##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 COMMISSION FILE NUMBER 001-31924
 
 NELNET, INC.
  NEBRASKA
(State or other jurisdiction of incorporation or organization)
    
    84-0748903
(I.R.S. Employer Identification No.)121 SOUTH 13TH STREET, SUITE 201
LINCOLN, NEBRASKA
(Address of principal executive offices)
    
    68508
(Zip Code)
 (402) 458-2370
 þ o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 o þ




---



##### 



NELNET, INC.
FORM 10-Q
INDEX
June 30, 2009
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    2Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    29Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    73Item 4. Controls and Procedures
    
    
    78PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    78Item 1A. Risk Factors
    
    
    80Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    80Item 4. Submission of Matters to a Vote of Security Holders
    
    
    82Item 6. Exhibits
    
    
    83Signatures
    
    
    84Exhibit 10.2Exhibit 10.3Exhibit 10.4Exhibit 31.1Exhibit 31.2Exhibit 32




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
 As of
    
    
    As ofJune 30, 2009
    
    
    December 31, 2008(unaudited)Assets:Student loans receivable (net of allowance for loan losses of
$50,000 and $50,922, respectively)
    
    $
    23,889,571
    
    
    
    25,413,008Student loans receivable  held for sale
    
    
    1,749,290
    
    
    
    Cash and cash equivalents:Cash and cash equivalents  not held at a related party
    
    
    14,171
    
    
    
    13,129Cash and cash equivalents  held at a related party
    
    
    352,656
    
    
    
    176,718Total cash and cash equivalents
    
    
    366,827
    
    
    
    189,847Restricted cash and investments
    
    
    1,082,480
    
    
    
    997,272Restricted cash  due to customers
    
    
    41,127
    
    
    
    160,985Accrued interest receivable
    
    
    385,158
    
    
    
    471,878Accounts receivable (net of allowance for doubtful accounts of
$1,273 and $1,005, respectively)
    
    
    52,106
    
    
    
    42,088Goodwill
    
    
    175,178
    
    
    
    175,178Intangible assets, net
    
    
    65,115
    
    
    
    77,054Property and equipment, net
    
    
    31,541
    
    
    
    38,747Other assets
    
    
    103,429
    
    
    
    113,666Fair value of derivative instruments
    
    
    168,720
    
    
    
    175,174Total assets
    
    $
    28,110,542
    
    
    
    27,854,897Liabilities:Bonds and notes payable
    
    $
    27,169,573
    
    
    
    26,787,959Accrued interest payable
    
    
    34,911
    
    
    
    81,576Other liabilities
    
    
    176,390
    
    
    
    179,336Due to customers
    
    
    41,127
    
    
    
    160,985Fair value of derivative instruments
    
    
    7,354
    
    
    
    1,815Total liabilities
    
    
    27,429,355
    
    
    
    27,211,671Shareholders equity:Preferred stock, $0.01 par value. Authorized 50,000,000 shares;
no shares issued or outstanding
    
    
    
    
    
    
    Common stock:Class A, $0.01 par value. Authorized 600,000,000 shares;
issued and outstanding 38,325,492 shares as of June 30,
2009 and 37,794,067 shares as of December 31, 2008
    
    
    383
    
    
    
    378Class B, convertible, $0.01 par value. Authorized 60,000,000 shares;
issued and outstanding 11,495,377 shares as of June 30,
2009 and December 31, 2008
    
    
    115
    
    
    
    115Additional paid-in capital
    
    
    107,959
    
    
    
    103,762Retained earnings
    
    
    574,179
    
    
    
    540,521Employee notes receivable
    
    
    (1,449
    )
    
    
    (1,550
    )Total shareholders equity
    
    
    681,187
    
    
    
    643,226Commitments and contingenciesTotal liabilities and shareholders equity
    
    $
    28,110,542
    
    
    
    27,854,897
   2




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##### Table of Contents



NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
(unaudited)
 Three months
    
    
    Six monthsended June 30,
    
    
    ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Interest income:Loan interest
    
    $
    160,413
    
    
    
    296,686
    
    
    
    331,332
    
    
    
    626,672Investment interest
    
    
    2,776
    
    
    
    9,116
    
    
    
    6,867
    
    
    
    20,796Total interest income
    
    
    163,189
    
    
    
    305,802
    
    
    
    338,199
    
    
    
    647,468Interest expense:Interest on bonds and notes payable
    
    
    106,082
    
    
    
    232,464
    
    
    
    252,584
    
    
    
    557,605Net interest income
    
    
    57,107
    
    
    
    73,338
    
    
    
    85,615
    
    
    
    89,863Less provision for loan losses
    
    
    8,000
    
    
    
    6,000
    
    
    
    15,500
    
    
    
    11,000Net interest income after provision for loan losses
    
    
    49,107
    
    
    
    67,338
    
    
    
    70,115
    
    
    
    78,863Other income (expense):Loan and guaranty servicing revenue
    
    
    28,803
    
    
    
    23,821
    
    
    
    55,274
    
    
    
    48,482Tuition payment processing and campus commerce revenue
    
    
    11,848
    
    
    
    10,270
    
    
    
    27,386
    
    
    
    24,117Enrollment services revenue
    
    
    28,747
    
    
    
    26,068
    
    
    
    57,518
    
    
    
    53,290Software services revenue
    
    
    6,119
    
    
    
    5,979
    
    
    
    11,824
    
    
    
    14,183Other income
    
    
    11,527
    
    
    
    6,125
    
    
    
    28,389
    
    
    
    12,379Gain (loss) on sale of loans
    
    
    (196
    )
    
    
    48
    
    
    
    (402
    )
    
    
    (47,426
    )Derivative market value, foreign currency,
and put option adjustments and derivative
settlements, net
    
    
    (24,478
    )
    
    
    20,192
    
    
    
    (5,000
    )
    
    
    3,594Total other income
    
    
    62,370
    
    
    
    92,503
    
    
    
    174,989
    
    
    
    108,619Operating expenses:Salaries and benefits
    
    
    40,180
    
    
    
    43,549
    
    
    
    78,406
    
    
    
    97,392Other operating expenses:Cost to provide enrollment services
    
    
    18,092
    
    
    
    14,755
    
    
    
    35,885
    
    
    
    30,158Depreciation and amortization
    
    
    9,527
    
    
    
    10,603
    
    
    
    19,610
    
    
    
    21,437Professional and other services
    
    
    7,721
    
    
    
    8,029
    
    
    
    13,798
    
    
    
    15,224Occupancy and communications
    
    
    5,588
    
    
    
    4,914
    
    
    
    10,942
    
    
    
    10,755Trustee and other debt related fees
    
    
    2,444
    
    
    
    2,464
    
    
    
    5,100
    
    
    
    4,854Postage and distribution
    
    
    2,274
    
    
    
    2,534
    
    
    
    5,142
    
    
    
    6,115Advertising and marketing
    
    
    1,986
    
    
    
    2,046
    
    
    
    3,696
    
    
    
    3,994Impairment expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,834Other
    
    
    9,544
    
    
    
    9,028
    
    
    
    17,348
    
    
    
    17,996Total other operating expenses
    
    
    57,176
    
    
    
    54,373
    
    
    
    111,521
    
    
    
    129,367Total operating expenses
    
    
    97,356
    
    
    
    97,922
    
    
    
    189,927
    
    
    
    226,759Income (loss) before income taxes
    
    
    14,121
    
    
    
    61,919
    
    
    
    55,177
    
    
    
    (39,277
    )Income tax (expense) benefit
    
    
    (5,918
    )
    
    
    (19,195
    )
    
    
    (21,519
    )
    
    
    12,176Income (loss) from continuing
operations
    
    
    8,203
    
    
    
    42,724
    
    
    
    33,658
    
    
    
    (27,101
    )Income from discontinued operations, net of tax
    
    
    
    
    
    
    981
    
    
    
    
    
    
    
    981Net income (loss)
    
    $
    8,203
    
    
    
    43,705
    
    
    
    33,658
    
    
    
    (26,120
    )Earnings (loss) per share, basic and diluted:Income (loss) from continuing
operations
    
    $
    0.16
    
    
    
    0.86
    
    
    
    0.68
    
    
    
    (0.55
    )Income from discontinued operations
    
    
    
    
    
    
    0.02
    
    
    
    
    
    
    
    0.02Net income (loss)
    
    $
    0.16
    
    
    
    0.88
    
    
    
    0.68
    
    
    
    (0.53
    )
   3




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##### Table of Contents



NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands, except share data)
(unaudited)
 Preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Class A
    
    
    Class B
    
    
    Additional
    
    
    
    
    
    
    Employee
    
    
    Totalstock
    
    
    Common stock shares
    
    
    Preferred
    
    
    common
    
    
    common
    
    
    paid-in
    
    
    Retained
    
    
    notes
    
    
    shareholdersshares
    
    
    Class A
    
    
    Class B
    
    
    stock
    
    
    stock
    
    
    stock
    
    
    capital
    
    
    earnings
    
    
    receivable
    
    
    equityBalance as of March 31, 2008
    
    
    
    
    
    
    37,912,773
    
    
    
    11,495,377
    
    
    $
    
    
    
    
    379
    
    
    
    115
    
    
    
    97,875
    
    
    
    442,034
    
    
    
    (2,296
    )
    
    
    538,107Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,705
    
    
    
    
    
    
    
    43,705Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,705Issuance of common stock, net of forfeitures
    
    
    
    
    
    
    53,467
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    310
    
    
    
    
    
    
    
    
    
    
    
    311Compensation expense for stock based awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,848
    
    
    
    
    
    
    
    
    
    
    
    1,848Repurchase of common stock
    
    
    
    
    
    
    (13,994
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (179
    )
    
    
    
    
    
    
    
    
    
    
    (179
    )Reduction of employee stock notes receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250
    
    
    
    250Balance as of June 30, 2008
    
    
    
    
    
    
    37,952,246
    
    
    
    11,495,377
    
    
    $
    
    
    
    
    380
    
    
    
    115
    
    
    
    99,854
    
    
    
    485,739
    
    
    
    (2,046
    )
    
    
    584,042Balance as of March 31, 2009
    
    
    
    
    
    
    38,276,870
    
    
    
    11,495,377
    
    
    $
    
    
    
    
    383
    
    
    
    115
    
    
    
    106,678
    
    
    
    565,976
    
    
    
    (1,550
    )
    
    
    671,602Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,203
    
    
    
    
    
    
    
    8,203Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,203Issuance of common stock, net of forfeitures
    
    
    
    
    
    
    51,951
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    953
    
    
    
    
    
    
    
    
    
    
    
    953Compensation expense for stock based awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    353
    
    
    
    
    
    
    
    
    
    
    
    353Repurchase of common stock
    
    
    
    
    
    
    (3,329
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25
    )
    
    
    
    
    
    
    
    
    
    
    (25
    )Reduction of employee stock notes receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101
    
    
    
    101Balance as of June 30, 2009
    
    
    
    
    
    
    38,325,492
    
    
    
    11,495,377
    
    
    $
    
    
    
    
    383
    
    
    
    115
    
    
    
    107,959
    
    
    
    574,179
    
    
    
    (1,449
    )
    
    
    681,187Balance as of December 31, 2007
    
    
    
    
    
    
    37,980,617
    
    
    
    11,495,377
    
    
    $
    
    
    
    
    380
    
    
    
    115
    
    
    
    96,185
    
    
    
    515,317
    
    
    
    (3,118
    )
    
    
    608,879Comprehensive income:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,120
    )
    
    
    
    
    
    
    (26,120
    )Total comprehensive
income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,120
    )Cash dividend on Class A and Class B
common stock  $0.07 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,458
    )
    
    
    
    
    
    
    (3,458
    )Issuance of common stock, net of forfeitures
    
    
    
    
    
    
    33,687
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,073
    
    
    
    
    
    
    
    
    
    
    
    1,073Compensation expense for stock based awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,263
    
    
    
    
    
    
    
    
    
    
    
    3,263Repurchase of common stock
    
    
    
    
    
    
    (62,058
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (667
    )
    
    
    
    
    
    
    
    
    
    
    (667
    )Reduction of employee stock notes receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,072
    
    
    
    1,072Balance as of June 30, 2008
    
    
    
    
    
    
    37,952,246
    
    
    
    11,495,377
    
    
    $
    
    
    
    
    380
    
    
    
    115
    
    
    
    99,854
    
    
    
    485,739
    
    
    
    (2,046
    )
    
    
    584,042Balance as of December 31, 2008
    
    
    
    
    
    
    37,794,067
    
    
    
    11,495,377
    
    
    $
    
    
    
    
    378
    
    
    
    115
    
    
    
    103,762
    
    
    
    540,521
    
    
    
    (1,550
    )
    
    
    643,226Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,658
    
    
    
    
    
    
    
    33,658Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,658Issuance of common stock, net of forfeitures
    
    
    
    
    
    
    538,534
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    3,298
    
    
    
    
    
    
    
    
    
    
    
    3,303Compensation expense for stock based awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    961
    
    
    
    
    
    
    
    
    
    
    
    961Repurchase of common stock
    
    
    
    
    
    
    (7,109
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62
    )
    
    
    
    
    
    
    
    
    
    
    (62
    )Reduction of employee stock notes receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101
    
    
    
    101Balance as of June 30, 2009
    
    
    
    
    
    
    38,325,492
    
    
    
    11,495,377
    
    
    $
    
    
    
    
    383
    
    
    
    115
    
    
    
    107,959
    
    
    
    574,179
    
    
    
    (1,449
    )
    
    
    681,187
   4




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##### Table of Contents



NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
 Six months ended June 30,2009
    
    
    2008Net income (loss)
    
    $
    33,658
    
    
    
    (26,120
    )Income from discontinued operations
    
    
    
    
    
    
    981Income (loss) from continuing operations
    
    
    33,658
    
    
    
    (27,101
    )Adjustments to reconcile income (loss) from continuing operations to net cash provided
by operating activities:Depreciation and amortization, including loan premiums and deferred origination costs
    
    
    57,890
    
    
    
    74,312Provision for loan losses
    
    
    15,500
    
    
    
    11,000Impairment expense
    
    
    
    
    
    
    18,834Derivative market value adjustment
    
    
    22,270
    
    
    
    (47,462
    )Foreign currency transaction adjustment
    
    
    16,623
    
    
    
    88,530Change in
value of put options issued in business combinations
    
    
    
    
    
    
    538Proceeds to terminate and/or amend derivative instruments
    
    
    1,432
    
    
    
    7,547Payments to terminate and/or amend derivative instruments
    
    
    (11,710
    )
    
    
    Gain from purchase of debt
    
    
    (13,937
    )
    
    
    Loss on sale of loans
    
    
    402
    
    
    
    47,426Non-cash compensation expense
    
    
    1,371
    
    
    
    4,372Deferred income tax benefit
    
    
    (26,864
    )
    
    
    (24,237
    )Other non-cash items
    
    
    8,692
    
    
    
    344Decrease in accrued interest receivable
    
    
    86,720
    
    
    
    91,778(Increase) decrease in accounts receivable
    
    
    (10,018
    )
    
    
    3,098Decrease in other assets
    
    
    10,036
    
    
    
    9,419Decrease in accrued interest payable
    
    
    (46,665
    )
    
    
    (42,950
    )Increase (decrease) in other liabilities
    
    
    10,616
    
    
    
    (28,351
    )Net cash
flows from operating activities  continuing operations
    
    
    156,016
    
    
    
    187,097Net cash
flows from operating activities  discontinued operations
    
    
    
    
    
    
    Net cash provided by operating activities
    
    
    156,016
    
    
    
    187,097Cash flows from investing activities:Originations, purchases, and consolidations of student loans, including loan premiums
and deferred origination costs
    
    
    (1,467,312
    )
    
    
    (1,480,305
    )Purchases of student loans, including loan premiums, from a related party
    
    
    (20,392
    )
    
    
    (212,888
    )Net proceeds from student loan repayments, claims, capitalized interest, participations, and other
    
    
    1,177,455
    
    
    
    1,061,510Proceeds from sale of student loans
    
    
    341
    
    
    
    1,267,826Proceeds from sale of student loans to a related party
    
    
    40,033
    
    
    
    Purchases of property and equipment, net
    
    
    (444
    )
    
    
    (3,721
    )Increase in restricted cash and investments, net
    
    
    (85,208
    )
    
    
    (80,066
    )Purchases of equity method investments
    
    
    
    
    
    
    (2,988
    )Business acquisition  contingent consideration
    
    
    
    
    
    
    (18,000
    )Net cash
flows from investing activities  continuing operations
    
    
    (355,527
    )
    
    
    531,368Net cash
flows from investing activities  discontinued operations
    
    
    
    
    
    
    Net cash (used in) provided by investing activities
    
    
    (355,527
    )
    
    
    531,368Cash flows from financing activities:Payments on bonds and notes payable
    
    
    (2,184,109
    )
    
    
    (5,444,408
    )Proceeds from issuance of bonds and notes payable
    
    
    2,584,680
    
    
    
    4,761,143(Payments) proceeds from issuance of notes payable due to a related party, net
    
    
    (21,520
    )
    
    
    9,269Payments of debt issuance costs
    
    
    (2,830
    )
    
    
    (14,634
    )Dividends paid
    
    
    
    
    
    
    (3,458
    )Proceeds from issuance of common stock
    
    
    231
    
    
    
    423Repurchases of common stock
    
    
    (62
    )
    
    
    (667
    )Payments received on employee stock notes receivable
    
    
    101
    
    
    
    575Net cash
flows from financing activities  continuing operations
    
    
    376,491
    
    
    
    (691,757
    )Net cash
flows from financing activities  discontinued operations
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    376,491
    
    
    
    (691,757
    )Net increase in cash and cash equivalents
    
    
    176,980
    
    
    
    26,708Cash and cash equivalents, beginning of period
    
    
    189,847
    
    
    
    111,746Cash and cash equivalents, end of period
    
    $
    366,827
    
    
    
    138,454Supplemental disclosures of cash flow information:Interest paid
    
    $
    294,041
    
    
    
    589,578Income taxes paid, net of refunds
    
    $
    30,299
    
    
    
    14,126
   5




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##### Table of Contents



NELNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2009 and for the three and six months ended
June 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 1. Basis of Financial Reporting
  2. Restructuring Charge
    Employeetermination
    
    
    Leasebenefits
    
    
    terminations
    
    
    TotalRestructuring costs recognized during the
three month period
ended June 30, 2009
    
    $
    1,482
    (a)
    
    
    1,291
    (b)
    
    
    2,773Cash payments
    
    
    672
    
    
    
    
    
    
    
    672Restructuring accrual as of June 30, 2009
    
    $
    810
    
    
    
    1,291
    
    
    
    2,101
 (a)
    
    Employee termination benefits are included in salaries and benefits in the consolidated statements of operations.(b)
    
    Lease termination costs are included in occupancy and communications in the consolidated statements of operations.  6




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##### Table of Contents



Restructuringcostsrecognizedduring the three
    
    
    
    
    
    
    Restructuringmonth period ended
    
    
    Cash
    
    
    accrual as ofOperating segment
    
    June 30, 2009
    
    
    payments
    
    
    June 30, 2009Student Loan and Guaranty Servicing
    
    $
    1,998
    
    
    
    186
    
    
    
    1,812Tuition Payment Processing and
Campus Commerce
    
    
    
    
    
    
    
    
    
    
    Enrollment Services
    
    
    
    
    
    
    
    
    
    
    Software and Technical Services
    
    
    422
    
    
    
    273
    
    
    
    149Asset Generation and Management
    
    
    
    
    
    
    
    
    
    
    Corporate Activity and Overhead
    
    
    353
    
    
    
    213
    
    
    
    140$
    2,773
    
    
    
    672
    
    
    
    2,101
 Restructuringcosts recognized
    
    
    RemainingEstimated
    
    
    during the three
    
    
    restructuring coststotal restructuring
    
    
    month period ended
    
    
    expected to beOperating segment
    
    costs
    
    
    June 30, 2009
    
    
    recognizedStudent Loan and Guaranty Servicing
    
    $
    6,752
    
    
    
    1,998
    
    
    
    4,754Tuition Payment Processing and
Campus Commerce
    
    
    
    
    
    
    
    
    
    
    Enrollment Services
    
    
    
    
    
    
    
    
    
    
    Software and Technical Services
    
    
    1,066
    
    
    
    422
    
    
    
    644Asset Generation and Management
    
    
    
    
    
    
    
    
    
    
    Corporate Activity and Overhead
    
    
    1,418
    
    
    
    353
    
    
    
    1,065$
    9,236
    
    
    
    2,773
    
    
    
    6,463
  7




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##### Table of Contents



Restructuring accrual as of December 31, 2008
    
    $
    3,480Cash payments
    
    
    (228
    )Restructuring accrual as of March 31, 2009
    
    
    3,252Cash payments
    
    
    (228
    )Adjustment
from initial estimate of charges (a)
    
    
    515Restructuring accrual as of June 30, 2009
    
    $
    3,539
 (a)
  
  Additional expense related to this adjustment is included in
occupancy and communications in the consolidated
statements of operations. 3. Student Loans Receivable and Allowance for Loan Losses
    As of
    
    
    As ofJune 30, 2009
    
    
    December 31, 2008Federally insured loans  held-for-investment
    
    $
    23,367,777
    
    
    
    24,787,941Federally insured loans  held-for-sale
    
    
    1,731,040
    
    
    
    Non-federally insured loans
    
    
    200,722
    
    
    
    273,10825,299,539
    
    
    
    25,061,049Unamortized loan premiums and deferred origination costs  held-for-investment
    
    
    371,072
    
    
    
    402,881Unamortized loan premiums and deferred origination costs  held-for-sale
    
    
    18,250
    
    
    
    Allowance
for loan losses  federally insured loans (held-for-investment)
    
    
    (28,093
    )
    
    
    (25,577
    )Allowance for loan losses  non-federally insured loans
    
    
    (21,907
    )
    
    
    (25,345
    )$
    25,638,861
    
    
    
    25,413,008Allowance for federally insured loans  held-for-investment as a percentage of such loans
    
    
    0.12
    %
    
    
    0.10
    %Allowance for non-federally insured loans as a percentage of such loans
    
    
    10.91
    %
    
    
    9.28
    %Total allowance as a percentage of the ending balance of total loans (excluding loans held-for-sale)
    
    
    0.21
    %
    
    
    0.20
    %
  8




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##### Table of Contents



Three months ended June 30,
    
    
    Six months ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Beginning balance
    
    $
    48,497
    
    
    
    46,137
    
    
    
    50,922
    
    
    
    45,592Provision for loan losses
    
    
    8,000
    
    
    
    6,000
    
    
    
    15,500
    
    
    
    11,000Loans charged off, net
of recoveries
    
    
    (5,197
    )
    
    
    (4,228
    )
    
    
    (9,102
    )
    
    
    (7,933
    )Sale of loans
    
    
    (1,300
    )
    
    
    
    
    
    
    (7,320
    )
    
    
    (750
    )Ending balance
    
    $
    50,000
    
    
    
    47,909
    
    
    
    50,000
    
    
    
    47,909
 Loan Sales
    Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities
 Three months ended June 30,
    
    
    Six months ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Beginning balance
    
    $
    5,500
    
    
    
    
    
    
    
    
    
    
    
    Transfer from allowance for loan losses
    
    
    1,300
    
    
    
    
    
    
    
    6,800
    
    
    
    Reserve for repurchase of delinquent loans (a)
    
    
    800
    
    
    
    
    
    
    
    800
    
    
    
    Ending balance
    
    $
    7,600
    
    
    
    
    
    
    
    7,600
    
    
    
    
 (a)
    
    The reserve for repurchase of loans is included in other under other operating expenses in
the accompanying consolidated statements of operations.  9




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##### Table of Contents



4. Bonds and Notes Payable
  As of June 30, 2009Carrying
    
    
    Interest rateamount
    
    
    range
    
    Final maturityVariable-rate bonds and notes (a):Bonds and notes based on indices
    
    $
    20,063,227
    
    
    0.61%  6.90%
    
    09/25/13  06/25/41Bonds and notes based on auction or remarketing
    
    
    2,606,740
    
    
    0.46%  2.96%
    
    11/01/09  07/01/43Total variable-rate bonds and notes
    
    
    22,669,967Commercial paper  FFELP facility (b)
    
    
    420,936
    
    
    0.32%  1.13%
    
    05/09/10Fixed-rate bonds and notes (a)
    
    
    188,797
    
    
    5.40%  6.50%
    
    11/01/09  05/01/29Unsecured fixed rate debt
    
    
    402,864
    
    
    5.125% and 7.40%
    
    06/01/10 and 09/15/61Unsecured line of credit
    
    
    691,500
    
    
    0.79%  0.85%
    
    05/08/12Department of Education Participation
    
    
    1,741,481
    
    
    1.24%
    
    09/30/09Department of Education Conduit
    
    
    1,023,600
    
    
    0.52%
    
    05/08/14Other borrowings
    
    
    30,428
    
    
    0.32%  5.10%
    
    01/01/10  11/01/15$
    27,169,573
 As of December 31, 2008Carrying
    
    
    Interest rateamount
    
    
    range
    
    
    Final maturityVariable-rate bonds and notes (a):Bonds and notes based on indices
    
    $
    20,509,073
    
    
    
    0.75%  5.02%
    
    
    
    09/25/13  06/25/41Bonds and notes based on auction or remarketing
    
    
    2,713,285
    
    
    
    0.00%  6.00%
    
    
    
    11/01/09  07/01/43Total variable-rate bonds and notes
    
    
    23,222,358Commercial paper  FFELP facility (b)
    
    
    1,445,327
    
    
    
    1.32%  2.94%
    
    
    
    05/09/10Commercial paper  private loan facility (b)
    
    
    95,020
    
    
    
    2.49%
    
    
    
    03/14/09Fixed-rate bonds and notes (a)
    
    
    202,096
    
    
    
    5.30%  6.68%
    
    
    
    11/01/09  05/01/29Unsecured fixed rate debt
    
    
    475,000
    
    
    
    5.125% and 7.40%
    
    
    
    06/01/10 and 09/15/61Unsecured line of credit
    
    
    691,500
    
    
    
    0.98%  2.41%
    
    
    
    05/08/12Department of Education Participation
    
    
    622,170
    
    
    
    3.37%
    
    
    
    09/30/09Other borrowings
    
    
    34,488
    
    
    
    1.25%  5.47%
    
    
    
    05/22/09  11/01/15$
    26,787,959
 (a)
    
    Issued in asset-backed securitizations(b)
    
    Loan warehouse facilities Secured Financing Transactions
    10




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##### Table of Contents



Loan warehouse facilities
  FFELP Warehouse Facility
         11




---



##### Table of Contents



Private Loan Warehouse Facility
  Asset-backed securitizations
  Department of Educations Loan Participation and Purchase Commitment Programs
    Department of Educations Conduit Program
  Union Bank Participation Agreement
   12




---



##### Table of Contents



Unsecured Line of Credit
   
    
    A minimum consolidated net worth
    
    A minimum adjusted EBITDA to corporate debt interest (over the last four rolling
quarters)
    
    A limitation on subsidiary indebtedness
    
    A limitation on the percentage of non-guaranteed loans in the Companys portfolio
    Debt Purchases
     5. Derivative Financial Instruments
  Interest Rate Risk
   13




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##### Table of Contents



As of June 30, 2009Notional amountAverage/DiscreteMaturity
    
    Basis Swaps
    
    
    1/3 Basis Swaps (c)2009 (a)
    
    $
    7,000,000
    
    
    
    2011 (b)
    
    
    6,000,000
    
    
    
    2018
    
    
    
    
    
    
    1,300,0002019
    
    
    
    
    
    
    500,0002021
    
    
    
    
    
    
    250,0002023
    
    
    
    
    
    
    1,250,0002024
    
    
    
    
    
    
    250,0002028
    
    
    
    
    
    
    100,000$
    13,000,000
    
    
    
    3,650,000
 (a)
    
    Subsequent to June 30, 2009, the Company terminated all the Average/Discrete Basis Swaps with
a maturity in 2009 for total proceeds of $2.4 million.  14




---



##### Table of Contents



(b)
    
    Certain of these derivatives have forward effective start dates of January 2010 ($1.5
billion), February 2010 ($1.5 billion), and March 2010 ($1.5 billion).(c)
    
    Subsequent to June 30, 2009, the Company entered into additional 1/3 Basis Swaps with
notional amounts of $500.0 million and $150.0 million with
maturity dates in 2014 and 2039,
respectively. As of December 31, 2008Notional amountAverage/DiscreteMaturity
    
    Basis Swaps
    
    
    1/3 Basis Swaps2010
    
    $
    4,500,000
    
    
    
    2011
    
    
    2,700,000
    
    
    
    2012
    
    
    2,400,000
    
    
    
    2018
    
    
    
    
    
    
    1,300,0002023
    
    
    
    
    
    
    1,250,0002028
    
    
    
    
    
    
    100,000$
    9,600,000
    
    
    
    2,650,000
      Weightedaverage fixedNotional
    
    
    rate paid byMaturity
    
    Amount
    
    
    the Company (a)2010 (b)
    
    $
    750,000
    
    
    
    0.80
    %
 (a)
    
    For all interest rate derivatives, the Company receives discrete three-month LIBOR.(b)
    
    Certain of these derivatives have forward effective start dates of July 2009 ($250 million)
and August 2009 ($250 million).  15




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##### Table of Contents



Foreign Currency Exchange Risk
   
   Accounting for Derivative Financial Instruments
 Accounting for Derivative
Instruments and Hedging Activities
   Asset derivatives
    
    
    Liability derivativesFair value as of
    
    
    Fair value as of
    
    
    Fair value as of
    
    
    Fair value as ofJune 30, 2009
    
    
    December 31, 2008
    
    
    June 30, 2009
    
    
    December 31, 2008Interest rate swaps
    
    $
    1,042
    
    
    
    
    
    
    
    (32
    )
    
    
    Average/Discrete Basis Swaps
    
    
    1,170
    
    
    
    2,817
    
    
    
    (7,322
    )
    
    
    (1,800
    )1/3 Basis Swaps
    
    
    15,089
    
    
    
    5,037
    
    
    
    
    
    
    
    (15
    )Cross-currency interest rate swaps
    
    
    151,419
    
    
    
    167,320
    
    
    
    
    
    
    
    Total
    
    $
    168,720
    
    
    
    175,174
    
    
    
    (7,354
    )
    
    
    (1,815
    )
  16




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##### Table of Contents



Derivatives not designated
    
    Amount of gain (or loss) recognized
    
    
    Amount of gain (or loss) recognizedas hedging under SFAS No. 133
    
    in income on derivatives
    
    
    in income on derivativesThree months ended June 30
    
    
    Six months ended June 302009
    
    
    2008
    
    
    2009
    
    
    2008Settlements:Interest rate swaps
    
    $
    (11
    )
    
    
    (7,842
    )
    
    
    (11
    )
    
    
    (11,019
    )Average/Discrete Basis Swaps
    
    
    1,040
    
    
    
    5,148
    
    
    
    11,062
    
    
    
    44,7111/3 Basis Swaps
    
    
    6,657
    
    
    
    
    
    
    
    17,401
    
    
    
    894Cross-currency interest rate swaps
    
    
    1,849
    
    
    
    7,131
    
    
    
    5,441
    
    
    
    10,614Total settlements
    
    
    9,535
    
    
    
    4,437
    
    
    
    33,893
    
    
    
    45,200Change in fair value:Interest rate swaps
    
    
    1,011
    
    
    
    38,969
    
    
    
    1,011
    
    
    
    4,098Average/Discrete Basis Swaps
    
    
    (6,682
    )
    
    
    (25,049
    )
    
    
    (18,678
    )
    
    
    (51,337
    )1/3 Basis Swaps
    
    
    (7,118
    )
    
    
    
    
    
    
    9,867
    
    
    
    2,568Cross-currency interest rate swaps
    
    
    41,209
    
    
    
    (2,461
    )
    
    
    (15,902
    )
    
    
    91,668Other
    
    
    1,432
    
    
    
    
    
    
    
    1,432
    
    
    
    465Total change in fair value
    
    
    29,852
    
    
    
    11,459
    
    
    
    (22,270
    )
    
    
    47,462Total impact to statements of
operations
    
    $
    39,387
    
    
    
    15,896
    
    
    
    11,623
    
    
    
    92,662
 Derivative Instruments  Credit and Market Risk
     6. Segment Reporting
 Disclosures about Segments of
an Enterprise and Related Information
   17




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##### Table of Contents



Fee-Based Operating Segments
 Student Loan and Guaranty Servicing
  
    
    Origination and servicing of FFELP loans
    
    Origination and servicing of non-federally insured student loans
    
    Servicing and support outsourcing for guaranty agencies
 Tuition Payment Processing and Campus Commerce
  Enrollment Services
  Software and Technical Services
  Asset Generation and Management Operating Segment
   18




---



##### Table of Contents



Segment
Operating Results  Base Net Income
   Segment Results and Reconciliations to GAAP
 Three months ended June 30, 2009Fee-BasedStudent
    
    
    Tuition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Base netLoan
    
    
    Payment
    
    
    
    
    
    
    Software
    
    
    
    
    
    
    Asset
    
    
    Corporate
    
    
    
    
    
    
    incomeand
    
    
    Processing
    
    
    
    
    
    
    and
    
    
    Total
    
    
    Generation
    
    
    Activity
    
    
    Eliminations
    
    
    Adjustments
    
    
    GAAPGuaranty
    
    
    and Campus
    
    
    Enrollment
    
    
    Technical
    
    
    Fee-
    
    
    and
    
    
    and
    
    
    and
    
    
    to GAAP
    
    
    Results ofServicing
    
    
    Commerce
    
    
    Services
    
    
    Services
    
    
    Based
    
    
    Management
    
    
    Overhead
    
    
    Reclassifications
    
    
    Results
    
    
    OperationsTotal interest income
    
    $
    13
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    156,233
    
    
    
    1,312
    
    
    
    (422
    )
    
    
    6,042
    
    
    
    163,189Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98,338
    
    
    
    8,166
    
    
    
    (422
    )
    
    
    
    
    
    
    106,082Net interest income (loss)
    
    
    13
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    57,895
    
    
    
    (6,854
    )
    
    
    
    
    
    
    6,042
    
    
    
    57,107Less provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,000Net interest income (loss) after provision
for loan losses
    
    
    13
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    49,895
    
    
    
    (6,854
    )
    
    
    
    
    
    
    6,042
    
    
    
    49,107Other income (expense):Loan and guaranty servicing revenue
    
    
    29,184
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,184
    
    
    
    
    
    
    
    (381
    )
    
    
    
    
    
    
    
    
    
    
    28,803Tuition payment processing and campus commerce revenue
    
    
    
    
    
    
    11,848
    
    
    
    
    
    
    
    
    
    
    
    11,848
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,848Enrollment services revenue
    
    
    
    
    
    
    
    
    
    
    28,747
    
    
    
    
    
    
    
    28,747
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,747Software services revenue
    
    
    925
    
    
    
    
    
    
    
    
    
    
    
    5,194
    
    
    
    6,119
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,119Other income
    
    
    249
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    249
    
    
    
    4,241
    
    
    
    7,037
    
    
    
    
    
    
    
    
    
    
    
    11,527Loss on sale of loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (196
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (196
    )Intersegment revenue
    
    
    20,888
    
    
    
    53
    
    
    
    277
    
    
    
    3,896
    
    
    
    25,114
    
    
    
    
    
    
    
    8,463
    
    
    
    (33,577
    )
    
    
    
    
    
    
    Derivative market value, foreign currency,
and put option adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34,013
    )
    
    
    (34,013
    )Derivative settlements, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,535
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,535Total other income (expense)
    
    
    51,246
    
    
    
    11,901
    
    
    
    29,024
    
    
    
    9,090
    
    
    
    101,261
    
    
    
    13,580
    
    
    
    15,119
    
    
    
    (33,577
    )
    
    
    (34,013
    )
    
    
    62,370Operating expenses:Salaries and benefits
    
    
    13,355
    
    
    
    6,402
    
    
    
    5,863
    
    
    
    5,715
    
    
    
    31,335
    
    
    
    1,735
    
    
    
    6,234
    
    
    
    876
    
    
    
    
    
    
    
    40,180Restructure expense- severance and contract
terminination costs
    
    
    2,513
    
    
    
    
    
    
    
    
    
    
    
    422
    
    
    
    2,935
    
    
    
    
    
    
    
    353
    
    
    
    (3,288
    )
    
    
    
    
    
    
    Cost to provide enrollment services
    
    
    
    
    
    
    
    
    
    
    18,092
    
    
    
    
    
    
    
    18,092
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,092Other expenses
    
    
    11,140
    
    
    
    2,339
    
    
    
    3,041
    
    
    
    838
    
    
    
    17,358
    
    
    
    5,875
    
    
    
    8,259
    
    
    
    1,807
    
    
    
    5,785
    
    
    
    39,084Intersegment expenses
    
    
    9,484
    
    
    
    669
    
    
    
    508
    
    
    
    764
    
    
    
    11,425
    
    
    
    20,732
    
    
    
    815
    
    
    
    (32,972
    )
    
    
    
    
    
    
    Total operating expenses
    
    
    36,492
    
    
    
    9,410
    
    
    
    27,504
    
    
    
    7,739
    
    
    
    81,145
    
    
    
    28,342
    
    
    
    15,661
    
    
    
    (33,577
    )
    
    
    5,785
    
    
    
    97,356Income (loss) before income taxes
    
    
    14,767
    
    
    
    2,502
    
    
    
    1,520
    
    
    
    1,351
    
    
    
    20,140
    
    
    
    35,133
    
    
    
    (7,396
    )
    
    
    
    
    
    
    (33,756
    )
    
    
    14,121Income tax (expense) benefit (a)
    
    
    (5,612
    )
    
    
    (951
    )
    
    
    (577
    )
    
    
    (514
    )
    
    
    (7,654
    )
    
    
    (13,351
    )
    
    
    940
    
    
    
    
    
    
    
    14,147
    
    
    
    (5,918
    )Net income (loss)
    
    $
    9,155
    
    
    
    1,551
    
    
    
    943
    
    
    
    837
    
    
    
    12,486
    
    
    
    21,782
    
    
    
    (6,456
    )
    
    
    
    
    
    
    (19,609
    )
    
    
    8,203
 (a)
    
    Income taxes are applied based on 38% of income (loss) before income taxes for the individual operating segments.  19




---



##### Table of Contents



Three months ended June 30, 2008Fee-BasedStudent
    
    
    Tuition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Base netLoan
    
    
    Payment
    
    
    
    
    
    
    Software
    
    
    
    
    
    
    Asset
    
    
    Corporate
    
    
    
    
    
    
    incomeand
    
    
    Processing
    
    
    
    
    
    
    and
    
    
    Total
    
    
    Generation
    
    
    Activity
    
    
    Eliminations
    
    
    Adjustments
    
    
    GAAPGuaranty
    
    
    and Campus
    
    
    Enrollment
    
    
    Technical
    
    
    Fee-
    
    
    and
    
    
    and
    
    
    and
    
    
    to GAAP
    
    
    Results ofServicing
    
    
    Commerce
    
    
    Services
    
    
    Services
    
    
    Based
    
    
    Management
    
    
    Overhead
    
    
    Reclassifications
    
    
    Results
    
    
    OperationsTotal interest income
    
    $
    243
    
    
    
    310
    
    
    
    1
    
    
    
    
    
    
    
    554
    
    
    
    282,293
    
    
    
    1,574
    
    
    
    (546
    )
    
    
    21,927
    
    
    
    305,802Interest expense
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    222,402
    
    
    
    10,607
    
    
    
    (546
    )
    
    
    
    
    
    
    232,464Net interest income (loss)
    
    
    243
    
    
    
    310
    
    
    
    
    
    
    
    
    
    
    
    553
    
    
    
    59,891
    
    
    
    (9,033
    )
    
    
    
    
    
    
    21,927
    
    
    
    73,338Less provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,000Net interest income (loss) after provision
for loan losses
    
    
    243
    
    
    
    310
    
    
    
    
    
    
    
    
    
    
    
    553
    
    
    
    53,891
    
    
    
    (9,033
    )
    
    
    
    
    
    
    21,927
    
    
    
    67,338Other income (expense):Loan and guaranty servicing revenue
    
    
    23,664
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,664
    
    
    
    157
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,821Tutition payment processing and campus commerce revenue
    
    
    
    
    
    
    10,270
    
    
    
    
    
    
    
    
    
    
    
    10,270
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,270Enrollment services revenue
    
    
    
    
    
    
    
    
    
    
    26,068
    
    
    
    
    
    
    
    26,068
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,068Software services revenue
    
    
    1,083
    
    
    
    
    
    
    
    
    
    
    
    4,896
    
    
    
    5,979
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,979Other income
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    4,851
    
    
    
    1,268
    
    
    
    
    
    
    
    
    
    
    
    6,125Gain on sale of loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48Intercompany revenue
    
    
    18,382
    
    
    
    (76
    )
    
    
    
    
    
    
    1,517
    
    
    
    19,823
    
    
    
    
    
    
    
    13,960
    
    
    
    (33,783
    )
    
    
    
    
    
    
    Derivative market value, foreign currency,
and put option adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,755
    
    
    
    15,755Derivative settlements, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,638
    
    
    
    
    
    
    
    
    
    
    
    (7,201
    )
    
    
    4,437Total other income (expense)
    
    
    43,135
    
    
    
    10,194
    
    
    
    26,068
    
    
    
    6,413
    
    
    
    85,810
    
    
    
    16,694
    
    
    
    15,228
    
    
    
    (33,783
    )
    
    
    8,554
    
    
    
    92,503Operating expenses:Salaries and benefits
    
    
    12,491
    
    
    
    5,784
    
    
    
    6,373
    
    
    
    4,702
    
    
    
    29,350
    
    
    
    1,954
    
    
    
    12,828
    
    
    
    (1,333
    )
    
    
    750
    
    
    
    43,549Restructure expense- severance and contract
terminination costs
    
    
    (104
    )
    
    
    
    
    
    
    (15
    )
    
    
    (8
    )
    
    
    (127
    )
    
    
    (52
    )
    
    
    (186
    )
    
    
    365
    
    
    
    
    
    
    
    Cost to provide enrollment services
    
    
    
    
    
    
    
    
    
    
    14,755
    
    
    
    
    
    
    
    14,755
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,755Other expenses
    
    
    8,011
    
    
    
    2,551
    
    
    
    2,529
    
    
    
    714
    
    
    
    13,805
    
    
    
    5,095
    
    
    
    14,921
    
    
    
    (764
    )
    
    
    6,561
    
    
    
    39,618Intersegment expenses
    
    
    9,822
    
    
    
    461
    
    
    
    1,580
    
    
    
    342
    
    
    
    12,205
    
    
    
    18,952
    
    
    
    894
    
    
    
    (32,051
    )
    
    
    
    
    
    
    Total operating expenses
    
    
    30,220
    
    
    
    8,796
    
    
    
    25,222
    
    
    
    5,750
    
    
    
    69,988
    
    
    
    25,949
    
    
    
    28,457
    
    
    
    (33,783
    )
    
    
    7,311
    
    
    
    97,922Income (loss) before income taxes
    
    
    13,158
    
    
    
    1,708
    
    
    
    846
    
    
    
    663
    
    
    
    16,375
    
    
    
    44,636
    
    
    
    (22,262
    )
    
    
    
    
    
    
    23,170
    
    
    
    61,919Income tax (expense) benefit (a)
    
    
    4,079
    
    
    
    530
    
    
    
    262
    
    
    
    206
    
    
    
    5,077
    
    
    
    13,837
    
    
    
    (6,902
    )
    
    
    
    
    
    
    7,183
    
    
    
    19,195Net income (loss) from
continuing operations
    
    
    9,079
    
    
    
    1,178
    
    
    
    584
    
    
    
    457
    
    
    
    11,298
    
    
    
    30,799
    
    
    
    (15,360
    )
    
    
    
    
    
    
    15,987
    
    
    
    42,724Income from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    981
    
    
    
    981Net income (loss)
    
    $
    9,079
    
    
    
    1,178
    
    
    
    584
    
    
    
    457
    
    
    
    11,298
    
    
    
    30,799
    
    
    
    (15,360
    )
    
    
    
    
    
    
    16,968
    
    
    
    43,705
 (a)
    
    Income taxes are applied based on the consolidated effective tax rate to income (loss) before income taxes.  20




---



##### Table of Contents



Six months ended June 30, 2009Fee-BasedStudent
    
    
    Tuition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Base netLoan
    
    
    Payment
    
    
    
    
    
    
    Software
    
    
    
    
    
    
    Asset
    
    
    Corporate
    
    
    
    
    
    
    incomeand
    
    
    Processing
    
    
    
    
    
    
    and
    
    
    Total
    
    
    Generation
    
    
    Activity
    
    
    Eliminations
    
    
    Adjustments
    
    
    GAAPGuaranty
    
    
    and Campus
    
    
    Enrollment
    
    
    Technical
    
    
    Fee-
    
    
    and
    
    
    and
    
    
    and
    
    
    to GAAP
    
    
    Results ofServicing
    
    
    Commerce
    
    
    Services
    
    
    Services
    
    
    Based
    
    
    Management
    
    
    Overhead
    
    
    Reclassifications
    
    
    Results
    
    
    OperationsTotal interest income
    
    $
    79
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    120
    
    
    
    328,820
    
    
    
    2,739
    
    
    
    (982
    )
    
    
    7,502
    
    
    
    338,199Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    236,932
    
    
    
    16,634
    
    
    
    (982
    )
    
    
    
    
    
    
    252,584Net interest income (loss)
    
    
    79
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    120
    
    
    
    91,888
    
    
    
    (13,895
    )
    
    
    
    
    
    
    7,502
    
    
    
    85,615Less provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,500Net interest income (loss) after provision
for loan losses
    
    
    79
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    120
    
    
    
    76,388
    
    
    
    (13,895
    )
    
    
    
    
    
    
    7,502
    
    
    
    70,115Other income (expense):Loan and guaranty servicing revenue
    
    
    56,037
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,037
    
    
    
    
    
    
    
    (763
    )
    
    
    
    
    
    
    
    
    
    
    55,274Tuition payment processing and campus commerce revenue
    
    
    
    
    
    
    27,386
    
    
    
    
    
    
    
    
    
    
    
    27,386
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,386Enrollment services revenue
    
    
    
    
    
    
    
    
    
    
    57,518
    
    
    
    
    
    
    
    57,518
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,518Software services revenue
    
    
    1,800
    
    
    
    
    
    
    
    
    
    
    
    10,024
    
    
    
    11,824
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,824Other income
    
    
    361
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    361
    
    
    
    8,892
    
    
    
    19,136
    
    
    
    
    
    
    
    
    
    
    
    28,389Loss on sale of loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (402
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (402
    )Intersegment revenue
    
    
    40,766
    
    
    
    110
    
    
    
    277
    
    
    
    7,020
    
    
    
    48,173
    
    
    
    
    
    
    
    17,384
    
    
    
    (65,557
    )
    
    
    
    
    
    
    Derivative market value, foreign currency,
and put option adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38,893
    )
    
    
    (38,893
    )Derivative settlements, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,893
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,893Total other income (expense)
    
    
    98,964
    
    
    
    27,496
    
    
    
    57,795
    
    
    
    17,044
    
    
    
    201,299
    
    
    
    42,383
    
    
    
    35,757
    
    
    
    (65,557
    )
    
    
    (38,893
    )
    
    
    174,989Operating expenses:Salaries and benefits
    
    
    28,059
    
    
    
    12,947
    
    
    
    11,958
    
    
    
    10,900
    
    
    
    63,864
    
    
    
    3,510
    
    
    
    12,501
    
    
    
    (1,628
    )
    
    
    159
    
    
    
    78,406Restructure expense- severance and contract
termination costs
    
    
    2,513
    
    
    
    
    
    
    
    
    
    
    
    422
    
    
    
    2,935
    
    
    
    
    
    
    
    353
    
    
    
    (3,288
    )
    
    
    
    
    
    
    Cost to provide enrollment services
    
    
    
    
    
    
    
    
    
    
    35,885
    
    
    
    
    
    
    
    35,885
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,885Other expenses
    
    
    19,737
    
    
    
    4,747
    
    
    
    6,336
    
    
    
    1,516
    
    
    
    32,336
    
    
    
    10,834
    
    
    
    18,720
    
    
    
    1,807
    
    
    
    11,939
    
    
    
    75,636Intersegment expenses
    
    
    18,954
    
    
    
    1,292
    
    
    
    1,054
    
    
    
    1,409
    
    
    
    22,709
    
    
    
    38,608
    
    
    
    1,131
    
    
    
    (62,448
    )
    
    
    
    
    
    
    Total operating expenses
    
    
    69,263
    
    
    
    18,986
    
    
    
    55,233
    
    
    
    14,247
    
    
    
    157,729
    
    
    
    52,952
    
    
    
    32,705
    
    
    
    (65,557
    )
    
    
    12,098
    
    
    
    189,927Income (loss) before income taxes
    
    
    29,780
    
    
    
    8,551
    
    
    
    2,562
    
    
    
    2,797
    
    
    
    43,690
    
    
    
    65,819
    
    
    
    (10,843
    )
    
    
    
    
    
    
    (43,489
    )
    
    
    55,177Income tax (expense) benefit (a)
    
    
    (11,317
    )
    
    
    (3,249
    )
    
    
    (973
    )
    
    
    (1,064
    )
    
    
    (16,603
    )
    
    
    (25,012
    )
    
    
    3,135
    
    
    
    
    
    
    
    16,961
    
    
    
    (21,519
    )Net income (loss)
    
    $
    18,463
    
    
    
    5,302
    
    
    
    1,589
    
    
    
    1,733
    
    
    
    27,087
    
    
    
    40,807
    
    
    
    (7,708
    )
    
    
    
    
    
    
    (26,528
    )
    
    
    33,658
 (a)
    
    Income taxes are applied based on 38% of income (loss) before income taxes for the individual operating segments.  21




---



##### Table of Contents



Six months ended June 30, 2008Fee-BasedStudent
    
    
    Tuition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Base netLoan
    
    
    Payment
    
    
    
    
    
    
    Software
    
    
    
    
    
    
    Asset
    
    
    Corporate
    
    
    
    
    
    
    incomeand
    
    
    Processing
    
    
    
    
    
    
    and
    
    
    Total
    
    
    Generation
    
    
    Activity
    
    
    Eliminations
    
    
    Adjustments
    
    
    GAAPGuaranty
    
    
    and Campus
    
    
    Enrollment
    
    
    Technical
    
    
    Fee-
    
    
    and
    
    
    and
    
    
    and
    
    
    to GAAP
    
    
    Results ofServicing
    
    
    Commerce
    
    
    Services
    
    
    Services
    
    
    Based
    
    
    Management
    
    
    Overhead
    
    
    Reclassifications
    
    
    Results
    
    
    OperationsTotal interest income
    
    $
    856
    
    
    
    1,075
    
    
    
    10
    
    
    
    
    
    
    
    1,941
    
    
    
    602,651
    
    
    
    2,771
    
    
    
    (640
    )
    
    
    40,745
    
    
    
    647,468Interest expense
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    538,417
    
    
    
    19,826
    
    
    
    (640
    )
    
    
    
    
    
    
    557,605Net interest income (loss)
    
    
    856
    
    
    
    1,075
    
    
    
    8
    
    
    
    
    
    
    
    1,939
    
    
    
    64,234
    
    
    
    (17,055
    )
    
    
    
    
    
    
    40,745
    
    
    
    89,863Less provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,000Net interest income (loss) after provision
for loan losses
    
    
    856
    
    
    
    1,075
    
    
    
    8
    
    
    
    
    
    
    
    1,939
    
    
    
    53,234
    
    
    
    (17,055
    )
    
    
    
    
    
    
    40,745
    
    
    
    78,863Other income (expense):Loan and guaranty servicing revenue
    
    
    48,320
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,320
    
    
    
    162
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,482Tutition payment processing and campus commerce revenue
    
    
    
    
    
    
    24,117
    
    
    
    
    
    
    
    
    
    
    
    24,117
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,117Enrollment services revenue
    
    
    
    
    
    
    
    
    
    
    53,290
    
    
    
    
    
    
    
    53,290
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,290Software services revenue
    
    
    2,535
    
    
    
    
    
    
    
    37
    
    
    
    11,611
    
    
    
    14,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,183Other income
    
    
    38
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38
    
    
    
    9,708
    
    
    
    2,633
    
    
    
    
    
    
    
    
    
    
    
    12,379Loss on sale of loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47,426
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47,426
    )Intersegment revenue
    
    
    38,606
    
    
    
    184
    
    
    
    
    
    
    
    3,333
    
    
    
    42,123
    
    
    
    
    
    
    
    31,172
    
    
    
    (73,295
    )
    
    
    
    
    
    
    Derivative market value, foreign currency,
and put option adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    466
    
    
    
    
    
    
    
    
    
    
    
    (42,072
    )
    
    
    (41,606
    )Derivative settlements, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,165
    
    
    
    
    
    
    
    
    
    
    
    (9,965
    )
    
    
    45,200Total other income (expense)
    
    
    89,499
    
    
    
    24,301
    
    
    
    53,327
    
    
    
    14,944
    
    
    
    182,071
    
    
    
    18,075
    
    
    
    33,805
    
    
    
    (73,295
    )
    
    
    (52,037
    )
    
    
    108,619Operating expenses:Salaries and benefits
    
    
    26,489
    
    
    
    11,214
    
    
    
    12,896
    
    
    
    9,870
    
    
    
    60,469
    
    
    
    4,178
    
    
    
    27,419
    
    
    
    3,280
    
    
    
    2,046
    
    
    
    97,392Restructure expense- severence and contract
terminination costs
    
    
    747
    
    
    
    
    
    
    
    282
    
    
    
    510
    
    
    
    1,539
    
    
    
    1,844
    
    
    
    3,729
    
    
    
    (7,112
    )
    
    
    
    
    
    
    Impairment expense
    
    
    5,074
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,074
    
    
    
    9,351
    
    
    
    4,409
    
    
    
    
    
    
    
    
    
    
    
    18,834Cost to provide enrollment services
    
    
    
    
    
    
    
    
    
    
    30,158
    
    
    
    
    
    
    
    30,158
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,158Other expenses
    
    
    16,498
    
    
    
    4,611
    
    
    
    5,289
    
    
    
    1,333
    
    
    
    27,731
    
    
    
    10,439
    
    
    
    28,786
    
    
    
    298
    
    
    
    13,121
    
    
    
    80,375Intersegment expenses
    
    
    23,100
    
    
    
    757
    
    
    
    3,427
    
    
    
    736
    
    
    
    28,020
    
    
    
    39,554
    
    
    
    2,187
    
    
    
    (69,761
    )
    
    
    
    
    
    
    Total operating expenses
    
    
    71,908
    
    
    
    16,582
    
    
    
    52,052
    
    
    
    12,449
    
    
    
    152,991
    
    
    
    65,366
    
    
    
    66,530
    
    
    
    (73,295
    )
    
    
    15,167
    
    
    
    226,759Income (loss) before income taxes
    
    
    18,447
    
    
    
    8,794
    
    
    
    1,283
    
    
    
    2,495
    
    
    
    31,019
    
    
    
    5,943
    
    
    
    (49,780
    )
    
    
    
    
    
    
    (26,459
    )
    
    
    (39,277
    )Income tax (expense) benefit (a)
    
    
    5,719
    
    
    
    2,727
    
    
    
    397
    
    
    
    774
    
    
    
    9,617
    
    
    
    1,842
    
    
    
    (15,433
    )
    
    
    
    
    
    
    (8,202
    )
    
    
    (12,176
    )Net income (loss) from
continuing operations
    
    
    12,728
    
    
    
    6,067
    
    
    
    886
    
    
    
    1,721
    
    
    
    21,402
    
    
    
    4,101
    
    
    
    (34,347
    )
    
    
    
    
    
    
    (18,257
    )
    
    
    (27,101
    )Income from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    981
    
    
    
    981Net income (loss)
    
    $
    12,728
    
    
    
    6,067
    
    
    
    886
    
    
    
    1,721
    
    
    
    21,402
    
    
    
    4,101
    
    
    
    (34,347
    )
    
    
    
    
    
    
    (17,276
    )
    
    
    (26,120
    )
 (a)
    
    Income taxes are applied based on the consolidated effective tax rate to income (loss) before income taxes.  
    
    Income earned on certain investment activities
    
    Interest expense incurred on unsecured debt transactions
    
    Other products and service offerings that are not considered operating segments
    
    Certain corporate activities and unallocated overhead functions related to executive
management, human resources, accounting and finance, legal, marketing, and corporate
technology support
  22




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##### Table of Contents



Student
    
    
    TuitionLoan
    
    
    Payment
    
    
    
    
    
    
    Software
    
    
    Asset
    
    
    Corporateand
    
    
    Processing
    
    
    
    
    
    
    and
    
    
    Generation
    
    
    ActivityGuaranty
    
    
    and Campus
    
    
    Enrollment
    
    
    Technical
    
    
    and
    
    
    andServicing
    
    
    Commerce
    
    
    Services
    
    
    Services
    
    
    Management
    
    
    Overhead
    
    
    TotalThree months ended June 30, 2009Derivative market value, foreign currency, and
put option adjustments (1)
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,445
    
    
    
    (1,432
    )
    
    
    34,013Amortization of intangible assets (2)
    
    
    1,079
    
    
    
    1,869
    
    
    
    2,701
    
    
    
    136
    
    
    
    
    
    
    
    
    
    
    
    5,785Compensation related to business combinations (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Variable-rate floor income, net of settlements on
derivatives (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,042
    )
    
    
    
    
    
    
    (6,042
    )Income from discontinued operations, net of tax (5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net tax effect (6)
    
    
    (410
    )
    
    
    (710
    )
    
    
    (1,027
    )
    
    
    (52
    )
    
    
    (11,173
    )
    
    
    (775
    )
    
    
    (14,147
    )Total adjustments to GAAP
    
    $
    669
    
    
    
    1,159
    
    
    
    1,674
    
    
    
    84
    
    
    
    18,230
    
    
    
    (2,207
    )
    
    
    19,609Three months ended June 30, 2008Derivative market value, foreign currency, and
put option adjustments (1)
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,866
    )
    
    
    111
    
    
    
    (15,755
    )Amortization of intangible assets (2)
    
    
    1,165
    
    
    
    1,997
    
    
    
    3,113
    
    
    
    286
    
    
    
    
    
    
    
    
    
    
    
    6,561Compensation related to business combinations (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    750
    
    
    
    750Variable-rate floor income, net of settlements on
derivatives (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,726
    )
    
    
    
    
    
    
    (14,726
    )Income from discontinued operations, net of tax (5)
    
    
    (981
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (981
    )Net tax effect (6)
    
    
    (361
    )
    
    
    (619
    )
    
    
    (965
    )
    
    
    (89
    )
    
    
    9,484
    
    
    
    (267
    )
    
    
    7,183Total adjustments to GAAP
    
    $
    (177
    )
    
    
    1,378
    
    
    
    2,148
    
    
    
    197
    
    
    
    (21,108
    )
    
    
    594
    
    
    
    (16,968
    )Six months ended June 30, 2009Derivative market value, foreign currency, and
put option adjustments (1)
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,325
    
    
    
    (1,432
    )
    
    
    38,893Amortization of intangible assets (2)
    
    
    2,158
    
    
    
    3,756
    
    
    
    5,743
    
    
    
    282
    
    
    
    
    
    
    
    
    
    
    
    11,939Compensation related to business combinations (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159
    
    
    
    159Variable-rate floor income, net of settlements on
derivatives (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,502
    )
    
    
    
    
    
    
    (7,502
    )Income from discontinued operations, net of tax (5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net tax effect (6)
    
    
    (842
    )
    
    
    (1,465
    )
    
    
    (2,240
    )
    
    
    (110
    )
    
    
    (12,800
    )
    
    
    496
    
    
    
    (16,961
    )Total adjustments to GAAP
    
    $
    1,316
    
    
    
    2,291
    
    
    
    3,503
    
    
    
    172
    
    
    
    20,023
    
    
    
    (777
    )
    
    
    26,528Six months ended June 30, 2008Derivative market value, foreign currency, and
put option adjustments (1)
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,534
    
    
    
    538
    
    
    
    42,072Amortization of intangible assets (2)
    
    
    2,421
    
    
    
    4,048
    
    
    
    5,935
    
    
    
    572
    
    
    
    145
    
    
    
    
    
    
    
    13,121Compensation related to business combinations (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,046
    
    
    
    2,046Variable-rate floor income, net of settlements on
derivatives (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,780
    )
    
    
    
    
    
    
    (30,780
    )Income from discontinued operations, net of tax (5)
    
    
    (981
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (981
    )Net tax effect (6)
    
    
    (750
    )
    
    
    (1,255
    )
    
    
    (1,840
    )
    
    
    (178
    )
    
    
    (3,378
    )
    
    
    (801
    )
    
    
    (8,202
    )Total adjustments to GAAP
    
    $
    690
    
    
    
    2,793
    
    
    
    4,095
    
    
    
    394
    
    
    
    7,521
    
    
    
    1,783
    
    
    
    17,276
 (1)
    
    Derivative market value, foreign currency, and put option adjustments: Base net
income excludes the periodic unrealized gains and losses that are caused by the
change in fair value on derivatives used in the Companys risk management strategy in
which the Company does not qualify for hedge treatment under GAAP. Included in
base net income are the economic effects of the Companys derivative instruments,
which includes any cash paid or received being recognized as an expense or revenue
upon actual derivative settlements. Base net income also excludes the foreign
currency transaction gains or losses caused by the re-measurement of the Companys
Euro-denominated bonds to U.S. dollars and the change in fair value of put options
issued by the Company for certain business acquisitions.(2)
    
    Amortization of intangible assets: Base net income excludes the amortization of
acquired intangibles.  23




---



##### Table of Contents



(3)
    
    Compensation related to business combinations: The Company has structured certain
business combinations in which the consideration paid has been dependent on the
sellers continued employment with the Company. As such, the value of the
consideration paid is recognized as compensation expense by the Company over the term
of the applicable employment agreement. Base net income excludes this expense.(4)
    
    Variable-rate floor income: Loans that reset annually on July 1 can generate
excess spread income compared with the rate based on the special allowance payment
formula in declining interest rate environments. The Company refers to this
additional income as variable-rate floor income. The Company excludes variable-rate
floor income, net of settlements paid on derivatives used to hedge student loan assets
earning variable-rate floor income, from its base net income since the timing and
amount of variable-rate floor income (if any) is uncertain, it has been eliminated by
legislation for all loans originated on and after April 1, 2006, and it is in excess
of expected spreads. In addition, because variable-rate floor income is subject to
the underlying rate for the subject loans being reset annually on July 1, it is a
factor beyond the Companys control which can affect the period-to-period
comparability of results of operations.Prior to October 1, 2008, variable rate floor income was calculated by the Company on
a statutory maximum basis. However, as a result of the disruption in the capital
markets beginning in August 2007, the full benefit of variable rate floor income
calculated on a statutory maximum basis has not been realized by the Company due to
the widening of the spread between short term interest rate indices and the Companys
actual cost of funds. As a result of the ongoing volatility of interest rates,
effective October 1, 2008, the Company changed its calculation of variable rate floor
income to better reflect the economic benefit received by the Company. The economic
benefit received by the Company related to variable rate floor income was $6.0
million and $19.3 million for the three months ended June 30, 2009 and 2008,
respectively, and $7.5 million and $25.6 million for the six months ended June 30,
2009 and 2008, respectively. Variable rate floor income calculated on a statutory
maximum basis was $13.0 million and $21.9 million for the three months ended June 30,
2009 and 2008, respectively, and $23.8 million and $40.7 million for the six months
ended June 30, 2009 and 2008, respectively. Beginning October 1, 2008, the economic
benefit received by the Company has been used to determine base net income.The Company has used
derivative instruments to hedge variable rate floor income during
certain periods. During the three and six months ended June 30, 2008,
the Company made payments (settlements) of $7.2 million and
$10.0 million, respectively, on such derivatives. These
settlements are netted with variable-rate floor income and are
excluded from base net income.(5)
    
    Discontinued operations: In May 2007, the Company sold EDULINX. As a result of
this transaction, the results of operations for EDULINX are reported as discontinued
operations for all periods presented. The Company presents base net income
excluding discontinued operations since the operations and cash flows of EDULINX have
been eliminated from the ongoing operations of the Company.(6)
    
    For 2009, income taxes are applied based on 38% of income (loss) before income
taxes for the individual operating segments. For 2008, income taxes for each
individual operating segment are applied based on the consolidated effective tax rate. 7. Intangible Assets and Goodwill
  Weightedaverageremaininguseful life as of
    
    
    As of
    
    
    As ofJune 30,
    
    
    June 30,
    
    
    December 31,2009
    
    
    2009
    
    
    2008Amortizable intangible assets:Customer relationships (net of accumulated
amortization of $34,306
and $29,737, respectively)
    
    
    101
    
    
    $
    46,054
    
    
    
    50,623Trade names (net of accumulated amortization of $7,369 and
$5,478, respectively)
    
    
    38
    
    
    
    9,690
    
    
    
    11,581Covenants not to compete (net of accumulated amortization of
$17,683 and $14,887, respectively)
    
    
    14
    
    
    
    5,939
    
    
    
    8,735Database and content (net of accumulated amortization of $6,574
and $5,447, respectively)
    
    
    17
    
    
    
    2,906
    
    
    
    4,033Computer software (net of accumulated amortization of $8,642
and $7,441, respectively)
    
    
    8
    
    
    
    360
    
    
    
    1,561Student lists (net of accumulated amortization of $8,197 and
$7,855, respectively)
    
    
    
    
    
    
    
    
    
    
    342Other (net of accumulated amortization of $108 and $95, respectively)
    
    
    80
    
    
    
    166
    
    
    
    179Total  amortizable
intangible assets
    
    79 months
    
    
    $
    65,115
    
    
    
    77,054
  24




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##### Table of Contents



2009
    
    $
    10,3792010
    
    
    15,9852011
    
    
    10,0312012
    
    
    9,0292013
    
    
    6,1682014 and thereafter
    
    
    13,523$
    65,115
  Tuition Payment Processing and Campus Commerce
    
    $
    58,086Enrollment Services
    
    
    66,613Software and Technical Services
    
    
    8,596Asset Generation and Management
    
    
    41,883$
    175,178
 8. Fair Value of Financial Instruments
 Fair Value Measurements Effective Date of FASB Statement No. 157
   
    
    Level 1: Quoted prices for identicalinstruments in active markets. The types of financial
instruments included in Level 1 are highly liquid instruments with quoted prices.
    
    Level 2: Quoted prices for similarinstruments 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.
  25




---



##### Table of Contents



As of June 30, 2009Level 1
    
    
    Level 2
    
    
    TotalAssets:Cash and cash equivalents (a)
    
    $
    366,827
    
    
    
    
    
    
    
    366,827Restricted cash (a)
    
    
    481,641
    
    
    
    
    
    
    
    481,641Restricted cash  due to customers (a)
    
    
    41,127
    
    
    
    
    
    
    
    41,127Other assets (b)
    
    
    4,577
    
    
    
    4,553
    
    
    
    9,130Fair value of derivative instruments (c)
    
    
    
    
    
    
    168,720
    
    
    
    168,720Total assets
    
    $
    894,172
    
    
    
    173,273
    
    
    
    1,067,445Liabilities:Fair value of derivative instruments (c)
    
    $
    
    
    
    
    7,354
    
    
    
    7,354Total liabilities
    
    $
    
    
    
    
    7,354
    
    
    
    7,354
 As of December 31, 2008Level 1
    
    
    Level 2
    
    
    TotalAssets:Cash and cash equivalents (a)
    
    $
    189,847
    
    
    
    
    
    
    
    189,847Restricted cash (a)
    
    
    387,404
    
    
    
    
    
    
    
    387,404Restricted cash  due to customers (a)
    
    
    160,985
    
    
    
    
    
    
    
    160,985Other assets (b)
    
    
    4,941
    
    
    
    3,876
    
    
    
    8,817Fair value of derivative instruments (c)
    
    
    
    
    
    
    175,174
    
    
    
    175,174Total assets
    
    $
    743,177
    
    
    
    179,050
    
    
    
    922,227Liabilities:Fair value of derivative instruments (c)
    
    $
    
    
    
    
    1,815
    
    
    
    1,815Total liabilities
    
    $
    
    
    
    
    1,815
    
    
    
    1,815
 (a)
    
    The carrying amount for cash and cash equivalents, restricted cash, and restricted cash  due
to customers approximates fair value due to the variable rate of interest and/or the short
maturities of these instruments.(b)
    
    Other assets includes investments recorded at fair value on a recurring basis. Fair value
measurement is based upon quoted prices. Level 1 investments include investments traded on an
active exchange, such as the New York Stock Exchange, and U.S. Treasury securities that are
traded by dealers or brokers in active over-the-counter markets. Level 2 investments include
corporate debt securities.(c)
    
    All derivatives are accounted for at fair value on a recurring basis. The fair values of
derivative financial instruments are determined by derivative pricing models using the stated
terms of the contracts and observable yield curves, forward foreign currency exchange rates,
and volatilities from active markets. It is the Companys policy to compare its derivative
fair values to those received by its counterparties in order to validate the models outputs.
Fair value of derivative instruments is comprised of market value less accrued interest and
excludes collateral.  As of
    
    
    As ofJune 30, 2009
    
    
    December 31, 2008Fair value
    
    
    Carrying value
    
    
    Fair value
    
    
    Carrying valueFinancial assets:Student loans receivable
    
    $
    24,278,217
    
    
    
    23,889,571
    
    
    
    25,743,732
    
    
    
    25,413,008Student loans receivable  held for sale
    
    
    1,781,972
    
    
    
    1,749,290
    
    
    
    
    
    
    
    Cash and cash equivalents
    
    
    366,827
    
    
    
    366,827
    
    
    
    189,847
    
    
    
    189,847Restricted cash
    
    
    481,641
    
    
    
    481,641
    
    
    
    387,404
    
    
    
    387,404Restricted cash  due to customers
    
    
    41,127
    
    
    
    41,127
    
    
    
    160,985
    
    
    
    160,985Restricted investments
    
    
    600,839
    
    
    
    600,839
    
    
    
    609,868
    
    
    
    609,868Accrued interest receivable
    
    
    385,158
    
    
    
    385,158
    
    
    
    471,878
    
    
    
    471,878Other assets
    
    
    9,130
    
    
    
    9,130
    
    
    
    8,817
    
    
    
    8,817Derivative instruments
    
    
    168,720
    
    
    
    168,720
    
    
    
    175,174
    
    
    
    175,174Financial liabilities:Bonds and notes payable
    
    
    27,052,894
    
    
    
    27,169,573
    
    
    
    26,512,082
    
    
    
    26,787,959Accrued interest payable
    
    
    34,911
    
    
    
    34,911
    
    
    
    81,576
    
    
    
    81,576Due to customers
    
    
    41,127
    
    
    
    41,127
    
    
    
    160,985
    
    
    
    160,985Derivative instruments
    
    
    7,354
    
    
    
    7,354
    
    
    
    1,815
    
    
    
    1,815
  26




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##### Table of Contents



Student Loans Receivable and Student Loans Receivable  Held for Sale
  Restricted Investments, Accrued Interest Receivable/Payable, and Due to Customers
  Bonds and Notes Payable
  Limitations
  9. Shareholders Equity
 Issuance of Class A Common Stock
  10. Earnings per Common Share
 Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
 Three
    
    
    Sixmonths ended
    
    
    months endedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss) attributable to Nelnet, Inc.
    
    $
    8,203
    
    
    
    43,705
    
    
    
    33,658
    
    
    
    (26,120
    )Less
earnings (loss) allocated to unvested restricted stockholders
    
    
    52
    
    
    
    307
    
    
    
    219
    
    
    
    (196
    )Net income (loss) available to common stockholders
    
    $
    8,151
    
    
    
    43,398
    
    
    
    33,439
    
    
    
    (25,924
    )Weighted average common shares outstanding  basic
    
    
    49,534,413
    
    
    
    49,095,153
    
    
    
    49,339,451
    
    
    
    49,073,580Dilutive effect of the assumed vesting of restricted stock awards
    
    
    199,148
    
    
    
    219,788
    
    
    
    204,010
    
    
    
    Weighted average common shares outstanding  diluted
    
    
    49,733,561
    
    
    
    49,314,941
    
    
    
    49,543,461
    
    
    
    49,073,580Basic
earnings (loss) per common share
    
    $
    0.16
    
    
    
    0.88
    
    
    
    0.68
    
    
    
    (0.53
    )Diluted
earnings (loss) per common share
    
    $
    0.16
    
    
    
    0.88
    
    
    
    0.68
    
    
    
    (0.53
    )
   27




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##### Table of Contents



11. Gain from Sale of Equity Method Investment
  12. Legal Proceedings and Regulatory Reviews
 General
  Department of Education Review
   13. Recent Developments  Legislation
    28




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 (Managements Discussion and Analysis of Financial Condition and Results of Operations is for the
three and six months ended June 30, 2009 and 2008. All dollars are in thousands, except per share
amounts, unless otherwise noted).
  Forward-looking and cautionary statements
  OVERVIEW
    29




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##### Table of Contents




    
    Grow and diversify fee-based businesses
    
    Manage operating costs
    
    Maximize the value of existing portfolio
    
    Eliminate exposure to liquidity risk and unfunded debt burden
    
    Reposition asset generation business
   Grow and Diversify Fee-Based Businesses
  Three months ended June 30,2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeTuition Payment Processing and Campus Commerce
    
    $
    11,848
    
    
    
    10,270
    
    
    
    1,578Enrollment Services  Lead Generation
    
    
    21,709
    
    
    
    16,972
    
    
    
    4,73733,557
    
    
    
    27,242
    
    
    $
    6,315
    
    
    
    23.2
    %Enrollment Services  Other
    
    
    7,038
    
    
    
    9,096Student Loan and Guaranty Servicing
    
    
    30,109
    
    
    
    24,747Software and Technical Services
    
    
    5,194
    
    
    
    4,896Total revenue from fee-based businesses
    
    $
    75,898
    
    
    
    65,981
 Six months ended June 30,2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeTuition Payment Processing and Campus Commerce
    
    $
    27,386
    
    
    
    24,117
    
    
    
    3,269Enrollment Services  Lead Generation
    
    
    42,779
    
    
    
    34,406
    
    
    
    8,37370,165
    
    
    
    58,523
    
    
    $
    11,642
    
    
    
    19.9
    %Enrollment Services  Other
    
    
    14,739
    
    
    
    18,921Student Loan and Guaranty Servicing
    
    
    57,837
    
    
    
    50,855Software and Technical Services
    
    
    10,024
    
    
    
    11,611Total revenue from fee-based businesses
    
    $
    152,765
    
    
    
    139,910
 Department of Education Servicing Contract
   30




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##### Table of Contents



Manage Operating Costs
   Maximize the Value of Existing Portfolio
 CP/LIBOR distortion
    Fixed rate floor income
    31




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##### Table of Contents



Future Cash Flow from Portfolio
  Eliminate Exposure to Liquidity Risk and Unfunded Debt

Burden
    Reposition Asset Generation Business
  Legislation
   32




---



##### Table of Contents



RESULTS OF OPERATIONS
  Net Interest Income
        33




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##### Table of Contents



Provision for Loan Losses
    Other Income
  Student Loan and Guaranty Servicing Revenue
 Enrollment
Services Revenue
 Tuition
Payment Processing and Campus Commerce Revenue
 Software
Services Revenue
 Operating Expenses
   34




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##### Table of Contents



Three and six months ended June 30, 2009 compared to the three and six months ended June 30, 2008
 Net Interest Income
 Three months ended June 30,
    
    
    Six months ended June 30,Change
    
    
    
    
    
    
    
    
    
    
    Change2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %Interest income:Loan interest
    
    $
    160,413
    
    
    
    296,686
    
    
    
    (136,273
    )
    
    
    (45.9
    )%
    
    $
    331,332
    
    
    
    626,672
    
    
    
    (295,340
    )
    
    
    (47.1
    )%Investment interest
    
    
    2,776
    
    
    
    9,116
    
    
    
    (6,340
    )
    
    
    (69.5
    )
    
    
    6,867
    
    
    
    20,796
    
    
    
    (13,929
    )
    
    
    (67.0
    )Total interest income
    
    
    163,189
    
    
    
    305,802
    
    
    
    (142,613
    )
    
    
    (46.6
    )
    
    
    338,199
    
    
    
    647,468
    
    
    
    (309,269
    )
    
    
    (47.8
    )Interest expense:Interest on bonds and notes payable
    
    
    106,082
    
    
    
    232,464
    
    
    
    (126,382
    )
    
    
    (54.4
    )
    
    
    252,584
    
    
    
    557,605
    
    
    
    (305,021
    )
    
    
    (54.7
    )Net interest income
    
    
    57,107
    
    
    
    73,338
    
    
    
    (16,231
    )
    
    
    (22.1
    )
    
    
    85,615
    
    
    
    89,863
    
    
    
    (4,248
    )
    
    
    (4.7
    )Provision for loan losses
    
    
    8,000
    
    
    
    6,000
    
    
    
    2,000
    
    
    
    33.3
    
    
    
    15,500
    
    
    
    11,000
    
    
    
    4,500
    
    
    
    40.9Net interest income after
provision for loan losses
    
    $
    49,107
    
    
    
    67,338
    
    
    
    (18,231
    )
    
    
    (27.1
    )%
    
    $
    70,115
    
    
    
    78,863
    
    
    
    (8,748
    )
    
    
    (11.1
    )%
 
    
    Net interest income decreased for the three and six months ended June 30, 2009
compared to 2008 as a result of the following:
 Three months ended June 30,
    
    
    Six months ended June 30,Change
    
    
    
    
    
    
    
    
    
    
    Change2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %Student loan
interest margin, excluding derivative settlements (a)
    
    $
    25,443
    
    
    
    64,939
    
    
    
    (39,496
    )
    
    
    (60.8
    )%
    
    $
    28,043
    
    
    
    70,483
    
    
    
    (42,440
    )
    
    
    (60.2
    )%Fixed rate floor income (b)
    
    
    37,054
    
    
    
    9,890
    
    
    
    27,164
    
    
    
    274.7
    
    
    
    67,339
    
    
    
    18,410
    
    
    
    48,929
    
    
    
    265.8Investment interest (c)
    
    
    2,776
    
    
    
    9,116
    
    
    
    (6,340
    )
    
    
    (69.5
    )
    
    
    6,867
    
    
    
    20,796
    
    
    
    (13,929
    )
    
    
    (67.0
    )Corporate debt interest expense (d)
    
    
    (8,166
    )
    
    
    (10,607
    )
    
    
    2,441
    
    
    
    (23.0
    )
    
    
    (16,634
    )
    
    
    (19,826
    )
    
    
    3,192
    
    
    
    (16.1
    )Net interest income
    
    $
    57,107
    
    
    
    73,338
    
    
    
    (16,231
    )
    
    
    (22.1
    )%
    
    $
    85,615
    
    
    
    89,863
    
    
    
    (4,248
    )
    
    
    (4.7
    )%
 (a)
    
    Student loan interest margin, excluding derivative settlements, decreased for the three
and six months ended June 30, 2009 compared to the same periods in 2008 as a result of a
decrease in the Companys variable student loan spread, excluding derivative settlements, as
discussed in this Item 2 under Asset Generation and Management Operating Segment  Results of
Operations. For the three months ended June 30, 2009 and 2008,
variable student loan spread, excluding derivative settlements, was
0.45% and 1.07%, respectively. For the six months ended June 30,
2009 and 2008, variable student loan spread, excluding derivative
settlements, was 0.27% and 0.65%, respectively.(b)
    
    The Company has a portfolio of student loans that are earning interest at a fixed borrower
rate which exceeds the statutorily defined variable lender rate creating fixed rate floor
income. Due to lower interest rates in the three and six months ended June 30, 2009 compared
to the same periods in 2008, the Company received additional fixed rate floor income on a
portion of its student loan portfolio. See Item 3, Quantitative and Qualitative Disclosures
about Market Risk  Interest Rate Risk for additional information.(c)
    
    Investment interest decreased for the three and six months ended June 30, 2009 compared to
the same period in 2008 due to lower interest rates in 2009.(d)
    
    Corporate debt interest expense decreased for the three and six months ended June 30, 2009
compared to the same periods in 2008 as a result of a decrease in interest rates, as well as a
reduction in debt outstanding due to the purchase of unsecured fixed rate debt. The weighted
average interest rate and notes outstanding on the Companys unsecured line of credit was
0.80% and $691.5 million, respectively, as of June 30, 2009 compared to 2.90% and $450.0
million, respectively, as of June 30, 2008. During the first and second quarters of 2009, the
Company purchased $34.9 million and $35.5 million, respectively, of its 5.125% Senior Notes
due 2010. 
    
    The provision for loan losses increased for the three and six months ended June 30, 2009
compared to 2008 primarily due to increases in delinquencies.
  35




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##### Table of Contents



Other Income
 Three months ended June 30,
    
    
    Six months ended June 30,Change
    
    
    
    
    
    
    
    
    
    
    Change2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %Loan and guaranty servicing revenue
    
    $
    28,803
    
    
    
    23,821
    
    
    
    4,982
    
    
    
    20.9
    %
    
    $
    55,274
    
    
    
    48,482
    
    
    
    6,792
    
    
    
    14.0
    %Tuition payment processing and campus commerce
revenue
    
    
    11,848
    
    
    
    10,270
    
    
    
    1,578
    
    
    
    15.4
    
    
    
    27,386
    
    
    
    24,117
    
    
    
    3,269
    
    
    
    13.6Enrollment services revenue
    
    
    28,747
    
    
    
    26,068
    
    
    
    2,679
    
    
    
    10.3
    
    
    
    57,518
    
    
    
    53,290
    
    
    
    4,228
    
    
    
    7.9Software services revenue
    
    
    6,119
    
    
    
    5,979
    
    
    
    140
    
    
    
    2.3
    
    
    
    11,824
    
    
    
    14,183
    
    
    
    (2,359
    )
    
    
    (16.6
    )Other income
    
    
    11,527
    
    
    
    6,125
    
    
    
    5,402
    
    
    
    88.2
    
    
    
    28,389
    
    
    
    12,379
    
    
    
    16,010
    
    
    
    129.3Gain (loss) on sale of loans
    
    
    (196
    )
    
    
    48
    
    
    
    (244
    )
    
    
    (508.3
    )
    
    
    (402
    )
    
    
    (47,426
    )
    
    
    47,024
    
    
    
    (99.2
    )Derivative market value, foreign currency,
and put option adjustments
    
    
    (34,013
    )
    
    
    15,755
    
    
    
    (49,768
    )
    
    
    (315.9
    )
    
    
    (38,893
    )
    
    
    (41,606
    )
    
    
    2,713
    
    
    
    (6.5
    )Derivative settlements, net
    
    
    9,535
    
    
    
    4,437
    
    
    
    5,098
    
    
    
    114.9
    
    
    
    33,893
    
    
    
    45,200
    
    
    
    (11,307
    )
    
    
    (25.0
    )Total other income
    
    $
    62,370
    
    
    
    92,503
    
    
    
    (30,133
    )
    
    
    (32.6
    )%
    
    $
    174,989
    
    
    
    108,619
    
    
    
    66,370
    
    
    
    61.1
    %
 
    
    Loan and guaranty servicing revenue increased due to an increase in FFELP loan
servicing revenue and guaranty servicing revenue as further discussed in this Item 2 under
Student Loan and Guaranty Servicing Operating Segment  Results of Operations.
    
    Tuition payment processing and campus commerce revenue increased due to an increase in
the number of managed tuition payment plans and an increase in campus commerce transactions
processed.
    
    Enrollment services revenue increased due to an increase in the number of lead
generation transactions processed offset by a reduction in other
enrollment products and services offered as further discussed in this Item 2 under Enrollment
Services Operating Segment  Results of Operations.
    
    Software and technical services revenue decreased for the six months ended June 30,
2009 compared to the same period in 2008 as the result of a reduction in the number of
projects for existing customers and the loss of customers due to the legislative
developments in the student loan industry throughout 2008.
    
    Other income increased for the three and six months ended June 30, 2009 compared to
2008 due to gains of $5.8 million and $13.9 million from the purchase of debt in the first
and second quarters of 2009, respectively. In addition, the Company received a contingency
payment in the first quarter of 2009 from the sale of an equity method investment, which
resulted in a $3.5 million gain.
    
    The Company recognized a loss of $47.5 million during the first quarter of 2008 as a
result of the sale of $1.3 billion of student loans as further discussed in this Item 2
under Asset Generation and Management Operating Segment  Results of Operations.
    
    The change in derivative market value, foreign currency, and put option adjustments
was caused by the change in the fair value of the Companys derivative portfolio and
foreign currency rate fluctuations which are further discussed in Item 3, Quantitative and
Qualitative Disclosures about Market Risk.
    
    Further detail of the components of derivative settlements is included in Item 3,
Quantitative and Qualitative Disclosures about Market Risk. The Company maintains an
overall risk management strategy that incorporates the use of derivative instruments to
reduce the economic effect of interest rate volatility. 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 under
SFAS No. 133. Derivative settlements for each applicable period should be evaluated with
the Companys net interest income.
 Operating Expenses
 Three months ended June 30,
    
    
    Six months ended June 30,2009
    
    
    2008
    
    
    $ Change
    
    
    % Change
    
    
    2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeSalaries and benefits
    
    $
    38,699
    
    
    
    43,739
    
    
    
    (5,040
    )
    
    
    (11.5
    )%
    
    $
    76,925
    
    
    
    91,678
    
    
    
    (14,753
    )
    
    
    (16.1
    )%Other expenses
    
    
    37,277
    
    
    
    39,793
    
    
    
    (2,516
    )
    
    
    (6.3
    )
    
    
    73,829
    
    
    
    78,977
    
    
    
    (5,148
    )
    
    
    (6.5
    )Operating expenses, excluding the cost
to provide enrollment services and
restructure and impairment expenses
    
    
    75,976
    
    
    
    83,532
    
    
    $
    (7,556
    )
    
    
    (9.0
    )%
    
    
    150,754
    
    
    
    170,655
    
    
    $
    (19,901
    )
    
    
    (11.7
    )%Cost to provide enrollment services
    
    
    18,092
    
    
    
    14,755
    
    
    
    
    
    
    
    
    
    
    
    35,885
    
    
    
    30,158Restructure expense
    
    
    3,288
    
    
    
    (365
    )
    
    
    
    
    
    
    
    
    
    
    3,288
    
    
    
    7,112Impairment expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,834Total operating expenses
    
    $
    97,356
    
    
    
    97,922
    
    
    
    
    
    
    
    
    
    
    $
    189,927
    
    
    
    226,759
  36




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##### Table of Contents



Income Taxes
   Financial Condition as of June 30, 2009 compared to December 31, 2008
 As of
    
    
    As ofJune 30,
    
    
    December 31,
    
    
    Change2009
    
    
    2008
    
    
    Dollars
    
    
    PercentAssets:Student loans receivable, net
    
    $
    23,889,571
    
    
    
    25,413,008
    
    
    
    (1,523,437
    )
    
    
    (6.0
    )%Student loans receivable  held for sale
    
    
    1,749,290
    
    
    
    
    
    
    
    1,749,290
    
    
    
    100.0Cash, cash equivalents, and investments
    
    
    1,490,434
    
    
    
    1,348,104
    
    
    
    142,330
    
    
    
    10.6Goodwill
    
    
    175,178
    
    
    
    175,178
    
    
    
    
    
    
    
    Intangible assets, net
    
    
    65,115
    
    
    
    77,054
    
    
    
    (11,939
    )
    
    
    (15.5
    )Fair value of derivative instruments
    
    
    168,720
    
    
    
    175,174
    
    
    
    (6,454
    )
    
    
    (3.7
    )Other assets
    
    
    572,234
    
    
    
    666,379
    
    
    
    (94,145
    )
    
    
    (14.1
    )Total assets
    
    $
    28,110,542
    
    
    
    27,854,897
    
    
    
    255,645
    
    
    
    0.9
    %Liabilities:Bonds and notes payable
    
    $
    27,169,573
    
    
    
    26,787,959
    
    
    
    381,614
    
    
    
    1.4
    %Fair value of derivative instruments
    
    
    7,354
    
    
    
    1,815
    
    
    
    5,539
    
    
    
    305.2Other liabilities
    
    
    252,428
    
    
    
    421,897
    
    
    
    (169,469
    )
    
    
    (40.2
    )Total liabilities
    
    
    27,429,355
    
    
    
    27,211,671
    
    
    
    217,684
    
    
    
    0.8Shareholders equity
    
    
    681,187
    
    
    
    643,226
    
    
    
    37,961
    
    
    
    5.9Total liabilities and shareholders equity
    
    $
    28,110,542
    
    
    
    27,854,897
    
    
    
    255,645
    
    
    
    0.9
    %
   37




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##### Table of Contents



OPERATING SEGMENTS
       38




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##### Table of Contents



Segment Results and Reconciliations to GAAP
 Three months ended June 30, 2009Fee-BasedStudent
    
    
    Tuition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Base netLoan
    
    
    Payment
    
    
    
    
    
    
    Software
    
    
    
    
    
    
    Asset
    
    
    Corporate
    
    
    
    
    
    
    incomeand
    
    
    Processing
    
    
    
    
    
    
    and
    
    
    Total
    
    
    Generation
    
    
    Activity
    
    
    Eliminations
    
    
    Adjustments
    
    
    GAAPGuaranty
    
    
    and Campus
    
    
    Enrollment
    
    
    Technical
    
    
    Fee-
    
    
    and
    
    
    and
    
    
    and
    
    
    to GAAP
    
    
    Results ofServicing
    
    
    Commerce
    
    
    Services
    
    
    Services
    
    
    Based
    
    
    Management
    
    
    Overhead
    
    
    Reclassifications
    
    
    Results
    
    
    OperationsTotal interest income
    
    $
    13
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    156,233
    
    
    
    1,312
    
    
    
    (422
    )
    
    
    6,042
    
    
    
    163,189Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98,338
    
    
    
    8,166
    
    
    
    (422
    )
    
    
    
    
    
    
    106,082Net interest income (loss)
    
    
    13
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    57,895
    
    
    
    (6,854
    )
    
    
    
    
    
    
    6,042
    
    
    
    57,107Less provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,000Net interest income (loss) after provision
for loan losses
    
    
    13
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    49,895
    
    
    
    (6,854
    )
    
    
    
    
    
    
    6,042
    
    
    
    49,107Other income (expense):Loan and guaranty servicing revenue
    
    
    29,184
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,184
    
    
    
    
    
    
    
    (381
    )
    
    
    
    
    
    
    
    
    
    
    28,803Tuition payment processing and campus commerce revenue
    
    
    
    
    
    
    11,848
    
    
    
    
    
    
    
    
    
    
    
    11,848
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,848Enrollment services revenue
    
    
    
    
    
    
    
    
    
    
    28,747
    
    
    
    
    
    
    
    28,747
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,747Software services revenue
    
    
    925
    
    
    
    
    
    
    
    
    
    
    
    5,194
    
    
    
    6,119
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,119Other income
    
    
    249
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    249
    
    
    
    4,241
    
    
    
    7,037
    
    
    
    
    
    
    
    
    
    
    
    11,527Loss on sale of loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (196
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (196
    )Intersegment revenue
    
    
    20,888
    
    
    
    53
    
    
    
    277
    
    
    
    3,896
    
    
    
    25,114
    
    
    
    
    
    
    
    8,463
    
    
    
    (33,577
    )
    
    
    
    
    
    
    Derivative market value, foreign currency,
and put option adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34,013
    )
    
    
    (34,013
    )Derivative settlements, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,535
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,535Total other income (expense)
    
    
    51,246
    
    
    
    11,901
    
    
    
    29,024
    
    
    
    9,090
    
    
    
    101,261
    
    
    
    13,580
    
    
    
    15,119
    
    
    
    (33,577
    )
    
    
    (34,013
    )
    
    
    62,370Operating expenses:Salaries and benefits
    
    
    13,355
    
    
    
    6,402
    
    
    
    5,863
    
    
    
    5,715
    
    
    
    31,335
    
    
    
    1,735
    
    
    
    6,234
    
    
    
    876
    
    
    
    
    
    
    
    40,180Restructure expense- severance and contract
terminination costs
    
    
    2,513
    
    
    
    
    
    
    
    
    
    
    
    422
    
    
    
    2,935
    
    
    
    
    
    
    
    353
    
    
    
    (3,288
    )
    
    
    
    
    
    
    Cost to provide enrollment services
    
    
    
    
    
    
    
    
    
    
    18,092
    
    
    
    
    
    
    
    18,092
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,092Other expenses
    
    
    11,140
    
    
    
    2,339
    
    
    
    3,041
    
    
    
    838
    
    
    
    17,358
    
    
    
    5,875
    
    
    
    8,259
    
    
    
    1,807
    
    
    
    5,785
    
    
    
    39,084Intersegment expenses
    
    
    9,484
    
    
    
    669
    
    
    
    508
    
    
    
    764
    
    
    
    11,425
    
    
    
    20,732
    
    
    
    815
    
    
    
    (32,972
    )
    
    
    
    
    
    
    Total operating expenses
    
    
    36,492
    
    
    
    9,410
    
    
    
    27,504
    
    
    
    7,739
    
    
    
    81,145
    
    
    
    28,342
    
    
    
    15,661
    
    
    
    (33,577
    )
    
    
    5,785
    
    
    
    97,356Income (loss) before income taxes
    
    
    14,767
    
    
    
    2,502
    
    
    
    1,520
    
    
    
    1,351
    
    
    
    20,140
    
    
    
    35,133
    
    
    
    (7,396
    )
    
    
    
    
    
    
    (33,756
    )
    
    
    14,121Income tax (expense) benefit (a)
    
    
    (5,612
    )
    
    
    (951
    )
    
    
    (577
    )
    
    
    (514
    )
    
    
    (7,654
    )
    
    
    (13,351
    )
    
    
    940
    
    
    
    
    
    
    
    14,147
    
    
    
    (5,918
    )Net income (loss)
    
    $
    9,155
    
    
    
    1,551
    
    
    
    943
    
    
    
    837
    
    
    
    12,486
    
    
    
    21,782
    
    
    
    (6,456
    )
    
    
    
    
    
    
    (19,609
    )
    
    
    8,203(a) Income taxes are applied based on 38% of income (loss) before
income taxes for the individual operating segments.Three months ended June 30, 2009:Before Tax Operating Margin
    
    
    28.8
    %
    
    
    21.0
    %
    
    
    5.2
    %
    
    
    14.9
    %
    
    
    19.9
    %
    
    
    55.3
    %Before Tax Operating Margin 
excluding net interest income for fee-based
businesses, restructure expense, and the revenue and
expenses associated with rehabiliation loan sales
    
    
    30.4
    %
    
    
    20.9
    %
    
    
    5.2
    %
    
    
    19.5
    %
    
    
    22.8
    %
    
    
    55.3
    %Three months ended June 30, 2008:Before Tax Operating Margin
    
    
    30.3
    %
    
    
    16.3
    %
    
    
    3.2
    %
    
    
    10.3
    %
    
    
    19.0
    %
    
    
    63.2
    %Before Tax Operating Margin 
excluding net interest income for fee-based
businesses, restructure expense, and the revenue
and expenses associated with rehabilitation loan sales
    
    
    30.1
    %
    
    
    13.7
    %
    
    
    3.2
    %
    
    
    10.2
    %
    
    
    18.3
    %
    
    
    63.2
    %
  39




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##### Table of Contents



Three months ended June 30, 2008Fee-BasedStudent
    
    
    Tuition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Base netLoan
    
    
    Payment
    
    
    
    
    
    
    Software
    
    
    
    
    
    
    Asset
    
    
    Corporate
    
    
    
    
    
    
    incomeand
    
    
    Processing
    
    
    
    
    
    
    and
    
    
    Total
    
    
    Generation
    
    
    Activity
    
    
    Eliminations
    
    
    Adjustments
    
    
    GAAPGuaranty
    
    
    and Campus
    
    
    Enrollment
    
    
    Technical
    
    
    Fee-
    
    
    and
    
    
    and
    
    
    and
    
    
    to GAAP
    
    
    Results ofServicing
    
    
    Commerce
    
    
    Services
    
    
    Services
    
    
    Based
    
    
    Management
    
    
    Overhead
    
    
    Reclassifications
    
    
    Results
    
    
    OperationsTotal interest income
    
    $
    243
    
    
    
    310
    
    
    
    1
    
    
    
    
    
    
    
    554
    
    
    
    282,293
    
    
    
    1,574
    
    
    
    (546
    )
    
    
    21,927
    
    
    
    305,802Interest expense
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    222,402
    
    
    
    10,607
    
    
    
    (546
    )
    
    
    
    
    
    
    232,464Net interest income (loss)
    
    
    243
    
    
    
    310
    
    
    
    
    
    
    
    
    
    
    
    553
    
    
    
    59,891
    
    
    
    (9,033
    )
    
    
    
    
    
    
    21,927
    
    
    
    73,338Less provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,000Net interest income (loss) after provision
for loan losses
    
    
    243
    
    
    
    310
    
    
    
    
    
    
    
    
    
    
    
    553
    
    
    
    53,891
    
    
    
    (9,033
    )
    
    
    
    
    
    
    21,927
    
    
    
    67,338Other income (expense):Loan and guaranty servicing revenue
    
    
    23,664
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,664
    
    
    
    157
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,821Tutition payment processing and campus commerce revenue
    
    
    
    
    
    
    10,270
    
    
    
    
    
    
    
    
    
    
    
    10,270
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,270Enrollment services revenue
    
    
    
    
    
    
    
    
    
    
    26,068
    
    
    
    
    
    
    
    26,068
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,068Software services revenue
    
    
    1,083
    
    
    
    
    
    
    
    
    
    
    
    4,896
    
    
    
    5,979
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,979Other income
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    4,851
    
    
    
    1,268
    
    
    
    
    
    
    
    
    
    
    
    6,125Gain on sale of loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48Intercompany revenue
    
    
    18,382
    
    
    
    (76
    )
    
    
    
    
    
    
    1,517
    
    
    
    19,823
    
    
    
    
    
    
    
    13,960
    
    
    
    (33,783
    )
    
    
    
    
    
    
    Derivative market value, foreign currency,
and put option adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,755
    
    
    
    15,755Derivative settlements, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,638
    
    
    
    
    
    
    
    
    
    
    
    (7,201
    )
    
    
    4,437Total other income (expense)
    
    
    43,135
    
    
    
    10,194
    
    
    
    26,068
    
    
    
    6,413
    
    
    
    85,810
    
    
    
    16,694
    
    
    
    15,228
    
    
    
    (33,783
    )
    
    
    8,554
    
    
    
    92,503Operating expenses:Salaries and benefits
    
    
    12,491
    
    
    
    5,784
    
    
    
    6,373
    
    
    
    4,702
    
    
    
    29,350
    
    
    
    1,954
    
    
    
    12,828
    
    
    
    (1,333
    )
    
    
    750
    
    
    
    43,549Restructure expense- severance and contract
termination costs
    
    
    (104
    )
    
    
    
    
    
    
    (15
    )
    
    
    (8
    )
    
    
    (127
    )
    
    
    (52
    )
    
    
    (186
    )
    
    
    365
    
    
    
    
    
    
    
    Cost to provide enrollment services
    
    
    
    
    
    
    
    
    
    
    14,755
    
    
    
    
    
    
    
    14,755
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,755Other expenses
    
    
    8,011
    
    
    
    2,551
    
    
    
    2,529
    
    
    
    714
    
    
    
    13,805
    
    
    
    5,095
    
    
    
    14,921
    
    
    
    (764
    )
    
    
    6,561
    
    
    
    39,618Intersegment expenses
    
    
    9,822
    
    
    
    461
    
    
    
    1,580
    
    
    
    342
    
    
    
    12,205
    
    
    
    18,952
    
    
    
    894
    
    
    
    (32,051
    )
    
    
    
    
    
    
    Total operating expenses
    
    
    30,220
    
    
    
    8,796
    
    
    
    25,222
    
    
    
    5,750
    
    
    
    69,988
    
    
    
    25,949
    
    
    
    28,457
    
    
    
    (33,783
    )
    
    
    7,311
    
    
    
    97,922Income (loss) before income taxes
    
    
    13,158
    
    
    
    1,708
    
    
    
    846
    
    
    
    663
    
    
    
    16,375
    
    
    
    44,636
    
    
    
    (22,262
    )
    
    
    
    
    
    
    23,170
    
    
    
    61,919Income tax (expense) benefit (a)
    
    
    4,079
    
    
    
    530
    
    
    
    262
    
    
    
    206
    
    
    
    5,077
    
    
    
    13,837
    
    
    
    (6,902
    )
    
    
    
    
    
    
    7,183
    
    
    
    19,195Net income (loss) from
continuing operations
    
    
    9,079
    
    
    
    1,178
    
    
    
    584
    
    
    
    457
    
    
    
    11,298
    
    
    
    30,799
    
    
    
    (15,360
    )
    
    
    
    
    
    
    15,987
    
    
    
    42,724Income from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    981
    
    
    
    981Net income (loss)
    
    $
    9,079
    
    
    
    1,178
    
    
    
    584
    
    
    
    457
    
    
    
    11,298
    
    
    
    30,799
    
    
    
    (15,360
    )
    
    
    
    
    
    
    16,968
    
    
    
    43,705
 (a)
    
    Income taxes are applied
based on the consolidated effective tax rate to income (loss) before income taxes.  40




---



##### Table of Contents



Six months ended June 30, 2009Fee-BasedStudent
    
    
    Tuition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Base netLoan
    
    
    Payment
    
    
    
    
    
    
    Software
    
    
    
    
    
    
    Asset
    
    
    Corporate
    
    
    
    
    
    
    incomeand
    
    
    Processing
    
    
    
    
    
    
    and
    
    
    Total
    
    
    Generation
    
    
    Activity
    
    
    Eliminations
    
    
    Adjustments
    
    
    GAAPGuaranty
    
    
    and Campus
    
    
    Enrollment
    
    
    Technical
    
    
    Fee-
    
    
    and
    
    
    and
    
    
    and
    
    
    to GAAP
    
    
    Results ofServicing
    
    
    Commerce
    
    
    Services
    
    
    Services
    
    
    Based
    
    
    Management
    
    
    Overhead
    
    
    Reclassifications
    
    
    Results
    
    
    OperationsTotal interest income
    
    $
    79
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    120
    
    
    
    328,820
    
    
    
    2,739
    
    
    
    (982
    )
    
    
    7,502
    
    
    
    338,199Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    236,932
    
    
    
    16,634
    
    
    
    (982
    )
    
    
    
    
    
    
    252,584Net interest income (loss)
    
    
    79
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    120
    
    
    
    91,888
    
    
    
    (13,895
    )
    
    
    
    
    
    
    7,502
    
    
    
    85,615Less provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,500Net interest income (loss) after provision
for loan losses
    
    
    79
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    120
    
    
    
    76,388
    
    
    
    (13,895
    )
    
    
    
    
    
    
    7,502
    
    
    
    70,115Other income (expense):Loan and guaranty servicing revenue
    
    
    56,037
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,037
    
    
    
    
    
    
    
    (763
    )
    
    
    
    
    
    
    
    
    
    
    55,274Tuition payment processing and campus commerce revenue
    
    
    
    
    
    
    27,386
    
    
    
    
    
    
    
    
    
    
    
    27,386
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,386Enrollment services revenue
    
    
    
    
    
    
    
    
    
    
    57,518
    
    
    
    
    
    
    
    57,518
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,518Software services revenue
    
    
    1,800
    
    
    
    
    
    
    
    
    
    
    
    10,024
    
    
    
    11,824
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,824Other income
    
    
    361
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    361
    
    
    
    8,892
    
    
    
    19,136
    
    
    
    
    
    
    
    
    
    
    
    28,389Loss on sale of loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (402
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (402
    )Intersegment revenue
    
    
    40,766
    
    
    
    110
    
    
    
    277
    
    
    
    7,020
    
    
    
    48,173
    
    
    
    
    
    
    
    17,384
    
    
    
    (65,557
    )
    
    
    
    
    
    
    Derivative market value, foreign currency,
and put option adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38,893
    )
    
    
    (38,893
    )Derivative settlements, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,893
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,893Total other income (expense)
    
    
    98,964
    
    
    
    27,496
    
    
    
    57,795
    
    
    
    17,044
    
    
    
    201,299
    
    
    
    42,383
    
    
    
    35,757
    
    
    
    (65,557
    )
    
    
    (38,893
    )
    
    
    174,989Operating expenses:Salaries and benefits
    
    
    28,059
    
    
    
    12,947
    
    
    
    11,958
    
    
    
    10,900
    
    
    
    63,864
    
    
    
    3,510
    
    
    
    12,501
    
    
    
    (1,628
    )
    
    
    159
    
    
    
    78,406Restructure expense- severance and contract
termination costs
    
    
    2,513
    
    
    
    
    
    
    
    
    
    
    
    422
    
    
    
    2,935
    
    
    
    
    
    
    
    353
    
    
    
    (3,288
    )
    
    
    
    
    
    
    Cost to provide enrollment services
    
    
    
    
    
    
    
    
    
    
    35,885
    
    
    
    
    
    
    
    35,885
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,885Other expenses
    
    
    19,737
    
    
    
    4,747
    
    
    
    6,336
    
    
    
    1,516
    
    
    
    32,336
    
    
    
    10,834
    
    
    
    18,720
    
    
    
    1,807
    
    
    
    11,939
    
    
    
    75,636Intersegment expenses
    
    
    18,954
    
    
    
    1,292
    
    
    
    1,054
    
    
    
    1,409
    
    
    
    22,709
    
    
    
    38,608
    
    
    
    1,131
    
    
    
    (62,448
    )
    
    
    
    
    
    
    Total operating expenses
    
    
    69,263
    
    
    
    18,986
    
    
    
    55,233
    
    
    
    14,247
    
    
    
    157,729
    
    
    
    52,952
    
    
    
    32,705
    
    
    
    (65,557
    )
    
    
    12,098
    
    
    
    189,927Income (loss) before income taxes
    
    
    29,780
    
    
    
    8,551
    
    
    
    2,562
    
    
    
    2,797
    
    
    
    43,690
    
    
    
    65,819
    
    
    
    (10,843
    )
    
    
    
    
    
    
    (43,489
    )
    
    
    55,177Income tax (expense) benefit (a)
    
    
    (11,317
    )
    
    
    (3,249
    )
    
    
    (973
    )
    
    
    (1,064
    )
    
    
    (16,603
    )
    
    
    (25,012
    )
    
    
    3,135
    
    
    
    
    
    
    
    16,961
    
    
    
    (21,519
    )Net income (loss)
    
    $
    18,463
    
    
    
    5,302
    
    
    
    1,589
    
    
    
    1,733
    
    
    
    27,087
    
    
    
    40,807
    
    
    
    (7,708
    )
    
    
    
    
    
    
    (26,528
    )
    
    
    33,658(a) Income taxes are applied based on 38% of income (loss) before
income taxes for the individual operating segments.Six months ended June 30, 2009:Before Tax Operating Margin
    
    
    30.1
    %
    
    
    31.1
    %
    
    
    4.4
    %
    
    
    16.4
    %
    
    
    21.7
    %
    
    
    55.4
    %Before Tax Operating Margin 
excluding net interest income for fee-based
businesses, restructure expense, and the revenue and
expenses associated with rehabiliation loan sales
    
    
    31.0
    %
    
    
    30.9
    %
    
    
    4.4
    %
    
    
    18.9
    %
    
    
    23.1
    %
    
    
    55.4
    %Six months ended June 30, 2008:Before Tax Operating Margin
    
    
    20.4
    %
    
    
    34.7
    %
    
    
    2.4
    %
    
    
    16.7
    %
    
    
    16.9
    %
    
    
    8.3
    %Before Tax Operating Margin 
excluding net interest income for fee-based
businesses, restructure expense, impairment expense, the
loss on sale of loans, and the revenue and expenses
associated with rehabilitation loan sales
    
    
    25.7
    %
    
    
    31.8
    %
    
    
    2.9
    %
    
    
    20.1
    %
    
    
    19.6
    %
    
    
    54.4
    %
  41




---



##### Table of Contents



Six months ended June 30, 2008Fee-BasedStudent
    
    
    Tuition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Base netLoan
    
    
    Payment
    
    
    
    
    
    
    Software
    
    
    
    
    
    
    Asset
    
    
    Corporate
    
    
    
    
    
    
    incomeand
    
    
    Processing
    
    
    
    
    
    
    and
    
    
    Total
    
    
    Generation
    
    
    Activity
    
    
    Eliminations
    
    
    Adjustments
    
    
    GAAPGuaranty
    
    
    and Campus
    
    
    Enrollment
    
    
    Technical
    
    
    Fee-
    
    
    and
    
    
    and
    
    
    and
    
    
    to GAAP
    
    
    Results ofServicing
    
    
    Commerce
    
    
    Services
    
    
    Services
    
    
    Based
    
    
    Management
    
    
    Overhead
    
    
    Reclassifications
    
    
    Results
    
    
    OperationsTotal interest income
    
    $
    856
    
    
    
    1,075
    
    
    
    10
    
    
    
    
    
    
    
    1,941
    
    
    
    602,651
    
    
    
    2,771
    
    
    
    (640
    )
    
    
    40,745
    
    
    
    647,468Interest expense
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    538,417
    
    
    
    19,826
    
    
    
    (640
    )
    
    
    
    
    
    
    557,605Net interest income (loss)
    
    
    856
    
    
    
    1,075
    
    
    
    8
    
    
    
    
    
    
    
    1,939
    
    
    
    64,234
    
    
    
    (17,055
    )
    
    
    
    
    
    
    40,745
    
    
    
    89,863Less provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,000Net interest income (loss) after provision
for loan losses
    
    
    856
    
    
    
    1,075
    
    
    
    8
    
    
    
    
    
    
    
    1,939
    
    
    
    53,234
    
    
    
    (17,055
    )
    
    
    
    
    
    
    40,745
    
    
    
    78,863Other income (expense):Loan and guaranty servicing revenue
    
    
    48,320
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,320
    
    
    
    162
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,482Tutition payment processing and campus commerce revenue
    
    
    
    
    
    
    24,117
    
    
    
    
    
    
    
    
    
    
    
    24,117
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,117Enrollment services revenue
    
    
    
    
    
    
    
    
    
    
    53,290
    
    
    
    
    
    
    
    53,290
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,290Software services revenue
    
    
    2,535
    
    
    
    
    
    
    
    37
    
    
    
    11,611
    
    
    
    14,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,183Other income
    
    
    38
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38
    
    
    
    9,708
    
    
    
    2,633
    
    
    
    
    
    
    
    
    
    
    
    12,379Loss on sale of loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47,426
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47,426
    )Intersegment revenue
    
    
    38,606
    
    
    
    184
    
    
    
    
    
    
    
    3,333
    
    
    
    42,123
    
    
    
    
    
    
    
    31,172
    
    
    
    (73,295
    )
    
    
    
    
    
    
    Derivative market value, foreign currency,
and put option adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    466
    
    
    
    
    
    
    
    
    
    
    
    (42,072
    )
    
    
    (41,606
    )Derivative settlements, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,165
    
    
    
    
    
    
    
    
    
    
    
    (9,965
    )
    
    
    45,200Total other income (expense)
    
    
    89,499
    
    
    
    24,301
    
    
    
    53,327
    
    
    
    14,944
    
    
    
    182,071
    
    
    
    18,075
    
    
    
    33,805
    
    
    
    (73,295
    )
    
    
    (52,037
    )
    
    
    108,619Operating expenses:Salaries and benefits
    
    
    26,489
    
    
    
    11,214
    
    
    
    12,896
    
    
    
    9,870
    
    
    
    60,469
    
    
    
    4,178
    
    
    
    27,419
    
    
    
    3,280
    
    
    
    2,046
    
    
    
    97,392Restructure expense- severance and contract
termination costs
    
    
    747
    
    
    
    
    
    
    
    282
    
    
    
    510
    
    
    
    1,539
    
    
    
    1,844
    
    
    
    3,729
    
    
    
    (7,112
    )
    
    
    
    
    
    
    Impairment expense
    
    
    5,074
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,074
    
    
    
    9,351
    
    
    
    4,409
    
    
    
    
    
    
    
    
    
    
    
    18,834Cost to provide enrollment services
    
    
    
    
    
    
    
    
    
    
    30,158
    
    
    
    
    
    
    
    30,158
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,158Other expenses
    
    
    16,498
    
    
    
    4,611
    
    
    
    5,289
    
    
    
    1,333
    
    
    
    27,731
    
    
    
    10,439
    
    
    
    28,786
    
    
    
    298
    
    
    
    13,121
    
    
    
    80,375Intersegment expenses
    
    
    23,100
    
    
    
    757
    
    
    
    3,427
    
    
    
    736
    
    
    
    28,020
    
    
    
    39,554
    
    
    
    2,187
    
    
    
    (69,761
    )
    
    
    
    
    
    
    Total operating expenses
    
    
    71,908
    
    
    
    16,582
    
    
    
    52,052
    
    
    
    12,449
    
    
    
    152,991
    
    
    
    65,366
    
    
    
    66,530
    
    
    
    (73,295
    )
    
    
    15,167
    
    
    
    226,759Income (loss) before income taxes
    
    
    18,447
    
    
    
    8,794
    
    
    
    1,283
    
    
    
    2,495
    
    
    
    31,019
    
    
    
    5,943
    
    
    
    (49,780
    )
    
    
    
    
    
    
    (26,459
    )
    
    
    (39,277
    )Income tax (expense) benefit (a)
    
    
    5,719
    
    
    
    2,727
    
    
    
    397
    
    
    
    774
    
    
    
    9,617
    
    
    
    1,842
    
    
    
    (15,433
    )
    
    
    
    
    
    
    (8,202
    )
    
    
    (12,176
    )Net income (loss) from
continuing operations
    
    
    12,728
    
    
    
    6,067
    
    
    
    886
    
    
    
    1,721
    
    
    
    21,402
    
    
    
    4,101
    
    
    
    (34,347
    )
    
    
    
    
    
    
    (18,257
    )
    
    
    (27,101
    )Income from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    981
    
    
    
    981Net income (loss)
    
    $
    12,728
    
    
    
    6,067
    
    
    
    886
    
    
    
    1,721
    
    
    
    21,402
    
    
    
    4,101
    
    
    
    (34,347
    )
    
    
    
    
    
    
    (17,276
    )
    
    
    (26,120
    )
 (a)
    
    Income taxes are applied
based on the consolidated effective tax rate to income (loss) before income taxes.  42




---



##### Table of Contents



Non-GAAP Performance Measures
   Limitations of Base Net Income
    43




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##### Table of Contents



Student
    
    
    TuitionLoan
    
    
    Payment
    
    
    
    
    
    
    Software
    
    
    Asset
    
    
    Corporateand
    
    
    Processing
    
    
    
    
    
    
    and
    
    
    Generation
    
    
    ActivityGuaranty
    
    
    and Campus
    
    
    Enrollment
    
    
    Technical
    
    
    and
    
    
    andServicing
    
    
    Commerce
    
    
    Services
    
    
    Services
    
    
    Management
    
    
    Overhead
    
    
    TotalThree months ended June 30, 2009Derivative market value, foreign currency, and
put option adjustments
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,445
    
    
    
    (1,432
    )
    
    
    34,013Amortization of intangible assets
    
    
    1,079
    
    
    
    1,869
    
    
    
    2,701
    
    
    
    136
    
    
    
    
    
    
    
    
    
    
    
    5,785Compensation related to business combinations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Variable-rate floor income, net of settlements on
derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,042
    )
    
    
    
    
    
    
    (6,042
    )Income from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net tax effect (a)
    
    
    (410
    )
    
    
    (710
    )
    
    
    (1,027
    )
    
    
    (52
    )
    
    
    (11,173
    )
    
    
    (775
    )
    
    
    (14,147
    )Total adjustments to GAAP
    
    $
    669
    
    
    
    1,159
    
    
    
    1,674
    
    
    
    84
    
    
    
    18,230
    
    
    
    (2,207
    )
    
    
    19,609Three months ended June 30, 2008Derivative market value, foreign currency, and
put option adjustments
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,866
    )
    
    
    111
    
    
    
    (15,755
    )Amortization of intangible assets
    
    
    1,165
    
    
    
    1,997
    
    
    
    3,113
    
    
    
    286
    
    
    
    
    
    
    
    
    
    
    
    6,561Compensation related to business combinations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    750
    
    
    
    750Variable-rate floor income, net of settlements on
derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,726
    )
    
    
    
    
    
    
    (14,726
    )Income from discontinued operations, net of tax
    
    
    (981
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (981
    )Net tax effect (a)
    
    
    (361
    )
    
    
    (619
    )
    
    
    (965
    )
    
    
    (89
    )
    
    
    9,484
    
    
    
    (267
    )
    
    
    7,183Total adjustments to GAAP
    
    $
    (177
    )
    
    
    1,378
    
    
    
    2,148
    
    
    
    197
    
    
    
    (21,108
    )
    
    
    594
    
    
    
    (16,968
    )Six months ended June 30, 2009Derivative market value, foreign currency, and
put option adjustments
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,325
    
    
    
    (1,432
    )
    
    
    38,893Amortization of intangible assets
    
    
    2,158
    
    
    
    3,756
    
    
    
    5,743
    
    
    
    282
    
    
    
    
    
    
    
    
    
    
    
    11,939Compensation related to business combinations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159
    
    
    
    159Variable-rate floor income, net of settlements on
derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,502
    )
    
    
    
    
    
    
    (7,502
    )Income (loss) from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net tax effect (a)
    
    
    (842
    )
    
    
    (1,465
    )
    
    
    (2,240
    )
    
    
    (110
    )
    
    
    (12,800
    )
    
    
    496
    
    
    
    (16,961
    )Total adjustments to GAAP
    
    $
    1,316
    
    
    
    2,291
    
    
    
    3,503
    
    
    
    172
    
    
    
    20,023
    
    
    
    (777
    )
    
    
    26,528Six months ended June 30, 2008Derivative market value, foreign currency, and
put option adjustments
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,534
    
    
    
    538
    
    
    
    42,072Amortization of intangible assets
    
    
    2,421
    
    
    
    4,048
    
    
    
    5,935
    
    
    
    572
    
    
    
    145
    
    
    
    
    
    
    
    13,121Compensation related to business combinations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,046
    
    
    
    2,046Variable-rate floor income, net of settlements on
derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,780
    )
    
    
    
    
    
    
    (30,780
    )Loss from discontinued operations, net of tax
    
    
    (981
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (981
    )Net tax effect (a)
    
    
    (750
    )
    
    
    (1,255
    )
    
    
    (1,840
    )
    
    
    (178
    )
    
    
    (3,378
    )
    
    
    (801
    )
    
    
    (8,202
    )Total adjustments to GAAP
    
    $
    690
    
    
    
    2,793
    
    
    
    4,095
    
    
    
    394
    
    
    
    7,521
    
    
    
    1,783
    
    
    
    17,276
 (a)
    
    For 2009, income taxes are applied based on 38% of income (loss) before income taxes for the
individual operating segments. For 2008, income taxes for each individual operating segment
are applied based on the consolidated effective tax rate. Differences between GAAP and Base Net Income
   44




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##### Table of Contents



Derivative market value, foreign currency, and put option adjustments:  Accounting for Derivative Instruments and Hedging Activities
    Amortization of intangible assets:
 Compensation related to business combinations:
  45




---



##### Table of Contents



Variable-rate floor income, net of settlements on derivatives :
   STUDENT LOAN AND GUARANTY SERVICING OPERATING SEGMENT  RESULTS OF OPERATIONS
     46




---



##### Table of Contents



Student Loan Servicing Volumes (dollars in millions)
 
 (a)
    
    As of June 30, 2009, the Company is servicing $1.7 billion of loans owned by the Company
and $1.3 billion of loans for third parties that were disbursed on or after May 1, 2008 and
may be eligible to be sold to the Department of Education pursuant to its Loan Purchase
Commitment Program. The Company expects to retain servicing rights on all loans sold to the
Department after September 1, 2009, which are currently being serviced by the Company.
However, the Company expects to lose servicing rights on loans sold to the Department prior to
September 1, 2009.(b)
    
    Includes loans that are accounted for as participation interests sold under an agreement with
Union Bank.  47




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##### Table of Contents



Three and six months ended June 30, 2009 compared to the three and six months ended June 30, 2008
 Three months ended June 30,
    
    
    Six months ended June 30,Change
    
    
    
    
    
    
    
    
    
    
    Change2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %Net interest income
    
    $
    13
    
    
    
    243
    
    
    
    (230
    )
    
    
    (94.7
    )%
    
    $
    79
    
    
    
    856
    
    
    
    (777
    )
    
    
    (90.8
    )%Loan and guaranty servicing revenue
    
    
    29,184
    
    
    
    23,664
    
    
    
    5,520
    
    
    
    23.3
    
    
    
    56,037
    
    
    
    48,320
    
    
    
    7,717
    
    
    
    16.0Software services revenue
    
    
    925
    
    
    
    1,083
    
    
    
    (158
    )
    
    
    (14.6
    )
    
    
    1,800
    
    
    
    2,535
    
    
    
    (735
    )
    
    
    (29.0
    )Other income
    
    
    249
    
    
    
    6
    
    
    
    243
    
    
    
    4,050.0
    
    
    
    361
    
    
    
    38
    
    
    
    323
    
    
    
    850.0Intersegment revenue
    
    
    20,888
    
    
    
    18,382
    
    
    
    2,506
    
    
    
    13.6
    
    
    
    40,766
    
    
    
    38,606
    
    
    
    2,160
    
    
    
    5.6Total other income
    
    
    51,246
    
    
    
    43,135
    
    
    
    8,111
    
    
    
    18.8
    
    
    
    98,964
    
    
    
    89,499
    
    
    
    9,465
    
    
    
    10.6Salaries and benefits
    
    
    13,355
    
    
    
    12,491
    
    
    
    864
    
    
    
    6.9
    
    
    
    28,059
    
    
    
    26,489
    
    
    
    1,570
    
    
    
    5.9Restructure expense
    
    
    2,513
    
    
    
    (104
    )
    
    
    2,617
    
    
    
    (2,516.3
    )
    
    
    2,513
    
    
    
    747
    
    
    
    1,766
    
    
    
    236.4Impairment expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,074
    
    
    
    (5,074
    )
    
    
    Other expenses
    
    
    11,140
    
    
    
    8,011
    
    
    
    3,129
    
    
    
    39.1
    
    
    
    19,737
    
    
    
    16,498
    
    
    
    3,239
    
    
    
    19.6Intersegment expenses
    
    
    9,484
    
    
    
    9,822
    
    
    
    (338
    )
    
    
    (3.4
    )
    
    
    18,954
    
    
    
    23,100
    
    
    
    (4,146
    )
    
    
    (17.9
    )Total operating expenses
    
    
    36,492
    
    
    
    30,220
    
    
    
    6,272
    
    
    
    20.8
    
    
    
    69,263
    
    
    
    71,908
    
    
    
    (2,645
    )
    
    
    (3.7
    )Base net income before income taxes
    
    
    14,767
    
    
    
    13,158
    
    
    
    1,609
    
    
    
    12.2
    
    
    
    29,780
    
    
    
    18,447
    
    
    
    11,333
    
    
    
    61.4Income tax expense
    
    
    (5,612
    )
    
    
    (4,079
    )
    
    
    (1,533
    )
    
    
    37.6
    
    
    
    (11,317
    )
    
    
    (5,719
    )
    
    
    (5,598
    )
    
    
    97.9Base net income
    
    $
    9,155
    
    
    
    9,079
    
    
    
    76
    
    
    
    0.8
    %
    
    $
    18,463
    
    
    
    12,728
    
    
    
    5,735
    
    
    
    45.1
    %Before Tax Operating Margin
    
    
    28.8
    %
    
    
    30.3
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30.1
    %
    
    
    20.4
    %Before Tax Operating Margin -
excluding net interest income,
restructure expense,
impairment expense, and the revenue and
expenses
associated with rehabiliation loan sales
    
    
    30.4
    %
    
    
    30.1
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31.0
    %
    
    
    25.7
    %
 Net interest income .
 Loan and guaranty servicing revenue and intersegment revenue
 Three months ended June 30,2009
    
    
    2008Origination
    
    
    Servicing
    
    
    Total
    
    
    Origination
    
    
    Servicing
    
    
    Totalrevenue
    
    
    revenue
    
    
    revenue
    
    
    revenue
    
    
    revenue
    
    
    revenueFFELP servicing (a)
    
    $
    458
    
    
    
    13,852
    
    
    
    14,310
    
    
    
    963
    
    
    
    11,571
    
    
    
    12,534Private servicing
    
    
    44
    
    
    
    1,951
    
    
    
    1,995
    
    
    
    41
    
    
    
    1,831
    
    
    
    1,872Guaranty servicing (b)
    
    
    37
    
    
    
    12,842
    
    
    
    12,879
    
    
    
    46
    
    
    
    9,212
    
    
    
    9,258Loan and guaranty servicing revenue
    
    
    539
    
    
    
    28,645
    
    
    
    29,184
    
    
    
    1,050
    
    
    
    22,614
    
    
    
    23,664Intersegment revenue (c)
    
    
    1,466
    
    
    
    19,422
    
    
    
    20,888
    
    
    
    666
    
    
    
    17,716
    
    
    
    18,382Total servicing revenue
    
    $
    2,005
    
    
    
    48,067
    
    
    
    50,072
    
    
    
    1,716
    
    
    
    40,330
    
    
    
    42,046
 (a)
    
    FFELP origination revenue decreased in 2009 compared to 2008 due to lenders exiting the FFELP
marketplace as a result of legislative changes and disruptions in the capital markets.
 FFELP servicing revenue increased due to the receipt of $1.9 million in
deconversion fees from third parties in the second quarter of 2009 related to
$155.5 million of loans deconverted as part of the Departments Loan Purchase
Commitment Program.(b)
    
    Guaranty servicing revenue increased due to the receipt of $5.8 million
in fees received from a rehabilitation sale of defaulted loan assets in the
second quarter of 2009. In the second quarter of 2008, revenue from
rehabilitation sales of defaulted loans was $2.8 million.(c)
    
    Intersegment origination revenue increased in 2009 due to an increase
in the Companys disbursement volume compared to 2008. Intersegment servicing
revenue increased due to the receipt of $1.8 million in fees in the second
quarter of 2009 earned as a result of transferring loans between various
Company financings as the Company was executing various liquidity strategies.  48




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##### Table of Contents



Six months ended June 30,2009
    
    
    2008Origination
    
    
    Servicing
    
    
    Total
    
    
    Origination
    
    
    Servicing
    
    
    Totalrevenue
    
    
    revenue
    
    
    revenue
    
    
    revenue
    
    
    revenue
    
    
    revenueFFELP servicing (a)
    
    $
    775
    
    
    
    29,321
    
    
    
    30,096
    
    
    
    1,555
    
    
    
    23,258
    
    
    
    24,813Private servicing
    
    
    104
    
    
    
    3,763
    
    
    
    3,867
    
    
    
    181
    
    
    
    3,962
    
    
    
    4,143Guaranty servicing (b)
    
    
    214
    
    
    
    21,860
    
    
    
    22,074
    
    
    
    269
    
    
    
    19,095
    
    
    
    19,364Loan and guaranty
servicing revenue
    
    
    1,093
    
    
    
    54,944
    
    
    
    56,037
    
    
    
    2,005
    
    
    
    46,315
    
    
    
    48,320Intersegment revenue (c)
    
    
    4,167
    
    
    
    36,599
    
    
    
    40,766
    
    
    
    2,176
    
    
    
    36,430
    
    
    
    38,606Total servicing revenue
    
    $
    5,260
    
    
    
    91,543
    
    
    
    96,803
    
    
    
    4,181
    
    
    
    82,745
    
    
    
    86,926
 (a)
    
    FFELP origination revenue decreased in 2009 compared to 2008 due to lenders exiting the
FFELP marketplace as a result of legislative changes and disruptions in the capital markets.
FFELP servicing revenue increased due to an increase in servicing volume and  the receipt of $2.1 million in deconversion fees from third
parties in 2009 related to $167.5 million of loans deconverted as part of the Departments
Loan Purchase Commitment Program.(b)
    
    Guaranty servicing revenue increased due to an increase in collection revenue, as well as the receipt of $6.2 million in fees received from
rehabilitation sales of defaulted loan assets in 2009. In 2008, the revenue from
rehabilitation sales of defaulted loans was $5.6 million.(c)
    
    Intersegment origination revenue increased in 2009 due to an increase in the Companys
disbursement volume compared to 2008. Operating expenses
  49




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##### Table of Contents



TUITION PAYMENT PROCESSING AND CAMPUS COMMERCE OPERATING SEGMENT  RESULTS OF OPERATIONS
  electronic commerce
 Three and six months ended June 30, 2009 compared to the three and six months ended June 30, 2008
 Three months ended June 30,
    
    
    Six months ended June 30,Change
    
    
    
    
    
    
    
    
    
    
    Change2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %Net interest income
    
    $
    11
    
    
    
    310
    
    
    
    (299
    )
    
    
    (96.5
    )%
    
    $
    41
    
    
    
    1,075
    
    
    
    (1,034
    )
    
    
    (96.2
    )%Tuition payment processing and campus commerce revenue
    
    
    11,848
    
    
    
    10,270
    
    
    
    1,578
    
    
    
    15.4
    
    
    
    27,386
    
    
    
    24,117
    
    
    
    3,269
    
    
    
    13.6Intersegment revenue
    
    
    53
    
    
    
    (76
    )
    
    
    129
    
    
    
    (169.7
    )
    
    
    110
    
    
    
    184
    
    
    
    (74
    )
    
    
    (40.2
    )Total other income
    
    
    11,901
    
    
    
    10,194
    
    
    
    1,707
    
    
    
    16.7
    
    
    
    27,496
    
    
    
    24,301
    
    
    
    3,195
    
    
    
    13.1Salaries and benefits
    
    
    6,402
    
    
    
    5,784
    
    
    
    618
    
    
    
    10.7
    
    
    
    12,947
    
    
    
    11,214
    
    
    
    1,733
    
    
    
    15.5Other expenses
    
    
    2,339
    
    
    
    2,551
    
    
    
    (212
    )
    
    
    (8.3
    )
    
    
    4,747
    
    
    
    4,611
    
    
    
    136
    
    
    
    2.9Intersegment expenses
    
    
    669
    
    
    
    461
    
    
    
    208
    
    
    
    45.1
    
    
    
    1,292
    
    
    
    757
    
    
    
    535
    
    
    
    70.7Total operating expenses
    
    
    9,410
    
    
    
    8,796
    
    
    
    614
    
    
    
    7.0
    
    
    
    18,986
    
    
    
    16,582
    
    
    
    2,404
    
    
    
    14.5Base net income before income taxes
    
    
    2,502
    
    
    
    1,708
    
    
    
    794
    
    
    
    46.5
    
    
    
    8,551
    
    
    
    8,794
    
    
    
    (243
    )
    
    
    (2.8
    )Income tax expense
    
    
    (951
    )
    
    
    (530
    )
    
    
    (421
    )
    
    
    79.4
    
    
    
    (3,249
    )
    
    
    (2,727
    )
    
    
    (522
    )
    
    
    19.1Base net income
    
    $
    1,551
    
    
    
    1,178
    
    
    
    373
    
    
    
    31.7
    %
    
    $
    5,302
    
    
    
    6,067
    
    
    
    (765
    )
    
    
    (12.6
    )%Before Tax Operating Margin
    
    
    21.0
    %
    
    
    16.3
    %
    
    
    
    
    
    
    
    
    
    
    31.1
    %
    
    
    34.7
    %Before Tax Operating Margin, excluding net interest
income
    
    
    20.9
    %
    
    
    13.7
    %
    
    
    
    
    
    
    
    
    
    
    30.9
    %
    
    
    31.8
    %
 Net interest income .
 Tuition payment processing and campus commerce revenue
 Operating expenses .
 Before tax operating margin, excluding net interest income .
  50




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##### Table of Contents



ENROLLMENT SERVICES OPERATING SEGMENT  RESULTS OF OPERATIONS
  Three and six months ended June 30, 2009 compared to the three and six months ended June 30, 2008
 Three months ended June 30,
    
    
    Six months ended June 30,Change
    
    
    
    
    
    
    
    
    
    
    Change2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %Net interest income
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    %
    
    $
    
    
    
    
    8
    
    
    
    (8
    )
    
    
    (100.0
    )%Enrollment services revenue
    
    
    28,747
    
    
    
    26,068
    
    
    
    2,679
    
    
    
    10.3
    
    
    
    57,518
    
    
    
    53,290
    
    
    
    4,228
    
    
    
    7.9Software services revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    (37
    )
    
    
    (100.0
    )Intersegment revenue
    
    
    277
    
    
    
    
    
    
    
    277
    
    
    
    
    
    
    
    277
    
    
    
    
    
    
    
    277
    
    
    
    Total other income
    
    
    29,024
    
    
    
    26,068
    
    
    
    2,956
    
    
    
    11.3
    
    
    
    57,795
    
    
    
    53,327
    
    
    
    4,468
    
    
    
    8.4Salaries and benefits
    
    
    5,863
    
    
    
    6,373
    
    
    
    (510
    )
    
    
    (8.0
    )
    
    
    11,958
    
    
    
    12,896
    
    
    
    (938
    )
    
    
    (7.3
    )Restructure expense  severance and contract
termination costs
    
    
    
    
    
    
    (15
    )
    
    
    15
    
    
    
    (100.0
    )
    
    
    
    
    
    
    282
    
    
    
    (282
    )
    
    
    (100.0
    )Cost to provide enrollment services
    
    
    18,092
    
    
    
    14,755
    
    
    
    3,337
    
    
    
    22.6
    
    
    
    35,885
    
    
    
    30,158
    
    
    
    5,727
    
    
    
    19.0Other expenses
    
    
    3,041
    
    
    
    2,529
    
    
    
    512
    
    
    
    20.2
    
    
    
    6,336
    
    
    
    5,289
    
    
    
    1,047
    
    
    
    19.8Intersegment expenses
    
    
    508
    
    
    
    1,580
    
    
    
    (1,072
    )
    
    
    (67.8
    )
    
    
    1,054
    
    
    
    3,427
    
    
    
    (2,373
    )
    
    
    (69.2
    )Total operating expenses
    
    
    27,504
    
    
    
    25,222
    
    
    
    2,282
    
    
    
    9.0
    
    
    
    55,233
    
    
    
    52,052
    
    
    
    3,181
    
    
    
    6.1Base net income before income
taxes
    
    
    1,520
    
    
    
    846
    
    
    
    674
    
    
    
    79.7
    
    
    
    2,562
    
    
    
    1,283
    
    
    
    1,279
    
    
    
    99.7Income tax expense
    
    
    (577
    )
    
    
    (262
    )
    
    
    (315
    )
    
    
    120.2
    
    
    
    (973
    )
    
    
    (397
    )
    
    
    (576
    )
    
    
    145.1Base net income
    
    $
    943
    
    
    
    584
    
    
    
    359
    
    
    
    61.5
    %
    
    $
    1,589
    
    
    
    886
    
    
    
    703
    
    
    
    79.3
    %Before Tax Operating Margin
    
    
    5.2
    %
    
    
    3.2
    %
    
    
    
    
    
    
    
    
    
    
    4.4
    %
    
    
    2.4
    %Before Tax Operating Margin -
excluding net interest income and
restructure expense
    
    
    5.2
    %
    
    
    3.2
    %
    
    
    
    
    
    
    
    
    
    
    4.4
    %
    
    
    2.9
    %
  51




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##### Table of Contents



Enrollment services revenue, cost to provide enrollment services, and gross profit.
 Three months ended June 30, 2009Publishing
    
    
    
    
    
    
    Contentand
    
    
    
    
    
    
    managementLead
    
    
    editing
    
    
    
    
    
    
    and recruitmentgeneration (a)
    
    
    services (b)
    
    
    Subtotal
    
    
    services (c)
    
    
    TotalEnrollment services revenue
    
    $
    21,709
    
    
    
    2,072
    
    
    
    23,781
    
    
    
    4,966
    
    
    
    28,747Cost to provide enrollment
services
    
    
    17,071
    
    
    
    1,021
    
    
    
    18,092Gross profit
    
    $
    4,638
    
    
    
    1,051
    
    
    
    5,689Gross profit %
    
    
    21.4
    %
    
    
    50.7
    %
    
    
    23.9
    %
 Three months ended June 30, 2008Publishing
    
    
    
    
    
    
    Contentand
    
    
    
    
    
    
    managementLead
    
    
    editing
    
    
    
    
    
    
    and recruitmentgeneration (a)
    
    
    services (b)
    
    
    Subtotal
    
    
    services (c)
    
    
    TotalEnrollment services revenue
    
    $
    16,972
    
    
    
    2,724
    
    
    
    19,696
    
    
    
    6,372
    
    
    
    26,068Cost to provide enrollment
services
    
    
    13,613
    
    
    
    1,142
    
    
    
    14,755Gross profit
    
    $
    3,358
    
    
    
    1,582
    
    
    
    4,940Gross profit %
    
    
    19.8
    %
    
    
    58.1
    %
    
    
    25.1
    %
 Six months ended June 30, 2009Publishing
    
    
    
    
    
    
    Contentand
    
    
    
    
    
    
    managementLead
    
    
    editing
    
    
    
    
    
    
    and recruitmentgeneration (a)
    
    
    services (b)
    
    
    Subtotal
    
    
    services (c)
    
    
    TotalEnrollment services revenue
    
    $
    42,779
    
    
    
    4,952
    
    
    
    47,731
    
    
    
    9,787
    
    
    
    57,518Cost to provide enrollment
services
    
    
    33,650
    
    
    
    2,235
    
    
    
    35,885Gross profit
    
    $
    9,129
    
    
    
    2,717
    
    
    
    11,846Gross profit %
    
    
    21.3
    %
    
    
    54.9
    %
    
    
    24.8
    %
 Six months ended June 30, 2008Publishing
    
    
    
    
    
    
    Contentand
    
    
    
    
    
    
    managementLead
    
    
    editing
    
    
    
    
    
    
    and recruitmentgeneration (a)
    
    
    services (b)
    
    
    Subtotal
    
    
    services (c)
    
    
    TotalEnrollment services revenue
    
    $
    34,406
    
    
    
    6,273
    
    
    
    40,679
    
    
    
    12,611
    
    
    
    53,290Cost to provide enrollment
services
    
    
    27,474
    
    
    
    2,684
    
    
    
    30,158Gross profit
    
    $
    6,931
    
    
    
    3,589
    
    
    
    10,520Gross profit %
    
    
    20.1
    %
    
    
    57.2
    %
    
    
    25.9
    %
 (a)
    
    Lead generation revenue increased $4.7 million (27.9%) and $8.4 million (24.3%) for the three
and six months ended June 30, 2009 compared to the same periods in 2008, respectively, as a
result of an increase in lead generation services volume. The gross profit for lead
generation services increased due to the Companys focus on eliminating lower margin sales and
creating cost efficiencies.(b)
    
    Publishing and editing services revenue decreased $0.7 million (23.9%) and $1.3 million
(21.0%) for the three and six months ended June 30, 2009 compared to the same periods in 2008,
respectively, due to competition related to online delivery of similar products, as well as a
general downturn in economic conditions. The gross profit for publishing and editing services
decreased as a result of a shift in the mix of products sold.(c)
    
    Content management and recruitment services revenue decreased $1.4 million (22.0%) and $2.8
million (22.3%) for the three and six months ended June 30, 2009 compared to the same periods
in 2008, respectively. These decreases were the result of decreases of $1.2 million and $2.0
million for the three and six months ended June 30, 2009 compared to the same periods in 2008,
respectively, associated with the Companys pay per click marketing management, email
marketing, and admissions consulting services as a result of a change in the delivery of such products and a decrease of $0.8 million associated with the Companys list
marketing services for the six months ended June 30, 2009 compared to the same period in 2008
as a result of legislative developments in the student loan industry.  52




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Operating expenses.
 SOFTWARE AND TECHNICAL SERVICES OPERATING SEGMENT  RESULTS OF OPERATIONS
   Three and six months ended June 30, 2009 compared to the three and six months ended June 30, 2008
 Three months ended June 30,
    
    
    Six months ended June 30,Change
    
    
    
    
    
    
    
    
    
    
    Change2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %Software services revenue
    
    $
    5,194
    
    
    
    4,896
    
    
    
    298
    
    
    
    6.1
    %
    
    $
    10,024
    
    
    
    11,611
    
    
    
    (1,587
    )
    
    
    (13.7
    )%Intersegment revenue
    
    
    3,896
    
    
    
    1,517
    
    
    
    2,379
    
    
    
    156.8
    
    
    
    7,020
    
    
    
    3,333
    
    
    
    3,687
    
    
    
    110.6Total other income
    
    
    9,090
    
    
    
    6,413
    
    
    
    2,677
    
    
    
    41.7
    
    
    
    17,044
    
    
    
    14,944
    
    
    
    2,100
    
    
    
    14.1Salaries and benefits
    
    
    5,715
    
    
    
    4,702
    
    
    
    1,013
    
    
    
    21.5
    
    
    
    10,900
    
    
    
    9,870
    
    
    
    1,030
    
    
    
    10.4Restructure expense  severance and contract
termination costs
    
    
    422
    
    
    
    (8
    )
    
    
    430
    
    
    
    (5,375.0
    )
    
    
    422
    
    
    
    510
    
    
    
    (88
    )
    
    
    (17.3
    )Other expenses
    
    
    838
    
    
    
    714
    
    
    
    124
    
    
    
    17.4
    
    
    
    1,516
    
    
    
    1,333
    
    
    
    183
    
    
    
    13.7Intersegment expenses
    
    
    764
    
    
    
    342
    
    
    
    422
    
    
    
    123.4
    
    
    
    1,409
    
    
    
    736
    
    
    
    673
    
    
    
    91.4Total operating expenses
    
    
    7,739
    
    
    
    5,750
    
    
    
    1,989
    
    
    
    34.6
    
    
    
    14,247
    
    
    
    12,449
    
    
    
    1,798
    
    
    
    14.4Base net income before
income taxes
    
    
    1,351
    
    
    
    663
    
    
    
    688
    
    
    
    103.8
    
    
    
    2,797
    
    
    
    2,495
    
    
    
    302
    
    
    
    12.1Income tax expense
    
    
    (514
    )
    
    
    (206
    )
    
    
    (308
    )
    
    
    149.5
    
    
    
    (1,064
    )
    
    
    (774
    )
    
    
    (290
    )
    
    
    37.5Base net income
    
    $
    837
    
    
    
    457
    
    
    
    380
    
    
    
    83.2
    %
    
    $
    1,733
    
    
    
    1,721
    
    
    
    12
    
    
    
    0.7
    %Before Tax Operating Margin
    
    
    14.9
    %
    
    
    10.3
    %
    
    
    
    
    
    
    
    
    
    
    16.4
    %
    
    
    16.7
    %Before Tax Operating Margin -
excluding restructure expense
    
    
    19.5
    %
    
    
    10.2
    %
    
    
    
    
    
    
    
    
    
    
    18.9
    %
    
    
    20.1
    %
 Software services revenue .
 Intersegment revenue .
 Operating expenses .
  53




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##### Table of Contents



ASSET GENERATION AND MANAGEMENT OPERATING SEGMENT  RESULTS OF OPERATIONS
   Student Loan Portfolio
  As of June 30, 2009Originated
    
    
    Originated
    
    
    Originated on orprior to
    
    
    between 10/1/07
    
    
    after 6/4/08 -Total
    
    
    10/1/07
    
    
    and 6/3/08 (a)
    
    
    held for sale (b)Federally insured:Stafford
    
    $
    8,383,144
    
    
    
    32.7
    %
    
    $
    6,340,889
    
    
    
    467,338
    
    
    
    1,574,917PLUS/SLS
    
    
    589,223
    
    
    
    2.3
    %
    
    
    384,180
    
    
    
    48,920
    
    
    
    156,123Consolidation
    
    
    16,126,450
    
    
    
    62.9
    %
    
    
    15,969,110
    
    
    
    157,340
    
    
    
    Total federally insured
    
    
    25,098,817
    
    
    
    97.9
    %
    
    $
    22,694,179
    
    
    
    673,598
    
    
    
    1,731,040100.0
    %
    
    
    
    
    
    
    90.4
    %
    
    
    2.7
    %
    
    
    6.9
    %Non-federally insured
    
    
    200,722
    
    
    
    0.8
    %Total student loans receivable (gross)
    
    
    25,299,539
    
    
    
    98.7
    %Unamortized premiums and deferred
origination costs  held for investment
    
    
    371,072
    
    
    
    1.4
    %Unamortized premiums and deferred
origination costs  held for sale
    
    
    18,250
    
    
    
    0.1
    %Allowance for loan losses:Federally insured
    
    
    (28,093
    )
    
    
    (0.1
    %)Non-federally insured
    
    
    (21,907
    )
    
    
    (0.1
    %)Total student loans receivable (net)
    
    $
    25,638,861
    
    
    
    100.0
    %
  54




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##### Table of Contents



As of December 31, 2008Originated
    
    
    Originated
    
    
    Originatedprior to
    
    
    between 10/1/07
    
    
    on or afterTotal
    
    
    10/1/07
    
    
    and 6/3/08 (a)
    
    
    6/4/08 (b)Federally insured:Stafford
    
    $
    7,602,568
    
    
    
    29.9
    %
    
    $
    6,641,817
    
    
    
    390,658
    
    
    
    570,093PLUS/SLS
    
    
    527,670
    
    
    
    2.1
    %
    
    
    412,142
    
    
    
    48,346
    
    
    
    67,182Consolidation
    
    
    16,657,703
    
    
    
    65.5
    %
    
    
    16,614,950
    
    
    
    42,753
    
    
    
    Total federally insured
    
    
    24,787,941
    
    
    
    97.5
    %
    
    $
    23,668,909
    
    
    
    481,757
    
    
    
    637,275100.0
    %
    
    
    
    
    
    
    95.5
    %
    
    
    1.9
    %
    
    
    2.6
    %Non-federally insured
    
    
    273,108
    
    
    
    1.1
    %Total student loans receivable (gross)
    
    
    25,061,049
    
    
    
    98.6
    %Unamortized premiums and deferred
origination costs
    
    
    402,881
    
    
    
    1.6
    %Allowance for loan losses:Federally insured
    
    
    (25,577
    )
    
    
    (0.1
    %)Non-federally insured
    
    
    (25,345
    )
    
    
    (0.1
    %)Total student loans receivable (net)
    
    $
    25,413,008
    
    
    
    100.0
    %
 (a)
    
    Federally insured student loans originated on or after October 1, 2007 earn a reduced annual
yield as a result of the enactment of the College Cost Reduction Act in September 2007.(b)
    
    Federally insured student loans originated by the Company on or after June 4, 2008 are
eligible to be participated and sold to the Department under the Departments Participation
and Purchase Programs. As of June 30, 2009, these loans are classified as held for sale as
they are expected to be sold to the Department under the Departments Purchase Program. Origination and Acquisition
    55




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##### Table of Contents



Three months ended June 30,
    
    
    Six months ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Beginning balance
    
    $
    25,274,173
    
    
    
    26,347,354
    
    
    
    25,061,049
    
    
    
    26,329,213Direct channel:Consolidation loan originations
    
    
    
    
    
    
    3,284
    
    
    
    
    
    
    
    69,029Less consolidation of existing portfolio
    
    
    
    
    
    
    (988
    )
    
    
    
    
    
    
    (28,447
    )Net consolidation loan originations
    
    
    
    
    
    
    2,296
    
    
    
    
    
    
    
    40,582Stafford/PLUS loan originations
    
    
    256,844
    
    
    
    114,228
    
    
    
    798,436
    
    
    
    535,329Branding partner channel
    
    
    183,258
    
    
    
    127,929
    
    
    
    595,571
    
    
    
    601,307Forward flow channel
    
    
    51,044
    
    
    
    84,216
    
    
    
    51,044
    
    
    
    403,060Other channels
    
    
    6,565
    
    
    
    
    
    
    
    20,370
    
    
    
    55,922Total channel acquisitions
    
    
    497,711
    
    
    
    328,669
    
    
    
    1,465,421
    
    
    
    1,636,200Repayments, claims, capitalized interest, participations, and other
    
    
    (385,041
    )
    
    
    (585,443
    )
    
    
    (1,013,968
    )
    
    
    (885,243
    )Consolidation loans lost to external parties
    
    
    (67,071
    )
    
    
    (46,849
    )
    
    
    (172,589
    )
    
    
    (176,267
    )Loans sold
    
    
    (20,233
    )
    
    
    (431,605
    )
    
    
    (40,374
    )
    
    
    (1,291,777
    )Ending balance
    
    $
    25,299,539
    
    
    
    25,612,126
    
    
    
    25,299,539
    
    
    
    25,612,126
       56




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##### Table of Contents



Activity in the Allowance for Loan Losses
  Three months ended June 30,
    
    
    Six months ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Balance at beginning of period
    
    $
    48,497
    
    
    
    46,137
    
    
    
    50,922
    
    
    
    45,592Provision for loan losses:Federally insured loans
    
    
    5,000
    
    
    
    4,000
    
    
    
    10,500
    
    
    
    7,500Non-federally insured loans
    
    
    3,000
    
    
    
    2,000
    
    
    
    5,000
    
    
    
    3,500Total provision for loan losses
    
    
    8,000
    
    
    
    6,000
    
    
    
    15,500
    
    
    
    11,000Charge-offs, net of recoveries:Federally insured loans
    
    
    (4,216
    )
    
    
    (3,878
    )
    
    
    (7,463
    )
    
    
    (7,200
    )Non-federally insured loans
    
    
    (981
    )
    
    
    (350
    )
    
    
    (1,639
    )
    
    
    (733
    )Net charge-offs
    
    
    (5,197
    )
    
    
    (4,228
    )
    
    
    (9,102
    )
    
    
    (7,933
    )Sale of federally insured loans
    
    
    
    
    
    
    
    
    
    
    (520
    )
    
    
    (750
    )Sale of non-federally insured loans
    
    
    (1,300
    )
    
    
    
    
    
    
    (6,800
    )
    
    
    Balance at end of period
    
    $
    50,000
    
    
    
    47,909
    
    
    
    50,000
    
    
    
    47,909Allocation of the allowance for loan losses:Federally insured loans
    
    $
    28,093
    
    
    
    24,084
    
    
    
    28,093
    
    
    
    24,084Non-federally insured loans
    
    
    21,907
    
    
    
    23,825
    
    
    
    21,907
    
    
    
    23,825Total allowance for loan losses
    
    $
    50,000
    
    
    
    47,909
    
    
    
    50,000
    
    
    
    47,909Net loan charge-offs as a percentage of average student loans
    
    
    0.083
    %
    
    
    0.066
    %
    
    
    0.072
    %
    
    
    0.060
    %Total allowance as a percentage of average student loans
    
    
    0.199
    %
    
    
    0.186
    %
    
    
    0.198
    %
    
    
    0.182
    %Total
allowance as a percentage of the ending balance of student loans (excluding loans held-for-sale)
    
    
    0.212
    %
    
    
    0.187
    %
    
    
    0.198
    %
    
    
    0.187
    %Allowance for non-federally insured loans as a percentage such loans
    
    
    10.914
    %
    
    
    8.510
    %
    
    
    10.914
    %
    
    
    8.510
    %Average student loans
    
    $
    25,123,382
    
    
    
    25,767,123
    
    
    
    25,194,642
    
    
    
    26,313,226Ending balance of student loans (excluding loans held-for-sale)
    
    
    23,568,499
    
    
    
    25,612,126
    
    
    
    25,299,539
    
    
    
    25,612,126Ending balance of non-federally insured loans
    
    
    200,722
    
    
    
    279,953
    
    
    
    200,722
    
    
    
    279,953
  As of June 30, 2009
    
    
    As of December 31, 2008Dollars
    
    
    Percent
    
    
    Dollars
    
    
    PercentFederally Insured Loans:Loans in-school/grace/deferment(1)
    
    $
    7,964,379
    
    
    
    
    
    
    $
    7,374,602Loans in forebearance(2)
    
    
    2,381,227
    
    
    
    
    
    
    
    2,484,478Loans in repayment status:Loans current
    
    
    12,949,200
    
    
    
    87.8
    %
    
    
    13,169,101
    
    
    
    88.2
    %Loans delinquent 31-60 days(3)
    
    
    551,179
    
    
    
    3.7
    
    
    
    536,112
    
    
    
    3.6Loans delinquent 61-90 days(3)
    
    
    296,130
    
    
    
    2.0
    
    
    
    240,549
    
    
    
    1.6Loans delinquent 91 days or greater(4)
    
    
    956,702
    
    
    
    6.5
    
    
    
    983,099
    
    
    
    6.6Total loans in repayment
    
    
    14,753,211
    
    
    
    100.0
    %
    
    
    14,928,861
    
    
    
    100.0
    %Total federally insured loans
    
    $
    25,098,817
    
    
    
    
    
    
    $
    24,787,941Non-Federally Insured Loans:Loans in-school/grace/deferment(1)
    
    $
    57,133
    
    
    
    
    
    
    $
    84,237Loans in forebearance(2)
    
    
    5,347
    
    
    
    
    
    
    
    9,540Loans in repayment status:Loans current
    
    
    130,015
    
    
    
    94.1
    %
    
    
    169,865
    
    
    
    94.7
    %Loans delinquent 31-60 days(3)
    
    
    2,852
    
    
    
    2.0
    
    
    
    3,315
    
    
    
    1.8Loans delinquent 61-90 days(3)
    
    
    1,931
    
    
    
    1.4
    
    
    
    1,743
    
    
    
    1.0Loans delinquent 91 days or greater(4)
    
    
    3,444
    
    
    
    2.5
    
    
    
    4,408
    
    
    
    2.5Total loans in repayment
    
    
    138,242
    
    
    
    100.0
    %
    
    
    179,331
    
    
    
    100.0
    %Total non-federally insured loans
    
    $
    200,722
    
    
    
    
    
    
    $
    273,108
 (1)
    
    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.(2)
    
    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.(3)
    
    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.(4)
    
    Loans delinquent 91 days or greater include loans in claim status, which are loans that have
gone into default and have been submitted to the guaranty agency for FFELP loans, or, if
applicable, the insurer for non-federally insured loans, to process the claim for payment.  57




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Student Loan Spread Analysis
  Three months ended June 30,
    
    
    Six months ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Variable student loan yield
    
    
    2.94
    %
    
    
    5.48
    %
    
    
    3.10
    %
    
    
    5.70
    %Consolidation rebate fees
    
    
    (0.70
    )
    
    
    (0.74
    )
    
    
    (0.71
    )
    
    
    (0.74
    )Premium and deferred origination costs amortization
    
    
    (0.27
    )
    
    
    (0.36
    )
    
    
    (0.28
    )
    
    
    (0.37
    )Variable student loan net yield
    
    
    1.97
    
    
    
    4.38
    
    
    
    2.11
    
    
    
    4.59Student loan cost of funds  interest expense
    
    
    (1.52
    )
    
    
    (3.31
    )
    
    
    (1.84
    )
    
    
    (3.94
    )Student loan cost of funds  derivative settlements
    
    
    0.15
    
    
    
    0.08
    
    
    
    0.27
    
    
    
    0.34Variable student loan spread
    
    
    0.60
    
    
    
    1.15
    
    
    
    0.54
    
    
    
    0.99Variable rate floor income,
net of settlements on derivatives (a)
    
    
    (0.10
    )
    
    
    (0.19
    )
    
    
    (0.06
    )
    
    
    (0.13
    )Fixed rate floor income,
net of settlements on derivatives
    
    
    0.59
    
    
    
    0.15
    
    
    
    0.54
    
    
    
    0.14Core student loan spread
    
    
    1.09
    %
    
    
    1.11
    %
    
    
    1.02
    %
    
    
    1.00
    %Average balance of student loans
    
    $
    25,123,382
    
    
    
    25,767,123
    
    
    
    25,194,642
    
    
    
    26,313,226Average balance of debt outstanding
    
    
    25,683,991
    
    
    
    26,767,459
    
    
    
    25,723,916
    
    
    
    27,297,445
 (a)
    
    As a result of the ongoing volatility of interest rates, effective October 1, 2008, the
Company changed its calculation of variable rate floor income to better reflect the economic
benefit received by the Company. The economic benefit received by the Company related to
variable rate floor income was $6.0 million and $19.3 million for the three months ended June
30, 2009 and 2008, respectively, and $7.5 million and $25.6 million for the six months ended
June 30, 2009 and 2008, respectively. Variable rate floor income calculated on a statutory
maximum basis was $13.0 million and $21.9 million for the three months ended June 30, 2009 and
2008, respectively, and $23.8 million and $40.7 million for the six months ended June 30, 2009
and 2008, respectively. Beginning October 1, 2008, and for presentation of prior periods,
the economic benefit received by the Company has been used to determine core student loan
spread. For the student loan spread analysis shown above, variable-rate floor income for prior
periods was changed to reflect the economic benefit to conform to the current period
presentation.  Increases
 
    
    The amortization of loan premiums and deferred origination costs, which is a reduction
to core student loan spread, decreased as a result of reduced costs to acquire or
originate loans and a decrease in the yield earned on student loans.
    
    The Company has a portfolio of student loans that are earning interest at a fixed
borrower rate which exceeds the statutorily defined variable lender rate creating fixed
rate floor income which is included in its core student loan spread. Due to lower interest
rates in the three and six month period ended June 30, 2009 compared to the same period in
2008, the Company received additional fixed rate floor income on a portion of its student
loan portfolio. See Item 3, Quantitative and Qualitative Disclosures about Market Risk -
Interest Rate Risk for additional information.
    
    The Company has used derivative instruments to hedge the repricing risk due to the
timing of the interest rate resets on its assets and liabilities. The Company has entered
into basis swaps in which the Company receives three-month LIBOR and pays one-month LIBOR
plus or minus a spread as defined in the agreements (1/3 Basis Swaps). During the three and six months
ended June 30, 2009, the Company received $6.7 million and $17.4 million, respectively, of
settlements on its 1/3 Basis Swaps. During the first quarter of 2008, the
Company received $0.9 million of settlements on its 1/3 Basis Swaps. No 1/3 Basis Swaps were outstanding during the three months ended
June 30, 2008.
  58




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##### Table of Contents



Decreases
 
    
    The passage of the College Cost Reduction Act has reduced the yield on all FFELP loans
originated after October 1, 2007. As of June 30, 2009, 9.6% of the Companys federally
insured student loan portfolio was originated after October 1, 2007 as compared to 2.2% as
of June 30, 2008.
    
    Historically, the movement of the various interest rate indices received on the
Companys student loan assets and paid on the debt to fund such loans was highly
correlated. The short term movement of the indices was dislocated beginning in August
2007. Due to the unintended consequences of government intervention in the commercial
paper markets and limited issuances of qualifying financial commercial paper, the
relationship between the three-month financial CP and LIBOR rates has continued to widen.
To address this issue, the Department announced that for purposes of calculating the FFELP
loan index from October 27, 2008 to December 31, 2008, the Federal Reserves Commercial
Paper Funding Facility rate was used for those days in which no three-month financial
commercial paper rate was available. This action partially mitigated the volatility
between CP and LIBOR for the three-month period ended on December 31, 2008. However, the
Department of Education did not make a similar adjustment for the first and second
quarters of 2009, which negatively impacted the Companys net interest income for the
three and six months ended June 30, 2009.
    
    The spread to LIBOR on asset-backed securities transactions has increased significantly
since August 2007. The Company issued $4.4 billion of notes in asset-backed securities
transactions in 2008 ($1.2 billion in March 2008, $1.9 billion in April 2008, and $1.3
billion in May 2008) and an additional $0.3 billion in March 2009. Prior to completing
these asset-backed securities transactions, these loans were funded in the Companys FFELP
warehouse facility in which the cost of funds were lower than the asset-backed securities
transactions.
    
    The Company has used derivative instruments to hedge the repricing risk due to the
timing of the interest rate resets on its assets and liabilities. The Company has entered
into basis swaps in which the Company receives three-month LIBOR set discretely in advance
and pays a daily weighted average three-month LIBOR less a spread as defined in the
individual agreements (the Average/Discrete Basis Swaps).
The Company received less settlements on its Average/Discrete Basis
Swaps in the first and second quarters of 2009 compared to the same
periods in 2008, due to the significant drop in interest rates which
triggered larger settlements during the first and second
quarters of 2008.
  59




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Three and six months ended June 30, 2009 compared to the three and six months ended June 30, 2008
 Three months ended June 30,
    
    
    Six months ended June 30,Change
    
    
    
    
    
    
    
    
    
    
    Change2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %Net interest income after provision
for loan losses
    
    $
    49,895
    
    
    
    53,891
    
    
    
    (3,996
    )
    
    
    (7.4
    )%
    
    $
    76,388
    
    
    
    53,234
    
    
    
    23,154
    
    
    
    43.5
    %Loan and guaranty servicing revenue
    
    
    
    
    
    
    157
    
    
    
    (157
    )
    
    
    (100.0
    )
    
    
    
    
    
    
    162
    
    
    
    (162
    )
    
    
    (100.0
    )Other income
    
    
    4,241
    
    
    
    4,851
    
    
    
    (610
    )
    
    
    (12.6
    )
    
    
    8,892
    
    
    
    9,708
    
    
    
    (816
    )
    
    
    (8.4
    )Gain (loss) on sale of loans
    
    
    (196
    )
    
    
    48
    
    
    
    (244
    )
    
    
    (508.3
    )
    
    
    (402
    )
    
    
    (47,426
    )
    
    
    47,024
    
    
    
    (99.2
    )Derivative market value, foreign currency,
and put option adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    466
    
    
    
    (466
    )
    
    
    (100.0
    )Derivative settlements, net
    
    
    9,535
    
    
    
    11,638
    
    
    
    (2,103
    )
    
    
    (18.1
    )
    
    
    33,893
    
    
    
    55,165
    
    
    
    (21,272
    )
    
    
    (38.6
    )Total other income
    
    
    13,580
    
    
    
    16,694
    
    
    
    (3,114
    )
    
    
    (18.7
    )
    
    
    42,383
    
    
    
    18,075
    
    
    
    24,308
    
    
    
    134.5Salaries and benefits
    
    
    1,735
    
    
    
    1,954
    
    
    
    (219
    )
    
    
    (11.2
    )
    
    
    3,510
    
    
    
    4,178
    
    
    
    (668
    )
    
    
    (16.0
    )Restructure expense  severance and contract
termination costs
    
    
    
    
    
    
    (52
    )
    
    
    52
    
    
    
    (100.0
    )
    
    
    
    
    
    
    1,844
    
    
    
    (1,844
    )
    
    
    (100.0
    )Impairment expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,351
    
    
    
    (9,351
    )
    
    
    (100.0
    )Other expenses
    
    
    5,875
    
    
    
    5,095
    
    
    
    780
    
    
    
    15.3
    
    
    
    10,834
    
    
    
    10,439
    
    
    
    395
    
    
    
    3.8Intersegment expenses
    
    
    20,732
    
    
    
    18,952
    
    
    
    1,780
    
    
    
    9.4
    
    
    
    38,608
    
    
    
    39,554
    
    
    
    (946
    )
    
    
    (2.4
    )Total operating expenses
    
    
    28,342
    
    
    
    25,949
    
    
    
    2,393
    
    
    
    9.2
    
    
    
    52,952
    
    
    
    65,366
    
    
    
    (12,414
    )
    
    
    (19.0
    )Base net income before income taxes
    
    
    35,133
    
    
    
    44,636
    
    
    
    (9,503
    )
    
    
    (21.3
    )
    
    
    65,819
    
    
    
    5,943
    
    
    
    59,876
    
    
    
    1,007.5Income tax expense
    
    
    (13,351
    )
    
    
    (13,837
    )
    
    
    486
    
    
    
    (3.5
    )
    
    
    (25,012
    )
    
    
    (1,842
    )
    
    
    (23,170
    )
    
    
    1,257.9Base net income
    
    $
    21,782
    
    
    
    30,799
    
    
    
    (9,017
    )
    
    
    (29.3
    )%
    
    $
    40,807
    
    
    
    4,101
    
    
    
    36,706
    
    
    
    895.0
    %Before Tax Operating Margin
    
    
    55.3
    %
    
    
    63.2
    %
    
    
    
    
    
    
    
    
    
    
    55.4
    %
    
    
    8.3
    %Before Tax Operating Margin -
excluding restructure expense,
impairment expense, and loss on sale
of loans during the first quarter of 2008
    
    
    55.3
    %
    
    
    63.2
    %
    
    
    
    
    
    
    
    
    
    
    55.4
    %
    
    
    54.4
    %
 Net interest income after provision for loan losses
 Three months ended June 30,
    
    
    Change2009
    
    
    2008
    
    
    Dollars
    
    
    PercentLoan interest
    
    $
    214,986
    
    
    
    345,321
    
    
    
    (130,335
    )
    
    
    (37.7
    )%Consolidation rebate fees
    
    
    (43,827
    )
    
    
    (47,721
    )
    
    
    3,894
    
    
    
    8.2Amortization of loan premiums and
deferred origination costs
    
    
    (16,789
    )
    
    
    (22,841
    )
    
    
    6,052
    
    
    
    26.5Total loan interest
    
    
    154,370
    
    
    
    274,759
    
    
    
    (120,389
    )
    
    
    (43.8
    )Investment interest
    
    
    1,863
    
    
    
    7,534
    
    
    
    (5,671
    )
    
    
    (75.3
    )Total interest income
    
    
    156,233
    
    
    
    282,293
    
    
    
    (126,060
    )
    
    
    (44.7
    )Interest on bonds and notes payable
    
    
    97,916
    
    
    
    221,856
    
    
    
    (123,940
    )
    
    
    (55.9
    )Intercompany interest
    
    
    422
    
    
    
    546
    
    
    
    (124
    )
    
    
    (22.7
    )Provision for loan losses
    
    
    8,000
    
    
    
    6,000
    
    
    
    2,000
    
    
    
    33.3Net interest income after provision
for loan losses
    
    $
    49,895
    
    
    
    53,891
    
    
    
    (3,996
    )
    
    
    (7.4
    )%
 
    
    Loan interest income decreased $130.3 million as a result of a decrease in the average
student loan portfolio of $0.6 billion (2.5%) and a decrease in the yield earned on student
loans due to a decrease in interest rates for the three months ended June 30, 2009 compared
to the same period in 2008.
    
    Consolidation rebate fees decreased due to the $1.8 billion (10.0%) decrease in the
average consolidation portfolio.
    
    The amortization of loan premiums and deferred origination costs decreased as a result
of reduced costs to acquire or originate loans and a decrease in the yield earned on
student loans.
  60




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##### Table of Contents




    
    Investment income decreased as a result of lower interest rates in the second quarter of
2009 as compared to the same period in 2008.
    
    Interest expense decreased as a result of a decrease in interest rates on the Companys
variable rate debt which lowered the Companys cost of funds (excluding net derivative
settlements) to 1.52% for the three months ended June 30, 2009 compared to 3.31% for the
same period a year ago. In addition, average debt decreased by $1.1 billion (4.0%) for the
three months ended June 30, 2009 compared to the same period in 2008.
    
    The provision for loan losses increased for the three months ended June 30, 2009
compared to the same period in 2008 primarily due to increases in delinquencies.
 Six months ended June 30,
    
    
    Change2009
    
    
    2008
    
    
    Dollars
    
    
    PercentLoan interest
    
    $
    447,572
    
    
    
    731,747
    
    
    
    (284,175
    )
    
    
    (38.8
    )%Consolidation rebate fees
    
    
    (88,304
    )
    
    
    (97,575
    )
    
    
    9,271
    
    
    
    9.5Amortization of loan premiums and
deferred origination costs
    
    
    (35,439
    )
    
    
    (48,245
    )
    
    
    12,806
    
    
    
    26.5Total loan interest
    
    
    323,829
    
    
    
    585,927
    
    
    
    (262,098
    )
    
    
    (44.7
    )Investment interest
    
    
    4,991
    
    
    
    16,724
    
    
    
    (11,733
    )
    
    
    (70.2
    )Total interest income
    
    
    328,820
    
    
    
    602,651
    
    
    
    (273,831
    )
    
    
    (45.4
    )Interest on bonds and notes payable
    
    
    235,949
    
    
    
    537,777
    
    
    
    (301,828
    )
    
    
    (56.1
    )Intercompany interest
    
    
    983
    
    
    
    640
    
    
    
    343
    
    
    
    53.6Provision for loan losses
    
    
    15,500
    
    
    
    11,000
    
    
    
    4,500
    
    
    
    40.9Net interest income (loss) after
provision
for loan losses
    
    $
    76,388
    
    
    
    53,234
    
    
    
    23,154
    
    
    
    (43.5
    )%
 
    
    Loan interest income decreased $284.2 million as a result of a decrease in the average
student loan portfolio of $0.5 billion (2.0%) and a decrease in the yield earned on student
loans due to a decrease in interest rates for the six months ended June 30, 2009 compared
to the same period in 2008.
    
    Consolidation rebate fees decreased due to the $2.3 billion (12.2%) decrease in the
average consolidation portfolio.
    
    The amortization of loan premiums and deferred origination costs decreased as a result
of reduced costs to acquire or originate loans and a decrease in the yield earned on
student loans.
    
    Investment income decreased as a result of lower interest rates for the six months ended
June 30, 2009 as compared to the same period in 2008.
    
    Interest expense decreased as a result of a decrease in interest rates on the Companys
variable rate debt which lowered the Companys cost of funds (excluding net derivative
settlements) to 1.84% for the six months ended June 30, 2009 compared to 3.94% for the same
period a year ago. In addition, average debt decreased by $1.6 billion (5.8%) for the six
months ended June 30, 2009 compared to the same period in 2008.
    
    The provision for loan losses increased for the six months ended June 30, 2009 compared
to the same period in 2008 primarily due to increases in delinquencies.
 Loss on sale of loans
 Derivative settlements, net .
  61




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Operating expenses .
 LIQUIDITY AND CAPITAL RESOURCES
    62




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##### Table of Contents



Carrying
    
    
    Interest rateamount
    
    
    range
    
    
    Final maturityVariable-rate bonds and notes (a):Bonds and notes based on indices
    
    $
    20,063,227
    
    
    
    0.61%  6.90%
    
    
    
    09/25/13  6/25/41Bonds and notes based on auction or remarketing
    
    
    2,606,740
    
    
    
    0.46%  2.96%
    
    
    
    11/01/09  07/01/43Total variable-rate bonds and notes
    
    
    22,669,967Commercial paper  FFELP facility (b)
    
    
    420,936
    
    
    
    0.32%  1.13%
    
    
    
    05/09/10Fixed-rate bonds and notes (a)
    
    
    188,797
    
    
    
    5.40%  6.50%
    
    
    
    11/01/09  05/01/29Unsecured fixed rate debt
    
    
    402,864
    
    
    
    5.125% and 7.40%
    
    
    
    06/01/10 and 09/15/61Unsecured line of credit
    
    
    691,500
    
    
    
    0.79%  0.85%
    
    
    
    05/08/12Department of Education Participation
    
    
    1,741,481
    
    
    
    1.24%
    
    
    
    09/30/09Department of Education Conduit
    
    
    1,023,600
    
    
    
    0.52%
    
    
    
    05/08/14Other borrowings
    
    
    30,428
    
    
    
    0.32%  5.10%
    
    
    
    01/10/10  11/01/15$
    27,169,573
 (a)
    
    Issued in asset-backed securitizations(b)
    
    Loan warehouse facilities Secured Financing Transactions
   Loan warehouse facilities
  FFELP Warehouse Facility
    63




---



##### Table of Contents



Private Loan Warehouse Facility
  Asset-backed securitizations
   64




---



##### Table of Contents



LIBOR based notes
  Auction or remarketing based notes
       Department of Educations Conduit Program
  Funding New FFELP Student Loan Originations
   65




---



##### Table of Contents



Union Bank Participation Agreement
  Department of Educations Loan Participation and Purchase Commitment Programs
     Unsecured Line of Credit
   
    
    A minimum consolidated net worth
    
    A minimum adjusted EBITDA to corporate debt interest (over the last four rolling
quarters)
    
    A limitation on subsidiary indebtedness
    
    A limitation on the percentage of non-guaranteed loans in the Companys portfolio
    66




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##### Table of Contents



Unsecured Debt Offerings
     Contractual Obligations
  Less than
    
    
    1 to 3
    
    
    3 to 5
    
    
    More thanTotal
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 yearsBonds and notes payable
    
    $
    27,169,573
    
    
    
    2,433,272
    
    
    
    811,311
    
    
    
    1,359,558
    
    
    
    22,565,432Operating lease obligations (a)
    
    
    31,096
    
    
    
    8,624
    
    
    
    12,828
    
    
    
    8,449
    
    
    
    1,195Other
    
    
    36,863
    
    
    
    20,000
    
    
    
    16,863
    
    
    
    
    
    
    
    Total
    
    $
    27,237,532
    
    
    
    2,461,896
    
    
    
    841,002
    
    
    
    1,368,007
    
    
    
    22,566,627
 (a)
    
    Operating lease obligations are presented net of approximately $2.1 million in sublease
arrangements. Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109
   67




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##### Table of Contents




    
    LoanSTAR Funding Group, Inc. (LoanSTAR)  As part of the agreement for the acquisition
of the capital stock of LoanSTAR from the Greater Texas Foundation (Texas Foundation),
the Company agreed to sell student loans in an aggregate amount sufficient to permit the
Texas Foundation to maintain a portfolio of loans equal to no less than $200 million
through October 2010. The sales price for such loans is the fair value mutually agreed
upon between the Company and the Texas Foundation. To satisfy this obligation, the Company
is obligated to sell loans to the Texas Foundation on a quarterly basis; however, the
Foundation recently has chosen not to purchase such loans.
    
    infiNET Integrated Solutions, Inc. (infiNET)  Stock price guarantee of $104.8375 per
share on 95,380 shares of Class A Common Stock (less the greater of $41.9335 or the gross
sales price such seller obtains from a sale of the shares occurring prior to February 28,
2011 as defined in the agreement) issued as part of the original purchase price. The
obligation to pay this guaranteed stock price is due February 28, 2011 and is not included
in the table above. Based upon the closing sale price of the Companys Class A Common
Stock as of June 30, 2009 of $13.59 per share, the Companys obligation under this stock
price guarantee would have been $6.0 million (($104.8375  $41.9335) x 95,380 shares). Any
cash paid by the Company in consideration of satisfying the guaranteed value of stock
issued for this acquisition would be recorded by the Company as a reduction to additional
paid-in capital.
 Sources of Liquidity
 Sources of Liquidity Available for New FFELP Stafford and PLUS Loans
  Sources of Liquidity Available for General Corporate Purposes
  Sources of primary liquidity: (a)Cash and cash equivalents (b)
    
    $
    345,000Unencumbered FFELP student loan assets
    
    
    16,000Unencumbered private student loan assets
    
    
    170,000Unused unsecured line of credit (c)
    
    
    51,000Total sources of primary liquidity
    
    $
    582,000
 (a)
    
    The sources of primary liquidity table above does not include asset-backed security
investments. As part of the Companys issuance of asset-backed securitizations in March 2008
and May 2008, due to credit market conditions when these notes were issued, the Company
purchased the Class B subordinated notes of $36 million (par value) and $41 million (par
value), respectively. These notes are not included on the Companys consolidated balance
sheet. If the credit market conditions improve, the Company anticipates selling these notes to
third parties. Upon a sale 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 on the Companys consolidated balance sheet. Unless there is a
significant market improvement,
the Company believes the market value of such notes will be less than par value. The difference
between the par value and market value would be recognized by the Company as interest expense
over the life of the bonds.  68




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##### Table of Contents



(b)
    
    The Company also has restricted cash and investments; however, the Company is limited in the
amounts of funds that can be transferred from its subsidiaries through intercompany loans,
advances, or cash dividends. These limitations result from the restrictions contained in trust
indentures under debt financing arrangements to which the Companys education lending
subsidiaries are parties. The Company does not believe these limitations will significantly
affect its operating cash needs. The amounts of cash and investments restricted in the
respective reserve accounts of the education lending subsidiaries are shown on the balance
sheets as restricted cash and investments.(c)
    
    The lending commitment under the Companys unsecured line of credit is provided by a total of
thirteen banks, with no individual bank representing more than 11% of the total lending
commitment. The bank lending group includes Lehman Brothers Bank, a subsidiary of Lehman
Brothers Holdings Inc., which represents approximately 7% of the lending commitment under the
line of credit. On September 15, 2008, Lehman Brothers Holdings Inc. filed a voluntary
petition for relief under Chapter 11 of the United States Bankruptcy Code. Since the
bankruptcy filing, the Company has experienced funding delays from Lehman and does not expect
Lehman to fund future borrowing requests. The amount included in the table above excludes
Lehmans commitment. Dividends
  CRITICAL ACCOUNTING POLICIES
   Allowance for Loan Losses
      69




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##### Table of Contents



Revenue Recognition
 Student Loan Income Accounting for
Non-Refundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases
 Other Income
  Goodwill and Intangible Assets  Impairment Assessments
 Goodwill and Other Intangible Assets
  Accounting for
the Impairment or Disposal of Long-Lived Assets
  Income Taxes
   70




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##### Table of Contents



Derivative Accounting
 Accounting for Derivative
Instruments and Hedging Activities Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an Amendment of FASB Statement No. 133.
 RECENT ACCOUNTING PRONOUNCEMENTS
 Fair Value Measurements
 Effective Date of FASB Statement No. 157
 Determining the Fair Value of a Financial Asset When the Market for That Asset is Not
Active
 Determining Fair Value When Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly
 Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51
 Disclosures about Derivative Instruments and Hedging
Activities
  71




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##### Table of Contents



Recognition and
Presentation of Other-Than-Temporary Impairment
 Interim Disclosure about Fair
Value of Financial Instruments Disclosures about the Fair Value of Financial Instruments.
 Subsequent Events
 Accounting for Transfers of Financial Assets, an
amendment of FASB Statement No. 140 Consolidation of Variable Interest Entities participating interest
 Amendments to FASB Interpretation No. 46(R)
 The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162
  72




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##### Table of Contents



ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 (All dollars are in thousands, except share amounts, unless otherwise noted)
 Interest Rate Risk
   As of June 30, 2009
    
    
    As of December 31, 2008Dollars
    
    
    Percent
    
    
    Dollars
    
    
    PercentFixed-rate loan assets
    
    $
    8,517,251
    
    
    
    33.7
    %
    
    $
    2,532,609
    
    
    
    10.1
    %Variable-rate loan assets
    
    
    16,782,288
    
    
    
    66.3
    
    
    
    22,528,440
    
    
    
    89.9Total
    
    $
    25,299,539
    
    
    
    100.0
    %
    
    $
    25,061,049
    
    
    
    100.0
    %Fixed-rate debt instruments
    
    $
    591,661
    
    
    
    2.2
    %
    
    $
    677,096
    
    
    
    2.5
    %Variable-rate debt instruments
    
    
    26,577,912
    
    
    
    97.8
    
    
    
    26,110,863
    
    
    
    97.5Total
    
    $
    27,169,573
    
    
    
    100.0
    %
    
    $
    26,787,959
    
    
    
    100.0
    %
       73




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##### Table of Contents



Borrower/
    
    
    Estimated
    
    
    Balance ofFixed
    
    lender
    
    
    variable
    
    
    assets earning fixed-rateinterest
    
    weighted
    
    
    conversion
    
    
    floor income as ofrate range
    
    average yield
    
    
    rate (a)
    
    
    June 30, 20093.0  3.49%
    
    
    3.29
    %
    
    
    0.65
    %
    
    $
    1,422,0213.5  3.99%
    
    
    3.65
    %
    
    
    1.01
    %
    
    
    1,964,6574.0  4.49%
    
    
    4.20
    %
    
    
    1.56
    %
    
    
    1,560,3914.5  4.99%
    
    
    4.72
    %
    
    
    2.08
    %
    
    
    857,4875.0  5.49%
    
    
    5.24
    %
    
    
    2.60
    %
    
    
    562,1705.5  5.99%
    
    
    5.67
    %
    
    
    3.03
    %
    
    
    333,2786.0  6.49%
    
    
    6.19
    %
    
    
    3.55
    %
    
    
    393,3236.5  6.99%
    
    
    6.70
    %
    
    
    4.06
    %
    
    
    349,1307.0  7.49%
    
    
    7.17
    %
    
    
    4.53
    %
    
    
    119,3317.5  7.99%
    
    
    7.71
    %
    
    
    5.07
    %
    
    
    204,8258.0  8.99%
    
    
    8.16
    %
    
    
    5.52
    %
    
    
    467,583> 9.0%
    
    
    9.04
    %
    
    
    6.40
    %
    
    
    283,055$
    8,517,251
 (a)
    
    The estimated variable conversion rate is the
estimated short-term interest rate at which loans
would convert to variable rate.  Weightedaverage fixedNotional
    
    
    rate paid byMaturity
    
    Amount
    
    
    the Company (a)2010
    
    $
    750,000
    
    
    
    0.80
    %
 (a)
    
    For all interest rate derivatives for which the Company pays a fixed rate, the Company
receives discrete three-month LIBOR.   74




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##### Table of Contents



DebtoutstandingFrequency of
    
    
    
    
    
    
    that fundedVariable
    
    
    
    
    
    
    student loanIndex (f)
    
    Resets
    
    
    Assets
    
    
    assets (a)3 month H15 financial commercial
paper (b)
    
    Daily
    
    $
    23,981,416
    
    
    
    1,741,4813 month Treasury bill
    
    Varies
    
    
    1,117,401
    
    
    
    3 month LIBOR (c)
    
    Quarterly
    
    
    
    
    
    
    20,063,227Auction-rate or remarketing
    
    Varies
    
    
    
    
    
    
    2,606,740Asset-backed commercial paper (d)
    
    Varies
    
    
    
    
    
    
    1,444,536Fixed rate
    
    
    
    
    
    
    
    
    
    
    188,797Other (e)
    
    
    
    
    
    
    945,964
    
    
    
    $
    26,044,781
    
    
    
    26,044,781
 (a)
    
    The Company has certain basis swaps outstanding in which the Company (i) receives
three-month LIBOR set discretely in advance and pays a daily weighted average three-month
LIBOR less a spread as defined in the individual agreements (the Average/Discrete Basis
Swaps); and (ii) receives three-month LIBOR and pays one-month LIBOR plus or minus a spread
as defined in the agreements (the 1/3 Basis Swaps). The Company entered into these
derivative instruments to better match the interest rate characteristics on its student loan
assets and the debt funding such assets. The following table summarizes these derivatives as
of June 30, 2009: Notional AmountAverage/DiscreteMaturity
    
    Basis Swaps
    
    
    1/3 Basis Swaps (c)2009 (a)
    
    $
    7,000,000
    
    
    
    2011 (b)
    
    
    6,000,000
    
    
    
    2018
    
    
    
    
    
    
    1,300,0002019
    
    
    
    
    
    
    500,0002021
    
    
    
    
    
    
    250,0002023
    
    
    
    
    
    
    1,250,0002024
    
    
    
    
    
    
    250,0002028
    
    
    
    
    
    
    100,000$
    13,000,000
    
    
    
    3,650,000
 (a)
    
    (a) Subsequent to June 30, 2009, the Company terminated all of the Average/Discrete Basis
Swaps with a maturity in 2009.(b)
    
    Certain of these derivatives have forward effective start dates of January 2010 ($1.5
billion), February 2010 ($1.5 billion), and March 2010 ($1.5 billion).(c)
    
    Subsequent to June 30, 2009, the Company entered into additional 1/3 Basis Swaps with
notional amounts of $500.0 million and $150.0 million with maturity dates in 2014 and 2039,
respectively.
  75




---



##### Table of Contents



(b)
    
    The Companys FFELP student loans earn interest based on the daily average H15
financial commercial paper index calculated on a fiscal quarter. The Companys funding
includes FFELP student loans under the Departments Participation Program. The interest
rate on the principal amount of participation interests outstanding under the Departments
Participation Program is based on a rate of commercial paper plus 50 basis points, which is
set a quarter in arrears, while the earnings on the student loans is based primarily on the
daily average H15 financial commercial paper index calculated on the current fiscal quarter.
Due to a declining interest rate environment during the three and six months ended June 30,
2009, the Companys core student loan spread was compressed due to the mismatch in the
timing of these rate resets.(c)
    
    The Company has Euro-denominated notes that reprice on the EURIBOR index. The
Company has entered into derivative instruments (cross-currency interest rate swaps) that
convert the EURIBOR index to 3 month LIBOR. As a result, these notes are reflected in the 3
month LIBOR category in the above table. See Foreign Currency Exchange Risk.(d)
    
    Asset-backed commercial paper consists of $0.4 million
funded in the Companys FFELP warehouse facility and $1.0 billion funded through the
Departments Conduit Program. Funding for the Conduit Program is provided by the capital markets at a cost based on market rates. (e)
    
    Assets include restricted cash and investments and other assets.(f)
    
    Historically, the movement of the various interest rate indices received on the
Companys student loan assets and paid on the debt to fund such loans was highly correlated.
The short term movement of the indices was dislocated beginning in August 2007. This
dislocation has had a negative impact on the Companys student loan net interest income. Financial Statement Impact of Derivative Instruments
   Three months ended June 30
    
    
    Six months ended June 302009
    
    
    2008
    
    
    2009
    
    
    2008Interest rate swaps
    
    $
    (11
    )
    
    
    (7,842
    )
    
    
    (11
    )
    
    
    (11,019
    )Average/Discrete Basis Swaps
    
    
    1,040
    
    
    
    5,148
    
    
    
    11,062
    
    
    
    44,7111/3 Basis Swaps
    
    
    6,657
    
    
    
    
    
    
    
    17,401
    
    
    
    894Cross-currency interest rate swaps
    
    
    1,849
    
    
    
    7,131
    
    
    
    5,441
    
    
    
    10,614Total settlements
    
    $
    9,535
    
    
    
    4,437
    
    
    
    33,893
    
    
    
    45,200
  76




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##### Table of Contents



Sensitivity Analysis
  Three months ended June 30, 2009Interest Rates
    
    
    Asset and funding indexChange from decrease of 100
    
    
    Change from increase of 100
    
    
    mismatchesbasis points
    
    
    basis points
    
    
    Increase of 10 basis pointsDollar
    
    
    Percent
    
    
    Dollar
    
    
    Percent
    
    
    Dollar
    
    
    PercentEffect on earnings:Increase (decrease) in pre-tax net income before
impact of derivative settlements
    
    $
    34,046
    
    
    
    241.1
    %
    
    
    (34,046
    )
    
    
    (241.1
    )%
    
    
    (6,403
    )
    
    
    45.4
    %Impact of derivative settlements
    
    
    (41
    )
    
    
    (0.3
    )
    
    
    41
    
    
    
    0.3
    
    
    
    
    
    
    
    Increase (decrease) in net income before taxes
    
    $
    34,005
    
    
    
    240.8
    %
    
    
    (34,005
    )
    
    
    (240.8
    )%
    
    
    (6,403
    )
    
    
    45.4
    %Increase (decrease) in basic and diluted
earnings per share
    
    $
    0.41
    
    
    
    
    
    
    
    (0.41
    )
    
    
    
    
    
    
    (0.08
    )
 Three months ended June 30, 2008Interest Rates
    
    
    Asset and funding indexChange from decrease of 100
    
    
    Change from increase of 100
    
    
    mismatchesbasis points
    
    
    basis points
    
    
    Increase of 10 basis pointsDollar
    
    
    Percent
    
    
    Dollar
    
    
    Percent
    
    
    Dollar
    
    
    PercentEffect on earnings:Increase (decrease) in pre-tax net income before
impact of derivative settlements
    
    $
    10,566
    
    
    
    17.1
    %
    
    
    (10,566
    )
    
    
    (17.1
    )%
    
    
    (6,681
    )
    
    
    (10.8)
    %Impact of derivative settlements
    
    
    (8,492
    )
    
    
    (13.7
    )
    
    
    8,492
    
    
    
    13.7
    
    
    
    
    
    
    
    Increase (decrease) in net income before taxes
    
    $
    2,074
    
    
    
    3.4
    %
    
    
    (2,074
    )
    
    
    (3.4
    )%
    
    
    (6,681
    )
    
    
    (10.8)
    %Increase (decrease) in basic and diluted
earnings per share
    
    $
    0.03
    
    
    
    
    
    
    
    (0.03
    )
    
    
    
    
    
    
    (0.14
    )
 Six months ended June 30, 2009Change from decrease of 100
    
    
    Change from increase of 100
    
    
    Change from increase of 200basis points
    
    
    basis points
    
    
    basis pointsDollar
    
    
    Percent
    
    
    Dollar
    
    
    Percent
    
    
    Dollar
    
    
    PercentEffect on earnings:Increase (decrease) in pre-tax net income before
impact of derivative settlements
    
    $
    68,402
    
    
    
    124.0
    %
    
    
    (63,076
    )
    
    
    (114.3
    )%
    
    
    (12,757
    )
    
    
    (23.1
    )%Impact of derivative settlements
    
    
    (41
    )
    
    
    (0.1
    )
    
    
    41
    
    
    
    0.1
    
    
    
    
    
    
    
    Increase (decrease) in net income before taxes
    
    $
    68,361
    
    
    
    123.9
    %
    
    
    (63,035
    )
    
    
    (114.2
    )%
    
    
    (12,757
    )
    
    
    (23.1
    )%Increase (decrease) in basic and diluted
earning per share
    
    $
    0.85
    
    
    
    
    
    
    
    (0.78
    )
    
    
    
    
    
    
    (0.16
    )
 Six months ended June 30, 2008Change from decrease of 100
    
    
    Change from increase of 100
    
    
    Change from increase of 200basis points
    
    
    basis points
    
    
    basis pointsDollar
    
    
    Percent
    
    
    Dollar
    
    
    Percent
    
    
    Dollar
    
    
    PercentEffect on earnings:Increase (decrease) in pre-tax net income before
impact of derivative settlements
    
    $
    22,151
    
    
    
    56.4
    %
    
    
    (22,151
    )
    
    
    (56.4
    )%
    
    
    (6,806
    )
    
    
    (17.3
    )%Impact of derivative settlements
    
    
    (14,785
    )
    
    
    (37.6
    )
    
    
    14,785
    
    
    
    37.6
    
    
    
    
    
    
    
    Increase (decrease) in net income before taxes
    
    $
    7,366
    
    
    
    18.8
    %
    
    
    (7,366
    )
    
    
    (18.8
    )%
    
    
    (6,806
    )
    
    
    (17.3
    )%Increase in basic and diluted
earning per share
    
    $
    0.10
    
    
    
    
    
    
    
    (0.10
    )
    
    
    
    
    
    
    (0.14
    )
 Foreign Currency Exchange Risk
   77




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##### Table of Contents



 
   
 ITEM 4.
    
    CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
 General
   78




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##### Table of Contents



Municipal Derivative Bid Practices Investigation
   In re Municipal Derivatives Antitrust Litigation
   Regulatory Reviews
      79




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##### Table of Contents



ITEM 1A.
    
    RISK FACTORS
  
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Stock Repurchases
  Total number of
    
    
    Maximum numbershares purchased
    
    
    of shares that mayTotal number
    
    
    Average
    
    
    as part of publicly
    
    
    yet be purchasedof shares
    
    
    price paid
    
    
    announced plans
    
    
    under the plansPeriod
    
    purchased (1)
    
    
    per share
    
    
    or programs (2) (3)
    
    
    or programs (4)April 1  April 30, 2009
    
    
    1,054
    
    
    $
    7.24
    
    
    
    1,054
    
    
    
    10,891,276May 1  May 31, 2009
    
    
    632
    
    
    
    7.05
    
    
    
    632
    
    
    
    9,154,379June 1  June 30, 2009
    
    
    1,643
    
    
    
    8.12
    
    
    
    1,643
    
    
    
    7,526,344Total
    
    
    3,329
    
    
    $
    7.64
    
    
    
    3,329
 (1)
    
    The total number of shares includes: (i) shares purchased pursuant to the 2006
Plan discussed in footnote (2) below; and (ii) shares purchased pursuant to the 2006
ESLP discussed in footnote (3) below, of which there were none for the months of April,
May, or June 2009. Shares of Class A common stock purchased pursuant to the 2006 Plan
included 1,054 shares, 632 shares, and 1,643 shares in April, May, and June,
respectively, that had been issued to the Companys 401(k) plan and allocated to
employee participant accounts pursuant to the plans provisions for Company matching
contributions in shares of Company stock, and were purchased by the Company from the
plan pursuant to employee participant instructions to dispose of such shares.(2)
    
    On May 25, 2006, the Company publicly announced that its Board of Directors had
authorized a stock repurchase program to repurchase up to a total of five million shares
of the Companys Class A common stock (the 2006 Plan). On February 7, 2007, the
Companys Board of Directors increased the total shares the Company is allowed to
repurchase to 10 million. The 2006 Plan had an initial expiration date of May 24, 2008,
which was extended until May 24, 2010 by the Companys Board of Directors on January 30,
2008.(3)
    
    On May 25, 2006, the Company publicly announced that the shareholders of the
Company approved an Employee Stock Purchase Loan Plan (the 2006 ESLP) to allow the
Company to make loans to employees for the purchase of shares of the Companys Class A
common stock either in the open market or directly from the Company. A total of $40
million in loans may be made under the 2006 ESLP, and a total of one million shares of
Class A common stock are reserved for issuance under the 2006 ESLP. Shares may be
purchased directly from the Company or in the open market through a broker at prevailing
market prices at the time of purchase, subject to any conditions or restrictions on the
timing, volume, or prices of purchases as determined by the Compensation Committee of
the Board of Directors and set forth in the Stock Purchase Loan Agreement with the
participant. The 2006 ESLP shall terminate May 25, 2016.(4)
    
    The maximum number of shares that may yet be purchased under the plans is
calculated below. There are no assurances that any additional shares will be
repurchased under either the 2006 Plan or the 2006 ESLP. Shares under the 2006 ESLP may
be issued by the Company rather than purchased in open market transactions.  80




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(B / C)
    
    
    (A + D)Approximate dollar
    
    
    Closing price on
    
    
    Approximate
    
    
    ApproximateMaximum number of
    
    
    value of shares that
    
    
    the last trading day
    
    
    number of shares
    
    
    number of sharesshares that may yet
    
    
    may yet be
    
    
    of the Companys
    
    
    that may yet be
    
    
    that may yet bebe purchased under the
    
    
    purchased under
    
    
    Class A Common
    
    
    purchased under
    
    
    purchased under2006 Plan
    
    
    the 2006 ESLP
    
    
    Stock
    
    
    the 2006 ESLP
    
    
    the 2006 Plan andAs of
    
    (A)
    
    
    (B)
    
    
    (C)
    
    
    (D)
    
    
    2006 ESLPApril 30, 2009
    
    
    4,846,500
    
    
    
    36,450,000
    
    
    
    6.03
    
    
    
    6,044,776
    
    
    
    10,891,276May 31, 2009
    
    
    4,845,868
    
    
    
    36,450,000
    
    
    
    8.46
    
    
    
    4,308,511
    
    
    
    9,154,379June 30, 2009
    
    
    4,844,225
    
    
    
    36,450,000
    
    
    
    13.59
    
    
    
    2,682,119
    
    
    
    7,526,344
 Working capital and dividend restrictions/limitations
   
    
    declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment regarding, any of the Companys capital stock
    
    except as required in connection with the repayment of principal, and except for any
partial payments of deferred interest that may be made through the alternative payment
mechanism described in the Hybrid Securities indenture, make any payment of principal of,
or interest or premium, if any, on, or repay, repurchase, or redeem any of the Companys
debt securities that rank pari passuwith or junior to the Hybrid Securities
    
    make any guarantee payments regarding any guarantee by the Company of the subordinated
debt securities of any of the Companys subsidiaries if the guarantee ranks pari passuwith
or junior in interest to the Hybrid Securities
 pari passu
   
    
    pay dividends or distributions in additional shares of the Companys capital stock
    
    declare or pay a dividend in connection with the implementation of a shareholders
rights plan, or issue stock under such a plan, or redeem or repurchase any rights
distributed pursuant to such a plan
    
    purchase common stock for issuance pursuant to any employee benefit plans
  81




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##### Table of Contents



ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  1.
    
    To elect nine directors to serve on the Companys Board of Directors for one-year terms
or until their successors are elected and qualified. All directors seeking election were in
attendance at the annual meeting.
 Number of SharesVotes For
    
    
    Votes Against
    
    
    AbstainJames P. Abel
    
    
    142,857,237
    
    
    
    609,155
    
    
    
    6,101Stephen F. Butterfield
    
    
    143,189,176
    
    
    
    281,445
    
    
    
    1,871Michael S. Dunlap
    
    
    142,781,175
    
    
    
    690,568
    
    
    
    749Kathleen A. Farrell
    
    
    142,966,264
    
    
    
    498,367
    
    
    
    7,861Thomas E. Henning
    
    
    142,863,876
    
    
    
    602,379
    
    
    
    6,237Brian J. OConnor
    
    
    142,860,435
    
    
    
    604,721
    
    
    
    7,336Kimberly K. Rath
    
    
    142,884,524
    
    
    
    575,571
    
    
    
    12,397Michael D. Reardon
    
    
    142,861,471
    
    
    
    598,786
    
    
    
    12,236James H. Van Horn
    
    
    142,881,278
    
    
    
    580,411
    
    
    
    10,803
 2.
    
    To ratify the appointment of KPMG LLP as the Companys independent registered public
accounting firm for 2009.
 Number of SharesVotes For
    
    Votes Against
    
    Abstain142,875,383
    
    583,144
    
    13,965
 3.
    
    To approve an amendment to the Restricted Stock Plan to increase the authorized number
of shares of Class A common stock that may be issued under the plan from a total of
2,000,000 shares to a total of 4,000,000 shares.
 Number of SharesVotes For
    
    Votes Against
    
    Abstain138,450,966
    
    382,345
    
    4,821
  82




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##### Table of Contents



ITEM 6.
    
    EXHIBITS
 10.1
    +
    
    Nelnet, Inc. Restricted Stock Plan, as amended through May 20, 2009,
filed as Exhibit 10.1 to the registrants Current Report on Form 8-K
filed on May 27, 2009 and incorporated herein by reference.10.2
    *
    
    Funding Note Purchase Agreement, dated as of May 13, 2009, among
Straight-A Funding, LLC, a Delaware limited liability company, as
Conduit Lender, Nelnet Super Conduit Funding, LLC, a Delaware
limited liability company, as Funding Note Issuer, First National
Bank, a national banking association, as Eligible Lender Trustee,
The Bank of New York Mellon, a New York banking corporation, as
Conduit Administrator for the Conduit Lender, as Securities
Intermediary and as Conduit Lender Eligible Lender Trustee, National
Education Loan Network, Inc., a Nevada corporation, as the SPV
Administrator for the Funding Note Issuer, Nelnet, Inc., a Nebraska
corporation, as Sponsor, BMO Capital Markets Corp., a Delaware
company, as Manager for the Conduit Lender, and National Education
Loan Network, Inc., a Nevada corporation, as Master Servicer.10.3
    *
    
    Eligible Lender Trust Agreement, dated as of May 13, 2009 between
Nelnet Super Conduit Funding, LLC, a Delaware limited liability
company, and Zions First National Bank, a national banking
association, not in its individual capacity but solely as eligible
lender trustee on behalf and for the benefit of the Funding Note
Issuer.10.4
    *
    
    Student Loan Purchase Agreement, dated as of May 13, 2009, among
National Education Loan Network, Inc., a Nevada corporation, Union
Bank and Trust Company, a Nebraska banking corporation, not in its
individual capacity but solely as eligible lender trustee for the
benefit of the Seller and its assigns, Nelnet Super Conduit Funding,
LLC, a Delaware limited liability company, and Zions First National
Bank, a national banking association, not in its individual capacity
but solely as eligible lender trustee for the benefit of the
Purchaser and its assigns.10.5
    +
    
    Nelnet, Inc. Second Amended Executive Officers Bonus Plan, filed as
Exhibit 10.1 to the registrants Quarterly Report on Form 10-Q filed
on May 11, 2009 and incorporated herein by reference.31.1
    *
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 of Chief Executive Officer Michael S. Dunlap.31.2
    *
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 of Chief Financial Officer Terry J. Heimes.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+
    
    Indicates a compensatory plan or arrangement  83




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##### Table of Contents



SIGNATURES
  NELNET, INC.Date:   August 10, 2009
    By:
    /s/ MICHAEL S. DUNLAPName:
    Michael S. DunlapTitle:
    Chairman and Chief Executive OfficerBy:
    /s/ TERRY J. HEIMESName:
    Terry J. HeimesTitle:
    Chief Financial Officer  84




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##### Table of Contents



EXHIBIT INDEX
 10.1
    +
    
    Nelnet, Inc. Restricted Stock Plan, as amended through May 20, 2009,
filed as Exhibit 10.1 to the registrants Current Report on Form 8-K
filed on May 27, 2009 and incorporated herein by reference.10.2
    *
    
    Funding Note Purchase Agreement, dated as of May 13, 2009, among
Straight-A Funding, LLC, a Delaware limited liability company, as
Conduit Lender, Nelnet Super Conduit Funding, LLC, a Delaware
limited liability company, as Funding Note Issuer, First National
Bank, a national banking association, as Eligible Lender Trustee,
The Bank of New York Mellon, a New York banking corporation, as
Conduit Administrator for the Conduit Lender, as Securities
Intermediary and as Conduit Lender Eligible Lender Trustee, National
Education Loan Network, Inc., a Nevada corporation, as the SPV
Administrator for the Funding Note Issuer, Nelnet, Inc., a Nebraska
corporation, as Sponsor, BMO Capital Markets Corp., a Delaware
company, as Manager for the Conduit Lender, and National Education
Loan Network, Inc., a Nevada corporation, as Master Servicer.10.3
    *
    
    Eligible Lender Trust Agreement, dated as of May 13, 2009 between
Nelnet Super Conduit Funding, LLC, a Delaware limited liability
company, and Zions First National Bank, a national banking
association, not in its individual capacity but solely as eligible
lender trustee on behalf and for the benefit of the Funding Note
Issuer.10.4
    *
    
    Student Loan Purchase Agreement, dated as of May 13, 2009, among
National Education Loan Network, Inc., a Nevada corporation, Union
Bank and Trust Company, a Nebraska banking corporation, not in its
individual capacity but solely as eligible lender trustee for the
benefit of the Seller and its assigns, Nelnet Super Conduit Funding,
LLC, a Delaware limited liability company, and Zions First National
Bank, a national banking association, not in its individual capacity
but solely as eligible lender trustee for the benefit of the
Purchaser and its assigns.10.5
    +
    
    Nelnet, Inc. Second Amended Executive Officers Bonus Plan, filed as
Exhibit 10.1 to the registrants Quarterly Report on Form 10-Q filed
on May 11, 2009 and incorporated herein by reference.31.1
    *
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 of Chief Executive Officer Michael S. Dunlap.31.2
    *
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 of Chief Financial Officer Terry J. Heimes.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+
    
    Indicates a compensatory plan or arrangement  85