What changed in this filing

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Item 1A. Risk Factors

2022-02-28 compared with 2021-02-25 · 174 added, 158 removed, 285 unchanged (54% of the section changed)

We operate our businesses in a highly competitive and regulated environment.

We are subject to risks including, but not limited to, strategic, market, liquidity, credit, regulatory, technology, operational, security, and other business risks such as reputation damage related to negative publicity and dependencies on key personnel, customers, vendors, and systems.

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The differing interest rate characteristics of our loan assets versus the liabilities funding these assets result in basis risk, which impacts the excess spread earned on our loans.

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

We also face repricing risk due to the timing of the interest rate resets on our liabilities, which may occur as infrequently as once a quarter, in contrast to the timing of the

interest rate resets on our assets, which generally occur daily.

In a declining interest rate environment, this may cause our variable student loan spread to compress, while in a rising interest rate environment, it may cause the variable spread to increase.

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

As of December 31, 2021, our AGM operating segment had $15.9 billion, $0.6 billion, and $0.5 billion of FFELP loans indexed to the one-month LIBOR, three-month commercial paper, and three-month Treasury bill rate, respectively, all of which reset daily, and $5.4 billion of debt indexed to three-month LIBOR, which resets quarterly, and $10.5 billion of debt indexed to one-month LIBOR, which resets monthly.

While these indices are all short term in nature with rate movements that are highly correlated over a longer period of time, the indices' historically high level of correlation may be disrupted in the future due to capital market dislocations or other factors not within our control.

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In these interest rate environments, we may earn additional spread income that we refer 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.

Depending on the type of loan and when it 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, we may earn floor income for an extended period of time, which we refer to as fixed rate floor income, and for those loans where the borrower rate is reset annually on July 1, we may earn floor income to the next reset date, which we refer to as variable rate floor income.

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We utilize derivative instruments to manage interest rate sensitivity.

See note 6 of the notes to the consolidated financial statements included in this report for additional information on derivatives used by us to manage interest rate risk.

See note 6 of the notes to consolidated financial statements included in this report for additional information on derivatives used by us to manage interest rate risk.

Our derivative instruments are intended as economic hedges but do not qualify for hedge accounting;

consequently, the change in fair value, called the “mark-to-market,” of these derivative instruments is included in our operating results.

Changes or shifts in the forward yield curve can and have significantly impacted the valuation of our derivatives.

Accordingly, changes or shifts in the forward yield curve will impact our results of operations.

Changes or shifts in the forward yield curve can and have significantly impacted the valuation of our derivatives, and in turn can and have impacted our results of operations.

Developing an effective strategy for dealing with movements in interest rates is complex, and no strategy can completely insulate us from risks associated with such fluctuations.

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Clearing is a process by which a third-party, the clearinghouse, steps in between the original counterparties and guarantees the performance of both, by requiring that each post substantial amounts of liquid collateral on an initial (initial margin) and mark-to-market (variation margin) basis to cover the clearinghouse's potential future exposure in the event of default.

The clearing requirements require us to post substantial amounts of liquid collateral when executing new derivative instruments, which could negatively impact our liquidity and capital resources and may prevent or limit us from utilizing derivative instruments to manage interest rate sensitivity and risks.

The clearing requirements require us to post substantial amounts of liquid collateral when executing new

derivative instruments, which could negatively impact our liquidity and capital resources and may prevent or limit us from utilizing derivative instruments to manage interest rate sensitivity and risks.

Interest rate movements have an impact on the amount of payments we are required to settle with our clearinghouse on a daily basis.

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Based on our interest rate swaps outstanding as of December 31, 2021, if the forward interest rate curve was 50 basis points lower for the remaining duration of these derivatives, we would have been required to pay approximately $64.6 million in additional variation margin.

In addition, if the forward basis curve between one-month and three-month LIBOR experienced a

ten basis point reduction in spread for the remaining duration of our 1:3 Basis Swaps (in which we pay one-month LIBOR and receive three-month LIBOR), we would have been required to pay approximately $19.1 million in additional variation margin.

In addition, if the forward basis curve between one-month and three-month LIBOR experienced a ten-basis point reduction in spread for the remaining duration of our 1:3 Basis Swaps (in which we pay one-month LIBOR and receive three-month LIBOR), we would have been required to pay approximately $12.9 million in additional variation margin.

In addition, some of our variable rate debt is floored at zero percent, while the floating side of our fixed rate derivatives hedging the debt are not floored.

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Interest rate risk - replacement of LIBOR as a benchmark rate

The London Interbank Offered Rate (“LIBOR”) is a widely accepted interest rate benchmark referenced in financial contracts globally and is used to determine interest rates on commercial and consumer loans, bonds, derivatives, and numerous other financial instruments.

As of December 31, 2020, the interest earned on a principal amount of $17.8 billion in our FFELP student loan asset portfolio was indexed to one-month LIBOR, and the interest paid on a principal amount of $17.1 billion of our FFELP student loan asset-backed debt securities was indexed to one-month or three-month LIBOR.

In addition, the majority of our derivative financial instrument transactions used to manage interest rate risks are indexed to LIBOR.

In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop compelling banks to submit LIBOR rates after 2021.

Accordingly, there is significant uncertainty regarding the availability of LIBOR as a benchmark rate after 2021.

In April 2018, the Federal Reserve Bank of New York commenced publication of three reference rates based on overnight United States Treasury repurchase agreement transactions, including the Secured Overnight Financing Rate (“SOFR”), which has been recommended as an alternative to United States dollar LIBOR by the Alternative Reference Rates Committee.

Uncertainty exists as to the transition process and broad acceptance of SOFR as the primary alternative to LIBOR, including what effect it would have on the value of LIBOR-based securities, financial contracts, and variable rate loans.

Although the indentures for student loan asset-backed debt securities issued in our most recent LIBOR-indexed 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 our 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.

As of December 31, 2021, the interest earned on a principal amount of $15.9 billion of our FFELP student loan assets held by the AGM operating segment was indexed to the one-month LIBOR, and the interest paid on a principal amount of $15.9 billion of our FFELP student loan asset-backed debt securities was indexed to one-month or three-month LIBOR.

In addition, our derivative financial instrument transactions used to manage LIBOR interest rate risks are indexed to LIBOR.

In March 2021, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that all LIBOR tenors relevant to us will cease to be published or will no longer be representative after June 30, 2023.

Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a committee convened by the Federal Reserve that includes major market participants, has identified the Secured Overnight Financing Rate (“SOFR”), calculated based on overnight repurchase agreements backed by U.S.

Treasury securities, as its preferred alternative rate for LIBOR.

There are significant differences between LIBOR and SOFR, such as LIBOR being an unsecured lending rate while SOFR is a secured lending rate, and SOFR being an overnight rate while LIBOR reflects term rates at different maturities.

Accordingly, there are uncertainties as to the transition process and broad acceptance of SOFR as the primary alternative to LIBOR, including what effect it would have on the value of LIBOR-based securities, financial contracts, and variable rate loans.

Although the indentures for student loan asset-backed debt securities issued in our most recent LIBOR-indexed 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 our 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 the 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, we cannot predict the impact that a transition from LIBOR to an alternative benchmark rate would have on our 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 our funding costs, net interest income, loan and other asset values, and asset-liability management strategies.

In particular, any such transition could:

As a result, we cannot predict the impact that the transition from LIBOR to an alternative benchmark rate will have on our 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 our funding costs, net interest income, loan and other asset values, and asset-liability management strategies.

In particular, such transition could:

• adversely affect the interest rates paid or received on, the income and expenses associated with, and the pricing and value of our LIBOR-based assets and liabilities, which include the majority of our FFELP student loan assets and FFELP student loan asset-backed debt securities issued to fund those assets, as well as the majority of our derivative financial instruments we use to manage LIBOR-based interest rate risks associated with such FFELP student loan-related assets and liabilities;

• result in uncertainty or differences in the calculation of the applicable interest rate or payment amounts on our LIBOR-based assets and liabilities depending on the terms of the governing instruments, which in turn could result in disputes, litigation, or other actions with counterparties regarding the interpretation and enforceability of certain fallback language in LIBOR-based securities and contracts, and the potential renegotiation of previous contracts;

litigation, or other actions with counterparties regarding the interpretation and enforceability of certain fallback language in LIBOR-based securities and contracts, and the potential renegotiation of previous contracts;

• make future asset-backed securitizations more difficult to complete or more expensive until LIBOR or alternative benchmark rate uncertainties are resolved;

• result in basis risk if the alternative benchmark rate on our loan assets does not match the alternative benchmark rate for the funding for those assets.

In April 2021, the State of New York enacted legislation to address certain contracts that are governed by New York law, refer to LIBOR as a benchmark reference rate, and do not have effective fallback provisions once the applicable LIBOR rate is discontinued.

The legislation provides a statutory remedy by automatically replacing LIBOR with the “recommended benchmark replacement,” which is expected to be SOFR, and for a contract that has a “determining person” (a trustee, a calculation agent or the like), replacing LIBOR with the recommended benchmark replacement as selected by the determining person.

The majority of our student loan asset-backed securitization indentures that do not have fallback provisions are governed by New York law, and thus are covered by this legislation.

Parties remain free to agree on a different alternative benchmark rate, and we have and will continue to work with our asset-backed securitization investors to amend transaction documents to address the discontinuation of LIBOR.

In addition, a transition away from LIBOR to an alternative benchmark rate or rates may impact our existing transaction data, systems, operations, pricing, and risk management processes, and require significant efforts to transition to or develop appropriate systems and analytics to reflect a new benchmark rate environment.

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Prepayments may result from consolidations of student loans by the Department through the Federal Direct Loan Program or by a lending institution through a private education or unsecured consumer loan, which historically tend to occur more frequently in low interest rate environments;

from borrower defaults, which will result in the receipt of a guaranty payment;

from borrower defaults on federally insured loans, which will result in the receipt of a guaranty payment;

and from voluntary full or partial prepayments;

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Legislative and executive action risk exists as Congress and the President evaluate economic stimulus packages and proposals to reauthorize the Higher Education Act.

If the federal government and the Department initiate additional loan forgiveness or cancellation, other repayment options or plans, or consolidation loan programs, such initiatives could further increase prepayments and reduce interest income, and could also reduce servicing fees.

If the federal government and the Department initiate additional loan forgiveness or cancellation, other repayment options or plans, consolidation loan programs, or further extend the suspension of borrower payments under the CARES Act, such initiatives could further increase prepayments and reduce interest income and could also reduce servicing fees.

Future laws, executive actions, or other policy statements may encourage or force consolidation, create additional income-based repayment or debt forgiveness programs, create broad debt cancellation programs, or establish other policies and programs that impact prepayments on education loans.

Even if a broad debt cancellation program only applied to student loans held by the Department, such program could result in a significant increase in consolidations of FFELP loans to Federal Direct Loan Program loans and a corresponding increase in prepayments with respect to our FFELP loan portfolio.

For example, the Department recently announced a set of policy changes and released proposed negotiated rulemaking materials relating to the Public Service Loan Forgiveness program under its Federal Direct Loan Program, which may result in an increase in consolidations of FFELP loans into Federal Direct Loan Program loans held by the Department (which results in the loans no longer being on our balance sheet).

While implementation of the policy changes and final new regulations are unknown at this time, individually or collectively, they may cause higher than anticipated prepayment rates on our portfolio of loans.

Some variability in prepayment levels is expected, although extraordinary or extended increases in prepayment rates could have a materially adverse effect on our revenues, cash flows, profitability, and business outlook, and, as a result, could materially, adversely affect our business, financial condition, and results of operations.

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We are actively expanding our acquisition of private education and consumer loan portfolios, which increases our exposure to credit risk.

On January 1, 2020, we adopted Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments — Credit Losses , which utilizes an “expected loss” model for recognizing credit losses referred to as the Current Expected Credit Loss (“CECL”) model.

This differs significantly from the “incurred loss” model (the model used by us to recognize credit losses for all periods prior to January 1, 2020), which delayed recognition until it was probable a loss had been incurred, and the adoption of the CECL model on January 1, 2020 resulted in an increase to our allowance for loan losses of $91.0 million.

See note 3 of the notes to consolidated financial statements included in this report for further details on the impact on our consolidated financial statements from the adoption of the CECL accounting standard.

If future defaults on loans held by us are higher than anticipated, which could result from a variety of factors such as downturns in the economy, regulatory or operational changes, and other unforeseen future trends, or actual performance is significantly worse than currently estimated, our estimate of the allowance for loan losses and the related provision for loan losses in our statements of income would be materially affected.

Our loan portfolio and other assets and operations could suffer adverse consequences to the extent that natural disasters, widespread health crises similar to the COVID-19 pandemic discussed further below, terrorist activities, or international hostilities affect the financial markets or the economy in general or in any particular region.

Natural disasters, widespread health crises similar to the COVID-19 pandemic discussed further below, terrorist activities, or international hostilities affecting the financial markets or the economy in general or in any particular region could lead, for example, to an increase in loan delinquencies, borrower bankruptcies, or defaults that could result in higher levels of nonperforming assets, net charge-offs, and provisions for credit losses, as well as have adverse effects on our other assets and business operations.

Our ability to mitigate the adverse consequences of these occurrences is in part dependent on the quality of our resiliency planning, and our ability, if any, to anticipate the nature of any such event that occurs.

Our loan portfolio and other assets and operations could suffer adverse consequences to the extent that natural disasters, widespread health crises similar to the COVID-19 pandemic, terrorist activities, or international hostilities affect the financial markets or the economy in general or in any particular region.

Natural disasters, widespread health crises similar to the COVID-19 pandemic, terrorist activities, or international hostilities affecting the financial markets or the economy in general or in any particular region could lead, for example, to an increase in loan delinquencies, borrower bankruptcies, or defaults that could result in higher levels of nonperforming assets, net charge-offs, and provisions for credit losses, as well as have adverse effects on our other assets and business operations.

Our ability to mitigate the adverse consequences of such occurrences is in part dependent on the quality of our resiliency planning, and our ability, if any, to anticipate the nature of any such event that occurs.

The adverse impact of natural disasters, widespread health crises, terrorist activities, or international hostilities also could be increased to the extent that there is a lack of preparedness on the part of national or regional emergency responders or on the part of other organizations and businesses that we transact with, particularly those that we depend upon, but have no control over.

Additionally, the force and frequency of natural disasters are increasing as the climate changes.

Liquidity and Funding

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Therefore, we will need to modify and/or find alternative funding related to the loan collateral in these facilities prior to their expiration.

We have two FFELP warehouse facilities as described in note 5 of the notes to consolidated financial statements included in this report.

The FFELP warehouse facilities have revolving financing structures supported by liquidity provisions, which expire on February 26, 2021 and in May 2021, respectively.

In the event we are unable to renew the liquidity provisions for a facility, the facility would become a term facility at a stepped-up cost, with no additional student loans being eligible for financing, and we would be required to refinance the existing loans in the facility by the final maturity dates in February 2023 and May 2022, respectively.

The FFELP warehouse facilities also contain financial covenants relating to levels of our consolidated net worth, ratio of recourse indebtedness to adjusted EBITDA, and unencumbered cash.

Any noncompliance with these covenants could result in a requirement for the immediate repayment of any outstanding borrowings under the facilities.

As of December 31, 2020, $252.2 million was outstanding under the FFELP warehouse facilities and $21.2 million was advanced as equity support.

We also have a consumer loan warehouse facility that has an aggregate maximum financing amount available of $100.0 million, liquidity provisions to April 23, 2021, and a final maturity date of April 23, 2022.

As of December 31, 2020, $25.8 million was outstanding and $11.5 million was advanced as equity support under this warehouse facility.

In addition, we have a private education loan warehouse facility that has an aggregate maximum financing amount available of $175.0 million, liquidity provisions through February 13, 2022, and a final maturity date of February 13, 2023.

We have a FFELP warehouse facility as described in note 5 of the notes to consolidated financial statements included in this report.

The FFELP warehouse facility has an aggregate maximum financing amount of $60 million and liquidity provisions through May 23, 2022.

In the event we are unable to renew the liquidity provisions for this facility, the facility would become a term facility at a stepped-up cost, with no additional student loans being eligible for financing, and we would be required to refinance the existing loans in the facility by the final maturity date in May 2023.

The FFELP warehouse facility also contains financial covenants relating to levels of our consolidated net worth, ratio of recourse indebtedness to adjusted EBITDA, and unencumbered cash.

Any noncompliance with these covenants could result in a requirement for the immediate repayment of any outstanding borrowings under the facility.

As of December 31, 2021, $5.0 million was outstanding under the FFELP warehouse facility and $0.3 million was advanced as equity support.

We also have a private education loan warehouse facility that has an aggregate maximum financing amount available of $175.0 million, liquidity provisions through June 30, 2022, and a final maturity date of June 30, 2023.

As of December 31, 2021, $107.0 million was outstanding and $11.8 million was advanced as equity support under this warehouse facility.

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If we cannot find funding alternatives, we would lose our collateral, including the loan assets and cash advances, related to these facilities.

We are subject to economic and market fluctuations related to our investments.

We currently invest a substantial portion of our excess cash in student loan asset-backed securities and other investments that are subject to market fluctuations.

The fair value of these investments was $1.0 billion as of December 31, 2021, including $907.2 million in student loan asset-backed securities.

The student loan asset-backed securities earn a floating interest rate and carry expected returns of approximately LIBOR + 75-250 basis points to maturity.

While we expect our overall student loan asset-backed securities to have few credit issues if held to maturity, they do have limited liquidity, and we could incur a significant loss if the investments were sold prior to maturity at an amount less than the original purchase price.

We will need to extend or refinance repurchase agreements funding the purchase of certain private education loan asset-backed securities that we are required to retain as sponsor of the underlying securitizations, since the current maturities of the agreements do not match the required holding period for the related investments and we are required to pay additional equity support in the event the fair value of the securities subject to the repurchase agreements becomes less than the original purchase price of such securities.

During 2021, we sponsored four asset-backed securitization transactions to permanently finance a total of $8.7 billion of the private education loans sold by Wells Fargo.

For further information about these transactions, see the MD&A – “Overview – Recent Transactions/Developments – 2021 Transactions Related to the Private Education Loan Portfolio Sold by Wells Fargo.” As sponsor, we are required to provide a certain level of risk retention, and we have purchased bonds issued in such securitizations to satisfy this requirement.

The bonds purchased to satisfy the risk retention requirement are reflected on our consolidated balance sheet as "investments" and as of December 31, 2021, the fair value of these bonds was $412.6 million.

We must retain these investment securities until the latest of (i) two years from the closing date of the securitization, (ii) the date the aggregate outstanding principal balance of the loans in the securitization is 33% or less of the initial loan balance, and (iii) the date the aggregate outstanding principal balance of the bonds is 33% or less of the aggregate initial outstanding principal balance of the bonds, at which time we can sell the investment securities (bonds) to a third party.

We entered into repurchase agreements with third parties, the proceeds of which were used to purchase a portion of the asset-backed investments, and such investments serve as collateral on the repurchase obligations.

As of December 31, 2021, $483.8 million was outstanding on our repurchase agreements, of which $313.2 million was borrowed to fund the private education loan securitization bonds subject to our risk retention requirements.

The repurchase agreements have various maturity dates between May 27, 2022 and December 20, 2023, but are subject to early termination upon required notice provided by us or the applicable counterparty prior to the maturity dates.

We are required to pay additional equity support in the event the fair value of the securities subject to the repurchase agreements becomes less than the original purchase price of such securities.

The current maturities of the repurchase agreements do not match the required holding period for, or the maturity of, the related funded assets.

Therefore, we will need to continue to extend the maturities of the repurchase agreements and/or find alternative funding related to the investment securities collateral funded by these repurchase agreements prior to their expiration.

Risks associated with our operations, as further discussed below, include those related to the importance of maintaining scale by retaining existing customers and attracting new business opportunities, our information technology systems and potential security and privacy breaches, and our ability to manage performance related to regulatory requirements.

Our largest fee-based customer, the Department of Education, represented 29 percent of our revenue in 2021.

Failure to extend the Department contracts or obtain new Department contracts in the Department's NextGen or ISS procurement processes, our inability to consistently surpass competitor performance metrics, or unfavorable contract modifications or interpretations, could significantly lower servicing revenue and hinder future service opportunities.

Our subsidiaries Nelnet Servicing, LLC (“Nelnet Servicing”) and Great Lakes Educational Loan Services, Inc.

(“Great Lakes”) are two of four large private sector companies that have student loan servicing contracts awarded by the Department in June

2009 to provide additional servicing capacity for loans owned by the Department.

The Department also contracts with four not-for-profit entities to service student loans.

Failure to extend the Department contracts or obtain new Department contracts in the Department's NextGen or other procurement processes, our inability to consistently surpass competitor performance metrics, or unfavorable contract modifications or interpretations, could significantly lower servicing revenue and hinder future service opportunities.

Our subsidiaries Nelnet Servicing and Great Lakes are two of the current seven private sector entities that have student loan servicing contracts with the Department to service loans that include Federal Direct Loan Program loans originated directly by the Department and FFEL Program loans purchased by the Department.

As of December 31, 2021, Nelnet Servicing was servicing $215.8 billion of student loans for 6.4 million borrowers under its contract, and Great Lakes was servicing $262.6 billion of student loans for 7.8 million borrowers under its contract.

For the year ended December 31, 2021, we recognized $360.8 million in revenue from the Department under these contracts, which represented 29 percent of our revenue.

The current servicing contracts with the Department are currently scheduled to expire on June 14, 2021, but provide the potential for an additional six-month extension at the Department’s discretion through December 14, 2021.

The Consolidated Appropriations Act, 2021, signed into law on December 27, 2020, provides that the Department may extend the period of performance for the servicing contracts scheduled to expire on December 14, 2021 for up to two additional years to December 14, 2023.

The Department 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.

The Department has also issued a new federal loan servicing solicitation for an Interim Servicing Solution ("ISS"), which solicitation is currently suspended.

For additional information on the NextGen and ISS procurement processes, see Part I, Item 1, “Loan Servicing and Systems - Servicing federally-owned student loans for the Department.”

Nelnet Servicing's and Great Lakes' student loan servicing contracts with the Department are scheduled to expire on December 14, 2023.

In 2017, the Department initiated a contract procurement process referred to as the Next Generation Financial Services Environment ("NextGen") for a new framework for the servicing of all student loans owned by the Department.

The Consolidated Appropriations Act, 2021 contains provisions directing certain aspects of the NextGen process, including that any

new federal student loan servicing environment is required to provide for the participation of multiple student loan servicers and the allocation of borrower accounts to eligible student loan servicers based on performance.

In the event that our servicing contracts are not extended beyond the current expiration date, or we are not chosen as a subsequent servicer, loan servicing revenue would decrease significantly.

There are significant risks to us and uncertainties regarding the current Department contracts and potential future Department contracts, including the uncertain nature of the Department's awards of new NextGen contracts to other service providers and the pending and uncertain nature of other components of the NextGen contract procurement process and the ISS contract procurement process, which could be subject to potential delays, cancellations, or material changes to the structure of the contract procurement process;

the possibility that new contract awards and evaluations of proposals may be challenged by various interested parties and may not be finalized or implemented for an extended period of time or at all;

There are significant risks to us and uncertainties regarding the current Department contracts and potential future Department contracts, including the pending and uncertain nature of the NextGen contract procurement process and the Department's prior awards of new NextGen contracts to other service providers;

risks that we may not be successful in obtaining any new contracts with the Department;

and risks and uncertainties as to the terms and requirements under a potential new contract or contracts with the Department.

We cannot predict the timing, nature, or ultimate outcome of the Department's NextGen contract procurement process or the ISS solicitation.

New loan volume is currently allocated among the eight servicers based on certain performance metrics established by the Department and compared among all loan servicers in this group.

We cannot predict the timing, nature, or ultimate outcome of the NextGen or any other contract procurement process by the Department.

New loan volume is currently allocated among the Department servicers based on certain performance metrics established by the Department and compared among all loan servicers.

The amount of future allocations of new loan volume could be negatively impacted if we are unable to consistently surpass comparable competitor and/or other performance metrics.

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Failure to extend the Department contracts beyond the current expiration date, or obtain new Department contracts, could significantly hinder future opportunities, as well as result in potential restructuring charges that may be necessary to re-align our cost structure with our servicing operations.

The COVID-19 pandemic has adversely impacted our results of operations, and is expected to continue to adversely impact our results of operations, as well as adversely impact our businesses, financial condition, and/or cash flows.

The COVID-19 pandemic has adversely impacted our results of operations, and either directly or indirectly through impacts on economic conditions or government policy could adversely impact our results of operations, businesses, financial condition, and/or cash flows going forward.

The COVID-19 pandemic has caused significant disruption to the U.S.

and world economies, including significantly higher unemployment and underemployment, significantly lower interest rates, and extreme volatility in the U.S.

and world economies and extreme volatility in the U.S.

and world markets.

These effects have adversely impacted our results of operations and, if these effects result in sustained economic stress or recession, they could have a material adverse impact on us in a number of ways.

COVID-19 has materially disrupted business operations, resulting in significantly higher levels of unemployment or underemployment.

As a result, many individual student and consumer borrowers have experienced financial hardship, making it difficult, if not impossible, to meet loan payment obligations without temporary assistance, and we expect that more borrowers will be similarly affected the longer the COVID-19 pandemic continues.

We are monitoring key metrics of financial hardship, including changes in weekly unemployment claims, enrollment in auto-debit payments, requests for new forbearances, enrollment in hardship payment plans, and early delinquency metrics.

We consider the characteristics of our loan portfolios and their expected behavior in forecasted economic scenarios.

We update our evaluation of current and forecasted economic conditions each reporting period and adjust our allowance for loan losses as

If future economic conditions as a result of COVID-19 are significantly worse than what was assumed as a part of these assessments, specifically related to the severity and length of the downturn and the timing and extent of subsequent recovery, it could result in additional allowance for loan losses and impairment charges being recorded in future periods.

These effects have adversely impacted our results of operations and, if these effects result in sustained economic stress, they could have a material adverse impact on us in a number of ways, including but not limited to, talent acquisition and retention, wage inflation and cost of service delivery, lower higher education school enrollments, rising interest rates due to market conditions or government policy or stimulus, loan performance (where individual student and consumer borrowers experience financial hardship), and performance levels and impacts of vaccine requirements on our workforce and work environment (work from home).

Although certain business and economic conditions have improved since the pandemic began, significant uncertainties remain, including with respect to the effectiveness of vaccines against existing and new variant strains of the COVID-19 virus which could be vaccine resistant, the potential impacts of variations in vaccination rates among different geographical areas and demographic segments, vaccine mandates, booster vaccines, and the potential impacts of potential additional future spikes in infection rates including through breakthrough infections among the fully vaccinated.

COVID-19 materially disrupted business operations across many sectors, initially resulting in periods of significantly higher levels of unemployment and underemployment, and more recently resulting in inflation associated with supply chain disruptions, a constrained labor market, supply, and extensive government stimulus programs initiated in efforts to counteract the economic disruptions from the pandemic.

As a result, many student and consumer borrowers have experienced or may continue to experience financial hardship, making it difficult to meet loan payment obligations without assistance, which has had previous adverse effects and could have future adverse effects on the performance of our loan portfolio.

Our net interest income and profitability have been and could further be negatively affected by volatility in interest rates caused by uncertainties stemming from COVID-19.

Fluctuations in interest rates have impacted and will continue to impact both the level of income and expense recorded on most of our assets and liabilities and the value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition.

The majority of our employees continue to work from home.

We have never had to run our operations to such extent remotely for an extended period of time, and it is possible we will encounter challenges to running our businesses.

For example, COVID-19 has presented potential risks to staffing, such as stress on our workforce as a result of homeschooling, caring for themselves and loved ones, and potential burnout, and it is possible that key employees or a significant number of employees may be affected by the virus.

In addition, our operations rely on the efficient and secure collection, processing, storage, and transmission of personal, confidential, and other information in a significant number of customer transactions on a continuous basis through our computer systems and networks and those of our third-party service providers.

Unanticipated issues arising from handling personal, confidential, and other information in a work-from-home environment could lead to greater risks for us, including cybersecurity and privacy risks.

Beginning in March 2020, schools largely moved to on-line classes for their students.

Although many schools moved to on-campus learning beginning with the 2020/2021 academic year, it is uncertain if, and the extent to which, they will have to move back to on-line classes during the academic term if the COVID-19 pandemic increases in severity.

The COVID-19 pandemic has and may continue to impact demand for our education technologies, services, and payment processing products and services.

Under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020, federal student loan payments and interest accruals were suspended on all loans owned by the Department.

The benefits of the law were applied retroactively to March 13, 2020, when the President declared a state of emergency related to COVID-19, and these federal student loan borrower relief provisions have been extended through September 30, 2021.

Beginning March 13, 2020, we received less servicing revenue per borrower from the Department based on the borrower forbearance status than what was earned on such accounts prior to these provisions.

As a result of the extension of these CARES Act provisions through September 30, 2021, we currently anticipate Department servicing revenue will be lower in 2021 from recent historical periods due to the lower rates.

In addition, revenue from the Department for originating consolidation loans was adversely impacted as a result of borrowers receiving relief on their existing loans, thus not initiating a consolidation.

We currently anticipate this revenue will continue to be negatively impacted while student loan payments and interest accruals are suspended.

During 2020, FFELP, private education, and consumer loan servicing revenue was adversely impacted by the COVID-19 pandemic, due to reduced or eliminated delinquency outreach to borrowers, holds on claim filings, and reduced or eliminated late fees processing.

In addition, origination fee revenue was negatively impacted as borrowers are less likely to refinance their loans when they are receiving certain relief measures from their current lender.

We currently anticipate this trend will continue in future periods that are impacted by the COVID-19 pandemic, with the magnitude based on the extent to which existing or additional borrower relief policies and activities are implemented or extended by servicing customers.

For additional information on the impacts of COVID-19 on our results of operations, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview - Impacts of COVID-19 Pandemic.”

If new legislative or regulatory student loan borrower relief measures similar to such provisions of the CARES Act were to become effective, the levels and timing of future servicing revenues could continue to be impacted in a similar manner through the extended period of time that such provisions or measures are in effect.

Although the CARES Act does not apply to our FFELP, private education, or consumer loans, several states have announced various initiatives to suspend payment obligations for private education loan borrowers in those states, and we continue to support these initiatives and our FFELP, private education, and consumer loan borrowers.

Due to uncertainties regarding, among other things, the duration of the COVID-19 pandemic and any new legislation, regulations, guidance, or widely accepted practices with respect to relief to loan borrowers, we are not able to estimate the ultimate impact that debt relief measures will have on our results of operations.

The CARES Act and other COVID-19-related borrower relief measures have resulted in, and may continue to result in, certain processing and other changes within our loan servicing operations, including the processing of automatic forbearances, special

payment instructions, and special credit reporting.

Such changes involve additional regulatory and other complexities, uncertainties, and matters of interpretation, and have resulted in litigation.

In addition, such COVID-19 regulatory measures and associated operational changes increase the risk that noncompliance with applicable laws, regulations, and Consumer Financial Protection Bureau guidance could result in penalties, litigation, reputation damage, and a loss of customers.

Legislative risk exists as Congress evaluates additional COVID-19 related economic stimulus packages.

If the federal government initiates additional loan forgiveness, other repayment options or plans, or consolidation loan programs, such initiatives could increase prepayments and reduce interest income, and could also reduce servicing fees.

We currently believe our liquidity and capital resources position is strong, and we expect to be able to fund our business operations for the foreseeable future.

We also currently plan to continue making regular quarterly dividend payments on our Class A and Class B common stock, subject to future earnings, capital requirements, financial condition, and other factors.

However, if circumstances surrounding COVID-19 continue to change in significantly adverse ways and/or if the pandemic continues for an extended period of time, our liquidity and capital resources position could be materially and adversely affected, which could adversely impact our businesses, cash flows (including forecasted cash flows from our asset-backed securitizations), and overall financial condition, and could also result in a reduction, suspension, or discontinuation of quarterly dividend payments on our Class A and Class B common stock.

The extent to which the COVID-19 pandemic impacts our businesses, results of operations, financial condition, and/or cash flows will depend on future developments, which are highly uncertain and largely beyond our control, including, among others:

the scope, severity, and duration of the pandemic;

the number of our employees, borrowers, customers, and vendors adversely affected by the pandemic;

the impact of the pandemic on schools, student enrollment, and the need for student and consumer loans;

the broader public health and economic dislocations resulting from the pandemic;

the actions taken by governmental authorities to limit the public health, financial, and economic impacts of the pandemic;

any further legislative or regulatory changes that suspend or reduce payments or cancel or discharge obligations for student or consumer loan borrowers;

any reputational damage related to the broader reception and perception of our response to the pandemic;

and the impact of the pandemic on local, U.S., and world economies.

However, as with many other businesses, the impact of the COVID-19 pandemic, or any other pandemic, on our businesses could be material and adverse.

To the extent that the COVID-19 pandemic continues to adversely affect the U.S.

and world economies and/or adversely affects our businesses, results of operations, financial condition, and/or cash flows, it may also have the effect of increasing the likelihood and/or magnitude of other risks described in this report.

Higher income volatility from changes in interest rates and spreads to benchmark indices has caused and could cause a loss of net interest income and adverse changes in current fair value measurements of our assets and liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition.

For example, the Federal Reserve has recently signaled that it may begin to raise its target interest rate beginning in the first half of 2022 as a way of addressing the inflationary effects of the extensive pandemic-related government stimulus programs, and an increase in interest rate levels generally results in a reduction of floor income we receive on certain FFELP loans.

A vast majority of our employees continue to work from home, either full-time or dividing their workdays between working from home and working in the office as we have offered employees flexibility in the amount of time they work in offices that were reopened in 2021.

Unanticipated issues arising from handling personal, confidential, and other information in a work-

from-home environment could lead to greater risks for us, including cybersecurity and privacy risks.

In addition, recent labor market constraints have resulted in wage inflation and higher voluntary turnover rates, which in turn have led to increases in compensation costs to attract and retain talent.

Further, in September 2021, the President issued an executive order that would require certain COVID-19 precautions for government contractors, including mandatory employee vaccinations.

These requirements would apply to us as a student loan servicer for the Department, but are currently stayed pending the outcome of ongoing litigation.

Any implementation of vaccination mandates applicable to our employees could result in workplace disruptions, employee attrition, and difficulty securing future talent needs in an increasingly competitive job market.

The CARES Act suspended federal student loan payments and interest accruals on all loans owned by the Department beginning as of March 13, 2020, and this suspension has been extended through May 1, 2022.

As a result of this suspension, we receive a reduced level of servicing revenue per borrower from the Department.

In addition, revenue from the Department for originating consolidation loans has been adversely impacted because of borrowers receiving relief on their existing loans, thus not initiating a consolidation.

If the suspension period is extended further, more borrowers may consolidate their FFELP loans to the Federal Direct Loan Program, which could further increase prepayments on our loan portfolio and reduce our interest income and servicing fees.

We currently anticipate the above revenues will continue to be negatively impacted while student loan payments and interest accruals are suspended.

The extent to which the COVID-19 pandemic continues to impact us will depend on many factors which are uncertain and beyond our control, including:

the duration and ultimate severity of the pandemic;

further public health and economic dislocations and constraints resulting from the pandemic;

government actions in response to the pandemic, including any further actions to suspend, reduce or cancel payment obligations for loan borrowers;

and the impacts of the pandemic on the U.S.

and world economies.

However, the impacts of the COVID-19 pandemic, or any other pandemic, on our businesses could be material and adverse.

To the extent the COVID-19 pandemic continues to adversely affect broader economic conditions and/or adversely affects us, it may also have the effect of increasing the likelihood and/or magnitude of other risks described in this report.

Climate change manifesting as physical or transition risks could have a material adverse impact on our operations, vendors, and customers.

Our businesses, and the activities of our vendors and customers, could be impacted by climate change.

Climate change could manifest as a financial risk to us either through changes in the physical climate or from the process of transitioning to a low-carbon economy, including changes in climate policy or in the regulation of businesses with respect to risks posed by climate change.

Climate-related physical risks may include altered distribution and intensity of rainfall, prolonged droughts or flooding, increased frequency and severity of wildfires, hurricanes, and tornadoes, rising sea levels, and a rising heat index.

In addition to possible changes in climate policy and regulation, potential transition risks may include economic and other changes engendered by the development of low-carbon technological advances (e.g., electric vehicles and renewable energy) and/or changes in consumer and business preferences toward low-carbon goods and services.

These climate-related physical risks and transition risks could have a financial impact on us, and our vendors and customers, including declines in asset values;

cost increases;

reduced availability of insurance;

reduced demand for certain goods and services;

increased loan delinquencies, bankruptcies, events of default, and force majeure events;

increased interruptions to business operations and services;

adverse supply chain impacts;

and negative consequences to business models, and the need to make changes in response to those consequences.

A failure of our operating systems or infrastructure could disrupt our businesses, cause significant losses, result in regulatory action, and damage our reputation.

We operate many different businesses in diverse markets and depend on the efficient and uninterrupted operation of our computer network systems, software, datacenters, cloud services providers, telecommunications systems, and the rest of our operating systems and infrastructure to process and monitor large numbers of daily transactions in compliance with contractual, legal, regulatory, and our own standards.

Such systems and infrastructure could be disrupted because of a cyberattack, spikes in transaction volume, power outages, telecommunications failures, degradation or loss of internet or website availability, natural disasters, political or social unrest, and terrorist acts.

Such systems and infrastructure could be disrupted because of a cyberattack, spikes in transaction volume, power outages, telecommunications failures, process breakdowns, degradation or loss of internet or website availability, natural disasters, political or social unrest, and terrorist acts.

A significant adverse incident could damage our reputation and credibility, lead to customer dissatisfaction and loss of customers or revenue, and result in regulatory action, in addition to increased costs to service our customers and protect our network.

Such event also could result in large expenditures to repair or replace the damaged properties, networks, or information systems or to protect them from similar events in the future.

Such an event could also result in large expenditures to repair or replace the damaged properties, networks, or information systems or to protect them from similar events in the future.

System redundancy may be ineffective or inadequate, and our business continuity plans may not be sufficient for all eventualities.

Any significant loss of customers or revenue, or significant increase in costs of serving those customers, could adversely affect our growth, financial condition, and results of operations.

Operating system and infrastructure risks continue to increase in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to support and process customer transactions, the increased number and complexity of transactions being processed, and the increased sophistication and activities of organized crime, hackers, terrorists, activists, nation state threat actors, and other external parties.

In addition, to access our services and products, our customers may use personal smartphones, tablet PCs, and other mobile devices that are beyond our control systems.

Malicious and abusive activities, such as the dissemination of computer viruses, worms, and other destructive or disruptive software, internal and external threats, computer hackings, social engineering, process breakdowns, denial of service attacks, ransomware or ransom demands to not expose vulnerabilities in systems, and other malicious activities have become more common.

These activities could have adverse consequences on our network and our customers, including degradation of service, excessive call volume, and damage to our or our customers' equipment and data.

Although to date we have not experienced a material loss relating to cyberattacks or system outage, there can be no assurance that we will not suffer such

losses in the future or that there is not a current threat that remains undetected at this time.

Operating system and infrastructure risks continue to increase in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to support and process customer transactions, the increased number and complexity of transactions being processed, changes to the way we do business due to the COVID-19 pandemic (like increased instances of employees working from home and/or using personal computing devices), and the increased sophistication and activities of organized crime, hackers, terrorists, activists, nation state threat actors, and other external parties.

In addition, to access our services and products, our customers may use personal smartphones, tablet computers, and other mobile devices that are beyond our control systems.

Malicious and abusive activities, such as the dissemination of computer viruses, worms, and other destructive or disruptive software, internal and external threats, computer hacking, social engineering, denial of service attacks, ransomware or ransom demands to not expose confidential data or vulnerabilities in systems, and other malicious activities have become more common.

These activities could have material adverse consequences on our network and our customers, including degradation of service, excessive call volume, and damage to our or our customers' equipment and data.

Although to date we have not experienced a material loss relating to cyberattacks or system outage, there can be no assurance that we will not suffer such losses in the future or that there is not a current threat that remains undetected at this time.

Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, and the size and scale of our services.

We could also incur losses resulting from the risk of unauthorized access to our computer systems, the execution of unauthorized transactions by employees, errors relating to transaction processing and technology, breaches of the internal control system and compliance requirements, and failures to properly execute business continuation and disaster recovery plans.

In the event of a breakdown in the internal control system, improper operation of systems, or unauthorized employee actions, we could suffer financial loss, potential legal actions, fines, or civil monetary penalties that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to potential negative publicity and damage to our reputation.

We could also incur material losses resulting from the risk of unauthorized access to our computer systems, the execution of unauthorized transactions by employees, errors relating to transaction processing and technology, breaches of the internal control system and compliance requirements, and failures to properly execute business continuation and disaster recovery plans.

In the event of a breakdown in the internal control system, improper operation of systems, or unauthorized employee actions, we could suffer material financial loss, potential legal actions, fines, or civil monetary penalties that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to potential negative publicity and damage to our reputation.

As a result of the above risks, we continue to develop and enhance our training, controls, processes, and practices designed to protect, monitor, and restore our systems, computers, software, data, and networks from attack, damage, or unauthorized access, and this remains a priority for us, each of our business segments, and our Board of Directors.

Even though we maintain technology and telecommunication, professional services, media, network security, privacy, injury, and liability insurance coverage to offset costs that may be incurred as a result of a cyberattack, information security breach, or extended system outage, this insurance coverage may not cover all costs of such incidents.

A security breach of our information technology systems could result in the disclosure of confidential customer and other information, significant financial losses and legal exposure, and damage to our reputation.

Even though we maintain technology and telecommunication, professional services, media, network security, privacy, injury, and liability insurance coverage to offset costs related to a cyberattack, information security breach, or extended system outage, this insurance coverage may not cover all costs of such incidents.

A security breach of our information technology systems could result in material financial losses and legal exposure, and damage to our reputation.

Our operations rely on the secure processing, storage and transmission of personal, confidential and other sensitive information in our information technology systems, including customer, personnel, and vendor data.

Although we devote significant resources to maintain and regularly upgrade our systems and processes that are designed to protect the security of our systems, software, and networks and to protect the confidentiality, integrity and availability of information belonging to us and our customers, we experience increasingly numerous and more sophisticated attacks on our systems, and our cybersecurity measures may not be entirely effective.

We may not be able to anticipate or to implement effective preventive measures against all types of potential security breaches, because the techniques used change frequently, generally increase in sophistication, often are not recognized until launched, sometimes go undetected even when successful, and result in cybersecurity attacks originating from a wide variety of sources, including organized crime, hackers, terrorists, activists, hostile foreign governments, and other external parties.

We may not be able to anticipate or to implement effective preventive measures against all types of security breaches, because the techniques used change frequently, generally increase in sophistication, often are not recognized until launched, sometimes go undetected even when successful, and result in cybersecurity attacks originating from a wide variety of sources, including organized crime, hackers, terrorists, activists, hostile foreign governments, and other external parties.

Those parties may also attempt to fraudulently induce employees, customers, or other users of our systems to disclose sensitive information to gain access to our data or that of our customers, such as through “phishing” schemes.

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and harm to our reputation.

Although to date we have not experienced a material loss relating to information security breaches, there can be no assurance that we will not suffer such losses in the future or that there is not a current threat that remains undetected at this time.

In addition, we routinely transmit, receive, and process large volumes of personal, confidential, and proprietary information through third parties.

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An interception, misuse or mishandling of personal, confidential, or proprietary information being processed, sent to or received from a third party could result in material adverse legal liability, regulatory actions, disruptions, and reputational harm with respect to our businesses.

We and our third-party vendors have experienced, and could experience in the future, cyber-attacks and information security breaches.

Although to date none of these attacks or breaches has individually or in the aggregate resulted in a security incident with a material adverse effect on our results of operations, financial condition, or businesses, there can be no assurance that we will not suffer material adverse effects in the future or that there is not a significant current threat that remains undetected at this time.

We must adapt to rapid technological change.

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If we fail to enhance and scale our systems and operational infrastructure or products and services, our operating segments may lose their competitive advantage and this could adversely affect financial and operating results.

We require skilled technology and security workers to maintain, secure, and improve our information technology systems and infrastructure.

Talent availability, increased demand and competition for skilled workers across the technology sector may impact our ability to maintain adequate technology and security staffing levels.

If we are unable to retain existing talent, or recruit and hire new talent when needed, we may be unable to quickly adopt new technologies, or maintain and improve our technology systems and infrastructure.

Our products and services are based on sophisticated software and computing systems that often encounter development delays, and the underlying software may contain undetected bugs or other defects that interfere with its intended operation.

Quality problems with our software products and errors or delays in our processing of electronic transactions could result in additional development costs, diversion of technical and other resources from our other development efforts, loss of credibility with current or potential clients, harm to our reputation, or exposure to liability claims.

Quality problems with our software products, with transferring between systems or with errors or delays in our processing of electronic transactions, could result in additional development costs, diversion of technical and other resources from our other development efforts, loss of credibility with current or potential clients, harm to our reputation, or exposure to liability claims.

We rely on third parties for a wide array of services for our customers, and to meet our contractual obligations.

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We also rely upon data from external sources to maintain our proprietary databases, including data from customers, business partners, and various government sources.

Our third-party service providers may be vulnerable to damage or interruption from earthquakes, floods, fires, power loss, cyberattacks, telecommunications failures, acts of terrorism, and similar events.

Our third-party service providers may be vulnerable to damage or interruption from earthquakes, floods, fires, power loss, cyberattacks, telecommunications failures, supply chain disruptions, acts of terrorism, and similar events.

They may also be subject to break-ins, sabotage, intentional acts of vandalism, and similar misconduct, as well as local administrative actions, changes to legal or permitting requirements, and litigation to stop, limit, or delay operations.

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Some of our third-party service providers may engage vendors of their own as they provide services or technology solutions for our operations, which introduces the same risks that these “fourth parties” could be the source of operational failures.

Third parties that facilitate our business activities, including exchanges, clearinghouses, payment networks, or financial intermediaries, could also be sources of operational risks to our businesses, including with respect to breakdowns or failures of their systems, misconduct by their employees, or cyberattacks that could affect their ability to deliver a product or service to us or result in the loss or compromise of our information or the information of our customers.

or result in the loss or compromise of our information or the information of our customers.

Our ability to implement backup systems or other safeguards with respect to third-party systems is limited.

Furthermore, an attack on, or failure of, a third-party system may not be revealed to us in a timely manner, which could compromise our ability to respond effectively.

Our reliance on Amazon Web Services to deliver cloud computing services is significant, and any disruptions with our use of Amazon Web Services could adversely impact our business and operations.

Amazon Web Services ("AWS") provides infrastructure and software services for a significant amount of our technology products and services.

As we continue to modernize our systems, the level of dependence on AWS' cloud services will grow.

We also rely on AWS for our system backups and archive storage, and a substantial amount of our users' information and confidential business information is stored in the AWS cloud environment.

Given that we contract with many third-party service providers and utilize third-party software applications that are also dependent on AWS, the stability and availability of AWS is critical to our business.

AWS' operations and facilities are susceptible to service interruptions and damage, and we have limited control over the AWS operations and facilities that support our business.

We have implemented contingency plans for disaster recovery and business continuity but are limited in our ability to move quickly off AWS to another cloud service provider.

Any disruption of or interference with our use of AWS could adversely impact our operations and our business.

Any negative publicity arising from these disruptions could also harm our reputation and brand.

We must satisfy certain requirements necessary to maintain the federal guarantees of our federally insured loans and the federally insured loans that we service for third parties, and we may incur penalties or lose our guarantees if we fail to meet these requirements.

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In most cases, these contracts are subject to termination rights, audits, and investigations.

(“NIST”) and our operating segments that utilize payment cards are subject to the Payment Card Industry Data Security Standards (“PCI DSS”).

The laws and regulations that impact our operating segments are outlined in Part I, Item 1, “Regulation and Supervision.” Additionally, our contracts with the federal government require that we maintain internal controls in accordance with the National Institute of Standards and Technologies (“NIST”) and our operating segments that utilize payment cards are subject to the Payment Card Industry Data Security Standards (“PCI DSS”).

If we are found to be in noncompliance with the contract provisions or applicable laws, regulations, or standards, or the contracted party exercises its termination or other rights for that or other reasons, our reputation could be negatively affected, and our ability to compete for new contracts or maintain existing contracts could diminish.

If this were to occur, our results of operations from existing contracts and future opportunities for new contracts could be negatively affected.

We could face significant legal and reputational harm if we fail to safeguard the privacy of personal information.

The failure to safeguard the privacy of personal information could result in significant legal and reputational harm.

We are subject to complex and evolving laws and regulations, both inside and outside of the United States, governing the privacy and protection of personal information of individuals.

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The regulatory framework for privacy issues is evolving and is likely to continue doing so for the foreseeable future, which creates uncertainty.

Because the interpretation and application of privacy and data protection laws and privacy standards are still uncertain, it is possible that these laws or privacy standards may be interpreted and applied in a manner that is inconsistent with our practices.

Because the interpretation and application of privacy and data protection laws and privacy standards are still uncertain, it is possible that

these laws or privacy standards may be interpreted and applied in a manner that is inconsistent with our practices.

Any inability to adequately address privacy concerns, even if unfounded, or to comply with applicable privacy or data protection laws, regulations, and privacy standards, could result in additional cost and liability for us, damage our reputation, and harm our business.

Nelnet Bank’s operations may not achieve expected market penetration and business plan results.

The failure of Nelnet Bank to achieve business plan results and effectively deploy loan and deposit strategies in accordance with regulatory requirements and its business plan could adversely affect the Bank’s success during its three-year de novo period.

On November 2, 2020, Nelnet Bank, our banking subsidiary, launched operations.

Nelnet Bank operates as an internet Utah-chartered industrial bank franchise focused on the private education loan marketplace, and its bank charter allows us to maintain our other diversified business offerings.

Nelnet Bank was funded by us with an initial capital contribution of $100.0 million, consisting of $55.9 million of cash and $44.1 million of student loan asset-backed securities.

In addition, we made a pledged deposit of $40.0 million with Nelnet Bank, as required under an agreement with the Federal Deposit Insurance Corporation (“FDIC”).

The regulatory landscape surrounding industrial banks continues to be scrutinized.

Nelnet Bank will monitor the regulatory environment and any related changes that may impact the charter or its operations.

Nelnet Bank has established a 3-year business plan, which requires ongoing monitoring to ensure alignment to financial and asset targets as well as other commitments.

Failure to meet these targets and commitments could jeopardize the Nelnet Bank charter.

Nelnet Bank operates as an internet Utah-chartered industrial bank franchise focused on the private education loan marketplace.

Nelnet Bank was funded by us with an initial capital contribution of $100.0 million, consisting of $55.9 million in cash and $44.1 million of student loan asset-backed securities.

In addition, we made a pledged deposit of $40.0 million with Nelnet Bank, as required under an agreement with the FDIC.

The regulatory landscape surrounding industrial banks continues to be scrutinized and banking policy changes may be difficult to predict in advance.

Nelnet Bank monitors the regulatory environment and any related changes that may impact the charter or its operations.

Nelnet Bank established a three-year business plan, which requires ongoing monitoring to ensure alignment to financial and asset targets as well as other commitments.

Failure to meet these targets and commitments could jeopardize the success and profitability of Nelnet Bank.

The banking industry is highly regulated, and the regulatory framework, together with any future legislative changes, may have a significant adverse effect on Nelnet Bank’s operations.

Nelnet Bank’s current product offerings are primarily concentrated in loan products for higher education, with expected expansion in alignment with the business plan to unsecured consumer lending.

Such concentrations and the competitive environment for those products subject the bank to risks that could adversely affect its financial position.

Consumer access to alternative means of financing, the costs of education, and other factors may reduce demand for, or adversely affect Nelnet Bank’s ability to, retain private education loans.

Prior to FDIC approval, Nelnet Bank, Nelnet, Inc.

(the parent), and Michael S.

Dunlap (Nelnet, Inc.’s controlling shareholder) entered into a Capital and Liquidity Maintenance Agreement and a Parent Company Agreement with the FDIC in connection with Nelnet, Inc.’s role as a source of financial strength for Nelnet Bank.

For additional information, see the MD&A - “Liquidity and Capital Resources - Liquidity Impact Related to Nelnet Bank.” However, any failure to meet minimum capital requirements and FDIC regulations can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have material adverse effect on Nelnet Bank’s business, results of operations, and financial condition.

Our failure to successfully manage business and certain asset acquisitions and other investments could have a material adverse effect on our business, financial condition, and/or results of operations.

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Our significant investments in ALLO and Hudl are subject to a number of risks, including macroeconomic conditions, competition, political and regulatory requirements, technology advancements, cybersecurity threats, retention of key personnel, and other risks.

ALLO derives its revenue primarily from the sale of telecommunication services, including internet, telephone, and television services, to business, governmental, and residential customers in Nebraska and Colorado, and specializes in high-speed internet and broadband services available through its all-fiber network.

Telecommunications businesses are highly competitive and subject to extensive federal, state, and local regulations.

Additionally, our investment in ALLO is dependent on ALLO maintaining and expanding its infrastructure and ability to continue to increase market share in existing and new markets.

Hudl is a leading sports performance analysis company and their software provides more than 4.3 million coaches, athletes, trainers and analysts across 30+ sports the insights to be more competitive.

The Hudl business is subject to global market conditions, new competition, advancements in technology, and continued demand for their products and services.

The COVID-19 pandemic was significantly disruptive to the Hudl business, and this impact could continue for the duration of the pandemic.

ALLO derives its revenue primarily from the sale of telecommunication services, which are subject to intense competition and extensive federal, state, and local regulations.

Additionally, our investment in ALLO is dependent on ALLO maintaining and expanding its infrastructure and continuing to increase market share in existing and new markets.

Hudl’s sports performance analysis business is subject to global market conditions, new competition, advancements in technology, and continued demand for their products and services.

The operating results of these companies could impact the valuation of these investments on our financial statements, and we may not be able to fully monetize these investments without a liquidation event.

Geopolitical risks, such as those associated with Russia’s invasion of Ukraine, could result in a decline in the outlook for the U.S.

and global economies.

The uncertain nature, magnitude, and duration of hostilities stemming from Russia’s recent military invasion of Ukraine, including the potential effects of sanctions and retaliatory cyber-attacks on the world economy and markets, have contributed to increased market volatility and uncertainty, and such geopolitical risks could have an adverse impact on macroeconomic factors which affect our assets and businesses.

Regulatory and Legal

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Changes in these laws and regulations can significantly alter our business environment, limit business operations, and increase costs of doing business, and we cannot predict the impact such changes would have on our profitability.

The Consumer Financial Protection Bureau (CFPB) has the authority to supervise and examine large nonbank student loan servicers, including us.

If in the course of such an examination the CFPB were to determine that we were not in compliance with applicable laws, regulations, and CFPB guidance, it is possible that this could result in material adverse consequences, including, without limitation, settlements, fines, penalties, public enforcement action, adverse regulatory actions, changes in our business practices, or other actions.

For example, the CFPB has the authority to supervise, examine, and investigate large nonbank student loan servicers, including us.

If the CFPB were to determine that we were not in compliance with applicable laws, regulations, and CFPB guidance, it is possible that this could result in material adverse consequences, including, without limitation, settlements, fines, penalties, public enforcement actions, adverse regulatory actions, changes in our business practices, or other actions.

The CFPB has also issued student loan servicing rules since its inception and continues to review servicing areas where new guidance or rules may be issued in the future.

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Several states have enacted laws regulating and monitoring the activity of student loan servicers.

Some of these laws stipulate additional licensing fees which increase our cost of doing business.

Where we have obtained licenses, state licensing statutes may impose a variety of requirements and restrictions on us.

In addition, these statutes may also subject us to the supervisory and examination authority of state regulators in certain cases, and we will be subject to and experience exams by state regulators.

If we are found to not have complied with applicable laws, regulations, or requirements, we could:

(i) lose one or more of our licenses or authorizations, (ii) become subject to a consent order or administrative enforcement action, (iii) face lawsuits (including class action lawsuits), sanctions, or penalties, or (iv) be in breach of certain contracts, which may void or cancel such contracts.

We anticipate additional states adopting similar laws.

For additional information, including risks to us from such state laws, see the paragraph beginning with the same sentence as the immediately preceding sentence that is set forth in Part I, Item 1, “Regulation and Supervision - Loan Servicing and Systems.”

As a result of the Reconciliation Act of 2010, our existing FFELP loan portfolio will continue to decline over time.

The Reconciliation Act of 2010 discontinued new loan originations under the FFEL Program effective July 1, 2010, and requires all new federal loan originations be made through the Federal Direct Loan Program.

The Reconciliation Act of 2010 discontinued new loan originations under the FFEL Program and requires all new federal loan originations to be made through the Federal Direct Loan Program.

Although the new law did not alter or affect the terms and conditions of existing FFELP loans, interest income related to existing FFELP loans will decline over time as existing FFELP loans are paid down, refinanced, or repaid by guaranty agencies after default.

5 unchanged sentences

Significant judgment is required in assessing and estimating the tax consequences of these transactions.

We prepare and file tax returns based on the interpretation of tax laws and regulations.

We prepare and file tax returns based on the interpretation of tax laws

and regulations.

In the normal course of business, our tax returns are subject to examination by various taxing authorities.

Such examinations may result in future tax and interest assessments by these taxing authorities.

Such examinations may result in future tax and interest assessments by these authorities.

In accordance with authoritative accounting guidance, we establish reserves for tax contingencies related to deductions and credits that we may be unable to sustain.

3 unchanged sentences

For example, any future tax legislation increasing the corporate federal income tax rate and/or limiting deductions could have a negative impact on the Company’s financial results.

In addition, several states are in a deficit position due to the pandemic.

In addition, several states are in a deficit position.

Accordingly, states may look to expand their taxable base, alter their tax calculation, or increase tax rates, which could result in an additional cost to the Company.

20 unchanged sentences

Certain grantor retained annuity trusts established by Mr.

Dunlap, a significant shareholder, as well as Executive Chairman, and a member of our Board of Directors, and his spouse own a total of 50.4 percent of F&M’s outstanding voting common stock, and a certain grantor retained annuity trust established by Mr.

Dunlap, a controlling shareholder as well as Executive Chairman of our Board of Directors, and his spouse own a total of 50.4 percent of F&M’s outstanding voting common stock, and a certain grantor retained annuity trust established by Mr.

Dunlap’s sister, Angela L.

8 unchanged sentences

Dunlap and Ms.

Muhleisen beneficially owned 82.3 percent and 12.1 percent, respectively, of the voting rights of our outstanding common stock (with certain shares deemed under applicable SEC rules to be beneficially owned by both Mr.

Muhleisen beneficially owned

81.8 percent and 11.8 percent, respectively, of the voting rights of our outstanding common stock (with certain shares deemed under applicable SEC rules to be beneficially owned by both Mr.

Dunlap and Ms.

We have entered into certain contractual arrangements with Union Bank, including loan purchases, loan servicing, loan participations, banking and lending services, 529 Plan administration services, lease arrangements, trustee services, and various other investment and advisory services.

We have entered into, and intend to continue entering into, certain contractual arrangements with Union Bank, including loan purchases, loan servicing, loan participations, banking and lending services, 529 Plan administration services, lease arrangements, trustee services, and various other investment and advisory services.

The net aggregate impact on our consolidated statements of income for the years ended December 31, 2021, 2020, and 2019 related to the transactions with Union Bank was income (before income taxes) of $11.0 million, $15.4 million, and $9.7 million, respectively.

1 unchanged sentence

We intend to maintain our relationship with Union Bank, which our management believes provides certain benefits to us.

Those benefits include Union Bank's knowledge of and experience in the FFELP industry, its willingness to provide services, and at times liquidity and capital resources, on an expedient basis, and the proximity of Union Bank to our corporate headquarters located in Lincoln, Nebraska.

Those benefits include Union Bank's knowledge of and experience in the FFELP industry, its willingness to provide services, and at times liquidity and capital resources, on an expedient basis, and its proximity to our corporate headquarters in Lincoln, Nebraska.

The majority of the transactions and arrangements with Union Bank are not offered to unrelated third parties or subject to competitive bids.

12 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors