease in the Company's average cost of funds to 1.66% from 1.98%.

Net interest income, excluding the effects of variable-rate floor income and the
special allowance yield adjustment, increased approximately $22.5 million, or
88.9%, to approximately $47.8 million from approximately $25.3 million.

PROVISION FOR LOAN LOSSES. The provision for loan losses for student loans
decreased $3.2 million from an expense of $1.0 million to a recovery of $2.2
million because of the result of the Exceptional Performer designations
previously discussed.

OTHER INCOME (EXPENSE). The company began utilizing interest rate caps in
January 2004. The Company recorded a loss of $5.4 million related to the change
in fair value of its outstanding interest rate caps for the nine months ended
September 30, 2004.

OPERATING EXPENSES. Total operating expenses increased as a result of the growth
in the Company's assets and liabilities. Trustee and other debt related fees
increased as result of the increase in average total debt outstanding. Loan
servicing fees to related parties and administrative fees to parent increased as
a result of the increase in average student loans outstanding.

INCOME TAX EXPENSE. Income tax expense increased due to the increase in income
before income taxes. The Company's effective tax rate was 36.4% during the nine
months ended September 30, 2004 and 2003.

STUDENT LOAN SPREAD ANALYSIS

Maintenance of the spread on assets is a key factor in maintaining and growing
the Company's income. The following table analyzes the student loan spread on
the Company's portfolio of student loans and represents the spread on assets
earned in conjunction with the liabilities used to fund the assets:
<TABLE>
<CAPTION>

                                                            THREE MONTHS ENDED         NINE MONTHS ENDED
                                                              SEPTEMBER 30,              SEPTEMBER 30,
                                                        --------------------------  ------------------------
                                                            2004           2003         2004         2003
                                                        ------------   -----------  ------------  ----------
<S>                                                          <C>         <C>           <C>          <C>
Student loan yield....................................       8.36 %      5.02 %        9.81 %       5.41 %
Consolidation rebate fees.............................      (0.86)      (0.71)        (0.86)       (0.57)
Premium and deferred origination costs amortization...      (0.26)      (0.33)        (0.27)       (0.40)
                                                        -----------   -----------   -----------   ----------
Student loan net yield................................       7.24        3.98          8.68         4.44
Student loan cost of funds............................      (1.86)      (1.68)        (1.66)       (1.98)
                                                        -----------   -----------   -----------   ----------
Student loan spread...................................       5.38        2.30          7.02         2.46
Variable-rate floor income............................         --          --            --        (0.13)
Special allowance yield adjustment (a)................      (3.99)         --         (5.41)          --
                                                        -----------   -----------   -----------   ----------
Core student loan spread..............................       1.39 %      2.30 %        1.61 %       2.33 %
                                                        ===========   ===========   ===========   ==========

Average balance of student loans (in thousands)......  $4,356,887  $2,114,716    $4,126,300   $1,438,622

(a) On June 30, 2004, the Company recognized $123.9 million of excess interest
income that had previously been deferred. At December 31, 2003, the amount of
deferred excess interest income on these loans was $42.9 million.
</TABLE>

The increase in lower yielding consolidation loans coupled with a slightly
higher interest rate environment has caused some compression in the Company's
loan spread when excluding the special allowance yield adjustment.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable under General Instruction H-2.

                                       15
<PAGE>

ITEM 4. CONTROLS AND PROCEDURES

Under supervision and with the participation of certain members of the Company's
management, including the principal executive officer and principal financial
officer, the Company completed an evaluation of the effectiveness of the design
and operation of its disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) to the Securities Exchange Act of 1934, as amended).
Based on this evaluation, the Company's principal executive officer and
principal financial officer believe that the disclosure controls and procedures
were effective as of the end of the period covered by this Quarterly Report on
Form 10-Q with respect to timely communication to them and other members of
management responsible for preparing periodic reports and material information
required to be disclosed in this Quarterly Report on Form 10-Q as it relates to
the Company.

There was no change in the Company's internal control over financial reporting
during the Company's last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.

The effectiveness of the Company's or any system of disclosure controls and
procedures is subject to certain limitations, including the exercise of judgment
in designing, implementing, and evaluating the controls and procedures, the
assumptions used in identifying the likelihood of future events, and the
inability to eliminate misconduct completely. As a result, there can be no
assurance that the Company's disclosure controls and procedures will prevent all
errors or fraud or ensure that all material information will be made known to
appropriate management in a timely fashion. By their nature, the Company's or
any system of disclosure controls and procedures can provide only reasonable
assurance regarding management's control objectives.


                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is subject to various claims, lawsuits, and proceedings that arise
in the normal course of business. These matters principally consist of claims by
borrowers disputing the manner in which their loans have been processed. On the
basis of present information, anticipated insurance coverage, and advice
received from counsel, it is the opinion of the Company's management that the
disposition or ultimate determination of these claims, lawsuits, and proceedings
will not have a material adverse effect on the Company's business, financial
position, or results of operations.

In addition to such legal proceedings that arise in the ordinary course of
business, the Company's ultimate parent (Nelnet, Inc.) is furnishing to the SEC
Staff information it has requested pursuant to an informal investigation. Nelnet
is fully cooperating with the SEC on such informal investigation. See "Recent
Developments."


ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable under General Instruction H-2.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

Not applicable under General Instruction H-2.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable under General Instruction H-2.


                                       16
<PAGE>

ITEM 5.  OTHER INFORMATION

Nothing to report.


ITEM 6.  EXHIBITS


   EXHIBIT          DESCRIPTION
      NO.

     31.1*   Certification Pursuant to Section 302 of the Sarbanes-Oxley
             Act of 2002 of Principal Executive Officer.

     31.2*   Certification Pursuant to Section 302 of the Sarbanes-Oxley
             Act of 2002 of Principal Financial Officer.

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

      *   Filed herewith
     **   Furnished herewith


                                       17
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                         NELNET EDUCATION LOAN FUNDING, INC.

Date:  November 15, 2004                 By:   /s/ Terry J. Heimes
                                         ---------------------------------------
                                         Name: Terry J. Heimes
                                         Title:  President
                                                 (Principal Executive Officer)

                                         By:   /s/ James D. Kruger
                                         ---------------------------------------
                                         Name: James D. Kruger
                                         Title:  Secretary and Treasurer
                                                 (Principal Financial Officer)



                                       18