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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019 
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from  to . 
Commission File Number: 001-31924
NELNET, INC.
(Exact name of registrant as specified in its charter)
Nebraska
84-0748903
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
121 South 13th Street, Suite 100
Lincoln, Nebraska 68508
(Address of principal executive offices) (Zip Code)
(402) 458-2370
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol Name of each exchange on which registered
Class A Common Stock, Par Value $0.01 per Share NNI New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.       Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).        Yes No

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

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

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

As of July 31, 2019, there were 28,403,007 and 11,279,641 shares of Class A Common Stock and Class B Common Stock, par value $0.01 per share, outstanding, respectively (excluding a total of 11,305,731 shares of Class A Common Stock held by wholly owned subsidiaries).




NELNET, INC.
FORM 10-Q
INDEX
June 30, 2019


 
  Item 1.
2
  Item 2.
30
  Item 3.
62
  Item 4.
68
       
 
Item 1.
68
  Item 1A.
68
  Item 2.
68
  Item 6.
70
       
 
71






PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(unaudited)
 
As of
As of
  June 30, 2019 December 31, 2018
Assets:    
Loans receivable (net of allowance for loan losses of $62,591 and $60,388, respectively)
$ 21,455,758  22,377,142 
Cash and cash equivalents:    
Cash and cash equivalents - not held at a related party 14,065  9,472 
Cash and cash equivalents - held at a related party 70,335  111,875 
Total cash and cash equivalents 84,400  121,347 
Investments and notes receivable 221,936  249,370 
Restricted cash 690,580  701,366 
Restricted cash - due to customers 279,017  369,678 
Accrued interest receivable 724,011  679,197 
Accounts receivable (net of allowance for doubtful accounts of $4,054 and $3,271, respectively)
65,414  59,531 
Goodwill 156,912  156,912 
Intangible assets, net 97,477  114,290 
Property and equipment, net 337,418  344,784 
Other assets 106,647  45,533 
Fair value of derivative instruments 230  1,818 
Total assets $ 24,219,800  25,220,968 
Liabilities:    
Bonds and notes payable $ 21,294,192  22,218,740 
Accrued interest payable 56,471  61,679 
Other liabilities 263,502  256,092 
Due to customers 279,017  369,678 
Total liabilities 21,893,182  22,906,189 
Commitments and contingencies
Equity:
  Nelnet, Inc. shareholders' equity:    
Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding
—  — 
Common stock:
Class A, $0.01 par value. Authorized 600,000,000 shares; issued and outstanding 28,399,526
     shares and 28,798,464 shares, respectively
284  288 
Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding
     11,279,641 shares and 11,459,641 shares, respectively
113  115 
Additional paid-in capital 1,670  622 
Retained earnings 2,317,115  2,299,556 
Accumulated other comprehensive earnings 3,144  3,883 
Total Nelnet, Inc. shareholders' equity 2,322,326  2,304,464 
Noncontrolling interests 4,292  10,315 
Total equity 2,326,618  2,314,779 
Total liabilities and equity $ 24,219,800  25,220,968 
Supplemental information - assets and liabilities of consolidated education and other lending variable interest entities:
Loans receivable $ 21,498,948  22,359,655 
Restricted cash 657,953  677,611 
Loan accrued interest receivable and other assets 724,227  679,735 
Bonds and notes payable (21,276,901) (22,146,374)
Accrued interest payable and other liabilities (202,371) (163,327)
Net assets of consolidated education and other lending variable interest entities $ 1,401,856  1,407,300 
See accompanying notes to consolidated financial statements.

2


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
(unaudited)
  Three months ended Six months ended
  June 30, June 30, 
  2019 2018 2019 2018
Interest income:      
Loan interest $ 238,222  223,371  480,555  421,094 
Investment interest 8,566  5,818  16,819  10,952 
Total interest income 246,788  229,189  497,374  432,046 
Interest expense:   
Interest on bonds and notes payable 186,963  171,450  378,733  306,999 
Net interest income 59,825  57,739  118,641  125,047 
Less provision for loan losses 9,000  3,500  16,000  7,500 
Net interest income after provision for loan losses 50,825  54,239  102,641  117,547 
Other income:   
Loan servicing and systems revenue 113,985  114,545  228,883  214,687 
Education technology, services, and payment processing revenue
60,342  48,742  139,502  108,963 
Communications revenue 15,758  10,320  30,300  19,509 
Other income 16,152  9,580  25,219  28,135 
Derivative market value adjustments and derivative settlements, net
(24,088) 17,031  (35,628) 83,829 
Total other income 182,149  200,218  388,276  455,123 
Cost of services:
Cost to provide education technology, services, and payment processing services
15,871  11,317  36,930  25,000 
Cost to provide communications services 5,101  3,865  9,860  7,583 
Total cost of services 20,972  15,182  46,790  32,583 
Operating expenses:      
Salaries and benefits 111,214  111,118  222,272  207,760 
Depreciation and amortization 24,484  21,494  48,697  39,951 
Loan servicing fees to third parties 3,156  3,204  6,049  6,341 
Other expenses 42,261  40,409  83,184  73,826 
Total operating expenses 181,115  176,225  360,202  327,878 
Income before income taxes 30,887  63,050  83,925  212,209 
Income tax expense 6,209  13,511  17,600  49,487 
Net income 24,678  49,539  66,325  162,722 
Net (income) loss attributable to noncontrolling interests
(59) (104) (115) 637 
Net income attributable to Nelnet, Inc.
$ 24,619  49,435  66,210  163,359 
Earnings per common share:
Net income attributable to Nelnet, Inc. shareholders - basic and diluted
$ 0.61  1.21  1.65  3.99 
Weighted average common shares outstanding - basic and diluted
40,050,065  40,886,617  40,210,787  40,918,396 

See accompanying notes to consolidated financial statements.

3


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(unaudited)
Three months ended Six months ended
June 30, June 30,
2019 2018 2019 2018
Net income $ 24,678  49,539  66,325  162,722 
Other comprehensive loss:
Available-for-sale securities:
Unrealized holding losses arising during period, net of gains (537) (413) (972) (1,474)
Reclassification adjustment for gains recognized in net income, net of losses
—  (5) —  (52)
Income tax effect 129  100  233  356 
Total other comprehensive loss (408) (318) (739) (1,170)
Comprehensive income 24,270  49,221  65,586  161,552 
Comprehensive (income) loss attributable to noncontrolling interests (59) (104) (115) 637 
Comprehensive income attributable to Nelnet, Inc. $ 24,211  49,117  65,471  162,189 

See accompanying notes to consolidated financial statements.


4


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except share data)
(unaudited)
 
Nelnet, Inc. Shareholders
  Preferred stock shares Common stock shares Preferred stock Class A common stock Class B common stock Additional paid-in capital  Retained earnings Accumulated other comprehensive (loss) earnings Noncontrolling interests Total equity
  Class A Class B
Balance as of March 31, 2018  —  29,289,689  11,468,587  $ —  293  115  448  2,231,875  3,022  9,473  2,245,226 
Issuance of noncontrolling interests —  —  —  —  —  —  —  —  —  495  495 
Net income —  —  —  —  —  —  —  49,435  —  104  49,539 
Other comprehensive loss —  —  —  —  —  —  —  —  (318) —  (318)
Distribution to noncontrolling interests —  —  —  —  —  —  —  —  —  (238) (238)
Cash dividend on Class A and Class B common stock - $0.16 per share —  —  —  —  —  —  —  (6,508) —  —  (6,508)
Issuance of common stock, net of forfeitures —  134,933  —  —  —  1,910  —  —  —  1,911 
Compensation expense for stock based awards —  —  —  —  —  —  1,506  —  —  —  1,506 
Repurchase of common stock —  (93,620) —  —  (1) —  (1,278) (3,631) —  —  (4,910)
Balance as of June 30, 2018 —  29,331,002  11,468,587  $ —  293  115  2,586  2,271,171  2,704  9,834  2,286,703 
Balance as of March 31, 2019  —  28,628,528  11,459,641  $ —  286  115  636  2,321,407  3,552  4,298  2,330,294 
Issuance of noncontrolling interests —  —  —  —  —  —  —  —  —  26  26 
Net income —  —  —  —  —  —  —  24,619  —  59  24,678 
Other comprehensive loss —  —  —  —  —  —  —  —  (408) —  (408)
Distribution to noncontrolling interests —  —  —  —  —  —  —  —  —  (91) (91)
Cash dividend on Class A and Class B common stock - $0.18 per share —  —  —  —  —  —  —  (7,172) —  —  (7,172)
Issuance of common stock, net of forfeitures —  10,138  —  —  —  —  1,384  —  —  —  1,384 
Compensation expense for stock based awards —  —  —  —  —  —  1,590  —  —  —  1,590 
Repurchase of common stock —  (419,140) —  —  (4) —  (1,940) (21,739) —  —  (23,683)
Conversion of common stock —  180,000  (180,000) —  (2) —  —  —  —  — 
Balance as of June 30, 2019 —  28,399,526  11,279,641  $ —  284  113  1,670  2,317,115  3,144  4,292  2,326,618 
Balance as of December 31, 2017  —  29,341,517  11,468,587  $ —  293  115  521  2,143,983  4,617  15,858  2,165,387 
Issuance of noncontrolling interests —  —  —  —  —  —  —  —  —  521  521 
Net income (loss)  —  —  —  —  —  —  —  163,359  —  (637) 162,722 
Other comprehensive loss  —  —  —  —  —  —  —  —  (1,170) —  (1,170)
Distribution to noncontrolling interests  —  —  —  —  —  —  —  —  —  (256) (256)
Cash dividends on Class A and Class B common stock - $0.32 per share —  —  —  —  —  —  —  (13,014) —  —  (13,014)
Issuance of common stock, net of forfeitures  —  305,279  —  —  —  4,082  —  —  —  4,085 
Compensation expense for stock based awards  —  —  —  —  —  —  2,593  —  —  —  2,593 
Repurchase of common stock  —  (315,794) —  —  (3) —  (4,610) (11,715) —  —  (16,328)
Impact of adoption of new accounting standards  —  —  —  —  —  —  —  2,007  (743) —  1,264 
Acquisition of noncontrolling interest  —  —  —  —  —  —  —  (13,449) —  (5,652) (19,101)
Balance as of June 30, 2018  —  29,331,002  11,468,587  $ —  293  115  2,586  2,271,171  2,704  9,834  2,286,703 
Balance as of December 31, 2018  —  28,798,464  11,459,641  $ —  288  115  622  2,299,556  3,883  10,315  2,314,779 
Issuance of noncontrolling interests  —  —  —  —  —  —  —  —  —  52  52 
Net income  —  —  —  —  —  —  —  66,210  —  115  66,325 
Other comprehensive loss  —  —  —  —  —  —  —  —  (739) —  (739)
Distribution to noncontrolling interests  —  —  —  —  —  —  —  —  —  (113) (113)
Cash dividends on Class A and Class B common stock - $0.36 per share —  —  —  —  —  —  —  (14,403) —  —  (14,403)
Issuance of common stock, net of forfeitures  —  141,529  —  —  —  3,876  —  —  —  3,877 
Compensation expense for stock based awards  —  —  —  —  —  —  2,958  —  —  —  2,958 
Repurchase of common stock  —  (720,467) —  —  (7) —  (5,786) (34,248) —  —  (40,041)
Impact of adoption of new accounting standard  —  —  —  —  —  —  —  —  —  (6,077) (6,077)
Conversion of common stock —  180,000  (180,000) —  (2) —  —  —  —  — 
Balance as of June 30, 2019  —  28,399,526  11,279,641  $ —  284  113  1,670  2,317,115  3,144  4,292  2,326,618 

See accompanying notes to consolidated financial statements.


5


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
  Six months ended
June 30,
  2019 2018
Net income attributable to Nelnet, Inc. $ 66,210  163,359 
Net income (loss) attributable to noncontrolling interests
115  (637)
Net income
66,325  162,722 
Adjustments to reconcile net income to net cash (used in) provided by operating activities, net of acquisition:
   
Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs
94,121  89,225 
Loan discount accretion (18,806) (21,799)
Provision for loan losses 16,000  7,500 
Derivative market value adjustments 67,635  (55,135)
Proceeds from termination of derivative instruments 2,119  — 
(Payments to) proceeds from clearinghouse - initial and variation margin, net (77,229) 40,261 
Loss on extinguishment of debt 1,801  — 
Gain from sale of loans (1,712) — 
Gain from debt repurchases
—  (359)
Gain from investments and notes receivable, net (2,970) (6,828)
Deferred income tax (benefit) expense (15,023) 21,294 
Non-cash compensation expense 3,138  2,735 
Other (214) 1,810 
Increase in accrued interest receivable (44,967) (160,698)
(Increase) decrease in accounts receivable (5,972) 2,400 
(Increase) decrease in other assets (1,543) 54,249 
(Decrease) increase in accrued interest payable (5,208) 13,187 
Decrease in other liabilities (4,669) (46,572)
Decrease in due to customers (90,661) (32,361)
Net cash (used in) provided by operating activities (17,835) 71,631 
Cash flows from investing activities, net of acquisition:
 
 
Purchases of loans
(997,123) (2,593,232)
Purchases of loans from a related party (32,580) — 
Net proceeds from loan repayments, claims, capitalized interest, and other
1,889,084  1,694,829 
Proceeds from sale of loans 42,215  1,392 
Purchases of available-for-sale securities (1,010) (38,064)
Proceeds from sales of available-for-sale securities 192  31,785 
Purchases of investments and issuance of notes receivable
(26,314) (24,224)
Proceeds from investments and notes receivable 24,731  16,092 
Purchases of property and equipment (43,715) (65,009)
Business acquisition, net of cash and restricted cash acquired —  (109,152)
Net cash provided by (used in) investing activities 855,480  (1,085,583)
Cash flows from financing activities:      
Payments on bonds and notes payable (2,007,483) (1,643,650)
Proceeds from issuance of bonds and notes payable 1,092,186  2,727,412 
Payments of debt issuance costs (5,515) (5,445)
Payment of debt extinguishment costs (1,394) — 
Dividends paid (14,403) (13,014)
Repurchases of common stock (40,041) (16,328)
Proceeds from issuance of common stock 724  501 
Acquisition of noncontrolling interest —  (13,449)
Issuance of noncontrolling interests —  468 
Distribution to noncontrolling interests (113) (256)
Net cash (used in) provided by financing activities (976,039) 1,036,239 
Net (decrease) increase in cash, cash equivalents, and restricted cash (138,394) 22,287 
Cash, cash equivalents, and restricted cash, beginning of period 1,192,391  942,066 
Cash, cash equivalents, and restricted cash, end of period $ 1,053,997  964,353 

6


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(unaudited)
Six months ended
June 30,
2019 2018
Supplemental disclosures of cash flow information:
Cash disbursements made for interest $ 354,902  259,980 
Cash disbursements (refunds received) for income taxes, net of payments $ 11,529  (7,290)
Noncash investing activity:
Receipt of beneficial interest in consumer loan securitization $ 7,921  — 
Supplemental disclosures of noncash activities regarding the adoption of the new lease standard on January 1, 2019 are contained in note 1.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheets to the total of the amounts reported in the consolidated statements of cash flows.
As of As of As of As of
June 30, 2019 December 31, 2018 June 30, 2018 December 31, 2017
Total cash and cash equivalents $ 84,400  121,347  67,867  66,752 
Restricted cash 690,580  701,366  741,726  688,193 
Restricted cash - due to customers 279,017  369,678  154,760  187,121 
Cash, cash equivalents, and restricted cash
$ 1,053,997  1,192,391  964,353  942,066 
See accompanying notes to consolidated financial statements.


7


NELNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, unless otherwise noted)
(unaudited)

1.  Basis of Financial Reporting
The accompanying unaudited consolidated financial statements of Nelnet, Inc. and subsidiaries (the “Company”) as of June 30, 2019 and for the three and six months ended June 30, 2019 and 2018 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2018 and, in the opinion of the Company’s management, the unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results of operations for the interim periods presented. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results for the year ending December 31, 2019. The unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (the "2018 Annual Report").
Accounting Standard Adopted in 2019
In the first quarter of 2019, the Company adopted the following new accounting standard:
Leases
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification Topic 842, Leases ("ASC Topic 842"). The standard requires the identification of arrangements that should be accounted for as leases by lessees and the disclosure of key information about leasing arrangements. The standard establishes a right-of-use ("ROU") model that requires a lessee to recognize a ROU asset and lease liability for all leases with a term longer than twelve months and classify the lease as operating or financing, with the income statement reflecting lease expense for operating leases and amortization/interest expense for financing leases.
The Company adopted the standard effective January 1, 2019, using the effective date as its date of initial application. Consequently, financial information is not updated and the disclosures required under the new standard are not provided for dates and periods before January 1, 2019. The Company elected to utilize the ‘package of practical expedients’, which permitted it to not reassess under the new standard its prior conclusions about lease identification, lease classification, and initial direct costs.
The most significant impact of the standard relates to (1) the recognition of new ROU assets and lease liabilities on the Company's balance sheet; (2) the deconsolidation of assets and liabilities for certain sale-leaseback transactions arising from build-to-suit lease arrangements for which construction was completed and the Company is leasing the constructed assets that did not qualify for sale accounting prior to the adoption of the new standard; and (3) significant new disclosures about the Company’s leasing activities. The build-to-suit lease arrangements have been reassessed as operating leases as of the effective date under ASC Topic 842.
8


Adoption of the new standard resulted in recognizing lease liabilities of $33.7 million based on the present value of the remaining minimum rental payments. In addition, the Company recognized ROU assets of $32.8 million, which corresponds to the lease liabilities reduced by deferred rent expense as of the effective date. The Company also deconsolidated total assets of $43.8 million and total liabilities of $34.8 million for entities that had been consolidated due to sale-leaseback transactions that failed to qualify for recognition as sales under the prior guidance. Deconsolidation of these entities reduced noncontrolling interests by $6.1 million. The cumulative effect of the changes made to the Company's consolidated balance sheet as of January 1, 2019 for the adoption of the new lease standard was as follows:
Balances at December 31, 2018 Adjustments from adoption of new lease standard Balances at January 1, 2019
Assets
     
Cash and cash equivalents $ 121,347  (646) 120,701 
Investments and notes receivable 249,370  (23,134) 226,236 
Accounts receivable 59,531  (89) 59,442 
Property and equipment, net 344,784  (16,974) 327,810 
Other assets 45,533  32,804  78,337 
Liabilities
Bonds and notes payable
22,218,740  (33,182) 22,185,558 
Other liabilities 256,092  31,220  287,312 
Equity
Noncontrolling interests 10,315  (6,077) 4,238 
At the inception of an arrangement, the Company determines if the arrangement is, or contains, a lease and records the lease in the consolidated financial statements upon lease commencement, which is the date when the underlying asset is made available by the lessor. The Company primarily leases dark fiber to support its telecommunications operations and office and data center space. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The lease expense for these leases is recognized on a straight-line basis over the lease term. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at the commencement date. When the discount rate implicit in the lease cannot be readily determined, the Company uses its incremental borrowing rate.
The Company has elected to utilize the practical expedient to account for lease and non-lease components together as a single, combined lease component for its office and data center space. In addition, the Company has identified itself as the lessor in its Communications operating segment for services provided to customers that include customer-premise equipment. The Company has also elected to utilize the practical expedient to account for those services and associated leases as a single, combined component. The non-lease services are 'predominant' in those contracts. Therefore, the combined component is considered a single performance obligation under ASC Topic 606, Revenue from Contracts with Customers.
Most leases include one or more options to renew, with renewal terms that can be extended. The exercise of lease renewal options for the majority of leases is at the Company's discretion. Renewal options that the Company is reasonably certain to exercise are included in the lease term.
Certain leases include escalating rental payments or rental payments adjusted periodically for inflation. None of the lease agreements include any residual value guarantees, a transfer of title, or a purchase option that is reasonably certain to be exercised.
The following table provides supplemental balance sheet information related to leases:
As of
June 30, 2019
Operating lease ROU assets, which is included in "other assets" on the
consolidated balance sheet
$ 31,822 
Operating lease liabilities, which is included in "other liabilities" on the
consolidated balance sheet
$ 32,753 
9


The following table provides components of lease expense:
Three months ended June 30, 2019 Six months ended June 30, 2019
Rental expense, which is included in "other expenses" on the
consolidated statements of income (a)
$ 2,705  5,500 
Rental expense, which is included in "cost to provide communications
services" on the consolidated statements of income (a)
631  710 
Total operating rental expense $ 3,336  6,210 

(a) Includes short-term and variable lease costs, which are immaterial.
The following table provides supplemental cash flow information related to leases:
Six months ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows related to operating leases $ 4,792 
Supplemental noncash activity:
Operating ROU assets obtained in exchange for lease obligations,
excluding impact of adoption
$ 3,298 
Weighted average remaining lease term and discount rate are shown below:
As of
June 30, 2019
Weighted average remaining lease term 6.02 years
Weighted average discount rate 4.00  %
Maturity of lease liabilities are shown below:
2019 (July 1 - December 31) $ 4,979 
2020 8,864 
2021 6,352 
2022 4,229 
2023 3,395 
2024 and thereafter 9,187 
Total lease payments 37,006 
Imputed interest (4,253)
Total $ 32,753 

The Company adopted the new lease standard using the effective date as its date of initial application as noted above, and as required, the following disclosure is provided for periods prior to adoption. Future minimum lease payments as of December 31, 2018 are shown below:
2019 $ 9,181 
2020 8,261 
2021 5,776 
2022 3,745 
2023 2,904 
2024 and thereafter 5,479 
Total minimum lease payments $ 35,346 

10


2.  Loans Receivable and Allowance for Loan Losses
Loans receivable consisted of the following:
As of As of
  June 30, 2019 December 31, 2018
Federally insured student loans:
Stafford and other $ 4,804,295  4,969,667 
Consolidation 16,349,837  17,186,229 
Total 21,154,132  22,155,896 
Private education loans 198,752  225,975 
Consumer loans 237,952  138,627 
  21,590,836  22,520,498 
Loan discount, net of unamortized loan premiums and deferred origination costs
(38,952) (53,572)
Non-accretable discount (33,535) (29,396)
Allowance for loan losses:
Federally insured loans (39,056) (42,310)
Private education loans (10,157) (10,838)
Consumer loans (13,378) (7,240)
  $ 21,455,758  22,377,142 
On May 1, 2019, the Company sold $47.7 million (par value) of consumer loans to an unrelated third party who securitized such loans. The Company recognized a $1.7 million gain as part of this transaction. As partial consideration received for the consumer loans sold, the Company received an approximate 11 percent beneficial interest in the consumer loan securitization that is included in "investments and notes receivable" on the Company's consolidated balance sheet.
11


Activity in the Allowance for Loan Losses
The provision for loan losses represents the periodic expense of maintaining an allowance sufficient to absorb losses, net of recoveries, inherent in the portfolio of loans. Activity in the allowance for loan losses is shown below.
  Three months ended June 30, 2019
  Balance at beginning of period Provision for loan losses Charge-offs Recoveries Loan sale and other Balance at end of period
Federally insured loans $ 40,934  2,000  (3,878) —  —  39,056 
Private education loans 10,587  —  (588) 158  —  10,157 
Consumer loans 10,257  7,000  (2,652) 273  (1,500) 13,378 
$ 61,778  9,000  (7,118) 431  (1,500) 62,591 
Three months ended June 30, 2018
Federally insured loans $ 38,374  2,000  (3,111) —  —  37,263 
Private education loans 12,255  —  (773) 182  —  11,664 
Consumer loans 4,665  1,500  (1,378) —  4,788 
$ 55,294  3,500  (5,262) 183  —  53,715 
Six months ended June 30, 2019
Federally insured loans $ 42,310  4,000  (7,254) —  —  39,056 
Private education loans 10,838  —  (1,070) 389  —  10,157 
Consumer loans 7,240  12,000  (4,658) 296  (1,500) 13,378 
$ 60,388  16,000  (12,982) 685  (1,500) 62,591 
Six months ended June 30, 2018
Federally insured loans $ 38,706  4,000  (6,443) —  1,000  37,263 
Private education loans 12,629  —  (1,312) 347  —  11,664 
Consumer loans 3,255  3,500  (1,973) —  4,788 
$ 54,590  7,500  (9,728) 353  1,000  53,715 

12


Loan Status and Delinquencies
Delinquencies have the potential to adversely impact the Company’s earnings through increased servicing and collection costs and account charge-offs. The table below shows the Company’s loan delinquency amounts.
  As of June 30, 2019 As of December 31, 2018 As of June 30, 2018 
Federally insured loans:
       
Loans in-school/grace/deferment $ 1,222,021    $ 1,298,493    $ 1,349,739 
Loans in forbearance 1,420,120    1,430,291    1,633,600 
Loans in repayment status:    
Loans current 16,055,368  86.7  % 16,882,252  86.9  % 17,211,088  87.8  %
Loans delinquent 31-60 days 677,113  3.7    683,084  3.5    686,083  3.5   
Loans delinquent 61-90 days 443,988  2.4    427,764  2.2    500,480  2.6   
Loans delinquent 91-120 days 269,688  1.5    283,831  1.5    261,612  1.3   
Loans delinquent 121-270 days
755,093  4.1    806,692  4.2    751,526  3.8   
Loans delinquent 271 days or greater
310,741  1.6    343,489  1.7    200,662  1.0   
Total loans in repayment 18,511,991  100.0  % 19,427,112  100.0  % 19,611,451  100.0  %
Total federally insured loans $ 21,154,132  $ 22,155,896  $ 22,594,790 
Private education loans:
Loans in-school/grace/deferment $ 3,912  $ 4,320  $ 4,194 
Loans in forbearance 1,143  1,494  2,012 
Loans in repayment status:
Loans current 183,414  94.7  % 208,977  95.0  % 168,093  96.2  %
Loans delinquent 31-60 days 3,491  1.8    3,626  1.6    1,498  0.9   
Loans delinquent 61-90 days 1,658  0.9    1,560  0.7    1,235  0.7   
Loans delinquent 91 days or greater 5,134  2.6    5,998  2.7    3,903  2.2   
Total loans in repayment 193,697  100.0  % 220,161  100.0  % 174,729  100.0  %
Total private education loans $ 198,752  $ 225,975  $ 180,935 
Consumer loans:
Loans in repayment status:
Loans current $ 234,944  98.8  % $ 136,130  98.2  % $ 76,401  98.1  %
Loans delinquent 31-60 days 1,254  0.5    1,012  0.7    748  1.0   
Loans delinquent 61-90 days 824  0.3    832  0.6    369  0.5   
Loans delinquent 91 days or greater 930  0.4    653  0.5    337  0.4   
Total loans in repayment 237,952  100.0  % 138,627  100.0  % 77,855  100.0  %
Total consumer loans $ 237,952  $ 138,627  $ 77,855 

13


3.  Bonds and Notes Payable
The following tables summarize the Company’s outstanding debt obligations by type of instrument:
  As of June 30, 2019
Carrying
amount
Interest rate
range
Final maturity
Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:
     
Bonds and notes based on indices $ 19,439,363  2.44% - 4.17%   11/25/24 - 6/27/67
Bonds and notes based on auction 782,076  3.34% - 3.84%   3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes 20,221,439 
FFELP warehouse facilities 777,263  2.57% / 2.62%    11/20/20 / 5/31/22
Consumer loan warehouse facility 117,127  4.24%    4/23/22
Variable-rate bonds and notes issued in private education loan asset-backed securitizations
89,612  3.90% / 4.15%    12/26/40 / 6/25/49
Fixed-rate bonds and notes issued in private education loan asset-backed securitization
56,461  3.60% / 5.35%    12/26/40 / 12/28/43
Unsecured line of credit 260,000  3.88% - 3.93%   6/22/23
Unsecured debt - Junior Subordinated Hybrid Securities 20,381  5.97%    9/15/61
Other borrowings 45,585  3.14% - 4.19%   7/3/19 - 5/30/22
  21,587,868     
Discount on bonds and notes payable and debt issuance costs (293,676)
Total $ 21,294,192 

  As of December 31, 2018
Carrying
amount
Interest rate
range
Final maturity
Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:
     
Bonds and notes based on indices $ 20,192,123  2.59% - 4.52%   11/25/24 - 2/25/67
Bonds and notes based on auction 793,476  2.84% - 3.55%   3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes 20,985,599 
FFELP warehouse facilities 986,886  2.65% / 2.71%    5/20/20 / 5/31/21
Variable-rate bonds and notes issued in private education loan asset-backed securitization
50,720  4.26%    12/26/40
Fixed-rate bonds and notes issued in private education loan asset-backed securitization
63,171  3.60% / 5.35%    12/26/40 / 12/28/43
Unsecured line of credit 310,000  3.92% - 4.01%   6/22/23
Unsecured debt - Junior Subordinated Hybrid Securities 20,381  6.17%    9/15/61
Other borrowings 120,342  3.05% - 5.22%   1/3/19 - 12/15/45
  22,537,099     
Discount on bonds and notes payable and debt issuance costs (318,359)
Total $ 22,218,740 


14


FFELP Warehouse Facilities
The Company funds the majority of its Federal Family Education Loan Program (the "FFEL Program" or "FFELP") loan acquisitions using its FFELP warehouse facilities. Student loan warehousing allows the Company to buy and manage student loans prior to transferring them into more permanent financing arrangements.
As of June 30, 2019, the Company had two FFELP warehouse facilities as summarized below.
NFSLW-I (a) NHELP-II (b) Total
Maximum financing amount
$ 500,000  500,000  1,000,000 
Amount outstanding 414,870  362,393  777,263 
Amount available $ 85,130  137,607  222,737 
Expiration of liquidity provisions
November 20, 2019 May 31, 2020
Final maturity date November 20, 2020 May 31, 2022
Advanced as equity support $ 21,661  27,658  49,319 
(a) On March 8, 2019, the Company decreased the maximum financing amount for this warehouse facility to $500 million. On May 16, 2019, the Company extended the expiration of liquidity provisions to November 20, 2019, and extended the maturity date to November 20, 2020.
(b) On May 30, 2019, the Company extended the expiration of liquidity provisions to May 31, 2020, and extended the maturity date to May 31, 2022.
Asset-Backed Securitizations
The following table summarizes the asset-backed securitization transactions completed during the first six months of 2019.
2019-1 2019-2 Private education loan 2019-A Total
Class A-1 Notes Class A-2 Notes 2019-1 total
Date securities issued 2/27/19 2/27/19 2/27/19    4/30/19    6/25/19   
Class A senior notes:
Total principal amount
$ 35,700  448,000  483,700  405,000  47,159  935,859 
Cost of funds
1-month LIBOR plus 0.30%   1-month LIBOR plus 0.75%   1-month LIBOR plus 0.90%   Prime rate less 1.60%   
Final maturity date 4/25/67 4/25/67 6/27/67 6/25/49
Class B subordinated notes:
Total principal amount
13,100  11,100  24,200 
Cost of funds
1-month LIBOR plus 1.40%   1-month LIBOR plus 1.50%  
Final maturity date 4/25/67 6/27/67
Total principal amount issued
$ 35,700  448,000  496,800  416,100  47,159  960,059 
On June 7, 2019, the Company extinguished all $93.0 million of the notes included in one of its FFELP asset-backed securitizations prior to the notes' contractual maturity. The Company paid a $1.4 million premium to extinguish the notes and wrote off $0.4 million of debt issuance costs. In total, the Company recognized a $1.8 million expense to extinguish the notes, which is included in other expenses on the consolidated statements of income.
Subsequent to June 30, 2019, the Company obtained consent from bond holders in five additional FFELP asset-backed securitizations to extinguish a total of approximately $579 million of notes payable in these transactions prior to their contractual maturity. To extinguish the notes, the Company will pay a premium of approximately $13 million that will be expensed by the Company in the third quarter of 2019. The Company will also write off approximately $2 million of debt issuance costs associated with these securitizations. In total, the Company will recognize approximately $15 million in expenses in the third quarter of 2019 to extinguish these notes.
15


Consumer Loan Warehouse Facility
On January 11, 2019, the Company obtained a consumer loan warehouse facility with an aggregate maximum financing amount available of $100.0 million, an advance rate of 70 or 75 percent depending on the type of collateral and subject to certain concentration limits, and a maturity date of January 10, 2022. On April 25, 2019, the Company amended the agreement for this warehouse facility to increase the aggregate maximum financing amount available to $200.0 million, extend the expiration of liquidity provisions to April 23, 2021, and extend the final maturity date to April 23, 2022. As of June 30, 2019, $117.1 million was outstanding under this warehouse facility and $82.9 million was available for future funding. Additionally, as of June 30, 2019, the Company had $41.3 million advanced as equity support under this facility.
Unsecured Line of Credit
The Company has a $382.5 million unsecured line of credit that has a maturity date of June 22, 2023. As of June 30, 2019, $260.0 million was outstanding under the line of credit and $122.5 million was available for future use. The line of credit provides that the Company may increase the aggregate financing commitments, through the existing lenders and/or through new lenders, up to a total of $400.0 million, subject to certain conditions.
Other Borrowings
During 2017, the Company entered into a repurchase agreement, the proceeds of which are collateralized by FFELP asset-backed security investments. Included in "other borrowings" as of June 30, 2019 and December 31, 2018, was $40.6 million and $41.4 million, respectively, subject to this repurchase agreement.
During 2018, the Company entered into a repurchase agreement, the proceeds of which were collateralized by private education loans. On June 25, 2019, the Company terminated this repurchase agreement. Included in "other borrowings" as of December 31, 2018 was $45.0 million subject to this repurchase agreement.
On May 30, 2019, the Company entered into a $22.0 million secured line of credit agreement with a maturity date of May 30, 2022 and an interest rate of one-month LIBOR plus 1.75%. As of June 30, 2019, $5.0 million was outstanding under this line of credit and $17.0 million was available for future use. The line of credit is secured by several Company-owned properties.
The Company had other notes payable included in its consolidated financial statements which were issued by partnerships for certain real estate development projects. Although the Company's ownership interests in these partnerships are 50 percent or less, because the Company was the developer of and is a current tenant in the associated buildings, the operating results of these partnerships were included in the Company's consolidated financial statements. On January 1, 2019, the Company adopted a new accounting standard for leases (see note 1). As a result of the adoption of this new standard, these real estate entities were deconsolidated, including $33.9 million of related debt. Prior to January 1, 2019, this debt was included in "other borrowings."
4.  Derivative Financial Instruments
The Company uses derivative financial instruments to manage interest rate risk. Derivative instruments used as part of the Company's risk management strategy are further described in note 5 of the notes to consolidated financial statements included in the 2018 Annual Report. A tabular presentation of such derivatives outstanding as of June 30, 2019 and December 31, 2018 is presented below.
Basis Swaps
The following table summarizes the Company’s outstanding basis swaps in which the Company receives three-month LIBOR set discretely in advance and pays one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps"). 
16


As of June 30, As of December 31,
2019 2018
Maturity
Notional amount
Notional amount
2019 $ 1,000,000  3,500,000 
2020 1,000,000  1,000,000 
2021 250,000  250,000 
2022 (a) 2,000,000  2,000,000 
2023 750,000  750,000 
2024 1,750,000  250,000 
2026 1,150,000  1,150,000 
2027 (b) 375,000  375,000 
2028 (b) 325,000  325,000 
2029 (b) 100,000  100,000 
2031 (b) 300,000  300,000 
$ 9,000,000  10,000,000 
(a) $750 million of the notional amount of these derivatives have forward effective start dates in May 2020.
(b) Subsequent to June 30, 2019, the Company terminated $125 million (notional amount), $325 million (notional amount), $100 million (notional amount), and $300 million (notional amount) of 1:3 Basis Swaps that had a maturity date in 2027, 2028, 2029, and 2031, respectively.
The weighted average rate paid by the Company on the 1:3 Basis Swaps as of June 30, 2019 and December 31, 2018 was one-month LIBOR plus 9.6 basis points and 9.4 basis points, respectively.
Interest Rate Swaps – Floor Income Hedges
The following table summarizes the outstanding derivative instruments used by the Company to economically hedge loans earning fixed rate floor income.
As of June 30, 2019 As of December 31, 2018
Maturity Notional amount Weighted average fixed rate paid by the Company (a) Notional amount Weighted average fixed rate paid by the Company (a)
2019 $ 500,000  1.12  % $ 3,250,000  0.97  %
2020 1,500,000  1.01    1,500,000  1.01   
2021 600,000  2.15    100,000  2.95   
2022 (b) 500,000  1.90    —  —   
2023 400,000  2.24    400,000  2.24   
2024 200,000  2.27    300,000  2.28   
2027 —  —    25,000  2.35   
  $ 3,700,000  1.53  % $ 5,575,000  1.18  %
(a) For all interest rate derivatives, the Company receives discrete three-month LIBOR.
(b) $250 million of the notional amount of these derivatives have forward effective start dates in June 2021.
Interest Rate Swap Options – Floor Income Hedges
During 2014 and 2018, the Company paid $9.1 million and $4.6 million, respectively, for interest rate swap options to economically hedge loans earning fixed rate floor income. The interest rate swap options give the Company the right, but not the obligation, to enter into interest rate swaps in which the Company would pay a fixed amount and receive discrete one-month LIBOR. The following table summarizes these derivative instruments as of June 30, 2019.
If exercised effective date Notional amount Weighted average fixed rate paid by the Company If exercised maturity date
August 21, 2019 $ 750,000  3.28  % August 21, 2024
September 25, 2019 250,000  3.00    September 25, 2024
$ 1,000,000  3.21  %

17


Interest Rate Caps
In June 2015 and June 2019, the Company paid $2.9 million and $0.3 million, respectively, for interest rate cap contracts to mitigate a rise in interest rates and its impact on earnings related to its student loan portfolio earning a fixed rate. In the event that the one-month LIBOR or three-month LIBOR rate rises above the applicable strike rate, the Company would receive monthly payments related to the spread difference. The following table summarizes these derivative instruments as of June 30, 2019.
Notional amount  Strike rate Maturity date
$ 125,000  2.50% (1-month LIBOR) July 15, 2020
150,000  4.99 (1-month LIBOR) July 15, 2020
500,000  2.25 (3-month LIBOR) September 25, 2020

Consolidated Financial Statement Impact Related to Derivatives
Balance Sheet
The following table summarizes the fair value of the Company’s derivatives as reflected in the consolidated balance sheets. There is no difference between the gross amounts of recognized assets presented in the consolidated balance sheets related to the Company's derivative portfolio and the net amount when excluding derivatives subject to enforceable master netting arrangements and cash collateral received.
  Fair value of asset derivatives Fair value of liability derivatives
As of June 30, 2019 As of December 31, 2018 As of June 30, 2019 As of December 31, 2018
Interest rate swap options - floor income hedges
$ 1,465  —  — 
Interest rate caps 229  353  —  — 
Total $ 230  1,818  —  — 
Income Statement Impact
The following table summarizes the components of "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of income.
Three months ended June 30, Six months ended June 30,
  2019 2018 2019 2018
Settlements:    
1:3 basis swaps $ 807  2,979  3,140  1,315 
Interest rate swaps - floor income hedges 12,165  19,074  28,867  27,664 
Interest rate swaps - hybrid debt hedges —  (125) —  (285)
Total settlements - income 12,972  21,928  32,007  28,694 
Change in fair value:    
1:3 basis swaps (2,522) (2,209) 10,775 
Interest rate swaps - floor income hedges (36,851) (2,766) (63,563) 41,434 
Interest rate swap options - floor income hedges (88) (279) (1,464) 468 
Interest rate caps (125) 122  (399) 448 
Interest rate swaps - hybrid debt hedges —  548  —  2,010 
Total change in fair value - (expense) income
(37,060) (4,897) (67,635) 55,135 
Derivative market value adjustments and derivative settlements, net - (expense) income
$ (24,088) 17,031  (35,628) 83,829 

18


5.  Investments and Notes Receivable
A summary of the Company's investments and notes receivable follows:
As of June 30, 2019 As of December 31, 2018
Amortized cost Gross unrealized gains Gross unrealized losses Fair value Amortized cost Gross unrealized gains Gross unrealized losses Fair value
Investments (at fair value):
Student loan asset-backed and other debt securities - available-for-sale
$ 48,749  4,136  —  52,885  47,931  5,109  —  53,040 
Equity securities 12,535  6,648  (1,085) 18,098  12,909  5,145  (407) 17,647 
Total investments (at fair value) $ 61,284  10,784  (1,085) 70,983  60,840  10,254  (407) 70,687 
Other Investments and Notes Receivable (not measured at fair value):
Venture capital and funds:
Measurement alternative
71,356  70,939 
Equity method
15,677  19,230 
Other
700  900 
Total venture capital and funds 87,733  91,069 
Real estate:
Equity method
38,790  29,168 
Other
10,622  34,211 
  Total real estate
49,412  63,379 
Beneficial interest in consumer loan securitization 6,953  — 
Tax liens and affordable housing 6,855  7,862 
Notes receivable —  16,373 
Total investments and notes receivable (not measured at fair value) 150,953  178,683 
      Total investments and notes receivable
$ 221,936  249,370 




19


6. Intangible Assets
Intangible assets consist of the following:
Weighted average remaining useful life as of June 30, 2019 (months) 
As of  As of 
June 30, 2019  December 31, 2018
Amortizable intangible assets, net:    
Customer relationships (net of accumulated amortization of $47,287 and
$33,968, respectively)
81 $ 85,166  98,484 
Trade names (net of accumulated amortization of $7,520 and
$5,825, respectively)
89 9,173  10,868 
Computer software (net of accumulated amortization of $2,249 and
$15,420, respectively)
19 3,138  4,938 
Total - amortizable intangible assets, net 80 $ 97,477  114,290 
The Company recorded amortization expense on its intangible assets of $8.3 million and $7.8 million during the three months ended June 30, 2019 and 2018, respectively, and $16.8 million and $14.0 million during the six months ended June 30, 2019 and 2018, respectively. The Company will continue to amortize intangible assets over their remaining useful lives. As of June 30, 2019, the Company estimates it will record amortization expense as follows:
2019 (July 1 - December 31) $ 15,945 
2020 29,515 
2021 18,761 
2022 7,172 
2023 6,925 
2024 and thereafter 19,159 
  $ 97,477 

7. Goodwill
The carrying amount of goodwill as of December 31, 2018 and June 30, 2019 by reportable operating segment was as follows:
Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Asset Generation and Management Corporate and Other Activities Total
Goodwill balance $ 23,639  70,278  21,112  41,883  —  156,912 

20


8. Property and Equipment
Property and equipment consisted of the following:
As of As of
Useful life June 30, 2019 December 31, 2018
Non-communications:
Computer equipment and software 1-5 years $ 150,017  137,705 
Building and building improvements 5-48 years 38,094  50,138 
Office furniture and equipment 1-10 years 23,901  22,796 
Leasehold improvements 1-15 years 8,991  9,327 
Transportation equipment 5-10 years 5,049  5,123 
Land —  1,400  3,328 
Construction in progress —  2,709  3,578 
230,161  231,995 
Accumulated depreciation - non-communications (138,325) (123,003)
Non-communications, net property and equipment 91,836  108,992 
Communications:
Network plant and fiber
5-15 years 238,248  215,787 
Customer located property
3-7 years 24,839  21,234 
Central office
5-15 years 17,274  15,688 
Transportation equipment
4-10 years 6,732  6,580 
Computer equipment and software
1-5 years 5,185  4,943 
Other
1-39 years 3,419  3,219 
Land
—  70  70 
Construction in progress
—  2,466  6,344 
298,233  273,865 
Accumulated depreciation - communications
(52,651) (38,073)
Communications, net property and equipment
245,582  235,792 
Total property and equipment, net $ 337,418  344,784 
The Company recorded depreciation expense on its property and equipment of $16.2 million and $13.7 million during the three months ended June 30, 2019 and 2018, respectively, and $31.9 million and $26.0 million during the six months ended June 30, 2019 and 2018, respectively.


21


9.  Earnings per Common Share
Presented below is a summary of the components used to calculate basic and diluted earnings per share. The Company applies the two-class method in computing both basic and diluted earnings per share, which requires the calculation of separate earnings per share amounts for common stock and unvested share-based awards. Unvested share-based awards that contain nonforfeitable rights to dividends are considered securities which participate in undistributed earnings with common stock.
  Three months ended June 30,
2019 2018
Common shareholders  Unvested restricted stock shareholders  Total  Common shareholders  Unvested restricted stock shareholders  Total 
Numerator:
Net income attributable to Nelnet, Inc.
$ 24,292  327  24,619  48,860  575  49,435 
Denominator:
Weighted-average common shares outstanding - basic and diluted
39,518,652  531,413  40,050,065  40,411,359  475,258  40,886,617 
Earnings per share - basic and diluted
$ 0.61  0.61  0.61  1.21  1.21  1.21 

Six months ended June 30,
2019 2018
Common shareholders  Unvested restricted stock shareholders  Total  Common shareholders  Unvested restricted stock shareholders  Total 
Numerator:
Net income attributable to Nelnet, Inc.
$ 65,346  864  66,210  161,594  1,765  163,359 
Denominator:
Weighted-average common shares outstanding - basic and diluted
39,685,958  524,829  40,210,787  40,476,254  442,142  40,918,396 
Earnings per share - basic and diluted
$ 1.65  1.65  1.65  3.99  3.99  3.99 

22


10.  Segment Reporting
See note 14 of the notes to consolidated financial statements included in the 2018 Annual Report for a description of the Company's operating segments. The following tables include the results of each of the Company's operating segments reconciled to the consolidated financial statements.
  Three months ended June 30, 2019 
Loan Servicing and Systems  Education Technology, Services, and Payment Processing  Communications  Asset
Generation and
Management 
Corporate and Other Activities  Eliminations  Total 
Total interest income
$ 550  1,659  243,295  2,258  (974) 246,788 
Interest expense
19  11  —  184,035  3,872  (974) 186,963 
Net interest income (expense)
531  1,648  59,260  (1,614) —  59,825 
Less provision for loan losses
—  —  —  9,000  —  —  9,000 
Net interest income (loss) after provision for loan losses
531  1,648  50,260  (1,614) —  50,825 
Other income:
Loan servicing and systems revenue
113,985  —  —  —  —  —  113,985 
Intersegment servicing revenue
11,598  —  —  —  —  (11,598) — 
Education technology, services, and payment processing revenue
—  60,342  —  —  —  —  60,342 
Communications revenue
—  —  15,758  —  —  —  15,758 
Other income
2,277  —  362  4,888  8,624  —  16,152 
Derivative settlements, net
—  —  —  12,972  —  —  12,972 
Derivative market value adjustments, net
—  —  —  (37,060) —  —  (37,060)
Total other income
127,860  60,342  16,120  (19,200) 8,624  (11,598) 182,149 
Cost of services:
Cost to provide education technology, services, and payment processing services
—  15,871  —  —  —  —  15,871 
Cost to provide communications services
—  —  5,101  —  —  —  5,101 
Total cost of services
—  15,871  5,101  —  —  —  20,972 
Operating expenses:
Salaries and benefits
66,496  22,823  5,192  382  16,321  —  111,214 
Depreciation and amortization
8,799  3,324  7,737  —  4,623  —  24,484 
Loan servicing fees to third parties
—  —  —  3,156  —  —  3,156 
Other expenses
17,118  5,805  3,865  3,051  12,423  —  42,261 
Intersegment expenses, net
13,604  3,148  716  11,665  (17,535) (11,598) — 
Total operating expenses
106,017  35,100  17,510  18,254  15,832  (11,598) 181,115 
Income (loss) before income taxes
22,374  11,019  (6,490) 12,806  (8,822) —  30,887 
Income tax (expense) benefit
(5,370) (2,645) 1,558  (3,074) 3,321  —  (6,209)
Net income (loss)
17,004  8,374  (4,932) 9,732  (5,501) —  24,678 
  Net income attributable to noncontrolling interests
—  —  —  —  (59) —  (59)
Net income (loss) attributable to Nelnet, Inc.
$ 17,004  8,374  (4,932) 9,732  (5,560) —  24,619 
Total assets as of June 30, 2019 $ 267,611  336,896  302,873  22,907,234  595,623  (190,437) 24,219,800 

23


  Three months ended June 30, 2018 
Loan Servicing and Systems  Education Technology, Services, and Payment Processing  Communications 
Asset
Generation and
Management
Corporate and Other
Activities 
Eliminations  Total 
Total interest income
$ 293  748  226,509  6,062  (4,425) 229,189 
Interest expense
—  —  3,303  169,623  2,949  (4,425) 171,450 
Net interest income (expense)
293  748  (3,302) 56,886  3,113  —  57,739 
Less provision for loan losses
—  —  —  3,500  —  —  3,500 
Net interest income (loss) after provision for loan losses
293  748  (3,302) 53,386  3,113  —  54,239 
Other income:
Loan servicing and systems revenue
114,545  —  —  —  —  —  114,545 
Intersegment servicing revenue
11,609  —  —  —  —  (11,609) — 
Education technology, services, and payment processing revenue
—  48,742  —  —  —  —  48,742 
Communications revenue
—  —  10,320  —  —  —  10,320 
Other income
1,956  —  —  2,772  4,851  —  9,580 
Derivative settlements, net
—  —  —  22,053  (125) —  21,928 
Derivative market value adjustments, net
—  —  —  (5,446) 548  —  (4,897)
Total other income
128,110  48,742  10,320  19,379  5,274  (11,609) 200,218 
Cost of services:
Cost to provide education technology, services, and payment processing services
—  11,317  —  —  —  —  11,317 
Cost to provide communications services
—  —  3,865  —  —  —  3,865 
Total cost of services
—  11,317  3,865  —  —  —  15,182 
Operating expenses:
Salaries and benefits
69,434  19,513  4,668  377  17,126  —  111,118 
Depreciation and amortization
8,212  3,286  5,497  —  4,500  —  21,494 
Loan servicing fees to third parties
—  —  —  3,204  —  —  3,204 
Other expenses
17,490  5,383  3,023  1,288  13,225  —  40,409 
Intersegment expenses, net
15,583  2,570  599  11,700  (18,842) (11,609) — 
Total operating expenses
110,719  30,752  13,787  16,569  16,009  (11,609) 176,225 
Income (loss) before income taxes
17,684  7,421  (10,634) 56,196  (7,622) —  63,050 
Income tax (expense) benefit
(4,245) (1,781) 2,552  (13,487) 3,451  —  (13,511)
Net income (loss)
13,439  5,640  (8,082) 42,709  (4,171) —  49,539 
  Net income attributable to noncontrolling interests
—  —  —  —  (104) —  (104)
Net income (loss) attributable to Nelnet, Inc.
$ 13,439  5,640  (8,082) 42,709  (4,275) —  49,435 
Total assets as of June 30, 2018 $ 253,140  235,128  252,311  24,092,875  774,086  (398,297) 25,209,244 

24


Six months ended June 30, 2019 
Loan Servicing and Systems  Education Technology, Services, and Payment Processing  Communications 
Asset
Generation and
Management
Corporate and Other
Activities 
Eliminations  Total 
Total interest income
$ 1,047  3,676  490,162  4,310  (1,824) 497,374 
Interest expense
19  19  —  372,834  7,685  (1,824) 378,733 
Net interest income (expense)
1,028  3,657  117,328  (3,375) —  118,641 
Less provision for loan losses
—  —  —  16,000  —  —  16,000 
Net interest income (loss) after provision for loan losses
1,028  3,657  101,328  (3,375) —  102,641 
Other income:
Loan servicing and systems revenue
228,883  —  —  —  —  —  228,883 
Intersegment servicing revenue
23,815  —  —  —  —  (23,815) — 
Education technology, services, and payment processing revenue
—  139,502  —  —  —  —  139,502 
Communications revenue
—  —  30,300  —  —  —  30,300 
Other income
4,350  —  487  8,413  11,969  —  25,219 
Derivative settlements, net
—  —  —  32,007  —  —  32,007 
Derivative market value adjustments, net
—  —  —  (67,635) —  —  (67,635)
Total other income
257,048  139,502  30,787  (27,215) 11,969  (23,815) 388,276 
Cost of services:
Cost to provide education technology, services, and payment processing services
—  36,930  —  —  —  —  36,930 
Cost to provide communications services
—  —  9,860  —  —  —  9,860 
Total cost of services
—  36,930  9,860  —  —  —  46,790 
Operating expenses:
Salaries and benefits
132,715  45,830  9,929  760  33,038  —  222,272 
Depreciation and amortization
17,671  6,835  15,099  —  9,093  —  48,697 
Loan servicing fees to third parties
—  —  —  6,049  —  —  6,049 
Other expenses
36,047  11,116  7,342  3,995  24,685  —  83,184 
Intersegment expenses, net
27,362  6,447  1,380  23,952  (35,326) (23,815) — 
Total operating expenses
213,795  70,228  33,750  34,756  31,490  (23,815) 360,202 
Income (loss) before income taxes
44,281  36,001  (12,820) 39,357  (22,896) —  83,925 
Income tax (expense) benefit
(10,628) (8,640) 3,077  (9,446) 8,037  —  (17,600)
Net income (loss)
33,653  27,361  (9,743) 29,911  (14,859) —  66,325 
  Net loss (income) attributable to noncontrolling interests
—  —  —  —  (115) —  (115)
Net income (loss) attributable to Nelnet, Inc.
$ 33,653  27,361  (9,743) 29,911  (14,974) —  66,210 
Total assets as of June 30, 2019 $ 267,611  336,896  302,873  22,907,234  595,623  (190,437) 24,219,800 

25


Six months ended June 30, 2018 
Loan Servicing and Systems  Education Technology, Services, and Payment Processing  Communications 
Asset
Generation and
Management
Corporate and Other
Activities 
Eliminations  Total 
Total interest income
$ 550  1,413  426,843  10,813  (7,574) 432,046 
Interest expense
—  —  5,812  303,854  4,907  (7,574) 306,999 
Net interest income (expense)
550  1,413  (5,810) 122,989  5,906  —  125,047 
Less provision for loan losses
—  —  —  7,500  —  —  7,500 
Net interest income (loss) after provision for loan losses
550  1,413  (5,810) 115,489  5,906  —  117,547 
Other income:
Loan servicing and systems revenue
214,687  —  —  —  —  —  214,687 
Intersegment servicing revenue
22,380  —  —  —  —  (22,380) — 
Education technology, services, and payment processing revenue
—  108,963  —  —  —  —  108,963 
Communications revenue
—  —  19,509  —  —  —  19,509 
Other income
3,248  —  —  6,124  18,765  —  28,135 
Derivative settlements, net
—  —  —  28,979  (285) —  28,694 
Derivative market value adjustments, net
—  —  —  53,125  2,010  —  55,135 
Total other income
240,315  108,963  19,509  88,228  20,490  (22,380) 455,123 
Cost of services:
Cost to provide education technology, services, and payment processing services
—  25,000  —  —  —  —  25,000 
Cost to provide communications services
—  —  7,583  —  —  —  7,583 
Total cost of services
—  25,000  7,583  —  —  —  32,583 
Operating expenses:
Salaries and benefits
127,971  38,580  8,730  759  31,720  —  207,760 
Depreciation and amortization
14,280  6,627  10,418  —  8,626  —  39,951 
Loan servicing fees to third parties
—  —  —  6,341  —  —  6,341 
Other expenses
31,953  10,006  5,660  2,137  24,070  —  73,826 
Intersegment expenses, net
28,939  5,136  1,204  22,565  (35,464) (22,380) — 
Total operating expenses
203,143  60,349  26,012  31,802  28,952  (22,380) 327,878 
Income (loss) before income taxes
37,722  25,027  (19,896) 171,915  (2,556) —  212,209 
Income tax (expense) benefit
(9,247) (6,006) 4,775  (41,260) 2,251  —  (49,487)
Net income (loss)
28,475  19,021  (15,121) 130,655  (305) —  162,722 
  Net loss (income) attributable to noncontrolling interests
808  —  —  —  (172) —  637 
Net income (loss) attributable to Nelnet, Inc.
$ 29,283  19,021  (15,121) 130,655  (477) —  163,359 
Total assets as of June 30, 2018 $ 253,140  235,128  252,311  24,092,875  774,086  (398,297) 25,209,244 


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11. Disaggregated Revenue and Deferred Revenue
The following tables provide disaggregated revenue by service offering and/or customer type for the Company's fee-based reportable operating segments.
Loan Servicing and Systems
  Three months ended June 30,  Six months ended June 30, 
  2019 2018 2019 2018
Government servicing - Nelnet $ 40,459  39,781  80,099  79,107 
Government servicing - Great Lakes 45,973  45,682  93,050  76,437 
Private education and consumer loan servicing 8,985  8,882  18,465  21,983 
FFELP servicing
6,424  9,147  13,119  16,838 
Software services 10,021  8,671  19,762  16,260 
 Outsourced services and other
2,123  2,382  4,388  4,062 
Loan servicing and systems revenue
$ 113,985  114,545  228,883  214,687 
Education Technology, Services, and Payment Processing
  Three months ended June 30, Six months ended June 30, 
  2019 2018 2019 2018
Tuition payment plan services $ 24,655  20,417  54,829  43,404 
Payment processing
21,311  16,026  50,290  35,952 
Education technology and services
14,096  12,018  33,805  28,993 
Other
280  281  578  614 
Education technology, services, and payment processing revenue
$ 60,342  48,742  139,502  108,963 
Communications
Three months ended June 30, Six months ended June 30, 
2019 2018 2019 2018
Internet $ 9,297  5,387  17,726  10,086 
Television 4,050  3,086  7,939  5,872 
Telephone 2,395  1,827  4,575  3,512 
Other 16  20  60  39 
Communications revenue $ 15,758  10,320  30,300  19,509 
Residential revenue $ 11,890  7,727  22,955  14,472 
Business revenue 3,816  2,535  7,230  4,917 
Other 52  58  115  120 
Communications revenue $ 15,758  10,320  30,300  19,509 
Other Income
The following table provides the components of "other income" on the consolidated statements of income:
Three months ended June 30, Six months ended June 30, 
2019 2018 2019 2018
Gain (loss) on investments and notes receivable, net $ 4,258  (901) 3,831  7,787 
Borrower late fee income
3,161  2,758  6,674  5,741 
Management fee revenue
2,051  1,756  3,923  2,917 
Gain on sale of loans 1,712  —  1,712  — 
Investment advisory fees 731  1,394  1,441  2,986 
Other
4,239  4,573  7,638  8,704 
Other income $ 16,152  9,580  25,219  28,135 

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Deferred Revenue
Activity in the deferred revenue balance, which is included in "other liabilities" on the consolidated balance sheets, is shown below:
Three months ended June 30, 2019
Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Corporate and Other Activities Total
Balance, beginning of period $ 3,947  18,498  2,756  1,552  26,753 
Deferral of revenue 764  24,770  8,798  841  35,173 
Recognition of revenue (1,396) (21,779) (8,474) (782) (32,431)
Balance, end of period $ 3,315  21,489  3,080  1,611  29,495 
Three months ended June 30, 2018
Balance, beginning of period $ 4,172  15,248  1,827  1,468  22,715 
Deferral of revenue 711  20,913  5,974  1,457  29,055 
Recognition of revenue (1,112) (18,172) (5,652) (1,176) (26,112)
Balance, end of period $ 3,771  17,989  2,149  1,749  25,658 
Six months ended June 30, 2019
Balance, beginning of period $ 4,413  30,556  2,551  1,602  39,122 
Deferral of revenue 1,880  38,732  17,064  1,577  59,253 
Recognition of revenue (2,978) (47,799) (16,535) (1,568) (68,880)
Balance, end of period $ 3,315  21,489  3,080  1,611  29,495 
Six months ended June 30, 2018
Balance, beginning of period $ 4,968  24,164  1,665  1,479  32,276 
Deferral of revenue 964  31,688  11,349  2,105  46,106 
Recognition of revenue (2,161) (37,863) (10,865) (1,835) (52,724)
Balance, end of period $ 3,771  17,989  2,149  1,749  25,658 

12.  Major Customer
Nelnet Servicing, LLC ("Nelnet Servicing"), a subsidiary of the Company, earns loan servicing revenue from a servicing contract with the Department of Education (the "Department"). Revenue earned by Nelnet Servicing related to this contract was $40.5 million and $39.8 million for the three months ended June 30, 2019 and 2018, and $80.1 million and $79.1 million for the six months ended June 30, 2019 and 2018, respectively.
In addition, Great Lakes Educational Loan Services, Inc. ("Great Lakes"), which was acquired by the Company on February 7, 2018, also earns loan servicing revenue from a similar servicing contract with the Department. Revenue earned by Great Lakes related to this contract was $46.0 million and $45.7 million for the three months ended June 30, 2019 and 2018, respectively, and $93.1 million for the six months ended June 30, 2019. Revenue of $76.4 million was earned for the period from February 7, 2018 to June 30, 2018.
Nelnet Servicing and Great Lakes' servicing contracts with the Department previously provided for expiration on June 16, 2019. On May 15, 2019, Nelnet Servicing and Great Lakes each received a Modification of Contract from the Department's Office of Federal Student Aid ("FSA") pursuant to which FSA extended the expiration date of the current contracts to December 15, 2019.
In addition, Nelnet Servicing's current Authority to Operate as a loan servicer for the Department expires on August 30, 2019, and is currently under review for renewal. The Company cannot predict the timing or outcome of this review.
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FSA is conducting a contract procurement process entitled Next Generation Financial Services Environment (“NextGen”) for a new framework for the servicing of all student loans owned by the Department. On January 15, 2019, FSA issued solicitations for three NextGen components:
NextGen Enhanced Processing Solution ("EPS")
NextGen Business Process Operations ("BPO")
NextGen Optimal Processing Solution ("OPS")
On April 1, 2019, and August 1, 2019, the Company responded to the EPS and BPO components, respectively. In addition, the Company is part of a team that currently intends to respond to the OPS component, although there is no current published deadline. The Company cannot predict the timing, nature, or outcome of these solicitations.

13. Related Party Transaction

On July 26, 2019, the Company, as lender, received a $16.0 million promissory note from Hudl, of which David R. Graff, a member of the Company's Board of Directors, is CEO, co-founder, and a director. The promissory note carries a 14 percent interest rate and is due 180 days from the date of issuance. In connection with this promissory note, the Company entered into a Subordination Agreement with Union Bank and Trust Company ("Union Bank"), a related party, effective as of July 26, 2019, which required the Company to subordinate its promissory note from Hudl to existing notes Union Bank holds from Hudl.

14.  Fair Value
The following tables present the Company’s financial assets and liabilities that are measured at fair value on a recurring basis.
  As of June 30, 2019 As of December 31, 2018
  Level 1 Level 2 Total Level 1 Level 2 Total
Assets:      
Investments:
Student loan and other asset-backed
     securities - available-for-sale
$ —  52,782  52,782  —  52,936  52,936 
Equity securities 3,271  —  3,271  2,722  —  2,722 
Equity securities measured at net asset
value (a)
14,827  14,925 
Debt securities - available-for-sale 103  —  103  104  —  104 
Total investments
3,374  52,782  70,983  2,826  52,936  70,687 
Derivative instruments
—  230  230  —  1,818  1,818 
Total assets $ 3,374  53,012  71,213  2,826  54,754  72,505 
(a) In accordance with the Fair Value Measurements Topic of the FASB Accounting Standards Codification, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
The following table summarizes the fair values of all of the Company’s financial instruments on the consolidated balance sheets:
  As of June 30, 2019
  Fair value Carrying value Level 1 Level 2 Level 3
Financial assets:        
Loans receivable $ 22,152,953  21,455,758  —  —  22,152,953 
Cash and cash equivalents 84,400  84,400  84,400  —  — 
Investments (at fair value) 70,983  70,983  3,374  52,782  — 
Beneficial interest in consumer loan securitization 6,953  6,953  —  —  6,953 
Restricted cash 690,580  690,580  690,580  —  — 
Restricted cash – due to customers 279,017  279,017  279,017  —  — 
Accrued interest receivable 724,011  724,011  —  724,011  — 
Derivative instruments 230  230  —  230  — 
Financial liabilities:    
Bonds and notes payable 21,077,894  21,294,192  —  21,077,894  — 
Accrued interest payable 56,471  56,471  —  56,471  — 
Due to customers 279,017  279,017  279,017  —  — 

29


  As of December 31, 2018
  Fair value Carrying value Level 1 Level 2 Level 3
Financial assets:        
Loans receivable $ 23,521,171  22,377,142  —  —  23,521,171 
Cash and cash equivalents 121,347  121,347  121,347  —  — 
Investments (at fair value) 70,687  70,687  2,826  52,936  — 
Notes receivable 16,373  16,373  —  16,373  — 
Restricted cash 701,366  701,366  701,366  —  — 
Restricted cash – due to customers 369,678  369,678  369,678  —  — 
Accrued interest receivable 679,197  679,197  —  679,197  — 
Derivative instruments 1,818  1,818  —  1,818  — 
Financial liabilities:    
Bonds and notes payable 22,270,462  22,218,740  —  22,270,462  — 
Accrued interest payable 61,679  61,679  —  61,679  — 
Due to customers 369,678  369,678  369,678  —  — 
The methodologies for estimating the fair value of financial assets and liabilities are described in note 20 of the notes to consolidated financial statements included in the 2018 Annual Report.
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Management’s Discussion and Analysis of Financial Condition and Results of Operations is for the three and six months ended June 30, 2019 and 2018. All dollars are in thousands, except per share amounts, unless otherwise noted.)
The following discussion and analysis provides information that the Company’s management believes is relevant to an assessment and understanding of the consolidated results of operations and financial condition of the Company. The discussion should be read in conjunction with the Company’s consolidated financial statements included in the 2018 Annual Report.
Forward-looking and cautionary statements
This report contains forward-looking statements and information that are based on management's current expectations as of the date of this document. Statements that are not historical facts, including statements about the Company's plans and expectations for future financial condition, results of operations or economic performance, or that address management's plans and objectives for future operations, and statements that assume or are dependent upon future events, are forward-looking statements. The words “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” “scheduled,” “should,” “will,” “would,” and similar expressions, as well as statements in future tense, are intended to identify forward-looking statements.
The forward-looking statements are based on assumptions and analyses made by management in light of management's experience and its perception of historical trends, current conditions, expected future developments, and other factors that management believes are appropriate under the circumstances. These statements are subject to known and unknown risks, uncertainties, assumptions, and other factors that may cause the actual results and performance to be materially different from any future results or performance expressed or implied by such forward-looking statements. These factors include, among others, the risks and uncertainties set forth in the “Risk Factors” section of the 2018 Annual Report and elsewhere in this report, and include such risks and uncertainties as:
loan portfolio risks such as interest rate basis and repricing risk resulting from the fact that the interest rate characteristics of the student loan assets do not match the interest rate characteristics of the funding for those assets, the risk of loss of floor income on certain student loans originated under the Federal Family Education Loan Program (the "FFEL Program" or "FFELP"), risks related to the use of derivatives to manage exposure to interest rate fluctuations, uncertainties regarding the expected benefits from purchased securitized and unsecuritized FFELP, private education, and consumer loans and initiatives to purchase additional FFELP, private education, and consumer loans, and risks from changes in levels of loan prepayment or default rates;
30


financing and liquidity risks, including risks of changes in the general interest rate environment, including the availability of any relevant money market index rate such as LIBOR or the relationship between the relevant money market index rate and the rate at which the Company's assets and liabilities are priced, and in the securitization and other financing markets for loans, including adverse changes resulting from unanticipated repayment trends on student loans in FFELP securitization trusts that could accelerate or delay repayment of the associated bonds, which may increase the costs or limit the availability of financings necessary to purchase, refinance, or continue to hold student loans;
risks from changes in the educational credit and services markets resulting from changes in applicable laws, regulations, and government programs and budgets, such as the expected decline over time in FFELP loan interest income and fee-based revenues due to the discontinuation of new FFELP loan originations in 2010 and potential government initiatives or legislative proposals to consolidate existing FFELP loans to the Federal Direct Loan Program or otherwise allow FFELP loans to be refinanced with Federal Direct Loan Program loans;
the uncertain nature of the expected benefits from the acquisition of Great Lakes Educational Loan Services, Inc. ("Great Lakes") on February 7, 2018 and the ability to successfully integrate technology and other activities and successfully maintain and increase allocated volumes of student loans serviced under existing and any future servicing contracts with the U.S. Department of Education (the "Department"), which current contracts accounted for 30 percent of the Company's revenue in 2018, risks to the Company related to the Department's initiatives to procure new contracts for federal student loan servicing, including the risk that the Company or Company teams may not be successful in obtaining contracts, risks related to the development by the Company of a new student loan servicing platform, including risks as to whether the expected benefits from the new platform will be realized, and risks related to the Company's ability to comply with agreements with third-party customers for the servicing of Federal Direct Loan Program, FFELP, and private education and consumer loans;
risks related to a breach of or failure in the Company's operational or information systems or infrastructure, or those of third-party vendors, including cybersecurity risks related to the potential disclosure of confidential student loan borrower and other customer information, the potential disruption of the Company's systems or those of third-party vendors or customers, and/or the potential damage to the Company's reputation resulting from cyber-breaches;
uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations;
risks and uncertainties related to the ability of ALLO Communications LLC to successfully expand its fiber network and market share in existing service areas and additional communities and manage related construction risks;
risks and uncertainties related to initiatives to pursue additional strategic investments and acquisitions, including investments and acquisitions that are intended to diversify the Company both within and outside of its historical core education-related businesses, as well as other strategic initiatives; and
risks and uncertainties associated with litigation matters and with maintaining compliance with the extensive regulatory requirements applicable to the Company's businesses, reputational and other risks, including the risk of increased regulatory costs, resulting from the politicization of student loan servicing, and uncertainties inherent in the estimates and assumptions about future events that management is required to make in the preparation of the Company's consolidated financial statements.
All forward-looking statements contained in this report are qualified by these cautionary statements and are made only as of the date of this document. Although the Company may from time to time voluntarily update or revise its prior forward-looking statements to reflect actual results or changes in the Company's expectations, the Company disclaims any commitment to do so except as required by securities laws.
OVERVIEW
The Company is a diverse company with a focus on delivering education-related products and services and loan asset management. The largest operating businesses engage in student loan servicing; education technology, services, and payment processing; and communications. A significant portion of the Company's revenue is net interest income earned on a portfolio of federally insured student loans. The Company also makes investments to further diversify the Company both within and outside of its historical core education-related businesses, including, but not limited to, investments in real estate and early-stage and emerging growth companies.
31


GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments
The Company prepares its financial statements and presents its financial results in accordance with U.S. GAAP. However, it also provides additional non-GAAP financial information related to specific items management believes to be important in the evaluation of its operating results and performance. A reconciliation of the Company's GAAP net income to net income, excluding derivative market value adjustments, and a discussion of why the Company believes providing this additional information is useful to investors, is provided below.
Three months ended June 30, Six months ended June 30,
2019 2018 2019 2018
GAAP net income attributable to Nelnet, Inc.
$ 24,619  49,435  66,210  163,359 
Realized and unrealized derivative market value adjustments
37,060  4,897  67,635  (55,135)
Net tax effect (a)
(8,894) (1,175) (16,232) 13,232 
Net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b)
$ 52,785  53,157  117,613  121,456 
Earnings per share:
GAAP net income attributable to Nelnet, Inc.
$ 0.61  1.21  1.65  3.99 
Realized and unrealized derivative market value adjustments
0.93  0.12  1.68  (1.35)
Net tax effect (a)
(0.22) (0.03) (0.41) 0.33 
Net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b)
$ 1.32  1.30  2.92  2.97 
(a) The tax effects are calculated by multiplying the realized and unrealized derivative market value adjustments by the applicable statutory income tax rate.
(b) "Derivative market value adjustments" includes both the realized portion of gains and losses (corresponding to variation margin received or paid on derivative instruments that are settled daily at a central clearinghouse) and the unrealized portion of gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP. "Derivative market value adjustments" does not include "derivative settlements" that represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms.
The accounting for derivatives requires that changes in the fair value of derivative instruments be recognized currently in earnings, with no fair value adjustment of the hedged item, unless specific hedge accounting criteria is met. Management has structured all of the Company’s derivative transactions with the intent that each is economically effective; however, the Company’s derivative instruments do not qualify for hedge accounting.  As a result, the change in fair value of derivative instruments is reported in current period earnings with no consideration for the corresponding change in fair value of the hedged item.  Under GAAP, the cumulative net realized and unrealized gain or loss caused by changes in fair values of derivatives in which the Company plans to hold to maturity will equal zero over the life of the contract. However, the net realized and unrealized gain or loss during any given reporting period fluctuates significantly from period to period.
The Company believes these point-in-time estimates of asset and liability values related to its derivative instruments that are subject to interest rate fluctuations are subject to volatility mostly due to timing and market factors beyond the control of management, and affect the period-to-period comparability of the results of operations. Accordingly, the Company’s management utilizes operating results excluding these items for comparability purposes when making decisions regarding the Company’s performance and in presentations with credit rating agencies, lenders, and investors. Consequently, the Company reports this non-GAAP information because the Company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance.
GAAP net income decreased for the three and six months ended June 30, 2019 compared to the same periods in 2018 primarily due to the following factors:
The recognition of a larger net loss during the three months ended June 30, 2019, as compared to the same period in 2018, and a net loss for the six months ended June 30, 2019, as compared to a net gain in 2018, related to changes in the fair values of derivative instruments that do not qualify for hedge accounting;
A decrease in net interest income due to a decrease in the weighted average balance of loans and a decrease in core loan spread;
The increase in the provision for loan losses related to the Company's growing portfolio of consumer loans; and
An increase in interest expense due to higher interest rates and a larger weighted average outstanding balance under the Company's unsecured line of credit in 2019 as compared to 2018.
These factors were partially offset by the following items:
The contribution to net income from the acquisition of Great Lakes; and
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The contribution to net income from the Company's Education Technology, Services, and Payment Processing operating segment due to organic growth and cost reductions due to the Company's decision in October 2018 to terminate its investment in a proprietary payment processing platform.
In addition, the Company recognized realized gains of $3.5 million from the sale of certain investments in the second quarter of 2019. In the first quarter of 2018, the Company recognized realized and unrealized gains from investments of $8.4 million.
Operating Results
The Company earns net interest income on its loan portfolio, consisting primarily of FFELP loans, in its Asset Generation and Management ("AGM") operating segment. This segment is expected to generate a stable net interest margin and significant amounts of cash as the FFELP portfolio amortizes. As of June 30, 2019, the Company had a $21.5 billion loan portfolio that management anticipates will amortize over the next approximately 20 years and has a weighted average remaining life of 8.7 years. The Company actively works to maximize the amount and timing of cash flows generated by its FFELP portfolio and seeks to acquire additional loan assets to leverage its servicing scale and expertise to generate incremental earnings and cash flow. However, due to the continued amortization of the Company’s FFELP loan portfolio, over time, the Company's net income generated by the AGM segment will continue to decrease. The Company currently believes that in the short-term it will most likely not be able to invest the excess cash generated from the FFELP loan portfolio into assets that immediately generate the rates of return historically realized from that portfolio.
In addition, the Company earns fee-based revenue through the following reportable operating segments:
Loan Servicing and Systems ("LSS") - referred to as Nelnet Diversified Solutions ("NDS")
Education Technology, Services, and Payment Processing ("ETS&PP") - referred to as Nelnet Business Solutions ("NBS")
Communications - referred to as ALLO Communications ("ALLO")
Other business activities and operating segments that are not reportable are combined and included in Corporate and Other Activities ("Corporate"). Corporate and Other Activities also includes income earned on certain investments and interest expense incurred on unsecured debt transactions.
The information below provides the operating results for each reportable operating segment and Corporate and Other Activities for the three and six months ended June 30, 2019 and 2018 (dollars in millions). See "Results of Operations" for each reportable operating segment under this Item 2 for additional detail.
NNI-20190630_G1.JPG
(a) Revenue includes intersegment revenue earned by LSS as a result of servicing loans for AGM.
(b) Total revenue includes "net interest income" and "total other income" from the Company's segment statements of income, excluding the impact from changes in fair values of derivatives. Net income excludes changes in fair values of derivatives, net of tax. For information regarding the exclusion of the impact from changes in fair values of derivatives, see "GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above.
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Certain events and transactions from 2018 and 2019, which have impacted or will impact the operating results of the Company and its operating segments, are discussed below.
Loan Servicing and Systems
On February 7, 2018, the Company acquired Great Lakes. The operating results of Great Lakes are reported in the Company's consolidated financial statements from the date of acquisition. Thus, there are six months of Great Lakes' operations included in the six months ended June 30, 2019 as compared to approximately five months of activity in the six months ended June 30, 2018.
Nelnet Servicing, LLC ("Nelnet Servicing") and Great Lakes have student loan servicing contracts awarded by the Department in June 2009 to provide servicing for loans owned by the Department. As of June 30, 2019, Nelnet Servicing was servicing $181.7 billion of student loans for 5.6 million borrowers under its contract, and Great Lakes was servicing $236.5 billion of student loans for 7.3 million borrowers under its contract. These contracts previously provided for expiration on June 16, 2019. On May 15, 2019, Nelnet Servicing and Great Lakes each received a Modification of Contract from the Department's Office of Federal Student Aid ("FSA") pursuant to which FSA extended the expiration date of the current contracts to December 15, 2019.
In addition, Nelnet Servicing's current Authority to Operate as a loan servicer for the Department expires on August 30, 2019, and is currently under review for renewal. The Company cannot predict the timing or outcome of this review.
FSA is conducting a contract procurement process entitled Next Generation Financial Services Environment (“NextGen”) for a new framework for the servicing of all student loans owned by the Department. On January 15, 2019, FSA issued solicitations for three NextGen components:
NextGen Enhanced Processing Solution ("EPS")
NextGen Business Process Operations ("BPO")
NextGen Optimal Processing Solution ("OPS")

On April 1, 2019 and August 1, 2019, the Company responded to the EPS and BPO components, respectively. In addition, the Company is part of a team that currently intends to respond to the OPS component, although there is no current published deadline. The Company cannot predict the timing, nature, or outcome of these solicitations.
For the three months ended June 30, 2019 and 2018, and six months ended June 30, 2019 and 2018, the before tax and noncontrolling interest operating margin was 17.5 percent, 13.8 percent, 17.2 percent, and 16.0 percent, respectively. The increase in operating margin in the 2019 periods as compared to the same periods in 2018 was due primarily to efficiencies gained as a result of the completion of certain integration activities related to the Great Lakes acquisition.
Education Technology, Services, and Payment Processing
On November 20, 2018, the Company acquired Tuition Management Systems ("TMS"), a services company that offers tuition payment plans, billing services, payment technology solutions, and refund management to educational institutions. The TMS acquisition added 380 higher education schools and 170 K-12 schools to the Company’s customer base. The results of TMS’ operations are reported in the Company’s consolidated financial statements from the date of acquisition.
For the three months ended June 30, 2019 and 2018 and six months ended June 30, 2019 and 2018, before tax operating margin (income before income taxes divided by net revenue) was 24.8 percent, 19.8 percent, 35.1 percent, and 29.8 percent, respectively. The increase in the before tax operating margin in the 2019 periods as compared to the same periods in 2018 was due to operating leverage and cost reductions due to the Company's decision in October 2018 to terminate its investment in a proprietary payment processing platform.
This segment is subject to seasonal fluctuations. Based on the timing of when revenue is recognized and when expenses are incurred, revenue and operating margin are higher in the first quarter as compared to the remainder of the year.
Communications
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ALLO recognized losses of $4.9 million and $9.7 million for the three and six months ended June 30, 2019, respectively, as compared to losses of $8.1 million and $15.1 million for the same periods in 2018, respectively. The decrease in ALLO's net loss in 2019, as compared to 2018, was primarily due to a decrease in interest expense. ALLO recognized $3.3 million and $5.8 million of interest expense to Nelnet, Inc. (parent company) during the three and six months ended June 30, 2018, respectively. Subsequent to October 1, 2018, ALLO will not report interest expense in its income statement related to amounts contributed to ALLO from Nelnet, Inc. due to a recapitalization of ALLO.
ALLO's management uses earnings (loss) before interest, income taxes, depreciation, and amortization ("EBITDA") to eliminate certain non-cash and non-operating items in order to consistently measure performance from period to period. For the three and six months ended June 30, 2019, ALLO had positive EBITDA of $1.2 million and $2.3 million, respectively, compared with negative EBITDA of $1.8 million and $3.7 million for the same periods in 2018, respectively. EBITDA is a supplemental non-GAAP performance measure which the Company believes provides useful additional information regarding a key metric used by management to assess ALLO's performance. See "Communications Operating Segment - Results of Operations - Summary and Comparison of Operating Results" below for additional information regarding the computation and use of EBITDA for ALLO.
ALLO has made significant investments in its communications network and currently provides fiber directly to homes and businesses in communities in Nebraska and Colorado. ALLO plans to continue to increase market share and revenue in its existing markets and is currently evaluating opportunities to expand to other communities in the Midwest. During the second quarter of 2019, ALLO announced plans to expand its network to make services available in Breckenridge, Colorado. ALLO began providing services in Lincoln, Nebraska in September 2016 as part of a multi-year project to pass substantially all commercial and residential properties in the community. As of the end of the first quarter of 2019, the build-out of the Lincoln community was substantially complete. For the six months ended June 30, 2019, ALLO's capital expenditures were $27.0 million. The Company anticipates total ALLO network capital expenditures for the remainder of 2019 (July 1, 2019 - December 31, 2019) will be approximately $25 million. However, this amount could change based on customer demand for ALLO's services.

The Company currently anticipates ALLO's operating results will be dilutive to the Company's consolidated earnings as it continues to build and add customers to its network in Lincoln, Nebraska and other communities, due to large upfront capital expenditures and associated depreciation and upfront customer acquisition costs.
Asset Generation and Management
For the second quarter of 2019, the AGM segment recognized net interest income of $59.2 million, compared with $56.8 million for the same period in 2018. The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. The AGM segment recognized income from derivative settlements of $13.0 million during the second quarter of 2019, compared with income of $22.1 million for the same period in 2018. Derivative settlements for each applicable period should be evaluated with the Company's net interest income. Net interest income and derivative settlements for the AGM segment totaled $72.2 million and $78.9 million in the second quarter of 2019 and 2018, respectively.

The Company's average balance of loans decreased to $21.8 billion for the second quarter of 2019, compared with $23.0 billion for the same period in 2018. Loan spread increased to 0.96 percent for the quarter ended June 30, 2019, compared with 0.90 percent for the same period in 2018. Core loan spread, which includes the impact of derivative settlements, decreased to 1.21% for the quarter ended June 30, 2019, compared with 1.29% for the same period in 2018. Core loan spread, a non-GAAP measure, is computed as set forth in "Asset Generation and Management Operating Segment - Results of Operations - Loan Spread Analysis" below. Management believes core loan spread is a useful supplemental non-GAAP measure that reflects adjustments for derivative settlements related to net interest income (loan spread). However, there is no comprehensive authoritative guidance for the presentation of this measure, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance.
The Company recognized $23.0 million and $33.5 million in fixed rate floor income during the three months ended June 30, 2019 and 2018, respectively (which includes $12.2 million and $19.1 million, respectively, of settlement payments received on derivatives used to hedge student loans earning fixed rate floor income). Fixed rate floor income contributed 43 basis points and 59 basis points of core loan spread for the three months ended June 30, 2019 and 2018, respectively. The decrease in gross fixed rate floor income was due to higher interest rates in 2019 as compared to 2018, and the decrease in derivative settlement payments received on derivatives used to hedge student loans earning fixed rate floor income was due to a decrease in the notional amount of derivatives outstanding in 2019 as compared to 2018, partially offset by higher interest rates.
Provision for loan losses was $9.0 million and $3.5 million for the three months ended June 30, 2019 and 2018, respectively, and $16.0 million and $7.5 million for the six months ended June 30, 2019 and 2018, respectively.
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Provision for loan losses for federally insured loans was $2.0 million for each of the three months ended June 30, 2019 and 2018, and $4.0 million for each of the six months ended June 30, 2019 and 2018.
Provision for loan losses for consumer loans was $7.0 million and $1.5 million for the three months ended June 30, 2019 and 2018, respectively, and $12.0 million and $3.5 million for the six months ended June 30, 2019 and 2018, respectively. The increase in provision was a result of the increased amount of consumer loan purchases during 2019. The Company purchased $184.8 million of consumer loans during the six months ended June 30, 2019 ($114.6 million of which were purchased during the second quarter) compared to $37.6 million during the first half of 2018 ($14.2 million during the second quarter of 2018).
Corporate and Other Activities
The Company adopted a new lease accounting standard effective January 1, 2019. The most significant impact of the standard to the Company relates to (1) the recognition of new right-of-use ("ROU") assets and lease liabilities on its balance sheet primarily for office, data center, and dark fiber operating leases; (2) the deconsolidation of assets and liabilities for certain sale-leaseback transactions arising from build-to-suit lease arrangements for which construction was completed and the Company is leasing the constructed assets that did not qualify for sale accounting prior to the adoption of the new standard; and (3) significant new disclosures about the Company’s leasing activities.
Adoption of the new standard resulted in recognizing lease liabilities of $33.7 million based on the present value of the remaining minimum rental payments. In addition, the Company recognized ROU assets of $32.8 million, which corresponds to the lease liabilities reduced by deferred rent expense as of the effective date. The Company also deconsolidated total assets of $43.8 million and total liabilities of $34.8 million for entities that had been consolidated due to sale-leaseback transactions that failed to qualify for recognition as sales under the prior guidance. Deconsolidation of these entities reduced noncontrolling interests by $6.1 million.
Liquidity and Capital Resources
As of June 30, 2019, the Company had cash and cash equivalents of $84.4 million. In addition, the Company had a portfolio of available-for-sale investments, consisting primarily of student loan asset-backed securities, with a fair value of $52.9 million as of June 30, 2019.
As of June 30, 2019, the Company's $382.5 million unsecured line of credit had $260.0 million outstanding and $122.5 million was available for future use. During the second quarter of 2019, the Company entered into a $22.0 million secured line of credit agreement, and as of June 30, 2019, this line of credit had $5.0 million outstanding and $17.0 million available for future use.
The Company has repurchased certain of its own asset-backed securities (bonds and notes payable) in the secondary market. For accounting purposes, these notes are eliminated in consolidation and are not included in the Company's consolidated financial statements. However, these securities remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated by the trust estate. Upon a sale of these notes to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. As of June 30, 2019, the Company holds $15.0 million (par value) of its own asset-backed securities.
The Company has historically generated positive cash flow from operations. However, during the six months ended June 30, 2019, the Company used $17.8 million in operating activities. Items that negatively impacted cash flows from operating activities for the six months ended June 30, 2019 included:
Net payments to the derivative clearinghouse due to a decrease in the fair value of the Company's derivative portfolio during the period;
An increase in accrued interest receivable during the period due to the number of borrowers utilizing income-based repayment plans; and
A decrease in “due to customers” (liability) during the period. See “Liquidity and Capital Resources – Cash Flows” below for additional information regarding the decrease in this liability account during the period.
The majority of the Company’s portfolio of student loans is funded in asset-backed securitizations that will generate significant earnings and cash flow over the life of these transactions. As of June 30, 2019, the Company currently expects future undiscounted cash flows from its securitization portfolio to be approximately $2.13 billion.
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Certain of the Company’s asset-backed securitizations are structured as “Turbo Transactions” which require all cash generated from the student loans (including excess spread) to be directed toward payment of interest and any outstanding principal generally until such time as all principal on the notes has been paid in full.  Once the notes in such transactions are paid in full, the remaining unencumbered student loans (and other remaining assets, if any) in the securitization are released to the Company, at which time the Company has the option to refinance or sell these assets, or retain them on the balance sheet as unencumbered assets.
On June 7, 2019, the Company paid a premium of $1.4 million to extinguish $93.0 million of notes payable in one of its Turbo Transactions (prior to the notes' contractual maturity). This transaction resulted in the release of $152.7 million of student loans and accrued interest receivable that were previously encumbered in the asset-backed securitization. The Company refinanced the student loans in its FFELP warehouse facilities, resulting in net cash proceeds of $57.5 million.
Subsequent to June 30, 2019, the Company obtained consent from bond holders in five of its remaining seven Turbo Transactions to extinguish a total of approximately $579 million of notes payable in these transactions prior to their contractual maturity. These transactions will result in the release of approximately $909 million in student loans and accrued interest receivable during the third quarter of 2019 that were previously encumbered in the asset-backed securitizations. To extinguish the notes, the Company will pay a premium of approximately $13 million that will be expensed by the Company in the third quarter of 2019. In addition, the Company will write off approximately $2 million of debt issuance costs associated with these securitizations. In total, the Company will recognize approximately $15 million in expenses in the third quarter of 2019 to extinguish these notes. Upon extinguishment of the notes payable throughout the third quarter, the Company will obtain approximately $300 million in cash as the student loans are refinanced. The Company currently anticipates using these proceeds to pay down the outstanding balance on its unsecured line of credit.
On January 11, 2019, the Company obtained a consumer loan warehouse facility with an aggregate maximum financing amount available of $100.0 million. On April 25, 2019, the Company amended the agreement for this warehouse facility to increase the aggregate maximum financing amount available to $200.0 million and extend the final maturity date to April 23, 2022. As of June 30, 2019, $117.1 million was outstanding under this facility and $82.9 million was available for future funding.
On February 27, 2019 and April 30, 2019, the Company completed FFELP asset-backed securitizations totaling $496.8 million (par value) and $416.1 million (par value), respectively. The proceeds from these transactions were used primarily to refinance student loans included in the Company's FFELP warehouse facilities.
On June 25, 2019, the Company completed a private education loan asset-backed securitization totaling $47.2 million (par value). The proceeds from this transaction were used to refinance private education loans previously funded via a private loan repurchase agreement that was terminated on June 25, 2019.
During the six months ended June 30, 2019, the Company repurchased a total of 720,467 shares of Class A common stock for $40.0 million ($55.58 per share), including 419,140 shares of Class A common stock repurchased during the three months ended June 30, 2019 for $23.7 million ($56.50 per share). Repurchases during the three months ended June 30, 2019 included a total of 180,000 shares of Class A common stock repurchased on June 17, 2019 from one of the Company's significant shareholders, Shelby J. Butterfield, the widow of Stephen F. Butterfield, the Company's former Vice-Chairman and significant shareholder who passed away in April 2018, and from the Butterfield Family Trust, an estate planning trust for the family of Mr. Butterfield. Immediately prior to the Company's repurchase of such shares from Ms. Butterfield and the Butterfield Family Trust, the repurchased shares were shares of the Company's Class B common stock that Ms. Butterfield and the Butterfield Family Trust converted to shares of Class A common stock.
On May 8, 2019, the Board of Directors authorized a new stock repurchase program to repurchase up to a total of five million shares of the Company's Class A common stock during the three-year period ending May 7, 2022. The five million shares authorized under the new program include the remaining unrepurchased shares from the prior program, which the new program replaces. As of June 30, 2019, 4.8 million shares remained authorized for repurchase under the Company's stock repurchase program.
During the six months ended June 30, 2019, the Company paid cash dividends of $14.4 million ($0.36 per share), including $7.2 million ($0.18 per share) paid during the three months ended June 30, 2019. In addition, the Company's Board of Directors has declared a third quarter 2019 cash dividend on the Company's outstanding shares of Class A and Class B common stock of $0.18 per share. The third quarter cash dividend will be paid on September 13, 2019 to shareholders of record at the close of business on August 30, 2019.
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The Company intends to use its liquidity position to capitalize on market opportunities, including FFELP, private education, and consumer loan acquisitions; strategic acquisitions and investments; expansion of ALLO’s telecommunications network; and capital management initiatives, including stock repurchases, debt repurchases, and dividend distributions. The timing and size of these opportunities will vary and will have a direct impact on the Company’s cash and investment balances.
CONSOLIDATED RESULTS OF OPERATIONS
An analysis of the Company's operating results for the three and six months ended June 30, 2019 compared to the same periods in 2018 is provided below.
The Company’s operating results are primarily driven by the performance of its existing portfolio and the revenues generated by its fee-based businesses and the costs to provide such services. The performance of the Company’s portfolio is driven by net interest income (which includes financing costs) and losses related to credit quality of the assets, along with the cost to administer and service the assets and related debt.
The Company operates as distinct reportable operating segments as described above. For a reconciliation of the reportable segment operating results to the consolidated results of operations, see note 10 of the notes to consolidated financial statements included under Part I, Item 1 of this report. Since the Company monitors and assesses its operations and results based on these segments, the discussion following the consolidated results of operations is presented on a reportable segment basis.

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  Three months ended Six months ended
  June 30, June 30, Additional information
  2019 2018 2019 2018
Loan interest $ 238,222  223,371  480,555  421,094  Increase was due primarily to an increase in the gross yield earned on loans, partially offset by a decrease in the average balance of loans and a decrease in gross fixed rate floor income due to higher interest rates in 2019 as compared to 2018. 
Investment interest 8,566  5,818  16,819  10,952  Includes income from unrestricted interest-earning deposits and investments and funds in asset-backed securitizations. Increase was due to increases in interest-earning investments and interest rates.
Total interest income 246,788  229,189  497,374  432,046 
Interest expense 186,963  171,450  378,733  306,999  Increase was due primarily to an increase in cost of funds, partially offset by a decrease in the average balance of debt outstanding.
Net interest income 59,825  57,739  118,641  125,047  See table below for additional analysis. 
Less provision for loan losses 9,000  3,500  16,000  7,500  Represents the periodic expense of maintaining an allowance appropriate to absorb losses inherent in the portfolio of loans. See AGM operating segment - results of operations.
Net interest income after provision for
   loan losses
50,825  54,239  102,641  117,547 
Other income:            
LSS revenue 113,985  114,545  228,883  214,687  See LSS operating segment - results of operations.
ETS&PP revenue 60,342  48,742  139,502  108,963  See ETS&PP operating segment - results of operations.
Communications revenue 15,758  10,320  30,300  19,509  See Communications operating segment - results of operations.
Other income 16,152  9,580  25,219  28,135  See table below for the components of "other income." 
Derivative settlements, net
12,972  21,928  32,007  28,694  The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative settlements for each applicable period should be evaluated with the Company's net interest income. See table below for additional analysis. 
Derivative market value adjustments, net
(37,060) (4,897) (67,635) 55,135  Includes the realized and unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP. The majority of the derivative market value adjustments related to the changes in fair value of the Company's floor income interest rate swaps. The forward yield curve decreased during the three months ended June 30, 2019 and 2018 and six months ended June 30, 2019 that resulted in a decrease in the fair value of the Company's floor income interest rate swaps. The forward yield curve increased during the three months ended March 31, 2018 that resulted in an increase in the fair value of the Company's floor income interest rate swaps. 
Total other income 182,149  200,218  388,276  455,123 
Cost of services:
Cost to provide education technology, services, and payment processing services
15,871  11,317  36,930  25,000  Represents primarily direct costs to provide payment processing services in the ETS&PP operating segment. 
Cost to provide communications services 5,101  3,865  9,860  7,583  Represents costs of services primarily associated with television programming costs in the Communications operating segment. 
Total cost of services 20,972  15,182  46,790  32,583 
Operating expenses:            
Salaries and benefits 111,214  111,118  222,272  207,760  Increase was due to increases in personnel as a result of the TMS acquisition and to support the organic growth in revenue in the ETS&PP operating segment, and increases in personnel at ALLO to support customer and network expansion. These items were partially offset by a decrease in salaries and benefits in (i) the ETS&PP operating segment due to the Company's decision in October 2018 to terminate its investment in a proprietary processing platform; and (ii) the LSS operating segment due to efficiencies gained as a result of completion of certain integration activities as a result of the acquisition of Great Lakes on February 7, 2018. Part of the increase in the six months ended June 30, 2019 compared to the same period in 2018 was due to an increase in personnel as a result of the acquisition of Great Lakes on February 7, 2018 (six months of expenses in 2019 as compared to approximately five months in 2018). See each individual operating segment results of operations discussion for additional information.
Depreciation and amortization 24,484  21,494  48,697  39,951  Increase was primarily due to (i) additional depreciation expense at ALLO, and (ii) additional amortization of intangible assets related to business acquisitions in the ETS&PP operating segment, and the acquisition of Great Lakes on February 7, 2018. See each individual operating segment results of operations discussion for additional information.
Loan servicing fees to third parties 3,156  3,204  6,049  6,341  Decrease was due to runoff of the Company's loan portfolio on third-party platforms, the conversion of loans to the Company's LSS operating segment from third-party platforms during the third quarter of 2018, and the acquisition of Great Lakes on February 7, 2018, which prior to the acquisition was a third-party servicer to the Company.
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Other expenses 42,261  40,409  83,184  73,826  Other expenses includes expenses necessary for operations, such as postage and distribution, consulting and professional fees, occupancy, communications, and certain information technology-related costs. Increase was due to (i) the acquisition of Great Lakes on February 7, 2018, (ii) the acquisition of TMS on November 20, 2018, (iii) additional costs to support the increase in payment plans and campus commerce activity, (iv) an increase in operating expenses at ALLO to support customer and network expansion, and (v) expenses related to terminating certain asset-backed notes prior to their contractual maturity. See each individual operating segment results of operations discussion for additional information.
Total operating expenses 181,115  176,225  360,202  327,878 
Income before income taxes 30,887  63,050  83,925  212,209 
Income tax expense 6,209  13,511  17,600  49,487  The effective tax rate was 20.1% and 21.5% for the three months ended June 30, 2019 and 2018, respectively, and 21.0% and 23.3% for the six months ended June 30, 2019 and 2018, respectively. Decrease in the effective tax rate was due to the utilization of certain federal and state tax credits in 2019. The Company currently expects its effective tax rate for 2019 will range between 21 and 23 percent. 
Net income 24,678  49,539  66,325  162,722 
Net (income) loss attributable to noncontrolling interests
(59) (104) (115) 637  The amount for the six months ended June 30, 2018 primarily represented the net loss of the GreatNet joint venture attributable to Great Lakes, prior to the Company's acquisition of Great Lakes on February 7, 2018. 
Net income attributable to Nelnet,
   Inc.
$ 24,619  49,435  66,210  163,359 
Additional information:
Net income attributable to Nelnet, Inc. $ 24,619  49,435  66,210  163,359 
Derivative market value adjustments, net
37,060  4,897  67,635  (55,135) See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP net income, excluding derivative market value adjustments.
Net tax effect
(8,894) (1,175) (16,232) 13,232 
Net income attributable to Nelnet, Inc., excluding derivative market value adjustments
$ 52,785  53,157  117,613  121,456 
The following table summarizes the components of “net interest income” and “derivative settlements, net.”
Derivative settlements represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms. Derivative accounting requires that net settlements with respect to derivatives that do not qualify for "hedge treatment" under GAAP be recorded in a separate income statement line item below net interest income. The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. As such, management believes derivative settlements for each applicable period should be evaluated with the Company’s net interest income as presented in the table below. Net interest income (net of settlements on derivatives) is a non-GAAP financial measure, and the Company reports this non-GAAP information because the Company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance. See note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on the Company's derivative instruments, including the net settlement activity recognized by the Company for each type of derivative for the periods presented in the table under the caption "Income Statement Impact" in note 4 and in the table below.
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  Three months ended June 30, Six months ended June 30, Additional information
  2019 2018 2019 2018
Variable loan interest margin
$ 44,310  40,416  88,260  87,302  Represents the yield the Company receives on its loan portfolio less the cost of funding these loans. Variable loan spread is also impacted by the amortization/accretion of loan premiums and discounts and the 1.05% per year consolidation loan rebate fee paid to the Department. See AGM operating segment - results of operations.
Settlements on associated derivatives
807  2,979  3,140  1,315  Represents the net settlements received related to the Company’s 1:3 basis swaps.
Variable loan interest margin, net of settlements on derivatives
45,117  43,395  91,400  88,617 
Fixed rate floor income
10,840  14,453  21,265  31,700  The Company has a portfolio of student loans that are earning interest at a fixed borrower rate which exceeds the statutorily defined variable lender rates, generating fixed rate floor income. See Item 3, "Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk" for additional information.
Settlements on associated derivatives
12,165  19,074  28,867  27,664  Represents the net settlements received related to the Company’s floor income interest rate swaps.
Fixed rate floor income, net of settlements on derivatives
23,005  33,527  50,132  59,364 
Investment interest
8,566  5,818  16,819  10,952   
Corporate debt interest expense
(3,891) (2,948) (7,703) (4,907) Includes interest expense on the Junior Subordinated Hybrid Securities and unsecured line of credit. Increase due to an increase in interest rates and in the average balance outstanding on the Company's unsecured line of credit.
Non-portfolio related derivative settlements
—  (125) —  (285) Represents the net settlements paid related to the Company’s hybrid debt hedges.
Net interest income (net of settlements on derivatives)
$ 72,797  79,667  150,648  153,741 
The following table summarizes the components of "other income."
  Three months ended June 30, Six months ended June 30,
  2019 2018 2019 2018
Gain (loss) on investments and notes receivable, net (a) $ 4,258  (901) 3,831  7,787 
Borrower late fee income
3,161  2,758  6,674  5,741 
Management fee revenue (b)
2,051  1,756  3,923  2,917 
Gain on sale of loans (c) 1,712  —  1,712  — 
Investment advisory fees (d) 731  1,394  1,441  2,986 
Other
4,239  4,573  7,638  8,704 
Other income
$ 16,152  9,580  25,219  28,135 
(a) During the second quarter of 2019, the Company recognized realized gains of $2.7 million and $0.8 million related to the sale of a venture capital investment and a real estate investment, respectively. During the first quarter of 2018, the Company recognized unrealized gains totaling $6.7 million related to the change in fair value of certain equity securities and a realized gain of $1.7 million related to the sale of a real estate investment.
(b) Represents revenue earned from providing administrative support services to Great Lakes’ former parent company in accordance with a one-year contract that is subject to an optional annual renewal by the former parent company. The current contract expires in October 2019. The increase for the six months ended June 30, 2019 as compared to the same period in 2018 was due to six months of revenue under this contract in 2019 as compared to approximately five months of revenue (from the Great Lakes acquisition date) in 2018.
(c) On May 1, 2019, the Company sold a $47.7 million (par value) portfolio of consumer loans.
(d) The Company provides investment advisory services through Whitetail Rock Capital Management, LLC, the Company's SEC-registered investment advisor subsidiary, under various arrangements and earns annual fees of 25 basis points on the majority of the outstanding balance of investments and up to 50 percent of the gains from the sale of securities or securities being called prior to the full contractual maturity for which it provides advisory services. As of June 30, 2019, the outstanding balance of investments subject to these arrangements was $962.7 million. The decrease in advisory fees in 2019 as compared to 2018 was the result of a decrease in performance fees earned.



41


LOAN SERVICING AND SYSTEMS OPERATING SEGMENT – RESULTS OF OPERATIONS
The Company purchased Great Lakes on February 7, 2018. The results of Great Lakes' operations are reported in the Company's consolidated financial statements from the date of acquisition.
Loan Servicing Volumes
As of
December 31,
2017
March 31,
2018
June 30,
2018
September 30,
2018
December 31,
2018
March 31,
2019
June 30,
2019
Servicing volume (dollars in millions):
Nelnet
Government $ 172,669  176,605  176,179  179,283  179,507  183,093  181,682 
FFELP 27,262  26,969  37,599  37,459  36,748  35,917  35,003 
Private and consumer 11,483  12,116  15,016  15,466  15,666  16,065  16,025 
Great Lakes
Government —  242,063  241,902  232,741  232,694  237,050  236,500 
FFELP (a) —  11,136  —  —  —  —  — 
Private and consumer (a) —  1,927  31  —  —  —  — 
Total $ 211,414  470,816  470,727  464,949  464,615  472,125  469,210 
Number of servicing borrowers:
Nelnet
Government 5,877,414  5,819,286  5,745,181  5,805,307  5,771,923  5,708,582  5,592,989 
FFELP 1,420,311  1,399,280  1,787,419  1,754,247  1,709,853  1,650,785  1,588,530 
Private and consumer 502,114  508,750  672,520  692,763  696,933  699,768  693,410 
Great Lakes
Government —  7,456,830  7,378,875  7,486,311  7,458,684  7,385,284  7,300,691 
FFELP (a) —  461,553  —  —  —  —  — 
Private and consumer (a) —  118,609  3,987  —  —  —  — 
Total 7,799,839  15,764,308  15,587,982  15,738,628  15,637,393  15,444,419  15,175,620 
Number of remote hosted borrowers:
2,812,713  6,207,747  6,145,981  6,406,923  6,393,151  6,332,261  6,211,132 

(a) During the second quarter of 2018, the Company converted Great Lakes' FFELP and private education   servicing volume to Nelnet Servicing's platform to leverage the efficiencies of supporting more volume on   fewer systems.
42


Summary and Comparison of Operating Results
  Three months ended June 30, Six months ended June 30, Additional information
  2019 2018 2019 2018
Net interest income $ 531  293  1,028  550  Increase was due to additional interest earnings on cash deposits due to a higher balance of cash deposits and higher interest rates in 2019 as compared to 2018.
Loan servicing and systems revenue
113,985  114,545  228,883  214,687  See table below for additional analysis.
Intersegment servicing revenue
11,598  11,609  23,815  22,380  Represents revenue earned by the LSS operating segment as a result of servicing loans for the AGM operating segment. Increase for the six months ended June 30, 2019 compared to the same period in 2018 was due to significant purchases of loans by the AGM segment in April 2018, significant conversions of loans in July 2018 and September 2018, and the acquisition of Great Lakes on February 7, 2018. Prior to the acquisition, Great Lakes was a third-party servicer to the Company's AGM operating segment. Over time, FFELP intersegment servicing revenue will decrease as AGM's' FFELP portfolio runs off, but has remained consistent in the periods presented due to AGM's recent purchases of FFELP portfolios.
Other income 2,277  1,956  4,350  3,248  Represents primarily revenue earned from providing administrative support services to Great Lakes’ former parent company in accordance with a one-year contract that is subject to an optional annual renewal by the former parent company. The current contract expires in October 2019. Increase in the six months ended June 30, 2019 compared to the same period in 2018 was due to six months of revenue in 2019 as compared to approximately five months of revenue (from the Great Lakes acquisition date) in 2018.
Total other income 127,860  128,110  257,048  240,315 
Salaries and benefits 66,496  69,434  132,715  127,971  Decrease for the three months ended June 30, 2019 compared to the same period in 2018 was due to the completion of certain integration activities from the Great Lakes' acquisition. Increase in the six months ended June 30, 2019 compared to the same period in 2018 was due to six months of salaries and benefits from the Great Lakes' acquisition included in 2019 as compared to approximately five months of expenses (from the Great Lakes acquisition date) in 2018, partially offset by the reduction of expenses from integration activities.
Depreciation and amortization
8,799  8,212  17,671  14,280  Increase in depreciation and amortization was primarily due to the acquisition of Great Lakes. Amortization of intangible assets and depreciation of fixed assets recorded as a result of the Great Lakes acquisition on February 7, 2018 was $5.7 million and $5.4 million for the three months ended June 30, 2019 and 2018, respectively, and $11.5 million and $9.2 million for the six months ended June 30, 2019 and 2018, respectively.
Other expenses 17,118  17,490  36,047  31,953  Increase for the six months ended June 30, 2019 compared to the same period in 2018 was due to the Great Lakes acquisition on February 7, 2018.
Intersegment expenses 13,604  15,583  27,362  28,939  Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services. Decrease for the three and six months ended June 30, 2019 as compared to the same periods in 2018 was due to the completion of certain integration activities as a result of the Great Lakes' acquisition.
Total operating expenses 106,017  110,719  213,795  203,143 
Income before income taxes
22,374  17,684  44,281  37,722 
Income tax expense (5,370) (4,245) (10,628) (9,247) Reflects income tax expense at an effective tax rate of 24% on income before taxes and the net loss attributable to noncontrolling interest.
Net income 17,004  13,439  33,653  28,475 
  Net loss attributable to noncontrolling interest
—  —  —  808  Represented 50 percent of the net loss of the GreatNet joint venture that was attributable to Great Lakes prior to the Company's acquisition of Great Lakes on February 7, 2018.
Net income attributable to
Nelnet, Inc.
$ 17,004  13,439  33,653  29,283 
Before tax and noncontrolling interest operating margin
17.5  % 13.8  % 17.2  % 16.0  %
Increase for the three and six months ended June 30, 2019 as compared to the same periods in 2018 was due primarily to efficiencies gained as a result of the completion of certain integration activities from the Great Lakes' acquisition.

43


Loan servicing and systems revenue
  Three months ended June 30, Six months ended June 30, Additional information
  2019 2018 2019 2018
Government servicing - Nelnet $ 40,459  39,781  80,099  79,107  Represents revenue from Nelnet Servicing's Department servicing contract. Revenue increased due to a shift in the portfolio of loans serviced to a greater portion of loans in higher paying repayment statuses, partially offset by a decrease in the number of servicing borrowers.
Government servicing - Great Lakes 45,973  45,682  93,050  76,437 
Represents revenue from the Great Lakes' Department servicing contract from the date of acquisition, February 7, 2018. Revenue increased due to a shift in the portfolio of loans serviced to a greater portion of loans in higher paying repayment statuses, partially offset by a decrease in the number of servicing borrowers. Increase in the six months ended June 30, 2019 compared to the same period in 2018 was also due to six months of revenue in 2019 as compared to approximately five months (from the Great Lakes acquisition date) of revenue in 2018.
Private education and consumer loan servicing
8,985  8,882  18,465  21,983 
Excluding $4.6 million in revenue earned in the first quarter of 2018 related to a private loan customer deconverting from the Great Lakes servicing platform subsequent to the Company’s acquisition of Great Lakes on February 7, 2018, private education and consumer loan servicing revenue was $18.5 million and $17.4 million for the six months ended June 30, 2019 and 2018, respectively. Increase in servicing revenue was due to growth in loan servicing volume from existing and new clients. Increase in the six months ended June 30, 2019 compared to the same period in 2018 was also due to six months of revenue in 2019 as compared to approximately five months (from the Great Lakes acquisition date) of revenue in 2018.
FFELP servicing
6,424  9,147  13,119  16,838 
Decrease was due to portfolio runoff, purchases of third-party FFELP portfolios by the Company's AGM operating segment, and $1.1 million in deconversion revenue earned in the second quarter of 2018 related to FFELP customers deconverting from the Great Lakes servicing platform. These items were partially offset by the acquisition of Great Lakes (six months of revenue during the six months ended June 30, 2019 as compared to five months (from the Great Lakes acquisition date) of revenue in 2018). Revenue earned by the LSS operating segment for servicing loans for the AGM operating segment is included in "intersegment servicing revenue." Over time, FFELP servicing revenue will decrease as third-party customers' FFELP portfolios run off.
Software services 10,021  8,671  19,762  16,260  Historically, the majority of software services revenue related to providing hosted student loan servicing. As a result of the Great Lakes acquisition, LSS added a significant unrelated third-party FFELP guaranty hosted servicing customer. Increase in the three months ended June 30, 2019 as compared to the same period in 2018 was due to an increase in providing hosted guaranty services to the new guaranty servicing customer. Increase in the six months ended June 30, 2019 compared to the same period in 2018 was due to six months of revenue from the new guaranty hosted servicing customer in 2019 as compared to approximately five months (from the Great Lakes acquisition date) of revenue in 2018.
 Outsourced services and other
2,123  2,382  4,388  4,062  The majority of this revenue relates to providing contact center outsourcing activities. Increase in revenue for the six months ended June 30, 2019 compared to the same period in 2018 was due to the addition of new clients and growth of services offered to existing clients. Decrease in revenue for the three months ended June 30, 2019 compared to the same period in 2018 was due to an anticipated decrease in services provided by LSS to the former parent company of Great Lakes, partially offset by an increase of services offered to existing clients.
Loan servicing and systems revenue
$ 113,985  114,545  228,883  214,687 

44


EDUCATION TECHNOLOGY, SERVICES, AND PAYMENT PROCESSING OPERATING SEGMENT – RESULTS OF OPERATIONS
As discussed further in the Company's 2018 Annual Report, this segment of the Company’s business is subject to seasonal fluctuations which correspond, or are related to, the traditional school year. Based on the timing of revenue recognition and when expenses are incurred, revenue and pre-tax operating margin are higher in the first quarter as compared to the remainder of the year.
On November 20, 2018, the Company acquired TMS, a services company that offers tuition payment plans, billing services, payment technology solutions, and refund management to educational institutions. The TMS acquisition added 380 higher education schools and 170 K-12 schools to the Company’s customer base. The results of TMS’ operations are reported in the Company’s consolidated financial statements from the date of acquisition.
Summary and Comparison of Operating Results
  Three months ended June 30, Six months ended June 30, Additional information
  2019 2018 2019 2018
Net interest income $ 1,648  748  3,657  1,413  Increase was due to additional interest earnings on cash deposits due to a higher balance of cash deposits and higher interest rates in 2019 as compared to 2018.
Education technology, services, and payment processing revenue
60,342  48,742  139,502  108,963  See table below for additional information.
Cost to provide education technology, services, and payment processing services
15,871  11,317  36,930  25,000  See table below for additional information.
Salaries and benefits 22,823  19,513  45,830  38,580  Increase was due to the acquisition of TMS along with additional personnel to support the increase in services provided to customers, partially offset by cost reductions due to the Company's decision in October 2018 to terminate its investment in a proprietary payment processing platform.
Depreciation and amortization
3,324  3,286  6,835  6,627  Amortization of intangible assets related to business acquisitions was $3.2 million and $2.6 million for the three months ended June 30, 2019 and 2018, respectively, and $6.5 million and $5.4 million for the six months ended June 30, 2019 and 2018, respectively.
Other expenses 5,805  5,383  11,116  10,006  Increase was due to the acquisition of TMS and additional costs to support the increase in services provided to customers, partially offset by cost reductions due to the Company's decision in October 2018 to terminate its investment in a proprietary payment processing platform.
Intersegment expenses
3,148  2,570  6,447  5,136  Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.
Total operating expenses
35,100  30,752  70,228  60,349 
Income before income taxes
11,019  7,421  36,001  25,027 
Income tax expense (2,645) (1,781) (8,640) (6,006) Represents income tax expense at an effective tax rate of 24%.
Net income $ 8,374  5,640  27,361  19,021 


45


Education technology, services, and payment processing revenue
The following table provides disaggregated revenue by service offering and before tax operating margin for each reporting period.
  Three months ended June 30, Six months ended June 30, Additional information
  2019 2018 2019 2018
Tuition payment plan services $ 24,655  20,417  54,829  43,404  Increase was due to an increase in the number of managed tuition payment plans resulting from the acquisition of TMS and the addition of new school customers.
Payment processing
21,311  16,026  50,290  35,952  Increase was due to the acquisition of TMS and an increase in payments volume from new and existing school and non-education customers.
Education technology and services
14,096  12,018  33,805  28,993  Increase was due to an increase in the number of customers using the Company’s school administration software and services, higher revenues from financial needs assessment services, and the acquisition of TMS. Additionally, FACTS Education Solutions has experienced growth in the number of students and teachers receiving its professional development and educational instruction services.
Other
280  281  578  614 
Education technology, services, and payment processing revenue
60,342  48,742  139,502  108,963 
Cost to provide education technology, services, and payment processing services
15,871  11,317  36,930  25,000  Costs primarily relate to payment processing revenue. Increase was due to the acquisition of TMS and an increase in payments volume from new and existing school and non-education customers.
Net revenue
$ 44,471  37,425  102,572  83,963 
Before tax operating margin
24.8  % 19.8  % 35.1  % 29.8  % Before tax operating margin (income before income taxes divided by net revenue) increased due to operating leverage and cost reductions due to the Company's decision in October 2018 to terminate its investment in a proprietary payment processing platform.
46


COMMUNICATIONS OPERATING SEGMENT – RESULTS OF OPERATIONS
Summary and Comparison of Operating Results
Three months ended June 30, Six months ended June 30, Additional information
  2019 2018 2019 2018
Net interest income (expense) $ (3,302) (5,810) See note (a) below for additional information.
Communications revenue
15,758  10,320  30,300  19,509  Communications revenue is derived primarily from the sale of pure fiber optic services to residential and business customers in Nebraska and Colorado, including internet, television, and telephone services. Increase was primarily due to additional residential households served. See additional financial and operating data for ALLO in the tables below.
Other income 362  —  487  — 
Total other income 16,120  10,320  30,787  19,509 
Cost to provide
communications services
5,101  3,865  9,860  7,583  Cost of services are primarily associated with television programming costs. Other costs include connectivity, franchise, and other regulatory costs directly related to providing internet and voice services.
Salaries and benefits 5,192  4,668  9,929  8,730  As of December 31, 2017, June 30, 2018, December 31, 2018, and June 30, 2019, ALLO had 508, 508, 550, and 564 employees, respectively, including part-time employees. ALLO also uses temporary employees in the normal course of business. Certain costs qualify for capitalization as ALLO builds its network.
Depreciation and
amortization
7,737  5,497  15,099  10,418  Depreciation reflects the allocation of the costs of ALLO's property and equipment over the period in which such assets are used. A significant amount of property and equipment purchases have been made to support the Lincoln, Nebraska network expansion. The gross property and equipment balances related to this segment as of December 31, 2017, June 30, 2018, December 31, 2018, and June 30, 2019 were $186.4 million, $231.5 million, $273.9 million and $298.2 million, respectively. Amortization reflects the allocation of costs related to intangible assets recorded at fair value as of the date the Company acquired ALLO over their estimated useful lives.
Other expenses 3,865  3,023  7,342  5,660  Other expenses includes selling, general, and administrative expenses necessary for operations, such as advertising, occupancy, professional services, construction materials, and personal property taxes. Increase was due to expansion of the Lincoln, Nebraska network and number of households served.
Intersegment expenses
716  599  1,380  1,204  Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.
Total operating expenses
17,510  13,787  33,750  26,012 
Loss before income taxes (6,490) (10,634) (12,820) (19,896)
Income tax benefit 1,558  2,552  3,077  4,775  Represents income tax benefit at an effective tax rate of 24%.
Net loss $ (4,932) (8,082) (9,743) (15,121) The Company anticipates this operating segment will be dilutive to consolidated earnings as it continues to build and add customers to its network in Lincoln, Nebraska and other communities, due to large upfront capital expenditures and associated depreciation and upfront customer acquisition costs.
Additional information:
Net loss
$ (4,932) (8,082) (9,743) (15,121)
Net interest (income) expense
(1) 3,302  (3) 5,810 
Income tax benefit
(1,558) (2,552) (3,077) (4,775)
Depreciation and amortization
7,737  5,497  15,099  10,418 
Earnings (loss) before interest, income taxes, depreciation, and amortization (EBITDA)
$ 1,246  (1,835) 2,276  (3,668) For additional information regarding this non-GAAP measure, see the table below.

(a) Nelnet, Inc. (parent company) previously provided a line of credit to ALLO for network capital expenditures and related expenses. In 2016 and 2017, the outstanding amount owed by ALLO to Nelnet, Inc. and the related interest expense incurred by ALLO and the interest income recognized by Nelnet, Inc. under the line of credit was eliminated in the Company's consolidated financial statements. On January 1, 2018, Nelnet, Inc. contributed equity to ALLO with an associated guaranteed payment and ALLO used the proceeds from this capital contribution to pay off all of the outstanding balance on the line of credit, including all accrued and unpaid interest. For financial reporting purposes, the guaranteed payment recorded by ALLO was classified as debt and such debt and the guaranteed return paid to Nelnet, Inc. (reflected as interest expense for ALLO) was eliminated in the consolidated financial statements. On October 1, 2018, the guaranteed payment was replaced with a yield-based preferred return of future earnings on the contributed equity. For financial reporting purposes, the preferred interest recorded by ALLO is classified as equity and the preferred return on the preferred interest is not treated by ALLO as interest expense. Accordingly, subsequent to October 1, 2018, ALLO will not report interest expense in its income statement related to amounts contributed to ALLO from Nelnet, Inc.
47


Certain financial and operating data for ALLO is summarized in the tables below.
Three months ended June 30, Six months ended June 30,
2019 2018 2019 2018
Residential revenue $ 11,890  75.5  % $ 7,727  74.9  % $ 22,955  75.7  % $ 14,472  74.2  %
Business revenue 3,816  24.2    2,535  24.6    7,230  23.9    4,917  25.2   
Other 52  0.3    58  0.5    115  0.4    120  0.6   
Communications revenue $ 15,758  100.0  % $ 10,320  100.0  % $ 30,300  100.0  % $ 19,509  100.0  %
Internet $ 9,297  59.0  % $ 5,387  52.2  % $ 17,726  58.5  % $ 10,086  51.7  %
Television 4,050  25.7    3,086  29.9    7,939  26.2    5,872  30.1   
Telephone 2,395  15.2    1,827  17.7    4,575  15.1    3,512  18.0   
Other 16  0.1    20  0.2    60  0.2    39  0.2   
Communications revenue $ 15,758  100.0  % $ 10,320  100.0  % $ 30,300  100.0  % $ 19,509  100.0  %
Net loss $ (4,932) (8,082) (9,743) (15,121)
EBITDA (a) 1,246  (1,835) 2,276  (3,668)
Capital expenditures 15,040  27,189  26,998  45,088 

As of
June 30,
2019
As of
March 31,
2019
As of
December 31,
2018
As of
September 30,
2018
As of
June 30,
2018
As of
March 31,
2018
As of
December 31,
2017
Residential customer information:
Households served 42,760  40,338  37,351  32,529  27,643  23,541  20,428 
Households passed (b) 132,984  127,253  122,396  110,687  98,538  84,475  71,426 
Households served/passed 32.2  % 31.7  % 30.5  % 29.4  % 28.1  % 27.9  % 28.6  %
Total households in current markets and new markets announced (c) 159,974  152,840  152,840  142,602  137,500  137,500  137,500 

(a) Earnings (loss) before interest, income taxes, depreciation, and amortization ("EBITDA") is a supplemental non-GAAP performance measure that is frequently used in capital-intensive industries such as telecommunications. ALLO's management uses EBITDA to compare ALLO's performance to that of its competitors and to eliminate certain non-cash and non-operating items in order to consistently measure performance from period to period. EBITDA excludes interest and income taxes because these items are associated with a company's particular capitalization and tax structures. EBITDA also excludes depreciation and amortization expense because these non-cash expenses primarily reflect the impact of historical capital investments, as opposed to the cash impacts of capital expenditures made in recent periods, which may be evaluated through cash flow measures. The Company reports EBITDA for ALLO because the Company believes that it provides useful additional information for investors regarding a key metric used by management to assess ALLO's performance. There are limitations to using EBITDA as a performance measure, including the difficulty associated with comparing companies that use similar performance measures whose calculations may differ from ALLO's calculations. In addition, EBITDA should not be considered a substitute for other measures of financial performance, such as net income or any other performance measures derived in accordance with GAAP. A reconciliation of EBITDA from net income (loss) under GAAP is presented under "Summary and Comparison of Operating Results" in the table above.
(b) Represents the number of single residence homes, apartments, and condominiums that ALLO already serves and those in which ALLO has the capacity to connect to its network distribution system without further material extensions to the transmission lines, but have not been connected.

(c) During the third quarter of 2018, ALLO began providing service in Fort Morgan, Colorado. During the fourth quarter of  2018, ALLO began providing service in Hastings, Nebraska. During the second quarter of 2019, ALLO announced plans  to expand its network to make services available in Breckenridge, Colorado.
48


ASSET GENERATION AND MANAGEMENT OPERATING SEGMENT – RESULTS OF OPERATIONS
Loan Portfolio
As of June 30, 2019, the Company had a $21.5 billion loan portfolio, consisting primarily of federally insured loans, that management anticipates will amortize over the next approximately 20 years and has a weighted average remaining life of 8.7 years. For a summary of the Company’s loan portfolio as of June 30, 2019 and December 31, 2018, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report. 
Loan Activity
The following table sets forth the activity of loans:
  Three months ended June 30, Six months ended June 30,
  2019 2018 2019 2018
Beginning balance $ 22,082,643  21,733,713  22,520,498  21,995,877 
Loan acquisitions:
Federally insured student loans 570,092  1,948,372  840,107  2,532,958 
Private education loans —  194  —  194 
Consumer loans 114,633  14,212  184,754  37,566 
Total loan acquisitions 684,725  1,962,778  1,024,861  2,570,718 
Repayments, claims, capitalized interest, and other
(873,466) (590,062) (1,378,186) (1,212,346)
Consolidation loans lost to external parties (255,386) (248,752) (528,657) (496,572)
Loans sold (47,680) (1,392) (47,680) (1,392)
Ending balance $ 21,590,836  22,856,285  21,590,836  22,856,285 
Allowance for Loan Losses and Loan Delinquencies
The Company maintains an allowance that management believes is appropriate to absorb losses, net of recoveries, inherent in the portfolio of loans, which results in periodic provisions for loan losses. Delinquencies have the potential to adversely impact the Company’s earnings through increased servicing and collection costs and account charge-offs.
For a summary of the activity in the allowance for loan losses for the three and six months ended June 30, 2019 and 2018, and a summary of the Company's loan delinquency amounts as of June 30, 2019, December 31, 2018, and June 30, 2018, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
Provision for loan losses for federally insured loans was $2.0 million for each of the three months ended June 30, 2019 and 2018, and $4.0 million for each of the six months ended June 30, 2019 and 2018.
The Company did not record a provision for private education loan losses for the three or six months ended June 30, 2019 and 2018.
Provision for loan losses for consumer loans was $7.0 million and $1.5 million for the three months ended June 30, 2019 and 2018, respectively, and $12.0 million and $3.5 million for the six months ended June 30, 2019 and 2018, respectively. The increase in provision in 2019 as compared to the comparable periods in 2018 was a result of the increased amount of consumer loan purchases during the 2019 periods as reflected in the "Loan Activity" table above.

49


Loan Spread Analysis
The following table analyzes the loan spread on the Company’s portfolio of loans, which represents the spread between the yield earned on loan assets and the costs of the liabilities and derivative instruments used to fund the assets. The spread amounts included in the following table are calculated by using the notional dollar values found in the table under the caption "Net interest income after provision for loan losses, net of settlements on derivatives" below, divided by the average balance of loans or debt outstanding.
  Three months ended June 30, Six months ended June 30,
2019 2018 2019 2018
Variable loan yield, gross 5.00  % 4.46  % 5.02  % 4.31  %
Consolidation rebate fees (0.84)   (0.85)   (0.84)   (0.85)  
Discount accretion, net of premium and deferred origination costs amortization
0.02    0.04    0.02    0.05   
Variable loan yield, net 4.18    3.65    4.20    3.51   
Loan cost of funds - interest expense (3.42)   (3.00)   (3.44)   (2.77)  
Loan cost of funds - derivative settlements (a) (b) 0.02    0.05    0.03    0.01   
Variable loan spread 0.78    0.70    0.79    0.75   
Fixed rate floor income, gross
0.20    0.25    0.19    0.29   
Fixed rate floor income - derivative settlements (a) (c)
0.23    0.34    0.27    0.25   
Fixed rate floor income, net of settlements on derivatives
0.43    0.59    0.46    0.54   
Core loan spread (d) 1.21  % 1.29  % 1.25  % 1.29  %
Average balance of loans $ 21,837,774  22,959,660  22,075,522  22,415,580 
Average balance of debt outstanding 21,536,878  22,476,114  21,761,723  21,965,618 


Three months ended June 30, Six months ended June 30,
2019 2018 2019 2018
Core loan spread 1.21  % 1.29  % 1.25  % 1.29  %
Derivative settlements (1:3 basis swaps) (0.02)   (0.05)   (0.03)   (0.01)  
Derivative settlements (fixed rate floor income) (0.23)   (0.34)   (0.27)   (0.25)  
Loan spread 0.96  % 0.90  % 0.95  % 1.03  %

(a) Derivative settlements represent the cash paid or received during the current period to settle with derivative instrument
counterparties the economic effect of the Company's derivative instruments based on their contractual terms. Derivative accounting requires that net settlements with respect to derivatives that do not qualify for "hedge treatment" under GAAP be recorded in a separate income statement line item below net interest income. The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. As such, management believes derivative settlements for each applicable period should be evaluated with the Company’s net interest income (loan spread) as presented in this table. The Company reports this non-GAAP information because it believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance. See note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on the Company's derivative instruments, including the net settlement activity recognized by the Company for each type of derivative for the periods presented in the table under the caption "Income Statement Impact" in note 4 and in this table.
(b) Derivative settlements include the net settlements received related to the Company’s 1:3 basis swaps.
(c) Derivative settlements include the net settlements received related to the Company’s floor income interest rate swaps.
(d) Core loan spread, excluding consumer loans, would have been 1.16% and 1.23% for the three months ended June 30, 2019 and 2018, respectively, and 1.17% and 1.25% for the six months ended June 30, 2019 and 2018, respectively. Other than consumer loans funded in the Company's consumer loan warehouse facility that was obtained on January
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11, 2019, consumer loans were and continue to be funded by the Company using operating cash, until they can be funded in a secured financing transaction. Consumer loans funded with operating cash do not have a cost of funds (debt) associated with them. The average balance of consumer loans outstanding for the three months ended June 30, 2019 and 2018 and six months ended June 30, 2019 and 2018 was $212.6 million, $81.5 million, $185.9 million, and $74.3 million, respectively. The average balance outstanding on the consumer loan warehouse facility for the three and six months ended June 30, 2019 was $141.6 million and $109.4 million, respectively.
A trend analysis of the Company's core and variable loan spreads is summarized below.
NNI-20190630_G2.JPG
(a) The interest earned on the majority of the Company's FFELP student loan assets is indexed to the one-month LIBOR
rate. The Company funds a large portion of its assets with three-month LIBOR indexed floating rate securities. The relationship between the indices in which the Company earns interest on its loans and funds such loans has a significant impact on loan spread. This table (the right axis) shows the difference between the Company's liability base rate and the one-month LIBOR rate by quarter. See Item 3, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk,” which provides additional detail on the Company’s FFELP student loan assets and related funding for those assets.
Variable loan spread increased during the three months ended June 30, 2019 as compared to the same period in 2018 due to a tightening in the basis between the asset and debt indices in which the Company earns interest on its loans and funds such loans (as reflected in the table above). Variable loan spread increased during the six months ended June 30, 2019 as compared to the same period in 2018 due to the impact of the Company's consumer loan portfolio. Variable loan spread without consumer loans was 0.71% for each of the six months ended June 30, 2019 and 2018.
The difference between variable loan spread and core loan spread is fixed rate floor income. A summary of fixed rate floor income and its contribution to core loan spread follows:
  Three months ended June 30, Six months ended June 30,
2019 2018 2019 2018
Fixed rate floor income, gross $ 10,840  14,453  21,265  31,700 
Derivative settlements (a) 12,165  19,074  28,867  27,664 
Fixed rate floor income, net $ 23,005  33,527  50,132  59,364 
Fixed rate floor income contribution to spread, net 0.43  % 0.59  % 0.46  % 0.54  %
(a) Includes settlement payments on derivatives used to hedge student loans earning fixed rate floor income.
The decrease in gross fixed rate floor income for the three and six months ended June 30, 2019 compared to the same periods in 2018 was due to higher interest rates in 2019 as compared to 2018. The Company has a portfolio of derivative instruments in
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which the Company pays a fixed rate and receives a floating rate to economically hedge loans earning fixed rate floor income. See Item 3, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk,” which provides additional detail on the Company’s portfolio earning fixed rate floor income and the derivatives used by the Company to hedge these loans.
Summary and Comparison of Operating Results
  Three months ended June 30, Six months ended June 30, Additional information
  2019 2018 2019 2018
Net interest income after provision for loan losses
$ 50,260  53,386  101,328  115,489  See table below for additional analysis.
Other income 4,888  2,772  8,413  6,124  The Company sold a portfolio of consumer loans during the three months ended June 30, 2019 and recognized a gain of $1.7 million. The remaining component of other income is primarily earned from borrower late fees. The increase in borrower late fees in 2019 as compared to the same periods in 2018 was due to an increase in federally insured loan delinquencies.
Derivative settlements, net
12,972  22,053  32,007  28,979  The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative settlements for each applicable period should be evaluated with the Company's net interest income as reflected in the table below.
Derivative market value adjustments, net
(37,060) (5,446) (67,635) 53,125  Includes the realized and unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP. The majority of the derivative market value adjustments related to the changes in fair value of the Company's floor income interest rate swaps. The forward yield curve decreased during the three months ended June 30, 2019 and 2018 and six months ended June 30, 2019 that resulted in a decrease in the fair value of the Company's floor income interest rate swaps. The forward yield curve increased during the three months ended March 31, 2018 that resulted in an increase in the fair value of the Company's floor income interest rate swaps.
Total other income (19,200) 19,379  (27,215) 88,228 
Salaries and benefits 382  377  760  759 
Loan servicing fees to third parties 3,156  3,204  6,049  6,341  Third party loan servicing fees decreased due to runoff of the Company's loan portfolio on third-party platforms, significant conversions of loans to the LSS operating segment in July 2018 and September 2018, and the acquisition of Great Lakes on February 7, 2018, which prior to the acquisition was a third-party servicer to the Company. Servicing fees on loans serviced by Great Lakes are included in intersegment expenses effective as of the acquisition date.
Other expenses 3,051  1,288  3,995  2,137  Increase in the three and six months ended June 30, 2019 as compared to the same periods in 2018 was due to the Company paying a $1.4 million premium to extinguish asset-backed notes from a certain securitization prior to their contractual maturity and to write off $0.4 million of remaining debt issuance costs associated with those notes during the second quarter of 2019.
Intersegment expenses 11,665  11,700  23,952  22,565  Amounts include fees paid to the LSS operating segment for the servicing of the Company’s loan portfolio. These amounts exceed the actual cost of servicing the loans. Increase for the six months ended June 30, 2019 as compared to the same period in 2018 was due to significant purchases of loans in April 2018 of which LSS is the servicer, significant conversions of loans in July 2018 and September 2018, and the acquisition of Great Lakes on February 7, 2018, as described above. Intersegment expenses also represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.
Total operating expenses 18,254  16,569  34,756  31,802  Excluding the $1.8 million of expenses recognized by the Company related to the extinguishment of debt prior to its contractual maturity (as described above), total operating expenses were 30 basis points and 29 basis points of the average balance of loans for the three months ended June 30, 2019 and 2018, respectively, and 30 basis points and 28 basis points for the six months ended June 30 2019 and 2018, respectively.
Income before income taxes
12,806  56,196  39,357  171,915 


Income tax expense (3,074) (13,487) (9,446) (41,260) Represents income tax expense at an effective tax rate of 24%.
Net income $ 9,732  42,709  29,911  130,655 
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Additional information:
Net income $ 9,732  42,709  29,911  130,655 
Derivative market value adjustments, net
37,060  5,446  67,635  (53,125) See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP net income, excluding derivative market value adjustments. The decrease in net income, excluding derivative market value adjustments, for the three and six months ended June 30, 2019 as compared to the same periods in 2018 was due to a decrease in the average balance of loans outstanding, a decrease in core loan spread, and an increase in provision for loan losses for consumer loans as a result of the increased amount of consumer loan purchases in 2019 as compared to 2018.
Net tax effect (8,894) (1,307) (16,232) 12,750 
Net income, excluding derivative market value adjustments
$ 37,898  46,848  81,314  90,280 
Net interest income after provision for loan losses, net of settlements on derivatives
The following table summarizes the components of "net interest income after provision for loan losses" and "derivative settlements, net."
  Three months ended June 30, Six months ended June 30, Additional information
  2019 2018 2019 2018
Variable interest income, gross
$ 271,983  255,029  549,006  478,267  Increase was due to an increase in the gross yield earned on loans, partially offset by a decrease in the average balance of loans.
Consolidation rebate fees (45,647) (48,525) (92,138) (95,223) Decrease was due to a decrease in the average consolidation loan balance.
Discount accretion, net of premium and deferred origination costs amortization
1,046  2,413  2,421  6,351  Net discount accretion is due to the Company's purchases of loans at a net discount over the last several years. However, due to more recent purchases in 2018 and 2019 at a net premium, the net discount accretion has decreased in 2019 as compared to 2018.
Variable interest income, net 227,382  208,917  459,289  389,395 
Interest on bonds and notes payable
(183,072) (168,501) (371,029) (302,093) Increase was due to an increase in cost of funds, partially offset by a decrease in the average balance of debt outstanding.
Derivative settlements, net (a) 807  2,979  3,140  1,315  Derivative settlements include the net settlements received related to the Company’s 1:3 basis swaps.
Variable loan interest margin, net of settlements on derivatives (a)
45,117  43,395  91,400  88,617 
Fixed rate floor income, gross
10,840  14,453  21,265  31,700  Fixed rate floor income decreased due to higher interest rates in 2019 as compared to 2018.
Derivative settlements, net (a)
12,165  19,074  28,867  27,664  Derivative settlements include the settlements received related to the Company's floor income interest rate swaps. Increase in settlements for the six months ended June 30, 2019 as compared to the same period in 2018 was due to higher interest rates in 2019 as compared to 2018, partially offset by a decrease in the notional amount of derivatives outstanding. The decrease in settlements for the three months ended June 30, 2019 as compared to the same period in 2018 was due to a decrease in the notional amount of derivatives outstanding, partially offset by higher interest rates in 2019 as compared to 2018.
Fixed rate floor income, net of settlements on derivatives (a)
23,005  33,527  50,132  59,364 
Core loan interest income (a)
68,122  76,922  141,532  147,981 
Investment interest 5,073  3,138  9,608  5,749  Increase was due to a higher balance of interest-earning investments and higher interest rates in 2019 as compared to 2018.
Intercompany interest (963) (1,121) (1,805) (1,762)
Provision for loan losses - federally insured loans
(2,000) (2,000) (4,000) (4,000) See "Allowance for Loan Losses and Loan Delinquencies" included above under "Asset Generation and Management Operating Segment - Results of Operations."
Provision for loan losses - consumer loans
(7,000) (1,500) (12,000) (3,500)
Net interest income after provision for loan losses (net of settlements on derivatives) (a)
$ 63,232  75,439  133,335  144,468 

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

LIBOR Benchmark Transition
As of June 30, 2019, the interest earned on a principal amount of $19.6 billion in the Company’s FFELP student loan asset portfolio was indexed to one-month LIBOR, and the interest paid on a principal amount of $19.4 billion of the Company’s FFELP student loan asset-backed debt securities was indexed to one-month or three-month LIBOR. In addition, the majority of the Company’s derivative financial instrument transactions used to manage LIBOR interest rate risks are indexed to LIBOR. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has publicly announced that it intends to stop persuading or compelling banks to submit information to the administrator of LIBOR after 2021. Accordingly, there is significant uncertainty regarding the availability of LIBOR as a benchmark rate after 2021, and any market transition away from the current LIBOR framework could result in significant changes to the interest rate characteristics of the Company's LIBOR-indexed assets and funding for those assets, as well as the Company’s LIBOR-indexed derivative instruments.
Although the indentures for student loan asset-backed debt securities issued in the Company’s most recent securitization transactions include new interest rate determination fallback provisions emerging in the market for new issuances of LIBOR-indexed debt securities, many of the contracts for the Company’s existing LIBOR-indexed assets, liabilities, and derivative instruments from historical transactions do not include provisions that contemplated the possibility of a permanent discontinuation of LIBOR and clearly specified a method for transitioning from LIBOR to an alternative benchmark rate, and it is not yet known how the market in general, specific counterparties in particular, the courts, or regulators will address the significant complexities and uncertainties involved in a transition away from LIBOR to an alternative benchmark rate. Specifically, the Department has not yet indicated any market transition away from the current LIBOR framework for paying special allowance payments to holders of FFELP assets. As a result, the Company cannot predict the impact that a transition from LIBOR to an alternative benchmark rate would have on the Company’s existing LIBOR-indexed assets, liabilities, and derivative instruments, but such impact could have material adverse effects on the value, performance, and related cash flows of such LIBOR-indexed items, including the Company’s funding costs, net interest income, loan and other asset values, and asset-liability management strategies. See Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate" in the Company's 2018 Annual Report.
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LIQUIDITY AND CAPITAL RESOURCES
The Company’s Loan Servicing and Systems and Education Technology, Services, and Payment Processing operating segments are non-capital intensive and both produce positive operating cash flows. As such, a minimal amount of debt and equity capital is allocated to these segments and any liquidity or capital needs are satisfied using cash flow from operations. Therefore, the following Liquidity and Capital Resources discussion is concentrated on the Company’s liquidity and capital needs to meet existing debt obligations in the Asset Generation and Management operating segment and capital needs to expand ALLO's communications network in the Communications operating segment.
Sources of Liquidity
As of June 30, 2019, the Company had cash and cash equivalents of $84.4 million. The Company also had a portfolio of available-for-sale investments, consisting primarily of student loan asset-backed securities, with a fair value of $52.9 million as of June 30, 2019.
The Company also has a $382.5 million unsecured line of credit that matures on June 22, 2023. As of June 30, 2019, there was $260.0 million outstanding on the unsecured line of credit and $122.5 million was available for future use. The line of credit provides that the Company may increase the aggregate financing commitments, through the existing lenders and/or through new lenders, up to a total of $400.0 million, subject to certain conditions. In addition, on May 30, 2019, the Company entered into a $22.0 million secured line of credit agreement that matures on May 30, 2022. As of June 30, 2019, the secured line of credit had $5.0 million outstanding with $17.0 million available for future use.
The Company has repurchased certain of its own asset-backed securities (bonds and notes payable) in the secondary market. For accounting purposes, these notes are eliminated in consolidation and are not included in the Company's consolidated financial statements. However, these securities remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated by the trust estate. Upon a sale of these notes to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. As of June 30, 2019, the Company holds $15.0 million (par value) of its own asset-backed securities.
The Company intends to use its liquidity position to capitalize on market opportunities, including FFELP, private education, and consumer loan acquisitions; strategic acquisitions and investments; expansion of ALLO's telecommunications network; and capital management initiatives, including stock repurchases, debt repurchases, and dividend distributions. The timing and size of these opportunities will vary and will have a direct impact on the Company's cash and investment balances.
Cash Flows
The Company has historically generated positive cash flow from operations. However, during the six months ended June 30, 2019, the Company used $17.8 million in operating activities, compared to generating $71.6 million from operating activities for the same period in 2018. The decrease in cash flows from operating activities for the six months ended June 30, 2019, as compared to the same period in 2018, was due to:
The decrease in net income;
The impact of changes in due to customers (as discussed further below);
Adjustments to net income for the impact of deferred taxes;
Net payments to the derivative clearinghouse in 2019 of $77.2 million compared to net proceeds received in 2018 of $40.3 million related to the Company's derivative portfolio; and
The impact of changes to other assets and accrued interest payable during the six months ended June 30, 2019 as compared to the same period in 2018.
These factors were partially offset by:
The adjustments to net income for derivative market value adjustments; and
The impact of changes to accrued interest receivable and other liabilities during the six months ended June 30, 2019 as compared to the same period in 2018.
As part of the Company’s Education Technology, Services, and Payment Processing operating segment, the Company collects tuition payments and subsequently remits these payments to the appropriate schools. Cash collected for customers and the related liability are included in the Company’s consolidated balance sheet. These accounts fluctuate with the fall and spring school terms based on the timing of when the Company collects tuition payments from customers and remits such payments to schools, resulting in these balances being significantly lower as of June 30 as compared to the balances as of December 31. The acquisition of TMS in November 2018 increased the magnitude of the change in these account balances. The “due to customers” liability account decreased $90.7 million for the six months ended June 30, 2019 as compared to decreasing $32.4
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million for the same period in 2018. These decreases negatively impacted cash provided by/used in operating activities in the Company’s consolidated statements of cash flows for these periods.
The primary items included in the statement of cash flows for investing activities are the purchase and repayment of loans. The primary items included in financing activities are the proceeds from the issuance of and payments on bonds and notes payable used to fund loans. Cash provided by investing activities and used in financing activities for the six months ended June 30, 2019 was $855.5 million and $976.0 million, respectively. Cash used in investing activities and provided by financing activities for the six months ended June 30, 2018 was $1.1 billion and $1.0 billion, respectively. Investing and financing activities are further addressed in the discussion that follows.
Liquidity Needs and Sources of Liquidity Available to Satisfy Debt Obligations Secured by Loan Assets and Related Collateral
The following table shows the Company's debt obligations outstanding that are secured by loan assets and related collateral. 
  As of June 30, 2019
Carrying amount
Final maturity
Bonds and notes issued in asset-backed securitizations $ 20,367,512  11/25/24 - 6/27/67
FFELP and consumer loan warehouse facilities 894,390  11/22/20 - 5/31/22
  $ 21,261,902   
Bonds and Notes Issued in Asset-backed Securitizations
The majority of the Company’s portfolio of student loans is funded in asset-backed securitizations that are structured to substantially match the maturity of the funded assets, thereby minimizing liquidity risk. Cash generated from student loans funded in asset-backed securitizations provide the sources of liquidity to satisfy all obligations related to the outstanding bonds and notes issued in such securitizations. In addition, due to (i) the difference between the yield the Company receives on the loans and cost of financing within these transactions, and (ii) the servicing and administration fees the Company earns from these transactions, the Company has created a portfolio that will generate earnings and significant cash flow over the life of these transactions.
As of June 30, 2019, based on cash flow models developed to reflect management’s current estimate of, among other factors, prepayments, defaults, deferment, forbearance, and interest rates, the Company currently expects future undiscounted cash flows from its portfolio to be approximately $2.13 billion as detailed below.
The forecasted cash flow presented below includes all loans funded in asset-backed securitizations as of June 30, 2019.  As of June 30, 2019, the Company had $20.6 billion of loans included in asset-backed securitizations, which represented 95.2 percent of its total loan portfolio. The forecasted cash flow does not include cash flows that the Company expects to receive related to loans funded in its warehouse facilities as of June 30, 2019, private education and consumer loans funded with operating cash, and loans acquired subsequent to June 30, 2019.

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Asset-backed Securitization Cash Flow Forecast
$2.13 billion
(dollars in millions)
NNI-20190630_G3.JPG
The forecasted future undiscounted cash flows of approximately $2.13 billion include approximately $1.29 billion (as of June 30, 2019) of overcollateralization included in the asset-backed securitizations. These excess net asset positions are reflected variously in the following balances in the consolidated balance sheet: "loans receivable," "restricted cash," and "accrued interest receivable." The difference between the total estimated future undiscounted cash flows and the overcollateralization of approximately $0.84 billion, or approximately $0.64 billion after income taxes based on the estimated effective tax rate, is expected to be accretive to the Company's June 30, 2019 balance of consolidated shareholders' equity.
Certain of the Company’s asset-backed securitizations are structured as “Turbo Transactions” which require all cash generated from the student loans (including excess spread) to be directed toward payment of interest and any outstanding principal generally until such time as all principal on the notes has been paid in full.  Once the notes in such transactions are paid in full, the remaining unencumbered student loans (and other remaining assets, if any) in the securitization will be released to the Company, at which time the Company will have the option to refinance or sell these assets, or retain them on the balance sheet as unencumbered assets.
The Company uses various assumptions, including prepayments and future interest rates, when preparing its cash flow forecast.  These assumptions are further discussed below.
Prepayments:  The primary variable in establishing a life of loan estimate is the level and timing of prepayments. Prepayment rates equal the amount of loans that prepay annually as a percentage of the beginning of period balance, net of scheduled principal payments. A number of factors can affect estimated prepayment rates, including the level of consolidation activity, borrower default rates, and utilization of debt management options such as income-based repayment, deferments, and forbearance. Should any of these factors change, management may revise its assumptions, which in turn would impact the projected future cash flow. The Company’s cash flow forecast above assumes prepayment rates that are generally consistent with those utilized in the Company’s recent asset-backed securitization transactions. If management used a prepayment rate assumption two times greater than what was used to forecast the cash flow, the cash flow forecast would be reduced by approximately $130 million to $160 million.
Interest rates:  The Company funds a large portion of its student loans with three-month LIBOR indexed floating rate securities. Meanwhile, the interest earned on the Company’s student loan assets is indexed primarily to a one-month LIBOR rate. The different interest rate characteristics of the Company’s loan assets and liabilities funding these assets result in basis risk. The Company’s cash flow forecast assumes three-month LIBOR will exceed one-month LIBOR by 12 basis points for the life of the portfolio, which approximates the historical relationship between these indices. If the forecast is computed assuming a spread of 24 basis points between three-month and one-month LIBOR for the life of the portfolio, the cash flow forecast would be reduced by approximately $80 million to $100 million. As the percentage of the Company's outstanding debt financed by three-month LIBOR declines, the Company's basis risk will be reduced.
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There is significant uncertainty regarding the availability of LIBOR as a benchmark rate after 2021, and any market transition away from the current LIBOR framework could result in significant changes to the forecasted cash flows from the Company's asset-backed securitizations. See "Asset Generation and Management Operating Segment - Results of Operations - LIBOR Benchmark Transition" above and Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate" in the Company's 2018 Annual Report.
The Company uses the current forward interest rate yield curve to forecast cash flows. A change in the forward interest rate curve would impact the future cash flows generated from the portfolio. An increase in future interest rates will reduce the amount of fixed rate floor income the Company is currently receiving. The Company attempts to mitigate the impact of a rise in short-term rates by hedging interest rate risks. The forecasted cash flow does not include cash flows the Company expects to pay/receive related to derivative instruments used by the Company to manage interest rate risk. See Item 3, "Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk."
Extinguishment of Certain Turbo Transactions
On June 7, 2019, the Company paid a premium of $1.4 million to extinguish $93.0 million of notes payable in one of its Turbo Transactions (prior to the notes' contractual maturity). This transaction resulted in the release of $152.7 million of student loans and accrued interest receivable that were previously encumbered in the asset-backed securitization. The Company refinanced the student loans in its FFELP warehouse facilities, resulting in net cash proceeds of $57.5 million. Since the extinguishment of this Turbo Transaction occurred prior to June 30, 2019, the cash flows from this Turbo Transaction are excluded from the $2.13 billion Asset-backed Securitization Cash Flow Forecast table as of June 30, 2019 above.
Subsequent to June 30, 2019, the Company obtained consent from bond holders in five of its remaining seven Turbo Transactions to extinguish a total of approximately $579 million of notes payable in these transactions prior to their contractual maturity. These transactions will result in the release of approximately $909 million in student loans and accrued interest receivable during the third quarter of 2019 that were previously encumbered in the asset-backed securitizations. To extinguish the notes, the Company will pay a premium of approximately $13 million that will be expensed by the Company in the third quarter of 2019. In addition, the Company will write off approximately $2 million of debt issuance costs associated with these securitizations. In total, the Company will recognize approximately $15 million in expenses in the third quarter of 2019 to extinguish these notes. Upon extinguishment of the notes payable throughout the third quarter, the Company will obtain approximately $300 million in cash as the student loans are refinanced. The Company currently anticipates using these proceeds to pay down the outstanding balance on its unsecured line of credit.
The forecasted cash flow presented below includes all loans funded in asset-backed securitizations as of June 30, 2019, excluding the five Turbo Transactions that have been or will be extinguished during the third quarter of 2019. The forecasted cash flow does not include cash flows that the Company expects to receive related to loans funded in its warehouse facilities as of June 30, 2019 and loans that have been or will be released from the extinguishment of the five Turbo Transactions. The Company currently anticipates it will refinance loans currently funded in its warehouse facilities and the loans released from the extinguishment of the Turbo Transactions in future asset-backed securitizations, which is expected to increase the estimated future cash flows presented below.


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Asset-backed Securitization Cash Flow Forecast
Excluding the Five Turbo Transactions Set for Extinguishment in the Third Quarter of 2019
$1.70 billion
(dollars in millions)
NNI-20190630_G4.JPG
The forecasted future undiscounted cash flows of $1.70 billion from the table above include approximately $0.93 billion (as of June 30, 2019) of overcollateralization included in the asset-backed securitizations.
FFELP and Consumer Loan Warehouse Facilities
The Company funds a portion of its FFELP loan acquisitions using its FFELP warehouse facilities. Student loan warehousing allows the Company to buy and manage student loans prior to transferring them into more permanent financing arrangements. As of June 30, 2019, the Company had two FFELP warehouse facilities with an aggregate maximum financing amount available of $1.00 billion, of which $0.78 billion was outstanding, and $0.22 billion was available for additional funding. One warehouse facility has a static advance rate until the expiration date of the liquidity provisions (November 20, 2019). In the event the liquidity provisions are not extended, the valuation agent has the right to perform a one-time mark to market on the underlying loans funded in this facility, subject to a floor. The loans would then be funded at this new advance rate until the final maturity date of the facility (November 20, 2020). The other warehouse facility has static advance rates that requires initial equity for loan funding and does not require increased equity based on market movements. As of June 30, 2019, the Company had $49.3 million advanced as equity support on these facilities. For further discussion of the Company's FFELP warehouse facilities outstanding at June 30, 2019, see note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
On January 11, 2019, the Company obtained a consumer loan warehouse facility with an aggregate maximum financing amount available of $100.0 million, an advance rate of 70 or 75 percent depending on the type of collateral and subject to certain concentration limits, and a maturity date of January 10, 2022. On April 25, 2019, the Company amended the agreement for this warehouse facility to increase the aggregate maximum financing amount available to $200.0 million, extend the expiration of liquidity provisions to April 23, 2021, and extend the final maturity date to April 23, 2022. As of June 30, 2019, $117.1 million was outstanding under this facility and $82.9 million was available for future funding. Additionally, as of June 30, 2019, the Company had $41.3 million advanced as equity support under this facility.
Upon termination or expiration of the FFELP and consumer loan warehouse facilities, the Company would expect to access the securitization market, obtain replacement warehouse facilities, use operating cash, consider the sale of assets, or transfer collateral to satisfy any remaining obligations.
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Other Uses of Liquidity
Effective July 1, 2010, no new loan originations can be made under the FFEL Program and all new federal loan originations must be made through the Federal Direct Loan Program. As a result, the Company no longer originates new FFELP loans, but continues to acquire FFELP loan portfolios from third parties and believes additional loan purchase opportunities exist, including opportunities to purchase private education and consumer loans.
The Company plans to fund additional loan acquisitions using current cash and investments; using its Union Bank participation agreement (as described below); using its FFELP and consumer loan warehouse facilities (as described above); increasing the capacity under existing and/or establishing new warehouse facilities; and continuing to access the asset-backed securities market.
Union Bank Participation Agreement
The Company maintains an agreement with Union Bank, a related party, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in student loans. As of June 30, 2019, $851.9 million of loans were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. The agreement automatically renews annually and is terminable by either party upon five business days' notice. This agreement provides beneficiaries of Union Bank’s grantor trusts with access to investments in interests in student loans, while providing liquidity to the Company. The Company can participate loans to Union Bank to the extent of availability under the grantor trusts, up to $750.0 million or an amount in excess of $750.0 million if mutually agreed to by both parties. Loans participated under this agreement have been accounted for by the Company as loan sales. Accordingly, the participation interests sold are not included on the Company’s consolidated balance sheets.
Asset-Backed Securities Transactions
On February 27, 2019 and April 30, 2019, the Company completed FFELP asset-backed securitizations totaling $496.8 million (par value) and $416.1 million (par value), respectively. The proceeds from these transactions were used primarily to refinance student loans included in the Company's FFELP warehouse facilities. On June 25, 2019, the Company completed a private education loan asset-backed securitization totaling $47.2 million (par value). The proceeds from this transaction were used to refinance private education loans previously funded via a private loan repurchase agreement that was terminated on June 25, 2019. See note 3 of the notes to consolidated financial statements included under Part I, Item I of this report for additional information on these securitizations.
Depending on future market conditions, the Company currently anticipates continuing to access the asset-backed securitization market. Such asset-backed securitization transactions would be used to refinance loans included in its warehouse facilities, loans purchased from third parties, and/or student loans in its existing asset-backed securitizations.
Liquidity Impact Related to Hedging Activities
The Company utilizes derivative instruments to manage interest rate sensitivity. By using derivative instruments, the Company is exposed to market risk which could impact its liquidity. Based on the derivative portfolio outstanding as of June 30, 2019, the Company does not currently anticipate any movement in interest rates having a material impact on its capital or liquidity profile, nor does the Company expect that any movement in interest rates would have a material impact on its ability to meet potential collateral deposits with its counterparties and/or variation margin payments with its third-party clearinghouse. However, if interest rates move materially and negatively impact the fair value of the Company's derivative portfolio or if the Company enters into additional derivatives for which the fair value becomes negative, the Company could be required to deposit additional collateral with its derivative instrument counterparties and/or pay variation margin to a third-party clearinghouse. The collateral deposits or variation margin, if significant, could negatively impact the Company's liquidity and capital resources. In addition, clearing rules require the Company to post amounts of liquid collateral when executing new derivative instruments, which could prevent or limit the Company from utilizing additional derivative instruments to manage interest rate sensitivity and risks. See note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on the Company's derivative portfolio.
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Liquidity Impact Related to the Communications Operating Segment
ALLO has made significant investments in its communications network and currently provides fiber directly to homes and businesses in communities in Nebraska and Colorado. ALLO plans to continue to increase market share and revenue in its existing markets and is currently evaluating opportunities to expand to other communities in the Midwest. ALLO began providing services in Lincoln, Nebraska in September 2016 as part of a multi-year project to pass substantially all commercial and residential properties in the community. As of the end of the first quarter of 2019, the build-out of the Lincoln community was substantially complete. For the six months ended June 30, 2019, ALLO's capital expenditures were $27.0 million. The Company anticipates total ALLO network capital expenditures for the remainder of 2019 (July 1, 2019 - December 31, 2019) will be approximately $25 million. However, this amount could change based on customer demand for ALLO's services. The Company currently plans to use cash from operating activities and its third-party unsecured line of credit to fund ALLO's capital expenditures, as well as potentially other third-party financing alternatives.
Other Debt Facilities
As discussed above, the Company has a $382.5 million unsecured line of credit with a maturity date of June 22, 2023. As of June 30, 2019, the unsecured line of credit had $260.0 million outstanding and $122.5 million was available for future use. The Company currently anticipates paying down the outstanding balance of the unsecured line of credit during the third quarter of 2019 with the anticipated proceeds that will be generated from refinancing loans that were previously funded in certain Turbo Transactions that have been or will be extinguished during the third quarter. On May 30, 2019, the Company entered into a $22.0 million secured line of credit agreement with a maturity date of May 30, 2022. As of June 30, 2019, the secured line of credit had $5.0 million outstanding with $17.0 million available for future use. The line of credit is secured by several Company-owned properties. Upon the maturity date of these facilities in 2022 and 2023, there can be no assurance that the Company will be able to maintain these lines of credit, increase the amount outstanding under the lines, or find alternative funding if necessary.
The Company has issued Junior Subordinated Hybrid Securities (the "Hybrid Securities") that have a final maturity of September 15, 2061. The Hybrid Securities are unsecured obligations of the Company. As of June 30, 2019, the Company had $20.4 million of Hybrid Securities that remain outstanding.
During 2017, the Company entered into a repurchase agreement, the proceeds of which are collateralized by FFELP asset-backed security investments. As of June 30, 2019, $40.6 million was subject to the outstanding repurchase agreement. Upon termination or expiration of the outstanding repurchase agreement, the Company would use cash proceeds or transfer collateral to satisfy any outstanding obligations subject to the agreement.
For further discussion of these debt facilities described above, see note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
Stock Repurchases
On May 8, 2019, the Board of Directors authorized a new stock repurchase program to repurchase up to a total of five million shares of the Company's Class A common stock during the three-year period ending May 7, 2022. The five million shares authorized under the new program include the remaining unrepurchased shares from the prior program, which the new program replaces. As of June 30, 2019, 4,803,877 shares remained authorized for repurchase under the Company's stock repurchase program. Shares may be repurchased from time to time depending on various factors, including share prices and other potential uses of liquidity. Shares repurchased by the Company during the three months ended March 31, 2019 and June 30, 2019 are shown below. Certain of these repurchases were made pursuant to a trading plan adopted by the Company in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934. For additional information on stock repurchases during the second quarter of 2019, see "Stock Repurchases" under Part II, Item 2 of this report.
Total shares repurchased Purchase price
(in thousands)
Average price of shares repurchased (per share)
Quarter ended March 31, 2019 301,327  $ 16,358  54.29 
Quarter ended June 30, 2019 419,140  23,683  56.50 
  Total 720,467  $ 40,041  55.58 
Included in the shares repurchased during the quarter ended June 30, 2019 in the table above are a total of 180,000 shares of Class A common stock the Company purchased on June 17, 2019 from one of the Company's significant shareholders, Shelby J. Butterfield, the widow of Stephen F. Butterfield, the Company's former Vice-Chairman and significant shareholder who passed away in April 2018, and from the Butterfield Family Trust, an estate planning trust for the family of Mr. Butterfield. The
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shares were purchased at a discount to the closing market price of the Company's Class A common stock as of June 17, 2019, and the transaction was separately approved by the Company's Board of Directors. Immediately prior to the Company's repurchase of such shares from Ms. Butterfield and the Butterfield Family Trust, the repurchased shares were shares of the Company's Class B common stock that Ms. Butterfield and the Butterfield Family Trust converted to shares of Class A common stock.
Dividends
On June 14, 2019, the Company paid a second quarter 2019 cash dividend on the Company's Class A and Class B common stock of $0.18 per share. In addition, the Company's Board of Directors has declared a third quarter 2019 cash dividend on the Company's outstanding shares of Class A and Class B common stock of $0.18 per share. The third quarter cash dividend will be paid on September 13, 2019 to shareholders of record at the close of business on August 30, 2019.
The Company currently plans to continue making regular quarterly dividend payments, subject to future earnings, capital requirements, financial condition, and other factors. In addition, the payment of dividends is subject to the terms of the Company’s outstanding Hybrid Securities, which generally provide that if the Company defers interest payments on those securities it cannot pay dividends on its capital stock.
RECENT ACCOUNTING PRONOUNCEMENTS
Allowance for Loan Losses
In June 2016, the FASB issued accounting guidance regarding the measurement of credit losses on financial instruments, which will change the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over the asset's remaining life. The estimate of credit losses under the new guidance considers historical experience, current conditions, and reasonable and supportable forecasts of future conditions. The new guidance provides significant flexibility and permits companies to use judgment in selecting the approach that is most appropriate in their circumstances. The Company currently uses an incurred loss model when calculating its allowance for loan losses. As a result, the Company expects the new guidance will increase the allowance for loan losses. This guidance will be effective for the Company beginning January 1, 2020. Upon adoption, a cumulative effect adjustment to retained earnings will be recorded.
Implementation efforts are underway including researching key interpretive issues, evaluating accounting policies, developing and validating loss models, and revising internal controls to meet the requirements of the new guidance. This guidance represents a significant departure from existing GAAP, and may result in significant changes to the Company's accounting for the allowance for loan losses. The Company is evaluating the impact this pronouncement will have on its ongoing financial reporting. The extent of the impact upon adoption will depend on the characteristics of the Company's loan portfolio, economic conditions and forecasts upon adoption, and other management judgments.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(All dollars are in thousands, except share amounts, unless otherwise noted)
Interest Rate Risk
The Company’s primary market risk exposure arises from fluctuations in its borrowing and lending rates, the spread between which could impact the Company due to shifts in market interest rates.
The following table sets forth the Company’s loan assets and debt instruments by rate characteristics:
  As of June 30, 2019 As of December 31, 2018
  Dollars Percent Dollars Percent
Fixed-rate loan assets $ 2,795,545  12.9  % $ 2,792,734  12.4  %
Variable-rate loan assets 18,795,291  87.1    19,727,764  87.6   
Total $ 21,590,836  100.0  % $ 22,520,498  100.0  %
Fixed-rate debt instruments $ 56,461  0.3  % $ 88,128  0.4  %
Variable-rate debt instruments 21,531,407  99.7    22,448,971  99.6   
Total $ 21,587,868  100.0  % $ 22,537,099  100.0  %
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FFELP loans originated prior to April 1, 2006 generally earn interest at the higher of the borrower rate, which is fixed over a period of time, or a floating rate based on the special allowance payment ("SAP") formula set by the Department. The SAP rate is based on an applicable index plus a fixed spread that depends on loan type, origination date, and repayment status. The Company generally finances its student loan portfolio with variable rate debt. In low and/or declining interest rate environments, when the fixed borrower rate is higher than the SAP rate, the Company’s student loans earn at a fixed rate while the interest on the variable rate debt typically continues to reflect the low and/or declining interest rates. In these interest rate environments, the Company may earn additional spread income that it refers to as floor income.
Depending on the type of loan and when it was originated, the borrower rate is either fixed to term or is reset to an annual rate each July 1. As a result, for loans where the borrower rate is fixed to term, the Company may earn floor income for an extended period of time, which the Company refers to as fixed rate floor income, and for those loans where the borrower rate is reset annually on July 1, the Company may earn floor income to the next reset date, which the Company refers to as variable rate floor income. All FFELP loans first originated on or after April 1, 2006 effectively earn at the SAP rate, since lenders are required to rebate fixed rate floor income and variable rate floor income for those loans to the Department.
No variable-rate floor income was earned by the Company during the six months ended June 30, 2019 and 2018. A summary of fixed rate floor income earned by the Company follows.
Three months ended June 30, Six months ended June 30,
2019 2018 2019 2018
Fixed rate floor income, gross $ 10,840  14,453  21,265  31,700 
Derivative settlements (a) 12,165  19,074  28,867  27,664 
Fixed rate floor income, net $ 23,005  33,527  50,132  59,364 
(a) Includes settlement payments on derivatives used to hedge student loans earning fixed rate floor income.
Gross fixed rate floor income decreased for the three and six months ended June 30, 2019 as compared to the same periods in 2018 due to higher interest rates in 2019 as compared to 2018.
Absent the use of derivative instruments, a rise in interest rates will reduce the amount of floor income received and this has an impact on earnings due to interest margin compression caused by increasing financing costs, until such time as the federally insured loans earn interest at a variable rate in accordance with their SAP formulas. In higher interest rate environments, where the interest rate rises above the borrower rate and fixed rate loans effectively become variable rate loans, the impact of the rate fluctuations is reduced.
The increase in derivative settlements from the floor income interest rate swaps for the six months ended June 30, 2019 as compared to the same period in 2018 was due to higher interest rates in 2019 as compared to 2018, partially offset by a decrease in the notional amount of derivatives outstanding. The decrease in settlements for the three months ended June 30, 2019 as compared to the same period in 2018 was due to a decrease in the notional amount of derivatives outstanding, partially offset by higher interest rates in 2019 as compared to 2018.
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The following graph depicts fixed rate floor income for a borrower with a fixed rate of 6.75% and a SAP rate of 2.64%:
NNI-20190630_G5.JPG
The following table shows the Company’s federally insured student loan assets that were earning fixed rate floor income as of June 30, 2019.
Fixed interest rate range Borrower/lender weighted average yield Estimated variable conversion rate (a) Loan balance
5.0 - 5.49% 5.31  % 2.67  % $ 365,335 
5.5 - 5.99% 5.67  % 3.03  % 330,214 
6.0 - 6.49% 6.19  % 3.55  % 376,435 
6.5 - 6.99% 6.70  % 4.06  % 368,377 
7.0 - 7.49% 7.17  % 4.53  % 128,060 
7.5 - 7.99% 7.71  % 5.07  % 221,966 
8.0 - 8.99% 8.18  % 5.54  % 522,559 
> 9.0% 9.05  % 6.41  % 195,963 
$ 2,508,909 
(a) The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to a variable rate. As of June 30, 2019, the weighted average estimated variable conversion rate was 4.25% and the short-term interest rate was 248 basis points.

The following table summarizes the outstanding derivative instruments as of June 30, 2019 used by the Company to economically hedge loans earning fixed rate floor income.
Maturity Notional amount Weighted average fixed rate paid by the Company (a)
2019 $ 500,000  1.12  %
2020 1,500,000  1.01   
2021 600,000  2.15   
2022 (b) 500,000  1.90   
2023 400,000  2.24   
2024 200,000  2.27   
$ 3,700,000  1.53  %
(a) For all interest rate derivatives, the Company receives discrete three-month LIBOR.
(b) $250 million of the notional amount of these derivatives have forward effective start dates in June 2021.
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In addition, during 2014 and 2018, the Company paid $9.1 million and $4.6 million, respectively, for interest rate swap options to economically hedge loans earning fixed rate floor income. The interest rate swap options give the Company the right, but not the obligation, to enter into interest rate swaps in which the Company would pay a fixed amount and receive discrete one-month LIBOR. The following table summarizes these derivative instruments as of June 30, 2019:
If exercised effective date Notional amount Weighted average fixed rate paid by the Company If exercised maturity date
August 21, 2019 $ 750,000  3.28  % August 21, 2024
September 25, 2019 250,000  3.00    September 25, 2024
$ 1,000,000  3.21  %
The Company has also entered into interest rate cap contracts to mitigate a rise in interest rates and its impact on earnings related to its student loan portfolio earning a fixed rate. In the event that the one-month LIBOR or three-month LIBOR rate rises above the applicable strike rate, the Company would receive monthly payments related to the spread difference. The following table summarizes these derivative instruments as of June 30, 2019.
Notional amount  Strike rate Maturity date
$125,000  2.50% (1-month LIBOR) July 15, 2020
150,000  4.99 (1-month LIBOR) July 15, 2020
500,000  2.25 (3-month LIBOR) September 25, 2020
The Company is also exposed to interest rate risk in the form of basis risk and repricing risk because the interest rate characteristics of the Company’s assets do not match the interest rate characteristics of the funding for those assets. The following table presents the Company’s FFELP student loan assets and related funding for those assets arranged by underlying indices as of June 30, 2019.
Index Frequency of variable resets Assets Funding of student loan assets
1 month LIBOR (a) Daily $ 19,636,033  — 
3 month H15 financial commercial paper Daily 904,025  — 
3 month Treasury bill Daily 614,074  — 
3 month LIBOR (a) Quarterly —  8,990,945 
1 month LIBOR Monthly —  10,448,418 
Auction-rate (b) Varies —  782,076 
Asset-backed commercial paper (c) Varies —  777,263 
Other (d) 1,363,731  1,519,161 
    $ 22,517,863  22,517,863 

(a) The Company has certain basis swaps outstanding in which the Company receives three-month LIBOR and pays one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps"). The Company entered into these derivative instruments to better match the interest rate characteristics on its student loan assets and the debt funding such assets. The following table summarizes the 1:3 Basis Swaps outstanding as of June 30, 2019.
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Maturity Notional amount
2019 $ 1,000,000 
2020 1,000,000 
2021 250,000 
2022 (a) 2,000,000 
2023 750,000 
2024 1,750,000 
2026 1,150,000 
2027 (b) 375,000 
2028 (b) 325,000 
2029 (b) 100,000 
2031 (b) 300,000 
$ 9,000,000 
(a) $750 million of the notional amount of these derivatives have forward effective start dates in May 2020.

(b) Subsequent to June 30, 2019, the Company terminated $125 million (notional amount), $325 million (notional amount), $100 million (notional amount), and $300 million (notional amount) of 1:3 Basis Swaps that had a maturity date in 2027, 2028, 2029, and 2031, respectively.
The weighted average rate paid by the Company on the 1:3 Basis Swaps as of June 30, 2019 was one-month LIBOR plus 9.6 basis points.
(b) As of June 30, 2019, the Company was sponsor for $782.1 million of asset-backed securities that are set and periodically reset via a "dutch auction" (“Auction Rate Securities”). The Auction Rate Securities generally pay interest to the holder at a maximum rate as defined by the indenture. While these rates will vary, they will generally be based on a spread to LIBOR or Treasury Securities, or the Net Loan Rate as defined in the financing documents.
(c) The interest rates on the Company's warehouse facilities are indexed to asset-backed commercial paper rates.
(d) Assets include accrued interest receivable and restricted cash.  Funding represents overcollateralization (equity) and other liabilities included in FFELP asset-backed securitizations and warehouse facilities.
There is significant uncertainty regarding the availability of LIBOR as a benchmark rate after 2021, and any market transition away from the current LIBOR framework could result in significant changes to the interest rate characteristics of the Company's LIBOR-indexed assets and funding for those assets. See "Asset Generation and Management Operating Segment - Results of Operations - LIBOR Benchmark Transition" above and Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate" in the Company's 2018 Annual Report.
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Sensitivity Analysis
The following tables summarize the effect on the Company’s earnings, based upon a sensitivity analysis performed by the Company assuming hypothetical increases in interest rates of 100 basis points and 300 basis points while funding spreads remain constant. In addition, a sensitivity analysis was performed assuming the funding index increases 10 basis points and 30 basis points while holding the asset index constant, if the funding index is different than the asset index. The sensitivity analysis was performed on the Company’s variable rate assets (including loans earning fixed rate floor income) and liabilities. The analysis includes the effects of the Company’s derivative instruments in existence during these periods.
  Interest rates Asset and funding index mismatches
Change from increase of 100 basis points Change from increase of 300 basis points Increase of 10 basis points Increase of 30 basis points
 
  Dollars Percent Dollars Percent Dollars Percent Dollars Percent
  Three months ended June 30, 2019
Effect on earnings:      
Decrease in pre-tax net income before impact of derivative settlements
$ (4,352) (14.1) % $ (7,962) (25.8) % $ (2,429) (7.9) % $ (7,286) (23.6) %
Impact of derivative settlements
7,067  22.9    21,201  68.6    1,705  5.5    5,114  16.6   
Increase (decrease) in net income before taxes
$ 2,715  8.8  % $ 13,239  42.8  % $ (724) (2.4) % $ (2,172) (7.0) %
Increase (decrease) in basic and diluted earnings per share
$ 0.05  $ 0.25  $ (0.01) $ (0.04)
  Three months ended June 30, 2018
Effect on earnings:      
Decrease in pre-tax net income before impact of derivative settlements
$ (5,154) (8.2) % $ (9,148) (14.5) % $ (3,136) (5.0) % $ (9,408) (14.9) %
Impact of derivative settlements
16,909  26.8    50,723  80.4    2,059  3.4    6,177  9.9   
Increase (decrease) in net income before taxes
$ 11,755  18.6  % $ 41,575  65.9  % $ (1,077) (1.6) % $ (3,231) (5.0) %
Increase (decrease) in basic and diluted earnings per share
$ 0.22  $ 0.77  $ (0.02) $ (0.06)
  Six months ended June 30, 2019
Effect on earnings:      
Decrease in pre-tax net income before impact of derivative settlements
$ (7,822) (9.3) % $ (13,246) (15.8) % $ (5,000) (6.0) % $ (14,999) (17.9) %
Impact of derivative settlements
16,190  19.3    48,571  57.9    3,554  4.2    10,662  12.6   
Increase (decrease) in net income before taxes
$ 8,368  10.0  % $ 35,325  42.1  % $ (1,446) (1.8) % $ (4,337) (5.2) %
Increase (decrease) in basic and diluted earnings per share
$ 0.16  $ 0.67  $ (0.03) $ (0.08)
 
Six months ended June 30, 2018 
Effect on earnings:
                   
Decrease in pre-tax net income before impact of derivative settlements
$ (10,274) (4.8) % $ (17,138) (8.1) % $ (6,050) (2.9) % $ (18,150) (8.6) %
Impact of derivative settlements
32,647  15.4    97,938  46.2    3,856  1.9    11,569  5.6   
Increase (decrease) in net income before taxes
$ 22,373  10.6  % $ 80,800  38.1  % $ (2,194) (1.0) % $ (6,581) (3.0) %
Increase (decrease) in basic and diluted earnings per share
$ 0.42  $ 1.50  $ (0.04) $ (0.12)
Financial Statement Impact – Derivatives
For a table summarizing the effect of derivative instruments in the consolidated statements of income, including the components of "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of income, see note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
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ITEM 4.  CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s management, with the participation of the Company's principal executive and principal financial officers, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of June 30, 2019. Based on this evaluation, the Company’s principal executive and principal financial officers concluded that the Company's disclosure controls and procedures were effective as of June 30, 2019.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the fiscal quarter ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Effective January 1, 2019, the Company implemented ASC Topic 842, Leases. As a result, management made the following significant modifications to its internal control over financial reporting environment, including changes to accounting policies and procedures, operational processes, and documentation practices:
(a)  Updated policies and procedures related to accounting for lease assets and liabilities and related income and expense.
(b) Modified contract review controls to consider the new criteria for determining whether a contract is or contains a lease, specifically to clarify the definition of a lease and align with the concept of control.
(c) Added controls for reevaluating significant assumptions and judgments regarding leases on a quarterly basis.
(d) Added controls to address related required disclosures regarding leases, including significant assumptions and judgments used in applying ASC Topic 842.
PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
There have been no material changes from the information set forth in the Legal Proceedings section of the Company's Annual Report on Form 10-K for the year ended December 31, 2018 under Item 3 of Part I of such Form 10-K.
ITEM 1A.  RISK FACTORS
There have been no material changes from the risk factors described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 in response to Item 1A of Part I of such Form 10-K.
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Stock Repurchases
The following table summarizes the repurchases of Class A common stock during the second quarter of 2019 by the Company or any “affiliated purchaser” of the Company, as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934. Certain share repurchases included in the table below were made pursuant to a trading plan adopted by the Company in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934.
Period Total number of shares purchased (a) Average price paid per share Total number of shares purchased as part of publicly announced plans or programs (b) Maximum number of shares that may yet be purchased under the plans or programs (b)
April 1 - April 30, 2019 190,122  $ 56.74  189,519  1,838,506 
May 1 - May 31, 2019 44,792  57.98  44,792  4,983,877 
June 1 - June 30, 2019 184,226  55.91  180,000  4,803,877 
Total 419,140  $ 56.50  414,311   
(a) The total number of shares includes: (i) shares repurchased pursuant to the stock repurchase programs discussed in footnote (b) below; and (ii) shares owned and tendered by employees to satisfy tax withholding obligations upon the vesting of restricted shares. Shares purchased pursuant to the applicable stock repurchase program discussed in footnote (b) below during June included a total of 180,000 shares of Class A common stock purchased from certain significant shareholders in a privately negotiated transaction on
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June 17, 2019. Shares of Class A common stock tendered by employees to satisfy tax withholding obligations included 603 shares, 0 shares, and 4,226 shares in April, May and June 2019, respectively. Unless otherwise indicated, shares owned and tendered by employees to satisfy tax withholding obligations were purchased at the closing price of the Company's shares on the date of vesting.
(b) On August 4, 2016, the Company announced that its Board of Directors had authorized a stock repurchase program in May 2016 to repurchase up to a total of five million shares of the Company's Class A common stock during the three-year period ended May 25, 2019. On May 8, 2019, the Company announced that its Board of Directors authorized a new stock repurchase program to repurchase up to a total of five million shares of the Company's Class A common stock during the three-year period ending May 7, 2022. The five million shares authorized under the new program include the remaining unrepurchased shares from the prior program, which the new program replaces.
Working capital and dividend restrictions/limitations
The Company's $382.5 million unsecured line of credit, which is available through June 22, 2023, imposes restrictions on the payment of dividends through covenants requiring a minimum consolidated net worth and a minimum level of unencumbered cash, cash equivalent investments, and available borrowing capacity under the line of credit. In addition, trust indentures and other financing agreements governing debt issued by the Company's education lending subsidiaries generally have limitations on the amounts of funds that can be transferred to the Company by its subsidiaries through cash dividends at certain times. Further, the payment of dividends by the Company is subject to the terms of the Company's outstanding junior subordinated hybrid securities, which generally provide that if the Company defers interest payments on those securities it cannot pay dividends on its capital stock. These provisions do not currently materially limit the Company's ability to pay dividends, and, based on the Company's current financial condition and recent results of operations, the Company does not currently anticipate that these provisions will materially limit the future payment of dividends.
69


ITEM 6.  EXHIBITS
3.1
3.2*
10.1*+
10.2*+
10.3
10.4
10.5
10.6++
10.7*
31.1*
31.2*
32**
101.INS* XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH* XBRL Taxonomy Extension Schema Document
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document
104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
*    Filed herewith
** Furnished herewith
+ Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K because the
information in such portions is both not material and would likely cause competitive harm to the registrant if publicly
disclosed.
++ Indicates a management contract or compensatory plan or arrangement

70


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 
  NELNET, INC.  
       
Date: August 8, 2019 By: /s/ JEFFREY R. NOORDHOEK  
  Name: Jeffrey R. Noordhoek  
  Title:
Chief Executive Officer
Principal Executive Officer
 
       

Date: August 8, 2019 By: /s/ JAMES D. KRUGER  
Name: James D. Kruger  
  Title: 
Chief Financial Officer
Principal Financial Officer and Principal Accounting Officer
 


71
Exhibit 3.2 [THE FOLLOWING COMPOSITE THIRD AMENDED AND RESTATED ARTICLES OF INCORPORATION OF NELNET, INC. (THE “CORPORATION”), AS AMENDED, REFLECT THE PROVISIONS OF THE CORPORATION’S THIRD AMENDED AND RESTATED ARTICLES OF INCORPORATION, AS FILED WITH THE NEBRASKA SECRETARY OF STATE ON MAY 24, 2018, AND THE SUBSEQUENT AMENDMENT THERETO, WHICH WAS FILED WITH THE NEBRASKA SECRETARY OF STATE ON MAY 23, 2019, BUT THEY ARE NOT AN AMENDMENT AND/OR RESTATEMENT THEREOF.] COMPOSITE THIRD AMENDED AND RESTATED ARTICLES OF INCORPORATION OF NELNET, INC., AS AMENDED NAME The name of the Corporation shall be Nelnet, Inc. PRINCIPAL AND REGISTERED OFFICES The principal and registered offices of the Corporation shall be at 121 South 13th Street, Suite 100, Lincoln, Nebraska 68508, or such other place or places as the Corporation may establish and maintain in the State of Nebraska or elsewhere as the Board of Directors may deem prudent, necessary or expedient from time to time. PURPOSE AND POWERS The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may now or hereafter be organized under the Nebraska Model Business Corporation Act (the "Nebraska Act"). The Corporation shall have all powers that may now or hereafter be lawful for a corporation to exercise under the Nebraska Act and under the laws of the State of Nebraska generally. The Corporation shall have perpetual existence.


 
CAPITAL STOCK 4.1. Total Number of Shares of Stock. The total number of shares of capital stock of all classes that the Corporation shall have authority to issue is 710,000,000 shares. The authorized capital stock is divided into (i) 50,000,000 shares of preferred stock, with par value of $0.01 per share (the “Preferred Stock”); (ii) 600,000,000 shares of Class A Common Stock (the “Class A Common Stock”), with par value of $0.01 per share; and (iii) 60,000,000 shares of Class B Common Stock (the “Class B Common Stock”), with par value of $0.01 per share. The number of authorized shares of any of the Preferred Stock, Class A Common Stock or Class B Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative votes of the holders of a majority in voting power of the stock of the Corporation entitled to vote thereon irrespective of any provision of the Nebraska Act now or hereafter in effect, and no vote of the holders of the Preferred Stock, the Class A Common Stock or the Class B Common Stock voting separately as a class shall be required therefor. None of the Class A Common Stock or Class B Common Stock may be subdivided, consolidated, reclassified or otherwise changed in any manner unless the other class is subdivided, consolidated, reclassified or otherwise changed in the same manner and proportion. Except for shares of Class B Common Stock issued in connection with stock splits, stock dividends and other similar distributions, the Corporation shall not issue additional shares of Class B Common Stock after May 25, 2006 unless approved by the affirmative votes of the holders of a majority in voting power of the stock of the Corporation entitled to vote thereon irrespective of any provision of the Nebraska Act now or hereafter in effect, and no vote of the holders of the Preferred Stock, the Class A Common Stock or the Class B Common Stock voting separately as a class shall be required therefor. 4.2. Preferred Stock. Subject to limitations of applicable law, the Board of Directors is hereby expressly authorized, by resolution or resolutions, to provide, out of the unissued shares of Preferred Stock, for one or more series of Preferred Stock and, with respect to each such series, to fix the number of shares constituting such series and the designation of such series, the voting powers (if any) of the shares of such series and the preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of such series. The powers, preferences and relative, participating, optional and other special rights of each series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. Such rights and restrictions as referred to above shall include, without limitation, dividend rights, conversion rights, voting rights, terms of redemption, including sinking fund provisions, redemption price or prices, liquidation preferences and the number of shares constituting any series or designations of such series. 4.3. Class A Common Stock. Each holder of Class A Common Stock shall be entitled to one (1) vote for each share of Class A Common Stock held of record by such holder on all matters on which shareholders generally are entitled to vote. 4.4. Class B Common Stock. Each holder of Class B Common Stock shall be entitled to ten (10) votes for each share of Class B Common Stock held of record by such holder on all -2-


 
matters on which shareholders generally are entitled to vote except as may otherwise expressly be provided for herein. 4.5. Class Voting. Subject to limitations of applicable law, Class A Common Stock and Class B Common Stock shall vote as a single class on all matters to be voted on including, without limitation, any consolidation or merger of the Corporation into or with any other corporation or the sale or transfer of all or substantially all of its assets; provided, however, that the vote of a majority of the shares of Class B Common Stock, voting separately as a class, shall be required to lower the number of votes per share that each share of Class B Common Stock entitles its holder to have. 4.6. Conversion. Class A Common Stock is not convertible. Each share of Class B Common Stock is convertible at any time at the holder’s option into one (1) share of Class A Common Stock. Each share of Class B Common Stock shall automatically convert into one (1) share of Class A Common Stock, without any action by the Corporation or further action by the holder thereof, upon the Transfer (as defined below) of such share, other than the following Transfers: (i) to any other holder of Class B Common Stock or to any natural person or business organization that, directly or indirectly, controls, is controlled by or is under common control with such holder (“business organization” shall mean any corporation, limited liability company, partnership or like entity); (ii) to a spouse, sibling, parent, grandparent or descendant, whether natural or adopted, of a holder of Class B Common Stock; (iii) to any charitable foundation or other organization qualified under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or the corresponding provision of any subsequent federal tax law; (iv) to a trust all of the Beneficiaries (as defined below) of which are holders of Class B Common Stock (or are eligible to hold Class B Common Stock without triggering a conversion) each of whom is a natural person as described in clause (ii) hereof, and/or are entities described in clause (iii) hereof; (v) by will to any transferee described in clause (ii), (iii) or (iv) hereof; (vi) pursuant to the laws of descent and distribution to a spouse, sibling, parent, grandparent and/or descendant, whether natural or adopted, of a holder of Class B Common Stock; or (vii) to the Corporation. Notwithstanding the foregoing, a share of Class B Common Stock shall automatically convert into one (1) share of Class A Common Stock, without any action by the Corporation or further action by the holder thereof, upon any Transfer of such share pursuant to a divorce or separation agreement, decree or order. “Transfer” means a sale, assignment, transfer, gift, encumbrance or other disposition, other than a bona fide pledge for collateral security purposes. “Beneficiaries” means qualified beneficiaries of a trust, expressly intending to exclude any remote beneficiaries and any beneficiaries not otherwise existing or otherwise reasonably ascertainable, identifiable or known at the time of the Transfer to such trust under the laws of the State of Nebraska and/or the laws of the state governing such trust. In the event at any time the shares of the Class B Common Stock outstanding constitute less than 50% of the Class B Common Stock outstanding as of the date of the final prospectus relating to the Corporation' s initial public offering (as adjusted for any dividend or other distribution, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of shares or other securities, the issuance of warrants or other rights to purchase shares or other securities, or other similar capitalization change), each remaining share of Class B Common Stock outstanding shall automatically be converted into one (1) share of Class A Common Stock. -3-


 
The Corporation will reserve and at all times keep available out of its authorized but unissued shares of Class A Common Stock or its shares of treasury stock of such class a sufficient number of shares of Class A Common Stock to satisfy the conversion requirements of all outstanding shares of Class B Common Stock. 4.7. Dividend Rights. Holders of Class A Common Stock and Class B Common Stock shall be entitled to receive ratably dividends payable in cash, in stock or otherwise, as and when declared by the Board of Directors out of assets legally available therefor, subject to any preferential rights of any outstanding Preferred Stock. 4.8. Other Rights. Upon liquidation, dissolution or winding up of the Corporation, after payment in full of the amounts required to be paid to the holders of any outstanding Preferred Stock, all holders of Class A Common Stock and Class B Common Stock are entitled to receive ratably any assets available for distribution to holders thereof after the payment of all debts and other liabilities of the Corporation. No shares of the Class A Common Stock or the Class B Common Stock shall have preemptive rights to purchase additional shares. The rights, preferences and privileges of holders of Class A Common Stock and Class B Common Stock shall be subject to, and may be adversely affected by, the rights of holders of outstanding Preferred Stock. All shares of Class A Common Stock, Class B Common Stock and Preferred Stock which are acquired by the Corporation shall be available for re-issuance by the Corporation at any time. 4.9. Rights With Respect to Future Issuances and Sales. The Board of Directors shall be authorized to create and issue by one or more resolutions, whether or not in connection with the issuance and sale of any of the Corporation's securities or properties, rights entitling the holders thereof to purchase securities issued by the Corporation or any other entity. The times at and the terms upon which such rights are to be issued are to be determined by the Board of Directors and set forth in contracts or other instruments which evidence such rights. The authority of the Board of Directors with respect to such rights shall include, without limitation, the determination of the initial purchase price, the times and circumstances under which such rights may be exercised, provisions denying such holders of a specified percentage of the Corporation's outstanding capital stock the right to exercise such rights and provisions to permit the Corporation to redeem or exchange such rights. 4.10. Recapitalization Plan; Exchange of Certificates. Each share of the Corporation's Class B (nonvoting) Common Stock owned by Michael S. Dunlap, Terri Dunlap, Stephen F. Butterfield and Union Financial Services, Inc., and each share of the Corporation's Class A (voting) Common Stock issued and outstanding or held in treasury, immediately prior to the filing of the Amended and Restated Articles of Incorporation with the Nebraska Secretary of State on August 14, 2003, was, upon such filing and thereafter, exchanged for and classified as 210 shares of the Corporation's Class B Common Stock. Each share of the Corporation's Class B (nonvoting) Common Stock issued and outstanding or held in treasury immediately prior to the filing of the Amended and Restated Articles of Incorporation on August 14, 2003 (other than shares of Class B (nonvoting) Common Stock owned by Michael S. Dunlap, Terri Dunlap, Stephen F. Butterfield and Union Financial Services, Inc.), was, upon such filing and thereafter, exchanged for and classified as 210 -4-


 
shares of the Corporation's Class A Common Stock. Promptly after the filing of the Amended and Restated Articles of Incorporation on August 14, 2003, each holder of the Corporation' s issued and outstanding capital stock surrendered, or is entitled to surrender, to the Corporation all certificates representing all such shares of the Corporation's capital stock, properly endorsed for transfer to the Corporation, which certificates were in any event deemed cancelled at the time of such filing, and the Corporation thereupon issued and delivered, or will issue and deliver, to such holder certificates representing the number of shares of the Corporation's capital stock that such holder was, or is, entitled to receive pursuant to the recapitalization plan set forth above. BOARD OF DIRECTORS 5.1. Powers of Board of Directors. The business and affairs of the Corporation shall be managed by or under the direction of its Board of Directors which shall consist of not less than three (3) members. In furtherance, and not in limitation, of the powers conferred by the laws of the State of Nebraska, the Board of Directors is expressly authorized to: (a) adopt, amend, alter, change or repeal the By-laws of the Corporation; provided, however, that no By-laws hereafter adopted shall invalidate any prior act of the directors that would have been valid if such new By-laws had not been adopted; (b) determine the rights, powers, duties, rules and procedures that affect the power of the Board of Directors to manage and direct the business and affairs of the Corporation, including the power to designate and empower committees of the Board of Directors, to elect, appoint and empower the officers and other agents of the Corporation, and to determine the time and place of, the notice requirements for, Board meetings, as well as quorum and voting requirements for, and the manner of taking, Board action; and (c) exercise all such powers and do all such acts as may be exercised or done by the Corporation, subject to the provisions of the Nebraska Act, these Third Amended and Restated Articles of Incorporation and the By-laws of the Corporation. 5.2. Number of Directors. Subject to Section 5.1, the number of directors constituting the Board of Directors shall be determined from time to time exclusively by a vote of a majority of the Board of Directors in office at the time of such vote. 5.3. Vacancies. Subject to the rights of the holders of one or more series of Preferred Stock then outstanding as provided for or fixed pursuant to the provisions of Article IV hereof, any vacancies on the Board of Directors for any reason and any newly created directorships resulting by reason of any increase in the number of directors may be filled only by the Board of Directors, acting by a majority of the remaining directors then in office, although less than a quorum, or by a sole remaining director. A director elected to fill a vacancy or a newly created -5-


 
directorship shall hold office until the next election of the class for which such director shall have been chosen pursuant to the provisions of Section 5.5 below, subject to the election and qualification of a successor and to such director’s earlier death, resignation, or removal. 5.4. Removal of Directors. Except for such additional directors, if any, as elected by the holders of any series of Preferred Stock as provided for or fixed pursuant to the provisions of Article IV hereof, any director, or the entire Board of Directors, may be removed from office at any time, with or without cause, by the affirmative vote of the holders of a majority of the voting power of all of the shares of capital stock of the Corporation then entitled to vote generally in the election of directors or class of directors, voting together as a single class. 5.5. Classification and Terms of Directors. Other than those directors, if any, elected by the holders of any series of Preferred Stock that may be established pursuant to the provisions of Article IV hereof, the Board of Directors shall be divided into three classes, with each class containing one-third of the total number of directors, as near as may be practicable, and with the classes designated Class I, Class II, and Class III. If the number of directors is not evenly divisible by three, the remaining positions shall be allocated first to Class III and then to Class II. Except for the terms of such additional directors, if any, as elected by the holders of any series of Preferred Stock and as provided for or fixed pursuant to the provisions of Article IV hereof, each director shall serve for a term ending on the date of the third annual meeting of shareholders following the annual meeting of shareholders at which such director was elected; provided, that each director initially appointed to Class I shall serve for an initial term expiring at the Corporation’s first annual meeting of shareholders following the effectiveness of this provision; each director initially appointed to Class II shall serve for an initial term expiring at the Corporation’s second annual meeting of shareholders following the effectiveness of this provision; and each director initially appointed to Class III shall serve for an initial term expiring at the Corporation’s third annual meeting of shareholders following the effectiveness of this provision; provided further, that the term of each director shall continue until the election and qualification of a successor and be subject to such director’s earlier death, resignation, or removal. The directors in office immediately prior to the effectiveness of this provision shall assign members of the Board of Directors then in office to such Classes at the time the classification of the Board of Directors becomes effective. SHAREHOLDER ACTIONS AND MEETINGS OF SHAREHOLDERS Special meetings of shareholders of the Corporation shall be held (i) on the call of the Board of Directors pursuant to a resolution adopted by a majority of the members of the Board of Directors then in office; or (ii) if shareholders holding at least twenty-five percent of all the votes entitled to be cast on an issue proposed to be considered at the proposed special meeting sign, date, and deliver to the Corporation one or more written demands for the meeting describing the purpose or purposes for which it is to be held; except as may otherwise be provided or required by the Nebraska Act. Elections of officers need not be by written ballot, unless otherwise provided in the By-laws. For purposes of all meetings of shareholders, a quorum shall consist of shares constituting a majority of the voting power of all the shares of the capital stock of the Corporation entitled to vote at such meeting of -6-


 
shareholders, unless otherwise required by law. In all elections for directors of the Corporation, directors shall be elected by a majority of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present, and not by a plurality of such votes. LIMITATION ON LIABILITY OF DIRECTORS A director of the Corporation shall have no personal liability to the Corporation or its shareholders for money damages for any action taken, or any failure to take any action, as a director of the Corporation, including without limitation as a member of any committee of the Board of Directors, except liability for (i) the amount of a financial benefit received by a director to which the director is not entitled; (ii) an intentional infliction of harm on the Corporation or the shareholders; (iii) a violation of Section 21-2,104 of the Nebraska Act; or (iv) an intentional violation of criminal law. If the Nebraska Act is amended hereafter to authorize further eliminations of or limitations on the personal liability of a director of a corporation incorporated under the Nebraska Act, then the personal liability of each director of the Corporation shall be so eliminated or limited to the fullest extent permitted by the Nebraska Act, as so amended from time to time. Any amendment, repeal or modification of this Article VII shall not adversely affect any right or protection of a director of the Corporation existing hereunder with respect to any act or omission occurring prior to such amendment, repeal or modification. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS 8.1. Indemnification of Directors and Officers. To the fullest extent permitted by the Nebraska Act (including the broader indemnification authorized by Section 21- 220(b)(5) of the Nebraska Act) or any other law of the State of Nebraska as it exists on the effective date of this provision or as thereafter amended, the Corporation shall indemnify and hold harmless and advance expenses (as defined in Section 21-214 of the Nebraska Act) to any person (an “indemnitee”) who was, is, or is threatened to be made a party or is otherwise involved in any proceeding (as defined in Subsection (6) of Section 21-2,110 of the Nebraska Act) by reason of the fact that the indemnitee, or a person for whom the indemnitee is the legal representative, is or was a director or officer of the Corporation, against all liability (as defined in Subsection (3) of Section 21-2,110 of the Nebraska Act) and loss suffered and expenses actually and reasonably incurred by the indemnitee in connection with such proceeding. For purposes of this Article VIII, a "director" or "officer" of the Corporation means an individual (i) who is or was a director or officer, respectively, of the Corporation, or (ii) who, while a director or officer of the Corporation, is or was serving at the Corporation’s request as a director, officer, manager, member of a limited liability company, partner, trustee, employee, or agent of another entity or employee benefit plan, or (iii) who was a director or officer of a -7-


 
corporation which was a predecessor of the Corporation, or of another enterprise at the request of such predecessor. 8.2. Indemnification of Employees and Other Agents. The Corporation shall have the power, to the extent and in the manner permitted by the Nebraska Act, to indemnify each of its employees and agents (other than directors and officers, for which indemnification shall be as set forth in Section 8.1) against liability (as defined in Subsection (3) of Section 21-2,110 of the Nebraska Act), expenses (as defined in Section 21-214 of the Nebraska Act) and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Subsection (6) of Section 21-2,110 of the Nebraska Act) arising by reason of the fact that such person is or was an employee or other agent of the Corporation. For purposes of this Article VIII, an "employee" or "agent" of the Corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the Corporation, or (ii) who is or was serving at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation. 8.3. Payment of Expenses in Advance. Expenses incurred in connection with a proceeding (as defined in Subsection (6) of Section 21-2,110 of the Nebraska Act) for which indemnification is required pursuant to Section 8.1, or for which indemnification is permitted pursuant to Section 8.2 following authorization thereof by the Board of Directors, shall be paid by the Corporation in advance of the final disposition of such proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it is ultimately determined, in accordance with the Nebraska Act, that the indemnified party is not entitled to be indemnified as authorized in this Article VIII. 8.4. Indemnity Not Exclusive. The indemnification provided by this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any By-law of the Corporation, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in this Article VIII. 8.5. Insurance. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation against any liability asserted against or incurred by such person in such capacity or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify or advance expenses to him or her against such liability under the provisions of this Article VIII or the Nebraska Act. AMENDMENT OF AMENDED AND RESTATED ARTICLES OF INCORPORATION -8-


 
The Corporation hereby reserves the right to amend, alter, change or repeal any provision contained in these Third Amended and Restated Articles of Incorporation in any manner permitted by the Nebraska Act and all rights and powers conferred upon shareholders, directors and officers herein are granted subject to this reservation; provided, however, that the affirmative vote of the holders of a majority of the voting power of all the shares of the capital stock of the Corporation then entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend, repeal or adopt any provision inconsistent with Section 4.9, Article VI or this proviso. SEVERABILITY In the event that any of the provisions of these Third Amended and Restated Articles of Incorporation (including any provision within a single Section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, the remaining provisions are severable and shall remain enforceable to the full extent permitted by law. INCORPORATOR The name and street address of the incorporator is: Jay L. Dunlap, 111 Oneida, Milford, Nebraska. EXCLUSIVE FORUM FOR ADJUDICATION OF CERTAIN LEGAL ACTIONS Unless the Corporation consents in writing to the selection of an alternative forum, to the fullest extent permitted by law, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf or in the right of the Corporation; (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, or employee of the Corporation to the Corporation or the Corporation’s shareholders; (iii) any action asserting a claim arising pursuant to any provision of the Nebraska Business Corporation Act (effective until January 1, 2017), the Nebraska Act (effective January 1, 2017), or the Articles of Incorporation or By-laws of the Corporation (as each may be amended from time to time); or (iv) any action asserting a claim governed by the internal affairs doctrine shall be the District Court for the State of Nebraska located in the City of Lincoln, County of Lancaster, Nebraska (or, if such court does not have jurisdiction, the United States District Court for the District of Nebraska located in the City of Lincoln, Nebraska). If any action the subject matter of which is within the scope of the preceding sentence is filed in a court other than a court referred to in the preceding sentence (a “Foreign Action”) in the name of any shareholder, such shareholder shall be deemed to have consented to (i) the personal jurisdiction of the state and federal courts located within the State of Nebraska in connection with any action brought in any such court to enforce the preceding sentence and (ii) having service of process made upon such shareholder in any such action by service upon such shareholder’s counsel in the Foreign Action as agent for such shareholder. Any person or -9-


 
entity owning, purchasing, or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article XII. -10-


 

Exhibit 10.1

Certain information identified by “[***]” has been excluded from this exhibit pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is both not material and would likely cause competitive harm to the registrant if publicly disclosed.

EXECUTION
AMENDED AND RESTATED
TRUST AGREEMENT
among
NELNET PRIVATE STUDENT LOAN FINANCING CORPORATION,
as Depositor,
UNION BANK AND TRUST COMPANY,
as Trustee,
NATIONAL EDUCATION LOAN NETWORK, INC.,
as Administrator
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Delaware Trustee
Dated as of January 11, 2019

99724359 Nelnet-RBC
Amended and Restated Trust Agreement

TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND USAGE 1
Section 1.01 Definitions and Usage 1
ARTICLE II ORGANIZATION 2
Section 2.01 Creation of Trust; Name 2
Section 2.02 Office 2
Section 2.03 Purposes and Powers 2
Section 2.03A. Covenants Regarding Operations 3
Section 2.04 Appointment of Trustee and Delaware Trustee 8
Section 2.05 Initial Capital Contribution of Trust Estate 8
Section 2.06 Declaration of Trust 8
Section 2.07 Liability of the EDC Holder 9
Section 2.08 Title to Trust Property 9
Section 2.09 Representations, Warranties and Covenants of the Depositor 9
Section 2.10 Intended Tax Characterization of the Trust 10
ARTICLE III EXCESS DISTRIBUTION CERTIFICATE 11
Section 3.01 Initial Beneficial Ownership 11
Section 3.02 Corporate Trust Office 11
Section 3.03 The Excess Distribution Certificate. 11
ARTICLE IV ACTIONS BY TRUSTEE 14
Section 4.01 Prior Notice to the EDC Holder with Respect to Certain Matters 14
Section 4.02 Action with Respect to Sale of the Pledged Personal Loans 15
Section 4.03 Action with Respect to Bankruptcy 15
Section 4.04 Restrictions 15
ARTICLE V APPLICATION OF TRUST FUNDS; CERTAIN DUTIES 15
Section 5.01 Application of Trust Funds 15
Section 5.02 Method of Payment 15
Section 5.03 No Segregation of Moneys; No Interest 15
Section 5.04 Reports to the EDC Holder, the Internal Revenue Service and Others 15
ARTICLE VI AUTHORITY AND DUTIES OF TRUSTEE 16
Section 6.01 General Authority 16
Section 6.02 General Duties 16
Section 6.03 Action upon Instruction 16
i
99724359 Nelnet-RBC
Amended and Restated Trust Agreement

TABLE OF CONTENTS
(continued)
Page

Section 6.04 No Duties Except as Specified in This Agreement or in Instructions 17
Section 6.05 No Action Except Under Specified Documents or Instructions 18
Section 6.06 Restrictions 18
ARTICLE VII CONCERNING THE TRUSTEE AND THE DELAWARE TRUSTEE 18
Section 7.01 Acceptance of Trusts and Duties 18
Section 7.02 Representations, Warranties and Covenants of the Trustee and the Delaware Trustee 20
Section 7.03 Reliance; Advice of Counsel 22
Section 7.04 Not Acting in Individual Capacity 22
Section 7.05 Trustee and Delaware Trustee Not Liable for Excess Distribution Certificate or Pledged Personal Loans 22
Section 7.06 Duties of the Delaware Trustee 23
ARTICLE VIII COMPENSATION AND INDEMNITY OF TRUSTEE AND DELAWARE TRUSTEE 23
Section 8.01 Trustee’s and Delaware Trustee’s Fees and Expenses 23
Section 8.02 Payments to the Trustee and to the Delaware Trustee 24
Section 8.03 Indemnity 24
Section 8.04 EDC Holder to Assume Liability 24
ARTICLE IX TERMINATION OF TRUST AGREEMENT 25
Section 9.01 Termination of Trust Agreement 25
ARTICLE X SUCCESSOR TRUSTEES AND DELAWARE TRUSTEES AND ADDITIONAL TRUSTEES AND DELAWARE TRUSTEES 25
Section 10.01 Eligibility Requirements for Trustee and Delaware Trustee 25
Section 10.02 Resignation or Removal of Trustee or the Delaware Trustee 26
Section 10.03 Successor Trustee or Delaware Trustee 26
Section 10.04 Merger or Consolidation of Trustee or Delaware Trustee 27
Section 10.05 Appointment of Co-Trustee or Separate Trustee 27
ARTICLE XI MISCELLANEOUS 29
Section 11.01 Supplements, Amendments and Waivers 29
Section 11.02 No Legal Title to Trust Estate in the EDC Holder 29
Section 11.03 Limitations on Rights of Others 29
Section 11.04 Restrictions on the Depositor 30
Section 11.05 Notices 30
Section 11.06 No Waivers; Remedies 30
Section 11.07 Successors and Assigns 30
Section 11.08 Governing Law 31
ii
99724359 Nelnet-RBC
Amended and Restated Trust Agreement

TABLE OF CONTENTS
(continued)
Page

Section 11.09 Severability 31
Section 11.10 Waiver of Jury Trial 31
Section 11.11 Bankruptcy Non-Petition and Limited Recourse 31
Section 11.12 No Recourse 32
Section 11.13 Execution in Counterparts 32
Section 11.14 Entire Agreement 32
Section 11.15 Limitation of Liability 32
Section 11.16 Section Titles 32
Section 11.17 Force Majeure 32
Section 11.18 Patriot Act Compliance 32
Section 11.19 Survival 33


EXHIBIT A — Form of Excess Distribution Certificate

iii
99724359 Nelnet-RBC
Amended and Restated Trust Agreement


AMENDED AND RESTATED TRUST AGREEMENT
This AMENDED AND RESTATED TRUST AGREEMENT (this “Agreement”) is made as of January 11, 2019 among NELNET PRIVATE STUDENT LOAN FINANCING CORPORATION, a Nebraska corporation, as depositor (the “Depositor”), UNION BANK AND TRUST COMPANY (“UB&T”), a Nebraska state-chartered commercial bank, acting hereunder not in its individual capacity but solely as trustee (the “Trustee”), NATIONAL EDUCATION LOAN NETWORK, INC., as administrator (the “Administrator”), and U.S. BANK TRUST NATIONAL ASSOCIATION, a national banking association, as Delaware trustee (in such capacity, and not in its individual capacity, the “Delaware Trustee”).
W I T N E S S E T H:
WHEREAS, the Depositor, the Trustee and the Delaware Trustee are parties to the trust agreement dated as of December 20, 2018 (the “Short‑Form Trust Agreement”) pursuant to which a trust known as “NELNET UNSECURED PERSONAL LOAN WAREHOUSE TRUST” (the “Trust”) was established; and
WHEREAS, the Depositor, the Trustee and the Delaware Trustee wish to amend and restate the Short‑Form Trust Agreement upon the terms and conditions set forth herein, pursuant to which the Trust will initially issue an excess distribution certificate (the “Excess Distribution Certificate”).
NOW THEREFORE, the parties hereto agree as follows:
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ARTICLE I
DEFINITIONS AND USAGE
Section 1.01 Definitions and Usage. Capitalized terms used but not otherwise defined herein are defined in the Loan and Security Agreement dated as of January 11, 2019 among the Trust, the Administrator, the Trustee, the financial institutions party thereto as LIBOR Lenders, the financial institutions party thereto as Managing Agents, and Royal Bank of Canada, as administrative agent (the “Administrative Agent”) (as amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”). The principles of construction and rules of interpretation set forth in Article I of the Loan Agreement shall apply, mutatis mutandis, to this Agreement, with each reference to “this Agreement” in such Article being a reference to this Agreement.
Bankruptcy Action” means to (i) commence any case, proceeding or other action or file a petition (a) under any existing or future bankruptcy, insolvency or similar statute, law or regulation that seeks (1) to adjudicate the Trust a bankrupt or insolvent or (2) to have an order for relief entered with respect to the Trust, or (b) under any existing or future statute, law or regulation that seeks the reorganization, arrangement, adjustment, wind up, liquidation, dissolution, composition or other relief with respect to the Trust or its debts, (ii) consent to the institution of bankruptcy or insolvency proceedings against the Trust, (iii) seek or consent to the appointment of a receiver, custodian, liquidator, assignee, trustee, sequestrator (or other similar official) of the Trust or all or a substantial part of its property, (iv) except as required by applicable law, admit the Trust’s inability to pay its debts generally as they become due, (v) make a general assignment by the Trust for the benefit of creditors, (vi) file an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Trust in a proceeding of the type described in clauses (i) through (v) of this paragraph, (vii) cause the Trust not to pay its debts as such debts become due within the meaning of the Bankruptcy Code, or (viii) authorize, take any action in furtherance of, consent to or acquiesce in any of the foregoing or any similar action or other proceedings under any federal or state bankruptcy, insolvency or similar law on behalf of, or with respect to, the Trust, or in connection with any obligations relating to the Excess Distribution Certificate, the Advances, the Transaction Documents, this Agreement or any other agreement to which the Trust is a party or a beneficiary.
Delaware Statutory Trust Act” means Chapter 38 of Title 12, Part V of the Delaware Code, entitled “Treatment of Delaware Statutory Trusts.”
Excess Distribution Certificate Register” and “Excess Distribution Certificate Registrar” means the register maintained and the registrar (or any successor thereto) appointed pursuant to Section 3.03(c).
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Lien” means a security interest, lien, charge, pledge, equity or encumbrance of any kind, other than tax liens and any other liens, if any, which attach to the respective Pledged Personal Loan by operation of law as a result of any act or omission by the related Obligor.
Responsible Officer” means, with respect to the Delaware Trustee, any officer working in the corporate trust department of the Delaware Trustee having direct responsibility for the administration of this Agreement, and with respect to the Trustee, an Authorized Officer of the Trustee as defined in the Loan Agreement.
ARTICLE II 
ORGANIZATION
Section 2.01 Creation of Trust; Name. There is hereby continued a Trust located in the State of Delaware and known as “NELNET UNSECURED PERSONAL LOAN WAREHOUSE TRUST”, in which name the Trustee and the Delaware Trustee may continue to conduct the business of the Trust, make and execute contracts and other instruments on behalf of the Trust and sue and be sued on behalf of the Trust. The Trust is a statutory trust within the meaning of Section 3801(a) of the Delaware Statutory Trust Act for which the Delaware Trustee has filed a certificate of trust with the Secretary of State of the State of Delaware pursuant to Section 3810(a) of the Delaware Statutory Trust Act.
Section 2.02 Office. The Delaware office of the Trust is in care of the Delaware Trustee at its corporate trust office referred to in Section 3.02 or at such other address in Delaware as the Delaware Trustee may designate by written notice to the Depositor. The general administrative office of the Trust is in care of the Trustee at its corporate trust office referred to in Section 3.02 or at such other address as the Trustee may designate by written notice to the Depositor and the Administrative Agent.
Section 2.03 Purposes and Powers. The purpose of the Trust is, and the Trust shall have the power and authority, to engage in the following activities:
(a) to acquire certain Eligible Personal Loans funded through Advances made pursuant to the Loan Agreement and issue the Excess Distribution Certificate pursuant to this Agreement and make borrowings thereunder, from time to time, in one or more transactions in accordance with the terms of the Loan Agreement;
(b) with the proceeds of the initial Advance, to fund the Reserve Account pursuant to Section 2.06 of the Loan Agreement and to purchase the initial Pledged Personal Loans pursuant to the Loan Sale Agreement;
(c) to otherwise acquire, hold, sell or dispose of Pledged Personal Loans and related assets in accordance with the Loan Agreement or in connection with the termination of the Loan Agreement following repayment in full of amounts owing thereunder;
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(d) to grant a security interest in the Pledged Collateral to the Administrative Agent as security for the Advances, on behalf of the Secured Creditors, pursuant to Section 2.10 of the Loan Agreement (the “Trust Estate”), and to hold, manage and distribute to the EDC Holder pursuant to the terms of this Agreement any funds paid thereon under the Loan Agreement;
(e) to execute, deliver and perform its obligations and exercise its rights under this Agreement, the Loan Agreement, the Loan Sale Agreement, the Revolving Credit Agreement, the Administration Agreement, the Servicing Agreement, the Lenders Fee Letter, the [***] Joinder, the [***] Multi-Party Agreement, the [***] Account Opening Agreement, the [***] Multi-Party Agreement, the [***] Servicing Agreement, the [***] Multi-Party Agreement, the [***] Servicing Agreement, the Account Control Agreement, and any other Transaction Document to which the Trust is a party (the “Trust Documents”);
(f) to establish and maintain the Trust Accounts each in accordance with the Loan Agreement and the Account Control Agreement;
(g) subject to compliance with the Trust Documents, to engage in such other activities as may be required in connection with conservation of the Trust Estate and the making of deposits to the Trust Accounts required by the Loan Agreement; and
(h) to engage in those activities, including entering into agreements, that are necessary, suitable or convenient to accomplish the foregoing or are incidental thereto or connected therewith.
The Trust shall not engage in any activity other than in connection with the foregoing or other than as required or authorized by the terms of this Agreement or the other Trust Documents.
The parties hereto hereby agree that, notwithstanding anything herein to the contrary, the entering into and performance by the Trust (and execution thereof by the Trustee on its behalf) of the Trust Documents in accordance with the terms and conditions hereof shall not be deemed to cause the Trust to have violated, or to have failed to comply with, any of the foregoing restrictions or covenants set forth in this Section 2.03 or any other restrictions or covenants contained in this Agreement.
Section 2.03A. Covenants Regarding Operations.
(a) Subject to Section 4.03 hereof, and notwithstanding any prior termination of this Agreement, to the fullest extent permitted by law, none of the Delaware Trustee, the Trustee, the Administrator or the EDC Holder shall take or authorize any Bankruptcy Action.
(b) To the fullest extent permitted by law and notwithstanding any other provision to the contrary in this Agreement or any other agreement, document or instrument executed by the Trust (except as otherwise provided in the Agreement and the Transaction Documents), and so
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long as the Agreement is in effect, the EDC Holder and the Administrator shall cause the Trust to, and the Trust shall:
(i) do or cause to be done all things necessary to preserve and keep in full force and effect its existence as a Delaware statutory trust in good standing and its rights (charter and statutory) under the laws of the State of Delaware, preserve and keep in full force and effect its existence, rights and franchises, obtain and preserve its qualification to do business in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Agreement and any agreement to which the Trust is a party, and observe all applicable procedures and provisions required by this Agreement and the laws of the State of Delaware;
(ii) except as required by law, not amend, alter, waive, change or repeal (A) its Certificate of Trust, (B) the definitions in this Agreement of the capitalized terms used in this Section or any of the definitions of the terms that form any part thereof or (C) this Section or Sections 2.03, 2.10, 4.03 or Article VIII hereof without the prior written consent of the Administrative Agent;
(iii) maintain its own bank accounts and correct and complete financial and other entity records, accounts and books of account separate and distinct from those of any other Person; not commingle its records, accounts, books of account and bank accounts with the organizational or other records, accounts, books of account or bank accounts of any other Person and cause such records, accounts, books of account and bank accounts to reflect the separate existence of the Trust;
(iv) act solely in its own name and through an Authorized Officer or its agents in the conduct of its business, prepare all Trust correspondence in the Trust’s name, hold itself out as a separate entity from any other Person, conduct its business so as not to mislead others as to the identity of the entity with which they are concerned, correct any misunderstanding regarding its separate identity known to the Trust, refrain from engaging in any activity that compromises the separate legal identity of the Trust, and strictly comply with all organizational and statutory formalities to maintain its separate existence;
(v) take such actions as may be necessary to authorize each of the Trust’s actions as may be required by applicable law, this Agreement and any other agreement to which the Trust is a party;
(vi) at any time that the Trust is not treated as a disregarded entity or part of a consolidated group filing consolidated returns for federal income tax purposes, file or cause to be filed its own tax and information returns, if any, as may be required of the
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Trust under applicable federal, state and local law, and pay any taxes out of its own funds so required to be paid under applicable law from its own assets;
(vii) except for the Delaware Trustee’s or the Trustee’s standard practice regarding maintenance of funds and assets, not commingle its funds or assets with funds or assets of any other Person;
(viii) segregate and separately maintain (or cause to be maintained) its funds and assets as identifiable funds and assets held in its name (except with respect to holding funds or assets in its name, to the extent that such funds or assets are required under this Agreement to be held in an account in the name of a servicer, custodian or trustee with respect to any accounts established hereunder) and with its own tax identification number, if any, in such a manner that it is not costly or difficult to segregate, ascertain or identify its individual funds or assets from the funds or assets of any other Person, which funds and assets shall at all times be held by or on behalf of the Trust and used only for the business of the Trust;
(ix) prepare and maintain annual and quarterly (or more frequent) financial statements separate from any other Person, pay or bear out of its own funds the cost of preparation of its own financial statements and disclose in the annual financial statements of the Trust the effects of its transactions in accordance with generally accepted accounting principles;
(x) not permit the financial statements of the Trust, or any consolidated or combined financial statements which consolidate or combine the assets and earnings of the EDC Holder or any Affiliate of the EDC Holder with those of the Trust, to state that the assets of the Trust are or will be available to creditors of any of its Affiliates, the EDC Holder or any Affiliate of the EDC Holder;
(xi) maintain an arm’s‑length relationship with its Affiliates, the Administrator and the EDC Holder and their respective Affiliates, not enter into any contract or agreement or any amendment thereof with any of its Affiliates, the Administrator or the EDC Holder or their respective Affiliates unless the terms thereof are commercially reasonable, and substantially similar to those that would be available on an arm’s‑length basis with third‑parties, and transact all business with its Affiliates, the Administrator, the EDC Holder and their respective Affiliates pursuant to enforceable agreements with material terms established at the inception that will not be amendable except with the consent of each of the parties to such agreement;
(xii) to the extent that the Trust leases premises from the EDC Holder or its Affiliates, pay appropriate, fair and reasonable compensation or rental to the lessor;
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(xiii) be directly responsible for the costs of its own outside legal, auditing and other similar services and pay its taxes, liabilities and operating expenses only out of its funds and not pay from its assets any obligations or indebtedness of any other Person;
(xiv) pay from its own funds the salaries of its own employees, if any, and maintain a sufficient number of employees in light of its contemplated business operations;
(xv) pay from its own funds any compensation due to the Administrator;
(xvi) pay compensation from its own funds to independent contractors for performing services or incurring expenses in connection with such services for the Trust in an amount equal to the fair value of such services and expenses;
(xvii) allocate fairly and reasonably between the Trust and any other Person pursuant to a written agreement all expenses that are shared with such Person, including any overhead, rent, or other compensation paid for shared or leased office space;
(xviii) not act as an agent of the EDC Holder, the Delaware Trustee, the Trustee or their respective Affiliates;
(xix) not permit the Administrator, the EDC Holder or their respective Affiliates to act as an agent for the Trust, except as specifically permitted by this Agreement and the Administration Agreement;
(xx) not identify itself as a department or division of any other Person in order not (A) to mislead others as to the identity of the entity with which such other party is transacting business or (B) to suggest that the Trust is responsible for the debts of any other Person;
(xxi) use stationery, invoices and checks that are separate from those of any other Person;
(xxii) not enter into leases for office space, except as necessary to maintain a principal place of business or the conduct of its operations;
(xxiii) not be, become or hold itself out (or permit itself to be held out) as being liable for the debts or other obligations of any other Person, or hold out its credit (or permit its credit to be held out) as being available to satisfy the obligation of any other Person;
(xxiv) not pledge any property or assets of the Trust (except as permitted by the Transaction Documents), lend or advance any moneys to (other than trade receivables in
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connection with the ordinary course of the Trust’s business), or guarantee (directly or indirectly), endorse (other than the endorsement of negotiable instruments for collection or deposit in the ordinary course of business) or otherwise become contingently liable (directly or indirectly) for the obligations of, or acquire or assume any obligation or liability of, any other Person;
(xxv) except for investments expressly permitted by this Agreement, not make an investment in or for the benefit of, or own or purchase any stock, obligations or securities of or any other interest in, or make any capital contribution to, any other Person;
(xxvi) not form or acquire any subsidiary;
(xxvii) not incur any debt, secured or unsecured, direct or contingent (including, without limitation, guaranteeing any obligation) other than its obligations under the Transaction Documents, unsecured debts and liabilities for trade payables and accrued expenses and taxes incurred in the ordinary course of its business that (A) are in amounts that are normal and reasonable under the circumstances, (B) are not evidenced by a promissory note, (C) are paid when due (unless being contested in good faith) and (D) not owed to the EDC Holder or its Affiliates;
(xxviii) maintain adequate capital for the normal obligations reasonably foreseeable in a business of the Trust’s size and character and in light of its proposed business operations and liabilities (provided that this clause shall not be deemed a commitment by the EDC Holder to make contributions to the Trust);
(xxix) not engage, directly or indirectly, in any business other than as required or permitted under Section 2.03 hereof;
(xxx) not acquire or own any material assets other than the assets and properties to be pledged under the Agreement or as otherwise are necessary to comply with its obligations under the Transaction Documents;
(xxxi) properly account in the Trust’s books and financial records for any transactions entered into between the Trust and the EDC Holder, the Administrator or their respective Affiliates;
(xxxii) not enter into any contract, except such contracts as necessary to enable the Trust to achieve its purposes as set forth in, or that are otherwise required or permitted by, Section 2.03 hereof;
(xxxiii) not agree to, enter into or consummate any transaction which would render it unable to confirm that (A) it is not an “employee benefit plan” as defined in
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Section 3(32) of ERISA, which is subject to Title I of ERISA, or a “governmental plan” within the meaning of Section 3(32) of ERISA; (B) it is not subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans; and (C) less than 25% of each of its outstanding classes of equity interests are held by a “benefit plan investor” within the meaning set forth in 29 C.F.R. § 2510.3‑101(f)(2);
(xxxiv) to the fullest extent permitted by applicable law and except as otherwise expressly provided elsewhere in this Section, not take or refrain from taking any act which would make it impossible to carry on the activities of the Trust set forth in Section 2.03 hereof;
(xxxv) except as expressly provided in the Agreement, not knowingly perform any act that would subject (A) the EDC Holder to liabilities of the Trust in any jurisdiction or (B) the Trust to taxation as a corporation under relevant provisions of the Code;
(xxxvi) not combine, consolidate or merge the Trust into or with any other Person, convert the Trust into an entity that is not a Delaware statutory trust, reorganize or form the Trust in a jurisdiction other than Delaware or, to the fullest extent permitted by applicable law, dissolve, liquidate, wind‑up or transfer the ownership of substantially all of its assets;
(xxxvii) not enter into the Transaction Documents or any other agreement with any intent to hinder, delay or defraud creditors of any Person;
(xxxviii) not permit the Trust to be maintained or used to abuse creditors or to perpetrate a fraud, injury or injustice to creditors of any Person; and
(xxxix) cause any agents and other representatives of the Trust to act at all times with respect to the Trust in furtherance of the foregoing.
Notwithstanding any provision of this Agreement to the contrary, the Trust has full power and authority and is specifically authorized to execute, deliver and perform (and the Trustee, on behalf of the Trust, is hereby authorized to execute and deliver) the Trust Documents and all documents, agreements, certificates, financing statements and other writings, contemplated thereby or related thereto, all without any further act, vote, consent or approval of the Delaware Trustee, the EDC Holder or other Person whatsoever. The foregoing authorization shall not be deemed to conflict with or violate any restriction contained elsewhere in this Agreement on the powers of the Trust or the Trustee on behalf of the Trust to enter into any agreements or transactions.
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(c) None of the Trust, the Depositor, the EDC Holder, the Administrator or any Person on behalf of the Trust shall, and none of them shall have the authority to, enter into any agreements, written or otherwise (other than the obligations of the EDC Holder under Sections 3.03(f), 7.01(d), 7.01(i) and 8.04 hereof and under the other Transaction Documents), pursuant to which the EDC Holder or any of its Affiliates agrees to (i) extend credit or make loans, payments or contributions to or for the Trust, (ii) assume, guaranty or otherwise be obligated for the payment of the obligations or the performance of the Trust, (iii) hold itself out as being liable for the obligations of the Trust or (iv) hold out its credit as being available to satisfy the obligations of the Trust.
Section 2.04 Appointment of Trustee and Delaware Trustee. The Depositor hereby appoints the Trustee as trustee of the Trust, effective as of the date hereof, to have all the rights, powers and duties set forth herein and the Trustee accepts such appointment. The Depositor hereby appoints the Delaware Trustee as trustee of the Trust, effective as of the date hereof, for the sole purpose of satisfying Section 3807(a) of the Delaware Statutory Trust Act, and the Delaware Trustee hereby accepts such appointment.
Section 2.05 Initial Capital Contribution of Trust Estate. The Depositor hereby sells, assigns, transfers, conveys and sets over to the Trustee, as of the date hereof, the sum of $100.00. The Trustee hereby acknowledges receipt in trust from the Depositor, as of the date hereof, of the foregoing contribution, which constitutes the initial Trust Estate and shall be deposited in the Collection Account. The Depositor shall pay the organizational expenses of the Trust as they may arise or shall, upon the request of the Trustee, promptly reimburse the Trustee for any such expenses paid by the Trustee on behalf of the Trust.
Section 2.06 Declaration of Trust. The Trustee hereby declares that it will hold the Trust Estate in trust upon and subject to the conditions set forth herein for the benefit of the EDC Holder, subject to the obligations of the Trust under the other Trust Documents and the grant of the security interest to the Administrative Agent on behalf of the Secured Creditors. It is the intention of the parties hereto that (i) the Trust constitute a statutory trust under Delaware law, (ii) this Agreement constitute the governing instrument of such trust and (iii) the Excess Distribution Certificate represents the beneficial interests therein. Effective as of the date hereof, the Trustee and the Delaware Trustee, as applicable, shall have all the rights, powers and duties set forth herein and in the Delaware Statutory Trust Act with respect to accomplishing the purposes of the Trust.
Section 2.07 Liability of the EDC Holder. No EDC Holder (in such capacity) shall have any personal liability for any liability or obligation of the Trust. The rights of the EDC Holder shall be determined as set forth herein and in the Delaware Statutory Trust Act, and the relationship between the parties hereto created by this Agreement shall not constitute indebtedness for any purpose.
Section 2.08 Title to Trust Property. Legal title to all of the Trust Estate shall be vested at all times in the Trust as a separate legal entity except where applicable law in any jurisdiction
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requires title to any part of the Trust Estate to be transferred to and vested in a trustee or trustees, in which case title shall be deemed to be vested in the Trustee, a co‑trustee and/or a separate trustee, as the case may be; provided that legal title to the Pledged Personal Loans shall be vested at all times in the Trustee on behalf of the Trust. Any such trustee shall take such part of the Trust Estate subject to the security interest of the Administrative Agent on behalf of the Secured Creditors therein established under the Loan Agreement. Such trustee’s acceptance of its appointment shall constitute acknowledgement of such security interest and shall constitute a Grant to the Administrative Agent on behalf of the Secured Creditors of a security interest in all property held by such trustee. Any such trustee authorizes the Depositor to prepare and file all such financing statements naming such trustee as debtor that are necessary or advisable to perfect, make effective or continue the lien of the Administrative Agent on behalf of the Secured Creditors and which are in form and substance satisfactory to such trustee. In no event shall title to the Trust Estate be placed in the name of the Delaware Trustee.
Section 2.09 Representations, Warranties and Covenants of the Depositor. The Depositor hereby represents, warrants and covenants to the Trustee and the Delaware Trustee as follows:
(a) The Depositor is duly organized and validly existing as a Nebraska corporation in good standing under the laws of the State of Delaware, with power and authority to own its properties and to conduct its business as such properties are currently owned and such business is presently conducted.
(b) The Depositor has the power and authority to execute and deliver this Agreement and to carry out its terms; the Depositor has full power and authority to sell and assign the property to be sold and assigned to and deposited with the Trust (or with the Trustee on behalf of the Trust) and the Depositor has duly authorized such sale and assignment and deposit to the Trust (or to the Trustee on behalf of the Trust) by all necessary action; and the execution, delivery and performance of this Agreement has been duly authorized by the Depositor by all necessary action.
(c) This Agreement has been duly executed and delivered by the Depositor and constitutes a legal, valid and binding obligation of the Depositor enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization and similar laws relating to creditors’ rights generally and subject to general principles of equity.
(d) The consummation of the transactions contemplated by this Agreement and the fulfillment of the terms hereof do not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, the Articles of Incorporation or Bylaws of the Depositor, or any indenture, agreement or other instrument to which the Depositor is a party or by which it is bound; nor result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such indenture,
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agreement or other instrument (other than pursuant to the Trust Documents); nor violate any law or, to the Depositor’s knowledge, any order, rule or regulation applicable to the Depositor of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Depositor or its properties.
(e) The Depositor agrees for the benefit of the Administrative Agent, acting on behalf of the Lenders, and the EDC Holder that it will comply with each of the requirements set forth in its Articles of Incorporation or Bylaws.
Section 2.10 Intended Tax Characterization of the Trust. The parties intend that so long as the Trust is viewed as having only a single owner for federal income tax purposes (i) the Trust be classified pursuant to Treasury Regulations promulgated under Section 7701 of the Code as an entity that is disregarded as distinct from the EDC Holder, (ii) until the issuance of the Excess Distribution Certificate, the Depositor shall be treated as owning all assets owned by the Trust and having incurred all liabilities incurred by the Trust, (iii) upon the issuance of the Excess Distribution Certificate, the EDC Holder be treated as owning all assets owned by the Trust and having incurred all liabilities incurred by the Trust and (iv) that all transactions between the Trust and the EDC Holder be disregarded for tax purposes.
(1) If the Trust is ever viewed as having two or more beneficial or equity owners for federal income tax purposes (either because the Excess Distribution Certificate is treated as having more than one owner or the subordinated loans made to the Trust under the Revolving Credit Agreement are not respected as debt for tax purposes), the parties further intend that the Trust be classified as a partnership pursuant to Treasury Regulations promulgated under section 7701 of the Code and that all income, gain, loss and expense of the Trust be allocated among such beneficial/equity owners in accordance with the Treasury Regulations then applicable to entities classified as partnerships for tax purposes. At such time, this Agreement may be amended in accordance with Section 11.01 to include provisions, if any, necessary to provide for the maintenance of capital accounts, to allow for allocations that track as closely as possible the manner in which cash and other property have been and are to be distributed under the Loan Agreement and this Agreement and to designate a tax matters partner.
(a) It is further intended that the Trust and the subordinated loans made to the Trust under the Revolving Credit Agreement be classified for all state and local tax purposes in a manner that is consistent with the foregoing federal income tax characterizations unless and until otherwise required by an applicable state or local taxing authority.
(b) The EDC Holder, by its acceptance of the Excess Distribution Certificate issued hereunder, agrees to be bound by the foregoing intended tax characterizations and to take no
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action inconsistent with such characterizations unless and until otherwise required by an applicable tax authority. The EDC Holder agrees that if the Trust is ever required to file income tax returns or reports, to cause such returns and reports to be prepared in a manner that is consistent with the foregoing characterizations. Each of the Depositor, the Trustee, the Delaware Trustee and the EDC Holder agree that under no circumstances will they make an election on IRS Form 8832 or otherwise to classify the Trust as an association taxable as a corporation for federal, state or any other applicable tax purpose.
ARTICLE III 
EXCESS DISTRIBUTION CERTIFICATE
Section 3.01 Initial Beneficial Ownership. Upon the formation of the Trust by the contribution by the Depositor pursuant to Section 2.05 and until the issuance of the Excess Distribution Certificate, the Depositor shall be the sole beneficial owner of the Trust. Until the termination of the Loan Agreement, the Depositor shall not transfer, pledge or assign the Excess Distribution Certificate to any Person (i) without the prior written consent of the Administrative Agent and (ii) without the delivery by such transferee of an enforceability opinion with respect thereto and other corporate documentation and opinions reasonably requested by the Administrative Agent, each in form substantially similar to the documentation delivered by the Depositor on the Closing Date; provided, however, that notwithstanding anything to the contrary contained in this Agreement, the Loan Agreement or any other Transaction Document, the Depositor shall have no right to transfer, pledge or assign the Excess Distribution Certificate to Nelnet, Inc. or any other Affiliate that is or becomes a Seller under the Loan Sale Agreement.
Section 3.02 Corporate Trust Office. The Trustee initially designates 4243 Pioneer Woods Drive, Lincoln, NE 68506, Attention: Jim Smith, as its principal corporate trust office, at which it shall act as trustee of the Trust. The Delaware Trustee initially designates its office located at 300 Delaware Avenue, 9th Floor, Wilmington, DE 19801 Attn: Corporate Trust Administration / Nelnet Unsecured Personal Loan Warehouse Trust as its principal corporate trust office in Delaware.
Section 3.03 The Excess Distribution Certificate.
(a) General. The Excess Distribution Certificate shall be issued in one registered, definitive physical certificate substantially in the form of Exhibit A hereto. The EDC Holder shall receive payments as provided in Section 2.05(b) of the Loan Agreement. The Excess Distribution Certificate shall be executed on behalf of the Trust by manual or facsimile signature of a Responsible Officer of the Trustee.
(b) Authentication. Concurrently with the sale of initial Personal Loans to the Trust pursuant to the Loan Sale Agreement on the Closing Date, the Trustee shall cause the Excess Distribution Certificate to be executed on behalf of the Trust, authenticated and delivered to or
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upon the written order of the Depositor, signed by its Authorized Officer, without further action by the Depositor. For all purposes hereunder, the Depositor shall be the initial EDC Holder. No Excess Distribution Certificate shall entitle its holder to any benefit under this Agreement, or shall be valid for any purpose, unless there shall appear on such Excess Distribution Certificate a certificate of authentication substantially in the form set forth in Exhibit A, executed by a Responsible Officer of the Trustee by manual signature; such authentication shall constitute conclusive evidence that such Excess Distribution Certificate shall have been duly authenticated and delivered hereunder. The Excess Distribution Certificate shall be dated the date of its authentication. No further Excess Distribution Certificates shall be issued except upon any transfer or exchange from the Depositor to any Affiliate or from such Affiliate to any other Affiliate or in connection with its pledge to the Administrative Agent on behalf of the Secured Creditors.
(c) Registration of Transfer and Exchange. The Trustee shall be the Excess Distribution Certificate Registrar. The Excess Distribution Certificate Registrar shall keep or cause to be kept, at its office maintained pursuant to Section 3.02, an Excess Distribution Certificate Register in which, subject to such reasonable regulations as it may prescribe, the Trustee shall provide for the registration of the Excess Distribution Certificate and of transfers and exchanges of the Excess Distribution Certificate as herein provided.
Upon surrender for registration of transfer of the Excess Distribution Certificate at its office maintained pursuant to Section 3.02 and delivery thereof to the Trustee, together with a written direction to execute and authenticate, the Trustee shall execute, authenticate and deliver, in the name of the designated transferee, a new Excess Distribution Certificate dated the date of authentication by the Trustee or any authenticating agent. At the option of the EDC Holder, the Excess Distribution Certificate may be exchanged for another Excess Distribution Certificate upon surrender of the Excess Distribution Certificate to be exchanged at its office maintained pursuant to Section 3.02.
An Excess Distribution Certificate presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in form satisfactory to the Trustee and the Excess Distribution Certificate Registrar duly executed by the holder thereof or his attorney duly authorized in writing, with such signature guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company; provided, however, that any transfer or exchange from the Depositor to any Affiliate or from such Affiliate to any other Affiliate need not have such signature guaranteed. An Excess Distribution Certificate surrendered for registration of transfer or exchange shall be cancelled and subsequently disposed of by the Trustee in accordance with its customary practice.
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The preceding provisions of this Section notwithstanding, the Trustee shall not be required to make and the Excess Distribution Certificate Registrar need not register transfers or exchanges of the Excess Distribution Certificate for a period of fifteen (15) days preceding any Settlement Date with respect to the Excess Distribution Certificate.
(d) Taxes and Charges. No service charge shall be made for any registration of transfer or exchange of the Excess Distribution Certificate, but the Trustee or the Excess Distribution Certificate Registrar may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of the Excess Distribution Certificate.
(e) ERISA and Benefit Plans. The Excess Distribution Certificate (including any beneficial interest therein) may not be acquired directly or indirectly for, on behalf of or with the assets of (i) an employee benefit plan (as defined in Section 3(3) of ERISA) whether or not subject to the provisions of Title I of ERISA, a plan described in Section 4975(e)(1) of the Code or any entity whose underlying assets include plan assets by reason of a plan’s investment in the entity, (ii) any person who is not a United States person within the meaning of Section 7701(a)(30) of the Code or (iii) any “pass‑thru entity” referred to in Section 1(h)(10) of the Code, the income of which pass‑thru entity is includible directly or indirectly through one or more other such pass‑thru entities by any person referred to in clause (ii) above. By accepting and holding the Excess Distribution Certificate, the holder thereof shall be deemed to have represented and warranted that it is not acquiring the Excess Distribution Certificate by or for the account of any entity in violation of the above restrictions, and to have agreed that if such restrictions are violated, the holder will promptly dispose of the Excess Distribution Certificate.
(f) Mutilated, Destroyed, Lost or Stolen Excess Distribution Certificate. If (i) the mutilated Excess Distribution Certificate shall be surrendered to the Excess Distribution Certificate Registrar, or if the Excess Distribution Certificate Registrar shall receive evidence to its satisfaction of the destruction, loss or theft of the Excess Distribution Certificate, and (ii) there shall be delivered to the Excess Distribution Certificate Registrar and the Trustee such security or indemnity as may be required by them to save each of them and the Trust harmless, then in the absence of notice that such Excess Distribution Certificate shall have been acquired by a bona fide purchaser, the Trustee, on behalf of the Trust, shall execute and the Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Excess Distribution Certificate, a new Excess Distribution Certificate of like tenor. In connection with the issuance of any new Excess Distribution Certificate under this Section, the Trustee and the Excess Distribution Certificate Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Excess Distribution Certificate issued pursuant to this paragraph shall
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constitute conclusive evidence of ownership in the Trust, as if originally issued, whether or not the lost, stolen or destroyed Excess Distribution Certificate shall be found at any time.
(g) Persons Deemed Owners. Prior to due presentation of the Excess Distribution Certificate for registration of transfer, the Trustee and the Excess Distribution Certificate Registrar and any agent of either of them may treat the Person in whose name the Excess Distribution Certificate shall be registered in the Excess Distribution Certificate Register as the owner of such Excess Distribution Certificate for the purpose of receiving distributions thereon and for all other purposes whatsoever, and neither the Trustee, the Excess Distribution Certificate Registrar nor any agent thereof shall be bound by any notice to the contrary.
(h) [Reserved].
(i) Restrictions on Transfer of the Excess Distribution Certificate.
(i) The Excess Distribution Certificate has not been registered or qualified under the Securities Act of 1933, as amended (the “Securities Act”) or any state securities law. No transfer, sale, pledge or other disposition of the Excess Distribution Certificate or any interest therein shall be made unless such transfer is made pursuant to an exemption under the Securities Act.
(ii) The prospective transferee shall be aware that the Excess Distribution Certificate shall bear legends referring to the restrictions contained in sub‑clause (i) above and by its acceptance of the Excess Distribution Certificate agrees to abide by such restrictions.
(iii) The prospective transferee shall deliver an opinion of counsel addressed to the Trustee, the Administrator, the Administrative Agent, and, if it is not the proposed transferor, the Depositor, to the effect that, (1) as a matter of federal income tax law, such prospective transferee is permitted to accept the transfer of the Excess Distribution Certificate, (2) such transfer or pledge would not jeopardize the tax treatment of the Trust, (3) such transfer or pledge would not subject the Trust to any entity‑level tax, and (4) such pledge or transfer would not cause the Trust to be treated, for federal income tax purposes, as an association or a publicly traded partnership taxable as a corporation.
(iv) No pledge, purchase or transfer of the Excess Distribution Certificate shall be effective unless such pledge, purchase or transfer is to a single owner who shall be the registered EDC Holder. In addition, no pledge, purchase or transfer (or purported transfer) of the Excess Distribution Certificate shall be effective, and no person shall otherwise become an EDC Holder if after giving effect to such pledge, purchase or transfer (or purported transfer) the Trust would have more than 95 equity owners for federal income tax purposes. For purposes of determining whether the Trust will have
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more than 95 equity owners, each person indirectly owning an interest the Excess Distribution Certificate through a partnership (including an entity treated as a partnership for federal income tax purposes), a grantor trust or an S corporation (each such entity a “flow through entity”) shall be treated as a separate holder unless the Excess Distribution Certificate does not constitute substantially all of the value of the assets in such flow through entity.
ARTICLE IV 
ACTIONS BY TRUSTEE
Section 4.01 Prior Notice to the EDC Holder with Respect to Certain Matters. With respect to the following matters, the Trustee shall not take action unless at least five (5) days before the taking of such action, the Trustee shall have notified the EDC Holder in writing of the proposed action and the EDC Holder shall not have notified the Trustee in writing prior to the fifth calendar day after such notice is given that it has withheld consent or provided alternative direction:
(a) the initiation of any material claim or lawsuit by the Trust (except claims or lawsuits brought in connection with the collection of the Pledged Personal Loans) and the compromise of any material action, claim or lawsuit brought by or against the Trust (except with respect to the aforementioned claims or lawsuits for collection of Pledged Personal Loans); or
(b) the amendment of the Loan Agreement in circumstances where such amendment materially adversely affects the interests of the EDC Holder.
Section 4.02 Action with Respect to Sale of the Pledged Personal Loans. Except as expressly provided in the Trust Documents, the Trustee shall not have the power, except upon the written direction of the EDC Holder, to sell the Pledged Personal Loans.
Section 4.03 Action with Respect to Bankruptcy. The Trustee shall not have the power to commence a voluntary proceeding in bankruptcy relating to the Trust without the prior approval of the EDC Holder, acting with the unanimous consent of its Board of Directors, and the delivery to the Trustee by the EDC Holder of a certificate certifying that the EDC Holder reasonably believes that the Trust is insolvent; provided, however, that under no circumstances shall the Trustee commence or join in commencing such proceeding prior to the date that is one year and one day after the termination of the Trust; provided, further, that nothing herein shall be deemed to prohibit the Trustee from filing a claim in, or otherwise participating in, any bankruptcy proceeding filed against the Trust.
Section 4.04 Restrictions. Neither the Depositor nor the EDC Holder shall direct the Trustee to take or refrain from taking any action if such action or inaction would be contrary to any obligation of the Trust or the Trustee under this Agreement or any of the other Trust Documents (including, without limitation, the Trust’s obligations set forth in Section 6.01 of the
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Loan Agreement) or would be contrary to Sections 2.03 or 2.03A nor shall the Trustee be permitted to follow any such direction, if given.
ARTICLE V 
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
Section 5.01 Application of Trust Funds. On each Settlement Date, any amounts payable in respect of the Excess Distribution Certificate shall be paid to the EDC Holder in accordance with the Loan Agreement; provided, that after the Obligations under the Loan Agreement have been satisfied, all remaining assets of the Trust will be available for distribution to the EDC Holder.
(a) In the event that any withholding tax is imposed on any such payment to the EDC Holder, such tax shall reduce the amount otherwise distributable on the Excess Distribution Certificate.
Section 5.02 Method of Payment. Distributions made to the EDC Holder on any Settlement Date shall be made by wire transfer, in immediately available funds, to the account of such holder at a bank or other entity having appropriate facilities therefor as such holder shall have provided to the Trustee and the Account Bank at least five Business Days prior to such Settlement Date.
Section 5.03 No Segregation of Moneys; No Interest. Subject to Section 5.01, moneys received by the Trustee hereunder need not be segregated in any manner except to the extent required by law or any Trust Document and may be deposited under such general conditions as may be prescribed by law, and the Trustee shall not be liable for any interest thereon.
Section 5.04 Reports to the EDC Holder, the Internal Revenue Service and Others. The Trustee shall provide (or cause to be provided) any reports or other information required to be provided to the EDC Holder pursuant to the Code, the regulations promulgated thereunder or other applicable law. In addition, the Trustee shall provide (or cause to be provided) any information concerning the Excess Distribution Certificate to the Internal Revenue Service or other taxing authority as required under the Code, the Treasury Regulations or other applicable law.
ARTICLE VI 
AUTHORITY AND DUTIES OF TRUSTEE
Section 6.01 General Authority. The Trustee is authorized and directed to execute and deliver the Trust Documents to which the Trust is to be a party and each certificate or other document attached as an exhibit to or contemplated by the Trust Documents to which the Trust is to be a party and any amendment thereto, in each case, in such form as the Depositor shall approve as evidenced conclusively by the Trustee’s execution thereof. The Trustee is also authorized and directed on behalf of the Trust (i) to acquire and hold legal title to the Pledged
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Personal Loans from the Sellers under the Loan Sale Agreement and (ii) to take all actions required pursuant to the Loan Agreement.
In addition to the foregoing, the Trustee is authorized to take all actions required of the Trust pursuant to the Trust Documents. The Trustee is further authorized from time to time to take such action as the Administrator directs or instructs, in writing, with respect to the Trust Documents and is directed to take such action to the extent that the Administrator is expressly required pursuant to the Trust Documents to cause the Trustee to act.
Section 6.02 General Duties. It shall be the duty of the Trustee to discharge (or cause to be discharged) all of its responsibilities pursuant to the terms of this Agreement and the other Trust Documents to which the Trust is a party and to administer the Trust in the interest of the Administrative Agent, on behalf of the Lenders, and the EDC Holder subject to and in accordance with the provisions of this Agreement and the other Trust Documents. Without limiting the foregoing, the Trustee shall on behalf of the Trust file and prove any claim or claims that may exist on behalf of the Trust against the Depositor in connection with any claims paying procedure as part of an insolvency or a receivership proceeding involving the Depositor. Notwithstanding the foregoing, the Trustee shall be deemed to have discharged its duties and responsibilities hereunder and under the other Trust Documents to the extent the Administrator has agreed in the Administration Agreement to perform any act or to discharge any duty of the Trustee hereunder or under any other Trust Document, and the Trustee shall not be held liable for the default or failure of the Administrator to carry out its obligations under the Administration Agreement. Except as expressly provided in the Trust Documents, the Trustee shall have no obligation to administer, service or collect the Pledged Personal Loans or to maintain, monitor or otherwise supervise the administration, servicing or collection of the Pledged Personal Loans. The Trustee shall not be required to advance any funds against collections on the Pledged Personal Loans or to any party under any Transaction Document.
Section 6.03 Action upon Instruction. The Trustee shall not be required to take any action hereunder or under any other Trust Document if the Trustee shall have reasonably determined, or shall have been advised by counsel, that such action is likely to result in liability on the part of the Trustee or is contrary to the terms hereof, any other Trust Document or is otherwise contrary to law.
(a) Whenever the Trustee is unable to determine the appropriate course of action between alternative courses and actions permitted or required by the terms of this Agreement or under any other Trust Document, the Trustee shall promptly give notice (in such form as shall be appropriate under the circumstances) to the EDC Holder requiring instruction as to the course of action to be adopted, and to the extent the Trustee acts in good faith in accordance with any written instruction of the EDC Holder received, the Trustee shall not be liable on account of such action to any Person. If the Trustee shall not have received appropriate instruction within ten (10) days of such notice (or within such shorter period of time as reasonably may be specified
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in such notice or may be necessary under the circumstances) it may, but shall be under no duty to, take or refrain from taking such action, not inconsistent with this Agreement or the other Trust Documents, as it shall deem to be in the best interests of the EDC Holder, and shall have no liability to any Person for such action or inaction.
(b) In the event that the Trustee is unsure as to the application of any provision of this Agreement, or any other Trust Document, or any such provision is ambiguous as to its application, or is, or appears to be, in conflict with any other applicable provision, or in the event that this Agreement permits any determination by the Trustee or is silent or is incomplete as to the course of action that the Trustee is required to take with respect to a particular set of facts, the Trustee may give notice (in such form as shall be appropriate under the circumstances) to the EDC Holder requesting written instruction and, to the extent that the Trustee acts or refrains from acting in good faith in accordance with any such written instruction received, the Trustee shall not be liable, on account of such action or inaction, to any Person. If the Trustee shall not have received appropriate instruction within ten (10) days of such notice (or within such shorter period of time as reasonably may be specified in such notice or may be necessary under the circumstances) it may, but shall be under no duty to, take or refrain from taking such action, not inconsistent with this Agreement or the other Trust Documents, as it shall deem to be in the best interest of the EDC Holder, and shall have no liability to any Person for such action or inaction.
Section 6.04 No Duties Except as Specified in This Agreement or in Instructions. The Trustee shall not have any duty or obligation to manage, make any payment with respect to, register, record, sell, service, dispose of or otherwise deal with the Trust Estate, or to otherwise take or refrain from taking any action under, or in connection with, any document contemplated hereby to which the Trustee is a party, except as expressly provided by the terms of this Agreement, any other Trust Document or in any document or written instruction received by the Trustee pursuant to Section 6.03; and no implied duties or obligations shall be read into this Agreement or any other Trust Document against the Trustee. The Trustee shall have no responsibility for the preparation, correctness, accuracy, existence, validity or perfection of any financing statement or filing any financing or continuation statement in any public office at any time or to otherwise perfect or maintain the perfection of any security interest or lien granted to it hereunder or to record this Agreement or any other Trust Document. The Trustee nevertheless agrees that it will, at its own cost and expense, promptly take all action as may be necessary to discharge any Liens on any part of the Trust Estate that result from actions by, or claims against, UB&T, in its individual capacity or as the Trustee that are not related to the ownership or the administration of the Trust Estate.
Section 6.05 No Action Except Under Specified Documents or Instructions. The Trustee shall not manage, control, use, sell, dispose of or otherwise deal with any part of the Trust Estate except (i) in accordance with the powers granted to and the authority conferred upon the Trustee pursuant to this Agreement, (ii) in accordance with the other Trust Documents to
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which it is a party and (iii) in accordance with any document or instruction delivered to the Trustee pursuant to Section 6.03.
Section 6.06 Restrictions. The Trust shall act only through the Trustee or the Administrator (acting pursuant to the terms of the Administration Agreement). Neither the Trustee nor the Administrator shall take any action (a) that is inconsistent with the purposes of the Trust set forth in Section 2.03 of this Agreement or the other Trust Documents or the covenants regarding operations set forth in Section 2.03A of this Agreement, or (b) that, to the actual knowledge of the Trustee or the Administrator, would result in (i) the Trust becoming taxable as a corporation for federal income purposes, (ii) any subordinated loan made to the Trust under the Revolving Credit Agreement to be classified other than as debt for federal income tax purposes or (iii) the grant of consent on behalf of the Trust to any assignment of an interest in the Revolving Credit Agreement unless, to the extent that such assigned interest constituted equity in the Trust for federal income tax purposes, if such interest were treated as an interest in the Excess Distribution Certificate, such assignment would satisfy the restrictions on transfer of the Excess Distribution Certificate set forth in Section 3.03(i). Neither the Depositor nor the EDC Holder shall direct the Trustee or the Administrator to take action that would violate the provisions of this Section 6.06.
ARTICLE VII 
CONCERNING THE TRUSTEE AND THE DELAWARE TRUSTEE
Section 7.01 Acceptance of Trusts and Duties. Each of the Trustee and the Delaware Trustee accepts the trusts hereby created and agrees to perform its duties hereunder with respect to such trusts but only upon the terms of this Agreement. The Trustee also agrees to disburse or cause to be disbursed all moneys actually received by it constituting part of the Trust Estate upon the terms of this Agreement and the other Trust Documents. Neither the Trustee nor the Delaware Trustee shall be answerable or accountable hereunder or under any other Trust Document under any circumstances, except (i) for its own willful misconduct or gross negligence or (ii) in the case of the inaccuracy of any representation or warranty contained in Section 7.02 expressly made by the Trustee or the Delaware Trustee. In particular, but not by way of limitation (and subject to the exceptions set forth in the preceding sentence):
(a) neither the Trustee nor the Delaware Trustee shall be liable for any error of judgment made in good faith by an officer or employee of the Trustee or the Delaware Trustee;
(b) neither the Trustee nor the Delaware Trustee shall be liable with respect to any action taken or omitted to be taken in good faith by it in accordance with the direction or instructions of the Administrator, the Depositor or the EDC Holder;
(c) the recitals contained herein and in the Excess Distribution Certificate (other than the signature of the Trustee and the certificate of authentication on the Excess Distribution
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Certificate) shall be taken as statements of the Depositor, and neither the Trustee nor the Delaware Trustee shall have any responsibility for the correctness thereof;
(d) no provision of this Agreement or any other Trust Document shall require the Trustee or the Delaware Trustee to expend or risk funds or otherwise incur any financial liability in the performance of any of its rights or powers hereunder or under any other Trust Document, if the Trustee or the Delaware Trustee shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured or provided to it;
(e) under no circumstances shall the Trustee or the Delaware Trustee be liable for indebtedness evidenced by or arising under any of the Trust Documents;
(f) except for the representations and warranties included in Section 7.02, neither the Trustee nor the Delaware Trustee shall be responsible or personally liable for or in respect of the validity, enforceability or sufficiency of this Agreement or for the due execution hereof by the Depositor or for the form, character, genuineness, enforceability, sufficiency, accuracy, value or validity of any of the Trust Estate or for or in respect of the validity, enforceability or sufficiency of the Trust Documents, other than (in the case of the Trustee) the certificate of authentication on the Excess Distribution Certificate, and neither the Trustee nor the Delaware Trustee shall in any event assume or incur any liability, duty or obligation to the Administrative Agent or the EDC Holder, other than as expressly provided for herein and in the other Trust Documents;
(g) neither the Trustee nor the Delaware Trustee shall be responsible or personally liable for recording this Agreement or any other Trust Document, to prepare or file any financing or continuation statement in any public office at any time or otherwise to perfect or maintain the perfection of any ownership or security interest or lien or to prepare any tax, qualification to do business or securities law filing or report;
(h) neither the Trustee nor the Delaware Trustee shall be liable for, or have any duty to supervise or monitor, the action or inaction, default or misconduct of the Administrator, the Depositor, the Administrative Agent or the Servicer under any of the other Trust Documents or otherwise and the Trustee and the Delaware Trustee may assume performance by each of such parties absent written notice or actual knowledge of a Responsible Officer to the contrary, and neither the Trustee nor the Delaware Trustee shall have any obligation or liability to perform the obligations of the Trust under this Agreement or the other Trust Documents that are required to be performed by the Administrator under the Administration Agreement, the Administrative Agent under the Loan Agreement or the Servicer under the Servicing Agreement;
(i) neither the Trustee nor the Delaware Trustee shall be under any obligation to exercise any of the rights or powers vested in it by this Agreement, or to institute, conduct or
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defend any litigation under this Agreement or otherwise or in relation to this Agreement or any other Trust Document, at the request, order or direction of the Depositor or EDC Holder, unless the Depositor or such holder has offered to the Trustee or the Delaware Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities that may be incurred by the Trustee or the Delaware Trustee therein or thereby. The right of the Trustee or the Delaware Trustee to perform any discretionary act enumerated in this Agreement or in any other Trust Document shall not be construed as a duty, and neither the Trustee nor the Delaware Trustee shall be answerable for other than its gross negligence or willful misconduct in the performance of any such act;
(j) in no event shall the Trustee or the Delaware Trustee be responsible or liable for any failure or delay in the performance of its obligations hereunder arising out of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages, acts of war or terrorism, insurrection, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunction of utilities, communications, or computer services; it being understood that the Trustee or the Delaware Trustee shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance of their respective obligations as soon as practicable under the circumstances;
(k) in no event shall the Trustee or the Delaware Trustee be responsible or liable for any special, indirect, punitive, incidental or consequential loss or damage (including, without limitation, lost profits) of any kind whatsoever irrespective of whether the Trustee or the Delaware Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action;
(l) neither the Trustee nor the Delaware Trustee shall be deemed to have knowledge or notice of any event or information, including any Termination Event, or be required to act upon any event or information (including the sending of any notice), unless written notice of such event or information is received by a Responsible Officer and such notice references the event or information. Absent written notice in accordance with this Section, the Trustee and the Delaware Trustee may assume that no such event has occurred. Neither the Trustee nor the Delaware Trustee shall have any obligation to inquire into, or investigate as to, the occurrence of any such event (including any Termination Event). For purposes of determining the Trustee’s or the Delaware Trustee’s responsibility and liability hereunder, whenever reference is made in this Agreement to any event (including, but not limited to, a Termination Event), such reference shall be construed to refer only to such event of which the Trustee or the Delaware Trustee, as the case may be, has received written notice as described in this Section;
(m) the Trustee and the Delaware Trustee shall be entitled to rely conclusively on Officer’s Certificates provided by the Depositor, the Administrator or the Administrative Agent,
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as the case may be, to confirm compliance by the Trust with its covenants and obligations, but shall have no duty to request or otherwise monitor the delivery of such Officer’s Certificates; and
(n) in no event shall the Trustee or the Delaware Trustee have any responsibility to monitor compliance with or enforce compliance with Regulation RR or other rules or regulations, including relating to risk retention. Neither the Trustee nor the Delaware Trustee shall be charged with knowledge of such rules, nor shall it be liable to any Lender, the EDC Holder, the Depositor, the Servicer or other person for violation of such rules now or hereinafter in effect.
Section 7.02 Representations, Warranties and Covenants of the Trustee and the Delaware Trustee.  The Trustee hereby represents and warrants as of the date hereof to the Depositor, for the benefit of the Administrative Agent, the Lenders and the EDC Holder, that:
(i) It is duly organized and validly existing in good standing under the laws of its governing jurisdiction and has an office located within the State of Nebraska. It has all requisite banking power and authority to execute, deliver and perform its obligations under this Agreement.
(ii) It has taken all action necessary to authorize the execution and delivery by it of this Agreement, and this Agreement has been executed and delivered by one of its officers who is duly authorized to execute and deliver this Agreement on its behalf.
(iii) None of the execution or the delivery by it of this Agreement, the consummation by it of the transactions contemplated hereby or under any Trust Document to which it is a party, or compliance by it with any of the terms or provisions hereof or thereof will contravene any federal or New York state law, governmental rule or regulation governing the banking or trust powers of the Trustee or any judgment or order binding on it, or constitute any default under its charter documents or by‑laws.
(iv) This Agreement has been duly executed and delivered and constitutes the legal, valid and binding agreement of the Trustee, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, liquidation, or other similar laws affecting the enforcement of creditors’ rights generally, and by general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing (regardless of whether such enforceability is considered in a proceeding in equity or at law).
(b) The Delaware Trustee hereby represents and warrants as of the date hereof to the Depositor, for the benefit of the Administrative Agent, the Lenders and the EDC Holder, that:
(i) It is duly organized and validly existing in good standing under the laws of its governing jurisdiction and has an office located within the State of Delaware. It has
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all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement.
(ii) It has taken all corporate action necessary to authorize the execution and delivery by it of this Agreement, and this Agreement has been executed and delivered by one of its officers who is duly authorized to execute and deliver this Agreement on its behalf.
(iii) Neither the execution nor the delivery by it of this Agreement, nor the consummation by it of the transactions contemplated hereby nor compliance by it with any of the terms or provisions hereof will contravene any federal or Delaware state law, governmental rule or regulation governing the banking or trust powers of the Delaware Trustee or any judgment or order binding on it, or constitute any default under its charter documents or by‑laws.
(iv) This Agreement has been duly executed and delivered and constitutes the legal, valid and binding agreement of the Delaware Trustee, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditors’ rights in general and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law.
Section 7.03 Reliance; Advice of Counsel.  The Trustee and the Delaware Trustee shall incur no liability to anyone in acting upon any signature, instrument, direction, notice, resolution, request, consent, order, certificate, report, opinion, bond or other document or paper believed by it to be genuine and believed by it to be signed by the proper party or parties. The Trustee and the Delaware Trustee may request and conclusively rely upon an opinion of counsel. The Trustee and the Delaware Trustee may accept a certified copy of a resolution of the board of directors or other governing body of any corporate party as conclusive evidence that such resolution has been duly adopted by such body and that the same is in full force and effect. As to any fact or matter the method of the determination of which is not specifically prescribed herein, the Trustee and the Delaware Trustee may for all purposes hereof request and rely on a certificate, signed by the president or any vice president or by the treasurer or other Authorized Officers of the relevant party, as to such fact or matter and such certificate shall constitute full protection to the Trustee or the Delaware Trustee for any action taken or omitted to be taken by it in good faith in reliance thereon. Neither the Trustee nor the Delaware Trustee need investigate or re-calculate, evaluate, verify or independently determine the accuracy of any report, certificate, information, statement, representation or warranty or any fact or matter stated in such document and may conclusively rely as to the truth of the statements and the correctness of the opinions expressed therein.
(a) In the exercise or administration of the trusts hereunder and in the performance of its duties and obligations under this Agreement or the other Trust Documents, the Trustee and
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the Delaware Trustee (i) may act directly or through its agents or attorneys, at the expense of the Trust, pursuant to agreements entered into with any of them (and the Trustee and the Delaware Trustee shall not be liable for the conduct or misconduct of such agents or attorneys if such agents or attorneys shall have been selected by the Trustee or the Delaware Trustee, as the case may be, with due care) and (ii) may consult with counsel, experts and accountants, at the expense of the Trust, to be selected with due care and employed by it. Neither the Trustee nor the Delaware Trustee shall be liable for anything done, suffered or omitted in good faith by it in accordance with the advice or written opinion of any such counsel, experts or accountants and not contrary to this Agreement or any other Trust Document.
Section 7.04 Not Acting in Individual Capacity. Except as provided in this Article VII, in accepting the trusts hereby created each of UB&T and U.S. Bank Trust National Association is acting solely as Trustee and Delaware Trustee, respectively, hereunder and not in its individual capacity and all Persons having any claim against the Trustee or the Delaware Trustee by reason of the transactions contemplated by this Agreement or any other Trust Document shall look only to the Trust Estate for payment or satisfaction thereof.
Section 7.05 Trustee and Delaware Trustee Not Liable for Excess Distribution Certificate or Pledged Personal Loans. The recitals contained herein and in the Excess Distribution Certificate (other than the representations, warranties and covenants of the Trustee and the signature of and authentication by the Trustee on the Excess Distribution Certificate) shall be taken as the statements of the Depositor, and each of the Trustee and the Delaware Trustee assume no responsibility for the correctness thereof. The Trustee and the Delaware Trustee make no representations as to the validity or sufficiency of this Agreement, the Excess Distribution Certificate, any other Trust Document (other than in the case of the Trustee the signature of and authentication by the Trustee on the Excess Distribution Certificate) or any Pledged Personal Loan or related documents.
Neither the Trustee nor the Delaware Trustee shall at any time have any responsibility (or liability) for or with respect to the legality, validity, enforceability and eligibility of any Pledged Personal Loan, or for or with respect to the sufficiency of the Trust Estate or its ability to generate the payments to be distributed to the EDC Holder under this Agreement or the Lenders under the Loan Agreement, including (a) the existence and contents of any computer or other record of any Pledged Personal Loan, (b) the validity of the assignment of any Pledged Personal Loan to the Trustee on behalf of the Trust, (c) the completeness of any Pledged Personal Loan File (as defined in the Servicing Agreement), (d) the performance or enforcement (except as expressly set forth in any Trust Document) of any Pledged Personal Loan, (e) the enforceability of any Pledged Personal Loan, (f) the compliance by the Sellers under the Loan Sale Agreement or the Servicer with any warranty, representation or covenant made under any Trust Document or in any related document, or (g) the accuracy of any such warranty or representation or any action
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or inaction of the Administrator, the Administrative Agent or the Servicer taken in the name of the Trustee or the Delaware Trustee.
Section 7.06 Duties of the Delaware Trustee. The Delaware Trustee is appointed to serve as the trustee of the Trust in the State of Delaware for the sole purpose of satisfying the requirement of Section 3807(a) of the Delaware Statutory Trust Act that the Trust have at least one trustee with a principal place of business in Delaware. It is understood and agreed by the parties hereto that the Delaware Trustee shall have none of the duties or liabilities of the Trustee. The duties of the Delaware Trustee shall be limited to (a) accepting legal process served on the Trust in the State of Delaware and (b) the execution of any certificates required to be filed with the Secretary of State of the State of Delaware which the Delaware Trustee is required to execute under Section 3811 of the Delaware Statutory Trust Act. To the extent that, at law or in equity, the Delaware Trustee has duties (including fiduciary duties) and liabilities relating thereto with respect to the Trust, the beneficial owners thereof or any other person, it is hereby understood and agreed by the other parties hereto that such duties and liabilities will be replaced by the duties and liabilities of the Delaware Trustee expressly set forth in this Section 7.06. No implied duties (including fiduciary duties) or obligations shall be read into this Agreement or any Trust Document against the Delaware Trustee. The Delaware Trustee shall have all the rights, privileges and immunities (but none of the obligations) of the Trustee. In addition to the foregoing, the Delaware Trustee also hereby agrees to execute and deliver all amendments or supplements to this Agreement, delivered to it for execution pursuant to Section 11.01, if such amendment or supplement does not affect the rights, indemnities, immunities or duties of the Delaware Trustee. The Delaware Trustee shall not be liable for supervising or monitoring the performance and the duties and obligations of any other Person, including, without limitation, the Trustee or the Trust under this Agreement or any Trust Document and the Delaware Trustee shall have no liability for the acts or omissions of the Trustee, the Trust, the beneficial owners thereof or any other person.
ARTICLE VIII 
COMPENSATION AND INDEMNITY OF TRUSTEE AND DELAWARE TRUSTEE
Section 8.01 Trustee’s and Delaware Trustee’s Fees and Expenses. The Trustee and the Delaware Trustee shall receive as compensation for its services hereunder the Trustee Fees and the Delaware Trustee Fees, payable in accordance with Section 2.05(b) of the Loan Agreement or, to the extent not promptly paid by thereby, payable pursuant to Section 8.04. The Trustee and the Delaware Trustee shall be entitled to be reimbursed by the Trust for its other reasonable expenses (including the reasonable fees and expenses of counsel and independent accountants) hereunder, payable pursuant to Section 2.05(b) of the Loan Agreement, or, to the extent not promptly paid by thereby, payable pursuant to Section 8.04.
Section 8.02 Payments to the Trustee and to the Delaware Trustee. Any amounts paid to the Trustee or to the Delaware Trustee pursuant to Section 8.01 hereof or pursuant to Section 8
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of the Loan Sale Agreement, Section 4.02 of the Administration Agreement or Section 4.02 of the Servicing Agreement shall be deemed not to be a part of the Trust Estate immediately after such payment.
Section 8.03 Indemnity. The Trust agrees, to the fullest extent permitted by applicable law, to assume liability for, defend, indemnify and hold harmless the Trustee, in its individual capacity and in its capacity as Trustee, and the Delaware Trustee, in its individual capacity and in its capacity as Delaware Trustee, and their officers, directors, employees and agents from and against any and all liabilities, obligations, losses, damages, taxes, claims, actions, suits, costs, expenses, taxes, penalties and disbursements (including reasonable fees and expenses of its accountants, experts and counsel, including without limitation, any legal fees, costs and expenses in connection with enforcing (including any action, claim or suit brought) its rights to indemnity hereunder) of any kind and nature whatsoever which may be imposed on, incurred by or asserted at any time against the Trustee, in its individual capacity and in its capacity as Trustee, or the Delaware Trustee, in its individual capacity and in its capacity as Delaware Trustee, and their officers, directors, employees and agents in any way relating to or arising out of the Trust Estate, any of the properties included therein, the acceptance, creation, operation, termination or administration of the Trust Estate or the Trust or any action or inaction of the Trustee, the Delaware Trustee or the Trust hereunder or under the Transaction Documents or any other agreement contemplated by any of the foregoing or any certificate of the EDC Holder, except only that the Trust shall not be required so to assume liability for, or to indemnify any of the foregoing Persons with respect to such Person’s gross negligence or willful misconduct and provided that the Trust, the Trustee and the Delaware Trustee agree that such assumption of liability for liabilities, obligations, losses, damages, taxes, claims, actions, costs, expenses, penalties or disbursements of any kind shall be direct and primary and not that of a guarantor. If any item assumed by the Trust under this Section is also subject to indemnification by another party to any of the documents specifically referenced herein (other than Section 8.04 hereof), the Trustee or the Delaware Trustee shall first make demand on such party for indemnification of any such item but shall not be obligated to exhaust its remedies thereunder. The indemnities contained in this Section shall survive the resignation or removal of the Trustee or the Delaware Trustee and shall survive the termination of the Trust and this Agreement. Such indemnification and reimbursement shall be paid solely from amounts made available pursuant to Section 2.05(b) of the Loan Agreement.
Section 8.04 EDC Holder to Assume Liability. To the extent the following amounts required to be paid hereunder to the Trustee or the Delaware Trustee are not paid pursuant to Sections 8.01 or 8.03 hereof and to the fullest extent permitted by applicable law, the EDC Holder shall pay or cause to be paid (or reimburse the Trustee or the Delaware Trustee, as applicable, for) (a) all reasonable fees and expenses of the Trustee and the Delaware Trustee, as applicable, hereunder, including, without limitation, the reasonable compensation, expenses and disbursements of such agents, representatives, accountants, experts and counsel as the Trustee
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and the Delaware Trustee, as applicable, may employ in connection with the exercise and performance of its rights and duties under this Agreement, the Transaction Documents or any other agreement contemplated by any of the foregoing, whether or not the transactions contemplated hereby and thereby are consummated and (b) all amounts required to be paid by Sections 8.01 or 8.03 hereof and not paid by the Trust. The liabilities and indemnities contained in this Section are for the benefit of the Trustee and the Delaware Trustee, as applicable, each in its individual capacity and its officers, directors and employees and shall not be construed as imposing any liabilities on the EDC Holder or any Affiliate thereof for any expense or liability of the Trust to third parties. Except as expressly provided in this Section and in Sections 3.03(f), 7.01(d) and 7.01(i) hereof, the EDC Holder shall not have any liabilities for the expenses and liabilities of the Trust and all such expenses and liabilities are special limited obligations of the Trust payable solely from the Trust Estate.
ARTICLE IX 
TERMINATION OF TRUST AGREEMENT
Section 9.01 Termination of Trust Agreement. This Agreement (other than Article VIII) and the Trust shall terminate and be of no further force or effect upon (i) the final distribution of all moneys or other property or proceeds of the Trust Estate in accordance with the terms of the Loan Agreement and Article V of this Agreement and (ii) the filing of the certificate of cancellation by the Trustee pursuant to Section 9.01(c) below. The bankruptcy, liquidation, dissolution, death or incapacity of the EDC Holder shall not (x) operate to terminate this Agreement or the Trust, (y) entitle such holder’s legal representatives or heirs to claim an accounting or to take any action or proceeding in any court for a partition or winding up of all or any part of the Trust or Trust Estate or (z) otherwise affect the rights, obligations and liabilities of the parties hereto.
(a) Except as provided in Section 9.01(a), none of the Depositor, the Administrative Agent, the Lenders or the EDC Holder shall be entitled to revoke or terminate the Trust.
(b) Upon final distribution of any funds remaining in the Trust, the Trustee shall file a certificate of cancellation (to be prepared by the Administrator) of the Trust’s certificate of trust pursuant to Section 3810(c) of the Delaware Statutory Trust Act and shall give notice thereof to the Delaware Trustee.
ARTICLE X 
SUCCESSOR TRUSTEES AND DELAWARE TRUSTEES AND ADDITIONAL TRUSTEES AND DELAWARE TRUSTEES
Section 10.01 Eligibility Requirements for Trustee and Delaware Trustee. The Trustee (other than UB&T, as initial Trustee) shall at all times be a corporation or association (i) being
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authorized to exercise corporate trust powers and hold legal title to the Pledged Personal Loans; (ii) having a combined capital and surplus of at least $50,000,000 and being subject to supervision or examination by Federal or state authorities; (iii) having a place of business in the State of New York and (iv) having (or having a parent which has) a rating in respect of its long‑term senior unsecured debt of at least “BBB‑“ (or the equivalent) by each of the Rating Agencies. If the Trustee shall publish reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purpose of this Section, the combined capital and surplus of the Trustee shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Delaware Trustee shall at all times be a bank or trust company satisfying the provisions of Section 3807(a) of the Delaware Statutory Trust Act. In case at any time the Trustee or the Delaware Trustee, as the case may be, shall cease to be eligible in accordance with the provisions of this Section, the Trustee or the Delaware Trustee, as the case may be, shall resign immediately in the manner and with the effect specified in Section 10.02.
Section 10.02 Resignation or Removal of Trustee or the Delaware Trustee. The Trustee or the Delaware Trustee, as the case may be, may at any time resign and be discharged from the trusts hereby created by giving thirty (30) days’ written notice thereof to the Administrator. Upon receiving such notice of resignation, the Administrator shall, with the consent of the Administrative Agent (which consent shall not be unreasonably withheld, conditioned or delayed), promptly appoint a successor Trustee or Delaware Trustee, as applicable, meeting the eligibility requirements of Section 10.01 by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee or Delaware Trustee and one copy to the successor Trustee or Delaware Trustee. If no successor Trustee or Delaware Trustee shall have been so appointed and have accepted appointment within thirty (30) days after the giving of such notice of resignation, the resigning Trustee or Delaware Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee or Delaware Trustee; provided, however, that such right to appoint or to petition for the appointment of any such successor shall in no event relieve the resigning Trustee or Delaware Trustee from any obligations otherwise imposed on it under the Trust Documents until such successor has in fact assumed such appointment.
If at any time the Trustee or the Delaware Trustee shall cease to be or shall be likely to cease to be eligible in accordance with the provisions of Section 10.01 and shall fail to resign after written request therefor by the Administrator, or if at any time an Event of Bankruptcy with respect to the Trustee or the Delaware Trustee shall have occurred and be continuing, then the Administrator may remove the Trustee or the Delaware Trustee. If the Administrator shall remove the Trustee or the Delaware Trustee, as the case may be, under the authority of the immediately preceding sentence, the Administrator shall promptly appoint a successor Trustee or Delaware Trustee, as applicable, by written instrument, in duplicate, one copy of which
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instrument shall be delivered to the outgoing Trustee or Delaware Trustee so removed and one copy to the successor Trustee or Delaware Trustee, as applicable.
Any resignation or removal of the Trustee or the Delaware Trustee, as applicable, and appointment of a successor Trustee or Delaware Trustee, as applicable, pursuant to any of the provisions of this Section 10.02 shall not become effective until acceptance of appointment by the successor Trustee or Delaware Trustee, as applicable, pursuant to Section 10.03, payment of all fees and expenses owed to the outgoing Trustee or the Delaware Trustee, as applicable, and the filing of a certificate of amendment to the Trust’s certificate of trust pursuant to Section 3810(b) of the Delaware Statutory Trust Act. The Administrator shall provide notice of such resignation or removal of the Trustee or the Delaware Trustee, as applicable, to the EDC Holder and the Administrative Agent.
Section 10.03 Successor Trustee or Delaware Trustee. Any successor Trustee or Delaware Trustee, as applicable, appointed pursuant to Section 10.02 shall execute, acknowledge and deliver to the Administrator and to its predecessor Trustee or Delaware Trustee, as applicable, an instrument accepting such appointment under this Agreement, and thereupon the resignation or removal of the predecessor Trustee or Delaware Trustee, as applicable, shall become effective and such successor Trustee or Delaware Trustee, as applicable, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor under this Agreement, with like effect as if originally named as Trustee or Delaware Trustee, as applicable. The predecessor Trustee or Delaware Trustee, as applicable, shall upon payment to it of its fees and expenses deliver to the successor Trustee or Delaware Trustee, as applicable, all documents, statements, moneys and properties held by it under this Agreement; and the Administrator and the predecessor Trustee or Delaware Trustee, as applicable, shall execute and deliver such instruments and do such other things as may reasonably be required for fully and certainly vesting and confirming in the successor Trustee or Delaware Trustee, as applicable, all such rights, powers, duties and obligations.
No successor Trustee or Delaware Trustee, as applicable, shall accept such appointment as provided in this Section unless, at the time of such acceptance, such successor Trustee or Delaware Trustee, as applicable, shall be eligible pursuant to Section 10.01.
Upon acceptance of appointment by a successor Trustee or Delaware Trustee, as applicable, pursuant to this Section, the Administrator shall mail notice of the successor of such Trustee or Delaware Trustee, as applicable, to the EDC Holder and the Administrative Agent. If the Administrator shall fail to mail such notice within ten days after acceptance of appointment by the successor Trustee or Delaware Trustee, as applicable, the successor Trustee or Delaware Trustee, as applicable, shall cause such notice to be mailed at the expense of the Administrator.
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Any successor Delaware Trustee appointed pursuant to this Section 10.03 shall promptly file an amendment to the certificate of trust with the Secretary of State identifying the name and principal place of business of such successor Delaware Trustee in the State of Delaware.
Section 10.04 Merger or Consolidation of Trustee or Delaware Trustee. Any corporation or association into which the Trustee or the Delaware Trustee, as applicable, may be merged or converted or with which it may be consolidated, or any corporation or association resulting from any merger, conversion or consolidation to which the Trustee or the Delaware Trustee, as applicable, shall be a party, or any corporation or association succeeding to all or substantially all the corporate trust business of the Trustee or the Delaware Trustee, as applicable, shall, without the execution or filing of any instrument or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding, be the successor of the Trustee or the Delaware Trustee, as applicable, hereunder; provided that such corporation or association shall be eligible pursuant to Section 10.01; and provided, further, that the Trustee or the Delaware Trustee, as applicable, shall mail notice of such merger or consolidation to the Administrative Agent not less than fifteen (15) days prior to the effective date thereof and the Delaware Trustee shall file an amendment to the certificate of trust as required under the Delaware Statutory Trust Act.
Section 10.05 Appointment of Co-Trustee or Separate Trustee. Notwithstanding any other provisions of this Agreement, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust Estate may at the time be located, the Administrator and the Trustee acting jointly shall have the power and shall execute and deliver all instruments to appoint one or more Persons approved by the Trustee, meeting the eligibility requirements of clauses (i) through (iii) of the first sentence of Section 10.01, to act as co‑trustee, jointly with the Trustee, or separate trustee or separate trustees, of all or any part of the Trust Estate, and to vest in such Person, in such capacity, such title to the Trust Estate, or any part thereof, and, subject to the other provisions of this Section, such powers, duties, obligations, rights and trusts as the Administrator and the Trustee may consider necessary or desirable. If the Administrator shall not have joined in such appointment within fifteen (15) days after the receipt by it of a request so to do, the Trustee alone shall have the power to make such appointment. No co‑trustee or separate trustee under this Agreement shall be required to meet the terms of eligibility as a successor trustee pursuant to clauses (i) or (iii) of Section 10.01 and no notice of the appointment of any co‑trustee or separate trustee shall be required pursuant to Section 10.03.
Each separate trustee and co‑trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions:
(i) all rights, powers, duties, and obligations conferred or imposed upon the Trustee shall be conferred upon and exercised or performed by the Trustee and such separate trustee or co‑trustee jointly (it being understood that such separate trustee or
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co‑trustee is not authorized to act separately without the Trustee joining in such act), except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed, the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties, and obligations (including the holding of title to the Trust or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co‑trustee, solely at the written direction of the Trustee;
(ii) no trustee under this Agreement shall be personally liable by reason of any act or omission of any other trustee under this Agreement; and
(iii) the Administrator and the Trustee acting jointly may at any time accept the resignation of or remove any separate trustee or co‑trustee.
Any notice, request or other writing given to the Trustee shall be deemed to have been given to each of the then separate trustees and co‑trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co‑trustee shall refer to this Agreement and the conditions of this Article. Each separate trustee and co‑trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Trustee or separately, as may be provided therein, subject to all the provisions of this Agreement, specifically including every provision of this Agreement relating to the conduct of, affecting the liability of, or affording protection to, the Trustee. Each such instrument shall be filed with the Trustee and a copy thereof given to the Administrator.
Any separate trustee or co‑trustee may at any time appoint the Trustee as its agent or attorney‑in‑fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Agreement on its behalf and in its name. If any separate trustee or co‑trustee shall die, become incapable of acting, resign or be removed, all its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a new or successor trustee.
ARTICLE XI 
MISCELLANEOUS
Section 11.01 Supplements, Amendments and Waivers. Any provision of this Agreement may be supplemented, amended or waived if, but only if, such supplement, amendment or waiver is in writing and, in the case of a supplement or an amendment, is signed by the EDC Holder, the Trustee and the Delaware Trustee, with the prior written consent of the Administrative Agent on behalf of the Secured Creditors (which consent shall not be unreasonably withheld, conditioned or delayed) and, in the case of a waiver, is signed by the
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party (or parties, as applicable) granting the waiver and then such waiver shall be effective only in the specific instance and for the specific purpose for which given. To the extent the consent of any of the parties hereto is required under this Agreement, the determination as to whether to grant or withhold such consent shall be made by such party in its sole discretion without any implied duty toward any other Person, except as otherwise expressly provided herein. Notwithstanding anything herein to the contrary, no provision of this Agreement may be supplemented, amended or waived if such supplement, amendment or waiver will cause the Trust to be treated, for federal income tax purposes, as an association or a publicly traded partnership taxable as a corporation.
Prior to the execution of any amendment to this Agreement, the Trustee, the Delaware Trustee and the Administrative Agent, on behalf of the Secured Creditors, shall be entitled to receive and rely upon an opinion of counsel from the Depositor stating that (i) the execution of such amendment is authorized or permitted by this Agreement and (ii) in the opinion of such counsel all conditions precedent in connection with such amendment, if any, have been complied with. The Trustee, the Delaware Trustee and the Administrative Agent, on behalf of the Secured Creditors, may, but shall not be obligated to enter into any such amendment which affects the Trustee’s or the Administrative Agent’s, on behalf of the Secured Creditors, as applicable, own rights, duties or immunities under this Agreement or otherwise. No amendment pursuant to this Section 11.01 shall be effective which affects the rights, duties, indemnities or immunities of the Trustee, the Delaware Trustee or the Administrative Agent, on behalf of the Secured Creditors, without the prior written consent of such affected party.
Section 11.02 No Legal Title to Trust Estate in the EDC Holder. The EDC Holder shall not have legal title to any part of the Trust Estate. The EDC Holder shall be entitled to receive distributions with respect to its undivided beneficial ownership interest therein only in accordance with Section 3.03 of this Agreement. No transfer, by operation of law or otherwise, of any right, title, or interest of the EDC Holder to and in its beneficial ownership interest in the Trust Estate shall operate to terminate this Agreement or the trusts hereunder or entitle any transferee to an accounting or to the transfer to it of legal title to any part of the Trust Estate.
Section 11.03 Limitations on Rights of Others. Except for Section 2.07, the provisions of this Agreement are solely for the benefit of the Trustee, the Delaware Trustee, the Depositor, the EDC Holder, the Administrator, and, to the extent expressly provided herein, the Administrative Agent and the Lenders, and nothing in this Agreement, whether express or implied, shall be construed to give to any other Person any legal or equitable right, remedy or claim in the Trust Estate or under this Agreement or any covenants, conditions or provisions contained herein.
Section 11.04 Restrictions on the Depositor. The Depositor, if it is also the EDC Holder, will not merge or consolidate with another entity except with respect to transactions (i) with respect to which the Depositor is the surviving entity, (ii) after which the Depositor maintains the
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same Articles of Incorporation and Bylaws and (iii) that do not cause the Depositor to become liable for any additional material liabilities.
Section 11.05 Notices. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including communication by facsimile copy or other electronic means) and mailed, delivered by nationally recognized overnight courier service, transmitted or delivered by hand, if to the Delaware Trustee, to 300 Delaware Avenue, 9th Floor, Wilmington, DE 19801, Attn: Nelnet Unsecured Personal Loan Warehouse Trust, with a copy to 1 Federal Street, EX-MA-FED, Boston, MA 02110, Attn: GSF-Nelnet Unsecured Personal Loan Warehouse Trust and with respect to each other party hereto, at its address as specified in the Loan Agreement or at such other address as shall be designated by such party in a written notice to the other parties hereto; provided, however, that each notice to the Trust shall be delivered to Nelnet Unsecured Personal Loan Warehouse Trust, c/o National Education Loan Network, Inc., as Administrator, with a copy to the Trustee at its address provided for in the Loan Agreement. Each such notice, request or other communication shall be effective (i) if given by facsimile, when such facsimile is transmitted to the specified facsimile number and an appropriate confirmation is received, (ii) if given by email, when sent to the specified email address and an appropriate confirmation is received, (iii) if given by mail, five (5) days after being deposited in the United States mail, first class postage prepaid, (iv) if given by a nationally recognized courier guaranteeing overnight delivery, the Business Day following such day after such communication is delivered to such courier or (v) if given by any other means, when delivered at the address specified in this Section. Notwithstanding the foregoing, any recipient may designate what it deems to be appropriate confirmation and that notification by e-mail to it shall not be effective without such confirmation.
(a) The Depositor shall make available to the Trustee (i) as soon as possible, and in any event within ninety (90) days after the end of each fiscal year of the Depositor (or an affiliate of the Depositor), audited financials of the Depositor (or an affiliate of the Depositor) as at the end of and for such fiscal year and (ii) as soon as possible, and in any event within forty-five (45) days after the end of each quarterly accounting period of the Depositor (or an affiliate of the Depositor), unaudited financials of the Depositor (or an affiliate of the Depositor) as at the end of and for such period.
Section 11.06 No Waivers; Remedies. No failure or delay by any party hereto in exercising any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.
Section 11.07 Successors and Assigns. All covenants and agreements contained herein shall be binding upon and inure to the benefit of the Depositor and its successors, the Trustee and its successors, the Delaware Trustee and its successors, each EDC Holder and its successors and
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permitted assigns, all as herein provided. Any request, notice, direction, consent, waiver or other instrument or action by the Lenders or the EDC Holder shall bind the successors and assigns of such holder.
Section 11.08 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICTS OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 11.09 Severability. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.
Section 11.10 Waiver of Jury Trial. Each of the parties hereto hereby waives any right to have a jury participate in resolving any dispute, whether sounding in contract, tort or otherwise, among any of them arising out of, connected with, relating to or incidental to the relationship between them in connection with this Agreement or other Transaction Documents.
Section 11.11 Bankruptcy Non-Petition and Limited Recourse. The Trustee (not in its individual capacity but solely as Trustee), by entering into this Agreement, the Delaware Trustee (not in its individual capacity but solely as Delaware Trustee), by entering into this Agreement, the EDC Holder (as evidenced by its acceptance of the Excess Distribution Certificate) and the Administrative Agent by accepting the benefits of this Agreement, hereby covenant and agree that they will not, prior to the date which is one year and one day (or, if longer, any applicable preference period plus one day) after termination of this Agreement and payment in full of the Aggregate Loan Balance and all other Obligations of the Trust, institute against, or join any other Person in instituting against, the Trust or the Depositor any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or any similar proceeding under any federal or state bankruptcy or similar law; provided, that nothing in this provision shall preclude or be deemed to stop any party hereto (a) from taking any action prior to the expiration of the aforementioned one year and one day period in (i) any case or proceeding voluntarily filed or commenced by the Trust or the Depositor or (ii) any involuntary insolvency proceeding filed or commenced against the Trust or the Depositor by a Person other than any other party hereto or (b) from commencing against the Trust or the Depositor or the Pledged Collateral any legal action which is not a bankruptcy, reorganization, arrangement, insolvency or a liquidation proceeding. The obligations of the Trust are limited recourse obligations payable solely from the Pledged Collateral and, following realization of the Pledged Collateral and its application in accordance with the terms of the Loan Agreement, any outstanding obligations of the Trust shall be extinguished and shall not thereafter revive. In addition, no recourse shall be had for any amounts payable or any other obligations arising under the Transaction Documents against any officer, member, director, employee, partner or security holder of the Trust or the Depositor or
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any of their successors or assigns. The foregoing shall not limit the rights of the Trustee or the Delaware Trustee, respectively, to file any claim in, or otherwise take any action with respect to, any insolvency proceeding that was instituted against the Trust by a Person other than the Trustee or the Delaware Trustee, respectively.
Section 11.12 No Recourse. Each EDC Holder by accepting the Excess Distribution Certificate acknowledges that such holder’s Excess Distribution Certificate represents beneficial interests in the Trust only and does not represent interests in or obligations of the Depositor, the Servicer, the Administrator, the Trustee, the Delaware Trustee, the Administrative Agent or any Affiliate thereof or any officer, director or employee of any thereof and no recourse may be had against such parties or their assets, except as may be expressly set forth or contemplated in this Agreement, the Excess Distribution Certificate or the other Trust Documents.
Section 11.13 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery by facsimile or electronic mail of an executed signature page of this Agreement shall be effective as delivery of an executed counterpart hereof.
Section 11.14 Entire Agreement. This Agreement, including all Exhibits, Schedules and Appendices and other documents attached hereto or incorporated by reference herein, together with the other Transaction Documents, constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all other negotiations, understandings and representations, oral or written, with respect to the subject matter hereof.
Section 11.15 Limitation of Liability. No claim may be made by any party hereto or any other Person against any other party hereto or their affiliates, directors, officers, employees, attorneys or agents for any special, indirect, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement or any act, omission or event occurring in connection therewith; and each party hereto hereby waives, releases and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.
Section 11.16 Section Titles. The section titles contained in this Agreement shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties.
Section 11.17 Force Majeure. In no event shall the Trustee or the Delaware Trustee be liable for any failure or delay in the performance of its obligations hereunder because of circumstances beyond their control, including but not limited to, acts of God, flood, war (whether declared or undeclared), terrorism, fire, riot, government action, including any laws, ordinances, regulations, government action or the like which delay, restrict or prohibit the providing of the services contemplated by this Agreement; it being understood that the Trustee and the Delaware Trustee shall use reasonable efforts which are consistent with accepted practices in the banking
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industry to resume performance of their obligations hereunder as soon as practicable under the circumstances.
Section 11.18 Patriot Act Compliance. In order to comply with laws, rules, regulations and executive orders in effect from time to time applicable to banking institutions, including, without limitation, those relating to the funding of terrorist activities and money laundering, including Section 326 of the USA Patriot Act of the United States (“Relevant Law”), each of UB&T and U.S. Bank Trust National Association is required to obtain, verify, record and update certain information relating to individuals and entities which maintain a business relationship with UB&T and U.S. Bank Trust National Association. Accordingly, each of the parties agrees to provide to UB&T and U.S. Bank Trust National Association upon its request from time to time such identifying information and documentation as may be available in order to enable UB&T and U.S. Bank Trust National Association to comply with Relevant Law.
Section 11.19 Survival. The provisions of this Article XI shall be continuing and shall survive the termination of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated Trust Agreement to be duly executed and delivered as of the date first above written.

NELNET PRIVATE STUDENT LOAN FINANCING CORPORATION,
as the Depositor and as the initial EDC Holder



By: /s/ Thomas G. McCurley
Name: Thomas G. McCurley
Title: Secretary



UNION BANK AND TRUST COMPANY,
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as Trustee



By: /s/ Jon Gross
Name: Jon Gross
Title: SVP



U.S. BANK TRUST NATIONAL ASSOCIATION, as Delaware Trustee



By: /s/ Maryellen Hunter
Name: Maryellen Hunter
Title: Vice President




[SIGNATURE PAGE TO AMENDED AND RESTATED TRUST AGREEMENT]



NATIONAL EDUCATION LOAN NETWORK, INC., as Administrator



By: /s/ James D. Kruger
Name: James D. Kruger
Title: Treasurer

[SIGNATURE PAGE TO AMENDED AND RESTATED TRUST AGREEMENT]



Acknowledged and Agreed
with respect to Section 3.03(c):
ROYAL BANK OF CANADA,
as Administrative Agent

By: /s/ Thomas C. Dean
Name: Thomas C. Dean
Title: Authorized Signatory


[SIGNATURE PAGE TO AMENDED AND RESTATED TRUST AGREEMENT]



EXHIBIT A
TO THE TRUST AGREEMENT
[FORM OF EXCESS DISTRIBUTION CERTIFICATE]
[SEE REVERSE FOR CERTAIN DEFINITIONS]
NO. [__] 100% PERCENTAGE INTEREST
THIS EXCESS DISTRIBUTION CERTIFICATE DOES NOT EVIDENCE AN OBLIGATION OF, OR AN INTEREST IN, AND IS NOT GUARANTEED BY THE DEPOSITOR, THE TRUSTEE, THE DELAWARE TRUSTEE, THE SERVICER, THE ADMINISTRATIVE AGENT, THE ADMINISTRATOR OR ANY OF THEIR RESPECTIVE AFFILIATES OR ASSIGNEES. THIS EXCESS DISTRIBUTION CERTIFICATE IS NOT INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY ANY PRIVATE INSURER.
THIS EXCESS DISTRIBUTION CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”). THE HOLDER HEREOF, BY PURCHASING THIS CERTIFICATE, AGREES FOR THE BENEFIT OF THE TRUST THAT THIS CERTIFICATE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (I) TO A PERSON WHOM THE TRANSFEROR REASONABLY BELIEVES IS AN INSTITUTIONAL ACCREDITED INVESTOR TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR TRANSFER IS BEING MADE IN RELIANCE ON REGULATION D, AND IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION OR (II) TO A PERSON IN A TRANSACTION THAT IS REGISTERED UNDER THE SECURITIES ACT OR THAT IS OTHERWISE EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THE HOLDER HEREOF, BY ACQUIRING THIS EXCESS DISTRIBUTION CERTIFICATE, REPRESENTS AND AGREES FOR THE BENEFIT OF THE DEPOSITOR, THE ADMINISTRATOR, THE ADMINISTRATIVE AGENT AND THE TRUSTEE THAT: IT IS AN INSTITUTIONAL ACCREDITED INVESTOR (AS DEFINED IN RULE 501(A)(1)‑(3) AND (7) OF REGULATION D UNDER THE SECURITIES ACT) OR AN ENTITY IN WHICH ALL THE EQUITY OWNERS COME WITHIN SUCH PARAGRAPHS; ITS ACQUISITION OF THIS EXCESS DISTRIBUTION CERTIFICATE IS OTHERWISE EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND IT IS HOLDING THIS EXCESS DISTRIBUTION CERTIFICATE FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION.
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NO TRANSFER OF THIS EXCESS DISTRIBUTION CERTIFICATE WILL BE REGISTERED UNLESS THERE IS PROVIDED A REPRESENTATION SATISFACTORY TO THE TRUSTEE THAT THIS EXCESS DISTRIBUTION CERTIFICATE IS NOT BEING ACQUIRED DIRECTLY OR INDIRECTLY FOR, ON BEHALF OF OR WITH THE ASSETS OF, AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”)) WHETHER OR NOT SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA, A PLAN DESCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN’S INVESTMENT IN THE ENTITY.
THIS EXCESS DISTRIBUTION CERTIFICATE MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT IN ACCORDANCE WITH SECTION 3.03(I) OF THE TRUST AGREEMENT (AS DEFINED BELOW).
THIS EXCESS DISTRIBUTION CERTIFICATE MAY NOT BE TRANSFERRED WITHOUT THE PRIOR WRITTEN CONSENT OF THE ADMINISTRATIVE AGENT.

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NELNET UNSECURED PERSONAL LOAN WAREHOUSE TRUST
EXCESS DISTRIBUTION CERTIFICATE
evidencing all of the ownership interests in the Trust, as defined below, the property of which includes, among other things, an initial pool of eligible personal loans sold to the Trust by ACM F Acquisition, LLC and National Education Loan Network, Inc. on the Closing Date, and in the future may include additional eligible personal loans which may be acquired by the Trust from time to time.
(This Excess Distribution Certificate does not represent an interest in or obligation of the Depositor (as defined below), the Servicer (as defined below), the Trustee (as defined below), the Delaware Trustee (as defined below) or any of their respective affiliates, except to the extent described below.)
THIS CERTIFIES THAT ________________________ is the registered owner of this Excess Distribution Certificate. NELNET UNSECURED PERSONAL LOAN WAREHOUSE TRUST (the “Trust”) was formed as a statutory trust under the laws of the State of Delaware by NELNET PRIVATE STUDENT LOAN FINANCING CORPORATION, a Nebraska corporation (the “Depositor”). The Trust was created pursuant to a short form trust agreement, dated as of December 20, 2018, as amended and restated pursuant to an Amended and Restated Trust Agreement, dated as of January 11, 2019 (collectively, the “Trust Agreement”), by and among the Depositor, NATIONAL EDUCATION LOAN NETWORK, INC., as Administrator (the “Administrator”), UNION BANK AND TRUST COMPANY, a Nebraska state-chartered commercial bank, not in its individual capacity but solely as Trustee on behalf of the Trust (the “Trustee”), and U.S. BANK TRUST NATIONAL ASSOCIATION, a national banking association, not in its individual capacity but solely as Delaware trustee (the “Delaware Trustee”), a summary of certain of the pertinent provisions of which is set forth below. To the extent not otherwise defined herein, the capitalized terms used herein have the meanings assigned to them in the Loan and Security Agreement dated as of January 11, 2019 (as amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”), among the Trust, the Administrator, the Trustee, the financial institutions party thereto as LIBOR Lenders, the financial institutions party thereto as Managing Agents, and Royal Bank of Canada, as administrative agent (the “Administrative Agent”).
This Excess Distribution Certificate is issued under and is subject to the terms, provisions and conditions of the Trust Agreement, to which Trust Agreement the holder of this Excess
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Distribution Certificate by virtue of the acceptance hereof assents and by which such holder is bound. The property of the Trust will include an initial pool of personal loans purchased and contributed on or about the Closing Date, additional personal loans which may be acquired from time to time by the Trust pursuant to the Loan Sale Agreement (the “Pledged Personal Loans”), certain bank accounts, all moneys paid thereon and the proceeds thereof and certain other rights under the Trust Agreement, the Loan Sale Agreement, the Administration Agreement, the Loan Agreement, the Servicing Agreement and all proceeds of the foregoing.
To the extent of funds available therefor, amounts owing hereon will be distributed on the 25th day of each calendar month (or, if such day is not a Business Day, the next succeeding Business Day) (each a “Settlement Date”), commencing on February 25, 2019 to the holder of this Excess Distribution Certificate.
The holder of this Excess Distribution Certificate acknowledges and agrees that its rights to receive distributions in respect of this Excess Distribution Certificate are subordinate to the rights of the Lenders as described in the Loan Agreement.
It is the intent of the Depositor, and the holder of this Excess Distribution Certificate that, for purposes of federal, state and local income and franchise and any other income taxes, this Excess Distribution Certificate will be treated as equity in, the Trust. In addition, as more fully described in Section 2.10 of the Trust Agreement, for federal income tax purposes the Trust is intended to be classified as a disregarded entity so long as there is only one tax owner of this Excess Distribution Certificate and as a partnership if there is more than one tax owner of this Excess Distribution Certificate. The holder of this Excess Distribution Certificate agrees, by acceptance of the Excess Distribution Certificate, to treat this Excess Distribution Certificate and the Trust consistent with such intent.
The holder of this Excess Distribution Certificate, by its acceptance of this Excess Distribution Certificate, covenants and agrees that it will not at any time institute against the Depositor or the Trust, or join in any institution against the Depositor or the Trust of, any bankruptcy, reorganization, arrangement, insolvency, receivership or liquidation proceedings, or other proceedings under any United States Federal or state bankruptcy or similar law in connection with any obligations relating to this Excess Distribution Certificate, the Trust Agreement or any of the other Trust Documents. The foregoing shall not limit the rights of the holder of this Excess Distribution Certificate to file any claim in, or otherwise take an action with respect to, any insolvency proceeding that was instituted against the Depositor or the Trust by a Person other than the holder of this Excess Distribution Certificate.
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Distributions on this Excess Distribution Certificate will be made as provided in the Loan Agreement to the holder of record hereof without the presentation or surrender of this Excess Distribution Certificate or the making of any notation hereon.
Reference is hereby made to the further provisions of this Excess Distribution Certificate set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been executed by a Responsible Officer of the Trustee or its authenticating agent, by manual signature, this Excess Distribution Certificate shall not entitle the holder hereof to any benefit under the Trust Agreement or the Loan Agreement or be valid for any purpose.
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IN WITNESS WHEREOF, the Trustee on behalf of the Trust and not in its individual capacity has caused this Excess Distribution Certificate to be duly executed as of the date set forth below.
NELNET UNSECURED PERSONAL LOAN WAREHOUSE TRUST
By: UNION BANK AND TRUST COMPANY, not in its individual capacity but solely as Trustee under that certain Amended and Restated Trust Agreement, dated as of the Closing Date, by and among Nelnet Private Student Loan Financing Corporation, as Depositor, the Trustee, National Education Loan Network, Inc., as Administrator and U.S. Bank Trust National Association, in its capacity as Delaware Trustee
By: 
Authorized Signatory
Date: [[____]] [[__]], [[____]]

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TRUSTEE’S CERTIFICATE OF AUTHENTICATION
This is the Excess Distribution Certificate referred to in the within‑mentioned Trust Agreement.
UNION BANK AND TRUST COMPANY, not in its individual capacity but solely as Trustee under that certain Amended and Restated Trust Agreement, dated as of the Closing Date, by and among Nelnet Private Student Loan Financing Corporation, as Depositor, the Trustee, National Education Loan Network, Inc., as Administrator and U.S. Bank Trust National Association, in its capacity as Delaware Trustee
By: 
Authorized Signatory
OR
[_________________], solely in its capacity as Authenticating Agent for the Trustee
By: 
Authenticating Agent
Date: [[____]] [[__]], [[____]]

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[REVERSE OF EXCESS DISTRIBUTION CERTIFICATE]
This Excess Distribution Certificate does not represent an obligation of, or an interest in, the Depositor, National Education Loan Network, Inc., as servicer (the “Servicer”), the Administrative Agent, the Trustee, the Delaware Trustee or any affiliates of any of them, and no recourse may be had against such parties or their assets, except as may be expressly set forth or contemplated herein, in the Trust Agreement or in the other Trust Documents. In addition, this Excess Distribution Certificate is not guaranteed by any governmental agency or instrumentality and is limited in right of payment to certain collections with respect to the Trust Estate, all as more specifically set forth in the Loan Agreement. A copy of each of the Trust Agreement, the Loan Sale Agreement, the Loan Agreement, the Administration Agreement and the Servicing Agreement may be examined during normal business hours at the principal office of the Administrator, and at such other places, if any, designated by the Administrator, by the holder of this Excess Distribution Certificate upon request.
The rights and obligations of the holder of this Excess Distribution Certificate are set forth in the Trust Agreement, the terms of which are incorporated by reference herein.
As provided in the Trust Agreement and subject to certain limitations therein set forth, this Excess Distribution Certificate is exchangeable for a new Excess Distribution Certificate as requested by the holder surrendering the same. No service charge will be made for any such registration of transfer or exchange, but the Trustee may require payment of a sum sufficient to cover any tax or governmental charge payable in connection therewith.
The Trustee and any agent of the Trustee may treat the person in whose name this Excess Distribution Certificate is registered as the owner hereof for all purposes, and neither the Trustee nor any such agent shall be affected by any notice to the contrary.
This Excess Distribution Certificate (including any beneficial interest herein) may not be acquired by directly or indirectly for, on behalf of or with the assets of, an employee benefit plan (as defined in Section 3(3) of ERISA) whether or not subject to the provisions of Title I of ERISA, a plan described in Section 4975(e)(1) of the Code or any entity whose underlying assets include plan assets by reason of a plan’s investment in the entity (each, a “Benefit Plan”). By accepting and holding this Excess Distribution Certificate, the holder hereof shall be deemed to have represented and warranted that it is not a Benefit Plan, it is not purchasing this Excess Distribution Certificate directly or indirectly for, on behalf of or with the assets of a Benefit Plan and to have agreed that if this Excess Distribution Certificate is purchased directly or indirectly for, on behalf of or with the assets of a Benefit Plan, the holder will promptly dispose of this Excess Distribution Certificate.
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THIS EXCESS DISTRIBUTION CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
(Please print or type name and address, including postal zip code, of assignee)

the within Excess Distribution Certificate, and all rights thereunder, hereby irrevocably constituting and appointing
Attorney to transfer said Excess Distribution Certificate on the books of the Excess Distribution Certificate Registrar, with full power of substitution in the premises.
Dated:
______________________________*
Signature Guaranteed:
______________________________*
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* NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Excess Distribution Certificate in every particular, without alteration, enlargement or any change whatever. Such signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company.
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Exhibit 10.2

Certain information identified by “[***]” has been excluded from this exhibit pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is both not material and would likely cause competitive harm to the registrant if publicly disclosed.

EXECUTION




INTERIM TRUST AGREEMENT
among
ACM F ACQUISITION, LLC,
as a Seller
NATIONAL EDUCATION LOAN NETWORK, INC.,
as a Seller
and
UNION BANK AND TRUST COMPANY,
not in its individual capacity but solely as the
Interim Trustee
Dated as of January 11, 2019

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Table of Contents
Section Heading Page

ARTICLE I DEFINITIONS AND USAGE
ARTICLE II APPINTMENT OF INTERIM TRUSTEE
Section 2.01 Appointment of Interim Trustee
Section 2.02 Declaration of Trust
Section 2.03 Title to Interim Trust Loans
Section 2.04 Designated Participated Loans
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLERS
ARTICLE IV AUTHORITY AND DUTIES OF INTERIM TRUSTEE
Section 4.01 General Authority
Section 4.02 General Duties
Section 4.03 No Duties Except as Specified in This Agreement
Section 4.04 No Action Except under Specified Documents
Section 4.05 Restrictions
ARTICLE V CONCERNING THE INTERIM TRUSTEE
Section 5.01 Acceptance of Trust and Duties
Section 5.02 Representations and Warranties
Section 5.03 Not Acting in Individual Capacity.
Section 5.04 Interim Trustee Not Liable for the Interim Trust Loans
ARTICLE VI COMPENSATION AND INDEMNIFICATION OF INTERIM TRUSTEE
ARTICLE VII TERMINATION OF INTERIM TRUST AGREEMENT
ARTICLE VIII SUCCESSOR INTERIM TRUSTEES
Section 8.01 Eligibility Requirements for Interim Trustee
Section 8.02 Resignation or Removal of Interim Trustee
Section 8.03 Successor Interim Trustee
Section 8.04 Merger or Consolidation of Interim Trustee
ARTICLE IX MISCELLANEOUS
Section 9.01 Amendments and Waivers
Section 9.02 Notices
Section 9.03 No Waivers; Remedies
Section 9.04 Successors and Assigns
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Section Heading Page
Section 9.05 Governing Law
Section 9.06 Severability
Section 9.07 Waiver of Jury Trial
Section 9.08 Bankruptcy Non‑Petition and Limited Recourse
Section 9.09 Execution in Counterparts 10 
Section 9.10 Entire Agreement 10 
Section 9.11 Limitation of Liability 10 
Section 9.12 Section Titles 10 
Section 9.13 Limitations on Rights of Others 10 
Section 9.14 Force Majeure 11 
Section 9.15 Patriot Act Compliance 11 
Section 9.16 Survival 11 

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INTERIM TRUST AGREEMENT
THIS INTERIM TRUST AGREEMENT (this Agreement), dated as of January 11, 2019, is among ACM F ACQUISITION, LLC, a Nebraska limited liability company (the ACM Seller), NATIONAL EDUCATION LOAN NETWORK, INC., a Nebraska corporation (the “NELN Seller” and together with the ACM Seller, the “Sellers”), and UNION BANK AND TRUST COMPANY, a Nebraska state-chartered commercial bank (UB&T), not in its individual capacity but solely as Interim Trustee on behalf and for the benefit of the Sellers (the Interim Trustee).
WHEREAS, the ACM Seller is a limited liability company established for the purpose of purchasing Personal Loans from one or more personal loan platforms for resale to special purpose trusts or limited liability companies established for the purpose of financing the purchase of such Personal Loans, which purchases have been made prior to the Closing Date (and will be made following the Closing Date) by the ACM Seller pursuant to the [***] Loan Purchase Agreement (as defined in the Loan Agreement described below);
WHEREAS, the NELN Seller is a corporation that engages in purchasing Personal Loans and interests in Personal Loans from one or more personal loan platforms for resale to special purpose trusts or limited liability companies established for the purpose of financing the purchase of such Personal Loans, which purchases have been made prior to the Closing Date (and will be made following the Closing Date) by Union Bank and Trust Company, as trustee, pursuant to each of the [***] Loan Purchase Agreement and the [***] Loan Purchase Agreement (each as defined in the Loan Agreement described below);
WHEREAS, the Sellers will enter into a Loan Sale Agreement (the “Loan Sale Agreement”) with Nelnet Unsecured Personal Loan Warehouse Trust, a Delaware statutory trust (the Trust), UB&T, as Trustee for the Trust, and the Interim Trustee (together with each Sale Agreement (as defined therein) from time to time executed in connection therewith and each Bill of Sale (as defined therein) from time to time executed in connection therewith and all attachments thereto, the “Sale Agreement”) for the purpose of effecting the purchase and resale from time to time of certain Personal Loans (the Interim Trust Loans);
WHEREAS, pursuant to a First Amended and Restated Loan Participation Agreement effective as of June 21, 2018 between UB&T, in its own right (the “Lender”), and UB&T as trustee (the “Participation Trustee”) for the benefit of National Education Loan Network, Inc., as beneficiary, the Lender has sold to the Participation Trustee as trustee on behalf of such beneficiary a participation interest in certain Consumer Loans identified therein (the “Participated Loans”);
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WHEREAS, pursuant to a Trust/Custodial/Safe Keeping Agreement (a “Participation Trust Agreement”) dated February 9, 2018 between the Participation Trustee and National Education Loan Network, Inc., as principal (the “Principal”), and a Trust/Custodial/Safe Keeping Agreement (also, a “Participation Trust Agreement”) dated October 19, 2017 between the Participation Trustee and the Principal, the Participation Trustee is holding the Participated Loans in trust for the Principal;
WHEREAS, effective as of the date of this Agreement, Union Bank and Trust Company, in its capacities as Lender, Participation Trustee and Interim Trustee, and National Education Loan Network, Inc., in its capacities as Principal and NELN Seller have agreed (i) that all of the right, title and interests in the Participated Loans identified on Annex I of the Bill of Sale, Exhibit A, of the Agreement to Amendment of First Amended and Restated Private Loan Participation Agreement dated as of the date of this Agreement, between Union Bank and Trust Company in its individual capacity and Union Bank and Trust Company, in its capacity as trustee for National Education Loan Network, Inc. (the “Designated Participated Loans”) shall be held by Union Bank and Trust Company, in its capacity as Interim Trustee and National Education Loan Network, Inc., in its capacities as NELN Seller pursuant to this Agreement, and (ii) that such Designated Participated Loans shall no longer be held by Union Bank and Trust Company, in its capacities as Lender or Participation Trustee and National Education Loan Network, Inc., in its capacities as Principal; and
WHEREAS, pursuant to the terms of the Sale Agreement, NELN may be required (or may cause a Seller), under certain circumstances, to repurchase some of the Interim Trust Loans.
NOW, THEREFORE, the Sellers and the Interim Trustee hereby agree as follows:
ARTICLE I
DEFINITIONS AND USAGE 
Except as otherwise specified herein or as the context may otherwise require, capitalized terms used but not otherwise defined herein are defined in the Loan and Security Agreement, dated as of January 11, 2019, among the Trust, National Education Loan Network, Inc., as Administrator, UB&T, as Trustee, the LIBOR Lenders and the Managing Agents, and Royal Bank of Canada, as Administrative Agent (as amended, restated, supplemented or otherwise modified from time to time, the Loan Agreement), which also contains rules as to usage that shall be applicable herein.
ARTICLE II
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APPOINTMENT OF INTERIM TRUSTEE 
Section 2.01. Appointment of Interim Trustee . Each Seller hereby appoints the Interim Trustee, effective as of the date hereof, as trustee, to have all the rights, powers and duties set forth herein, including, without limitation:
(i) to hold legal title to the applicable Interim Trust Loans (including the Designated Participated Loans) on behalf and for the benefit of the applicable Seller;
(ii) to enter into and perform its obligations as the Interim Trustee under the Sale Agreement, this Agreement and any other Transaction Documents to which the Interim Trustee is a party; and
(iii) to engage in those activities, including entering into agreements, that are necessary, suitable or convenient to accomplish the foregoing or are incidental thereto or connected therewith.
Section 2.02. Declaration of Trust . The Interim Trustee hereby declares that it will hold the Interim Trust Loans (including the Designated Participated Loans) in trust upon and subject to the conditions set forth herein for the use and benefit of the applicable Seller, subject to the obligations of the Interim Trustee under the Sale Agreement. Effective as of the date hereof, the Interim Trustee shall have all rights, powers and duties set forth herein with respect to accomplishing the purposes of this Agreement. This trust has been established for the purpose of holding, protecting and preserving the Interim Trust Loans for the benefit of the Sellers and not for the purpose of carrying on or transacting business. The parties intend that the trust shall not be a “business trust” within the meaning of Chapter 1 of the New York General Associations Law nor a “business trust” within the meaning the United States Bankruptcy Code, 11. U.S.C. § 101, et seq. The name of the trust for purposes of the applicable Uniform Commercial Code that governs the perfection of any security interest (as defined in the applicable Uniform Commercial Code) granted by the Trustee is “Nelnet Unsecured Personal Loan Interim Trust”.
Section 2.03. Title to Interim Trust Loans . Legal title to all of the Interim Trust Loans shall be vested at all times in the Interim Trustee on behalf and for the benefit of the applicable Seller.
Section 2.04. Designated Participated Loans.  . The Designated Participated Loans shall no longer be held pursuant to the Participation Agreement or the Participation Trust Agreements but shall be held by the Interim Trustee for the benefit of the NELN Seller pursuant to this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS 
Each Seller hereby represents and warrants to the Interim Trustee that:
(i) It is duly organized and validly existing as a limited liability company or a corporation, as applicable, in good standing under the laws of the State of Nebraska, with power and authority to own its properties and to conduct its business as such properties are currently owned and such business is presently conducted.
(ii) It has all necessary power and authority to execute and deliver this Agreement and to carry out its terms; and the execution, delivery and performance of this Agreement has been duly authorized by the applicable Seller by all necessary action.
(iii) This Agreement constitutes a legal, valid and binding obligation of the applicable Seller enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization and similar laws relating to creditors’ rights generally and subject to general principles of equity.
(iv) The consummation of the transactions contemplated by this Agreement and the fulfillment of the terms hereof do not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, the certificate of formation or limited liability company operating agreement, in effect as of the date hereof, of the applicable Seller, or any indenture, agreement or other instrument to which the applicable Seller is a party or by which it is bound; nor result in the creation or imposition of any Adverse Claim upon any of its properties pursuant to the terms of any such indenture, agreement or other instrument (other than as contemplated by the Transaction Documents); nor violate any law or any order, rule or regulation applicable to the applicable Seller of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the applicable Seller or its properties.
ARTICLE IV
AUTHORITY AND DUTIES OF INTERIM TRUSTEE 
Section 4.01. General Authority . The Interim Trustee is authorized and directed to execute and deliver the Sale Agreement and this Agreement and each certificate or other
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document attached as an exhibit to or contemplated by such agreements, in each case, in such form as the applicable Seller shall approve as evidenced conclusively by the Interim Trustee’s execution thereof. The Interim Trustee is also authorized and directed on behalf and for the benefit of the Sellers to acquire and hold legal title to the Interim Trust Loans and to take all actions required of the Interim Trustee pursuant to the Sale Agreement and this Agreement.
Section 4.02. General Duties . It shall be the duty of the Interim Trustee to discharge (or cause to be discharged) all its responsibilities as the Interim Trustee pursuant to the terms of the Sale Agreement, this Agreement and any other Transaction Documents to which the Interim Trustee is a party.
Section 4.03. No Duties Except as Specified in This Agreement . The Interim Trustee shall not have any duty or obligation to manage, make any payment with respect to, register, record, sell, service, dispose of or otherwise deal with the Interim Trust Loans, or to otherwise take or refrain from taking any action under, or in connection with, any document contemplated hereby to which the Interim Trustee is a party, except as expressly provided by the terms of the Sale Agreement or this Agreement; and no implied duties or obligations shall be read into the Sale Agreement or this Agreement against the Interim Trustee.
Section 4.04. No Action Except under Specified Documents . The Interim Trustee shall not otherwise deal with the Interim Trust Loans except in accordance with the powers granted to and the authority conferred upon the Interim Trustee pursuant to the Sale Agreement, this Agreement and any other Transaction Documents to which the Interim Trustee is a party.
Section 4.05. Restrictions . The Interim Trustee shall not take any action that is inconsistent with the purposes of the Sellers set forth in the Transaction Documents.
ARTICLE V
CONCERNING THE INTERIM TRUSTEE 
Section 5.01. Acceptance of Trust and Duties . The Interim Trustee accepts the trust hereby created and agrees to perform its duties hereunder with respect to such trust but only upon the terms of this Agreement. The Interim Trustee shall not be answerable or accountable hereunder or under the Sale Agreement under any circumstances, except (i) for its own willful misconduct or gross negligence or (ii) in the case of the inaccuracy of any representation or warranty contained in Section 5.02 below expressly made by the Interim Trustee. In particular, but not by way of limitation (and subject to the exceptions set forth in the preceding sentence):
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(i) The Interim Trustee shall not be liable for any error of judgment made by a responsible officer of the Interim Trustee.
(ii) No provision of the Sale Agreement or this Agreement shall require the Interim Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its rights or powers hereunder or under or the Sale Agreement, if the Interim Trustee shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured or provided to it.
(iii) The Interim Trustee shall not be responsible for or in respect of the validity or sufficiency of this Agreement or for the due execution hereof by the Sellers or for the form, character, genuineness, sufficiency, value or validity of any of the Interim Trust Loans or for or in respect of the validity or sufficiency of the Sale Agreement.
(iv) In no event shall the Interim Trustee be responsible or liable for any special, indirect or consequential loss or damage of any kind whatsoever irrespective of whether the Interim Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.
Section 5.02. Representations and Warranties . The Interim Trustee hereby represents and warrants to the Sellers that:
(i) It is a duly organized and validly existing state-chartered commercial bank in good standing under the laws of the State of Nebraska, at which it will act as trustee for the trust created hereunder. It has all requisite power and authority to execute, deliver and perform its obligations under the Sale Agreement and this Agreement.
(ii) It has taken all corporate action necessary to authorize the execution and delivery by it of the Sale Agreement and this Agreement, and the Sale Agreement and this Agreement have been executed and delivered by one of its officers who is duly authorized to execute and deliver the same on its behalf.
(iii) Neither the execution nor the delivery by it of the Sale Agreement or this Agreement, nor the consummation by it of the transactions contemplated thereby or hereby nor compliance by it with any of the terms or provisions thereof or hereof will contravene any federal or New York state law, governmental rule or regulation governing the banking or trust powers of the Interim Trustee or any judgment or order binding on it, or constitute any default under its charter documents or by‑laws.
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Section 5.03. Not Acting in Individual Capacity.  Except as provided in this Article V, in accepting the trust hereby created, UB&T acts solely as Interim Trustee hereunder on behalf and for the benefit of the Sellers and not in its individual capacity.
Section 5.04. Interim Trustee Not Liable for the Interim Trust Loans. The Interim Trustee makes no representations as to the validity or sufficiency of the Sale Agreement or this Agreement, or of any Interim Trust Loan or related documents. The Interim Trustee shall at no time have any responsibility for or with respect to the sufficiency of the Interim Trust Loans; the validity or completeness of the assignment to the Interim Trustee of legal title to any Interim Trust Loan on behalf and for the benefit of the applicable Seller; the performance or enforcement (except as expressly set forth in the Sale Agreement) of any Interim Trust Loan; the compliance by the applicable Seller or the Servicer with any warranty or representation made under any Transaction Document or in any related document or the accuracy of any such warranty or representation or any action or inaction of the Administrator, the Administrative Agent or the Servicer or any subservicer taken in the name of the Interim Trustee.
ARTICLE VI
COMPENSATION AND INDEMNIFICATION OF INTERIM TRUSTEE 
(a) The Interim Trustee shall receive as compensation for its services hereunder such fees as have been separately agreed upon before the date hereof among the Sellers and the Interim Trustee, and the Interim Trustee shall be entitled to be reimbursed by the Sellers, to the extent provided in such separate agreement, for its other reasonable expenses hereunder.
(b) The Sellers, individually and not jointly, hereby agree to pay, indemnify and hold harmless the Interim Trustee and each of its shareholders, officers, directors, employees, agents and affiliates (collectively with the Interim Trustee being the “Indemnitees” and each an “Indemnitee”) promptly upon any such Indemnitee’s demand from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, fees, expenses or disbursements (including extraordinary out-of-pocket expenses, legal fees and expenses, fees of experts and agents and the Interim Trustee fees and disbursements) of any kind and nature whatsoever (including the costs of defending any claim relating to the actions or inactions of the Interim Trustee under this Agreement and the costs of defending any claim or bringing any claim to enforce the indemnification obligations of the Sellers) which may be owing to, imposed on, incurred by or asserted against the Interim Trustee or any of the other Indemnitees in any way relating to or arising out of or in connection with, (i) the negotiation, execution, delivery and/or performance of this Agreement, any document relating to this Agreement or the transactions contemplated hereby, including the Loan Sale Agreement, (ii) any of the transactions
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contemplated hereunder or thereunder, (iii) or the performance or enforcement of any of the terms of any provision hereof or thereof, or (iv) in any way relating to or arising out of the acquisition, ownership, monitoring, collection, servicing or enforcement of any Interim Trust Loan or the administration of the trust estate or the action or inaction of the Interim Trustee hereunder (including the actions of any Servicer or Subservicer under any Servicing Agreement or Subservicing Agreement), or the action or inaction of any such Indemnitee hereunder (an “Indemnified Claim”) except to the extent such Indemnified Claim of such Indemnitee results from the willful misconduct or gross negligence on the part of such Indemnitee, as determined by a court of competent jurisdiction. Nothing in this Agreement shall be deemed to terminate or limit any rights to indemnification or reimbursement of the Interim Trustee or any other Indemnitee under or pursuant to any other trust or other relevant agreement between the Interim Trustee and the Sellers or any Affiliate thereof with respect to any Interim Trust Loans, all of which shall continue and remain in full force and effect and continue to inure to the benefit of the Interim Trustee to the full extent set forth in such trust or other relevant agreements. The provisions of this Section shall survive the termination of this Agreement and/or the trust created hereunder, the sale, transfer, or repayment of the Interim Trust Loans, and/or the termination of the Loan Sale Agreement or the resignation or removal of the Interim Trustee.
ARTICLE VII
TERMINATION OF INTERIM TRUST AGREEMENT 
This Agreement (other than Article VI) and the trust created hereby shall terminate and be of no further force or effect upon the earlier of (i) the termination of the Trust pursuant to Section 9.01 of the Trust Agreement and (ii) the expiration of 21 years from the death of the last survivor of the descendants of Joseph P. Kennedy, the late Ambassador of the United States to the Court of St. James’s, living on the date hereof.
ARTICLE VIII
SUCCESSOR INTERIM TRUSTEES 
Section 8.01. Eligibility Requirements for Interim Trustee . The Interim Trustee shall at all times be a corporation or banking association being authorized to exercise corporate trust powers and hold legal title to the Interim Trust Loans. In case at any time the Interim Trustee shall cease to be eligible in accordance with the provisions of this Section, the Interim Trustee shall resign immediately in the manner and with the effect specified in Section 8.02.
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Section 8.02. Resignation or Removal of Interim Trustee . The Interim Trustee may at any time resign and be discharged from the trust hereby created by giving written notice thereof to the Sellers. Upon receiving such notice of resignation, the Sellers shall promptly appoint, with the consent of the Administrative Agent on behalf of the Secured Creditors (which consent shall not be unreasonably withheld, conditioned or delayed), a successor Interim Trustee meeting the eligibility requirements of Section 8.01 by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Interim Trustee and one copy to the successor Interim Trustee. If no successor Interim Trustee shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the resigning Interim Trustee may petition any court of competent jurisdiction for the appointment of a successor Interim Trustee; provided, however, that such right to appoint or to petition for the appointment of any such successor shall in no event relieve the resigning Interim Trustee from any obligations otherwise imposed on it under the Sale Agreement or this Agreement until such successor has in fact assumed such appointment.
If at any time the Interim Trustee shall cease to be or shall be likely to cease to be eligible in accordance with the provisions of Section 8.01 and shall fail to resign after written request therefor by the Sellers, then the Sellers may remove the Interim Trustee. If the Sellers shall remove the Interim Trustee under the authority of the immediately preceding sentence, the Sellers shall promptly appoint a successor Interim Trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the outgoing Interim Trustee so removed and one copy to the successor Interim Trustee together with payment of all fees owed to the outgoing Interim Trustee.
Any resignation or removal of the Interim Trustee and appointment of a successor Interim Trustee pursuant to any of the provisions of this Section shall not become effective until acceptance of appointment by the successor Interim Trustee pursuant to Section 8.03 and payment of all fees and expenses owed to the outgoing Interim Trustee.
Section 8.03. Successor Interim Trustee . Any successor Interim Trustee appointed pursuant to Section 8.02 shall execute, acknowledge and deliver to the Sellers and to its predecessor Interim Trustee an instrument accepting such appointment under this Agreement, and thereupon the resignation or removal of the predecessor Interim Trustee shall become effective and such successor Interim Trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor under this Agreement, with like effect as if originally named as Interim Trustee. The predecessor Interim Trustee shall upon payment of its fees and expenses deliver to the successor Interim Trustee all documents, statements, moneys and properties held by it under this Agreement; and the Sellers and the predecessor Interim Trustee, at the sole cost and expense of the Sellers, shall
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execute and deliver such instruments and do such other things as may reasonably be required for fully and certainly vesting and confirming in the successor Interim Trustee all such rights, powers, duties and obligations.
No successor Interim Trustee shall accept such appointment as provided in this Section unless at the time of such acceptance such successor Interim Trustee shall be eligible pursuant to Section 8.01.
Section 8.04. Merger or Consolidation of Interim Trustee . Any corporation into which the Interim Trustee may be merged or converted or with which it may be consolidated, or any corporation or banking association resulting from any merger, conversion or consolidation to which the Interim Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Interim Trustee, shall, without the execution or filing of any instrument or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding, be the successor of the Interim Trustee hereunder; provided, that such corporation or banking association shall be eligible pursuant to Section 8.01.
ARTICLE IX
MISCELLANEOUS 
Section 9.01. Amendments and Waivers . Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and, in the case of an amendment, is signed by all the parties hereto and, in the case of a waiver, is signed by the party granting the waiver and then such waiver shall be effective only in the specific instance and for the specific purpose for which given. To the extent the consent of any of the parties hereto is required under this Agreement, the determination as to whether to grant or withhold such consent shall be made by such party in its sole discretion without any implied duty toward any other Person, except as otherwise expressly provided herein or therein.
Section 9.02. Notices . All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including communication by facsimile copy or other electronic means) and mailed, delivered by nationally recognized overnight courier service, transmitted or delivered by hand, as to each party hereto, at its address as specified in the Loan Agreement or at such other address as shall be designated by such party in a written notice to the other parties hereto. Each such notice, request or other communication shall be effective (i) if given by facsimile, when such facsimile is transmitted to the specified facsimile number and an appropriate confirmation is received, (ii) if given by email, when sent to the specified email address and an appropriate confirmation is received, (iii) if given by mail, five days after
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being deposited in the United States mail, first class postage prepaid, (iv) if given by recognized courier guaranteeing overnight delivery, the Business Day following such day after such communication is delivered to such courier or (v) if given by any other means, when delivered at the address specified in this Section.
Section 9.03. No Waivers; Remedies . No failure or delay by any party hereto in exercising any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.
Section 9.04. Successors and Assigns . The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, except that no party may assign or otherwise transfer any of its rights or obligations under this Agreement without the prior written consent of each other party, except as otherwise permitted by this Agreement and any such purported assignment without such consent shall be void.
Section 9.05. Governing Law . THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES OF CONFLICTS OF LAW.
Section 9.06. Severability . Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Agreement.
Section 9.07. Waiver of Jury Trial . EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG ANY OF THEM ARISING OUT OF, CONNECTED WITH, RELATING TO OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS.
Section 9.08. Bankruptcy Non‑Petition and Limited Recourse . The Interim Trustee (not in its individual capacity but solely as Interim Trustee), by entering into this Agreement,
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hereby covenants and agrees that it will not, prior to the date which is one year and one day (or, if longer, any applicable preference period plus one day) after payment in full of the Aggregate Loan Balance and all other Obligations of the Trust, institute against, or join any other Person in instituting against, the Trust any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or any similar proceeding under any federal or state bankruptcy or similar law; provided that nothing in this provision shall preclude or be deemed to stop any party hereto (a) from taking any action prior to the expiration of the aforementioned one year and one day period in (i) any case or proceeding voluntarily filed or commenced by the Trust or (ii) any involuntary insolvency proceeding filed or commenced against the Trust by a Person other than any other party hereto or (b) from commencing against the Trust or the Pledged Collateral any legal action which is not a bankruptcy, reorganization, arrangement, insolvency or a liquidation proceeding.
Section 9.09. Execution in Counterparts . This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery by facsimile or electronic mail of an executed signature page of this Agreement shall be effective as delivery of an executed counterpart hereof.
Section 9.10. Entire Agreement . This Agreement, including all Exhibits, Schedules and Appendices and other documents attached hereto or incorporated by reference herein, together with the other Transaction Documents, constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all other negotiations, understandings and representations, oral or written with respect to the subject matter hereof.
Section 9.11. Limitation of Liability . No claim may be made by any party hereto or any other Person against any other party hereto or their affiliates, directors, officers, employees, attorneys or agents for any consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement or any act, omission or event occurring in connection therewith; and each party hereto hereby waives, releases and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.
Section 9.12. Section Titles . The section titles contained in this Agreement shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties.
Section 9.13. Limitations on Rights of Others . The provisions of this Agreement are solely for the benefit of the Sellers and the Interim Trustee and nothing in this Agreement,
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whether express or implied, shall be construed to give to any other Person any legal or equitable right, remedy or claim in or under or in respect of this Agreement or any covenants, conditions or provisions contained herein.
Section 9.14. Force Majeure . The Interim Trustee shall not be deemed to have breached its obligations pursuant to this Agreement if it is rendered unable to perform such obligations, in whole or in part, by a force outside the control of the parties hereto (including acts of God, acts of war, fires, earthquakes, hurricanes, floods and other disasters). The Interim Trustee shall diligently perform its duties under this Agreement as soon as practicable following the termination of such interruption of business.
Section 9.15. Patriot Act Compliance. In order to comply with laws, rules, regulations and executive orders in effect from time to time applicable to banking institutions, including, without limitation, those relating to the funding of terrorist activities and money laundering, including Section 326 of the USA Patriot Act of the United States (“Relevant Law”), the Interim Trustee is required to obtain, verify, record and update certain information relating to individuals and entities which maintain a business relationship with Interim Trustee. Accordingly, each of the parties agrees to provide to Interim Trustee upon its request from time to time such identifying information and documentation as may be available in order to enable Interim Trustee to comply with Relevant Law.
Section 9.16. Survival. The provisions of this Article IX shall be continuing and shall survive the termination of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Interim Trust Agreement to be duly executed by their respective officers hereunto duly authorized, as of the day and year first above written.
UNION BANK AND TRUST COMPANY,
not in its individual capacity but solely as the Interim Trustee hereunder
By: /s/ Jon Gross
Name: Jon Gross
Title: SVP
ACM F ACQUISITION, LLC
as a Seller
By: /s/ Terry Heimes
Name: Terry Heimes
Title: COO
NATIONAL EDUCATION LOAN NETWORK, INC.
as a Seller
By: /s/ James D. Kruger
Name: James D. Kruger
Title: Treasurer

[SIGNATURE PAGE TO INTERIM TRUST AGREEMENT]


 


 


 


 


 

Exhibit 31.1
 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
I, Jeffrey R. Noordhoek, certify that:
 
1.I have reviewed this quarterly report on Form 10-Q of Nelnet, Inc. (the “Company”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

                                                      
Date:
August 8, 2019 /s/ JEFFREY R. NOORDHOEK
Jeffrey R. Noordhoek
Chief Executive Officer
Principal Executive Officer
   


Exhibit 31.2
 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
I, James D. Kruger, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Nelnet, Inc. (the “Company”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


    
Date:
August 8, 2019 /s/ JAMES D. KRUGER
James D. Kruger
Chief Financial Officer
Principal Financial Officer and Principal Accounting Officer



Exhibit 32


Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Nelnet, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 

 
Date: August 8, 2019
By: /s/ JEFFREY R. NOORDHOEK
Name: Jeffrey R. Noordhoek
Title:   Chief Executive Officer
 Principal Executive Officer
By: /s/ JAMES D. KRUGER
Name: James D. Kruger
Title:   Chief Financial Officer
 Principal Financial Officer and Principal Accounting Officer