##### 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 March 31, 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
 Yes þ No o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 Yes o No þ




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##### 



NELNET, INC.
FORM 10-Q
INDEX
March 31, 2009
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    2Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    55Item 4. Controls and Procedures
    
    
    60PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    60Item 1A. Risk Factors
    
    
    61Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    62Item 5. Other Information
    
    
    64Item 6. Exhibits
    
    
    64Signatures
    
    
    65Exhibit 10.1Exhibit 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 ofMarch 31, 2009
    
    
    December 31, 2008(unaudited)Assets:Student loans receivable (net of allowance for loan losses of
$48,497 and $50,922, respectively)
    
    $
    25,624,337
    
    
    
    25,413,008Cash and cash equivalents:Cash and cash equivalents  not held at a related party
    
    
    15,070
    
    
    
    13,129Cash and cash equivalents  held at a related party
    
    
    228,635
    
    
    
    176,718Total cash and cash equivalents
    
    
    243,705
    
    
    
    189,847Restricted cash and investments
    
    
    1,218,512
    
    
    
    997,272Restricted cash  due to customers
    
    
    55,610
    
    
    
    160,985Accrued interest receivable
    
    
    388,315
    
    
    
    471,878Accounts receivable (net of allowance for doubtful accounts of
$1,180 and $1,005, respectively)
    
    
    42,575
    
    
    
    42,088Goodwill
    
    
    175,178
    
    
    
    175,178Intangible assets, net
    
    
    70,900
    
    
    
    77,054Property and equipment, net
    
    
    34,890
    
    
    
    38,747Other assets
    
    
    106,105
    
    
    
    113,666Fair value of derivative instruments
    
    
    133,010
    
    
    
    175,174Total assets
    
    $
    28,093,137
    
    
    
    27,854,897Liabilities:Bonds and notes payable
    
    $
    27,130,406
    
    
    
    26,787,959Accrued interest payable
    
    
    48,076
    
    
    
    81,576Other liabilities
    
    
    187,379
    
    
    
    179,336Due to customers
    
    
    55,610
    
    
    
    160,985Fair value of derivative instruments
    
    
    64
    
    
    
    1,815Total liabilities
    
    
    27,421,535
    
    
    
    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 38,276,870 shares as of March 31,
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 March 31,
2009 and December 31, 2008
    
    
    115
    
    
    
    115Additional paid-in capital
    
    
    106,678
    
    
    
    103,762Retained earnings
    
    
    565,976
    
    
    
    540,521Employee notes receivable
    
    
    (1,550
    )
    
    
    (1,550
    )Total shareholders equity
    
    
    671,602
    
    
    
    643,226Commitments and contingenciesTotal liabilities and shareholders equity
    
    $
    28,093,137
    
    
    
    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 ended March 31,2009
    
    
    2008Interest income:Loan interest
    
    $
    170,919
    
    
    
    329,986Investment interest
    
    
    4,091
    
    
    
    11,680Total interest income
    
    
    175,010
    
    
    
    341,666Interest expense:Interest on bonds and notes payable
    
    
    146,502
    
    
    
    325,141Net interest income
    
    
    28,508
    
    
    
    16,525Less provision for loan losses
    
    
    7,500
    
    
    
    5,000Net interest income after provision for loan losses
    
    
    21,008
    
    
    
    11,525Other income (expense):Loan and guaranty servicing revenue
    
    
    26,471
    
    
    
    24,661Tuition payment processing and campus commerce revenue
    
    
    15,538
    
    
    
    13,847Enrollment services revenue
    
    
    28,771
    
    
    
    27,222Software services revenue
    
    
    5,705
    
    
    
    8,204Other income
    
    
    16,862
    
    
    
    6,254Loss on sale of loans
    
    
    (206
    )
    
    
    (47,474
    )Derivative market value, foreign currency,
and put option adjustments and derivative
settlements, net
    
    
    19,478
    
    
    
    (16,598
    )Total other income
    
    
    112,619
    
    
    
    16,116Operating expenses:Salaries and benefits
    
    
    38,226
    
    
    
    53,843Other operating expenses:Cost to provide enrollment services
    
    
    17,793
    
    
    
    15,403Depreciation and amortization
    
    
    10,083
    
    
    
    10,834Professional and other services
    
    
    6,077
    
    
    
    7,195Occupancy and communications
    
    
    5,354
    
    
    
    5,841Postage and distribution
    
    
    2,868
    
    
    
    3,581Trustee and other debt related fees
    
    
    2,656
    
    
    
    2,390Advertising and marketing
    
    
    1,710
    
    
    
    1,948Impairment expense
    
    
    
    
    
    
    18,834Other
    
    
    7,804
    
    
    
    8,968Total other operating expenses
    
    
    54,345
    
    
    
    74,994Total operating expenses
    
    
    92,571
    
    
    
    128,837Income (loss) before income taxes
    
    
    41,056
    
    
    
    (101,196
    )Income tax (expense) benefit
    
    
    (15,601
    )
    
    
    31,371Net income (loss)
    
    $
    25,455
    
    
    
    (69,825
    )Earnings (loss) per share, basic and diluted
    
    $
    0.52
    
    
    
    (1.42
    )
   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 December 31, 2007
    
    
    
    
    
    
    37,980,617
    
    
    
    11,495,377
    
    
    $
    
    
    
    
    380
    
    
    
    115
    
    
    
    96,185
    
    
    
    515,317
    
    
    
    (3,118
    )
    
    
    608,879Comprehensive income:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69,825
    )
    
    
    
    
    
    
    (69,825
    )Total comprehensive
income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69,825
    )Cash dividend on Class A and Class B
common stock  $0.07 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,458
    )
    
    
    
    
    
    
    (3,458
    )Forfeitures of common stock, net of issuances
    
    
    
    
    
    
    (19,780
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    763
    
    
    
    
    
    
    
    
    
    
    
    762Compensation expense for stock-based awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,415
    
    
    
    
    
    
    
    
    
    
    
    1,415Repurchase of common stock
    
    
    
    
    
    
    (48,064
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (488
    )
    
    
    
    
    
    
    
    
    
    
    (488
    )Reduction of employee notes receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    822
    
    
    
    822Balance as of March 31, 2008
    
    
    
    
    
    
    37,912,773
    
    
    
    11,495,377
    
    
    $
    
    
    
    
    379
    
    
    
    115
    
    
    
    97,875
    
    
    
    442,034
    
    
    
    (2,296
    )
    
    
    538,107Balance as of December 31, 2008
    
    
    
    
    
    
    37,794,067
    
    
    
    11,495,377
    
    
    $
    
    
    
    
    378
    
    
    
    115
    
    
    
    103,762
    
    
    
    540,521
    
    
    
    (1,550
    )
    
    
    643,226Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,455
    
    
    
    
    
    
    
    25,455Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,455Issuance of common stock, net of forfeitures
    
    
    
    
    
    
    486,583
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    2,345
    
    
    
    
    
    
    
    
    
    
    
    2,350Compensation expense for stock based awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    607
    
    
    
    
    
    
    
    
    
    
    
    607Repurchase of common stock
    
    
    
    
    
    
    (3,780
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36
    )
    
    
    
    
    
    
    
    
    
    
    (36
    )Balance as of March 31, 2009
    
    
    
    
    
    
    38,276,870
    
    
    
    11,495,377
    
    
    $
    
    
    
    
    383
    
    
    
    115
    
    
    
    106,678
    
    
    
    565,976
    
    
    
    (1,550
    )
    
    
    671,602
   4




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##### Table of Contents



NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
 Three months ended March 31,2009
    
    
    2008Net income (loss)
    
    $
    25,455
    
    
    
    (69,825
    )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
    
    
    30,134
    
    
    
    38,952Provision for loan losses
    
    
    7,500
    
    
    
    5,000Impairment expense
    
    
    
    
    
    
    18,834Derivative market value adjustment
    
    
    52,122
    
    
    
    (36,003
    )Foreign currency transaction adjustment
    
    
    (47,242
    )
    
    
    92,937Proceeds to terminate and/or amend derivative instruments
    
    
    50
    
    
    
    7,547Payments to terminate and/or amend derivative instruments
    
    
    (11,760
    )
    
    
    Gain from purchase of unsecured debt
    
    
    (8,075
    )
    
    
    Loss on sale of loans
    
    
    206
    
    
    
    47,474Deferred income tax expense (benefit)
    
    
    1,323
    
    
    
    (27,389
    )Other non-cash items
    
    
    1,024
    
    
    
    3,437Decrease in accrued interest receivable
    
    
    83,563
    
    
    
    66,778(Increase) decrease in accounts receivable
    
    
    (487
    )
    
    
    1,332Decrease (increase) in other assets
    
    
    7,236
    
    
    
    (11,678
    )Decrease in accrued interest payable
    
    
    (33,500
    )
    
    
    (36,706
    )Increase (decrease) in other liabilities
    
    
    2,817
    
    
    
    (26,027
    )Net cash provided by operating activities
    
    
    110,366
    
    
    
    74,663Cash flows from investing activities:Originations, purchases, and consolidations of student loans, including loan premiums
and deferred origination costs
    
    
    (972,450
    )
    
    
    (1,174,366
    )Purchases of student loans, including loan premiums, from a related party
    
    
    (13,803
    )
    
    
    (177,788
    )Net proceeds
from student loan repayments, claims, capitalized interest, participations, and other
    
    
    734,445
    
    
    
    424,315Proceeds from sale of student loans
    
    
    125
    
    
    
    841,087Proceeds from sale of student loans to a related party
    
    
    20,016
    
    
    
    Purchases of property and equipment, net
    
    
    (62
    )
    
    
    (1,350
    )Increase in restricted cash and investments, net
    
    
    (221,240
    )
    
    
    (868,391
    )Purchases of equity method investments
    
    
    
    
    
    
    (1,718
    )Business acquisition  contingent consideration
    
    
    
    
    
    
    (18,000
    )Net cash used in investing activities
    
    
    (452,969
    )
    
    
    (976,211
    )Cash flows from financing activities:Payments on bonds and notes payable
    
    
    (620,595
    )
    
    
    (550,318
    )Proceeds from issuance of bonds and notes payable
    
    
    1,039,942
    
    
    
    1,459,422(Payments) proceeds from issuance of notes payable due to a related party, net
    
    
    (21,520
    )
    
    
    11,321Payments of debt issuance costs
    
    
    (1,448
    )
    
    
    (3,184
    )Dividends paid
    
    
    
    
    
    
    (3,458
    )Proceeds from issuance of common stock
    
    
    118
    
    
    
    280Repurchases of common stock
    
    
    (36
    )
    
    
    (488
    )Payments received on employee stock notes receivable
    
    
    
    
    
    
    398Net cash provided by financing activities
    
    
    396,461
    
    
    
    913,973Net increase in cash and cash equivalents
    
    
    53,858
    
    
    
    12,425Cash and cash equivalents, beginning of period
    
    
    189,847
    
    
    
    111,746Cash and cash equivalents, end of period
    
    $
    243,705
    
    
    
    124,171Supplemental disclosures of cash flow information:Interest paid
    
    $
    177,210
    
    
    
    354,904Income taxes paid, net of refunds
    
    $
    8,096
    
    
    
    5,343
   5




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##### Table of Contents



NELNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2009 and for the three months ended
March 31, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 1. Basis of Financial Reporting
  2. Student Loans Receivable and Allowance for Loan Losses
  As of
    
    
    As ofMarch 31, 2009
    
    
    December 31, 2008Federally insured loans
    
    $
    25,055,798
    
    
    
    24,787,941Non-federally insured loans
    
    
    218,375
    
    
    
    273,10825,274,173
    
    
    
    25,061,049Unamortized loan premiums and deferred origination costs
    
    
    398,661
    
    
    
    402,881Allowance for loan losses  federally insured loans
    
    
    (27,310
    )
    
    
    (25,577
    )Allowance for loan losses  non-federally insured loans
    
    
    (21,187
    )
    
    
    (25,345
    )$
    25,624,337
    
    
    
    25,413,008Federally insured allowance as a percentage of ending balance of federally insured loans
    
    
    0.11
    %
    
    
    0.10
    %Non-federally insured allowance as a percentage of ending balance of non-federally insured loans
    
    
    9.70
    %
    
    
    9.28
    %Total allowance as a percentage of ending balance of total loans
    
    
    0.19
    %
    
    
    0.20
    %
  Three months ended March 31,2009
    
    
    2008Beginning balance
    
    $
    50,922
    
    
    
    45,592Provision for loan losses
    
    
    7,500
    
    
    
    5,000Loans charged off, net of recoveries
    
    
    (3,905
    )
    
    
    (3,705
    )Sale of loans
    
    
    (6,020
    )
    
    
    (750
    )Ending balance
    
    $
    48,497
    
    
    
    46,137
 Loan Sales
  6




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##### Table of Contents



Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
 3. Bonds and Notes Payable
  As of March 31, 2009Carrying
    
    
    Interest rateamount
    
    
    range
    
    Final maturityVariable-rate bonds and notes (a):Bonds and notes based on indices
    
    $
    20,387,802
    
    
    0.95%  6.90%
    
    09/25/13  06/25/41Bonds and notes based on auction or remarketing
    
    
    2,667,635
    
    
    0.92%  3.75%
    
    11/01/09  07/01/43Total variable-rate bonds and notes
    
    
    23,055,437Commercial paper  FFELP facility (b)
    
    
    1,369,485
    
    
    0.41%  1.37%
    
    05/09/10Fixed-rate bonds and notes (a)
    
    
    193,362
    
    
    5.30%  6.50%
    
    11/01/09  05/01/29Unsecured fixed rate debt
    
    
    440,134
    
    
    5.125% and 7.40%
    
    06/01/10 and 09/15/61Unsecured line of credit
    
    
    691,500
    
    
    1.04%  1.10%
    
    05/08/12Department of Education Participation
    
    
    1,360,159
    
    
    3.08%
    
    09/30/09Other borrowings
    
    
    20,329
    
    
    0.50%  5.10%
    
    01/01/10  11/01/15$
    27,130,406
 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.  7




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##### Table of Contents



Secured Financing Transactions
    Loan warehouse facilities
  FFELP Warehouse Facility
      8




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##### Table of Contents



Private Loan Warehouse Facility
  Asset-backed
securitizations
  Department of Educations Loan Participation and Purchase Commitment Programs
    Union Bank Participation Agreement
  Unsecured Line of Credit
   9




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##### Table of Contents




    
    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
   Unsecured Fixed Rate Debt
  4. Derivative Financial Instruments
  Interest Rate Risk
      10




---



##### Table of Contents



As of March 31, 2009Notional AmountAverage/DiscreteMaturity
    
    Basis Swaps
    
    
    1/3 Basis Swaps2009
    
    $
    1,350,000
    
    
    
    2011 (a)
    
    
    6,000,000
    
    
    
    2018
    
    
    
    
    
    
    1,300,0002019
    
    
    
    
    
    
    500,0002021
    
    
    
    
    
    
    250,0002023
    
    
    
    
    
    
    1,250,0002024
    
    
    
    
    
    
    250,0002028
    
    
    
    
    
    
    100,000$
    7,350,000
    
    
    
    3,650,000
 (a)
    
    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). 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
   11




---



##### 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 ofMarch 31, 2009
    
    
    December 31, 2008
    
    
    March 31, 2009
    
    
    December 31, 2008Average/discrete basis swaps
    
    $
    761
    
    
    
    2,817
    
    
    
    (31
    )
    
    
    (1,800
    )1/3 basis swaps
    
    
    22,039
    
    
    
    5,037
    
    
    
    (33
    )
    
    
    (15
    )Cross-currency interest
rate swaps
    
    
    110,210
    
    
    
    167,320
    
    
    
    
    
    
    
    Total
    
    $
    133,010
    
    
    
    175,174
    
    
    
    (64
    )
    
    
    (1,815
    )
  12




---



##### Table of Contents



Amount of gain (or loss) recognizedin
income on derivativesDerivatives not designated
    
    Three months ended March 31as hedging under SFAS No. 133
    
    2009
    
    
    2008Settlements:Interest rate swaps
    
    $
    
    
    
    
    (3,177
    )Average/discrete basis swaps
    
    
    10,022
    
    
    
    39,5731/3 basis swaps
    
    
    10,744
    
    
    
    884Cross-currency interest rate swaps
    
    
    3,592
    
    
    
    3,483Total settlements
    
    
    24,358
    
    
    
    40,763Change in fair value:Interest rate swaps
    
    
    
    
    
    
    (34,871
    )Average/discrete basis swaps
    
    
    (286
    )
    
    
    (26,289
    )1/3 basis swaps
    
    
    5,274
    
    
    
    2,568Cross-currency interest rate swaps
    
    
    (57,110
    )
    
    
    94,129Other
    
    
    
    
    
    
    466Total change in fair value
    
    
    (52,122
    )
    
    
    36,003Total impact
to statements of operations
    
    $
    (27,764
    )
    
    
    76,766
 Derivative Instruments  Credit and Market Risk
     5. Segment Reporting
 Disclosures about Segments of
an Enterprise and Related Information
  13




---



##### 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
   14




---



##### Table of Contents



Segment Operating Results  Base Net Income
   Segment Results and Reconciliations to GAAP
 Three months ended March 31, 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
    
    $
    66
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    172,587
    
    
    
    1,427
    
    
    
    (560
    )
    
    
    1,460
    
    
    
    175,010Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    138,594
    
    
    
    8,468
    
    
    
    (560
    )
    
    
    
    
    
    
    146,502Net interest income (loss)
    
    
    66
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    33,993
    
    
    
    (7,041
    )
    
    
    
    
    
    
    1,460
    
    
    
    28,508Less provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,500Net interest income (loss) after provision
for loan losses
    
    
    66
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    26,493
    
    
    
    (7,041
    )
    
    
    
    
    
    
    1,460
    
    
    
    21,008Other income (expense):Loan and guaranty servicing revenue
    
    
    26,853
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,853
    
    
    
    
    
    
    
    (382
    )
    
    
    
    
    
    
    
    
    
    
    26,471Tuition payment processing and campus commerce revenue
    
    
    
    
    
    
    15,538
    
    
    
    
    
    
    
    
    
    
    
    15,538
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,538Enrollment services revenue
    
    
    
    
    
    
    
    
    
    
    28,771
    
    
    
    
    
    
    
    28,771
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,771Software services revenue
    
    
    875
    
    
    
    
    
    
    
    
    
    
    
    4,830
    
    
    
    5,705
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,705Other income
    
    
    112
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112
    
    
    
    4,651
    
    
    
    12,099
    
    
    
    
    
    
    
    
    
    
    
    16,862Loss on sale of loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (206
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (206
    )Intersegment revenue
    
    
    19,878
    
    
    
    57
    
    
    
    
    
    
    
    3,124
    
    
    
    23,059
    
    
    
    
    
    
    
    8,921
    
    
    
    (31,980
    )
    
    
    
    
    
    
    Derivative market value, foreign currency,
and put option adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,880
    )
    
    
    (4,880
    )Derivative settlements, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,358
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,358Total other income (expense)
    
    
    47,718
    
    
    
    15,595
    
    
    
    28,771
    
    
    
    7,954
    
    
    
    100,038
    
    
    
    28,803
    
    
    
    20,638
    
    
    
    (31,980
    )
    
    
    (4,880
    )
    
    
    112,619Operating expenses:Salaries and benefits
    
    
    14,704
    
    
    
    6,545
    
    
    
    6,095
    
    
    
    5,185
    
    
    
    32,529
    
    
    
    1,775
    
    
    
    6,267
    
    
    
    (2,504
    )
    
    
    159
    
    
    
    38,226Cost to provide enrollment services
    
    
    
    
    
    
    
    
    
    
    17,793
    
    
    
    
    
    
    
    17,793
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,793Other expenses
    
    
    8,597
    
    
    
    2,408
    
    
    
    3,295
    
    
    
    678
    
    
    
    14,978
    
    
    
    4,959
    
    
    
    10,461
    
    
    
    
    
    
    
    6,154
    
    
    
    36,552Intersegment expenses
    
    
    9,470
    
    
    
    623
    
    
    
    546
    
    
    
    645
    
    
    
    11,284
    
    
    
    17,876
    
    
    
    316
    
    
    
    (29,476
    )
    
    
    
    
    
    
    Total operating expenses
    
    
    32,771
    
    
    
    9,576
    
    
    
    27,729
    
    
    
    6,508
    
    
    
    76,584
    
    
    
    24,610
    
    
    
    17,044
    
    
    
    (31,980
    )
    
    
    6,313
    
    
    
    92,571Income (loss) before income taxes
    
    
    15,013
    
    
    
    6,049
    
    
    
    1,042
    
    
    
    1,446
    
    
    
    23,550
    
    
    
    30,686
    
    
    
    (3,447
    )
    
    
    
    
    
    
    (9,733
    )
    
    
    41,056Income tax (expense) benefit (a)
    
    
    (5,705
    )
    
    
    (2,298
    )
    
    
    (396
    )
    
    
    (550
    )
    
    
    (8,949
    )
    
    
    (11,661
    )
    
    
    1,310
    
    
    
    
    
    
    
    3,699
    
    
    
    (15,601
    )Net income (loss)
    
    $
    9,308
    
    
    
    3,751
    
    
    
    646
    
    
    
    896
    
    
    
    14,601
    
    
    
    19,025
    
    
    
    (2,137
    )
    
    
    
    
    
    
    (6,034
    )
    
    
    25,455
 (a)
    
    Tax effect is computed at
the Companys blended, statutory federal and state rate of 38%.  15




---



##### Table of Contents



Three months ended March 31, 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
    
    $
    613
    
    
    
    765
    
    
    
    9
    
    
    
    
    
    
    
    1,387
    
    
    
    320,358
    
    
    
    1,197
    
    
    
    (94
    )
    
    
    18,818
    
    
    
    341,666Interest expense
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    316,015
    
    
    
    9,219
    
    
    
    (94
    )
    
    
    
    
    
    
    325,141Net interest income (loss)
    
    
    613
    
    
    
    765
    
    
    
    8
    
    
    
    
    
    
    
    1,386
    
    
    
    4,343
    
    
    
    (8,022
    )
    
    
    
    
    
    
    18,818
    
    
    
    16,525Less provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000Net interest income (loss) after provision
for loan losses
    
    
    613
    
    
    
    765
    
    
    
    8
    
    
    
    
    
    
    
    1,386
    
    
    
    (657
    )
    
    
    (8,022
    )
    
    
    
    
    
    
    18,818
    
    
    
    11,525Other income (expense):Loan and guaranty servicing revenue
    
    
    24,656
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,656
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,661Tutition payment processing and campus commerce revenue
    
    
    
    
    
    
    13,847
    
    
    
    
    
    
    
    
    
    
    
    13,847
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,847Enrollment services revenue
    
    
    
    
    
    
    
    
    
    
    27,222
    
    
    
    
    
    
    
    27,222
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,222Software services revenue
    
    
    1,452
    
    
    
    
    
    
    
    37
    
    
    
    6,715
    
    
    
    8,204
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,204Other income
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    4,857
    
    
    
    1,365
    
    
    
    
    
    
    
    
    
    
    
    6,254Loss on sale of loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47,474
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47,474
    )Intersegment revenue
    
    
    20,224
    
    
    
    260
    
    
    
    
    
    
    
    1,816
    
    
    
    22,300
    
    
    
    
    
    
    
    17,212
    
    
    
    (39,512
    )
    
    
    
    
    
    
    Derivative market value, foreign currency,
and put option adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    466
    
    
    
    
    
    
    
    
    
    
    
    (57,827
    )
    
    
    (57,361
    )Derivative settlements, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,527
    
    
    
    
    
    
    
    
    
    
    
    (2,764
    )
    
    
    40,763Total other income (expense)
    
    
    46,364
    
    
    
    14,107
    
    
    
    27,259
    
    
    
    8,531
    
    
    
    96,261
    
    
    
    1,381
    
    
    
    18,577
    
    
    
    (39,512
    )
    
    
    (60,591
    )
    
    
    16,116Operating expenses:Salaries and benefits
    
    
    13,998
    
    
    
    5,430
    
    
    
    6,523
    
    
    
    5,168
    
    
    
    31,119
    
    
    
    2,224
    
    
    
    14,591
    
    
    
    4,613
    
    
    
    1,296
    
    
    
    53,843Restructure expense- severance and contract
termination costs
    
    
    851
    
    
    
    
    
    
    
    297
    
    
    
    518
    
    
    
    1,666
    
    
    
    1,896
    
    
    
    3,915
    
    
    
    (7,477
    )
    
    
    
    
    
    
    Impairment expense
    
    
    5,074
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,074
    
    
    
    9,351
    
    
    
    4,409
    
    
    
    
    
    
    
    
    
    
    
    18,834Cost to provide enrollment services
    
    
    
    
    
    
    
    
    
    
    15,403
    
    
    
    
    
    
    
    15,403
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,403Other expenses
    
    
    8,487
    
    
    
    2,060
    
    
    
    2,760
    
    
    
    619
    
    
    
    13,926
    
    
    
    5,344
    
    
    
    13,865
    
    
    
    1,062
    
    
    
    6,560
    
    
    
    40,757Intersegment expenses
    
    
    13,278
    
    
    
    296
    
    
    
    1,847
    
    
    
    394
    
    
    
    15,815
    
    
    
    20,602
    
    
    
    1,293
    
    
    
    (37,710
    )
    
    
    
    
    
    
    Total operating expenses
    
    
    41,688
    
    
    
    7,786
    
    
    
    26,830
    
    
    
    6,699
    
    
    
    83,003
    
    
    
    39,417
    
    
    
    38,073
    
    
    
    (39,512
    )
    
    
    7,856
    
    
    
    128,837Income (loss) before income taxes
    
    
    5,289
    
    
    
    7,086
    
    
    
    437
    
    
    
    1,832
    
    
    
    14,644
    
    
    
    (38,693
    )
    
    
    (27,518
    )
    
    
    
    
    
    
    (49,629
    )
    
    
    (101,196
    )Income tax (expense) benefit (a)
    
    
    (1,640
    )
    
    
    (2,197
    )
    
    
    (135
    )
    
    
    (568
    )
    
    
    (4,540
    )
    
    
    11,995
    
    
    
    8,531
    
    
    
    
    
    
    
    15,385
    
    
    
    31,371Net income (loss)
    
    $
    3,649
    
    
    
    4,889
    
    
    
    302
    
    
    
    1,264
    
    
    
    10,104
    
    
    
    (26,698
    )
    
    
    (18,987
    )
    
    
    
    
    
    
    (34,244
    )
    
    
    (69,825
    )
 (a)
    
    For 2008, the consolidated effective tax rate for each applicable quarterly period is used to
calculate income taxes for each operating segment.  
    
    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
  16




---



##### 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 March 31, 2009Derivative market value, foreign currency, and
put option adjustments (1)
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,880
    
    
    
    
    
    
    
    4,880Amortization of intangible assets (2)
    
    
    1,079
    
    
    
    1,887
    
    
    
    3,042
    
    
    
    146
    
    
    
    
    
    
    
    
    
    
    
    6,154Compensation related to business combinations (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159
    
    
    
    159Variable-rate floor income, net of settlements on
derivatives (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,460
    )
    
    
    
    
    
    
    (1,460
    )Net tax effect (5)
    
    
    (410
    )
    
    
    (717
    )
    
    
    (1,157
    )
    
    
    (55
    )
    
    
    (1,300
    )
    
    
    (60
    )
    
    
    (3,699
    )Total adjustments to GAAP
    
    $
    669
    
    
    
    1,170
    
    
    
    1,885
    
    
    
    91
    
    
    
    2,120
    
    
    
    99
    
    
    
    6,034Three months ended March 31, 2008Derivative market value, foreign currency, and
put option adjustments (1)
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,400
    
    
    
    427
    
    
    
    57,827Amortization of intangible assets (2)
    
    
    1,256
    
    
    
    2,051
    
    
    
    2,822
    
    
    
    286
    
    
    
    145
    
    
    
    
    
    
    
    6,560Compensation related to business combinations (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,296
    
    
    
    1,296Variable-rate floor income, net of settlements on
derivatives (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,054
    )
    
    
    
    
    
    
    (16,054
    )Net tax effect (5)
    
    
    (389
    )
    
    
    (636
    )
    
    
    (875
    )
    
    
    (89
    )
    
    
    (12,862
    )
    
    
    (534
    )
    
    
    (15,385
    )Total adjustments to GAAP
    
    $
    867
    
    
    
    1,415
    
    
    
    1,947
    
    
    
    197
    
    
    
    28,629
    
    
    
    1,189
    
    
    
    34,244
 (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.(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. For the three months ended March 31, 2009 and 2008, the economic
benefit received by the Company related to variable rate floor income was $1.5
million and $6.3 million, respectively. Variable rate floor income calculated on a
statutory maximum basis for the three months ended March 31, 2009 and 2008 was $10.8
million and $18.8 million, respectively. Beginning October 1, 2008, the economic
benefit received by the Company has been used to determine base net income.(5)
    
    In 2009, tax effect is
computed at the Companys blended, statutory federal and
state rate of 38%. In 2008, tax effect was computed using the Companys consolidated
effective tax rate for each applicable quarterly period.  17




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##### Table of Contents



6. Intangible Assets and Goodwill
  Weightedaverageremaininguseful life as of
    
    
    As of
    
    
    As ofMarch 31,
    
    
    March 31,
    
    
    December 31,2009
    
    
    2009
    
    
    2008Amortizable intangible assets:Customer relationships (net of accumulated amortization of $32,033
and $29,737, respectively)
    
    
    104
    
    
    $
    48,327
    
    
    
    50,623Trade names (net of accumulated amortization of $6,425 and
$5,478, respectively)
    
    
    40
    
    
    
    10,634
    
    
    
    11,581Covenants not to compete (net of accumulated amortization of
$16,285 and $14,887, respectively)
    
    
    17
    
    
    
    7,337
    
    
    
    8,735Database and content (net of accumulated amortization of $6,010
and $5,447, respectively)
    
    
    20
    
    
    
    3,470
    
    
    
    4,033Computer software (net of accumulated amortization of $8,042
and $7,441, respectively)
    
    
    7
    
    
    
    960
    
    
    
    1,561Student lists (net of accumulated amortization of $8,197 and
$7,855, respectively)
    
    
    
    
    
    
    
    
    
    
    342Other (net of accumulated amortization of $102 and $95, respectively)
    
    
    83
    
    
    
    172
    
    
    
    179Total  amortizable intangible assets
    
    80 months
    
    
    $
    70,900
    
    
    
    77,054
  2009
    
    $
    16,1692010
    
    
    15,9852011
    
    
    10,0312012
    
    
    9,0292013
    
    
    6,1682014 and thereafter
    
    
    13,518$
    70,900
  Tuition Payment Processing and Campus Commerce
    
    $
    58,086Enrollment Services
    
    
    66,613Software and Technical Services
    
    
    8,596Asset Generation and Management
    
    
    41,883$
    175,178
 7. Fair Value
 Fair Value Measurements Effective Date of FASB Statement No. 157
  18




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##### Table of Contents




    
    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.
  As of March 31, 2009Level 1
    
    
    Level 2
    
    
    TotalAssets:Cash and cash equivalents (a)
    
    $
    243,705
    
    
    
    
    
    
    
    243,705Restricted
cash and investments (b)
    
    
    
    
    
    
    1,218,512
    
    
    
    1,218,512Other assets
(c)
    
    
    4,670
    
    
    
    4,342
    
    
    
    9,012Fair value
of derivative instruments (d)
    
    
    
    
    
    
    133,010
    
    
    
    133,010Total assets
    
    $
    248,375
    
    
    
    1,355,864
    
    
    
    1,604,239Liabilities:Fair value
of derivative instruments (d)
    
    $
    
    
    
    
    64
    
    
    
    64Total liabilities
    
    $
    
    
    
    
    64
    
    
    
    64
 (a)
    
    Cash and cash equivalents includes all operating
cash and investments with maturities when purchased of three
months or less.(b)
    
    Restricted cash and
investments are held by trustees in various accounts subject to use
restrictions imposed by the trust indenture and consist of guaranteed
investment contracts, which are classified as held-to-maturity. These
investments are purchased at par value, which equals their cost as of
March 31, 2009.(c)
    
    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.(d)
    
    All derivatives are accounted for at fair value in
the financial statements. 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. 8. Shareholders Equity
 Issuance of Class A Common Stock
   19




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##### Table of Contents



9. Earnings per Common Share
 Earnings Per Share
  Three months ended March 31,2009
    
    
    2008Weighted average shares outstanding
    
    
    49,473,953
    
    
    
    49,444,415Less: Nonvested restricted stock 
vesting solely upon continued service
    
    
    331,629
    
    
    
    392,670Weighted average shares outstanding used
to compute basic EPS
    
    
    49,142,324
    
    
    
    49,051,745Dilutive effect of nonvested restricted stock
    
    
    192,657
    
    
    
    Weighted average shares used to compute diluted EPS
    
    
    49,334,981
    
    
    
    49,051,745
  10. Gain from Sale of Equity Method Investment
  11. Recent Developments
 Debt purchases
  Restructuring Charge
     20




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##### Table of Contents



Industry Developments
 Department of Education Review
   Legislation
   Goodwill and Other Intangible Assets
  
 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 months ended March 31, 2009 and 2008. All dollars are in thousands, except per share
amounts, unless otherwise noted).
  Forward-looking and cautionary statements
   21




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##### Table of Contents



OVERVIEW
    
    
    Diversification of revenue through fee-based businesses
 
    
    Net interest margin and
derivative settlements related to the Companys student loan portfolio
 
    
    Decreases in operating expenses
 
    
    Reduced exposure to liquidity risk on the Companys FFELP warehouse facility
 
    
    Reduced debt burden
  Revenue Diversification
  Three months ended March 31,2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeTuition Payment Processing and Campus Commerce
    
    $
    15,568
    
    
    
    14,612
    
    
    
    956Enrollment Services  Content Management and Lead
Generation
    
    
    27,366
    
    
    
    24,990
    
    
    
    2,376Total revenue from fee-based businesses
less dependent upon government programs
    
    
    42,934
    
    
    
    39,602
    
    
    $
    3,332
    
    
    
    8.4
    %Enrollment Services  List Marketing Services
    
    
    1,405
    
    
    
    2,277Student Loan and Guaranty Servicing
    
    
    27,906
    
    
    
    26,753Software and Technical Services
    
    
    4,830
    
    
    
    6,715Total revenue from fee-based businesses
    
    $
    77,075
    
    
    
    75,347
  22




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##### Table of Contents



Core Student Loan Spread
  
    
    Derivative settlements
    
    CP/LIBOR distortion
    
    Fixed rate floor income
 Derivative
settlements
 The Company issues asset-backed securities, the vast majority being variable rate, to fund its student loan assets. The
variable rate debt is generally indexed to 3-month LIBOR, set by auction, or through a remarketing process. The income
generated by the Companys student loan assets is generally driven by short term indices (treasury bills, commercial
paper, and certain fixed rates) that are different from those which affect the Companys liabilities (generally LIBOR),
which creates basis risk. Moreover, the Company also faces repricing risk due to the timing of the interest rate resets
on its liabilities, which may occur as infrequently as every quarter, and the timing of the interest rate resets on its
assets, which generally occurs daily.  CP/LIBOR
distortion
  Fixed
rate floor income
 Loans originated prior to April 1, 2006 generally earn interest at the higher of a floating rate based on the Special
Allowance Payment or SAP formula set by the Department and the borrower rate, which is fixed over a period of time. The
SAP formula is based on an applicable index plus a fixed spread that is dependent upon when the loan was originated,
the loans repayment status, and funding sources for the loan. The Company generally finances its student loan
portfolio with variable rate debt. In low and/or declining interest rate environments, when the fixed borrower rate is
higher than the rate produced by the SAP formula, the Companys student loans earn at a fixed rate while the interest
on the variable rate debt typically continues to decline. In these interest rate environments, the Company may earn
additional spread income that it refers to as floor income. For loans where the borrower rate is fixed to term, the
Company may earn floor income for an extended period of time, which the Company refers to as fixed rate floor income.
During the three months ended March 31, 2009, loan interest income includes approximately $30.3 million of fixed rate
floor income. Operating Expenses
  Reduction in Liquidity Risk Exposure  FFELP Warehouse Facility
   Reduction in Debt Burden
  Legislation
    23




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##### Table of Contents



RESULTS OF OPERATIONS
  Net Interest Income
       Provision for Loan Losses
     24




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##### Table of Contents



Other Income
  Student Loan and Guaranty Servicing Revenue 
 Enrollment Services Revenue 
 Tuition Payment Processing and Campus Commerce Revenue
 Software Services Revenue 
 Operating Expenses
  Three months ended March 31, 2009 compared to the three months ended March 31, 2008
 Net Interest Income
 Three months ended March 31,2009
    
    
    2008
    
    
    $ ChangeInterest income:Loan interest
    
    $
    170,919
    
    
    
    329,986
    
    
    
    (159,067
    )Investment interest
    
    
    4,091
    
    
    
    11,680
    
    
    
    (7,589
    )Total interest income
    
    
    175,010
    
    
    
    341,666
    
    
    
    (166,656
    )Interest expense:Interest on bonds and notes payable
    
    
    146,502
    
    
    
    325,141
    
    
    
    (178,639
    )Net interest income
    
    
    28,508
    
    
    
    16,525
    
    
    
    11,983Provision for loan losses
    
    
    7,500
    
    
    
    5,000
    
    
    
    2,500Net interest income after
provision for loan losses
    
    $
    21,008
    
    
    
    11,525
    
    
    
    9,483
  25




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##### Table of Contents




    
    Net interest income increased for the three months ended March 31, 2009 compared to 2008
as a result of an increase in the Companys core student loan spread, excluding derivative
settlements, as discussed in this Item 2 under Asset Generation and
Management Operating Segment  Results of Operations. Core student loan spread, excluding
derivative settlements, was 0.56% and 0.32% for the three months ended March 31, 2009 and
2008, respectively. This increase was offset by a decrease in investment interest due to
lower interest rates in 2009.
 
    
    The provision for loan losses increased for the three months ended March 31, 2009
compared to 2008 primarily due to increases in delinquencies as a result of the continued
weakening of the U.S. economy.
 Other Income
 Three months ended March 31,2009
    
    
    2008
    
    
    $ ChangeLoan and guaranty servicing revenue
    
    $
    26,471
    
    
    
    24,661
    
    
    
    1,810Tuition payment processing and campus commerce
revenue
    
    
    15,538
    
    
    
    13,847
    
    
    
    1,691Enrollment services revenue
    
    
    28,771
    
    
    
    27,222
    
    
    
    1,549Software services revenue
    
    
    5,705
    
    
    
    8,204
    
    
    
    (2,499
    )Other income
    
    
    16,862
    
    
    
    6,254
    
    
    
    10,608Loss on sale of loans
    
    
    (206
    )
    
    
    (47,474
    )
    
    
    47,268Derivative market value, foreign currency,
and put option adjustments
    
    
    (4,880
    )
    
    
    (57,361
    )
    
    
    52,481Derivative settlements, net
    
    
    24,358
    
    
    
    40,763
    
    
    
    (16,405
    )Total other income
    
    $
    112,619
    
    
    
    16,116
    
    
    
    96,503
 
    
    Loan and guaranty servicing revenue increased due to an increase in FFELP loan
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 as further discussed in this Item 2 under Enrollment
Services Operating Segment  Results of Operations.
 
    
    Software and technical services revenue decreased 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 months ended March 31, 2009 compared to 2008 due
to a gain of $8.1 million from the purchase of $34.9 million of the Companys unsecured
fixed rate debt and a $3.5 million gain related to the Company receiving a contingency
payment in the first quarter of 2009 from the sale of an equity method investment.
 
    
    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.
  26




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##### Table of Contents



Operating Expense
 Three months ended March 31,2009
    
    
    2008
    
    
    $ ChangeSalaries and benefits
    
    $
    38,226
    
    
    
    47,939
    
    
    
    (9,713
    )Other expenses
    
    
    54,345
    
    
    
    54,587
    
    
    
    (242
    )Operating expenses, excluding restructure
expense and impairment expense
    
    
    92,571
    
    
    
    102,526
    
    
    $
    (9,955
    )Restructure expense
    
    
    
    
    
    
    7,477Impairment expense
    
    
    
    
    
    
    18,834Total operating expenses
    
    $
    92,571
    
    
    
    128,837
  Income Taxes
   Financial Condition as of March 31, 2009 compared to December 31, 2008
 As of
    
    
    As ofMarch 31,
    
    
    December 31,
    
    
    Change2009
    
    
    2008
    
    
    Dollars
    
    
    PercentAssets:Student loans receivable, net
    
    $
    25,624,337
    
    
    
    25,413,008
    
    
    
    211,329
    
    
    
    0.8
    %Cash, cash equivalents, and investments
    
    
    1,517,827
    
    
    
    1,348,104
    
    
    
    169,723
    
    
    
    12.6Goodwill
    
    
    175,178
    
    
    
    175,178
    
    
    
    
    
    
    
    Intangible assets, net
    
    
    70,900
    
    
    
    77,054
    
    
    
    (6,154
    )
    
    
    (8.0
    )Fair value of derivative instruments
    
    
    133,010
    
    
    
    175,174
    
    
    
    (42,164
    )
    
    
    (24.1
    )Other assets
    
    
    571,885
    
    
    
    666,379
    
    
    
    (94,494
    )
    
    
    (14.2
    )Total assets
    
    $
    28,093,137
    
    
    
    27,854,897
    
    
    
    238,240
    
    
    
    0.9
    %Liabilities:Bonds and notes payable
    
    $
    27,130,406
    
    
    
    26,787,959
    
    
    
    342,447
    
    
    
    1.3
    %Fair value of derivative instruments
    
    
    64
    
    
    
    1,815
    
    
    
    (1,751
    )
    
    
    (96.5
    )Other liabilities
    
    
    291,065
    
    
    
    421,897
    
    
    
    (130,832
    )
    
    
    (31.0
    )Total liabilities
    
    
    27,421,535
    
    
    
    27,211,671
    
    
    
    209,864
    
    
    
    0.8Shareholders equity
    
    
    671,602
    
    
    
    643,226
    
    
    
    28,376
    
    
    
    4.4Total liabilities and shareholders equity
    
    $
    28,093,137
    
    
    
    27,854,897
    
    
    
    238,240
    
    
    
    0.9
    %
   27




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##### Table of Contents



OPERATING SEGMENTS
       28




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##### Table of Contents



Segment Results and Reconciliations to GAAP
 Three months ended March 31, 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
    
    $
    66
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    172,587
    
    
    
    1,427
    
    
    
    (560
    )
    
    
    1,460
    
    
    
    175,010Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    138,594
    
    
    
    8,468
    
    
    
    (560
    )
    
    
    
    
    
    
    146,502Net interest income (loss)
    
    
    66
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    33,993
    
    
    
    (7,041
    )
    
    
    
    
    
    
    1,460
    
    
    
    28,508Less provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,500Net interest income (loss) after provision
for loan losses
    
    
    66
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    26,493
    
    
    
    (7,041
    )
    
    
    
    
    
    
    1,460
    
    
    
    21,008Other income (expense):Loan and guaranty servicing revenue
    
    
    26,853
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,853
    
    
    
    
    
    
    
    (382
    )
    
    
    
    
    
    
    
    
    
    
    26,471Tuition payment processing and campus commerce revenue
    
    
    
    
    
    
    15,538
    
    
    
    
    
    
    
    
    
    
    
    15,538
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,538Enrollment services revenue
    
    
    
    
    
    
    
    
    
    
    28,771
    
    
    
    
    
    
    
    28,771
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,771Software services revenue
    
    
    875
    
    
    
    
    
    
    
    
    
    
    
    4,830
    
    
    
    5,705
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,705Other income
    
    
    112
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112
    
    
    
    4,651
    
    
    
    12,099
    
    
    
    
    
    
    
    
    
    
    
    16,862Loss on sale of loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (206
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (206
    )Intersegment revenue
    
    
    19,878
    
    
    
    57
    
    
    
    
    
    
    
    3,124
    
    
    
    23,059
    
    
    
    
    
    
    
    8,921
    
    
    
    (31,980
    )
    
    
    
    
    
    
    Derivative market value, foreign currency,
and put option adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,880
    )
    
    
    (4,880
    )Derivative settlements, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,358
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,358Total other income (expense)
    
    
    47,718
    
    
    
    15,595
    
    
    
    28,771
    
    
    
    7,954
    
    
    
    100,038
    
    
    
    28,803
    
    
    
    20,638
    
    
    
    (31,980
    )
    
    
    (4,880
    )
    
    
    112,619Operating expenses:Salaries and benefits
    
    
    14,704
    
    
    
    6,545
    
    
    
    6,095
    
    
    
    5,185
    
    
    
    32,529
    
    
    
    1,775
    
    
    
    6,267
    
    
    
    (2,504
    )
    
    
    159
    
    
    
    38,226Costs to provide enrollment services
    
    
    
    
    
    
    
    
    
    
    17,793
    
    
    
    
    
    
    
    17,793
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,793Other expenses
    
    
    8,597
    
    
    
    2,408
    
    
    
    3,295
    
    
    
    678
    
    
    
    14,978
    
    
    
    4,959
    
    
    
    10,461
    
    
    
    
    
    
    
    6,154
    
    
    
    36,552Intersegment expenses
    
    
    9,470
    
    
    
    623
    
    
    
    546
    
    
    
    645
    
    
    
    11,284
    
    
    
    17,876
    
    
    
    316
    
    
    
    (29,476
    )
    
    
    
    
    
    
    Total operating expenses
    
    
    32,771
    
    
    
    9,576
    
    
    
    27,729
    
    
    
    6,508
    
    
    
    76,584
    
    
    
    24,610
    
    
    
    17,044
    
    
    
    (31,980
    )
    
    
    6,313
    
    
    
    92,571Income (loss) before income taxes
    
    
    15,013
    
    
    
    6,049
    
    
    
    1,042
    
    
    
    1,446
    
    
    
    23,550
    
    
    
    30,686
    
    
    
    (3,447
    )
    
    
    
    
    
    
    (9,733
    )
    
    
    41,056Income tax (expense) benefit (a)
    
    
    (5,705
    )
    
    
    (2,298
    )
    
    
    (396
    )
    
    
    (550
    )
    
    
    (8,949
    )
    
    
    (11,661
    )
    
    
    1,310
    
    
    
    
    
    
    
    3,699
    
    
    
    (15,601
    )Net income (loss)
    
    $
    9,308
    
    
    
    3,751
    
    
    
    646
    
    
    
    896
    
    
    
    14,601
    
    
    
    19,025
    
    
    
    (2,137
    )
    
    
    
    
    
    
    (6,034
    )
    
    
    25,455(a)    Tax effect is computed at the Companys blended,
statutory federal and state rate of 38%.Three months ended March 31, 2009:Before Tax Operating Margin
    
    
    31.4
    %
    
    
    38.7
    %
    
    
    3.6
    %
    
    
    18.2
    %
    
    
    23.5
    %
    
    
    55.5
    %Three months ended March 31, 2008:Before Tax Operating Margin
    
    
    11.3
    %
    
    
    47.6
    %
    
    
    1.6
    %
    
    
    21.5
    %
    
    
    15.0
    %
    
    
    (5,344.3
    )%Before Tax Operating Margin 
excluding restructure expense,
impairment expense, and the
loss on sale of loans
    
    
    23.9
    %
    
    
    47.6
    %
    
    
    2.7
    %
    
    
    27.5
    %
    
    
    21.9
    %
    
    
    41.6
    %
  29




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##### Table of Contents



Three months ended March 31, 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
    
    $
    613
    
    
    
    765
    
    
    
    9
    
    
    
    
    
    
    
    1,387
    
    
    
    320,358
    
    
    
    1,197
    
    
    
    (94
    )
    
    
    18,818
    
    
    
    341,666Interest expense
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    316,015
    
    
    
    9,219
    
    
    
    (94
    )
    
    
    
    
    
    
    325,141Net interest income (loss)
    
    
    613
    
    
    
    765
    
    
    
    8
    
    
    
    
    
    
    
    1,386
    
    
    
    4,343
    
    
    
    (8,022
    )
    
    
    
    
    
    
    18,818
    
    
    
    16,525Less provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000Net interest income (loss) after provision
for loan losses
    
    
    613
    
    
    
    765
    
    
    
    8
    
    
    
    
    
    
    
    1,386
    
    
    
    (657
    )
    
    
    (8,022
    )
    
    
    
    
    
    
    18,818
    
    
    
    11,525Other income (expense):Loan and guaranty servicing revenue
    
    
    24,656
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,656
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,661Tuition payment processing and campus commerce revenue
    
    
    
    
    
    
    13,847
    
    
    
    
    
    
    
    
    
    
    
    13,847
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,847Enrollment services revenue
    
    
    
    
    
    
    
    
    
    
    27,222
    
    
    
    
    
    
    
    27,222
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,222Software services revenue
    
    
    1,452
    
    
    
    
    
    
    
    37
    
    
    
    6,715
    
    
    
    8,204
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,204Other income
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    4,857
    
    
    
    1,365
    
    
    
    
    
    
    
    
    
    
    
    6,254Loss on sale of loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47,474
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47,474
    )Intersegment revenue
    
    
    20,224
    
    
    
    260
    
    
    
    
    
    
    
    1,816
    
    
    
    22,300
    
    
    
    
    
    
    
    17,212
    
    
    
    (39,512
    )
    
    
    
    
    
    
    Derivative market value, foreign currency,
and put option adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    466
    
    
    
    
    
    
    
    
    
    
    
    (57,827
    )
    
    
    (57,361
    )Derivative settlements, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,527
    
    
    
    
    
    
    
    
    
    
    
    (2,764
    )
    
    
    40,763Total other income (expense)
    
    
    46,364
    
    
    
    14,107
    
    
    
    27,259
    
    
    
    8,531
    
    
    
    96,261
    
    
    
    1,381
    
    
    
    18,577
    
    
    
    (39,512
    )
    
    
    (60,591
    )
    
    
    16,116Operating expenses:Salaries and benefits
    
    
    13,998
    
    
    
    5,430
    
    
    
    6,523
    
    
    
    5,168
    
    
    
    31,119
    
    
    
    2,224
    
    
    
    14,591
    
    
    
    4,613
    
    
    
    1,296
    
    
    
    53,843Restructure expense- severance and contract
termination costs
    
    
    851
    
    
    
    
    
    
    
    297
    
    
    
    518
    
    
    
    1,666
    
    
    
    1,896
    
    
    
    3,915
    
    
    
    (7,477
    )
    
    
    
    
    
    
    Impairment expense
    
    
    5,074
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,074
    
    
    
    9,351
    
    
    
    4,409
    
    
    
    
    
    
    
    
    
    
    
    18,834Cost to provide enrollment services
    
    
    
    
    
    
    
    
    
    
    15,403
    
    
    
    
    
    
    
    15,403
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,403Other expenses
    
    
    8,487
    
    
    
    2,060
    
    
    
    2,760
    
    
    
    619
    
    
    
    13,926
    
    
    
    5,344
    
    
    
    13,865
    
    
    
    1,062
    
    
    
    6,560
    
    
    
    40,757Intersegment expenses
    
    
    13,278
    
    
    
    296
    
    
    
    1,847
    
    
    
    394
    
    
    
    15,815
    
    
    
    20,602
    
    
    
    1,293
    
    
    
    (37,710
    )
    
    
    
    
    
    
    Total operating expenses
    
    
    41,688
    
    
    
    7,786
    
    
    
    26,830
    
    
    
    6,699
    
    
    
    83,003
    
    
    
    39,417
    
    
    
    38,073
    
    
    
    (39,512
    )
    
    
    7,856
    
    
    
    128,837Income (loss) before income taxes
    
    
    5,289
    
    
    
    7,086
    
    
    
    437
    
    
    
    1,832
    
    
    
    14,644
    
    
    
    (38,693
    )
    
    
    (27,518
    )
    
    
    
    
    
    
    (49,629
    )
    
    
    (101,196
    )Income tax (expense) benefit (a)
    
    
    (1,640
    )
    
    
    (2,197
    )
    
    
    (135
    )
    
    
    (568
    )
    
    
    (4,540
    )
    
    
    11,995
    
    
    
    8,531
    
    
    
    
    
    
    
    15,385
    
    
    
    31,371Net income (loss)
    
    $
    3,649
    
    
    
    4,889
    
    
    
    302
    
    
    
    1,264
    
    
    
    10,104
    
    
    
    (26,698
    )
    
    
    (18,987
    )
    
    
    
    
    
    
    (34,244
    )
    
    
    (69,825
    )
 (a)
    
    For 2008, the consolidated effective tax rate for each applicable quarterly period is used to
calculate income taxes for each operating segment. Non-GAAP Performance Measures
    30




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##### Table of Contents



Limitations of Base Net Income
    Student
    
    
    TuitionLoan
    
    
    Payment
    
    
    
    
    
    
    Software
    
    
    Asset
    
    
    Corporateand
    
    
    Processing
    
    
    
    
    
    
    and
    
    
    Generation
    
    
    ActivityGuaranty
    
    
    and Campus
    
    
    Enrollment
    
    
    Technical
    
    
    and
    
    
    andServicing
    
    
    Commerce
    
    
    Services
    
    
    Services
    
    
    Management
    
    
    Overhead
    
    
    TotalThree months ended March 31, 2009Derivative market value, foreign currency, and
put option adjustments
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,880
    
    
    
    
    
    
    
    4,880Amortization of intangible assets
    
    
    1,079
    
    
    
    1,887
    
    
    
    3,042
    
    
    
    146
    
    
    
    
    
    
    
    
    
    
    
    6,154Compensation related to business combinations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159
    
    
    
    159Variable-rate floor income, net of settlements on derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,460
    )
    
    
    
    
    
    
    (1,460
    )Net tax effect (a)
    
    
    (410
    )
    
    
    (717
    )
    
    
    (1,157
    )
    
    
    (55
    )
    
    
    (1,300
    )
    
    
    (60
    )
    
    
    (3,699
    )Total adjustments to GAAP
    
    $
    669
    
    
    
    1,170
    
    
    
    1,885
    
    
    
    91
    
    
    
    2,120
    
    
    
    99
    
    
    
    6,034Three months ended March 31, 2008Derivative market value, foreign currency, and
put option adjustments
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,400
    
    
    
    427
    
    
    
    57,827Amortization of intangible assets
    
    
    1,256
    
    
    
    2,051
    
    
    
    2,822
    
    
    
    286
    
    
    
    145
    
    
    
    
    
    
    
    6,560Compensation related to business combinations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,296
    
    
    
    1,296Variable-rate floor income, net of settlements on derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,054
    )
    
    
    
    
    
    
    (16,054
    )Net tax effect (a)
    
    
    (389
    )
    
    
    (636
    )
    
    
    (875
    )
    
    
    (89
    )
    
    
    (12,862
    )
    
    
    (534
    )
    
    
    (15,385
    )Total adjustments to GAAP
    
    $
    867
    
    
    
    1,415
    
    
    
    1,947
    
    
    
    197
    
    
    
    28,629
    
    
    
    1,189
    
    
    
    34,244
 (a)
    
    In 2009, tax effect is
computed at the Companys blended, statutory federal and
state rate of 38%. In 2008, tax effect was computed using the Companys consolidated
effective tax rate for each applicable quarterly period. Differences between GAAP and Base Net Income
   31




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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:
 Variable-rate floor income, net of settlements on derivatives:
  32




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##### Table of Contents



STUDENT LOAN AND GUARANTY SERVICING OPERATING SEGMENT  RESULTS OF OPERATIONS
   Student Loan Servicing Volumes
 As of
    
    
    As ofMarch 31,
    
    
    December 31,2009
    
    
    2008Dollar
    
    
    Percent
    
    
    Dollar
    
    
    Percent(dollars in millions)Company
    
    $
    25,064
    (a)
    
    
    69.3
    %
    
    $
    24,596
    
    
    
    68.5
%Third Party
    
    
    11,119
    (b)
    
    
    30.7
    
    
    
    11,293
    
    
    
    31.5$
    36,183
    
    
    
    100.0
    %
    
    $
    35,889
    
    
    
    100.0
%
 (a)
    
    Approximately $1.5
billion of these loans were disbursed on or
after May 1, 2008 and are eligible to be sold
to the Department of Education pursuant to its
Purchase Commitment Program. The Department
obtains all rights to service loans which it
purchases as part of this program.(b)
    
    Approximately $1.0
billion of these loans were disbursed on or
after May 1, 2008 and may be eligible to be
sold to the Department of Education pursuant to
its Purchase Commitment Program. The
Department obtains all rights to service loans
which it purchases as part of this program. The Company has currently
received notification from third party servicing customers of their
intent to sell approximately $470 million to the Department
prior to the September 30, 2009 deadline.  33




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##### Table of Contents



Three months ended March 31, 2009 compared to the three months ended March 31, 2008
 Three months ended March 31,2009
    
    
    2008
    
    
    $ ChangeNet interest income after the provision
for loan losses
    
    $
    66
    
    
    
    613
    
    
    
    (547
    )Loan and guaranty servicing revenue
    
    
    26,853
    
    
    
    24,656
    
    
    
    2,197Software services revenue
    
    
    875
    
    
    
    1,452
    
    
    
    (577
    )Other income
    
    
    112
    
    
    
    32
    
    
    
    80Intersegment revenue
    
    
    19,878
    
    
    
    20,224
    
    
    
    (346
    )Total other income
    
    
    47,718
    
    
    
    46,364
    
    
    
    1,354Salaries and benefits
    
    
    14,704
    
    
    
    13,998
    
    
    
    706Restructure expense  severance and contract
termination costs
    
    
    
    
    
    
    851
    
    
    
    (851
    )Impairment expense
    
    
    
    
    
    
    5,074
    
    
    
    (5,074
    )Other expenses
    
    
    8,597
    
    
    
    8,487
    
    
    
    110Intersegment expenses
    
    
    9,470
    
    
    
    13,278
    
    
    
    (3,808
    )Total operating expenses
    
    
    32,771
    
    
    
    41,688
    
    
    
    (8,917
    )Base net income before income taxes
    
    
    15,013
    
    
    
    5,289
    
    
    
    9,724Income tax expense
    
    
    (5,705
    )
    
    
    (1,640
    )
    
    
    (4,065
    )Base net income
    
    $
    9,308
    
    
    
    3,649
    
    
    
    5,659Before Tax Operating Margin
    
    
    31.4
    %
    
    
    11.3
    %Before Tax Operating Margin 
excluding restructure and
impairment expense
    
    
    31.4
    %
    
    
    23.9
    %
 Net interest income after the provision for loan losses .
 Loan and guaranty servicing revenue
 Three months ended March 31,2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeOrigination and servicing of
FFEL Program loans
    
    $
    15,786
    
    
    
    12,279
    
    
    
    3,507
    
    
    
    28.6
    %Origination and servicing of
non-federally insured student loans
    
    
    1,872
    
    
    
    2,271
    
    
    
    (399
    )
    
    
    (17.6
    )Servicing and support outsourcing for
guaranty agencies
    
    
    9,195
    
    
    
    10,106
    
    
    
    (911
    )
    
    
    (9.0
    )Loan and guaranty servicing income
to external parties
    
    $
    26,853
    
    
    
    24,656
    
    
    
    2,197
    
    
    
    8.9
    %
 
    
    FFELP loan servicing revenue
increased due to deconversion revenue recognized during the three
months ended March 31, 2009 and the favorable resolution of a
servicing contract.
 
    
    Non-federally insured loan servicing revenue decreased due to a significant customer
ceasing to originate non-federally insured loans.
 
    
    Servicing and support outsourcing for guaranty agencies decreased due to a decline in
collections revenue related to the decrease in sales of rehabilitated
loans.
  34




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##### Table of Contents



Operating expenses .
 TUITION PAYMENT PROCESSING AND CAMPUS COMMERCE OPERATING SEGMENT  RESULTS OF OPERATIONS
  Three months ended March 31, 2009 compared to the three months ended March 31, 2008
 Three months ended March 31,2009
    
    
    2008
    
    
    $ ChangeNet interest income after the provision
for loan losses
    
    $
    30
    
    
    
    765
    
    
    
    (735
    )Tuition payment processing and campus commerce revenue
    
    
    15,538
    
    
    
    13,847
    
    
    
    1,691Intersegment revenue
    
    
    57
    
    
    
    260
    
    
    
    (203
    )Total other income
    
    
    15,595
    
    
    
    14,107
    
    
    
    1,488Salaries and benefits
    
    
    6,545
    
    
    
    5,430
    
    
    
    1,115Other expenses
    
    
    2,408
    
    
    
    2,060
    
    
    
    348Intersegment expenses
    
    
    623
    
    
    
    296
    
    
    
    327Total operating expenses
    
    
    9,576
    
    
    
    7,786
    
    
    
    1,790Base net income before income taxes
    
    
    6,049
    
    
    
    7,086
    
    
    
    (1,037
    )Income tax expense
    
    
    (2,298
    )
    
    
    (2,197
    )
    
    
    (101
    )Base net income
    
    $
    3,751
    
    
    
    4,889
    
    
    
    (1,138
    )Before Tax Operating Margin
    
    
    38.7
    %
    
    
    47.6
    %
 Net interest income after the provision for loan losses .
 Tuition payment processing and campus commerce revenue
 Operating expenses .
  35




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##### Table of Contents



ENROLLMENT SERVICES OPERATING SEGMENT  RESULTS OF OPERATIONS
  Three months ended March 31, 2009 compared to the three months ended March 31, 2008
 Three months ended March 31,2009
    
    
    2008
    
    
    $ ChangeNet interest income after the provision
for loan losses
    
    $
    
    
    
    
    8
    
    
    
    (8
    )Enrollment services revenue
    
    
    28,771
    
    
    
    27,222
    
    
    
    1,549Software services revenue
    
    
    
    
    
    
    37
    
    
    
    (37
    )Total other income
    
    
    28,771
    
    
    
    27,259
    
    
    
    1,512Salaries and benefits
    
    
    6,095
    
    
    
    6,523
    
    
    
    (428
    )Restructure expense  severance and contract
termination costs
    
    
    
    
    
    
    297
    
    
    
    (297
    )Cost to provide enrollment services
    
    
    17,793
    
    
    
    15,403
    
    
    
    2,390Other expenses
    
    
    3,295
    
    
    
    2,760
    
    
    
    535Intersegment expenses
    
    
    546
    
    
    
    1,847
    
    
    
    (1,301
    )Total operating expenses
    
    
    27,729
    
    
    
    26,830
    
    
    
    899Base net income before
income taxes
    
    
    1,042
    
    
    
    437
    
    
    
    605Income tax expense
    
    
    (396
    )
    
    
    (135
    )
    
    
    (261
    )Base net income
    
    $
    646
    
    
    
    302
    
    
    
    344Before Tax Operating Margin
    
    
    3.6
    %
    
    
    1.6
    %Before Tax Operating Margin 
excluding restructure expense
    
    
    3.6
    %
    
    
    2.7
    %
  36




---



##### Table of Contents



Enrollment services revenue, cost to provide enrollment services, and gross profit.
 Three months ended March 31, 2009Publishing
    
    
    
    
    
    
    Contentand
    
    
    
    
    
    
    managementLead
    
    
    editing
    
    
    
    
    
    
    and recruitmentgeneration (a)
    
    
    services (b)
    
    
    Subtotal
    
    
    services (c)
    
    
    TotalEnrollment services revenue
    
    $
    21,070
    
    
    
    2,851
    
    
    
    23,921
    
    
    
    4,850
    
    
    
    28,771Cost to provide enrollment services
    
    
    16,579
    
    
    
    1,214
    
    
    
    17,793Gross profit
    
    $
    4,491
    
    
    
    1,637
    
    
    
    6,128Gross profit %
    
    
    21.3
    %
    
    
    57.4
    %
    
    
    25.6
    %
 Three months ended March 31, 2008Publishing
    
    
    
    
    
    
    Contentand
    
    
    
    
    
    
    managementLead
    
    
    editing
    
    
    
    
    
    
    and recruitmentgeneration (a)
    
    
    services (b)
    
    

Subtotal
    
    
    services (c)
    
    
    TotalEnrollment services revenue
    
    $
    17,438
    
    
    
    3,581
    
    
    
    21,019
    
    
    
    6,203
    
    
    
    27,222Cost to provide enrollment services
    
    
    13,861
    
    
    
    1,542
    
    
    
    15,403Gross profit
    
    $
    3,577
    
    
    
    2,039
    
    
    
    5,616Gross profit %
    
    
    20.5
    %
    
    
    56.9
    %
    
    
    26.7
    %
 (a)
    
    Lead generation revenue, and the related
costs, increased for the three months ended March 31, 2009
compared to the same period in 2008 as a result of an increase
in lead generation services volume.(b)
    
    Publishing and editing services revenue, and
the related costs, decreased for the three months ended March
31, 2009 compared to the same period in 2008 due to economic
conditions.(c)
    
    Content management and recruitment services
revenue decreased for the three months ended March 31, 2009
compared to the same period in 2008 due to economic conditions,
the strategic realignment of products, and the impacts of
legislative developments in the student loan industry on list
marketing services. Operating
expenses
  37




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##### Table of Contents



SOFTWARE AND TECHNICAL SERVICES OPERATING SEGMENT  RESULTS OF OPERATIONS
   Three months ended March 31, 2009 compared to the three months ended March 31, 2008
 Three months ended March 31,2009
    
    
    2008
    
    
    $ ChangeSoftware services revenue
    
    $
    4,830
    
    
    
    6,715
    
    
    
    (1,885
    )Intersegment revenue
    
    
    3,124
    
    
    
    1,816
    
    
    
    1,308Total other income
    
    
    7,954
    
    
    
    8,531
    
    
    
    (577
    )Salaries and benefits
    
    
    5,185
    
    
    
    5,168
    
    
    
    17Restructure expense  severance and contract
termination costs
    
    
    
    
    
    
    518
    
    
    
    (518
    )Other expenses
    
    
    678
    
    
    
    619
    
    
    
    59Intersegment expenses
    
    
    645
    
    
    
    394
    
    
    
    251Total operating expenses
    
    
    6,508
    
    
    
    6,699
    
    
    
    (191
    )Base net income before
income taxes
    
    
    1,446
    
    
    
    1,832
    
    
    
    (386
    )Income tax expense
    
    
    (550
    )
    
    
    (568
    )
    
    
    18Base net income
    
    $
    896
    
    
    
    1,264
    
    
    
    (368
    )Before Tax Operating Margin
    
    
    18.2
    %
    
    
    21.5
    %Before Tax Operating Margin 
excluding restructure expense
    
    
    18.2
    %
    
    
    27.5
    %
 Software services revenue .
 Intersegment revenue .
 Operating expenses .
  38




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##### Table of Contents



ASSET GENERATION AND MANAGEMENT OPERATING SEGMENT  RESULTS OF OPERATIONS
   Student Loan Portfolio
  As of March 31, 2009Originated
    
    
    Originated
    
    
    Originatedprior to
    
    
    between 10/1/07
    
    
    on or afterTotal
    
    

10/1/07
    
    

and
6/3/08 (a)
    
    

6/4/2008
(b)Federally insured:Stafford
    
    $
    8,076,074
    
    
    
    31.5
    %
    
    
    6,462,137
    
    
    
    407,777
    
    
    
    1,209,160PLUS/SLS
    
    
    581,084
    
    
    
    2.3
    %
    
    
    397,058
    
    
    
    46,893
    
    
    
    137,133Consolidation
    
    
    16,398,640
    
    
    
    63.9
    %
    
    
    16,240,696
    
    
    
    157,944
    
    
    
    Total federally insured
    
    
    25,055,798
    
    
    
    97.7
    %
    
    
    23,099,891
    
    
    
    609,614
    
    
    
    1,346,293100.0
    %
    
    
    
    
    
    
    92.2
    %
    
    
    2.4
    %
    
    
    5.4
    %Non-federally insured
    
    
    218,375
    
    
    
    0.9
    %Total student loans receivable (gross)
    
    
    25,274,173
    
    
    
    98.6
    %Unamortized premiums and deferred
origination costs
    
    
    398,661
    
    
    
    1.6
    %Allowance for loan losses:Federally insured
    
    
    (27,310
    )
    
    
    (0.1
    %)Non-federally insured
    
    
    (21,187
    )
    
    
    (0.1
    %)Total student loans receivable (net)
    
    $
    25,624,337
    
    
    
    100.0
    %
  39




---



##### 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)
    
    

6/4/2008 (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 and Access Act
of 2007 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 Commitment Programs. Origination and Acquisition
    40




---



##### Table of Contents



Three months ended March 31,2009
    
    
    2008Beginning balance
    
    $
    25,061,049
    
    
    
    26,329,213Direct channel:Consolidation loan originations
    
    
    
    
    
    
    65,745Less consolidation of existing portfolio
    
    
    
    
    
    
    (27,459
    )Net consolidation loan originations
    
    
    
    
    
    
    38,286Stafford/PLUS loan originations
    
    
    541,592
    
    
    
    421,101Branding partner channel
    
    
    412,313
    
    
    
    473,378Forward flow channel
    
    
    
    
    
    
    318,844Other channels
    
    
    13,805
    
    
    
    55,922Total channel acquisitions
    
    
    967,710
    
    
    
    1,307,531Repayments, claims, capitalized interest, participations, and other
    
    
    (628,927
    )
    
    
    (299,800
    )Consolidation loans lost to external parties
    
    
    (105,518
    )
    
    
    (129,418
    )Loans sold
    
    
    (20,141
    )
    
    
    (860,172
    )Ending balance
    
    $
    25,274,173
    
    
    
    26,347,354
       41




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##### Table of Contents



Activity in the Allowance for Loan Losses
  Three months ended March 31,2009
    
    
    2008Balance at beginning of period
    
    $
    50,922
    
    
    
    45,592Provision for loan losses:Federally insured loans
    
    
    5,500
    
    
    
    3,500Non-federally insured loans
    
    
    2,000
    
    
    
    1,500Total provision for loan losses
    
    
    7,500
    
    
    
    5,000Charge-offs, net of recoveries:Federally insured loans
    
    
    (3,247
    )
    
    
    (3,322
    )Non-federally insured loans
    
    
    (658
    )
    
    
    (383
    )Net charge-offs
    
    
    (3,905
    )
    
    
    (3,705
    )Sale of federally insured loans
    
    
    (520
    )
    
    
    (750
    )Sale of non-federally insured loans
    
    
    (5,500
    )
    
    
    Balance at end of period
    
    $
    48,497
    
    
    
    46,137Allocation of the allowance for loan losses:Federally insured loans
    
    $
    27,310
    
    
    
    23,962Non-federally insured loans
    
    
    21,187
    
    
    
    22,175Total allowance for loan losses
    
    $
    48,497
    
    
    
    46,137Net loan charge-offs as a percentage of average student loans
    
    
    0.062
    %
    
    
    0.055
    %Total allowance as a percentage of average student loans
    
    
    0.192
    %
    
    
    0.172
    %Total allowance as a percentage of ending balance of student loans
    
    
    0.192
    %
    
    
    0.175
    %Non-federally insured allowance as a percentage of the ending
balance of non-federally insured loans
    
    
    9.702
    %
    
    
    7.827
    %Average student loans
    
    $
    25,265,903
    
    
    
    26,859,328Ending balance of student loans
    
    
    25,274,173
    
    
    
    26,347,354Ending balance of non-federally insured loans
    
    
    218,375
    
    
    
    283,308
  As of March 31, 2009
    
    
    As of December 31, 2008Dollars
    
    
    Percent
    
    
    Dollars
    
    
    PercentFederally Insured Loans:Loans in-school/grace/deferment(1)
    
    $
    8,003,584
    
    
    
    
    
    
    $
    7,374,602Loans in forebearance(2)
    
    
    2,351,413
    
    
    
    
    
    
    
    2,484,478Loans in repayment status:Loans current
    
    
    12,877,869
    
    
    
    87.6
    %
    
    
    13,169,101
    
    
    
    88.2
    %Loans delinquent 31-60 days(3)
    
    
    522,221
    
    
    
    3.6
    
    
    
    536,112
    
    
    
    3.6Loans delinquent 61-90 days(3)
    
    
    337,362
    
    
    
    2.3
    
    
    
    240,549
    
    
    
    1.6Loans delinquent 91 days or greater(4)
    
    
    963,349
    
    
    
    6.6
    
    
    
    983,099
    
    
    
    6.6Total loans in repayment
    
    
    14,700,801
    
    
    
    100.0
    %
    
    
    14,928,861
    
    
    
    100.0
    %Total federally insured loans
    
    $
    25,055,798
    
    
    
    
    
    
    $
    24,787,941Non-Federally Insured Loans:Loans in-school/grace/deferment(1)
    
    $
    66,520
    
    
    
    
    
    
    $
    84,237Loans in forebearance(2)
    
    
    7,172
    
    
    
    
    
    
    
    9,540Loans in repayment status:Loans current
    
    
    136,056
    
    
    
    94.0
    %
    
    
    169,865
    
    
    
    94.7
    %Loans delinquent 31-60 days(3)
    
    
    3,455
    
    
    
    2.4
    
    
    
    3,315
    
    
    
    1.8Loans delinquent 61-90 days(3)
    
    
    2,135
    
    
    
    1.5
    
    
    
    1,743
    
    
    
    1.0Loans delinquent 91 days or greater(4)
    
    
    3,037
    
    
    
    2.1
    
    
    
    4,408
    
    
    
    2.5Total loans in repayment
    
    
    144,683
    
    
    
    100.0
    %
    
    
    179,331
    
    
    
    100.0
    %Total non-federally insured loans
    
    $
    218,375
    
    
    
    
    
    
    $
    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.  42




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##### Table of Contents



Student Loan Spread Analysis
  Three months ended March 31,2009
    
    
    2008Variable student loan yield
    
    
    3.26
    %
    
    
    5.92
    %Consolidation rebate fees
    
    
    (0.71
    )
    
    
    (0.74
    )Premium and deferred origination costs amortization
    
    
    (0.30
    )
    
    
    (0.38
    )Variable student loan net yield
    
    
    2.25
    
    
    
    4.80Student loan cost of funds  interest expense
    
    
    (2.16
    )
    
    
    (4.55
    )Student loan cost of funds  derivative settlements
    
    
    0.38
    
    
    
    0.59Variable student loan spread
    
    
    0.47
    
    
    
    0.84Variable-rate floor income,
net of settlements on derivatives (a)
    
    
    (0.02
    )
    
    
    (0.06
    )Fixed rate floor contribution
    
    
    0.49
    
    
    
    0.13Core student loan spread
    
    
    0.94
    %
    
    
    0.91
    %Average balance of student loans
    
    $
    25,265,903
    
    
    
    26,859,328Average balance of debt outstanding
    
    
    25,764,285
    
    
    
    27,828,890
 (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.
For the three months ended March 31, 2009 and
2008, the economic benefit received by the Company related
to variable rate floor income was $1.5 million and $6.3
million, respectively. Variable rate floor income
calculated on a statutory maximum basis for the three months
ended March 31, 2009 and 2008 was $10.8 million and $18.8
million, 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.  
    
    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-month period ended March 31, 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 passage of the College Cost Reduction Act has reduced the yield on all FFELP loans
originated after October 1, 2007. As of March 31, 2009,
7.8% of the Companys federally insured student
loan portfolio was originated after October 1, 2007 as compared to 2.4% as of March 31,
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. This dislocation had a negative impact on the Companys student loan net interest
income during the first quarter of 2008. 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 quarter of 2009  which negatively impacted the Companys net interest income for
the three month period ended March 31, 2009.
  43




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##### Table of Contents




    
    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 ($1.2 billion in March 2008, $1.9 billion in April 2008, and $1.3 billion in
May 2008) in 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 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 financial commercial paper index calculated on the
current fiscal quarter. Due to a declining interest rate environment during the three
months ended March 31, 2009, the Companys core student loan spread was compressed due to
the mismatch in the timing of these rate resets.
 
    
    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 (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; and (ii) receives three-month LIBOR and pays one-month LIBOR
less a spread as defined in the agreements. Due to the significant drop in interest
during the first quarter of 2008, the Company received more settlements on its
Average/Discrete Basis Swaps in the first quarter of 2008 compared to the same period in
2009.
 Three months ended March 31, 2009 compared to the three months ended March 31, 2008
 Three months ended March 31,2009
    
    
    2008
    
    
    $ ChangeNet interest income (loss) after provision
for loan losses
    
    $
    26,493
    
    
    
    (657
    )
    
    
    27,150Loan and guaranty servicing revenue
    
    
    
    
    
    
    5
    
    
    
    (5
    )Other income
    
    
    4,651
    
    
    
    4,857
    
    
    
    (206
    )Loss on sale of loans
    
    
    (206
    )
    
    
    (47,474
    )
    
    
    47,268Derivative market value, foreign currency,
and put option adjustments
    
    
    
    
    
    
    466
    
    
    
    (466
    )Derivative settlements, net
    
    
    24,358
    
    
    
    43,527
    
    
    
    (19,169
    )Total other income
    
    
    28,803
    
    
    
    1,381
    
    
    
    27,422Salaries and benefits
    
    
    1,775
    
    
    
    2,224
    
    
    
    (449
    )Restructure expense  severance and contract
termination costs
    
    
    
    
    
    
    1,896
    
    
    
    (1,896
    )Impairment expense
    
    
    
    
    
    
    9,351
    
    
    
    (9,351
    )Other expenses
    
    
    4,959
    
    
    
    5,344
    
    
    
    (385
    )Intersegment expenses
    
    
    17,876
    
    
    
    20,602
    
    
    
    (2,726
    )Total operating expenses
    
    
    24,610
    
    
    
    39,417
    
    
    
    (14,807
    )Base net income (loss) before income taxes
    
    
    30,686
    
    
    
    (38,693
    )
    
    
    69,379Income tax (expense) benefit
    
    
    (11,661
    )
    
    
    11,995
    
    
    
    (23,656
    )Base net income (loss)
    
    $
    19,025
    
    
    
    (26,698
    )
    
    
    45,723Before Tax Operating Margin
    
    
    55.5
    %
    
    
    (5,344.3
    %)Before Tax Operating Margin 
excluding restructure expense,
impairment expense, and loss on sale
of loans
    
    
    55.5
    %
    
    
    41.6
    %
  44




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##### Table of Contents



Net interest income (loss) after provision for loan losses
 Three months ended March 31,
    
    
    Change2009
    
    
    2008
    
    
    Dollars
    
    
    PercentLoan interest
    
    $
    232,589
    
    
    
    386,426
    
    
    
    (153,837
    )
    
    
    (39.8)
    %Consolidation rebate fees
    
    
    (44,478
    )
    
    
    (49,854
    )
    
    
    5,376
    
    
    
    10.8Amortization of loan premiums and
deferred origination costs
    
    
    (18,651
    )
    
    
    (25,404
    )
    
    
    6,753
    
    
    
    26.6Total loan interest
    
    
    169,460
    
    
    
    311,168
    
    
    
    (141,708
    )
    
    
    (45.5
    )Investment interest
    
    
    3,128
    
    
    
    9,190
    
    
    
    (6,062
    )
    
    
    (66.0
    )Total interest income
    
    
    172,588
    
    
    
    320,358
    
    
    
    (147,770
    )
    
    
    (46.1
    )Interest on bonds and notes payable
    
    
    138,034
    
    
    
    315,921
    
    
    
    (177,887
    )
    
    
    (56.3
    )Intercompany interest
    
    
    561
    
    
    
    94
    
    
    
    467
    
    
    
    496.8Provision for loan losses
    
    
    7,500
    
    
    
    5,000
    
    
    
    2,500
    
    
    
    50.0Net interest income (loss) after provision
for loan losses
    
    $
    26,493
    
    
    
    (657
    )
    
    
    27,150
    
    
    
    4,132.4
    %
 
    
    Loan interest income
decreased $153.8 million as a result of a decrease in the average
student loan portfolio of $1.6 billion, or 5.9%, and a decrease in the yield earned on
student loans due to a decrease in interest rates for the three months ended March 31, 2009
compared to the same period in 2008.
    
    Consolidation rebate fees decreased due to the $1.9 billion, or 10.4%, 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 in the first 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 2.16% for the three months ended March 31, 2009
compared to 4.55% for the
same period a year ago. In addition, average debt decreased by $2.1 billion, or 7.4%, for
the three months ended March 31, 2009 compared to the same period in 2008.
 
    
    The provision for loan losses increased for the three months ended March 31, 2009
compared to the same period in 2008 primarily due to increases in delinquencies as a result
of the continued weakening of the U.S. economy.
 Loss on sale of loans
 Derivative settlements, net .
 Operating expenses .
  45




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
    Carrying
    
    
    Interest rateamount
    
    
    range
    
    Final maturityVariable-rate bonds and notes (a):Bonds and notes based on indices
    
    $
    20,387,802
    
    
    0.95%  6.90%
    
    09/25/13  6/25/41Bonds and notes based on auction or remarketing
    
    
    2,667,635
    
    
    0.92%  3.75%
    
    11/01/09  07/01/43Total variable-rate
bonds and notes
    
    
    23,055,437Commercial paper  FFELP facility (b)
    
    
    1,369,485
    
    
    0.41%  1.37%
    
    05/09/10Fixed-rate bonds and notes (a)
    
    
    193,362
    
    
    5.30%  6.50%
    
    11/01/09  05/01/29Unsecured fixed rate debt
    
    
    440,134
    
    
    5.125% and 7.40%
    
    06/01/10 and 09/15/61Unsecured line of credit
    
    
    691,500
    
    
    1.04%  1.10%
    
    05/08/12Department of Education Participation
    
    
    1,360,159
    
    
    3.08%
    
    09/30/09Other borrowings
    
    
    20,329
    
    
    0.50%  5.10%
    
    01/10/10  11/01/15$
    27,130,406
 (a)
    
    Issued in asset-backed securitizations.(b)
    
    Loan warehouse facilities. Secured Financing Transactions
    46




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##### Table of Contents



Loan warehouse facilities
  FFELP Warehouse Facility
     Private Loan Warehouse Facility
  Asset-backed
securitizations
  LIBOR based notes
   47




---



##### Table of Contents



Auction or remarketing based notes
      Funding New FFELP Student Loan Originations
  Union Bank Participation Agreement
   48




---



##### Table of Contents



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
    49




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##### Table of Contents



Unsecured Debt Offerings
    Non-Federally Insured Loans During the three month period ended March 31, 2009, the Company participated $50.5 million of non-federally insured
loans to third parties. Loans participated under these agreements qualify as sales pursuant to the provisions of SFAS
No. 140. Accordingly, the participation interests sold are not included on the Companys consolidated balance sheet.
As of May 8, 2009, the Company had approximately $178 million of unencumbered non-federally insured loans on its
balance sheet. The Company plans to continue to find alternatives to fund these loans, including additional
participation agreements. Contractual Obligations
  Less than
    
    
    1 to 3
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    years
    
    
    3 to 5 years
    
    
    5 yearsBonds and notes payable
    
    $
    27,130,406
    
    
    
    1,419,735
    
    
    
    1,726,940
    
    
    
    769,373
    
    
    
    23,214,358Operating lease obligations (a)
    
    
    32,425
    
    
    
    7,886
    
    
    
    13,515
    
    
    
    9,143
    
    
    
    1,881Other
    
    
    41,792
    
    
    
    20,000
    
    
    
    21,792
    
    
    
    
    
    
    
    Total
    
    $
    27,204,623
    
    
    
    1,447,621
    
    
    
    1,762,247
    
    
    
    778,516
    
    
    
    23,216,239
 (a)
    
    Operating lease obligations are presented net of
approximately $2.4 million in sublease arrangements.      
    
    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.
  50




---



##### Table of Contents




    
    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 March 31, 2009 of $8.84 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)
    
    $
    300,000Unencumbered FFELP student loan assets
    
    
    11,000Unencumbered private student loan assets
    
    
    178,000Unused unsecured line of credit (c)
    
    
    51,000Total sources of primary liquidity
    
    $
    540,000
 (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.(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
   51




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES
   Allowance for Loan Losses
     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
  52




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##### Table of Contents



Goodwill and Intangible Assets  Impairment Assessments
 Goodwill and Other Intangible Assets
  Accounting for
the Impairment or Disposal of Long-Lived Assets
  Income Taxes
  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.
  53




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##### Table of Contents



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
 Recognition and
Presentation of Other-Than-Temporary Impairment
 Interim Disclosure about Fair
Value of Financial Instruments Disclosures about the Fair Value of Financial Instruments.
  54




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##### Table of Contents



ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
   As of March 31, 2009
    
    
    As of December 31, 2008Dollars
    
    
    Percent
    
    
    Dollars
    
    
    PercentFixed-rate loan assets
    
    $
    7,231,373
    
    
    
    28.6
    %
    
    $
    2,532,609
    
    
    
    10.1
    %Variable-rate loan assets
    
    
    18,042,800
    
    
    
    71.4
    
    
    
    22,528,440
    
    
    
    89.9Total
    
    $
    25,274,173
    
    
    
    100.0
    %
    
    $
    25,061,049
    
    
    
    100.0
    %Fixed-rate debt instruments
    
    $
    633,496
    
    
    
    2.3
    %
    
    $
    677,096
    
    
    
    2.5
    %Variable-rate debt instruments
    
    
    26,496,910
    
    
    
    97.7
    
    
    
    26,110,863
    
    
    
    97.5Total
    
    $
    27,130,406
    
    
    
    100.0
    %
    
    $
    26,787,959
    
    
    
    100.0
    %
      55




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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)
    
    
    March 31, 2009Less than 4.0%
    
    
    3.65
    %
    
    
    1.01
    %
    
    $
    1,997,7844.0  4.49%
    
    
    4.20
    %
    
    
    1.56
    %
    
    
    1,590,9104.5  4.99%
    
    
    4.72
    %
    
    
    2.08
    %
    
    
    871,4315.0  5.49%
    
    
    5.24
    %
    
    
    2.60
    %
    
    
    572,3955.5  5.99%
    
    
    5.67
    %
    
    
    3.03
    %
    
    
    339,1806.0  6.49%
    
    
    6.19
    %
    
    
    3.55
    %
    
    
    400,0416.5  6.99%
    
    
    6.70
    %
    
    
    4.06
    %
    
    
    355,7507.0  7.49%
    
    
    7.17
    %
    
    
    4.53
    %
    
    
    121,7307.5  7.99%
    
    
    7.71
    %
    
    
    5.07
    %
    
    
    209,4028.0  8.99%
    
    
    8.16
    %
    
    
    5.52
    %
    
    
    478,762> 9.0%
    
    
    9.04
    %
    
    
    6.40
    %
    
    
    293,988$
    7,231,373
 (a)
    
    The estimated variable
conversion rate is the estimated short-term
interest rate at which loans would convert to
variable rate.    56




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##### Table of Contents



Debtoutstandingthat fundedFrequency of
    
    
    
    
    
    student loanIndex (e)
    
    Variable Resets
    
    Assets
    
    
    assets (a)3 month H15 financial commercial paper (b)
    
    Daily
    
    $
    23,884,206
    
    
    
    1,360,1593 month Treasury bill
    
    Varies
    
    
    1,171,592
    
    
    
    3 month LIBOR (c)
    
    Quarterly
    
    
    
    
    
    
    20,387,802Auction-rate or remarketing
    
    Varies
    
    
    
    
    
    
    2,667,635Asset-backed commercial paper
    
    Varies
    
    
    
    
    
    
    1,369,485Fixed rate
    
    
    
    
    
    
    
    
    193,362Other (d)
    
    
    
    
    922,645
    
    
    
    $
    25,978,443
    
    
    
    25,978,443
 (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; and (ii) receives three-month
LIBOR and pays one-month LIBOR. 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 March 31, 2009: Notional AmountAverage/Discrete
    
    
    1/3 BasisMaturity
    
    Basis Swaps
    
    
    Swaps2009
    
    $
    1,350,000
    
    
    
    2011 (a)
    
    
    6,000,000
    
    
    
    2018
    
    
    
    
    
    
    1,300,0002019
    
    
    
    
    
    
    500,0002021
    
    
    
    
    
    
    250,0002023
    
    
    
    
    
    
    1,250,0002024
    
    
    
    
    
    
    250,0002028
    
    
    
    
    
    
    100,000$
    7,350,000
    
    
    
    3,650,000
 (a)
    
    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). (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 months ended March 31, 2009, the
Companys core student loan spread was compressed due to the mismatch in the timing of these
rate resets.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 been distorted and volatile. 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 during the
fourth quarter of 2008, However, the Department did not implement a similar methodology for
the first quarter of 2009 which negatively impacted the Companys interest income earned on
its student loan portfolio.  57




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##### Table of Contents



(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)
    
    Assets include restricted cash and investments and other assets.(e)
    
    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 March 31,2009
    
    
    2008Interest rate swaps
    
    $
    
    
    
    
    (3,177
    )Average/discrete basis swaps
    
    
    10,022
    
    
    
    39,5731/3 Basis swaps
    
    
    10,744
    
    
    
    884Cross-currency interest rate swaps
    
    
    3,592
    
    
    
    3,483Derivative settlements received (paid), net
    
    $
    24,358
    
    
    
    40,763
  58




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##### Table of Contents



Sensitivity Analysis
  Three months ended March 31, 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
    
    $
    34,356
    
    
    
    83.7
    %
    
    
    (29,030
    )
    
    
    (70.7
    )%
    
    
    (6,354
    )
    
    
    (15.5
    )%Impact of derivative settlements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Increase (decrease) in net income before taxes
    
    $
    34,356
    
    
    
    83.7
    %
    
    
    (29,030
    )
    
    
    (70.7
    )%
    
    
    (6,354
    )
    
    
    (15.5
    )%Increase (decrease) in basic and diluted
earnings per share
    
    $
    0.43
    
    
    
    
    
    
    
    (0.37
    )
    
    
    
    
    
    
    (0.08
    )
 Three months ended March 31, 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
    
    $
    11,839
    
    
    
    11.7
    %
    
    
    (11,839
    )
    
    
    (11.7
    )%
    
    
    (6,938
    )
    
    
    (6.9
    )%Impact of derivative settlements
    
    
    (6,225
    )
    
    
    (6.2
    )
    
    
    6,225
    
    
    
    6.2
    
    
    
    
    
    
    
    Increase (decrease) in net income before taxes
    
    $
    5,614
    
    
    
    5.5
    %
    
    
    (5,614
    )
    
    
    (5.5
    )%
    
    
    (6,938
    )
    
    
    (6.9
    )%Increase (decrease) in basic and diluted
earnings per share
    
    $
    0.08
    
    
    
    
    
    
    
    (0.08
    )
    
    
    
    
    
    
    (0.10
    )
 Foreign Currency Exchange Risk
   
    59




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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
  Municipal Derivative Bid Practices Investigation
   In re Municipal Derivatives Antitrust Litigation
  60




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##### Table of Contents



Regulatory Reviews
     
 ITEM 1A. RISK FACTORS
   61




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##### Table of Contents



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)January 1  January 31, 2009
    
    
    1,241
    
    
    $
    13.86
    
    
    
    1,241
    
    
    
    7,487,575February 1  February 28, 2009
    
    
    928
    
    
    
    8.95
    
    
    
    928
    
    
    
    11,996,224March 1  March 31, 2009
    
    
    1,611
    
    
    
    6.71
    
    
    
    1,611
    
    
    
    8,970,857Total
    
    
    3,780
    
    
    $
    9.61
    
    
    
    3,780
 (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
January, February, or March 2009. Shares of Class A common stock purchased pursuant to
the 2006 Plan included (i) 1,241 shares, 928 shares, and 1,611 shares in January,
February, and March, 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.
  62




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##### Table of Contents



(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. The number
of shares available to be purchased under the 2006 Plan reflects an addition of 238,237
shares purchased by the Company in connection with the previously reported settlement in
July 2007 of the Companys obligations under outstanding put options issued by the
Company, which shares were previously deducted but not intended to reduce the number of
 shares authorized for repurchase under the 2006 Plan.
 (B / C)
    
    
    (A + D)Approximate dollar
    
    
    Closing price on
    
    
    Approximate
    
    
    ApproximateMaximum number of
    
    
    value of shares that
    
    
    the last trading
    
    
    number of shares
    
    
    number of sharesshares that may yet be
    
    
    may yet be
    
    
    day of the
    
    
    that may yet be
    
    
    that may yet bepurchased under the
    
    
    purchased under
    
    
    Companys Class
    
    
    purchased under
    
    
    purchased under2006 Plan
    
    
    the 2006 ESLP
    
    
    A Common Stock
    
    
    the 2006 ESLP
    
    
    the 2006 Plan andAs of
    
    (A)
    
    
    (B)
    
    
    (C)
    
    
    (D)
    
    
    2006 ESLPJanuary 31, 2009
    
    
    4,850,093
    
    
    
    36,450,000
    
    
    
    13.82
    
    
    
    2,637,482
    
    
    
    7,487,575February 28, 2009
    
    
    4,849,165
    
    
    
    36,450,000
    
    
    
    5.10
    
    
    
    7,147,059
    
    
    
    11,996,224March 31, 2009
    
    
    4,847,554
    
    
    
    36,450,000
    
    
    
    8.84
    
    
    
    4,123,303
    
    
    
    8,970,857
 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
  63




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##### Table of Contents



ITEM 5. OTHER INFORMATION
  Restructuring Charge
    
 ITEM 6. EXHIBITS
 10.1+*
    
    Second Amended Executive Officers Bonus Plan31.1*
    
    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.  64




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##### Table of Contents



SIGNATURES
  NELNET, INC.Date:   May 11, 2009
    By:
    /s/ MICHAEL S. DUNLAPName:
    Michael S. DunlapTitle:
    Chairman and Chief Executive OfficerBy:
    /s/ TERRY J. HEIMESName:
    Terry J. HeimesTitle:
    Chief Financial Officer  65




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##### Table of Contents



EXHIBIT INDEX
 10.1+*
    
    Second Amended Executive Officers Bonus Plan31.1*
    
    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.  66