NELNET INC 10-K

ITEM 9A. 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 December 31, 2021. 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 December 31, 2021. Changes in Internal Control over Financial Reporting The Company implemented a new enterprise resource planning system in 2021 which replaced multiple systems, including the general ledger and payroll processing systems, and resulted in changes to business processes. We believe the change has enhanced the Company’s internal control over financial reporting due to increased automation and further integration of related processes. The Company replaced multiple internal controls that were previously considered effective with new or modified controls that are also considered effective. There were no other changes in the Company's internal control over financial reporting during the fiscal quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Management's Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) for the Company. The Company's internal control system is designed to provide reasonable assurance to the Company's management and board of directors regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements in accordance with U.S. generally accepted accounting principles. Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2021 based on the criteria for effective internal control described in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that, as of December 31, 2021, the Company's internal control over financial reporting is effective. The effectiveness of the Company's internal control over financial reporting as of December 31, 2021 has been audited by KPMG LLP, the Company's independent registered public accounting firm, as stated in their report included herein. Inherent Limitations on Effectiveness of Internal Controls The Company's management, including the chief executive and chief financial officers, understands that the disclosure controls and procedures and internal control over financial reporting are subject to certain limitations, including the exercise of judgment in designing, implementing, and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events, and the inability to eliminate misconduct completely. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 73 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Nelnet, Inc.: Opinion on Internal Control Over Financial Reporting We have audited Nelnet, Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated February 28, 2022 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP Lincoln, Nebraska February 28, 2022 ITEM 9B. OTHER INFORMATION During the fourth quarter of 2021, no information was required to be disclosed in a report on Form 8-K, but not reported. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 74 PART III. ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE The information as to the directors, executive officers, and corporate governance of the Company set forth under the captions “PROPOSAL 1 - ELECTION OF DIRECTORS,” “EXECUTIVE OFFICERS,” and “CORPORATE GOVERNANCE,” and the information as to any delinquent report under Section 16(a) of the Securities Exchange Act of 1934 set forth under the caption “SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS, AND PRINCIPAL SHAREHOLDERS - Delinquent Section 16(a) Reports," to the extent any such disclosure is required, in the definitive Proxy Statement to be filed on Schedule 14A with the SEC, no later than 120 days after the end of the Company's fiscal year, relating to the Company's 2022 Annual Meeting of Shareholders scheduled to be held on May 19, 2022 (the “Proxy Statement”), is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information set forth under the captions “CORPORATE GOVERNANCE” and “EXECUTIVE COMPENSATION” in the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information set forth under the caption “SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS, AND PRINCIPAL SHAREHOLDERS - Stock Ownership” in the Proxy Statement is incorporated herein by reference. There are no arrangements known to the Company, the operation of which may at a subsequent date result in a change in the control of the Company. The following table summarizes information about compensation plans under which equity securities are authorized for issuance. Equity Compensation Plan Information As of December 31, 2021 Plan category Number of shares to be issued upon exercise of outstanding options, warrants, and rights (a) Weighted-average exercise price of outstanding options, warrants, and rights (b) Number of shares remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) Equity compensation plans approved by shareholders — — 1,515,565 (1) Equity compensation plans not approved by shareholders — — — Total — — 1,515,565 (1) Includes 1,100,414, 46,415, and 368,736 shares of Class A Common Stock remaining available for future issuance under the Nelnet, Inc. Restricted Stock Plan, Nelnet, Inc. Directors Stock Compensation Plan, and Nelnet, Inc. Employee Share Purchase Plan, respectively. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information set forth under the captions “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,” “CORPORATE GOVERNANCE - Board Composition and Director Independence,” and “CORPORATE GOVERNANCE - Board Committees” in the Proxy Statement is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information set forth under the caption “PROPOSAL 2 - RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - Independent Accountant Fees and Services” in the Proxy Statement is incorporated herein by reference. 75 PART IV. ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) 1. Consolidated Financial Statements The following consolidated financial statements of Nelnet, Inc. and its subsidiaries and the Report of Independent Registered Public Accounting Firm thereon are included in Item 8 above: Page Report of Independent Registered Public Accounting Firm F- 2 Consolidated Balance Sheets as of December 31, 2021 and 2020 F- 4 Consolidated Statements of Income for the years ended December 31, 2021, 2020, and 2019 F- 5 Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020, and 2019 F- 6 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2021, 2020, and 2019 F- 7 Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020, and 2019 F- 8 Notes to Consolidated Financial Statements F- 10 2. Financial Statement Schedules All schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. 3. Exhibits The exhibits listed in the accompanying index to exhibits are filed, furnished, or incorporated by reference as part of this report. (b) Exhibits Exhibit Index Exhibit No. Description 3.1 Composite Third Amended and Restated Articles of Incorporation of Nelnet, Inc., as amended on May 23, 2019, filed as Exhibit 3.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and incorporated herein by reference. 3.2 Ninth Amended and Restated Bylaws of Nelnet, Inc., as amended as of May 24, 2018, filed as Exhibit 3.2 to the registrant's Current Report on Form 8-K filed on May 24, 2018 and incorporated herein by reference. 4.1 Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934, filed as Exhibit 4.1 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2019 and incorporated herein by reference. 4.2 Form of Class A Common Stock Certificate of Nelnet, Inc., filed on November 24, 2003 as Exhibit 4.1 to the registrant’s Registration Statement on Form S-1 (Registration No. 333-108070) and incorporated herein by reference. 4.3 Certain instruments, including indentures of trust, defining the rights of holders of long-term debt of the registrant and its consolidated subsidiaries, none of which instruments authorizes a total amount of indebtedness thereunder in excess of 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis, are omitted from this Exhibit Index pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. Certain of such instruments have been previously filed with the Securities and Exchange Commission, and the registrant hereby agrees to furnish a copy of any such instrument to the Commission upon request. 4.4 Registration Rights Agreement, dated as of December 16, 2003, by and among Nelnet, Inc. and the shareholders of Nelnet, Inc. signatory thereto, filed on November 24, 2003 as Exhibit 4.11 to the registrant’s Registration Statement on Form S-1 (Registration No. 333-108070) and incorporated herein by reference. 76 10.1 Composite Form of Amended and Restated Participation Agreement, dated as of June 1, 2001, between NELnet, Inc. (subsequently renamed National Education Loan Network, Inc.) and Union Bank and Trust Company, as amended by the First Amendment thereto dated as of December 19, 2001 through the Cancellation of the Fifteenth Amendment thereto dated as of March 16, 2011 (such Participation Agreement and each amendment through the Cancellation of the Fifteenth Amendment thereto have been previously filed as set forth in the Exhibit Index for the registrant’s Annual Report on Form 10-K for the year ended December 31, 2012, and are incorporated herein by reference), filed as Exhibit 10.1 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2013 and incorporated herein by reference. 10.2 Sixteenth Amendment of Amended and Restated Participation Agreement, dated as of March 23, 2012, by and between Union Bank and Trust Company and National Education Loan Network, Inc., filed as Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 and incorporated herein by reference. 10.3 Seventeenth Amendment of Amended and Restated Participation Agreement, dated as of August 1, 2019, by and between Union Bank and Trust Company and National Education Loan Network, Inc., filed as Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 and incorporated herein by reference. 10.4 Guaranteed Purchase Agreement, dated as of March 19, 2001, by and between NELnet, Inc. (subsequently renamed National Education Loan Network, Inc.) and Union Bank and Trust Company, filed on September 25, 2003 as Exhibit 10.36 to the registrant’s Registration Statement on Form S-1 (Registration No. 333-108070) and incorporated herein by reference. 10.5 First Amendment of Guaranteed Purchase Agreement, dated as of February 1, 2002, by and between NELnet, Inc. (subsequently renamed National Education Loan Network, Inc.) and Union Bank and Trust Company, filed on September 25, 2003 as Exhibit 10.37 to the registrant’s Registration Statement on Form S-1 (Registration No. 333-108070) and incorporated herein by reference. 10.6 Second Amendment of Guaranteed Purchase Agreement, dated as of December 1, 2002, by and between Nelnet, Inc. (f/k/a/ NELnet, Inc.) (subsequently renamed National Education Loan Network, Inc.) and Union Bank and Trust Company, filed on September 25, 2003 as Exhibit 10.38 to the registrant’s Registration Statement on Form S-1 (Registration No. 333-108070) and incorporated herein by reference. 10.7 Guaranteed Purchase Agreement, dated as of September 1, 2010, by and between Nelnet, Inc. and Union Bank and Trust Company, filed as Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 and incorporated herein by reference. 10.8 First Amendment of Guaranteed Purchase Agreement, dated as of March 22, 2011, by and between Nelnet, Inc. and Union Bank and Trust Company, filed as Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 and incorporated herein by reference. 10.9 Amendment of Agreements dated as of February 4, 2005, by and between National Education Loan Network, Inc. and Union Bank and Trust Company, filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on February 10, 2005 and incorporated herein by reference. 10.10+ Nelnet, Inc. Employee Share Purchase Plan, as amended through March 17, 2011, filed as Exhibit 10.4 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 and incorporated herein by reference. 10.11 Office Building Lease dated June 21, 1996 between Miller & Paine and Union Bank and Trust Company, filed as Exhibit 10.3 to the registrant's Current Report on Form 8-K filed on October 16, 2006 and incorporated herein by reference. 10.12 Amendment to Office Building Lease dated June 11, 1997 between Miller & Paine and Union Bank and Trust Company, filed as Exhibit 10.4 to the registrant's Current Report on Form 8-K filed on October 16, 2006 and incorporated herein by reference. 10.13*# Of fice Building Lease dated J anu ary 5, 2021 betwee n Union Bank and Trust Company and National Educa tion Loan Ne twork. 10.14 Lease Amendment Number Two dated February 8, 2001 between Miller & Paine and Union Bank and Trust Company, filed as Exhibit 10.5 to the registrant's Current Report on Form 8-K filed on October 16, 2006 and incorporated herein by reference. 10.15 Lease Amendment Number Three dated May 23, 2005 between Miller & Paine, LLC and Union Bank and Trust Company, filed as Exhibit 10.6 to the registrant's Current Report on Form 8-K filed on October 16, 2006 and incorporated herein by reference. 77 10.16 Lease Amendment Number Four dated November 13, 2007 between M & P Building, LLC and Union Bank and Trust Company, filed as Exhibit 10.14 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference. 10.17 Lease Amendment Number Five entered into in September 2008 between M & P Building, LLC and Union Bank and Trust Company, filed as Exhibit 10.15 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference. 10.18 Lease Amendment Number Six dated December 15, 2017 between Nelnet Real Estate Ventures, Inc. and Union Bank and Trust Company, filed as Exhibit 10.16 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference. 10.19+ Nelnet, Inc. Restricted Stock Plan, as amended through May 22, 2014, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on May 28, 2014 and incorporated herein by reference. 10.20+ Amendment to Nelnet, Inc. Restricted Stock Plan, effective as of February 11, 2020, filed as Exhibit 10.21 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2019 and incorporated herein by reference. 10.21+ Nelnet, Inc. Directors Stock Compensation Plan, as amended through March 21, 2018, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on May 24, 2018 and incorporated herein by reference. 10.22+ Nelnet, Inc. Executive Officers Incentive Compensation Plan, effective as of January 1, 2019, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on May 23, 2019 and incorporated herein by reference. 10.23 Loan Purchase Agreement, dated as of November 25, 2008, by and between Nelnet Education Loan Funding, Inc., f/k/a NEBHELP, INC., acting, where applicable, by and through Wells Fargo Bank, National Association, not individually but as Eligible Lender Trustee for the Seller under the Warehouse Agreement or Eligible Lender Trust Agreement, and Union Bank and Trust Company, acting in its individual capacity and as trustee, filed as Exhibit 10.71 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference. 10.24 Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 and incorporated herein by reference. 10.25 Modification of Contract dated effective as of June 17, 2014 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on June 18, 2014 and incorporated herein by reference. 10.26 Modification of Contract dated effective as of September 1, 2014 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on September 2, 2014 and incorporated herein by reference. 10.27 Modification of Contract dated effective as of June 16, 2019 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on May 17, 2019 and incorporated herein by reference. 10.28 Modification of Contract dated effective as of November 25, 2019 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on November 27, 2019 and incorporated herein by reference. 10.29 Modification of Contract dated effective as of December 15, 2020 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on December 15, 2020 and incorporated herein by reference. 10.30 Form of Modification of Contract dated effective as of June 15, 2021 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on June 10, 2021 and incorporated herein by reference. 10.31 Form of Modification of Contract entered into on September 24, 2021 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on September 27, 2021 and incorporated herein by reference. 10.32* Form of Modification of Contract entered into December 29, 2021 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC. 10.33 Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.6 to the registrant's Current Report on Form 8-K filed on May 17, 2019 and incorporated herein by reference. 78 10.34 Modification of Contract dated effective as of May 21, 2014 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.7 to the registrant's Current Report on Form 8-K filed on May 17, 2019 and incorporated herein by reference. 10.35 Modification of Contract dated effective as of September 1, 2014 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.8 to the registrant's Current Report on Form 8-K filed on May 17, 2019 and incorporated herein by reference. 10.36 Modification of Contract dated effective as of June 16, 2019 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.2 to the registrant's Current Report on Form 8-K filed on May 17, 2019 and incorporated herein by reference. 10.37 Modification of Contract dated effective as of November 25, 2019 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.2 to the registrant's Current Report on Form 8-K filed on November 27, 2019 and incorporated herein by reference. 10.38 Modification of Contract dated effective as of December 15, 2020 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on December 15, 2020 and incorporated herein by reference. 10.39 Form of Modification of Contract dated effective as of June 15, 2021 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.2 to the registrant's Current Report on Form 8-K filed on June 10, 2021 and incorporated herein by reference. 10.40 Form of Modification of Contract entered into on September 24, 2021 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.2 to the registrant's Current Report on Form 8-K filed on September 27, 2021 and incorporated herein by reference. 10.41* Form of Modification of Contract entered into on January 7, 2022 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc. 10.42 Management Agreement, dated effective as of May 1, 2011, by Whitetail Rock Capital Management, LLC and Union Bank and Trust Company, filed as Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 and incorporated herein by reference. 10.43 Management Agreement, dated effective as of January 20, 2012, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.58 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2011 and incorporated herein by reference. 10.44 Management Agreement, dated effective as of October 27, 2015, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.25 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2015 and incorporated herein by reference. 10.45# Appendix A, dated July 29, 2020, to Management Agreement dated effective as of October 27, 2015, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.4 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference. 10.46 Management Agreement, dated effective as of January 4, 2016, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 and incorporated herein by reference. 10.47 Management Agreement, dated effective as of March 23, 2017, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 and incorporated herein by reference. 10.48 Amended Appendix A, dated May 8, 2019, to Management Agreement, dated effective as of March 23, 2017, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 and incorporated herein by reference. 10.49# Amended Appendix A, dated July 29, 2020, to Management Agreement dated effective as of March 23, 2017, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.5 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference. 79 10.50# Management Agreement dated effective as of July 29, 2020, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.6 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference. 10.51 Investment Management Agreement, dated effective as of February 10, 2012, by and among Whitetail Rock SLAB Fund I, LLC, Whitetail Rock Fund Management, LLC, and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.4 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 and incorporated herein by reference. 10.52 Investment Management Agreement, dated effective as of February 14, 2013, by and among Whitetail Rock SLAB Fund III, LLC, Whitetail Rock Fund Management, LLC, and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.31 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2013 and incorporated herein by reference. 10.53 Form of Custodian Agreement for Whitetail Rock SLAB Funds by and among the Fund, Whitetail Rock Fund Management, LLC, and Union Bank and Trust Company, filed as Exhibit 10.27 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference. 10.54 Form of Administrative Services Agreement for Whitetail Rock SLAB Funds by and among the Fund, Whitetail Rock Fund Management, LLC, Adminisystems, Inc., and Union Bank and Trust Company, filed as Exhibit 10.28 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference. 10.55 Management Agreement dated as of August 8, 2019 between 1867 – Riley Road, LLC (of which Farmers & Merchants Investment Inc., North Central Bancorp, Inc., and Nelnet Solar, LLC are members) and 1867 Capital-1, LLC (a wholly owned subsidiary of Nelnet, Inc.), filed as Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 and incorporated herein by reference. 10.56 Subordination Agreement effective as of July 26, 2019, by and between Union Bank and Trust Company, Nelnet, Inc., and Agile Sports Technologies, Inc., filed as Exhibit 10.7 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and incorporated herein by reference. 10.57# Third Amended and Restated Credit Agreement dated as of September 22, 2021, among Nelnet, Inc., U.S. Bank National Association, as Administrative Agent; Wells Fargo Bank, National Association, as Syndication Agent, Royal Bank of Canada, as Documentation Agent, U.S. Bank National Association and Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Book Runners; and various lender parties thereto, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on September 22, 2021 and incorporated herein by reference. 10.58 Third Amended and Restated Guaranty dated as of September 22, 2021, by each of the subsidiaries of Nelnet, Inc. signatories thereto, in favor of U.S. Bank National Association, as Administrative Agent, filed as Exhibit 10.2 to the registrant's Current Report on Form 8-K filed on September 22, 2021 and incorporated herein by reference. 10.59 Aircraft Joint Ownership Agreement dated as of January 1, 2019, by and between National Education Loan Network, Inc. and MSD711, LLC, filed as Exhibit 10.43 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference. 10.60 Aircraft Management Agreement, dated as of January 1, 2019, by and between Duncan Aviation, Inc. and National Education Loan Network, Inc. and MSD711, LLC, filed as Exhibit 10.44 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference. 10.61 Amended and Restated Consulting and Services Agreement made and entered into as of October 1, 2013, by and between Nelnet, Inc. and Union Bank and Trust Company, filed as Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 and incorporated herein by reference. 10.62 Master Private Loan Program Agreement dated as of August 22, 2018, by and between Union Bank and Trust Company and Nelnet, Inc., filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 and incorporated herein by reference. 10.63± Education Loan Marketing Agreement dated as of August 22, 2018, by and between Nelnet Consumer Finance, Inc. and Union Bank and Trust Company, filed as Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 and incorporated herein by reference. 10.64± Private Student Loan Origination and Servicing Agreement dated as of August 22, 2018, by and between Nelnet Servicing, LLC, d/b/a Firstmark Services, and Union Bank and Trust Company, filed as Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 and incorporated herein by reference. 80 10.65±± Private Student Loan Purchase Agreement dated as of November 19, 2019, by and among National Education Loan Network, Inc., as Purchaser, Union Bank and Trust Company, as Purchaser Lender Trustee, and Union Bank and Trust Company, as Seller, filed as Exhibit 10.56 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2019 and incorporated herein by reference . 10.66 Private Loan Sale Agreement dated as of October 9, 2014, by and between Nelnet, Inc. and Union Bank and Trust Company, filed as Exhibit 10.47 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference. 10.67 Private Student Loan Servicing Agreement dated as of October 9, 2014, by and between Nelnet Servicing, LLC and Union Bank and Trust Company, filed as Exhibit 10.48 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference. 10.68 First Amendment of Loan Servicing Agreement dated as of September 27, 2013, by and between Nelnet, Inc. and Union Bank and Trust Company, filed as Exhibit 10.49 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference. 10.69 Private Loan Servicing Letter Agreement dated as of February 27, 2017, by and between Nelnet Servicing, LLC and Union Bank and Trust Company, filed as Exhibit 10.54 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference. 10.70 Form of Trust/Custodial/Safekeeping Agreement by and between National Education Loan Network, Inc., as Principal, and Union Bank and Trust Company, as Trustee, filed as Exhibit 10.55 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference. 10.71 Form of Special Investment Directions by National Education Loan Network, Inc. and its affiliates, as Principal under the Form of Trust/Custodial/Safekeeping Agreement between Principal and Union Bank and Trust Company, as Trustee, filed as Exhibit 10.56 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference. 10.72 Loan Participation Agreement dated as of January 1, 2018 between Union Bank and Trust Company and Union Bank and Trust Company as trustee for National Education Loan Network, Inc., filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 and incorporated herein by reference. 10.73 Amended and Restated Trust Agreement dated as of December 21, 2018 among Nelnet Private Student Loan Financing Corporation, as Depositor, Union Bank and Trust Company, as Trustee, and U.S. Bank Trust National Association, as Delaware Trustee, filed as Exhibit 10.57 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference. 10.74±± Amended and Restated Trust Agreement, dated effective as of January 11, 2019, by and 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, filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and incorporated herein by reference. 10.75±± Interim Trust Agreement, dated effective as of January 11, 2019, by and among ACM F Acquisition, LLC, as ACM Seller, National Education Loan Network, Inc., as NELN Seller, and Union Bank and Trust Company, as Interim Trustee, filed as Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and incorporated herein by reference. 10.76 SLABS Participation Agreement, dated effective as of May 5, 2020, by and between National Education Loan Network, Inc., and Union Bank and Trust Company, as Trustee, filed as Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference. 10.77* First Amendment of SLABS Participation Agreement, dated effective as of October 1, 2021, by and between National Education Loan Network, Inc., and Union Bank and Trust Company, as Trustee. 10.78 Parent Company Agreement, dated as of June 26, 2020, by and among the Federal Deposit Insurance Corporation, Nelnet, Inc., Michael Dunlap, and Nelnet Bank, filed as Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference. 10.79 Capital and Liquidity Maintenance Agreement, dated as of June 26, 2020, by and among the Federal Deposit Insurance Corporation, Nelnet, Inc., Michael Dunlap, and Nelnet Bank, filed as Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference. 10.80++ Master Agreement entered into as of October 1, 2020, by and among SDC Allo Holdings, LLC, Nelnet, Inc., and ALLO Communications LLC, filed as Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 and incorporated herein by reference. 81 10.81++ Membership Unit Purchase Agreement, dated as of October 1, 2020, by and among SDC Allo Holdings, LLC, Nelnet, Inc., and ALLO Communications LLC, filed as Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 and incorporated herein by reference. 10.82 Omnibus Amendment dated as of October 15, 2020 to the Master Agreement and the Membership Unit Purchase Agreement, by and among SDC Allo Holdings, LLC, Nelnet, Inc., and ALLO Communications LLC, filed as Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 and incorporated herein by reference. 10.83*±± Form of Amended & Restated Limited Liability Company Operating Agreement for solar energy investments managed by a subsidiary of Nelnet, Inc. and in which certain parties referred to therein with other relationships with Nelnet, Inc. have participated. 10.84*±± Form of Management Agreement for solar energy investments managed by a subsidiary of Nelnet, Inc. and in which certain parties referred to therein with other relationships with Nelnet, Inc. have participated. 21.1* Subsidiaries of Nelnet, Inc. 23.1* Consent of KPMG LLP, Independent Registered Public Accounting Firm. 31.1* Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer Jeffrey R. Noordhoek. 31.2* Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer James D. Kruger. 32** Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS* Inline 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* Inline XBRL Taxonomy Extension Schema Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE* Inline 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 + Indicates a management contract or compensatory plan or arrangement contemplated by Item 15(a)(3) of Form 10-K. ++ Pursuant to Item 601(a)(5) of Regulation S-K, certain schedules and similar attachments to the exhibit have been omitted. The exhibit is not intended to be, and should not be relied upon as, including disclosures regarding any facts and circumstances relating to the registrant or any of its subsidiaries or affiliates. The exhibit contains representations and warranties by the registrant and the other parties that were made only for purposes of the agreement set forth in the exhibit and as of specified dates. The representations, warranties, and covenants in the agreement were made solely for the benefit of the parties to the agreement, may be subject to limitations agreed upon by the contracting parties (including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the agreement instead of establishing these matters as facts), and may apply contractual standards of materiality or material adverse effect that generally differ from those applicable to investors. In addition, information concerning the subject matter of the representations, warranties, and covenants may change after the date of the agreement, which subsequent information may or may not be fully reflected in the registrant's public disclosures. ± Certain portions of this exhibit have been redacted and are subject to a confidential treatment order granted by the U.S. Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. ±± Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K. # Schedules, exhibits, and similar attachments to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K. ITEM 16. FORM 10-K SUMMARY The Company has elected not to include an optional summary of information required by Form 10-K. 82 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Dated: February 28, 2022 NELNET, INC. By: /s/ JEFFREY R. NOORDHOEK Name: Jeffrey R. Noordhoek Title: Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ JEFFREY R. NOORDHOEK Chief Executive Officer (Principal Executive Officer) February 28, 2022 Jeffrey R. Noordhoek /s/ JAMES D. KRUGER Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) February 28, 2022 James D. Kruger /s/ MICHAEL S. DUNLAP Executive Chairman February 28, 2022 Michael S. Dunlap /s/ JAMES P. ABEL Director February 28, 2022 James P. Abel /s/ PREETA D. BANSAL Director February 28, 2022 Preeta D. Bansal /s/ WILLIAM R. CINTANI Director February 28, 2022 William R. Cintani /s/ KATHLEEN A. FARRELL Director February 28, 2022 Kathleen A. Farrell /s/ DAVID S. GRAFF Director February 28, 2022 David S. Graff /s/ THOMAS E. HENNING Director February 28, 2022 Thomas E. Henning /s/ KIMBERLY K. RATH Director February 28, 2022 Kimberly K. Rath 83 NELNET, INC. AND SUBSIDIARIES Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm F- 2 Consolidated Balance Sheets as of December 31, 2021 and 2020 F- 4 Consolidated Statements of Income for the years ended December 31, 202 1 , 20 20 , and 201 9 F- 5 Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020, and 2019 F- 6 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2021, 2020, and 2019 F- 7 Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020, and 2019 F- 8 Notes to Consolidated Financial Statements F- 10 F - 1 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Nelnet, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Nelnet, Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in I nternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Change in Accounting Principle As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Assessment of the allowance for loan losses As discussed in Note 4 to the consolidated financial statements, the Company’s allowance for loan losses as of December 31, 2021 was $127.1 million, of which $103.4 related to the Company’s allowance for loan losses on Non-Nelnet Bank federally insured loans and $16.1 related to the Company’s allowance for loan losses on Non-Nelnet Bank private education loans, collectively, the allowance for loan losses (the ALL). The ALL is the measure of expected credit losses on a pooled basis for those loans that share similar risk characteristics. The Company estimated the ALL using an undiscounted cash flow model. The Company’s methodology is based on relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. For the undiscounted cash flow models, the expected credit losses are the product of multiplying F - 2 the Company’s estimates of probability of default (PD), loss given default (LGD), and the exposure at default over the expected life of the loans. The undiscounted cash flow model incorporates a single economic forecast scenario and macroeconomic assumptions over the reasonable and supportable forecast periods. After the reasonable and supportable forecast periods, the Company reverts on a straight-line basis over the reversion period to its historical loss rates, evaluated over the historical observation period, for the remaining life of the loans. All such periods are established for each portfolio segment. A portion of the ALL is comprised of qualitative adjustments to historical loss experience. We identified the assessment of the ALL as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the ALL methodology, including the methods, models, and significant assumptions used to estimate the PD and LGD. Such assumptions included segmentation of loans with similar risk characteristics, the economic forecast scenario and macroeconomic assumptions, the reasonable and supportable forecast periods, and the historical observation period. The assessment also included an evaluation of the conceptual soundness and performance of the PD and LGD models. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the ALL estimate, including controls over the: • development of the ALL methodology • continued use and appropriateness of changes made to PD and LGD models • identification and determination of the significant assumptions used in the PD and LGD models • performance monitoring of the PD and LGD models • analysis of the ALL results, trends, and ratios. We evaluated the Company’s process to develop the ALL estimate by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in: • evaluating the Company’s ALL methodology for compliance with U.S. generally accepted accounting principles • evaluating judgments made by the Company relative to the assessment and performance testing of the PD and LGD models by comparing them to relevant Company-specific metrics and trends and the applicable industry practices • assessing the conceptual soundness and performance testing of the PD and LGD models by inspecting the model documentation to determine whether the models are suitable for their intended use • evaluating the selection of the economic forecast scenarios and underlying assumptions by comparing it to the Company’s business environment and relevant industry practices • evaluating the length of the historical observation period and reasonable and supportable forecast periods by comparing to specific portfolio risk characteristics and trends • determining whether the loan portfolio is segmented by similar risk characteristics by comparing to the Company’s business environment and relevant industry practices. We also assessed the cumulative results of the procedures performed to assess the sufficiency of the audit evidence obtained related to the ALL estimate by evaluating the: • cumulative results of the audit procedures • qualitative aspects of the Company’s accounting practices • potential bias in the accounting estimates. /s/ KPMG LLP We have served as the Company’s auditor since 1998. Lincoln, Nebraska February 28, 2022 F - 3 NELNET, INC. AND SUBSIDIARIES Consolidated Balance Sheets As of December 31, 2021 and 2020 2021 2020 (Dollars in thousands, except share data) Assets: Loans and accrued interest receivable (net of allowance for loan losses of $ 127,113 and $ 175,698 , respectively) $ 18,335,197 20,185,656 Cash and cash equivalents: Cash and cash equivalents - not held at a related party 30,128 33,292 Cash and cash equivalents - held at a related party 95,435 87,957 Total cash and cash equivalents 125,563 121,249 Investments 1,588,919 992,940 Restricted cash 741,981 553,175 Restricted cash - due to customers 326,645 283,971 Accounts receivable (net of allowance for doubtful accounts of $ 1,160 and $ 1,824 , respectively) 163,315 76,460 Goodwill 142,092 142,092 Intangible assets, net 52,029 75,070 Property and equipment, net 119,413 123,527 Other assets 82,887 92,020 Total assets $ 21,678,041 22,646,160 Liabilities: Bonds and notes payable $ 17,631,089 19,320,726 Accrued interest payable 4,566 28,701 Bank deposits 344,315 54,633 Other liabilities 379,231 312,280 Due to customers 366,002 301,471 Total liabilities 18,725,203 20,017,811 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 27,239,654 shares and 27,193,154 shares, respectively 272 272 Class B, convertible, $ 0.01 par value. Authorized 60,000,000 shares; issued and outstanding 10,676,642 shares and 11,155,571 shares, respectively 107 112 Additional paid-in capital 1,000 3,794 Retained earnings 2,940,523 2,621,762 Accumulated other comprehensive earnings, net 9,304 6,102 Total Nelnet, Inc. shareholders' equity 2,951,206 2,632,042 Noncontrolling interests 1,632 ( 3,693 ) Total equity 2,952,838 2,628,349 Total liabilities and equity $ 21,678,041 22,646,160 Supplemental information - assets and liabilities of consolidated education and other lending variable interest entities: Loans and accrued interest receivable $ 17,981,414 20,132,996 Restricted cash 674,073 499,223 Bonds and notes payable ( 17,462,456 ) ( 19,355,375 ) Accrued interest payable and other liabilities ( 36,276 ) ( 83,127 ) Net assets of consolidated education and other lending variable interest entities $ 1,156,755 1,193,717 See accompanying notes to consolidated financial statements. F - 4 NELNET, INC. AND SUBSIDIARIES Consolidated Statements of Income Years ended December 31, 2021, 2020, and 2019 2021 2020 2019 (Dollars in thousands, except share data) Interest income: Loan interest $ 482,337 595,113 914,256 Investment interest 41,498 24,543 34,421 Total interest income 523,835 619,656 948,677 Interest expense: Interest on bonds and notes payable and bank deposits 176,233 330,071 699,327 Net interest income 347,602 289,585 249,350 Less (negative provision) provision for loan losses ( 12,426 ) 63,360 39,000 Net interest income after provision for loan losses 360,028 226,225 210,350 Other income/expense: Loan servicing and systems revenue 486,363 451,561 455,255 Education technology, services, and payment processing revenue 338,234 282,196 277,331 Communications revenue — 76,643 64,269 Other 78,681 57,561 47,918 Gain on sale of loans 18,715 33,023 17,261 Gain from deconsolidation of ALLO — 258,588 — Impairment expense and provision for beneficial interests, net ( 16,360 ) ( 24,723 ) — Derivative market value adjustments and derivative settlements, net 71,446 ( 24,465 ) ( 30,789 ) Total other income/expense 977,079 1,110,384 831,245 Cost of services: Cost to provide education technology, services, and payment processing services 108,660 82,206 81,603 Cost to provide communications services — 22,812 20,423 Total cost of services 108,660 105,018 102,026 Operating expenses: Salaries and benefits 507,132 501,832 463,503 Depreciation and amortization 73,741 118,699 105,049 Other expenses 145,469 160,574 194,272 Total operating expenses 726,342 781,105 762,824 Income before income taxes 502,105 450,486 176,745 Income tax expense 115,822 100,860 35,451 Net income 386,283 349,626 141,294 Net loss attributable to noncontrolling interests 7,003 2,817 509 Net income attributable to Nelnet, Inc. $ 393,286 352,443 141,803 Earnings per common share: Net income attributable to Nelnet, Inc. shareholders - basic and diluted $ 10.20 9.02 3.54 Weighted average common shares outstanding - basic and diluted 38,572,801 39,059,588 40,047,402 See accompanying notes to consolidated financial statements. F - 5 NELNET, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income Years ended December 31, 2021, 2020, and 2019 2021 2020 2019 (Dollars in thousands) Net income $ 386,283 349,626 141,294 Other comprehensive income (loss): Net changes related to foreign currency translation adjustments $ ( 10 ) — — Net changes related to available-for-sale debt securities: Unrealized holding gains (losses) arising during period, net 6,921 6,637 ( 1,199 ) Reclassification of gains recognized in net income, net of losses ( 2,695 ) ( 2,521 ) — Income tax effect ( 1,014 ) 3,212 ( 986 ) 3,130 288 ( 911 ) Other comprehensive income (loss) 3,202 3,130 ( 911 ) Comprehensive income 389,485 352,756 140,383 Comprehensive loss attributable to noncontrolling interests 7,003 2,817 509 Comprehensive income attributable to Nelnet, Inc. $ 396,488 355,573 140,892 See accompanying notes to consolidated financial statements. F - 6 NELNET, INC. AND SUBSIDIARIES Consolidated Statements of Shareholders' Equity Years ended December 31, 2021, 2020, and 2019 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 earnings Noncontrolling interests Total equity Class A Class B (Dollars in thousands, except share data) 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 — — — — — — — — — 4,756 4,756 Net income (loss) — — — — — — — 141,803 — ( 509 ) 141,294 Other comprehensive loss — — — — — — — — ( 911 ) — ( 911 ) Distribution to noncontrolling interests — — — — — — — — — ( 4,103 ) ( 4,103 ) Cash dividends on Class A and Class B common stock - $ 0.74 per share — — — — — — — ( 29,485 ) — — ( 29,485 ) Issuance of common stock, net of forfeitures — 198,272 — — 2 — 4,849 — — — 4,851 Compensation expense for stock based awards — — — — — — 6,401 — — — 6,401 Repurchase of common stock — ( 726,273 ) — — ( 7 ) — ( 6,157 ) ( 34,247 ) — — ( 40,411 ) Impact of adoption of new accounting standard — — — — — — — — — ( 6,077 ) ( 6,077 ) Conversion of common stock — 188,032 ( 188,032 ) — 2 ( 2 ) — — — — — Balance as of December 31, 2019 — 28,458,495 11,271,609 — 285 113 5,715 2,377,627 2,972 4,382 2,391,094 Issuance of noncontrolling interests — — — — — — — — — 219,265 219,265 Net income (loss) — — — — — — — 352,443 — ( 2,817 ) 349,626 Other comprehensive income — — — — — — — — 3,130 — 3,130 Distribution to noncontrolling interests — — — — — — — — — ( 16,123 ) ( 16,123 ) Cash dividends on Class A and Class B common stock - $ 0.82 per share — — — — — — — ( 31,778 ) — — ( 31,778 ) Issuance of common stock, net of forfeitures — 213,015 — — 2 — 5,626 — — — 5,628 Compensation expense for stock based awards — — — — — — 7,290 — — — 7,290 Repurchase of common stock — ( 1,594,394 ) — — ( 16 ) — ( 14,837 ) ( 58,505 ) — — ( 73,358 ) Impact of adoption of new accounting standard — — — — — — — ( 18,868 ) — — ( 18,868 ) Conversion of common stock — 116,038 ( 116,038 ) — 1 ( 1 ) — — — — — Acquisition of noncontrolling interest — — — — — — — ( 375 ) — ( 225 ) ( 600 ) Deconsolidation of noncontrolling interest - ALLO — — — — — — — — — ( 208,175 ) ( 208,175 ) Other equity transactions, net of costs incurred to sell shares of subsidiary — — — — — — — 1,218 — — 1,218 Balance as of December 31, 2020 — 27,193,154 11,155,571 — 272 112 3,794 2,621,762 6,102 ( 3,693 ) 2,628,349 Issuance of noncontrolling interests — — — — — — — — — 61,087 61,087 Net income (loss) — — — — — — — 393,286 — ( 7,003 ) 386,283 Other comprehensive income — — — — — — — — 3,202 — 3,202 Distribution to noncontrolling interests — — — — — — — — — ( 48,759 ) ( 48,759 ) Cash dividends on Class A and Class B common stock - $ 0.90 per share — — — — — — — ( 34,457 ) — — ( 34,457 ) Issuance of common stock, net of forfeitures — 280,845 — — 2 — 4,827 — — — 4,829 Compensation expense for stock based awards — — — — — — 10,415 — — — 10,415 Repurchase of common stock — ( 713,274 ) — — ( 7 ) — ( 18,036 ) ( 40,068 ) — — ( 58,111 ) Conversion of common stock — 478,929 ( 478,929 ) — 5 ( 5 ) — — — — — Balance as of December 31, 2021 — 27,239,654 10,676,642 $ — 272 107 1,000 2,940,523 9,304 1,632 2,952,838 See accompanying notes to consolidated financial statements. F - 7 NELNET, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 2021, 2020, and 2019 2021 2020 2019 (Dollars in thousands) Net income attributable to Nelnet, Inc. $ 393,286 352,443 141,803 Net loss attributable to noncontrolling interests ( 7,003 ) ( 2,817 ) ( 509 ) Net income 386,283 349,626 141,294 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs 132,325 198,473 192,662 Loan discount accretion ( 7,990 ) ( 35,285 ) ( 35,824 ) (Negative provision) provision for loan losses ( 12,426 ) 63,360 39,000 Derivative market value adjustments ( 92,813 ) 28,144 76,195 Payments to terminate derivative instruments, net — — ( 12,530 ) Proceeds from (payments to) clearinghouse - initial and variation margin, net 91,294 ( 26,747 ) ( 70,685 ) Gain from deconsolidation of ALLO, including cash impact — ( 287,579 ) — Gain from sale of loans ( 18,715 ) ( 33,023 ) ( 17,261 ) Gain from investments, net ( 3,811 ) ( 14,055 ) ( 3,095 ) Loss on (gain from) repurchases and extinguishments of debt, net 6,775 ( 1,924 ) 16,553 Purchases of equity securities, net ( 42,916 ) — — Deferred income tax expense (benefit) 55,622 7,974 ( 7,265 ) Non-cash compensation expense 10,673 16,739 6,781 Provision for beneficial interests and impairment expense, net 16,360 24,723 — Other — 186 584 Decrease (increase) in loan and investment accrued interest receivable 1,378 ( 61,090 ) ( 54,586 ) (Increase) decrease in accounts receivable ( 86,982 ) 40,880 ( 55,949 ) Decrease (increase) in other assets, net 39,439 59,182 ( 19,858 ) Decrease in the carrying amount of ROU asset, net 7,170 11,594 8,793 Decrease in accrued interest payable ( 24,135 ) ( 18,584 ) ( 14,394 ) Increase in other liabilities, net 29,775 35,907 49,100 Decrease in the carrying amount of lease liability ( 6,978 ) ( 9,401 ) ( 8,678 ) Increase (decrease) in due to customers 64,539 ( 136,285 ) 68,078 Net cash provided by operating activities 544,867 212,815 298,915 Cash flows from investing activities: Purchases and originations of loans ( 1,318,605 ) ( 1,459,696 ) ( 1,906,669 ) Purchases of loans from a related party ( 22,678 ) ( 147,539 ) ( 101,538 ) Net proceeds from loan repayments, claims, and capitalized interest 3,103,776 2,644,347 3,462,391 Proceeds from sale of loans 85,906 136,126 196,564 Purchases of available-for-sale securities ( 734,817 ) ( 471,510 ) ( 1,010 ) Proceeds from sales of available-for-sale securities 160,976 173,784 105 Proceeds from and sale of beneficial interest in loan securitizations, net 40,602 44,213 6,593 Purchases of other investments ( 253,894 ) ( 168,216 ) ( 103,250 ) Proceeds from other investments 191,821 13,011 63,879 Purchases of held-to-maturity debt securities ( 8,200 ) — — Purchases of property and equipment ( 58,952 ) ( 113,312 ) ( 92,499 ) Business acquisitions, net of cash and restricted cash acquired — ( 29,989 ) — Net cash provided by investing activities $ 1,185,935 621,219 1,524,566 F - 8 NELNET, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Continued) 2021 2020 2019 (Dollars in thousands) Cash flows from financing activities: Payments on bonds and notes payable $ ( 3,683,770 ) ( 3,129,485 ) ( 4,698,878 ) Proceeds from issuance of bonds and notes payable 1,947,559 1,884,689 2,997,972 Payments of debt issuance costs ( 7,093 ) ( 8,674 ) ( 14,406 ) Payments to extinguish debt — — ( 14,030 ) Increase in bank deposits, net 289,682 54,633 — Dividends paid ( 34,457 ) ( 31,778 ) ( 29,485 ) Repurchases of common stock ( 58,111 ) ( 73,358 ) ( 40,411 ) Proceeds from issuance of common stock 1,465 1,653 1,552 Acquisition of noncontrolling interest — ( 600 ) — Issuance of noncontrolling interests 50,716 205,768 4,650 Distribution to noncontrolling interests ( 878 ) ( 1,088 ) ( 235 ) Net cash used in financing activities ( 1,494,887 ) ( 1,098,240 ) ( 1,793,271 ) Effect of exchange rate changes on cash ( 121 ) — — Net increase (decrease) in cash, cash equivalents, and restricted cash 235,794 ( 264,206 ) 30,210 Cash, cash equivalents, and restricted cash, beginning of period 958,395 1,222,601 1,192,391 Cash, cash equivalents, and restricted cash, end of period $ 1,194,189 958,395 1,222,601 Supplemental disclosures of cash flow information: Cash disbursements made for interest $ 152,173 301,570 657,436 Cash disbursements made for income taxes, net of refunds and credits received (a) $ 18,659 29,685 17,672 Cash disbursements made for operating leases $ 7,970 11,488 9,966 Noncash operating, investing, and financing activity: ROU assets obtained in exchange for lease obligations $ 4,228 4,282 8,731 Receipt of beneficial interest in consumer loan securitizations $ 23,506 52,501 39,780 Distribution to noncontrolling interests $ 47,881 15,035 3,868 Issuance of noncontrolling interests $ 10,371 4,132 — (a) For 2021, 2020, and 2019 the Company utilized $ 34.1 million, $ 53.9 million, and $ 31.8 million of federal and state tax credits, respectively, related primarily to renewable energy. Supplemental disclosures of noncash activities regarding the adoption of the new accounting standard for measurement of credit losses on January 1, 2020 are contained in note 3. Supplemental disclosures of noncash activities regarding the Company's recapitalization of ALLO in 2020 and business acquisitions during 2020 are contained in note 2 and note 8, respectively. 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 December 31, 2021 December 31, 2020 December 31, 2019 December 31, 2018 Total cash and cash equivalents $ 125,563 121,249 133,906 121,347 Restricted cash 741,981 553,175 650,939 701,366 Restricted cash - due to customers 326,645 283,971 437,756 369,678 Cash, cash equivalents, and restricted cash $ 1,194,189 958,395 1,222,601 1,192,391 See accompanying notes to consolidated financial statements. F - 9 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) 1. Description of Business Nelnet, Inc. and its subsidiaries (“Nelnet” or the “Company”) is a diverse, innovative company with a purpose to serve others and a vision to make dreams possible. The largest operating businesses engage in loan servicing and education technology, services, and payment processing, and the Company also has a significant investment in 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 early-stage and emerging growth companies, real estate, and renewable energy (solar). Substantially all revenue from external customers is earned, and all long-lived assets are located, in the United States. The Company was formed as a Nebraska corporation in 1978 to service federal student loans for two local banks. The Company built on this initial foundation as a servicer to become a leading originator, holder, and servicer of federal student loans, principally consisting of loans originated under the Federal Family Education Loan Program (“FFELP” or “FFEL Program”) of the U.S. Department of Education (the “Department”). The Health Care and Education Reconciliation Act of 2010 (the “Reconciliation Act of 2010”) discontinued loan originations under the FFEL Program, effective July 1, 2010, and requires that all new federal student loan originations be made directly by the Department through the Federal Direct Loan Program. This law does not alter or affect the terms and conditions of existing FFELP loans. As a result of this law, the Company no longer originates FFELP loans. However, a significant portion of the Company’s income continues to be derived from its existing FFELP student loan portfolio. Interest income on the Company’s existing FFELP loan portfolio will decline over time as the portfolio is paid down. Since all FFELP loans will eventually run off, a key objective of the Company is to reposition itself for the post-FFELP environment. To reduce its reliance on interest income on student loans, the Company has expanded its services and products. This expansion has been accomplished through internal growth and innovation as well as business and certain investment acquisitions. The Company is also actively expanding its private education and consumer loan portfolios, and in November 2020 launched Nelnet Bank (as further discussed below). In addition, the Company has been servicing federally owned student loans for the Department since 2009. The Company's reportable operating segments include: • Loan Servicing and Systems (“LSS”) • Education Technology, Services, and Payment Processing (“ETS&PP”) • Communications • Asset Generation and Management (“AGM”) • Nelnet Bank A description of each reportable operating segment is included below. See note 15 for additional information on the Company's segment reporting. Loan Servicing and Systems The primary service offerings of the Loan Servicing and Systems operating segment (known as Nelnet Diversified Services (“NDS”)) include: • Servicing federally-owned student loans for the Department of Education • Servicing FFELP loans • Originating and servicing private education and consumer loans • Backup servicing for FFELP, private education, and consumer loans • Providing student loan servicing software and other information technology products and services • Customer acquisition, management services, and backup servicing for community solar developers • Providing outsourced services including call center, processing, and technology services LSS provides for the servicing of the Company's student loan portfolio and the portfolios of third parties. The loan servicing activities include loan conversion activities, application processing, borrower updates, customer service, payment processing, due diligence procedures, funds management reconciliations, and claim processing. These activities are performed internally for the Company's portfolio, in addition to generating external fee revenue when performed for third-party clients. In addition, LSS provides backup servicing to third-parties, which allows a transfer of the customer’s servicing volume to the Company’s platform and becoming a full servicing customer if their existing servicer cannot perform their duties. F - 10 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) Nelnet Servicing, LLC (“Nelnet Servicing”) and Great Lakes Educational Loan Services, Inc. (“Great Lakes”), subsidiaries of the Company, are two of the current seven private sector entities that have student loan servicing contracts with the Department to provide servicing capacity for loans owned by the Department. This segment also provides student loan servicing software, which is used internally and licensed to third-party student loan holders and servicers. These software systems have been adapted so that they can be offered as hosted servicing software solutions usable by third parties to service various types of student loans, including Federal Direct Loan Program and FFEL Program loans. This segment also provides business process outsourcing primarily specializing in contact center management. The contact center solutions and services include taking inbound calls, helping with outreach campaigns and sales, interacting with customers through multi-channels, and processing and technology services. Education Technology, Services, and Payment Processing The Education Technology, Services, and Payment Processing segment (known as Nelnet Business Services (“NBS”)) provides education services, payment technology, and community management solutions for K-12 schools, higher education institutions, churches, and businesses in the United States and internationally. NBS provides service and technology under five divisions as follows: FACTS provides solutions that elevate the education experience in the K-12 market for school administrators, teachers, and families. FACTS offers (i) financial management, including tuition payment plans and financial needs assessment (grant and aid); (ii) school administration solutions, including school information system software that automates the flow of information between school administrators, teachers, and parents and includes administrative processes such as scheduling, cafeteria management, attendance, and grade book management; (iii) enrollment and communications, including website design and cost effective admissions software; (iv) advancement (giving management), including a comprehensive donation platform that streamlines donor communications, organizes donor information, and provides access to data analysis and reporting; and (v) education development, including customized professional development and coaching services, educational instruction services, and innovative technology products that aid in teacher and student evaluations. Nelnet Campus Commerce delivers payment technology to higher education institutions. Nelnet Campus Commerce solutions include (i) tuition management, including tuition payment plans and service and technology for student billings, payments, and refunds; and (ii) integrated commerce including solutions for in-person, online, and mobile payment experiences on campus. PaymentSpring provides secure payment processing technology. PaymentSpring supports and provides payment processing services, including credit card and electronic transfer, to the other divisions of NBS in addition to other industries and software platforms across the United States. Nelnet Community Engagement provides faith community engagement, giving management, and learning management services and technologies. Nelnet Community Engagement serves customers in the technology, nonprofit, religious, health care, and professional services industries. Nelnet International provides its services and technology in more than 50 countries with the largest concentrations in Australia, New Zealand, and the Asia-Pacific region. Nelnet International serves customers in the education, local government, and healthcare industries. Nelnet International’s suite of services include an integrated commerce payment platform, financial management and tuition payment plan services, and a school management platform that provides administrative, information management, financial management, and communication functions for K-12 schools. Communications ALLO Communications LLC (“ALLO”) provides pure fiber optic service to homes and businesses for internet, television, and telephone services. ALLO derives its revenue primarily from the sale of communication services to residential, governmental, and business customers in Nebraska and Colorado. Internet and television services include revenue from residential and business customers for subscriptions to ALLO's data and video products. ALLO data services provide high-speed internet access over ALLO's all-fiber network at various symmetrical speeds of up to 1 gigabit per second for residential customers and is capable of providing symmetrical speeds of over 1 gigabit per second for business customers. Telephone services include local and long distance telephone service, hosted PBX services, and other services. F - 11 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) On December 21, 2020 the Company deconsolidated ALLO from the Company’s consolidated financial statements due to ALLO’s recapitalization. The recapitalization of ALLO was not considered a strategic shift in the Company’s involvement with ALLO and ALLO’s results of operations, prior to deconsolidation, are presented by the Company as a reportable operating segment. See note 2, “ALLO Recapitalization,” for a description of this transaction and the Company’s continued involvement. Asset Generation and Management The Company's Asset Generation and Management operating segment includes the acquisition, management, and ownership of the Company's loan assets (excluding loan assets held by Nelnet Bank). Substantially all loan assets included in this segment are student loans originated under the FFEL Program, including the Stafford Loan Program, the PLUS Loan program, and loans that reflect the consolidation into a single loan of certain previously separate borrower obligations (“Consolidation” loans). AGM also acquires private education and consumer loans. AGM generates a substantial portion of its earnings from the spread, referred to as loan spread, between the yield it receives on its loan portfolio and the associated costs to finance such portfolio. The loan assets are held in a series of lending subsidiaries and associated securitization trusts designed specifically for this purpose. In addition to the loan spread earned on its portfolio, all costs and activity associated with managing the portfolio, such as servicing of the assets and debt maintenance, are included in this segment. Nelnet Bank On November 2, 2020, the Company obtained final approval for federal deposit insurance from the Federal Deposit Insurance Corporation ("FDIC") and for a bank charter from the Utah Department of Financial Institutions ("UDFI") in connection with the establishment of Nelnet Bank, and Nelnet Bank launched operations. Nelnet Bank operates as an internet Utah-chartered industrial bank franchise focused on the private education loan marketplace, with a home office in Salt Lake City, Utah. Nelnet Bank serves and plans to serve a niche market, with a concentration in the private education and unsecured consumer loan markets. Corporate and Other Activities Other business activities and operating segments that are not reportable are combined and included in Corporate and Other Activities. Corporate and Other Activities include the following items: • The operating results of Whitetail Rock Capital Management, LLC (“WRCM”), the Company's SEC-registered investment advisor subsidiary • The majority of the Company’s investment activities • Interest expense incurred on unsecured and certain other corporate related debt transactions • Other product and service offerings that are not considered reportable operating segments Corporate and Other Activities also includes certain corporate activities and overhead functions related to executive management, internal audit, human resources, accounting, legal, enterprise risk management, information technology, occupancy, and marketing. These costs are allocated to each operating segment based on estimated use of such activities and services. 2. ALLO Recapitalization On October 1, 2020, the Company entered into various agreements with SDC, a third party global digital infrastructure investor, and ALLO, then a majority owned communications subsidiary of the Company, for various transactions contemplated by the parties in connection with a recapitalization and additional funding for ALLO. The agreements provided for a series of interrelated transactions, whereby on October 15, 2020, ALLO received proceeds of $ 197.0 million from SDC as the purchase price for the issuance of non-voting preferred membership units of ALLO, and redeemed $ 160.0 million of non-voting preferred membership units of ALLO held by the Company. On December 21, 2020, the non-voting preferred membership units of ALLO held by SDC automatically converted into voting membership units of ALLO pursuant to the terms of the agreements upon the receipt on December 21, 2020 of the required approvals from applicable regulatory authorities. As a result of such conversion, SDC, the Company, and members of ALLO’s management own approximately 48 percent, 45 percent, and 7 percent, respectively, of the outstanding voting membership interests of ALLO, and the Company deconsolidated ALLO from the Company’s consolidated financial statements. F - 12 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) Upon the deconsolidation of ALLO, the Company recorded its 45 percent voting membership interests in ALLO at fair value, and accounts for such investment under the Hypothetical Liquidation at Book Value (“HLBV”) method of accounting. In addition, the Company recorded its remaining non-voting preferred membership interests in ALLO at fair value, and accounts for such investment as a separate equity investment. The agreements between the Company, SDC, and ALLO provide that they will use commercially reasonable efforts (which expressly excludes requiring ALLO to raise any additional equity financing or sell any assets) to cause ALLO to redeem, on or before April 2024, the remaining preferred membership units of ALLO held by the Company, plus the amount of accrued and unpaid preferred return on such units. The preferred membership units earn a preferred annual return of 6.25 percent. The voting membership interests and non-voting preferred membership interests of ALLO are included on the consolidated balance sheet in “investments.” See note 7 for additional information. As a result of the deconsolidation of ALLO on December 21, 2020, the Company recognized a gain of $ 258.6 million as summarized below. As of December 21, 2020 Voting interest/equity method investment - recorded at fair value $ 132,960 Preferred membership interest investment - recorded at fair value 228,530 Less: ALLO assets deconsolidated: Cash and cash equivalents – not held at a related party ( 299 ) Cash and cash equivalents – held at a related party ( 28,692 ) Accounts receivable ( 4,138 ) Goodwill ( 21,112 ) Intangible assets ( 6,083 ) Property and equipment, net ( 245,295 ) Other assets ( 29,643 ) Other liabilities 24,185 Noncontrolling interests 208,175 Gain recognized upon deconsolidation of ALLO $ 258,588 The impact to the Company’s 2020 operating results as a result of the ALLO recapitalization is summarized below: Gain from deconsolidation $ 258,588 Compensation expense (note 1) ( 9,298 ) Obligation to SDC (note 2) ( 2,339 ) $ 246,951 Note 1: On October 1, 2020 (prior to the deconsolidation of ALLO), ALLO recognized compensation expense related to the modification of certain equity awards previously granted to members of ALLO’s management. Note 2: As part of the ALLO recapitalization transaction, the Company and SDC entered into an agreement, in which the Company has a contingent payment obligation to pay SDC a contingent payment amount of $ 25.0 million to $ 35.0 million in the event the Company disposes of its voting membership interests of ALLO that it holds and realizes from such disposition certain targeted return levels. The Company recognized the estimated fair value of the contingent payment as of December 31, 2020 to be $ 2.3 million, which is included in “other liabilities” on the consolidated balance sheet. F - 13 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) 3. Summary of Significant Accounting Policies and Practices Consolidation The consolidated financial statements include the accounts of Nelnet, Inc. and its consolidated subsidiaries. In addition, the accounts of all variable interest entities (“VIEs”) of which the Company has determined that it is the primary beneficiary are included in the consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation. Variable Interest Entities The Company assesses its partnerships and joint ventures to determine if the entity meets the qualifications of a VIE. The Company performs a qualitative assessment of each VIE to determine if it is the primary beneficiary. The primary beneficiary is the entity which has both: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE. The Company examines specific criteria and uses judgment when determining whether an entity is a VIE and whether it is the primary beneficiary. The Company performs this review initially at the time it enters into a partnership or joint venture agreement and reassess upon reconsideration events. VIEs - Consolidated The Company is required to consolidate VIEs in which it has determined it is the primary beneficiary. The Company's education and other lending subsidiaries are engaged in the securitization of finance assets. These lending subsidiaries hold beneficial interests in eligible loans, subject to creditors with specific interests. The liabilities of the Company's lending subsidiaries are not the direct obligations of Nelnet, Inc. or any of its other subsidiaries. Each lending subsidiary is structured to be bankruptcy remote, meaning that it should not be consolidated in the event of bankruptcy of the parent company or any other subsidiary. The Company is generally the administrator and master servicer of the securitized assets held in its lending subsidiaries and owns the residual interest of the securitization trusts. For accounting purposes, the transfers of loans to the securitization trusts do not qualify as sales. Accordingly, all the financial activities and related assets and liabilities, including debt, of the securitizations are reflected in the Company's consolidated financial statements and are summarized as supplemental information on the balance sheet. VIEs - Not consolidated The Company is not required to consolidate VIEs in which it has determined it is not the primary beneficiary. In December of 2020, Wells Fargo announced the sale of its approximately $ 10.0 billion portfolio of private education loans representing approximately 445,000 borrowers. The Company entered into a joint venture with other investors to acquire the loans. During 2021, the joint venture completed asset-backed securitization transactions to permanently finance a total of $ 8.7 billion of the private education loans purchased by the joint venture (which represented the total remaining loans originally purchased from Wells Fargo, factoring in borrower payments from the date of purchase). Under the terms of the joint venture agreements, the Company is the servicer of the portfolio, owns an approximate 8 percent interest in residual interests in securitizations of the loans, and serves as the sponsor and administrator for the loan securitizations completed by the joint venture. See note 7, “Investments” for a description of, and the Company’s accounting for, these transactions, and disclosure of the Company’s maximum exposure. The Company makes investments in entities that promote renewable energy sources (solar). The Company’s investments in these entities generate a return primarily through the realization of federal income tax credits, operating cash flows, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods. These investments are included in "investments" on the consolidated balance sheets and accounted for under the HLBV method of accounting. The carrying value of these investments are reduced by tax credits earned when the solar project is placed in service. The Company’s unfunded capital and other commitments related to these unconsolidated VIEs are included in “other liabilities” on the consolidated balance sheet. The Company’s maximum exposure to loss from these unconsolidated VIEs include the investment, unfunded capital commitments, and previously recorded tax credits which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level. The tax credit recapture period ratably decreases over five years from when the project is placed in service. While the Company believes potential losses from these investments are remote, the maximum exposure was determined by assuming a scenario where the energy-producing projects completely fail and do not meet certain government compliance requirements resulting in recapture of the related tax credits. F - 14 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) The following table provides a summary of solar investment VIEs that the Company has not consolidated: As of December 31, 2021 2020 Investment carrying amount $ ( 41,030 ) ( 26,006 ) Tax credits subject to recapture 111,289 101,943 Unfunded capital and other commitments 4,350 13,330 Company’s maximum exposure to loss 74,609 89,267 Exposure syndicated to third-party investors 71,511 15,562 Maximum exposure to loss $ 146,120 104,829 As of December 31, 2021, the Company owned 45 percent of the economic rights of ALLO Communications LLC and has a disproportional 43 percent of the voting rights related to all operating decisions for ALLO's business. See note 1, “Description of Business,” for a description of ALLO, including the primary services offered. See note 2, “ALLO Recapitalization,” for disclosure of ALLO’s recapitalization and the Company’s initial recognition of its voting interest/equity method and non-voting preferred membership investments. See note 7, “Investments,” for the Company’s carrying value of its voting interest/equity method and non-voting preferred membership investments, which is the Company’s maximum exposure to loss. Noncontrolling Interests Amounts for noncontrolling interests reflect the proportionate share of membership interest (equity) and net income attributable to the holders of minority membership interests in the following entities: • Whitetail Rock Capital Management, LLC - WRCM is the Company’s SEC-registered investment advisor subsidiary. WRCM issued 10 percent minority membership interests on January 1, 2012. In addition, the Company has established multiple entities for the purpose of investing in renewable energy (solar) and federal opportunity zone programs in which it has noncontrolling members. Use of Estimates The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities, reported amounts of revenues and expenses, and other disclosures. Actual results may differ from those estimates. Loans Receivable Loans consist of federally insured student loans, private education loans, and consumer loans. If the Company has the ability and intent to hold loans for the foreseeable future, such loans are held for investment and carried at amortized cost. Amortized cost includes the unamortized premium or discount and capitalized origination costs and fees, all of which are amortized to interest income. Loans which are held-for-investment also have an allowance for loan loss as needed. Any loans the Company has the ability and intent to sell are classified as held for sale and are carried at the lower of cost or fair value. Loans which are held for sale do not have the associated premium or discount and origination costs and fees amortized into interest income and there is also no related allowance for loan losses. There were no loans classified as held for sale as of December 31, 2021 and 2020. Federally insured loans were originated under the FFEL Program by certain eligible lenders as defined by the Higher Education Act of 1965, as amended (the “Higher Education Act”). These loans, including related accrued interest, are guaranteed at their maximum level permitted under the Higher Education Act by an authorized guaranty agency, which has a contract of reinsurance with the Department. The terms of the loans, which vary on an individual basis, generally provide for repayment in monthly installments of principal and interest. Generally, Stafford and PLUS loans have repayment periods between five and ten years . Consolidation loans have repayment periods of twelve to thirty years . FFELP loans do not require repayment while the borrower is in-school, and during the grace period immediately upon leaving school. Under the Higher Education Act, a borrower may also be granted a deferment or forbearance for a period of time based on need, during which time the borrower is not considered to be in repayment. Interest continues to accrue on loans in the in-school, deferment, and forbearance program periods. In addition, eligible borrowers may qualify for income-driven repayment plans offered by the Department. These plans determine the borrower's payment amount based on their discretionary income and may extend their repayment period. Interest F - 15 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) rates on federally insured student loans may be fixed or variable, dependent upon the type of loan, terms of the loan agreements, and date of origination. Substantially all FFELP loan principal and related accrued interest is guaranteed as provided by the Higher Education Act. These guarantees are subject to the performance of certain loan servicing due diligence procedures stipulated by applicable Department regulations. If these due diligence requirements are not met, affected student loans may not be covered by the guarantees in the event of borrower default. Such student loans are subject to “cure” procedures and reinstatement of the guarantee under certain circumstances. Loans also include private education and consumer loans. Private education loans are loans to students or their families that are non-federal loans and loans not insured or guaranteed under the FFEL Program. These loans are used primarily to bridge the gap between the cost of higher education and the amount funded through financial aid, federal loans, or borrowers' personal resources. The terms of the private education loans, which vary on an individual basis, generally provide for repayment in monthly installments of principal and interest over a period of up to thirty years . The private education loans are not covered by a guarantee or collateral in the event of borrower default. Consumer loans are unsecured loans to an individual for personal, family, or household purposes. The terms of the consumer loans, which vary on an individual basis, generally provide for repayment in weekly or monthly installments of principal and interest over a period of up to six years . Allowance for Loan Losses On January 1, 2020, the Company adopted ASU No. 2016-13, Financial Instruments – Credit Losses (“Topic 326”): Measurement of Credit Losses on Financial Instruments , which replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss ("CECL") methodology. The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for financial assets measured at amortized cost at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. The Company adopted Topic 326 using the modified retrospective method. As such, the results for reporting periods beginning after January 1, 2020 are presented under Topic 326 (recognizing estimated credit losses expected to occur over the asset's remaining life) while prior period amounts continue to be reported in accordance with previously applicable GAAP (recognizing estimated credit losses using an incurred loss model); therefore, the comparative information for 2019 is not comparable to the information presented for 2020 and 2021. Adoption of the new guidance primarily impacted the allowance for loan losses related to the Company's loan portfolio. Upon adoption, the Company recorded an increase to the allowance for loan losses of $ 91.0 million and decreased retained earnings, net of tax, by $ 18.9 million. Allowance for Loan Losses - Accounting Policies Under Topic 326 The allowance for loan losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans as of the balance sheet date. Such allowance is based on the credit losses expected to arise over the life of the asset which includes consideration of prepayments. Loans are charged off when management determines the loan is uncollectible. Charge-offs are recognized as a reduction to the allowance for loan losses. Expected recoveries of amounts previously charged off, not to exceed the aggregate of the amount previously charged off, are included in the estimate of the allowance for loan losses at the balance sheet date. The Company aggregates loans with similar risk characteristics into pools to estimate its expected credit losses. The Company evaluates such pooling decisions each quarter and makes adjustments as risk characteristics change. The Company determines its estimated credit losses for the following financial assets as follows: Loans receivable Management has determined that the federally insured, private education, and consumer loan portfolios each meet the definition of a portfolio segment, which is defined as the level at which an entity develops and documents a systematic method for determining its allowance for loan losses. Accordingly, the portfolio segment disclosures are presented on this basis in note 4 for each of these portfolios. The Company does not disaggregate its portfolio segment loan portfolios into classes of financing receivables. The Company utilizes an undiscounted cash flow methodology in determining its lifetime expected credit losses on its federally insured and private education loan portfolios and a remaining life methodology for its consumer loan portfolio. For the undiscounted cash flow models, the expected credit losses are the product of multiplying the Company’s estimates of F - 16 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) probability of default and loss given default and the exposure of default over the expected life of the loans. For the remaining life method, the expected credit losses are the product of multiplying the Company’s estimated net loss rate by the exposure at default over the expected life of the loans. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current economic conditions, and reasonable and supportable forecasts. The Company has determined that, for modeling current expected credit losses, the Company can reasonably estimate expected losses that incorporate current economic conditions and forecasted probability weighted economic scenarios up to a one-year period. Macroeconomic factors used in the models include such variables as unemployment rates, gross domestic product, and consumer price index. After the "reasonable and supportable" period, the Company reverts to its actual long-term historical loss experience in the historical observation period. The Company uses a straight line reversion method over two years . Historical credit loss experience provides the basis for the estimation of expected credit losses. A portion of the allowance is comprised of qualitative adjustments to historical loss experience. Qualitative adjustments consider the following factors, as applicable, for each of the Company’s loan portfolios: student loans in repayment versus those in nonpaying status; delinquency status; type of private education or consumer loan program; trends in defaults in the portfolio based on Company and industry data; past experience; trends in federally insured student loan claims rejected for payment by guarantors; changes in federal student loan programs; and other relevant qualitative factors. The federal government guarantees 97 percent of the principal of and the interest on federally insured student loans disbursed on and after July 1, 2006 (and 98 percent for those loans disbursed on and after October 1, 1993 and prior to July 1, 2006), which limits the Company’s loss exposure on the outstanding balance of the Company’s federally insured portfolio. Federally insured student loans disbursed prior to October 1, 1993 are fully insured. Private education and consumer loans are unsecured, with neither a government nor a private insurance guarantee. Accordingly, the Company bears the full risk of loss on these loans if the borrower and co-borrower, if applicable, default. The Company places private education and consumer loans on nonaccrual status when the collection of principal and interest is 90 days past due and charges off the loan when the collection of principal and interest is 120 days or 180 days past due, depending on type of loan program. Collections, if any, are reflected as a recovery through the allowance for loan losses. Purchased Loans Receivable with Credit Deterioration (“PCD”) The Company has purchased federally insured rehabilitation loans that have experienced more than insignificant credit deterioration since origination. Rehabilitation loans are loans that have previously defaulted, but for which the borrower has made a specified number of on-time payments. Although rehabilitation loans benefit from the same guarantees as other federally insured loans, rehabilitation loans have generally experienced redefault rates that are higher than default rates for federally insured loans that have not previously defaulted. These PCD loans are recorded at the amount paid. An allowance for loan losses is determined using the same methodology as for other loans held for investment. The sum of the loans’ purchase price and allowance for loan losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized or accreted into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense. Loan Accrued Interest Receivable Accrued interest receivable on loans is combined and presented with the loans receivable amortized cost balance on the Company’s consolidated balance sheet. For the Company’s federally insured loan portfolio, the Company records an allowance for credit losses for accrued interest receivables. For federally insured loans, accrued interest receivable is typically charged-off when the contractual payment of principal or interest has become greater than 270 days past due. Charge-offs of accrued interest receivable are recognized as a reduction to the allowance for loan losses. For the Company’s private education and consumer loan portfolios, the Company does not measure an allowance for credit losses for accrued interest receivables. For private education and consumer loans, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due. Charge-offs of accrued interest receivable are recognized by reversing interest income. Allowance for Loan Losses - Accounting Policies Prior to Adoption of Topic 326 Prior to the adoption of Topic 326 effective January 1, 2020, the allowance for loan losses represented management's estimate of probable losses on loans. The provision for loan losses for periods ended prior to January 1, 2020 reflected the activity for F - 17 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) the applicable period and provided an allowance at a level that the Company's management believed was appropriate to cover probable losses inherent in the loan portfolio. The Company evaluated the adequacy of the allowance for loan losses using a historical loss rate methodology adjusted for qualitative factors separately on each of its federally insured, private education, and consumer loan portfolios. These evaluation processes were subject to numerous judgments and uncertainties including the selection of loss rates over time and determination of the loss emergence period. Cash and Cash Equivalents and Statements of Cash Flows For purposes of the consolidated statements of cash flows, the Company considers all investments with original maturities of three months or less to be cash equivalents. Accrued interest on loans purchased and sold is included in cash flows from operating activities in the respective period. Net purchased loan accrued interest was $ 48.3 million, $ 92.3 million, and $ 112.9 million in 2021, 2020, and 2019, respectively. Investments The Company classifies its debt securities, primarily student loan and other asset-backed securities, as available-for-sale. These securities are carried at fair value, with the changes in fair value, net of taxes, carried as a separate component of shareholders’ equity. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts, which are amortized using the effective interest rate method. When an investment is sold, the cost basis is determined through specific identification of the security sold. For available-for-sale debt securities where fair value is less than amortized cost, credit-related impairment, if any, is recognized through an allowance for credit losses and adjusted each period for changes in credit risk. The Company classifies its residual interest in federally insured, private education, and consumer loan securitizations as held-to-maturity beneficial interest investments. The Company measures accretable yield initially as the excess of all cash flows expected to be collected attributable to the beneficial interest estimated at the acquisition/transaction date over the initial investment and recognizes interest income over the life of the beneficial interest using the effective interest method. The Company continues to update, over the life of the beneficial interest, the expectation of cash flows to be collected. Beneficial interest investments are evaluated for impairment by comparing the present value of the remaining cash flows as estimated at the initial transaction date (or the last date previously revised) to the present value of the cash flows expected to be collected at the current financial reporting date, both discounted using the same effective rate equal to the current yield used to accrete the beneficial interest. If the present value of remaining cash flows is less than the present value of cash flows expected to be collected, the Company records an allowance for credit losses for the difference. Subsequent favorable changes, if any, decreases the allowance for credit losses. The Company reflects the changes in the allowance for credit losses in provision for beneficial interests on the consolidated statements of income. Equity investments with readily determinable fair values are measured at fair value, with changes in the fair value recognized through net income (other than those equity investments accounted for under the equity method of accounting or those that result in consolidation of the investee). For equity investments without readily determinable fair value, the Company uses the measurement alternative of cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The Company uses qualitative factors to identify impairment on these investments. The Company accounts for equity investments over which it has significant influence but not a controlling financial interest using the equity method of accounting. Equity method investments are recorded at cost and subsequently increased or decreased by the amount of the Company’s proportionate share of the net earnings or losses and other comprehensive income of the investee. Equity method investments are evaluated for other-than-temporary impairment using certain impairment indicators such as a series of operating losses of an investee or other factors. These factors may indicate that a decrease in value of the investment has occurred that is other-than-temporary and shall be recognized. The Company accounts for its solar investments, voting equity investment in ALLO, and certain real estate investments under the HLBV method of accounting. The HLBV method of accounting is used by the Company for equity method investments when the liquidation rights and priorities as defined by an equity investment agreement differ from what is reflected by the underlying percentage ownership or voting interests. The Company applies the HLBV method using a balance sheet approach. A calculation is prepared at each balance sheet date to determine the amount that the Company would receive if an equity investment entity were to liquidate its net assets and distribute that cash to the investors based on the contractually defined F - 18 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) liquidation priorities. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period, after adjusting for capital contributions and distributions, is the amount the Company recognizes for its share of the earnings or losses from the equity investment for the period. Restricted Cash Restricted cash primarily includes amounts for student loan securitizations and other secured borrowings. This cash must be used to make payments related to trust obligations. Amounts on deposit in these accounts are primarily the result of timing differences between when principal and interest is collected on the student loans held as trust assets and when principal and interest is paid on the trust's asset-backed debt securities. Restricted cash also includes collateral deposits with derivative third-party clearinghouses. Restricted Cash - Due to Customers As a servicer of student loans, the Company collects student loan remittances and subsequently disburses these remittances to the appropriate lending entities. In addition, 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 accompanying consolidated balance sheets. Accounts Receivable Accounts receivable are presented at their net realizable values, which include allowances for doubtful accounts. Allowance estimates are based upon individual customer experience, as well as the age of receivables and likelihood of collection. Business Combinations The Company uses the acquisition method in accounting for acquired businesses. Under the acquisition method, the financial statements reflect the operations of an acquired business starting from the completion of the acquisition. The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of acquisition. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. All contingent consideration is measured at fair value on the acquisition date and included in the consideration transferred in the acquisition. Contingent consideration classified as a liability is remeasured to fair value at each reporting date until the contingency is resolved, and changes in fair value are recognized in earnings . Goodwill The Company reviews goodwill for impairment annually (as of November 30) and whenever triggering events or changes in circumstances indicate its carrying value may not be recoverable. Goodwill is tested for impairment using a fair value approach at the reporting unit level. A reporting unit is the operating segment, or a business one level below that operating segment if discrete financial information is prepared and regularly reviewed by segment management. However, components are aggregated as a single reporting unit if they have similar economic characteristics. The Company tests goodwill for impairment in accordance with applicable accounting guidance. The guidance provides an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the estimated fair value of a reporting unit is less than its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform a quantitative impairment test, otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. For the 2021, 2020, and 2019 annual reviews of goodwill, the Company assessed qualitative factors and concluded it was not more likely than not that the fair value of its reporting units were less than their carrying amount. As such, the Company was not required to perform further impairment testing and concluded there was no impairment of goodwill. Intangible Assets The Company uses estimates to determine the fair value of acquired assets to allocate the purchase price to acquired intangible assets. Such estimates are generally based on estimated future cash flows or cost savings associated with particular assets and are discounted to present value using an appropriate discount rate. The estimates of future cash flows associated with intangible assets are generally prepared using a cost savings method, a lost income method, or an excess return method, as appropriate. In F - 19 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) utilizing such methods, management must make certain assumptions about the amount and timing of estimated future cash flows and other economic benefits from the assets, the remaining economic useful life of the assets, and general economic factors concerning the selection of an appropriate discount rate. The Company may also use replacement cost or market comparison approaches to estimate fair value if such methods are determined to be more appropriate. Intangible assets with finite lives are amortized over their estimated lives. Such assets are amortized using a method of amortization that reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up. If that pattern cannot be reliably determined, the Company uses a straight-line amortization method. The Company evaluates the estimated remaining useful lives of purchased intangible assets and whether events or changes in circumstances warrant a revision to the remaining periods of amortization. Property and Equipment Property and equipment are carried at cost, net of accumulated depreciation. Maintenance and repairs are charged to expense as incurred, and major improvements, including leasehold improvements, are capitalized. Gains and losses from the sale of property and equipment are included in determining net income. The Company uses the straight-line method for recording depreciation and amortization. Leasehold improvements are amortized straight-line over the shorter of the lease term or estimated useful life of the asset . Leases The Company determines if the arrangement is, or contains, a lease at the inception of an arrangement 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 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 (ROU assets) and lease liabilities are recognized based on the present value of lease payments over the lease term at the commencement date. The Company classifies each lease as operating or financing, with the income statement reflecting lease expense for operating leases and amortization/interest expense for financing leases. When the discount rate implicit in the lease cannot be readily determined, the Company uses its incremental borrowing rate. The Company accounts for lease and non-lease components together as a single, combined lease component for its office and data center space. In addition, the Company identified itself as the lessor in its Communications operating segment for services provided to customers that include customer-premise equipment. The Company accounted 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. Impairment of Long-Lived Assets The Company reviews its long-lived assets, such as property and equipment, purchased intangibles subject to amortization, and ROU assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assumptions and estimates about future cash flows generated by, remaining useful lives of, and fair values of the Company's intangible and other long-lived assets are complex and subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in the Company's business strategy and internal forecasts. Although the Company believes the historical assumptions and estimates used are reasonable and appropriate, different assumptions and estimates could materially impact the reported financial results. F - 20 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) Fair Value Measurements The Company uses estimates of fair value in applying various accounting standards for its financial statements. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company's policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value, such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates, and credit spreads, relying first on observable data from active markets. Depending on current market conditions, additional adjustments to fair value may be based on factors such as liquidity, credit, and bid/offer spreads. In some cases fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Transaction costs are not included in the determination of fair value. When possible, the Company seeks to validate the model's output to market transactions. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the estimates of current or future values. The Company categorizes its fair value estimates based on a hierarchical framework associated with three levels of price transparency utilized in measuring assets and liabilities at fair value. Classification is based on the lowest level of input that is significant to the fair value of the instrument. The three levels include: • Level 1: Quoted prices for identical instruments in active markets. The types of financial instruments included in Level 1 are highly liquid instruments with quoted prices. • Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose primary value drivers are observable. • Level 3: Instruments whose primary value drivers are unobservable . Inputs are developed based on the best information available; however, significant judgment is required by management in developing the inputs. Revenue Recognition The Company applies the provisions of ASC Topic 606 , Revenue from Contracts with Customers ("ASC Topic 606") , to its fee-based operating segments. The majority of the Company’s revenue earned in its Asset Generation and Management and Nelnet Bank operating segments, including loan interest and derivative activity, is explicitly excluded from the scope of ASC Topic 606. The Company recognizes revenue under the core principle of ASC Topic 606 to depict the transfer of control of products and services to the Company’s customers in an amount reflecting the consideration to which the Company expects to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records deferred revenue when revenue is received or receivable in advance of the delivery of service. For multi-year contracts, the Company generally invoices customers annually at the beginning of each annual coverage period. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined its contracts do not include a significant financing component. The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year. Total capitalized costs to obtain a contract were immaterial during the periods presented and are included in “other assets” on the consolidated balance sheets. Additional information related to revenue earned in its Asset Generation and Management operating segment is provided below. See note 16, "Disaggregated Revenue and Deferred Revenue" for additional information related to the Company's fee-based operating segments. F - 21 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) Loan interest income - Loan interest on federally insured student loans is paid by the Department or the borrower, depending on the status of the loan at the time of the accrual. The Department makes quarterly interest subsidy payments on certain qualified FFELP loans until the student is required under the provisions of the Higher Education Act to begin repayment. Borrower repayment of FFELP loans normally begins within six months after completion of the borrower's course of study, leaving school, or ceasing to carry at least one-half the normal full-time academic load, as determined by the educational institution. Borrower repayment of PLUS and Consolidation loans normally begins within 60 days from the date of loan disbursement. Borrower repayment of private education loans typically begins six months following the borrower's graduation from a qualified institution, and the interest is either paid by the borrower or capitalized annually or at repayment. Repayment of consumer loans typically starts upon origination of the loan. The Department provides a special allowance to lenders participating in the FFEL Program. The special allowance is accrued based upon the fiscal quarter average rate of 13-week Treasury Bill auctions (for loans originated prior to January 1, 2000), the fiscal quarter average rate of the daily three-month financial commercial paper rates (for loans originated on and after January 1, 2000), or the fiscal quarter average rate of daily one-month LIBOR rates (for loans originated on and after January 1, 2000, and for lenders which elected to change the special allowance index to one-month LIBOR effective April 1, 2012) relative to the yield of the student loan. The Company recognizes loan interest income as earned, net of amortization of loan premiums and deferred origination costs and the accretion of loan discounts. Loan interest income is recognized based upon the expected yield of the loan after giving effect to interest rate reductions resulting from borrower utilization of incentives such as timely payments ("borrower benefits") and other yield adjustments. Loan premiums or discounts, deferred origination costs, and borrower benefits are amortized/accreted over the estimated life of the loans, which includes an estimate of forecasted payments in excess of contractually required payments (the constant prepayment rate). The constant prepayment rate currently used by the Company to amortize/accrete federally insured loan premiums/discounts is 5 percent for Stafford loans and 4 percent for Consolidation loans. The Company periodically evaluates the assumptions used to estimate the life of the loans and prepayment rates. In instances where there are changes to the assumptions, amortization/accretion is adjusted on a cumulative basis to reflect the change since the acquisition of the loan. During the fourth quarter of 2021, the Company changed its estimate of the constant prepayment rate on its consolidation loans from 3 percent to 4 percent, which resulted in a $ 6.2 million increase to the Company’s net loan discount balance and a corresponding pre-tax decrease to interest income. The Company also pays the Department an annual 105 basis point rebate fee on Consolidation loans. These rebate fees are netted against loan interest income. Interest Expense Interest expense is based upon contractual interest rates, adjusted for the amortization of debt issuance costs and the accretion of discounts. The amortization of debt issuance costs and accretion of discounts are recognized using the effective interest method . Transfer of Financial Assets and Extinguishments of Liabilities The Company accounts for loan sales and debt repurchases in accordance with applicable accounting guidance. If a transfer of loans qualifies as a sale, the Company derecognizes the loan and recognizes a gain or loss as the difference between the carrying basis of the loan sold and the consideration received. The Company from time to time repurchases its outstanding debt and records a gain or loss on the early extinguishment of debt based upon the difference between the carrying amount of the debt and the amount paid to the third party. Derivative Accounting All over-the-counter derivative contracts executed by the Company are cleared post-execution at the Chicago Mercantile Exchange (“CME”), a regulated clearinghouse. Substantially all of the Company’s outstanding derivatives are over-the-counter contracts. 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 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 CME legally characterizes variation margin payments for over-the-counter derivatives they clear as settlements of the derivatives’ exposure rather than collateral against the exposure. For accounting and presentation purposes, the Company considers variation margin and the corresponding derivative instrument as a single unit of account. As such, variation margin payments are considered in determining the fair value of the centrally cleared derivative portfolio. The Company records F - 22 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) derivative contracts on its balance sheet with a fair value of zero due to the payment or receipt of variation margin between the Company and the CME settling the outstanding mark-to-market exposure on such derivatives to a balance of zero on a daily basis. 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 market value of derivative instruments is reported in current period earnings. Changes or shifts in the forward yield curve can significantly impact the valuation of the Company’s derivatives, and therefore impact the results of operations of the Company. The changes in fair value of derivative instruments, as well as the settlement payments made on such derivatives, are included in “derivative market value adjustments and derivative settlements, net” on the consolidated statements of income . Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company uses the deferred method of accounting for its credits related to state tax incentives and investments that generate investment tax credits. The investment tax credits are recognized as a reduction to the related asset. Income tax expense includes deferred tax expense, which represents a portion of the net change in the deferred tax asset or liability balance during the year, plus any change made in the valuation allowance, and current tax expense, which represents the amount of tax currently payable to or receivable from a tax authority plus amounts for expected tax deficiencies . Compensation Expense for Stock Based Awards The Company has a restricted stock plan that is intended to provide incentives to attract, retain, and motivate employees in order to achieve long term growth and profitability objectives. The restricted stock plan provides for the grant to eligible employees of awards of restricted shares of Class A common stock. The fair value of restricted stock awards is determined on the grant date based on the Company's stock price and is amortized to compensation cost over the related vesting periods, which range up to ten years . For those awards with only service conditions that have graded vesting schedules, the Company recognizes compensation expense on a straight-line basis over the requisite service period for each separately vesting portion of the award, as if the award was, in substance, multiple awards. Holders of restricted stock are entitled to receive dividends from the date of grant whether or not vested. The Company accounts for forfeitures as they occur. The Company also has a directors stock compensation plan pursuant to which non-employee directors can elect to receive their annual retainer fees in the form of fully vested shares of Class A common stock, and also elect to defer receipt of such shares until the termination of their service on the board of directors. The fair value of grants under this plan is determined on the grant date based on the Company's stock price, and is expensed over the board member's annual service period. Translation of Foreign Currencies The Company’s foreign subsidiaries use the local currency of the countries in which they are located as their functional currency. Accordingly, assets and liabilities are translated into U.S. dollars (the Company’s reporting currency) using the exchange rates in effect on the consolidated balance sheet dates. Equity accounts are translated at historical rates, except for the change in retained earnings during the year, which is the result of the income statement translation process. Revenue and expense accounts are translated using the weighted average exchange rate during the period. The cumulative translation adjustments associated with the net assets of foreign subsidiaries are recorded in accumulated other comprehensive earnings in the accompanying consolidated statements of shareholders’ equity. F - 23 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) 4. Loans and Accrued Interest Receivable and Allowance for Loan Losses Loans and accrued interest receivable consisted of the following: As of As of December 31, 2021 December 31, 2020 Non-Nelnet Bank: Federally insured student loans: Stafford and other $ 3,904,000 4,383,000 Consolidation 13,187,047 14,746,173 Total 17,091,047 19,129,173 Private education loans 299,442 320,589 Consumer loans 51,301 109,346 Non-Nelnet Bank loans 17,441,790 19,559,108 Nelnet Bank: Federally insured student loans 88,011 — Private education loans 169,890 17,543 Nelnet Bank loans 257,901 17,543 Accrued interest receivable 788,552 794,611 Loan discount, net of unamortized loan premiums and deferred origination costs ( 25,933 ) ( 9,908 ) Allowance for loan losses: Non-Nelnet Bank: Federally insured loans ( 103,381 ) ( 128,590 ) Private education loans ( 16,143 ) ( 19,529 ) Consumer loans ( 6,481 ) ( 27,256 ) Non-Nelnet Bank allowance for loan losses ( 126,005 ) ( 175,375 ) Nelnet Bank: Federally insured loans ( 268 ) — Private education loans ( 840 ) ( 323 ) Nelnet Bank allowance for loan losses ( 1,108 ) ( 323 ) $ 18,335,197 20,185,656 Loan Sales The Company has sold portfolios of consumer loans to an unrelated third party who securitized such loans. As partial consideration received for the consumer loans sold, the Company received residual interest in the consumer loan securitizations that are included in "investments" on the Company's consolidated balance sheet. The following table provides a summary of the consumer loans sold and gains recognized by the Company during 2021, 2020, and 2019. Loans sold (par value) Gain Residual interest received in securitization 2021: May 14, 2021 $ 77,417 15,271 24.5 % September 29, 2021 18,390 3,249 6.9 $ 95,807 18,520 2020: January 30, 2020 $ 124,249 18,206 31.4 % July 29, 2020 60,779 14,817 25.4 $ 185,028 33,023 2019: May 1, 2019 $ 47,680 1,712 11.0 % October 17, 2019 179,301 15,549 28.7 $ 226,981 17,261 F - 24 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) Activity in the Allowance for Loan Losses The following table presents the activity in the allowance for loan losses by portfolio segment. Balance at beginning of period Impact of Topic 326 adoption Provision (negative provision) for loan losses Charge-offs Recoveries Initial allowance on loans purchased with credit deterioration (a) Loan sales Balance at end of period Year ended December 31, 2021 Non-Nelnet Bank Federally insured loans $ 128,590 — ( 7,343 ) ( 21,139 ) — 3,273 — 103,381 Private education loans 19,529 — ( 1,333 ) ( 2,476 ) 721 — ( 298 ) 16,143 Consumer loans 27,256 — ( 4,544 ) ( 5,123 ) 824 — ( 11,932 ) 6,481 Nelnet Bank Federally insured loans — — 268 — — — — 268 Private education loans 323 — 526 ( 4 ) — — ( 5 ) 840 $ 175,698 — ( 12,426 ) ( 28,742 ) 1,545 3,273 ( 12,235 ) 127,113 Year ended December 31, 2020 Non-Nelnet Bank Federally insured loans $ 36,763 72,291 18,691 ( 14,955 ) — 15,800 — 128,590 Private education loans 9,597 4,797 6,156 ( 1,652 ) 631 — — 19,529 Consumer loans 15,554 13,926 38,183 ( 12,115 ) 1,132 — ( 29,424 ) 27,256 Nelnet Bank Private education loans — — 330 ( 7 ) — — — 323 $ 61,914 91,014 63,360 ( 28,729 ) 1,763 15,800 ( 29,424 ) 175,698 Year ended December 31, 2019 Non-Nelnet Bank Federally insured loans $ 42,310 — 8,000 ( 13,547 ) — — — 36,763 Private education loans 10,838 — — ( 1,965 ) 724 — — 9,597 Consumer loans 7,240 — 31,000 ( 12,498 ) 812 — ( 11,000 ) 15,554 $ 60,388 — 39,000 ( 28,010 ) 1,536 — ( 11,000 ) 61,914 (a) During the years ended December 31, 2021 and 2020, the Company acquired $ 224.1 million (par value) and $ 835.0 million (par value), respectively, of federally insured rehabilitation loans that met the definition of PCD loans when they were purchased by the Company. Beginning in March 2020, the coronavirus disease 2019 (“COVID-19”) pandemic caused significant disruptions in the U.S. and world economies. Apart from the impact of the adoption of Topic 326 effective January 1, 2020, the Company’s allowance for loan losses increased in 2020 primarily as a result of the COVID-19 pandemic and its effects on economic conditions. During the year ended December 31, 2021, the Company recorded a negative provision for loan losses due to (i) management's estimate of certain continued improved economic conditions as of December 31, 2021 in comparison to management's estimate of economic conditions used to determine the allowance for loan losses as of December 31, 2020; (ii) an increase in the constant prepayment rate on FFELP consolidation loans; and (iii) the amortization of the federally insured loan portfolio. These amounts were partially offset by the establishment of an initial allowance for loans originated and acquired during the period. F - 25 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) Loan Status and Delinquencies The key credit quality indicators for the Company’s federally insured, private education, and consumer loan portfolios are loan status, including delinquencies. The impact of changes in loan status is incorporated into the allowance for loan losses calculation. 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 status and delinquency amounts. As of December 31, 2021 2020 2019 Federally insured loans - Non-Nelnet Bank: Loans in-school/grace/deferment (a) $ 829,624 4.9 % $ 1,036,028 5.4 % $ 1,074,678 5.3 % Loans in forbearance (b) 1,118,667 6.5 1,973,175 10.3 1,339,821 6.6 Loans in repayment status: Loans current 12,847,685 84.9 % 13,683,054 84.9 % 15,410,993 86.0 % Loans delinquent 31-60 days (c) 895,656 5.9 633,411 3.9 650,796 3.6 Loans delinquent 61-90 days (c) 352,449 2.3 307,936 1.9 428,879 2.4 Loans delinquent 91-120 days (c) 251,075 1.7 800,257 5.0 310,851 1.7 Loans delinquent 121-270 days (c) 592,449 3.9 674,975 4.2 812,107 4.5 Loans delinquent 271 days or greater (c)(d) 203,442 1.3 20,337 0.1 300,418 1.8 Total loans in repayment 15,142,756 88.6 100.0 % 16,119,970 84.3 100.0 % 17,914,044 88.1 100.0 % Total federally insured loans 17,091,047 100.0 % 19,129,173 100.0 % 20,328,543 100.0 % Accrued interest receivable 784,716 791,453 730,059 Loan discount, net of unamortized premiums and deferred origination costs ( 28,309 ) ( 14,505 ) ( 35,822 ) Non-accretable discount (e) — — ( 28,036 ) Allowance for loan losses ( 103,381 ) ( 128,590 ) ( 36,763 ) Total federally insured loans and accrued interest receivable, net of allowance for loan losses $ 17,744,073 $ 19,777,531 $ 20,957,981 Private education loans - Non-Nelnet Bank: Loans in-school/grace/deferment (a) $ 9,661 3.2 % $ 5,049 1.6 % $ 4,493 1.8 % Loans in forbearance (b) 3,601 1.2 2,359 0.7 3,108 1.3 Loans in repayment status: Loans current 280,457 98.0 % 310,036 99.0 % 227,013 95.9 % Loans delinquent 31-60 days (c) 2,403 0.8 1,099 0.4 2,814 1.2 Loans delinquent 61-90 days (c) 976 0.3 675 0.2 1,694 0.7 Loans delinquent 91 days or greater (c) 2,344 0.9 1,371 0.4 5,136 2.2 Total loans in repayment 286,180 95.6 100.0 % 313,181 97.7 100.0 % 236,657 96.9 100.0 % Total private education loans 299,442 100.0 % 320,589 100.0 % 244,258 100.0 % Accrued interest receivable 1,960 2,131 1,558 Loan discount, net of unamortized premiums ( 1,123 ) 2,691 46 Non-accretable discount (e) — — ( 4,362 ) Allowance for loan losses ( 16,143 ) ( 19,529 ) ( 9,597 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 284,136 $ 305,882 $ 231,903 Consumer loans - Non-Nelnet Bank: Loans in deferment (a) $ 43 0.1 % $ 829 0.8 % $ — Loans in repayment status: Loans current 49,697 97.0 % 105,650 97.4 % 220,404 97.5 % Loans delinquent 31-60 days (c) 414 0.8 954 0.9 2,046 0.9 Loans delinquent 61-90 days (c) 322 0.6 804 0.7 1,545 0.7 Loans delinquent 91 days or greater (c) 825 1.6 1,109 1.0 1,923 0.9 Total loans in repayment 51,258 99.9 100.0 % 108,517 99.2 100.0 % 225,918 100.0 % Total consumer loans 51,301 100.0 % 109,346 100.0 % 225,918 Accrued interest receivable 396 1,001 1,880 Loan premium 913 1,640 740 Allowance for loan losses ( 6,481 ) ( 27,256 ) ( 15,554 ) Total consumer loans and accrued interest receivable, net of allowance for loan losses $ 46,129 $ 84,731 $ 212,984 F - 26 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) As of December 31, 2021 2020 2019 Federally insured loans - Nelnet Bank: Loans in-school/grace/deferment (a) $ 330 0.4 % Loans in forbearance (b) 1,057 1.2 Loans in repayment status: Loans current 85,599 98.8 % Loans delinquent 31-60 days (c) 816 1.0 Loans delinquent 61-90 days (c) — — Loans delinquent 91-120 days (c) — — Loans delinquent 121-270 days (c) 209 0.2 Loans delinquent 271 days or greater (c) — — Total loans in repayment 86,624 98.4 100.0 % Total federally insured loans 88,011 100.0 % Accrued interest receivable 1,216 Loan premium 26 Allowance for loan losses ( 268 ) Total federally insured loans and accrued interest receivable, net of allowance for loan losses $ 88,985 Private education loans - Nelnet Bank: Loans in-school/grace/deferment (a) $ 150 0.1 % $ — — % Loans in forbearance (b) 460 0.3 29 0.2 Loans in repayment status: Loans current 169,157 99.9 % 17,514 100.0 % Loans delinquent 31-60 days (c) 51 — — — Loans delinquent 61-90 days (c) — — — — Loans delinquent 91 days or greater (c) 72 0.1 — — Total loans in repayment 169,280 99.6 100.0 % 17,514 99.8 100.0 % Total private education loans 169,890 100.0 % 17,543 100.0 % Accrued interest receivable 264 26 Deferred origination costs 2,560 266 Allowance for loan losses ( 840 ) ( 323 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 171,874 $ 17,512 (a) Loans for borrowers who still may be attending school or engaging in other permitted educational activities and are not yet required to make payments on the loans, e.g. , residency periods for medical students or a grace period for bar exam preparation for law students. (b) Loans for borrowers who have temporarily ceased making full payments due to hardship or other factors, according to a schedule approved by the servicer consistent with the established loan program servicing procedures and policies. (c) The period of delinquency is based on the number of days scheduled payments are contractually past due and relate to repayment loans, that is, receivables not charged off, and not in school, grace, deferment, or forbearance. (d) A portion of loans included in loans delinquent 271 days or greater includes loans in claim status, which are loans that have gone into default and have been submitted to the guaranty agency. (e) Upon adoption of ASC 326 on January 1, 2020, the Company reclassified the non-accretable discount balance related to loans purchased with evidence of credit deterioration to allowance for loan losses. As a result of COVID-19, effective March 13, 2020 through June 30, 2020, the Company proactively applied a 90 day natural disaster forbearance to any loan that was 31-269 days past due (for federally insured loans) and 80 days past due (for private education loans), and to any current loan upon request. Beginning July 1, 2020, the Company discontinued proactively applying 90 day natural disaster forbearances on past due loans. However, the Company continued to apply a natural disaster forbearance in 90 day increments to any private education and federally insured loan upon request through July 31, 2021 and September 30, 2021, respectively. As a result of the ongoing impacts of the COVID-19 pandemic, the Company continues to review whether additional and/or extended borrower relief policies and activities are needed. All relief provided to borrowers by the Company through December 31, 2021 have been delays in payment that the Company considers to be insignificant and have not been accounted for as troubled debt restructuring. F - 27 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) Nonaccrual Status The Company does not place federally insured loans on nonaccrual status due to the government guaranty. The amortized cost of private and consumer loans on nonaccrual status, as well as the allowance for loan losses related to such loans, as of December 31, 2021, 2020, and 2019 was not material. Amortized Cost Basis by Origination Year The following table presents the amortized cost of the Company's private education and consumer loans by loan status and delinquency amount as of December 31, 2021 based on year of origination. Effective July 1, 2010, no new loan originations can be made under the FFEL Program and all new federal loan originations must be made under the Federal Direct Loan Program. As such, all the Company’s federally insured loans were originated prior to July 1, 2010. 2021 2020 2019 2018 2017 Prior years Total Private education loans - Non-Nelnet Bank: Loans in school/grace/deferment $ 2,266 1,981 3,557 — — 1,857 9,661 Loans in forbearance — 267 960 47 — 2,327 3,601 Loans in repayment status: Loans current 2,768 68,754 50,348 492 — 158,095 280,457 Loans delinquent 31-60 days — 308 225 — — 1,870 2,403 Loans delinquent 61-90 days — 81 — — — 895 976 Loans delinquent 91 days or greater — — 4 — — 2,340 2,344 Total loans in repayment 2,768 69,143 50,577 492 — 163,200 286,180 Total private education loans $ 5,034 71,391 55,094 539 — 167,384 299,442 Accrued interest receivable 1,960 Loan discount, net of unamortized premiums ( 1,123 ) Allowance for loan losses ( 16,143 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 284,136 Consumer loans - Non-Nelnet Bank: Loans in deferment $ 25 — — 18 — — 43 Loans in repayment status: Loans current 37,822 960 5,087 5,746 82 — 49,697 Loans delinquent 31-60 days 205 51 120 33 5 — 414 Loans delinquent 61-90 days 113 40 109 60 — — 322 Loans delinquent 91 days or greater 133 43 261 388 — — 825 Total loans in repayment 38,273 1,094 5,577 6,227 87 — 51,258 Total consumer loans $ 38,298 1,094 5,577 6,245 87 — 51,301 Accrued interest receivable 396 Loan premium 913 Allowance for loan losses ( 6,481 ) Total consumer loans and accrued interest receivable, net of allowance for loan losses $ 46,129 Private education loans - Nelnet Bank: Loans in school/grace/deferment $ 150 — — — — — 150 Loans in forbearance 445 15 — — — — 460 Loans in repayment status: Loans current 158,486 10,671 — — — — 169,157 Loans delinquent 31-60 days 51 — — — — — 51 Loans delinquent 61-90 days — — — — — — — Loans delinquent 91 days or greater 72 — — — — — 72 Total loans in repayment 158,609 10,671 — — — — 169,280 Total private education loans $ 159,204 10,686 — — — — 169,890 Accrued interest receivable 264 Deferred origination costs 2,560 Allowance for loan losses ( 840 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 171,874 F - 28 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) 5. Bonds and Notes Payable The following tables summarize the Company’s outstanding debt obligations by type of instrument: As of December 31, 2021 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 $ 15,887,295 0.23 % - 2.10 % 5/27/25 - 9/25/69 Bonds and notes based on auction 248,550 0.00 % - 1.09 % 3/22/32 - 8/27/46 Total FFELP variable-rate bonds and notes 16,135,845 Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations 772,935 1.42 % - 3.45 % 10/25/67 - 8/27/68 FFELP loan warehouse facility 5,048 0.21 % 5/22/23 Private education loan warehouse facility 107,011 0.24 % 2/13/23 Variable-rate bonds and notes issued in private education loan asset-backed securitizations 31,818 1.65 % / 1.85 % 12/26/40 / 6/25/49 Fixed-rate bonds and notes issued in private education loan asset-backed securitization 28,613 3.60 % / 5.35 % 12/26/40 / 12/28/43 Unsecured line of credit — — 9/22/26 Participation agreement 253,969 0.78 % 5/4/22 Repurchase agreements 483,848 0.66 % - 1.46 % 5/27/22 - 12/20/23 Secured line of credit 5,000 1.91 % 5/30/22 17,824,087 Discount on bonds and notes payable and debt issuance costs ( 192,998 ) Total $ 17,631,089 As of December 31, 2020 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 $ 17,127,643 0.28 % - 2.05 % 5/27/25 - 10/25/68 Bonds and notes based on auction 749,925 1.12 % - 2.14 % 3/22/32 - 11/26/46 Total FFELP variable-rate bonds and notes 17,877,568 Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations 923,076 1.42 % - 3.45 % 10/25/67 - 8/27/68 FFELP loan warehouse facilities 252,165 0.27 % / 0.31 % 5/20/22 / 2/26/23 Private education loan warehouse facility 150,397 0.28 % 2/13/22 Consumer loan warehouse facility 25,809 0.28 % 4/23/22 Variable-rate bonds and notes issued in private education loan asset-backed securitizations 49,025 1.65 % / 1.90 % 12/26/40 / 6/25/49 Fixed-rate bonds and notes issued in private education loan asset-backed securitization 37,251 3.60 % / 5.35 % 12/26/40 / 12/28/43 Unsecured line of credit 120,000 1.65 % 12/16/24 Participation agreement 118,558 0.84 % 5/4/21 Secured line of credit 5,000 1.90 % 5/30/22 19,558,849 Discount on bonds and notes payable and debt issuance costs ( 238,123 ) Total $ 19,320,726 F - 29 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) Warehouse Facilities The Company funds a portion of its loan acquisitions using warehouse facilities. Loan warehousing allows the Company to buy and manage loans prior to transferring them into more permanent financing arrangements. FFELP loan warehouse facility As of December 31, 2021, the Company’s FFELP warehouse facility had an aggregate maximum financing amount available of $ 60.0 million, liquidity provisions through May 23, 2022, and a final maturity of May 22, 2023. As of December 31, 2021, $ 5.0 million was outstanding under this facility, $ 55.0 million was available for future funding, and the Company had $ 0.3 million advanced as equity support. In the event the Company is unable to renew the liquidity provisions by May 23, 2022, the facility would become a term facility at a stepped-up cost, with no additional student loans being eligible for financing, and the Company would be required to refinance the existing loans in the facility by the facility's final maturity date. Private Education loan warehouse facility During 2020, the Company obtained a private education loan warehouse facility. As of December 31, 2021, the facility has an aggregate maximum financing amount available of $ 175.0 million, an advance rate of 80 to 90 percent, liquidity provisions through February 13, 2022, and a final maturity date of February 13, 2023. As of December 31, 2021, $ 107.0 million was outstanding under this warehouse facility, $ 68.0 million was available for future funding, and the Company had $ 11.8 million advanced as equity support. Consumer loan warehouse facility The Company had a $ 100.0 million consumer loan warehouse facility. On March 31, 2021, the Company terminated this facility. Asset-backed securitizations The Company has historically relied upon asset-backed securitizations as its most significant source of funding for loans. The net cash flow the Company receives from the securitized loans generally represents the excess amounts, if any, generated by the underlying loans over the amounts required to be paid to the bondholders, after deducting servicing fees and any other expenses relating to the securitizations. The Company’s rights to cash flow from securitized loans are subordinate to bondholder interests, and the securitized loans may fail to generate any cash flow beyond what is due to bondholders. The bonds and notes payable are primarily secured by the loans receivable, related accrued interest, and by the amounts on deposit in the accounts established under the respective financing agreements. The following tables summarize the asset-backed securitization transactions completed in 2021 and 2020. Securitizations completed during the year ended December 31, 2021 2021-1 2021-2 Total Date securities issued 6/30/21 8/31/21 Total original principal amount $ 797,000 531,300 1,328,300 Class A senior notes: Total principal amount $ 781,000 520,600 1,301,600 Cost of funds 1-month LIBOR plus 0.50 % 1-month LIBOR plus 0.50 % Final maturity date 7/25/69 9/25/69 Class B subordinated notes: Total principal amount $ 16,000 10,700 26,700 Cost of funds 1-month LIBOR plus 1.25 % 1-month LIBOR plus 1.20 % Final maturity date 7/25/69 9/25/69 F - 30 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) Securitizations completed during the year ended December 31, 2020 2020-1 2020-2 2020-3 2020-4 (a) 2020-5 (a) Total Date securities issued 2/20/20 3/11/20 3/19/20 8/27/20 10/1/20 Total original principal amount $ 435,600 272,100 352,600 191,300 295,000 1,546,600 Class A senior notes: Total principal amount $ 424,600 264,300 343,600 191,300 295,000 1,518,800 Bond discount — ( 44 ) ( 1,503 ) ( 19 ) — ( 1,566 ) Issue price $ 424,600 264,256 342,097 191,281 295,000 1,517,234 Cost of funds 1-month LIBOR plus 0.74 % 1.83 % 1-month LIBOR plus 0.92 % 1.42 % 1-month LIBOR plus 0.88 % Final maturity date 3/26/68 4/25/68 3/26/68 8/27/68 10/25/68 Class B subordinated notes: Total principal amount $ 11,000 7,800 9,000 27,800 Bond discount — ( 574 ) ( 284 ) ( 858 ) Issue price $ 11,000 7,226 8,716 26,942 Cost of funds 1-month LIBOR plus 1.75 % 2.50 % 1-month LIBOR plus 1.90 % Final maturity date 3/26/68 4/25/68 3/26/68 (a) Total original principal amount excludes the Class B subordinated tranche for the 2020-4 and 2020-5 transactions, totaling $ 5.0 million and $ 7.5 million, respectively, that was retained by the Company at issuance. As of December 31, 2021, the Company had a total of $ 381.2 million (par value) of its own asset-backed securities that were retained upon initial issuance or repurchased 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 in 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. Upon sale, these notes would be shown as "bonds and notes payable" in the Company's consolidated balance sheet. Unsecured Line of Credit The Company has a $ 495.0 million unsecured line of credit that has a maturity date of September 22, 2026. 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 $ 737.5 million, subject to certain conditions. As of December 31, 2021, no amount was outstanding on the line of credit and $ 495.0 million was available for future use. Interest on amounts borrowed under the line of credit is payable, at the Company's election, at an alternate base rate or a Eurodollar rate, plus a variable rate (LIBOR), in each case as defined in the credit agreement. The initial margin applicable to Eurodollar borrowings is 150 basis points and may vary from 100 to 200 basis points depending on the Company's credit rating. The line of credit agreement contains certain financial covenants that, if not met, lead to an event of default under the agreement. The covenants include, among others, maintaining: • A minimum consolidated net worth • A minimum recourse indebtedness to adjusted EBITDA (over the last four rolling quarters) • A limitation on recourse indebtedness • A limitation on the amount of unsecuritized private education and consumer loans in the Company’s portfolio • A limitation on permitted investments, including business acquisitions that are not in one of the Company's existing lines of business As of December 31, 2021, the Company was in compliance with all of these requirements. Many of these covenants are duplicated in the Company's other lending facilities, including its warehouse facilities. The Company's operating line of credit does not have any covenants related to unsecured debt ratings. However, changes in the Company's ratings have modest implications on the pricing level at which the Company obtains funds. A default on the Company's other debt facilities would result in an event of default on the Company's unsecured line of credit that would result in the outstanding balance on the line of credit becoming immediately due and payable. F - 31 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) Participation Agreement The Company has an agreement with Union Bank and Trust Company ("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 FFELP loan asset-backed securities. As of December 31, 2021, $ 254.0 million of FFELP loan asset-backed securities 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. The Company can participate FFELP loan asset-backed securities to Union Bank to the extent of availability under the grantor trusts, up to $ 400.0 million or an amount in excess of $ 400.0 million if mutually agreed to by both parties. The Company maintains legal ownership of the FFELP loan asset-backed securities and, in its discretion, approves and accomplishes any sale, assignment, transfer, encumbrance, or other disposition of the securities. As such, the FFELP loan asset-backed securities under this agreement have been accounted for by the Company as a secured borrowing. See note 7 for additional information about the FFELP loan asset-backed securities investments serving as collateral under this participation agreement. Repurchase Agreements On May 3, 2021 and June 23, 2021, the Company entered into repurchase agreements with non-affiliated third parties, the proceeds of which are collateralized by certain private education and FFELP loan asset-backed securities. The first agreement has maturity dates of November 20, 2023 and December 20, 2023, or earlier if either party provides 180 days’ prior written notice, and the second agreement has a maturity date of May 27, 2022. The Company incurs interest on amounts outstanding under these agreements based on three-month LIBOR plus an applicable spread. Under the first agreement, the Company is subject to margin deficit payment requirements if the fair value of the securities subject to the agreement is less than the original purchase price of such securities on any scheduled reset date, and under the second agreement, the Company could be subject to margin deficit payment requirements if the fair value of the securities subject to the agreement is less than the original purchase price of such securities and the counter-party provides notice requiring such payment. Included in “bonds and notes payable” as of December 31, 2021 was $ 208.1 million subject to the first agreement and $ 275.8 million subject to the second agreement. See note 7 for additional information about the private education loan asset-backed securities investments serving as collateral for these repurchase agreements. Debt Covenants Certain bond resolutions and related credit agreements contain, among other requirements, covenants relating to restrictions on additional indebtedness, limits as to direct and indirect administrative expenses, and maintaining certain financial ratios. Management believes the Company is in compliance with all covenants of the bond indentures and related credit agreements as of December 31, 2021. Maturity Schedule Bonds and notes outstanding as of December 31, 2021 are due in varying amounts as shown below. 2022 $ 439,328 2023 415,547 2024 — 2025 28,116 2026 — 2027 and thereafter 16,941,096 $ 17,824,087 Generally, the Company's secured financing instruments can be redeemed on any interest payment date at par plus accrued interest. Subject to certain provisions, all bonds and notes are subject to redemption prior to maturity at the option of certain lending subsidiaries. F - 32 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) Accrued Interest Liability During the first quarter of 2021, the Company reversed a historical accrued interest liability of $ 23.8 million on certain bonds, which liability the Company determined was no longer probable of being required to be paid. The liability was initially recorded when certain asset-backed securitizations were acquired in 2011 and 2013. The reduction of this liability is reflected in (a reduction of) "interest on bonds and notes payable and bank deposits" in the consolidated statements of income. Debt Repurchases The following table summarizes the Company's repurchases of its own debt. Gains/losses recorded by the Company from the repurchase of debt are included in “other” in "other income/expense" on the Company’s consolidated statements of income. Year ended December 31, 2021 2020 2019 Purchase price $ ( 407,487 ) ( 25,643 ) ( 39,864 ) Par value 406,875 27,605 40,000 Remaining debt discount and unamortized cost of issuance ( 6,163 ) ( 38 ) — (Loss) gain $ ( 6,775 ) 1,924 136 During 2019, the Company extinguished $ 1.05 billion of notes payable included in certain FFELP asset-backed securitizations prior to the notes’ contractual maturities. To extinguish the notes, the Company paid premiums of $ 14.0 million and wrote off $ 2.7 million of debt issuance costs. In total, the Company recognized $ 16.7 million (pre-tax) in expenses to extinguish these notes, which is included in “other expenses” on the consolidated statements of income. 6. Derivative Financial Instruments The Company uses derivative financial instruments primarily to manage interest rate risk. The Company is 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 Company periodically reviews the mismatch related to the interest rate characteristics of its assets and liabilities together with the Company's outlook as to current and future market conditions. Based on those factors, the Company uses derivative instruments as part of its overall risk management strategy. Derivative instruments used as part of the Company's interest rate risk management strategy are discussed below. Basis Swaps Interest earned on the majority of the Company's FFELP student loan assets is indexed to the one-month LIBOR rate. Meanwhile, the Company funds a portion of its FFELP loan assets with three-month LIBOR indexed floating rate securities. The differing interest rate characteristics of the Company's loan assets versus the liabilities funding these assets results in basis risk, which impacts the Company's excess spread earned on its loans. The Company also faces repricing risk due to the timing of the interest rate resets on its liabilities, which may occur as infrequently as once a quarter, in contrast to the timing of the interest rate resets on its assets, which generally occur daily. As of December 31, 2021, the Company’s AGM operating segment had $ 15.9 billion, $ 0.6 billion, and $ 0.5 billion of FFELP loans indexed to the one-month LIBOR rate, three-month commercial paper rate, and the three-month treasury bill rate, respectively, the indices for which reset daily, and $ 5.4 billion of debt indexed to three-month LIBOR, the indices for which reset quarterly, and $ 10.5 billion of debt indexed to one-month LIBOR, the indices for which reset monthly. The Company has used derivative instruments to hedge its basis risk and repricing risk. The Company has entered into 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”). F - 33 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) The following table summarizes the Company’s 1:3 Basis Swaps outstanding: As of December 31, 2021 2020 Maturity Notional amount Notional amount 2021 $ — 250,000 2022 2,000,000 2,000,000 2023 750,000 750,000 2024 1,750,000 1,750,000 2026 1,150,000 1,150,000 2027 250,000 250,000 $ 5,900,000 6,150,000 The weighted average rate paid by the Company on the 1:3 Basis Swaps as of December 31, 2021 and 2020, was one-month LIBOR plus 9.1 basis points. Interest rate swaps – floor income hedges 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 Payments ("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 certain declining interest rate environments, when the fixed borrower rate is higher than the SAP rate, these 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 these loans to the Department. Absent the use of derivative instruments, a rise in interest rates may reduce the amount of floor income received and this may have 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. As of December 31, 2021 and 2020, the Company had $ 7.2 billion and $ 8.4 billion, respectively, of FFELP student loan assets that were earning fixed rate floor income. F - 34 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) The following table summarizes the outstanding derivative instruments used by the Company to economically hedge loans earning fixed rate floor income. As of December 31, 2021 As of December 31, 2020 Maturity Notional amount Weighted average fixed rate paid by the Company (a) Notional amount Weighted average fixed rate paid by the Company (a) 2021 $ — — % $ 600,000 2.15 % 2022 500,000 0.94 500,000 0.94 2023 900,000 0.62 900,000 0.62 2024 2,500,000 0.35 2,000,000 0.32 2025 500,000 0.35 500,000 0.35 2026 500,000 1.02 — — 2031 100,000 1.53 — — $ 5,000,000 0.55 % $ 4,500,000 0.70 % (a) For all interest rate derivatives, the Company receives discrete three-month LIBOR. Consolidated Financial Statement Impact Related to Derivatives - Statements of Income The following table summarizes the components of "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of income. Year ended December 31, 2021 2020 2019 Settlements: 1:3 basis swaps $ ( 1,638 ) 10,378 5,214 Interest rate swaps - floor income hedges ( 19,729 ) ( 6,699 ) 40,192 Total settlements - (expense) income ( 21,367 ) 3,679 45,406 Change in fair value: 1:3 basis swaps 5,027 ( 7,462 ) 1,515 Interest rate swaps - floor income hedges 87,786 ( 20,682 ) ( 77,027 ) Other — — ( 683 ) Total change in fair value - income (expense) 92,813 ( 28,144 ) ( 76,195 ) Derivative market value adjustments and derivative settlements, net - income (expense) $ 71,446 ( 24,465 ) ( 30,789 ) Derivative Instruments - Credit and Market Risk Interest rate movements have an impact on the amount of variation margin the Company may be required to pay to its third-party clearinghouse. The Company attempts to manage market risk associated with interest rates by establishing and monitoring limits as to the types and degree of risk that may be undertaken. The Company's derivative portfolio and hedging strategy is reviewed periodically by its internal risk committee and board of directors' Risk and Finance Committee. With the Company's current derivative portfolio, the Company does not currently anticipate any movement in interest rates having a material impact on its liquidity or capital resources, nor expects future movements in interest rates to have a material impact on its ability to meet variation margin payments to its third-party clearinghouse. Due to the existing low interest rate environment, the Company's exposure to downward movements in interest rates on its interest rate swaps is limited. In addition, the historical high correlation between one-month and three-month LIBOR limits the Company's exposure to interest rate movements on the 1:3 Basis Swaps. F - 35 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) 7. Investments Private Education Loan Investment In December 2020, Wells Fargo announced the sale of its approximately $ 10.0 billion portfolio of private education loans representing approximately 445,000 borrowers. The Company entered into a joint venture with other investors to acquire the loans. Under the terms of the joint venture agreements, the Company is the servicer of the portfolio, owns an approximate 8 percent interest in residual interests in securitizations of the loans, and serves as the sponsor and administrator for the loan securitizations completed by the joint venture. The joint venture established a limited partnership that purchased the private education loans and funded such loans with a temporary warehouse facility. The Company’s initial contribution to the limited partnership was $ 71.1 million. In conjunction with the establishment of the limited partnership, the parties provided additional funding commitments to the partnership, in the event additional funding became necessary after the initial purchase of loans. In accordance with GAAP, the Company’s carrying value of its investment in the limited partnership is accounted for under the equity method of accounting, is reduced by cash distributions and the fair value of its portion of loans transferred into securitizations, and can be less than zero or negative because of the potential future contributions pursuant to the funding commitment. The carrying value of the investment in the limited partnership is also impacted by the amount of the Company’s proportionate share of the net earnings or losses of the partnership. During 2021, the joint venture completed asset-backed securitization transactions to permanently finance a total of $ 8.7 billion of the private education loans purchased by the joint venture. Cash distributions, the fair value of the Company’s portion of loans securitized as a result of these securitizations, and the Company’s proportionate share of losses of this partnership were $ 52.1 million, $ 51.9 million, and $ 5.0 million, respectively, and reduced the Company’s carrying value of its limited partnership investment to a credit (negative) balance of $ 37.9 million. During the fourth quarter of 2021, the Company’s financial commitment to the limited partnership was terminated by the partners of the joint venture, and the Company recognized income of $ 37.9 million (pre-tax) associated with the termination, which is included in “other” in “other income/expense” on the consolidated statements of income. The Company’s ownership in the residual interest of securitization transactions used to permanently finance the loans are reflected in the table below as “beneficial interest in private education loan securitizations.” As sponsor of the loan securitizations, the Company is required to provide a certain level of risk retention, and has purchased bonds issued in such securitizations to satisfy this requirement. The bonds purchased to satisfy the risk retention requirement are included in “private education loan asset-backed securities – available for sale” in the table below and as of December 31, 2021, the fair value of these bonds was $ 412.6 million. The Company 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 the Company can sell its investment securities (bonds) to a third party. The Company 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. F - 36 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) A summary of the Company's investments follows: As of December 31, 2021 As of December 31, 2020 Amortized cost Gross unrealized gains Gross unrealized losses Fair value Amortized cost Gross unrealized gains Gross unrealized losses Fair value Investments (at fair value): FFELP loan asset-backed securities- available-for-sale (a) $ 480,691 14,710 ( 719 ) 494,682 338,475 8,040 ( 13 ) 346,502 Private education loan asset-backed securities - available-for-sale (b) 414,286 507 ( 2,241 ) 412,552 — — — — Other debt securities - available-for-sale 22,435 — — 22,435 2,103 2 — 2,105 Equity securities 60,153 13,930 ( 2,097 ) 71,986 36,227 8,768 ( 2,954 ) 42,041 Total investments (at fair value) $ 977,565 29,147 ( 5,057 ) 1,001,655 376,805 16,810 ( 2,967 ) 390,648 Other Investments (not measured at fair value): Other debt securities - held-to-maturity (c) 8,200 — Venture capital and funds: Measurement alternative (d)(e) 157,609 144,795 Equity method 67,840 14,912 Total venture capital and funds 225,449 159,707 Real estate Equity method 47,226 50,291 Notes receivable — 847 Total real estate 47,226 51,138 Investment in ALLO: Voting interest/equity method (f) 87,247 129,396 Preferred membership interest and accrued and unpaid preferred return (g) 137,342 228,916 Total investment in ALLO 224,589 358,312 Solar (h) ( 42,457 ) ( 30,373 ) Beneficial interest in private education loan securitizations (i) 66,008 — Beneficial interest in consumer loan securitizations, net of allowance for credit losses of $ 4,449 as of December 31, 2020 (i) 28,366 27,954 Beneficial interest in federally insured student loan securitizations (i) 25,768 30,377 Tax liens, affordable housing, and other 4,115 5,177 Total investments (not measured at fair value) 587,264 602,292 Total investments $ 1,588,919 $ 992,940 (a) As of December 31, 2021, $ 254.0 million (par value) of FFELP loan asset-backed securities were subject to participation interests held by Union Bank, as discussed in note 5 under "Participation Agreement." As of December 31, 2021, the stated maturities of a majority of the Company’s FFELP student loan asset-backed securities classified as available-for-sale were greater than 10 years; however, such securities with a fair value of $ 77.9 million as of December 31, 2021 are scheduled to mature within the next 10 years, including $ 25.2 million, $ 32.1 million, and $ 20.6 million due within the next one year, 1-5 years, and 6-10 years, respectively. (b) As of December 31, 2021, a total of $ 400.0 million (par value) of private education loan asset-backed securities were subject to repurchase agreements with third-parties, as discussed in note 5 under “Repurchase Agreements.” As of December 31, 2021, the stated maturities for all the Company’s private education loan asset-backed securities classified as available for sale were greater than 10 years. (c) As of December 31, 2021, securities classified as held-to-maturity of $ 3.5 million and $ 4.7 million were scheduled to mature within one year and 1-5 years, respectively. As of December 31, 2021, the fair value of these securities approximated their carrying value. F - 37 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) (d) The Company has an investment in Agile Sports Technologies, Inc. (doing business as “Hudl”) that is included in “venture capital and funds” in the above table. In May 2020, the Company made an additional equity investment of approximately $ 26 million in Hudl, as one of the participants in an equity raise completed by Hudl. Prior to the additional 2020 investment, the Company had direct and indirect equity ownership interests in Hudl of less than 20 %, which did not materially change as a result of this transaction. The Company accounts for its investment in Hudl using the measurement alternative method, which requires it to adjust its carrying value of the investment for changes resulting from observable market transactions. As a result of Hudl’s equity raise, the Company recognized a $ 51.0 million (pre-tax) gain during the second quarter of 2020 to adjust its carrying value to reflect the May 2020 transaction value. This gain is included in “other” in “other income/expense” on the consolidated statements of income. In May 2021, the Company made an additional $ 5 million investment in Hudl. For accounting purposes, the May 2021 equity raise transaction was not considered an observable market transaction (not orderly) because it was not subject to customary marketing activities and the price was contractually agreed to during Hudl's prior May 2020 equity raise. Accordingly, the Company did not adjust its carrying value of its Hudl investment to the May 2021 transaction value. As of December 31, 2021, the carrying amount of the Company's investment in Hudl is $ 133.9 million. David S. Graff, who has served on the Company's Board of Directors since May 2014, is CEO, co-founder, and a director of Hudl. (e) In October 2021, CompanyCam Inc., an entity in which the Company has an equity investment, completed an additional equity raise. The Company accounts for its investment in this entity using the measurement alternative method, which requires it to adjust its carrying value of the investment for changes resulting from observable market transactions. As a result of this entity’s equity raise, the Company recognized a $ 10.3 million (pre-tax) gain during the fourth quarter of 2021 to adjust its carrying value to reflect the October 2021 transaction value. As of December 31, 2021, the carrying amount of this investment is $ 11.5 million. (f) The Company accounts for its voting membership interests in ALLO Holdings LLC, a holding company for ALLO Communications LLC (collectively referred to as "ALLO") under the HLBV method of accounting. During the years ended December 31, 2021 and 2020 , the Company recognized pre-tax losses of $ 42.1 million and $ 3.6 million, respectively, under the HLBV method of accounting on its ALLO voting membership interests investment. Assuming ALLO continues its planned growth in existing and new communities, it will continue to invest substantial amounts in property and equipment to build the network and connect customers. The resulting recognition of depreciation and development costs could result in continuing net operating losses by ALLO under GAAP. Applying the HLBV method of accounting, the Company will continue to recognize a significant portion of ALLO’s anticipated losses over the next several years. Income and losses from the Company's investment in ALLO are included in "other" in "other income/expense" on the consolidated statements of income. (g) On January 19, 2021, ALLO obtained certain private debt financing facilities from unrelated third-party lenders. With proceeds from this transaction, ALLO redeemed a portion of its non-voting preferred membership interests held by the Company in exchange for an aggregate redemption price payment to the Company of $ 100.0 million. Under October 2020 recapitalization agreements for ALLO, the parties have agreed to use commercially reasonable efforts (which expressly excludes requiring ALLO to raise any additional equity financing or sell any assets) to cause ALLO to redeem, on or before April 2024, the remaining preferred membership interests of ALLO held by the Company, plus the amount of accrued and unpaid preferred return on such interests. As of December 31, 2021, the outstanding preferred membership interests of ALLO held by the Company was $ 137.3 million, which includes accrued and unpaid preferred return of $ 7.7 million that was capitalized at December 31, 2021. The preferred membership interests of ALLO held by the Company earn a preferred annual return of 6.25 percent. During the years ended December 31, 2021 and 2020 , the Company recognized pre-tax income on its ALLO preferred membership interests of $ 8.4 million and $ 0.4 million, respectively, that is included in "other" in "other income/expense" on the consolidated statements of income. (h) The Company makes investments in entities that promote renewable energy sources (solar). The Company’s investments in these entities generate a return primarily through the realization of federal income tax credits, operating cash flows, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods which range from 5 to 6 years. As of December 31, 2021, the Company has funded a total of $ 227.9 million in solar investments, which includes $ 59.2 million funded by syndication partners. The carrying value of the Company’s solar investments are reduced by tax credits earned when the solar project is placed in service. The solar investment balance at December 31, 2021 represents the sum of total tax credits earned on solar projects placed in service through December 31, 2021 and the calculated HLBV net losses being larger than total payments made by the Company on such projects. The Company is committed to fund an additional $ 22.3 million on these projects, of which $ 17.9 million will be provided by syndication partners. The Company accounts for its solar investments using the HLBV method of accounting. For the majority of the Company’s solar investments, the HLBV method of accounting results in accelerated losses in the initial years of investment. During the years ended December 31, 2021 and 2020, the Company recognized pre-tax losses of $ 10.1 F - 38 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) million and $ 37.4 million, respectively, on its solar investments. These losses are included in “other” in "other income/expense" on the consolidated statements of income. Losses from solar investments in 2021 and 2020 include losses of $ 7.1 million and $ 3.8 million, respectively, attributable to third-party minority interest investors that are included in “net loss attributable to noncontrolling interests” in the consolidated statements of income. (i) The Company has partial ownership in certain private education, consumer, and federally insured student loan securitizations. As of the latest remittance reports filed by the various trusts prior to or as of December 31, 2021, the Company's ownership correlates to approximately $ 688 million, $ 195 million, and $ 445 million of private education, consumer, and federally insured student loans, respectively, included in these securitizations. Impairment Expense and Provision for Beneficial Interests During the first quarter of 2020, the Company recorded a $ 26.3 million provision charge related to the Company's beneficial interest in consumer loan securitizations. As of March 31, 2020, the Company's estimate of future cash flows from the beneficial interest in consumer loan securitizations was lower than previously anticipated due to the expectation of increased consumer loan defaults within such securitizations due to the distressed economic conditions resulting from the COVID-19 pandemic and recorded an allowance for credit losses of $ 26.3 million. Additionally, during the first quarter of 2020, the Company recorded a $ 7.8 million impairment charge related to several of its venture capital investments. The Company identified several venture capital investments, a majority of which were accounted for under the measurement alternative, that were also negatively impacted by the distressed economic conditions resulting from the COVID-19 pandemic, and estimated that the fair value of such investments was significantly reduced from their previous carrying value. During the fourth quarter of 2020 and first quarter of 2021, due to improved economic conditions, the Company reduced the allowance for credit losses related to the consumer loan beneficial interests by $ 9.7 million and $ 2.4 million, respectively. During 2021, the Company recorded a total impairment charge of $ 4.6 million related to several of its venture capital investments accounted for under the measurement alternative method. The impairment expense and recovery activity described above is included in “impairment expense and provision for beneficial interests, net” on the consolidated statements of income. 8. Business Combination HigherSchool Publishing Company ("HigherSchool") On December 31, 2020, the Company acquired 100 percent of the outstanding stock of HigherSchool for total cash consideration of $ 24.7 million. HigherSchool provides supplemental instructional services and educational professional development for K-12 schools. The acquisition of HigherSchool has expanded the Company's professional development and educational instruction services. The operating results of HigherSchool are included in the Education Technology, Services, and Payment Processing operating segment from the date of acquisition. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. Cash and cash equivalents $ 7 Accounts receivable 5,711 Intangible assets 24,200 Excess cost over fair value of net assets acquired (goodwill) 6,292 Other liabilities ( 11,510 ) Net assets acquired $ 24,700 The acquired intangible assets were customer relationships of $ 24.2 million ( 10 -year useful life). The $ 6.3 million of goodwill was assigned to the Education Technology, Services, and Payment Processing operating segment and is not expected to be deductible for tax purposes. The amount allocated to goodwill was primarily attributed to the deferred tax liability related to the difference between the carrying amount and tax basis of acquired identifiable intangible assets. The pro forma impacts of the HigherSchool acquisition on the Company's historical results prior to the acquisition were not material. F - 39 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) 9. Intangible Assets Intangible assets consist of the following: Weighted average remaining useful life as of December 31, 2021 (months) As of December 31, 2021 2020 Amortizable intangible assets, net: Customer relationships (net of accumulated amortization of $ 97,398 and $ 83,419 , respectively) 103 $ 47,894 66,974 Computer software (net of accumulated amortization of $ 3,669 and $ 4,127 , respectively) 24 4,135 6,430 Trade names (net of accumulated amortization of $ 3,455 ) — — 1,666 Total - amortizable intangible assets, net 96 $ 52,029 75,070 The Company recorded amortization expense on its intangible assets of $ 23.0 million, $ 30.8 million, and $ 32.8 million during the years ended December 31, 2021, 2020, and 2019, respectively. The Company will continue to amortize intangible assets over their remaining useful lives. As of December 31, 2021, the Company estimates it will record amortization expense as follows: 2022 $ 9,939 2023 9,830 2024 7,457 2025 4,644 2026 4,517 2027 and thereafter 15,642 $ 52,029 10. Goodwill The change in the carrying amount of goodwill by reportable operating segment was as follows: Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Asset Generation and Management (a) Nelnet Bank Corporate and Other Activities Total Balance as of December 31, 2019 $ 23,639 70,278 21,112 41,883 — — 156,912 Goodwill acquired — 6,292 — — — — 6,292 Deconsolidation of ALLO — — ( 21,112 ) — — — ( 21,112 ) Balance as of December 31, 2020 and 2021 $ 23,639 76,570 — 41,883 — — 142,092 (a) As a result of the Reconciliation Act of 2010, the Company no longer originates new FFELP loans, and net interest income from the Company's existing FFELP loan portfolio will decline over time as the Company's portfolio pays down. As a result, as this revenue stream winds down, goodwill impairment will be triggered for the Asset Generation and Management reporting unit due to the passage of time and depletion of projected cash flows stemming from its FFELP student loan portfolio. Management believes the elimination of new FFELP loan originations will not have an adverse impact on the fair value of the Company's other reporting units. F - 40 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) 11. Property and Equipment Property and equipment consisted of the following: As of December 31, Useful life 2021 2020 Computer equipment and software 1 - 5 years $ 234,222 172,664 Building and building improvements 5 - 48 years 48,782 52,444 Office furniture and equipment 1 - 10 years 22,463 21,899 Leasehold improvements 1 - 15 years 10,537 9,168 Transportation equipment 5 - 10 years 4,857 4,857 Land — 3,266 3,642 Construction in progress — 2,392 18,478 326,519 283,152 Accumulated depreciation ( 207,106 ) ( 159,625 ) Total property and equipment, net $ 119,413 123,527 The Company recorded depreciation expense on its property and equipment of $ 50.7 million, $ 87.9 million, and $ 72.3 million during the years ended December 31, 2021, 2020, and 2019, respectively. Impairment charges During the third quarter of 2021, the Company evaluated the use of office space as a large number of employees continue to work from home due to COVID-19. As a result of this evaluation, the Company recorded a non-cash impairment charge of $ 14.2 million during the three months ended September 30, 2021. The impairment charge of $ 13.2 million within its Loan Servicing and Systems operating segment related primarily to building and building improvements. The impairment charge of $ 1.0 million within its Corporate and Other Activities operating segment related to operating lease assets associated with leased office space which the Company had fully ceased to use prior to the lease term end date. These impairment charges are included in "impairment expense and provision for beneficial interest, net" in the consolidated statements of income. 12. Shareholders’ Equity Classes of Common Stock The Company's common stock is divided into two classes. The Class B common stock has ten votes per share and the Class A common stock has one vote per share on all matters to be voted on by the Company's shareholders. Each Class B share is convertible at any time at the holder's option into one Class A share. With the exception of the voting rights and the conversion feature, the Class A and Class B shares are identical in terms of other rights, including dividend and liquidation rights. Stock Repurchases The Company has a stock repurchase program that expires on May 7, 2022 in which it can repurchase up to five million shares of its Class A common stock on the open market, through private transactions, or otherwise. As of December 31, 2021, 2.6 million shares may still be purchased under the Company's stock repurchase program. Shares repurchased by the Company during 2021, 2020, and 2019 are shown in the table below. In accordance with the corporate laws of the state in which the Company is incorporated, all shares repurchased by the Company are legally retired upon acquisition by the Company. Total shares repurchased Purchase price (in thousands) Average price of shares repurchased (per share) Year ended December 31, 2021 713,274 $ 58,111 $ 81.47 Year ended December 31, 2020 1,594,394 73,358 46.01 Year ended December 31, 2019 726,273 40,411 55.64 F - 41 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) 13. 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. Year ended December 31, 2021 2020 2019 Common shareholders Unvested restricted stock shareholders Total Common shareholders Unvested restricted stock shareholders Total Common shareholders Unvested restricted stock shareholders Total Numerator: Net income attributable to Nelnet, Inc. $ 386,865 6,421 393,286 347,451 4,992 352,443 139,946 1,857 141,803 Denominator: Weighted-average common shares outstanding - basic and diluted 37,943,032 629,769 38,572,801 38,506,351 553,237 39,059,588 39,523,082 524,320 40,047,402 Earnings per share - basic and diluted $ 10.20 10.20 10.20 9.02 9.02 9.02 3.54 3.54 3.54 Unvested restricted stock awards are the Company's only potential common shares and, accordingly, there were no awards that were antidilutive and not included in average shares outstanding for the diluted earnings per share calculation. As of December 31, 2021, a cumulative amount of 221,996 shares have been deferred by non-employee directors under the Directors Stock Compensation Plan and will become issuable upon the termination of service by the respective non-employee director on the board of directors. These shares are included in the Company's weighted average shares outstanding calculation. 14. Income Taxes The Company is subject to income taxes in the United States, Canada, and Australia. Significant judgment is required in evaluating the Company's tax positions and determining the provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. As required by the Income Taxes Topic of the FASB Accounting Standards Codification ("ASC Topic 740"), the Company recognizes in the consolidated financial statements only those tax positions determined to be more likely than not of being sustained upon examination, based on the technical merits of the positions. It further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the period of such change. As of December 31, 2021, the total amount of gross unrecognized tax benefits (excluding the federal benefit received from state positions) was $ 19.7 million, which is included in “other liabilities” on the consolidated balance sheet. Of this total, $ 15.6 million (net of the federal benefit on state issues) represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in future periods. The Company currently anticipates uncertain tax positions will decrease by $ 7.2 million prior to December 31, 2022 as a result of a lapse of applicable statutes of limitations, settlements, correspondence with examining authorities, and recognition or measurement considerations with federal and state jurisdictions; however, actual developments in this area could differ from those currently expected. Of the anticipated $ 7.2 million decrease, $ 5.7 million, if recognized, would favorably affect the Company's effective tax rate. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits follows: Year ended December 31, 2021 2020 Gross balance - beginning of year $ 20,318 20,148 Additions based on tax positions of prior years 271 634 Additions based on tax positions related to the current year 2,388 2,523 Reductions for tax positions of prior years ( 1,002 ) ( 69 ) Reductions due to lapse of applicable statutes of limitations ( 2,297 ) ( 2,918 ) Gross balance - end of year $ 19,678 20,318 F - 42 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) All the reductions shown in the table above that are due to prior year tax positions and the lapse of statutes of limitations impacted the effective tax rate. The Company's policy is to recognize interest and penalties accrued on uncertain tax positions as part of interest expense and other expense, respectively. As of December 31, 2021 and 2020, $ 5.1 million and $ 5.4 million in accrued interest and penalties, respectively, were included in “other liabilities” on the consolidated balance sheets. The impact to the consolidated statements of income related to interest expense and penalties for uncertain tax positions was not significant for the years 2021, 2020, and 2019. The impact of timing differences and tax attributes are considered when calculating interest and penalty accruals associated with the unrecognized tax benefits. The Company and its subsidiaries file a consolidated federal income tax return in the U.S. and the Company or one of its subsidiaries files income tax returns in various state, local, and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years prior to 2018. The Company is no longer subject to U.S. state and local income tax examinations by tax authorities prior to 2010. As of December 31, 2021, the Company has tax uncertainties that remain unsettled in the jurisdiction of California (2010 through 2017). The provision for income taxes consists of the following components: Year ended December 31, 2021 2020 2019 Current: Federal $ 55,239 82,832 38,931 State 4,792 9,815 3,546 Foreign 169 239 239 Total current provision 60,200 92,886 42,716 Deferred: Federal 46,145 7,269 ( 4,280 ) State 9,647 718 ( 2,922 ) Foreign ( 170 ) ( 13 ) ( 63 ) Total deferred provision 55,622 7,974 ( 7,265 ) Provision for income tax expense $ 115,822 100,860 35,451 The differences between the income tax provision computed at the statutory federal corporate tax rate and the financial statement provision for income taxes are shown below: Year ended December 31, 2021 2020 2019 Tax expense at federal rate 21.0 % 21.0 % 21.0 % Increase (decrease) resulting from: State tax, net of federal income tax benefit 3.0 2.8 2.5 Tax credits ( 0.8 ) ( 1.1 ) ( 3.0 ) Provision for uncertain federal and state tax matters ( 0.1 ) ( 0.2 ) ( 0.7 ) Other ( 0.3 ) ( 0.2 ) 0.2 Effective tax rate 22.8 % 22.3 % 20.0 % F - 43 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) The tax effect of temporary differences that give rise to deferred tax assets and liabilities include the following: As of December 31, 2021 2020 Deferred tax assets: Deferred revenue $ 21,593 18,081 Student loans 19,776 26,894 Accrued expenses 10,712 10,661 State tax credit carryforwards 8,546 5,987 Stock compensation 4,027 2,546 Lease liability 3,685 4,123 Net operating losses 2,410 647 Basis in certain derivative contracts — 5,061 Securitizations — 694 Total gross deferred tax assets 70,749 74,694 Less state tax valuation allowance ( 2,084 ) ( 569 ) Net deferred tax assets 68,665 74,125 Deferred tax liabilities: Partnership basis 100,428 64,023 Basis in certain derivative contracts 15,927 — Depreciation 15,264 14,092 Debt and equity investments 12,859 20,538 Loan origination services 4,930 5,040 Intangible assets 4,772 7,703 Lease right of use asset 3,317 4,037 Securitization 128 — Other 1,665 661 Total gross deferred tax liabilities 159,290 116,094 Net deferred tax asset (liability) $ ( 90,625 ) ( 41,969 ) The Company has performed an evaluation of the recoverability of deferred tax assets. In assessing the realizability of the Company's deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible or eligible for utilization of a tax credit carryforward. Management considers the scheduled reversals of deferred tax liabilities, projected taxable income, carry back opportunities, and tax planning strategies in making the assessment of the amount of the valuation allowance. With the exception of a portion of the Company's state net operating losses, it is management's opinion that it is more likely than not that the deferred tax assets will be realized and should not be reduced by a valuation allowance. The amount of deferred tax assets considered realizable could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced. As of December 31, 2021 and 2020, the Company had a current income tax receivable of $ 8.1 million and $ 21.5 million, respectively, that is included in "other assets" on the consolidated balance sheets. Net deferred tax assets of $ 27.3 million and net deferred tax liabilities of $ 117.9 million are included in “other assets” and “other liabilities,” respectively, on the consolidated balance sheets. F - 44 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) 15. Segment Reporting The Company's reportable operating segments include: • Loan Servicing and Systems • Education Technology, Services, and Payment Processing • Communications • Asset Generation and Management • Nelnet Bank The Company earns fee-based revenue through its Loan Servicing and Systems and Education Technology, Services, and Payment Processing operating segments and earned revenue from its Communications operating segment prior to its deconsolidation on December 21, 2020. In addition, the Company earns interest income on its loan portfolio in its Asset Generation and Management operating segment. On November 2, 2020, the Company launched operations of Nelnet Bank. Nelnet bank operates as an internet bank franchise focused primarily on the private education loan marketplace. The Company’s operating segments are defined by the products and services they offer and the types of customers they serve, and they reflect the manner in which financial information is currently evaluated by management. See note 1, "Description of Business," for a description of each operating segment, including the primary products and services offered. The management reporting process measures the performance of the Company’s operating segments based on the management structure of the Company, as well as the methodology used by management to evaluate performance and allocate resources. Executive management (the "chief operating decision maker") evaluates the performance of the Company’s operating segments based on their financial results prepared in conformity with U.S. GAAP. The accounting policies of the Company’s operating segments are the same as those described in the summary of significant accounting policies. Intersegment revenues are charged by a segment that provides a product or service to another segment. Intersegment revenues and expenses are included within each segment consistent with the income statement presentation provided to management. Income taxes are allocated based on 24 % of income before taxes for each individual operating segment, except for Nelnet Bank, which reflects Nelnet Bank’s actual tax expense/benefit as allocated and reflected in its Call Report filed with the Federal Deposit Insurance Corporation. The difference between the consolidated income tax expense and the sum of taxes calculated for each operating segment is included in income taxes in Corporate and Other Activities. Corporate and Other Activities Other business activities and operating segments that are not reportable are combined and included in Corporate and Other Activities. Corporate and Other Activities includes the following items: • The majority of the Company’s investment activities, including investments accounted for under the equity method. See note 7 for the amounts of investments in equity method investees. • Interest expense incurred on unsecured and certain other corporate related debt transactions • Other product and service offerings that are not considered reportable operating segments including, but not limited to, WRCM, the SEC-registered investment advisor subsidiary Corporate and Other Activities also includes certain corporate activities and overhead functions related to executive management, internal audit, human resources, accounting, legal, enterprise risk management, information technology, occupancy, and marketing. These costs are allocated to each operating segment based on estimated use of such activities and services. Certain shared service costs incurred to support Nelnet Bank will not be allocated to Nelnet Bank until the end of the Bank’s de novo period (November 2023). Segment Results The following tables include the results of each of the Company's reportable operating segments reconciled to the consolidated financial statements. F - 45 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) Year ended December 31, 2021 Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications (a) Asset Generation and Management Nelnet Bank Corporate and Other Activities Eliminations Total Total interest income $ 137 1,075 — 506,901 7,721 9,801 ( 1,800 ) 523,835 Interest expense 94 — — 172,918 1,507 3,515 ( 1,800 ) 176,233 Net interest income (expense) 43 1,075 — 333,983 6,214 6,286 — 347,602 Less (negative provision) provision for loan losses — — — ( 13,220 ) 794 — — ( 12,426 ) Net interest income after provision for loan losses 43 1,075 — 347,203 5,420 6,286 — 360,028 Other income/expense: Loan servicing and systems revenue 486,363 — — — — — — 486,363 Intersegment revenue 33,956 12 — — — — ( 33,968 ) — Education technology, services, and payment processing revenue — 338,234 — — — — — 338,234 Communications revenue — — — — — — — — Other 3,307 — — 34,306 713 40,356 — 78,681 Gain on sale of loans — — — 18,715 — — — 18,715 Gain from deconsolidation of ALLO — — — — — — — — Impairment expense and provision for beneficial interests, net ( 13,243 ) — — 2,436 — ( 5,553 ) — ( 16,360 ) Derivative settlements, net — — — ( 21,367 ) — — — ( 21,367 ) Derivative market value adjustments, net — — — 92,813 — — — 92,813 Total other income/expense 510,383 338,246 — 126,903 713 34,803 ( 33,968 ) 977,079 Cost of services: Cost to provide education technology, services, and payment processing services — 108,660 — — — — — 108,660 Cost to provide communications services — — — — — — — — Total cost of services — 108,660 — — — — — 108,660 Operating expenses: Salaries and benefits 297,406 112,046 — 2,135 5,042 90,502 — 507,132 Depreciation and amortization 25,649 11,404 — — — 36,682 — 73,741 Other expenses 52,720 19,318 — 13,487 1,776 58,173 — 145,469 Intersegment expenses, net 72,206 15,180 — 34,868 107 ( 88,393 ) ( 33,968 ) — Total operating expenses 447,981 157,948 — 50,490 6,925 96,964 ( 33,968 ) 726,342 Income (loss) before income taxes 62,445 72,713 — 423,616 ( 792 ) ( 55,875 ) — 502,105 Income tax (expense) benefit ( 14,987 ) ( 17,451 ) — ( 101,668 ) 175 18,109 — ( 115,822 ) Net income (loss) 47,458 55,262 — 321,948 ( 617 ) ( 37,766 ) — 386,283 Net loss attributable to noncontrolling interests — — — — — 7,003 — 7,003 Net income (loss) attributable to Nelnet, Inc. $ 47,458 55,262 — 321,948 ( 617 ) ( 30,763 ) — 393,286 Total assets as of December 31, 2021 $ 296,618 443,788 — 18,965,371 535,948 1,963,032 ( 526,716 ) 21,678,041 (a) On December 21, 2020, the Company deconsolidated ALLO from the Company’s consolidated financial statements. See note 2, “ALLO Recapitalization,” for a description of the transaction and a summary of the deconsolidation impact. Accordingly, there are no operating results for the (former) Communications operating segment in 2021. F - 46 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) Year ended December 31, 2020 Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications (a) Asset Generation and Management Nelnet Bank (b) Corporate and Other Activities Eliminations Total Total interest income $ 436 3,036 2 611,474 414 5,775 ( 1,480 ) 619,656 Interest expense 121 54 — 328,157 41 3,178 ( 1,480 ) 330,071 Net interest income (expense) 315 2,982 2 283,317 373 2,597 — 289,585 Less (negative provision) provision for loan losses — — — 63,029 330 — — 63,360 Net interest income after provision for loan losses 315 2,982 2 220,288 43 2,597 — 226,225 Other income/expense: Loan servicing and systems revenue 451,561 — — — — — — 451,561 Intersegment revenue 36,520 20 — — — — ( 36,540 ) — Education technology, services, and payment processing revenue — 282,196 — — — — — 282,196 Communications revenue — — 76,643 — — — — 76,643 Other 9,421 373 1,561 7,189 48 38,969 — 57,561 Gain on sale of loans — — — 33,023 — — — 33,023 Gain from deconsolidation of ALLO — — — — — 258,588 — 258,588 Impairment expense and provision for beneficial interests, net — — — ( 16,607 ) — ( 8,116 ) — ( 24,723 ) Derivative settlements, net — — — 3,679 — — — 3,679 Derivative market value adjustments, net — — — ( 28,144 ) — — — ( 28,144 ) Total other income/expense 497,502 282,589 78,204 ( 860 ) 48 289,441 ( 36,540 ) 1,110,384 Cost of services: Cost to provide education technology, services, and payment processing services — 82,206 — — — — — 82,206 Cost to provide communications services — — 22,812 — — — — 22,812 Total cost of services — 82,206 22,812 — — — — 105,018 Operating expenses: Salaries and benefits 285,526 98,847 30,935 1,747 36 84,741 — 501,832 Depreciation and amortization 37,610 9,459 42,588 — — 29,043 — 118,699 Other expenses 57,420 14,566 13,327 15,806 135 59,320 — 160,574 Intersegment expenses, net 63,886 14,293 1,732 39,172 — ( 82,543 ) ( 36,540 ) — Total operating expenses 444,442 137,165 88,582 56,725 171 90,561 ( 36,540 ) 781,105 Income (loss) before income taxes 53,375 66,200 ( 33,188 ) 162,703 ( 80 ) 201,477 — 450,486 Income tax (expense) benefit ( 12,810 ) ( 15,888 ) 7,965 ( 39,049 ) 20 ( 41,098 ) — ( 100,860 ) Net income (loss) 40,565 50,312 ( 25,223 ) 123,654 ( 60 ) 160,379 — 349,626 Net loss attributable to noncontrolling interests — — — — — 2,817 — 2,817 Net income (loss) attributable to Nelnet, Inc. $ 40,565 50,312 ( 25,223 ) 123,654 ( 60 ) 163,196 — 352,443 Total assets as of December 31, 2020 $ 190,297 436,702 — 20,773,968 216,937 1,225,790 ( 197,534 ) 22,646,160 (a) On December 21, 2020, the Company deconsolidated ALLO from the Company’s consolidated financial statements. See note 2, “ALLO Recapitalization,” for a description of the transaction and a summary of the deconsolidation impact. Accordingly, the operating results for the Communications operating segment in the table above are for the period from January 1, 2020 through December 21, 2020. (b) Nelnet Bank launched operations on November 2, 2020. Accordingly, the operating results for the Nelnet Bank operating segment in the table above are for the period from November 2, 2020 through December 31, 2020. F - 47 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) Year ended December 31, 2019 Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Asset Generation and Management Nelnet Bank (a) Corporate and Other Activities Eliminations Total Total interest income $ 2,031 9,244 3 931,963 — 9,232 ( 3,796 ) 948,677 Interest expense 115 46 — 693,375 — 9,587 ( 3,796 ) 699,327 Net interest income (expense) 1,916 9,198 3 238,588 — ( 355 ) — 249,350 Less (negative provision) provision for loan losses — — — 39,000 — — — 39,000 Net interest income after provision for loan losses 1,916 9,198 3 199,588 — ( 355 ) — 210,350 Other income/expense: Loan servicing and systems revenue 455,255 — — — — — — 455,255 Intersegment revenue 46,751 — — — — — ( 46,751 ) — Education technology, services, and payment processing revenue — 277,331 — — — — — 277,331 Communications revenue — — 64,269 — — — — 64,269 Other 9,736 259 1,509 13,088 — 23,327 — 47,918 Gain on sale of loans — — — 17,261 — — — 17,261 Gain from deconsolidation of ALLO — — — — — — — — Impairment expense and provision for beneficial interests, net — — — — — — — — Derivative settlements, net — — — 45,406 — — — 45,406 Derivative market value adjustments, net — — — ( 76,195 ) — — — ( 76,195 ) Total other income/expense 511,742 277,590 65,778 ( 440 ) — 23,327 ( 46,751 ) 831,245 Cost of services: Cost to provide education technology, services, and payment processing services — 81,603 — — — — — 81,603 Cost to provide communications services — — 20,423 — — — — 20,423 Total cost of services — 81,603 20,423 — — — — 102,026 Operating expenses: Salaries and benefits 276,136 94,666 21,004 1,545 — 70,152 — 463,503 Depreciation and amortization 34,755 12,820 37,173 — — 20,300 — 105,049 Other expenses 71,064 22,027 15,165 34,445 — 51,571 — 194,272 Intersegment expenses, net 54,325 13,405 2,962 47,362 — ( 71,303 ) ( 46,751 ) — Total operating expenses 436,280 142,918 76,304 83,352 — 70,720 ( 46,751 ) 762,824 Income (loss) before income taxes 77,378 62,267 ( 30,946 ) 115,796 — ( 47,748 ) — 176,745 Income tax (expense) benefit ( 18,571 ) ( 14,944 ) 7,427 ( 27,792 ) — 18,428 — ( 35,451 ) Net income (loss) 58,807 47,323 ( 23,519 ) 88,004 — ( 29,320 ) — 141,294 Net loss attributable to noncontrolling interests — — — — — 509 — 509 Net income (loss) attributable to Nelnet, Inc. $ 58,807 47,323 ( 23,519 ) 88,004 — ( 28,811 ) — 141,803 Total assets as of December 31, 2019 $ 290,311 506,382 303,347 22,128,917 — 627,897 ( 147,884 ) 23,708,970 (a) Nelnet Bank launched operations on November 2, 2020. Accordingly, there are no operating results for the Nelnet Bank operating segment in the year ended December 31, 2019 . F - 48 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) 16. Disaggregated Revenue and Deferred Revenue The following provides additional revenue recognition information for the Company’s fee-based reportable operating segments. Loan Servicing and Systems Revenue Loan servicing and systems revenue consists of the following items: • Loan servicing revenue - Loan servicing revenue consideration is determined from individual contracts with customers and is calculated monthly based on the dollar value of loans, number of loans, number of borrowers serviced for each customer, or number of transactions. Loan servicing requires a significant level of integration and the individual components are not considered distinct. The Company performs various services, including, but not limited to, (i) application processing, (ii) monthly servicing, (iii) conversion processing, and (iv) fulfillment services, during each distinct service period. Even though the mix and quantity of activities that the Company performs each period may differ, the nature of the activities are substantially the same. Revenue is allocated to the distinct service period, typically a month, and recognized as control transfers as customers simultaneously receive and consume benefits. • Software services revenue - Software services revenue consideration is determined from individual contracts with customers and includes license and maintenance fees associated with loan software products, generally in a remote hosted environment, and computer and software consulting. Usage-based revenue, based on each loan or unique borrower, from remote hosted licenses is allocated to the distinct service period, typically a month, and recognized as control transfers as customers simultaneously receive and consume benefits. Revenue from any non-refundable up-front fee is recognized ratably over the contract period, as the fee relates to set-up activities that provide no incremental benefit to the customers. Computer and software consulting is also capable of being distinct and accounted for as a separate performance obligation. Revenue allocated to computer and software consulting is recognized as services are provided. • Outsourced services revenue - Outsourced services revenue consideration is determined from individual contracts with customers and is calculated monthly based on the volume of services. Revenue is allocated to the distinct service period, typically a month, and recognized as control transfers as customers simultaneously receive and consume benefits. The following table provides disaggregated revenue by service offering: Year ended December 31, 2021 2020 2019 Government servicing - Nelnet $ 167,579 146,798 157,991 Government servicing - Great Lakes 193,214 179,872 185,656 Private education and consumer loan servicing 47,302 32,492 36,788 FFELP servicing 18,281 20,183 25,043 Software services 34,600 41,999 41,077 Outsourced services and other 25,387 30,217 8,700 Loan servicing and systems revenue $ 486,363 451,561 455,255 Education Technology, Services, and Payment Processing Revenue Education technology, services, and payment processing revenue consists of the following items: • Tuition payment plan services - Tuition payment plan services consideration is determined from individual plan agreements, which are governed by plan service agreements, and includes access to a remote hosted environment and management of payment processing. The management of payment processing is considered a distinct performance obligation when sold with the remote hosted environment. Revenue for each performance obligation is allocated to the distinct service period, the academic school term, and recognized ratably over the service period as customers simultaneously receive and consume benefits. F - 49 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) • Payment processing - Payment processing consideration is determined from individual contracts with customers and includes electronic transfer and credit card processing, reporting, virtual terminal solutions, and specialized integrations to business software for education and non-education markets. Volume-based revenue from payment processing is allocated and recognized to the distinct service period, based on when each transaction is completed, and recognized as control transfers as customers simultaneously receive and consume benefits. The electronic transfer and credit card processing consideration is recognized as revenue on a gross basis as the Company is the principal in the delivery of the payment processing. The Company has concluded it is the principal as it controls the services before delivery to the educational institution or business, it is primarily responsible for the delivery of the services, and it has discretion in setting prices charged to its customers. In addition, the Company has the unilateral ability to accept or reject a transaction based on criteria established by the Company. The Company is liable for the costs of processing the transactions and records such costs within "cost to provide education technology, services, and payment processing services." • Education technology and services - Education technology and services consideration is determined from individual contracts with customers and is based on the services selected by the customer. Services in K-12 private and faith-based markets primarily includes (i) assistance with financial needs assessment, (ii) school information system software that automates administrative processes such as admissions, enrollment, scheduling, cafeteria management, attendance, and grade book management, and (iii) professional development and educational instruction services. Revenue for these services is recognized for the consideration the Company has a right to invoice, the amount of which corresponds directly with the value provided to the customer based on the performance completed. Services provided to the higher education market include payment technology and processing that allow for electronic billing and payment of campus charges. These services are considered distinct performance obligations. Revenue for each performance obligation is allocated to the distinct service period, typically a month or based on when each transaction is completed, and recognized as control transfers as customers simultaneously receive and consume benefits. The following table provides disaggregated revenue by service offering: Year ended December 31, 2021 2020 2019 Tuition payment plan services $ 103,970 100,674 106,682 Payment processing 127,080 114,304 110,848 Education technology and services 105,186 65,885 58,578 Other 1,998 1,333 1,223 Education technology, services, and payment processing revenue $ 338,234 282,196 277,331 Cost to provide education technology, services, and payment processing services is primarily associated with providing payment processing services. Interchange and payment network fees are charged by the card associations or payment networks. Depending upon the transaction type, the fees are a percentage of the transaction’s dollar value, a fixed amount, or a combination of the two methods. Other items included in cost to provide education technology, services, and payment processing services include salaries and benefits and third-party professional service costs directly related to providing professional development and educational instruction services to teachers, school leaders, and students. Communications Revenue Communications revenue is derived principally from internet, television, and telephone services and is billed as a flat fee in advance of providing the service. Revenues for usage-based services, such as access charges billed to other telephone carriers for originating and terminating long-distance calls on the Company's network, are billed in arrears. These are each considered distinct performance obligations. Revenue is recognized monthly for the consideration the Company has a right to invoice, the amount of which corresponds directly with the value provided to the customer based on the performance completed. The Company recognizes revenue from these services in the period the services are rendered rather than billed. Revenue received or receivable in advance of the delivery of services is included in deferred revenue. Earned but unbilled usage-based services are recorded in accounts receivable. F - 50 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) The following table provides disaggregated revenue by service offering and customer type. The amounts listed for 2020 reflect activity prior to ALLO’s deconsolidation on December 21, 2020: Period from January 1 2020 - December 21, 2020 Year ended December 31, 2019 Internet $ 48,362 38,239 Television 17,091 16,196 Telephone 11,037 9,705 Other 153 129 Communications revenue $ 76,643 64,269 Residential revenue $ 58,029 48,344 Business revenue 18,038 15,689 Other 576 236 Communications revenue $ 76,643 64,269 Cost to provide communications services is primarily associated with television programming costs. ALLO has various contracts to obtain television programming from programming vendors whose compensation is typically based on a flat fee per customer. The cost of the right to exhibit network programming under such arrangements is recorded in the month the programming is available for exhibition. Programming costs are paid each month based on calculations performed by ALLO and are subject to periodic audits performed by the programmers. Other items in cost to provide communications services include connectivity, franchise, and other regulatory costs directly related to providing internet and telephone services. Other Income The following table provides the components of "other" in “other income/expense” on the consolidated statements of income: Year ended December 31, 2021 2020 2019 Income/gains from investments, net $ 91,593 56,402 8,356 ALLO preferred return 8,427 386 — Investment advisory services 7,773 10,875 2,941 Borrower late fee income 3,444 5,194 12,884 Management fee revenue 3,307 9,421 9,736 Loss from ALLO voting membership interest investment ( 42,148 ) ( 3,565 ) — Loss from solar investments ( 10,132 ) ( 37,423 ) ( 2,220 ) (Loss) gain on debt repurchased ( 6,775 ) 1,924 136 Other 23,192 14,347 16,085 Other income $ 78,681 57,561 47,918 • Investment advisory fees - Investment advisory services are provided by WRCM, the Company's SEC-registered investment advisor subsidiary, under various arrangements. The Company earns monthly fees based on the monthly outstanding balance of investments and certain performance measures, which are recognized monthly as the uncertainty of the transaction price is resolved. • Borrower late fee income - Late fee income is earned by the education lending subsidiaries. Revenue is allocated to the distinct service period, based on when each transaction is completed. • Management fee revenue - Management fee revenue is earned for providing administrative support and marketing services, which primarily was to Great Lakes' former parent company under a contract that expired in January 2021. Revenue is allocated to the distinct service period, based on when each transaction is completed. F - 51 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) Deferred Revenue Activity in the deferred revenue balance, which is included in "other liabilities" on the consolidated balance sheets, is shown below: Loan Servicing and Systems Education, Technology, Services, and Payment Processing Communications Corporate and Other Activities Total Balance as of December 31, 2018 $ 4,413 30,556 2,551 1,602 39,122 Deferral of revenue 3,585 93,373 36,024 3,505 136,487 Recognition of revenue ( 5,286 ) ( 91,855 ) ( 35,343 ) ( 3,479 ) ( 135,963 ) Balance as of December 31, 2019 2,712 32,074 3,232 1,628 39,646 Deferral of revenue 2,490 90,183 43,596 3,209 139,478 Recognition of revenue ( 3,824 ) ( 90,409 ) ( 42,903 ) ( 3,286 ) ( 140,422 ) Deconsolidation of ALLO — — ( 3,925 ) — ( 3,925 ) Business acquisition — 1,419 — — 1,419 Balance as of December 31, 2020 1,378 33,267 — 1,551 36,196 Deferral of revenue 5,882 109,278 — 5,775 120,935 Recognition of revenue ( 4,844 ) ( 105,801 ) — ( 5,316 ) ( 115,961 ) Balance as of December 31, 2021 $ 2,416 36,744 — 2,010 41,170 17. Major Customer Nelnet Servicing and Great Lakes, subsidiaries of the Company, each earn loan servicing revenue from a servicing contract with the Department. Revenue earned by Nelnet Servicing related to this contract was $ 167.6 million, $ 146.8 million, and $ 158.0 million for the years ended December 31, 2021, 2020, and 2019, respectively. Revenue earned by Great Lakes related to this contract was $ 193.2 million, $ 179.9 million, and $ 185.7 million for the years ended December 31, 2021, 2020, and 2019, respectively. 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. The Company cannot predict the timing, nature, or ultimate outcome of NextGen or any other contract procurement process by the Department. 18. Leases The following table provides supplemental balance sheet information related to leases: As of December 31, 2021 2020 Operating lease ROU assets, which is included in " other assets " on the consolidated balance sheet $ 14,314 18,301 Operating lease liabilities, which is included in " other liabilities " on the consolidated balance sheet $ 15,899 18,733 F - 52 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) The following table provides components of lease expense: Year ended December 31, 2021 2020 2019 Rental expense, which is included in "other expenses" on the consolidated statements of income (a) $ 9,386 11,885 11,171 Rental expense, which is included in "cost to provide communications services" on the consolidated statements of income (a) — 1,997 1,609 Total operating rental expense $ 9,386 13,882 12,780 (a) Includes short-term and variable lease costs, which are immaterial. Weighted average remaining lease term and discount rate are shown below: As of December 31, 2021 2020 Weighted average remaining lease term (years) 5.15 5.65 Weighted average discount rate 3.23 % 2.43 % Maturity of lease liabilities are shown below: 2022 $ 5,816 2023 4,122 2024 1,757 2025 1,421 2026 731 2027 and thereafter 3,702 Total lease payments 17,549 Imputed interest ( 1,650 ) Total $ 15,899 19. Defined Contribution Benefit Plan The Company has a 401(k) savings plan that covers substantially all of its employees. Employees may contribute up to 100 percent of their pre-tax salary, subject to IRS limitations. The Company matches up to 100 percent on the first 3 percent of contributions and 50 percent on the next 2 percent. The Company made contributions to the plan of $ 11.2 million, $ 11.7 million, and $ 10.8 million during the years ended December 31, 2021, 2020, and 2019, respectively. F - 53 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) 20. Stock Based Compensation Plans Restricted Stock Plan The following table summarizes restricted stock activity: Year ended December 31, 2021 2020 2019 Non-vested shares at beginning of year 552,456 549,845 532,336 Granted 249,096 151,639 186,281 Vested ( 116,842 ) ( 114,282 ) ( 109,651 ) Canceled ( 24,544 ) ( 34,746 ) ( 59,121 ) Non-vested shares at end of year 660,166 552,456 549,845 As of December 31, 2021, there was $ 23.5 million of unrecognized compensation cost included in equity on the consolidated balance sheet related to restricted stock, which is expected to be recognized as compensation expense in future periods as shown in the table below. 2022 $ 8,795 2023 5,563 2024 3,615 2025 2,267 2026 1,355 2027 and thereafter 1,907 $ 23,502 For the years ended December 31, 2021, 2020, and 2019, the Company recognized compensation expense of $ 10.4 million, $ 7.3 million, and $ 6.4 million, respectively, related to shares issued under the restricted stock plan, which is included in "salaries and benefits" on the consolidated statements of income. Employee Share Purchase Plan The Company has an employee share purchase plan pursuant to which employees are entitled to purchase Class A common stock from payroll deductions at a 15 percent discount from market value. During the years ended December 31, 2021, 2020, and 2019, the Company recognized compensation expense of $ 0.2 million, $ 0.4 million, and $ 0.3 million, respectively, in connection with issuing 24,205 shares, 36,687 shares, and 33,250 shares, respectively, under this plan, which is included in "salaries and benefits" on the consolidated statements of income. Non-employee Directors Compensation Plan The Company has a compensation plan for non-employee directors pursuant to which non-employee directors can elect to receive their annual retainer fees in the form of cash or Class A common stock. If a non-employee director elects to receive Class A common stock, the number of shares of Class A common stock that are awarded is equal to the amount of the annual retainer fee otherwise payable in cash divided by 85 percent of the fair market value of a share of Class A common stock on the date the fee is payable. Non-employee directors who choose to receive Class A common stock may also elect to defer receipt of the Class A common stock until termination of their service on the board of directors. F - 54 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) For the years ended December 31, 2021, 2020, and 2019, the Company recognized $ 1.4 million, $ 1.2 million, and $ 1.2 million, respectively, of expense related to this plan, which is included in "other expenses" on the consolidated statements of income. The following table provides the number of shares awarded under this plan for the years ended December 31, 2021, 2020, and 2019. Shares issued - not deferred Shares issued- deferred Total Year ended December 31, 2021 9,958 12,072 22,030 Year ended December 31, 2020 12,740 16,513 29,253 Year ended December 31, 2019 9,588 11,212 20,800 As of December 31, 2021, a cumulative amount of 221,996 shares have been deferred by directors and will be issued upon the termination of their service on the board of directors. These shares are included in the Company's weighted average shares outstanding calculation. 21. Related Parties (dollar amounts in this note are not in thousands) Transactions with Union Bank and Trust Company Union Bank and Trust Company ("Union Bank") is controlled by Farmers & Merchants Investment Inc. (“F&M”), which owns a majority of Union Bank's common stock and a minority share of Union Bank's non-voting non-convertible preferred stock. Michael S. Dunlap, Executive Chairman and a member of the board of directors and a significant shareholder of the Company, along with his spouse and children, owns or controls a significant portion of the stock of F&M, and Mr. Dunlap's sister, Angela L. Muhleisen, along with her spouse and children, also owns or controls a significant portion of F&M stock. Mr. Dunlap serves as a Director and Chairman of F&M, and as a Director of Union Bank. Ms. Muhleisen serves as a Director and Chief Executive Officer of F&M and as a Director, Chairperson, President, and Chief Executive Officer of Union Bank. Union Bank is deemed to have beneficial ownership of a significant number of shares of the Company because it serves in a capacity of trustee or account manager for various trusts and accounts holding shares of the Company, and may share voting and/or investment power with respect to such shares. Mr. Dunlap and Ms. Muhleisen beneficially own a significant percent of the voting rights of the Company's outstanding common stock. The Company has entered into certain contractual arrangements with Union Bank. These transactions are summarized below. Loan Purchases The Company purchased $ 22.3 million (par value), $ 144.9 million (par value), and $ 67.7 million (par value) of private education loans from Union Bank in 2021, 2020, and 2019, respectively. In addition, the Company purchased $ 32.6 million (par value) of consumer loans from Union Bank in 2019. There were no consumer loan purchases in 2021 or 2020. The net premiums paid by the Company on these loan acquisitions was $ 0.4 million, $ 2.6 million, and $ 1.2 million in 2021, 2020, and 2019, respectively. The Company has an agreement with Union Bank in which the Company provides marketing, origination, and loan servicing services to Union Bank related to private education loans. Union Bank paid $ 0.1 million, $ 2.0 million, and $ 1.8 million in marketing fees to the Company in 2021, 2020, and 2019, respectively, under this agreement. Loan Servicing The Company serviced $ 262.6 million, $ 331.3 million, and $ 395.5 million of FFELP and private education loans for Union Bank as of December 31, 2021, 2020, and 2019, respectively. Servicing and origination fee revenue earned by the Company from servicing loans for Union Bank was $ 0.5 million, $ 0.7 million, and $ 0.6 million in 2021, 2020, and 2019, respectively. Funding - Participation Agreements The Company maintains an agreement with Union Bank, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in student loans (the “FFELP Participation Agreement”). The Company uses this facility as a source to fund FFELP student loans. As of December 31, 2021 and 2020, $ 967.5 million and $ 874.2 million, respectively, 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, F - 55 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) while providing liquidity to the Company on a short-term basis. The Company can participate loans to Union Bank to the extent of availability under the grantor trusts, up to $ 900 million or an amount in excess of $ 900 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. The Company maintains an agreement with Union Bank, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in FFELP loan asset-backed securities. As of December 31, 2021 and 2020, $ 254.0 million and $ 118.6 million, respectively, of FFELP loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. The FFELP loan asset-backed securities under this agreement have been accounted for by the Company as a secured borrowing. See note 5 for additional information. Funding - Real Estate 401 Building, LLC (“401 Building”) is an entity that was established in 2015 for the sole purpose of acquiring, developing, and owning a commercial real estate property in Lincoln, Nebraska. The Company owns 50 % of 401 Building. On May 1, 2018, Union Bank, as lender, received a $ 1.5 million promissory note from 401 Building. The promissory note carries an interest rate of 6.00 % and has a maturity date of December 1, 2032. 330-333, LLC (“330-333”) is an entity that was established in 2016 for the sole purpose of acquiring, developing, and owning a commercial real estate property in Lincoln, Nebraska. The Company owns 50 % of 330-333. On October 22, 2019, Union Bank, as lender, received a $ 162,000 promissory note from 330-333. The promissory note carries an interest rate of 6.00 % and has a maturity date of December 1, 2032. 12100.5 West Center, LLC ("West Center") is an entity that was established in 2016 for the sole purpose of acquiring, developing, and owning a commercial real estate property in Omaha, Nebraska. The Company owns 33.33 % of West Center. On October 29, 2019, Union Bank, as lender, received a $ 2.9 million promissory note from West Center. The promissory note carries an interest rate of 3.85 % and has a maturity date of October 30, 2024. Operating Cash Accounts The majority of the Company's cash operating accounts are maintained at Union Bank. The Company also invests amounts in the Short term Federal Investment Trust (“STFIT”) of the Student Loan Trust Division of Union Bank, which are included in “cash and cash equivalents - held at a related party” and “restricted cash - due to customers” on the accompanying consolidated balance sheets. As of December 31, 2021 and 2020, the Company had $ 380.2 million and $ 285.6 million, respectively, invested in the STFIT or deposited at Union Bank in operating accounts, of which $ 284.8 million and $ 197.6 million as of December 31, 2021 and 2020, respectively, represented cash collected for customers. Interest income earned by the Company on the amounts invested in the STFIT and in cash operating accounts in 2021, 2020, and 2019, was $ 0.2 million, $ 0.5 million, and $ 1.6 million, respectively. 529 Plan The Company provides certain 529 Plan administration services to certain college savings plans (the “College Savings Plans”) through a contract with Union Bank, as the program manager. Union Bank is entitled to a fee as program manager pursuant to its program management agreement with the College Savings Plans. For the years ended December 31, 2021, 2020, and 2019, the Company has received fees of $ 3.5 million, $ 1.3 million, and $ 3.7 million, respectively, from Union Bank related to the administration services provided to the College Savings Plans. During 2021 and 2020, certain call center services were provided by the Company to Union Bank for College Savings Plan clients. For services provided in 2021, the Company received $ 0.4 million from Union Bank; fees received for services provided in 2020 were no t significant. Additionally, Union Bank, as the program manager for the College Savings Plans, has agreed to allocate plan bank deposits to Nelnet Bank. As of December 31, 2021 and 2020, Nelnet Bank had $ 184.9 million and $ 48.4 million, respectively, in deposits from the funds offered under the College Savings Plans. F - 56 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) Lease Arrangements Union Bank leases approximately 4,100 square feet in the Company's corporate headquarters building. Union Bank paid the Company approximately $ 81,000 , $ 80,000 , and $ 79,000 for commercial rent and storage income during 2021, 2020, and 2019, respectively. The lease agreement expires on June 30, 2023. Other Fees Paid to Union Bank During the years ended December 31, 2021, 2020, and 2019, the Company paid Union Bank approximately $ 280,000 , $ 279,000 , and $ 213,000 , respectively, in cash and flexible spending accounts management, trustee and health savings account maintenance fees, including investment custodial and correspondent services for Nelnet Bank. Other Fees Received from Union Bank During the years ended December 31, 2021, 2020, and 2019, Union Bank paid the Company approximately $ 342,000 , $ 317,000 , and $ 317,000 , respectively, under certain employee sharing arrangements. During the years ended December 31, 2020 and 2019, Union Bank paid the Company approximately $ 273,000 , and $ 92,000 , respectively, for communications services. 401(k) Plan Administration Union Bank administers the Company's 401(k) defined contribution plan. Fees paid to Union Bank to administer the plan are paid by the plan participants and were approximately $ 766,000 , $ 447,000 , and $ 366,000 during the years ended December 31, 2021, 2020, and 2019, respectively. Investment Services Union Bank has established various trusts whereby Union Bank serves as trustee for the purpose of purchasing, holding, managing, and selling investments in student loan asset-backed securities. WRCM, an SEC-registered investment advisor and a subsidiary of the Company, has a management agreement with Union Bank under which WRCM performs various advisory and management services on behalf of Union Bank with respect to investments in securities by the trusts, including identifying securities for purchase or sale by the trusts. The agreement provides that Union Bank will pay to WRCM annual fees of 10 basis points to 25 basis points on the outstanding balance of the investments in the trusts. As of December 31, 2021, the outstanding balance of investments in the trusts was $ 1.8 billion. In addition, Union Bank will pay additional fees to WRCM which equal a share of the gains from the sale of securities from the trusts or securities being called prior to the full contractual maturity. For the years ended December 31, 2021, 2020, and 2019, the Company earned $ 6.3 million, $ 9.8 million, and $ 1.8 million, respectively, of fees under this agreement. WRCM also has management agreements with Union Bank under which it is designated to serve as investment advisor with respect to the assets (principally Nelnet stock) within several trusts established by Mr. Dunlap and his spouse, and Ms. Muhleisen and her spouse. Union Bank serves as trustee for the trusts. Per the terms of the agreements, Union Bank pays WRCM five basis points of the aggregate value of the assets of the trusts as of the last day of each calendar quarter. As of December 31, 2021, WRCM was the investment advisor with respect to a total 428,414 shares and 4.7 million shares of the Company's Class A and Class B common stock, respectively, held directly by these trusts. For the years ended December 31, 2021, 2020, and 2019, the Company earned approximately $ 213,000 , $ 141,000 , and $ 144,000 , respectively, of fees under these agreements. WRCM has established private investment funds for the primary purpose of purchasing, selling, investing, and trading, directly or indirectly, in student loan asset-backed securities, and to engage in financial transactions related thereto. Mr. Dunlap, Jeffrey R. Noordhoek (an executive officer of the Company), Ms. Muhleisen and her spouse, and WRCM have invested in certain of these funds. Based upon the current level of holdings by non-affiliated limited partners, the management agreements provide non-affiliated limited partners the ability to remove WRCM as manager without cause. WRCM earns 50 basis points (annually) on the outstanding balance of the investments in these funds, of which WRCM pays approximately 50 percent of such amount to Union Bank as custodian. As of December 31, 2021, the outstanding balance of investments in these funds was $ 138.0 million. The Company paid Union Bank $ 0.3 million in each of 2021, 2020, and 2019 as custodian of the funds. F - 57 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) Transactions with Agile Sports Technologies, Inc. (doing business as "Hudl") David Graff, who has served on the Company's Board of Directors since 2014, is CEO, co-founder, and a director of Hudl. On each of May 20, 2020 and May 27, 2021, the Company made additional equity investments in Hudl, as one of the participants in equity raises completed by Hudl. See Note 7, “Investments” for additional information on these transactions. The Company and Mr. Dunlap, along with his children, currently hold combined direct and indirect equity ownership interests in Hudl of 19.3 % and 3.8 %, respectively, which did not materially change as a result of the May 2020 and May 2021 transactions. The Company's and Mr. Dunlap's direct and indirect equity ownership interests in Hudl consist of preferred stock with certain liquidation preferences that are considered substantive. Accordingly, for accounting purposes, the Company's and Mr. Dunlap's equity ownership interests are not considered in-substance common stock and the Company is accounting for its equity investment in Hudl using the measurement alternative method. On July 26, 2019, the Company, as lender, received a $ 16.0 million promissory note from Hudl. The promissory note carried a 14 percent interest rate and was due 180 days from the date of issuance. In connection with this promissory note, the Company entered into a Subordination Agreement with Union Bank, 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. The $ 16.0 million promissory note from Hudl was paid in full to the Company in August 2019. The Company makes investments to further diversify the Company both within and outside of its historical core education-related businesses, including investments in real estate. Recent real estate investments have been focused on the development of commercial properties in the Midwest, and particularly in Lincoln, Nebraska, where the Company's headquarters are located. One investment includes the development of a building in Lincoln's Haymarket District that is the headquarters of Hudl, in which Hudl is the primary tenant in this building. Transaction with Assurity Life Insurance Company ("Assurity") Thomas Henning, who has served on the Company's Board of Directors since 2003, was President and Chief Executive Officer of Assurity during the years ended December 31, 2021, 2020, and 2019, when Nelnet Business Services, a subsidiary of the Company, paid $ 2.1 million, $ 1.8 million, and $ 1.7 million, respectively, to Assurity for insurance premiums for insurance on certain tuition payment plans. As part of providing the tuition payment plan insurance to Nelnet Business Services, Assurity entered into a reinsurance agreement with the Company's insurance subsidiary, under which Assurity paid the Company's insurance subsidiary reinsurance premiums of $ 1.8 million, $ 1.4 million, and $ 1.3 million in 2021, 2020, and 2019, respectively, and the Company's insurance subsidiary paid claims on such reinsurance to Assurity of $ 1.5 million, $ 1.0 million, and $ 0.9 million in 2021, 2020, and 2019, respectively. In addition, Assurity pays Nelnet Business Services a partial refund annually based on claim experience, which was approximately $ 41,000 , $ 64,000 , and $ 56,000 for the years ended December 31, 2021, 2020, and 2019, respectively. Mr. Henning retired as President and Chief Executive Officer of Assurity effective January 1, 2022, and now serves as the Non-Executive Chairman of Assurity’s board of directors. Solar Transactions The Company has co-invested in Company-managed limited liability companies with related parties that invest in renewable energy (solar) (as summarized below). As part of these transactions, the Company receives management and performance fees under a management agreement. Entity/Relationship Investment amount Fees earned by the Company 2021 2020 2019 2021 2020 2019 F&M $ 7,913,000 4,600,000 2,068,868 29,491 46,154 68,869 Assurity (Board member Thomas Henning) 5,421,659 1,150,000 — 16,027 11,538 — Ameritas Life Insurance Corp. (Board member James Abel) 5,000,000 — — 9,615 — — North Central Bancorp, Inc. (directly and indirectly owned by F&M, Mr. Dunlap, and Ms. Muhleisen) 2,466,667 1,533,333 2,068,868 14,958 15,385 68,869 Infovisa, Inc. (directly and indirectly owned by F&M, Mr. Dunlap, and Ms. Muhleisen) 562,600 — — 1,923 — — Farm and Home Insurance Agency, Inc. (indirectly owned by Mr. Dunlap and Ms. Muhleisen) 116,667 383,333 — 962 3,846 — F - 58 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) 22. Fair Value The following tables present the Company’s financial assets and liabilities that are measured at fair value on a recurring basis. There were no transfers into or out of level 1, level 2, or level 3 for the year ended December 31, 2021. As of December 31, 2021 As of December 31, 2020 Level 1 Level 2 Total Level 1 Level 2 Total Assets: Investments (a): FFELP loan asset-backed securities - available-for-sale $ — 494,682 494,682 — 346,502 346,502 Private education loan asset-backed debt securities - available for sale — 412,552 412,552 — — — Other debt securities - available for sale 100 22,335 22,435 103 2,002 2,105 Equity securities 63,154 — 63,154 10,114 — 10,114 Equity securities measured at net asset value (b) 8,832 31,927 Total investments 63,254 929,569 1,001,655 10,217 348,504 390,648 Total assets $ 63,254 929,569 1,001,655 10,217 348,504 390,648 (a) Investments represent investments recorded at fair value on a recurring basis. Level 1 investments are measured based upon quoted prices and as of December 31, 2021 and 2020, include investments traded on an active exchange and a single U.S. Treasury security. Level 2 investments include student loan asset-backed, mortgage-backed, and collateralized loan obligation securities. The fair value for the Level 2 securities is determined using indicative quotes from broker-dealers or an income approach valuation technique (present value using the discount rate adjustment technique) that considers, among other things, rates currently observed in publicly traded debt markets for debt of similar terms issued by companies with comparable credit risk. (b) 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. F - 59 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) The following table summarizes the fair values of all of the Company’s financial instruments on the consolidated balance sheets: As of December 31, 2021 Fair value Carrying value Level 1 Level 2 Level 3 Financial assets: Loans receivable $ 18,576,272 17,546,645 — — 18,576,272 Accrued loan interest receivable 788,552 788,552 — 788,552 — Cash and cash equivalents 125,563 125,563 125,563 — — Investments (at fair value) 1,001,655 1,001,655 63,254 929,569 — Beneficial interest in loan securitizations 142,391 120,142 — — 142,391 Restricted cash 741,981 741,981 741,981 — — Restricted cash – due to customers 326,645 326,645 326,645 — — Financial liabilities: Bonds and notes payable 17,819,902 17,631,089 — 17,819,902 — Accrued interest payable 4,566 4,566 — 4,566 — Bank deposits 342,463 344,315 184,897 157,566 — Due to customers 366,002 366,002 366,002 — — As of December 31, 2020 Fair value Carrying value Level 1 Level 2 Level 3 Financial assets: Loans receivable $ 20,454,132 19,391,045 — — 20,454,132 Accrued loan interest receivable 794,611 794,611 — 794,611 — Cash and cash equivalents 121,249 121,249 121,249 — — Investments (at fair value) 390,648 390,648 10,217 348,504 — Beneficial interest in loan securitizations 58,709 58,331 — — 58,709 Restricted cash 553,175 553,175 553,175 — — Restricted cash – due to customers 283,971 283,971 283,971 — — Financial liabilities: Bonds and notes payable 19,270,810 19,320,726 — 19,270,810 — Accrued interest payable 28,701 28,701 — 28,701 — Bank deposits 54,599 54,633 48,422 6,177 — Due to customers 301,471 301,471 301,471 — — The methodologies for estimating the fair value of financial assets and liabilities that are measured at fair value on a recurring basis are previously discussed. The remaining financial assets and liabilities were estimated using the following methods and assumptions: Loans Receivable Fair values for loans receivable were determined by modeling loan cash flows using stated terms of the assets and internally-developed assumptions. The significant assumptions used to project cash flows are prepayment speeds, default rates, cost of funds, required return on equity, and future interest rate and index relationships. A number of significant inputs into the models are internally derived and not observable to market participants. Beneficial Interest in Loan Securitizations Fair values for beneficial interest in loan securitizations were determined by modeling securitization cash flows and internally-developed assumptions. The significant assumptions used to project cash flows are prepayment speeds, default rates, cost of funds, required return on equity, and future interest rate and index relationships. A number of significant inputs into the models are internally derived and not observable to market participants. F - 60 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) Cash and Cash Equivalents, Restricted Cash, Restricted Cash – Due to Customers, Accrued Loan Interest Receivable, Accrued Interest Payable, and Due to Customers The carrying amount approximates fair value due to the variable rate of interest and/or the short maturities of these instruments. Bonds and Notes Payable The fair value of student loan asset-backed securitizations and warehouse facilities was determined from quotes from broker-dealers or through standard bond pricing models using the stated terms of the borrowings, observable yield curves, market credit spreads, and weighted average life of underlying collateral. For all other bonds and notes payable, the carrying amount approximates fair value due to the variable rate of interest and/or the short maturities of these instruments. Bank Deposits Some of the Company’s deposits are fixed-rate and the fair value for these deposits are estimated using discounted cash flows based on rates currently offered for deposits of similar maturities. These are level 2 valuations. The fair value of the remaining deposits equal the amounts payable on demand at the balance sheet date and are reported at their carrying value. These are level 1 valuations. Limitations The fair value estimates are made at a specific point in time based on relevant market information and information about the financial instruments. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Therefore, the calculated fair value estimates in many instances cannot be substantiated by comparison to independent markets and, in many cases, may not be realizable in a current sale of the instrument. Changes in assumptions could significantly affect the estimates. 23. Legal Proceedings The Company is subject to various claims, lawsuits, and proceedings that arise in the normal course of business. These matters frequently involve claims by student loan borrowers disputing the manner in which their student loans have been serviced or the accuracy of reports to credit bureaus, claims by student loan borrowers or other consumers alleging that state or Federal consumer protection laws have been violated in the process of collecting loans or conducting other business activities, and disputes with other business entities. In addition, from time to time, the Company receives information and document requests or demands from state or federal regulators concerning its business practices. The Company cooperates with these inquiries and responds to the requests or demands. While the Company cannot predict the ultimate outcome of any regulatory examination, inquiry, or investigation, the Company believes its activities have materially complied with applicable law, including the Higher Education Act, the rules and regulations adopted by the Department thereunder, and the Department's guidance regarding those rules and regulations. On the basis of present information, anticipated insurance coverage, and advice received from counsel, it is the opinion of the Company's management that the disposition or ultimate determination of these claims, lawsuits, and proceedings will not have a material adverse effect on the Company's business, financial position, or results of operations. F - 61 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) 24. Condensed Parent Company Financial Statements The following represents the condensed balance sheets as of December 31, 2021 and 2020 and condensed statements of income, comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2021 for Nelnet, Inc. The Company is limited in the amount of funds that can be transferred to it by its subsidiaries through intercompany loans, advances, or cash dividends. These limitations relate to the restrictions by trust indentures under the lending subsidiaries debt financing arrangements. Balance Sheets (Parent Company Only) As of December 31, 2021 and 2020 2021 2020 Assets: Cash and cash equivalents $ 47,434 69,687 Investments 1,236,933 707,332 Investment in subsidiary debt 374,087 38,903 Restricted cash 107,103 93,271 Investment in subsidiaries 1,986,136 1,963,413 Notes receivable from subsidiaries 314 21,209 Other assets 123,716 115,631 Total assets $ 3,875,723 3,009,446 Liabilities: Notes payable, net of debt issuance costs $ 734,881 236,317 Other liabilities 189,317 140,710 Total liabilities 924,198 377,027 Equity: Nelnet, Inc. shareholders' equity: Common stock 379 384 Additional paid-in capital 1,000 3,794 Retained earnings 2,940,523 2,621,762 Accumulated other comprehensive earnings 9,304 6,102 Total Nelnet, Inc. shareholders' equity 2,951,206 2,632,042 Noncontrolling interest 319 377 Total equity 2,951,525 2,632,419 Total liabilities and shareholders' equity $ 3,875,723 3,009,446 F - 62 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) Statements of Income (Parent Company Only) Years ended December 31, 2021, 2020, and 2019 2021 2020 2019 Investment interest income $ 12,455 4,110 4,925 Interest expense on bonds and notes payable 3,515 3,179 9,588 Net interest income (expense) 8,940 931 ( 4,663 ) Other income/expense: Other income 45,291 48,688 8,384 (Loss) gain from debt repurchases, net ( 6,530 ) 1,962 136 Equity in subsidiaries income 313,451 132,101 182,346 Gain from deconsolidation of ALLO — 258,588 — Impairment expense ( 4,637 ) ( 7,784 ) — Derivative market value adjustments and derivative settlements, net 71,446 ( 24,465 ) ( 30,789 ) Total other income/expense 419,021 409,090 160,077 Operating expenses 7,632 14,006 19,561 Income before income taxes 420,329 396,015 135,853 Income tax (expense) benefit ( 27,101 ) ( 43,577 ) 5,950 Net income 393,228 352,438 141,803 Net loss attributable to noncontrolling interest 58 5 — Net income attributable to Nelnet, Inc. $ 393,286 352,443 141,803 Statements of Comprehensive Income (Parent Company Only) Years ended December 31, 2021, 2020, and 2019 2021 2020 2019 Net income $ 393,228 352,438 141,803 Other comprehensive income (loss): Net changes related to equity in subsidiaries other comprehensive income $ 6,692 — — Net changes related to available-for-sale securities: Unrealized holding (losses) gains arising during period, net ( 4,220 ) 6,637 ( 1,199 ) Reclassification of gains recognized in net income, net of losses ( 372 ) ( 2,521 ) — Income tax effect 1,102 ( 3,490 ) ( 986 ) 3,130 288 ( 911 ) Other comprehensive income (loss) 3,202 3,130 ( 911 ) Comprehensive income 396,430 355,568 140,892 Comprehensive loss attributable to noncontrolling interests 58 5 — Comprehensive income attributable to Nelnet, Inc. $ 396,488 355,573 140,892 F - 63 NELNET, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share amounts, unless otherwise noted) Statements of Cash Flows (Parent Company Only) Years ended December 31, 2021, 2020, and 2019 2021 2020 2019 Net income attributable to Nelnet, Inc. $ 393,286 352,443 141,803 Net loss attributable to noncontrolling interest ( 58 ) ( 5 ) — Net income 393,228 352,438 141,803 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 591 534 467 Derivative market value adjustments ( 92,813 ) 28,144 76,195 Payments to terminate derivative instruments, net — — ( 12,530 ) Proceeds from (payments to) clearinghouse - initial and variation margin, net 91,294 ( 26,747 ) ( 70,685 ) Equity in earnings of subsidiaries ( 313,451 ) ( 132,101 ) ( 182,346 ) Gain from deconsolidation of ALLO, including cash impact — ( 287,579 ) — Loss on (gain from) debt repurchases 6,530 ( 1,962 ) ( 136 ) Loss on (gain from) investments, net 721 ( 46,019 ) ( 3,969 ) Purchases of equity securities, net ( 42,916 ) — — Deferred income tax expense (benefit) 47,423 23,747 ( 19,183 ) Non-cash compensation expense 10,673 16,739 6,781 Impairment expense 4,637 7,784 — Other — ( 329 ) ( 481 ) Increase in other assets ( 9,108 ) ( 17,410 ) ( 10,672 ) Increase in other liabilities 1,784 26,009 29,384 Net cash provided by (used in) operating activities 98,593 ( 56,752 ) ( 45,372 ) Cash flows from investing activities: Purchases of available-for-sale securities ( 640,644 ) ( 342,563 ) — Proceeds from sales of available-for-sale securities 133,286 168,555 — Capital distributions/contributions from/to subsidiaries, net 294,578 99,830 449,602 Decrease in notes receivable from subsidiaries 20,895 21,343 14,421 Purchases of subsidiary debt, net ( 335,184 ) ( 25,085 ) — Purchases of other investments ( 110,184 ) ( 54,637 ) ( 47,106 ) Proceeds from other investments 129,899 8,564 27,926 Net cash (used in) provided by investing activities ( 507,354 ) ( 123,993 ) 444,843 Cash flows from financing activities: Payments on notes payable ( 126,530 ) ( 20,381 ) ( 361,272 ) Proceeds from issuance of notes payable 619,259 190,520 60,000 Payments of debt issuance costs ( 1,286 ) ( 49 ) ( 1,129 ) Dividends paid ( 34,457 ) ( 31,778 ) ( 29,485 ) Repurchases of common stock ( 58,111 ) ( 73,358 ) ( 40,411 ) Proceeds from issuance of common stock 1,465 1,653 1,552 Acquisition of noncontrolling interest — ( 600 ) — Issuance of noncontrolling interest — 194,985 878 Net cash provided by (used in) financing activities 400,340 260,992 ( 369,867 ) Net (decrease) increase in cash, cash equivalents, and restricted cash ( 8,421 ) 80,247 29,604 Cash, cash equivalents, and restricted cash, beginning of period 162,958 82,711 53,107 Cash, cash equivalents, and restricted cash, end of period $ 154,537 162,958 82,711 Cash disbursements made for: Interest $ 2,301 2,577 9,501 Income taxes, net of refunds and credits $ 18,659 29,685 17,672 Noncash investing activities: (Distribution from) contribution to subsidiary, net $ ( 835 ) 49,066 — F - 64 APPENDIX A Description of The Federal Family Education Loan Program The Federal Family Education Loan Program The Higher Education Act provided for a program of federal insurance for student loans as well as reinsurance of student loans guaranteed or insured by state agencies or private non-profit corporations. The Higher Education Act authorized certain student loans to be insured and reinsured under the Federal Family Education Loan Program (“FFELP”). The Student Aid and Fiscal Responsibility Act, enacted into law on March 30, 2010, as part of the Health Care and Education Reconciliation Act of 2010, terminated the authority to make FFELP loans. As of July 1, 2010, no new FFELP loans have been made. Generally, a student was eligible for loans made under the Federal Family Education Loan Program only if he or she: • Had been accepted for enrollment or was enrolled in good standing at an eligible institution of higher education; • Was carrying or planning to carry at least one-half the normal full-time workload, as determined by the institution, for the course of study the student was pursuing; • Was not in default on any federal education loans; • Had not committed a crime involving fraud in obtaining funds under the Higher Education Act which funds had not been fully repaid; and • Met other applicable eligibility requirements. Eligible institutions included higher educational institutions and vocational schools that complied with specific federal regulations. Each loan is evidenced by an unsecured note. The Higher Education Act also establishes maximum interest rates for each of the various types of loans. These rates vary not only among loan types, but also within loan types depending upon when the loan was made or when the borrower first obtained a loan under the Federal Family Education Loan Program. The Higher Education Act allows lesser rates of interest to be charged. Types of loans Four types of loans were available under the Federal Family Education Loan Program: • Subsidized Stafford Loans • Unsubsidized Stafford Loans • PLUS Loans • Consolidation Loans These loan types vary as to eligibility requirements, interest rates, repayment periods, loan limits, eligibility for interest subsidies, and special allowance payments. Some of these loan types have had other names in the past. References to these various loan types include, where appropriate, their predecessors. The primary loan under the Federal Family Education Loan Program is the Subsidized Stafford Loan. Students who were not eligible for Subsidized Stafford Loans based on their economic circumstances might have obtained Unsubsidized Stafford Loans. Graduate or professional students and parents of dependent undergraduate students might have obtained PLUS Loans. Consolidation Loans were available to borrowers with existing loans made under the Federal Family Education Loan Program and other federal programs to consolidate repayment of the borrower's existing loans. Prior to July 1, 1994, the Federal Family Education Loan Program also offered Supplemental Loans for Students (“SLS Loans”) to graduate and professional students and independent undergraduate students and, under certain circumstances, dependent undergraduate students, to supplement their Stafford Loans. A - 1 Subsidized Stafford Loans General. Subsidized Stafford Loans were eligible for insurance and reinsurance under the Higher Education Act if the eligible student to whom the loan was made was accepted or was enrolled in good standing at an eligible institution of higher education or vocational school and carried at least one-half the normal full-time workload at that institution. Subsidized Stafford Loans had limits as to the maximum amount which could be borrowed for an academic year and in the aggregate for both undergraduate and graduate or professional study. Both annual and aggregate limitations excluded loans made under the PLUS Loan Program. The Secretary of Education had discretion to raise these limits to accommodate students undertaking specialized training requiring exceptionally high costs of education. Subsidized Stafford Loans were made only to student borrowers who met the needs tests provided in the Higher Education Act. Provisions addressing the implementation of needs analysis and the relationship between unmet need for financing and the availability of Subsidized Stafford Loan Program funding have been the subject of frequent and extensive amendments. Interest rates for Subsidized Stafford Loans. For Stafford Loans first disbursed to a “new” borrower (a “new” borrower is defined for purposes of this section as one who had no outstanding balance on a FFELP loan on the date the new promissory note was signed) for a period of enrollment beginning before January 1, 1981, the applicable interest rate is fixed at 7%. For Stafford Loans first disbursed to a “new” borrower, for a period of enrollment beginning on or after January 1, 1981, but before September 13, 1983, the applicable interest rate is fixed at 9%. For Stafford Loans first disbursed to a “new” borrower, for a period of enrollment beginning on or after September 13, 1983, but before July 1, 1988, the applicable interest rate is fixed at 8%. For Stafford Loans first disbursed to a borrower with an outstanding balance on a PLUS, SLS, or Consolidation Loan, but not on a Stafford Loan, where the new loan is intended for a period of enrollment beginning before July 1, 1988, the applicable interest rate is fixed at 8%. For Stafford Loans first disbursed before October 1, 1992, to a “new” borrower or to a borrower with an outstanding balance on a PLUS, SLS, or Consolidation Loan, but not a Stafford Loan, where the new loan is intended for a period of enrollment beginning on or after July 1, 1988, the applicable interest rate is as follows: • Original fixed interest rate of 8% for the first 48 months of repayment. Beginning on the first day of the 49 th month of repayment, the interest rate increased to a fixed rate of 10% thereafter. Loans in this category were subject to excess interest rebates and have been converted to a variable interest rate based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 3.25%. The variable interest rate is adjusted annually on July 1. The maximum interest rate for loans in this category is 10%. For Stafford Loans first disbursed on or after July 23, 1992, but before July 1, 1994, to a borrower with an outstanding Stafford Loan made with a 7%, 8%, 9%, or 8%/10% fixed interest rate, the original, applicable interest rate is the same as the rate provided on the borrower's previous Stafford Loan (i.e., a fixed rate of 7%, 8%, 9%, or 8%/10%). Loans in this category were subject to excess interest rebates and have been converted to a variable interest rate based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate for a loan in this category is equal to the loan's previous fixed rate (i.e., 7%, 8%, 9%, or 10%). For Stafford Loans first disbursed on or after October 1, 1992, but before December 20, 1993, to a borrower with an outstanding balance on a PLUS, SLS, or Consolidation Loan, but not on a Stafford Loan, the original, applicable interest rate is fixed at 8%. Loans in this category were subject to excess interest rebates and have been converted to a variable interest rate based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate for a loan in this category is 8%. For Stafford Loans first disbursed on or after October 1, 1992, but before July 1, 1994, to a “new” borrower, the applicable interest rate is variable and is based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate for a loan in this category is 9%. For Stafford Loans first disbursed on or after December 20, 1993, but before July 1, 1994, to a borrower with an outstanding balance on a PLUS, SLS, or Consolidation Loan, but not on a Stafford Loan, the applicable interest rate is variable and is based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate for a loan in this category is 9%. A - 2 For Stafford Loans first disbursed on or after July 1, 1994, but before July 1, 1995, where the loan is intended for a period of enrollment that includes or begins on or after July 1, 1994, the applicable interest rate is variable and is based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate for a loan in this category is 8.25%. For Stafford Loans first disbursed on or after July 1, 1995, but before July 1, 1998, the applicable interest rate is as follows: • When the borrower is in school, in grace, or in an authorized period of deferment, the applicable interest rate is variable and is based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 2.5%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 8.25%. • When the borrower is in repayment or in a period of forbearance, the applicable interest rate is variable and is based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 8.25%. For Stafford Loans first disbursed on or after July 1, 1998, but before July 1, 2006, the applicable interest rate is as follows: • When the borrower is in school, in grace, or in an authorized period of deferment, the applicable interest rate is variable and is based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 1.7%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 8.25%. • When the borrower is in repayment or in a period of forbearance, the applicable interest rate is variable and is based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 2.3%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 8.25%. For Stafford Loans first disbursed on or after July 1, 2006, the applicable interest rate is fixed at 6.80%. However, for Stafford Loans for undergraduates, the applicable interest rate was reduced in phases for which the first disbursement was made on or after: • July 1, 2008 and before July 1, 2009, the applicable interest rate is fixed at 6.00%, • July 1, 2009 and before July 1, 2010, the applicable interest rate is fixed at 5.60%. Unsubsidized Stafford Loans General. The Unsubsidized Stafford Loan program was created by Congress in 1992 for students who did not qualify for Subsidized Stafford Loans due to parental and/or student income and assets in excess of permitted amounts. These students were entitled to borrow the difference between the Stafford Loan maximum for their status (dependent or independent) and their Subsidized Stafford Loan eligibility through the Unsubsidized Stafford Loan Program. The general requirements for Unsubsidized Stafford Loans, including special allowance payments, are essentially the same as those for Subsidized Stafford Loans. However, the terms of the Unsubsidized Stafford Loans differ materially from Subsidized Stafford Loans in that the federal government will not make interest subsidy payments and the loan limitations were determined without respect to the expected family contribution. The borrower is required to either pay interest from the time the loan is disbursed or the accruing interest is capitalized when repayment begins at the end of a deferment or forbearance, when the borrower is determined to no longer have a partial financial hardship under the Income-Based Repayment plan or when the borrower leaves the plan. Unsubsidized Stafford Loans were not available before October 1, 1992. A student meeting the general eligibility requirements for a loan under the Federal Family Education Loan Program was eligible for an Unsubsidized Stafford Loan without regard to need. Interest rates for Unsubsidized Stafford Loans. Unsubsidized Stafford Loans are subject to the same interest rate provisions as Subsidized Stafford Loans, with the exception of Unsubsidized Stafford Loans first disbursed on or after July 1, 2008, which retain a fixed interest rate of 6.80%. A - 3 PLUS Loans General. PLUS Loans were made to parents, and under certain circumstances spouses of remarried parents, of dependent undergraduate students. Effective July 1, 2006, graduate and professional students were eligible borrowers under the PLUS Loan program. For PLUS Loans made on or after July 1, 1993, the borrower could not have an adverse credit history as determined by criteria established by the Secretary of Education. The basic provisions applicable to PLUS Loans are similar to those of Stafford Loans with respect to the involvement of guarantee agencies and the Secretary of Education in providing federal insurance and reinsurance on the loans. However, PLUS Loans differ significantly, particularly from the Subsidized Stafford Loans, in that federal interest subsidy payments are not available under the PLUS Loan Program and special allowance payments are more restricted. Interest rates for PLUS Loans. For PLUS Loans first disbursed on or after January 1, 1981, but before October 1, 1981, the applicable interest rate is fixed at 9%. For PLUS Loans first disbursed on or after October 1, 1981, but before November 1, 1982, the applicable interest rate is fixed at 14%. For PLUS Loans first disbursed on or after November 1, 1982, but before July 1, 1987, the applicable interest rate is fixed at 12%. Beginning July 1, 2001, for PLUS Loans first disbursed on or after July 1, 1987, but before October 1, 1992, the applicable interest rate is variable and is based on the weekly average one-year constant maturity Treasury bill yield for the last calendar week ending on or before June 26 preceding July 1 of each year, plus 3.25%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 12%. Prior to July 1, 2001, PLUS Loans in this category had interest rates which were based on the 52-week Treasury bill auctioned at the final auction held prior to the preceding June 1, plus 3.25%. The annual (July 1) variable interest rate adjustment was applicable prior to July 1, 2001, as was the maximum interest rate of 12%. PLUS Loans originally made at a fixed interest rate, which have been refinanced for purposes of securing a variable interest rate, are subject to the variable interest rate calculation described in this paragraph. Beginning July 1, 2001, for PLUS Loans first disbursed on or after October 1, 1992, but before July 1, 1994, the applicable interest rate is variable and is based on the weekly average one-year constant maturity Treasury yield for the last calendar week ending on or before June 26 preceding July 1 of each year, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 10%. Prior to July 1, 2001, PLUS Loans in this category had interest rates which were based on the 52-week Treasury bill auctioned at the final auction held prior to the preceding June 1, plus 3.1%. The annual (July 1) variable interest rate adjustment was applicable prior to July 1, 2001, as was the maximum interest rate of 10%. Beginning July 1, 2001, for PLUS Loans first disbursed on or after July 1, 1994, but before July 1, 1998, the applicable interest rate is variable and is based on the weekly average one-year constant maturity Treasury yield for the last calendar week ending on or before June 26 preceding July 1 of each year, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 9%. Prior to July 1, 2001, PLUS Loans in this category had interest rates which were based on the 52-week Treasury bill auctioned at the final auction held prior to the preceding June 1, plus 3.1%. The annual (July 1) variable interest rate adjustment was applicable prior to July 1, 2001, as was the maximum interest rate of 9%. For PLUS Loans first disbursed on or after July 1, 1998, but before July 1, 2006, the applicable interest rate is variable and is based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1 of each year, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 9%. For PLUS Loans first disbursed on or after July 1, 2006, the applicable interest rate is fixed at 8.5%. SLS Loans General. SLS Loans were limited to graduate or professional students, independent undergraduate students, and dependent undergraduate students, if the students' parents were unable to obtain a PLUS Loan. Except for dependent undergraduate students, eligibility for SLS Loans was determined without regard to need. SLS Loans were similar to Stafford Loans with respect to the involvement of guarantee agencies and the Secretary of Education in providing federal insurance and reinsurance on the loans. However, SLS Loans differed significantly, particularly from Subsidized Stafford Loans, because federal interest subsidy payments were not available under the SLS Loan Program and special allowance payments were more restricted. The SLS Loan Program was discontinued on July 1, 1994. A - 4 Interest rates for SLS Loans. The applicable interest rates on SLS Loans made before October 1, 1992, and on SLS Loans originally made at a fixed interest rate, which have been refinanced for purposes of securing a variable interest rate, are identical to the applicable interest rates described for PLUS Loans made before October 1, 1992. For SLS Loans first disbursed on or after October 1, 1992, but before July 1, 1994, the applicable interest rate is as follows: • Beginning July 1, 2001, the applicable interest rate is variable and is based on the weekly average one-year constant maturity Treasury yield for the last calendar week ending on or before June 26 preceding July 1 of each year, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 11%. Prior to July 1, 2001, SLS Loans in this category had interest rates which were based on the 52-week Treasury bill auctioned at the final auction held prior to the preceding June 1, plus 3.1%. The annual (July 1) variable interest rate adjustment was applicable prior to July 1, 2001, as was the maximum interest rate of 11%. Consolidation Loans General. The Higher Education Act authorized a program under which certain borrowers could consolidate their various federally insured education loans into a single loan insured and reinsured on a basis similar to Stafford Loans. Consolidation Loans could be obtained in an amount sufficient to pay outstanding principal, unpaid interest, late charges, and collection costs on federally insured or reinsured student loans incurred under the Federal Family Education Loan and Direct Loan Programs, including PLUS Loans made to the consolidating borrower, as well as loans made under the Perkins Loan (formally National Direct Student Loan Program), Federally Insured Student Loan (FISL), Nursing Student Loan (NSL), Health Education Assistance Loan (HEAL), and Health Professions Student Loan (HPSL) Programs. To be eligible for a FFELP Consolidation Loan, a borrower had to: • Have outstanding indebtedness on student loans made under the Federal Family Education Loan Program and/or certain other federal student loan programs; and • Be in repayment status or in a grace period on loans to be consolidated. Borrowers who were in default on loans to be consolidated had to first make satisfactory arrangements to repay the loans to the respective holder(s) or had to agree to repay the consolidating lender under an income-based repayment arrangement in order to include the defaulted loans in the Consolidation Loan. For applications received on or after January 1, 1993, borrowers could add additional loans to a Consolidation Loan during the 180-day period following the origination of the Consolidation Loan. A married couple who agreed to be jointly liable on a Consolidation Loan for which the application was received on or after January 1, 1993, but before July 1, 2006, was treated as an individual for purposes of obtaining a Consolidation Loan. Interest rates for Consolidation Loans. For Consolidation Loans disbursed before July 1, 1994, the applicable interest rate is fixed at the greater of: • 9%, or • The weighted average of the interest rates on the loans consolidated, rounded to the nearest whole percent. For Consolidation Loans disbursed on or after July 1, 1994, based on applications received by the lender before November 13, 1997, the applicable interest rate is fixed and is based on the weighted average of the interest rates on the loans consolidated, rounded up to the nearest whole percent. For Consolidation Loans on which the application was received by the lender between November 13, 1997, and September 30, 1998, inclusive, the applicable interest rate is variable according to the following: • For the portion of the Consolidation Loan which is comprised of FFELP, Direct, FISL, Perkins, HPSL, or NSL loans, the variable interest rate is based on the bond equivalent rate of the 91-day Treasury bills auctioned at the final auction before the preceding June 1, plus 3.1%. The variable interest rate for this portion of the Consolidation Loan is adjusted annually on July 1. The maximum interest rate for this portion of the Consolidation Loan is 8.25%. • For the portion of the Consolidation Loan which is attributable to HEAL Loans (if applicable), the variable interest rate is based on the average of the bond equivalent rates of the 91-day Treasury bills auctioned for the quarter ending June 30, plus 3.0%. The variable interest rate for this portion of the Consolidation Loan is adjusted annually on July 1. There is no maximum interest rate for the portion of a Consolidation Loan that is represented by HEAL Loans. A - 5 For Consolidation Loans on which the application was received by the lender on or after October 1, 1998, the applicable interest rate is determined according to the following: • For the portion of the Consolidation Loan which is comprised of FFELP, Direct, FISL, Perkins, HPSL, or NSL loans, the applicable interest rate is fixed and is based on the weighted average of the interest rates on the non-HEAL loans being consolidated, rounded up to the nearest one-eighth of one percent. The maximum interest rate for this portion of the Consolidation Loan is 8.25%. • For the portion of the Consolidation Loan which is attributable to HEAL Loans (if applicable), the applicable interest rate is variable and is based on the average of the bond equivalent rates of the 91-day Treasury bills auctioned for the quarter ending June 30, plus 3.0%. The variable interest rate for this portion of the Consolidation Loan is adjusted annually on July 1. There is no maximum interest rate for the portion of the Consolidation Loan that is represented by HEAL Loans. For a discussion of required payments that reduce the return on Consolidation Loans, see “Fees - Rebate fee on Consolidation Loans” in this Appendix. Interest rate during active duty The Higher Education Opportunity Act of 2008 revised the Servicemembers Civil Relief Act to include FFEL Program loans. Interest charges on FFEL Program loans are capped at 6% during a period of time on or after August 14, 2008, in which a borrower has served or is serving on active duty in the Armed Forces, National Oceanic and Atmospheric Administration, Public Health Services, or National Guard. The interest charge cap includes the interest rate in addition to any fees, service charges, and other charges related to the loan. The cap is applicable to loans made prior to the date the borrower was called to active duty. Maximum loan amounts Each type of loan was subject to certain limits on the maximum principal amount, with respect to a given academic year and in the aggregate. Consolidation Loans were limited only by the amount of eligible loans to be consolidated. PLUS Loans were limited to the difference between the cost of attendance and the other aid available to the student. Stafford Loans, subsidized and unsubsidized, were subject to both annual and aggregate limits according to the provisions of the Higher Education Act. Loan limits for Subsidized Stafford and Unsubsidized Stafford Loans. Dependent and independent undergraduate students were subject to the same annual loan limits on Subsidized Stafford Loans; independent students were allowed greater annual loan limits on Unsubsidized Stafford Loans. A student who had not successfully completed the first year of a program of undergraduate education could borrow up to $3,500 in Subsidized Stafford Loans in an academic year. A student who had successfully completed the first year, but who had not successfully completed the second year, could borrow up to $4,500 in Subsidized Stafford Loans per academic year. An undergraduate student who had successfully completed the first and second years, but who had not successfully completed the remainder of a program of undergraduate education, could borrow up to $5,500 in Subsidized Stafford Loans per academic year. Dependent students could borrow an additional $2,000 in Unsubsidized Stafford Loans for each year of undergraduate study. Independent students could borrow an additional $6,000 of Unsubsidized Stafford Loans for each of the first two years and an additional $7,000 for the third, fourth, and fifth years of undergraduate study. For students enrolled in programs of less than an academic year in length, the limits were generally reduced in proportion to the amount by which the programs were less than one year in length. A graduate or professional student could borrow up to $20,500 in an academic year where no more than $8,500 was representative of Subsidized Stafford Loan amounts. The maximum aggregate amount of Subsidized Stafford and Unsubsidized Stafford Loans, including that portion of a Consolidation Loan used to repay such loans, which a dependent undergraduate student may have outstanding is $31,000 (of which only $23,000 may be Subsidized Stafford Loans). An independent undergraduate student may have an aggregate maximum of $57,500 (of which only $23,000 may be Subsidized Stafford Loans). The maximum aggregate amount of Subsidized Stafford and Unsubsidized Stafford Loans, including the portion of a Consolidation Loan used to repay such loans, for a graduate or professional student, including loans for undergraduate education, is $138,500, of which only $65,500 may be Subsidized Stafford Loans. In some instances, schools could certify loan amounts in excess of the limits, such as for certain health profession students. Loan limits for PLUS Loans. For PLUS Loans made on or after July 1, 1993, the annual amounts of PLUS Loans were limited only by the student's unmet need. There was no aggregate limit for PLUS Loans. A - 6 Repayment Repayment periods. Loans made under the Federal Family Education Loan Program, other than Consolidation Loans and loans being repaid under an income-based or extended repayment schedule, must provide for repayment of principal in periodic installments over a period of not less than five, nor more than ten years. A borrower may request, with concurrence of the lender, to repay the loan in less than five years with the right to subsequently extend the minimum repayment period to five years. Since the 1998 Amendments, lenders have been required to offer extended repayment schedules to new borrowers disbursed on or after October 7, 1998 who accumulate outstanding FFELP Loans of more than $30,000, in which case the repayment period may extend up to 25 years, subject to certain minimum repayment amounts. Consolidation Loans must be repaid within maximum repayment periods which vary depending upon the principal amount of the borrower's outstanding student loans, but may not exceed 30 years. For Consolidation Loans for which the application was received prior to January 1, 1993, the repayment period cannot exceed 25 years. Periods of authorized deferment and forbearance are excluded from the maximum repayment period. In addition, if the repayment schedule on a loan with a variable interest rate does not provide for adjustments to the amount of the monthly installment payment, the maximum repayment period may be extended for up to three years. Repayment of principal on a Stafford Loan does not begin until a student drops below at least a half-time course of study. For Stafford Loans for which the applicable rate of interest is fixed at 7%, the repayment period begins between nine and twelve months after the borrower ceases to pursue at least a half-time course of study, as indicated in the promissory note. For other Stafford Loans, the repayment period begins six months after the borrower ceases to pursue at least a half-time course of study. These periods during which payments of principal are not due are the “grace periods.” In the case of SLS, PLUS, and Consolidation Loans, the repayment period begins on the date of final disbursement of the loan, except that the borrower of a SLS Loan who also has a Stafford Loan may postpone repayment of the SLS Loan to coincide with the commencement of repayment of the Stafford Loan. During periods in which repayment of principal is required, unless the borrower is repaying under an income-based repayment schedule, payments of principal and interest must in general be made at a rate of at least $600 per year, except that a borrower and lender may agree to a lesser rate at any time before or during the repayment period. However, at a minimum, the payments must satisfy the interest that accrues during the year. Borrowers may make accelerated payments at any time without penalty. Income-sensitive repayment schedule. Since 1993, lenders have been required to offer income-sensitive repayment schedules, in addition to standard and graduated repayment schedules, for Stafford, SLS, and Consolidation Loans. Beginning in 2000, lenders have been required to offer income-sensitive repayment schedules to PLUS borrowers as well. Use of income-sensitive repayment schedules may extend the maximum repayment period for up to five years if the payment amount established from the borrower's income will not repay the loan within the maximum applicable repayment period. Income-based repayment schedule. Effective July 1, 2009, a borrower in the Federal Family Education Loan Program or Federal Direct Loan Program, other than a PLUS Loan made to a parent borrower or any Consolidation Loan that repaid one or more parent PLUS loans, may qualify for an income-based repayment schedule regardless of the disbursement dates of the loans if he or she has a partial financial hardship. A borrower has a financial hardship if the annual loan payment amount based on a 10-year repayment schedule exceeds 15% of the borrower's adjusted gross income, minus 150% of the poverty line for the borrower's actual family size. Interest will be paid by the Secretary of Education for subsidized loans for the first three years for any borrower whose scheduled monthly payment is not sufficient to cover the accrued interest. Interest will capitalize at the end of the partial financial hardship period, or when the borrower begins making payments under a standard repayment schedule. The Secretary of Education will cancel any outstanding balance after 25 years if a borrower who has made payments under this schedule meets certain criteria. Deferment periods. No principal payments need be made during certain periods of deferment prescribed by the Higher Education Act. For a borrower who first obtained a Stafford or SLS loan which was disbursed before July 1, 1993, deferments are available: • During a period not exceeding three years while the borrower is a member of the Armed Forces, an officer in the Commissioned Corps of the Public Health Service or, with respect to a borrower who first obtained a student loan disbursed on or after July 1, 1987, or a student loan for a period of enrollment beginning on or after July 1, 1987, an active duty member of the National Oceanic and Atmospheric Administration Corps; • During a period not exceeding three years while the borrower is a volunteer under the Peace Corps Act; • During a period not exceeding three years while the borrower is a full-time paid volunteer under the Domestic Volunteer Act of 1973; A - 7 • During a period not exceeding three years while the borrower is a full-time volunteer in service which the Secretary of Education has determined is comparable to service in the Peace Corp or under the Domestic Volunteer Act of 1970 with an organization which is exempt from taxation under Section 501(c)(3) of the Internal Revenue Code; • During a period not exceeding two years while the borrower is serving an internship necessary to receive professional recognition required to begin professional practice or service, or a qualified internship or residency program; • During a period not exceeding three years while the borrower is temporarily totally disabled, as established by sworn affidavit of a qualified physician, or while the borrower is unable to secure employment because of caring for a dependent who is so disabled; • During a period not exceeding two years while the borrower is seeking and unable to find full-time employment; • During any period that the borrower is pursuing a full-time course of study at an eligible institution (or, with respect to a borrower who first obtained a student loan disbursed on or after July 1, 1987, or a student loan for a period of enrollment beginning on or after July 1, 1987, is pursuing at least a half-time course of study); • During any period that the borrower is pursuing a course of study in a graduate fellowship program; • During any period the borrower is receiving rehabilitation training services for qualified individuals, as defined by the Secretary of Education; • During a period not exceeding six months per request while the borrower is on parental leave; • Only with respect to a borrower who first obtained a student loan disbursed on or after July 1, 1987, or a student loan for a period of enrollment beginning on or after July 1, 1987, during a period not exceeding three years while the borrower is a full-time teacher in a public or nonprofit private elementary or secondary school in a “teacher shortage area” (as prescribed by the Secretary of Education), and during a period not exceeding one year for mothers, with preschool age children, who are entering or re-entering the work force and who are paid at a rate of no more than $1 per hour more than the federal minimum wage; and • For loans that are in repayment status on or before September 28, 2018, the borrower is eligible for deferment during periods the borrower is undergoing treatment for cancer and the 6 months following treatment. For a borrower who first obtained a loan on or after July 1, 1993, deferments are available: • During any period that the borrower is pursuing at least a half-time course of study at an eligible institution; • During any period that the borrower is pursuing a course of study in a graduate fellowship program; • During any period the borrower is receiving rehabilitation training services for qualified individuals, as defined by the Secretary of Education; • During a period not exceeding three years while the borrower is seeking and unable to find full-time employment; • During a period not exceeding three years for any reason which has caused or will cause the borrower economic hardship. Economic hardship includes working full-time and earning an amount that does not exceed the greater of the federal minimum wage or 150% of the poverty line applicable to a borrower's family size and state of residence. Additional categories of economic hardship are based on the receipt of payments from a state or federal public assistance program, service in the Peace Corps, or until July 1, 2009, the relationship between a borrower's educational debt burden and his or her income; and • For loans that are in repayment status on or before September 28, 2018, the borrower is eligible for deferment during periods the borrower is undergoing treatment for cancer and the 6 months following treatment. Effective October 1, 2007, a borrower serving on active duty during a war or other military operation or national emergency, or performing qualifying National Guard duty during a war or other military operation or national emergency may obtain a military deferment for all outstanding Title IV loans in repayment. For all periods of active duty service that include October 1, 2007 or begin on or after that date, the deferment period includes the borrower's service period and 180 days following the demobilization date. A - 8 A borrower serving on or after October 1, 2007, may receive up to 13 months of active duty student deferment after the completion of military service if he or she meets the following conditions: • Is a National Guard member, Armed Forces reserves member, or retired member of the Armed Forces; • Is called or ordered to active duty; and • Is enrolled at the time of, or was enrolled within six months prior to, the activation in a program at an eligible institution. The active duty student deferment ends the earlier of when the borrower returns to an enrolled status, or at the end of 13 months. PLUS Loans first disbursed on or after July 1, 2008, are eligible for the following deferment options: • A parent PLUS borrower, upon request, may defer the repayment of the loan during any period during which the student for whom the loan was borrowed is enrolled at least half time. Also upon request, the borrower can defer the loan for the six-month period immediately following the date on which the student for whom the loan was borrowed ceases to be enrolled at least half time, or if the parent borrower is also a student, the date after he or she ceases to be enrolled at least half time. • A graduate or professional student PLUS borrower may defer the loan for the six-month period immediately following the date on which he or she ceases to be enrolled at least half time. This option does not require a request and may be granted each time the borrower ceases to be enrolled at least half time. Prior to the 1992 Amendments, only some of the deferments described above were available to PLUS and Consolidation Loan borrowers. Prior to the 1986 Amendments, PLUS Loan borrowers were not entitled to certain deferments. Forbearance periods. The Higher Education Act also provides for periods of forbearance during which the lender, in case of a borrower's temporary financial hardship, may postpone any payments. A borrower is entitled to forbearance for a period not exceeding three years while the borrower's debt burden under Title IV of the Higher Education Act (which includes the Federal Family Education Loan Program) equals or exceeds 20% of the borrower's gross income. A borrower is also entitled to forbearance while he or she is serving in a qualifying internship or residency program, a “national service position” under the National and Community Service Trust Act of 1993, a qualifying position for loan forgiveness under the Teacher Loan Forgiveness Program, or a position that qualifies him or her for loan repayment under the Student Loan Repayment Program administered by the Department of Defense. In addition, administrative forbearances are provided in circumstances such as, but not limited to, a local or national emergency, a military mobilization, or when the geographical area in which the borrower or endorser resides has been designated a disaster area by the President of the United States or Mexico, the Prime Minister of Canada, or by the governor of a state. Interest payments during grace, deferment, forbearance, and applicable income-based repayment ("IBR") periods. The Secretary of Education makes interest payments on behalf of the borrower for Subsidized loans while the borrower is in school, grace, deferment, and during the first 3 years of the IBR plan for any remaining interest that is not satisfied by the IBR payment amount. Interest that accrues during forbearance periods, and, if the loan is not eligible for interest subsidy payments during school, grace, deferment, and IBR periods, may be paid monthly or quarterly by the borrower. At the appropriate time, any unpaid accrued interest may be capitalized by the lender. For a borrower who is eligible for the Cancer Treatment Deferment, interest that accrues during the period of deferment on any subsidized loan is subsidized. For cancer treatment deferment periods on any Unsubsidized Stafford Loan, the interest during such periods is not charged to the borrower. Fees Guarantee fee and Federal default fee. For loans for which the date of guarantee of principal was on or after July 1, 2006, a guarantee agency was required to collect and deposit into the Federal Student Loan Reserve Fund a Federal default fee in an amount equal to 1% of the principal amount of the loan. The fee was collected either by deduction from the proceeds of the loan or by payment from other non-Federal sources. Federal default fees could not be charged to borrowers of Consolidation Loans. A - 9 Origination fee . Beginning with loans first disbursed on or after July 1, 2006, the maximum origination fee which could be charged to a Stafford Loan borrower decreased according to the following schedule: • 1.5% with respect to loans for which the first disbursement was made on or after July 1, 2007, and before July 1, 2008; • 1.0% with respect to loans for which the first disbursement was made on or after July 1, 2008, and before July 1, 2009; and • 0.5% with respect to loans for which the first disbursement was made on or after July 1, 2009, and before July 1, 2010. A lender could charge a lesser origination fee to Stafford Loan borrowers as long as the lender did so consistently with respect to all borrowers who resided in or attended school in a particular state. Regardless of whether the lender passed all or a portion of the origination fee on to the borrower, the lender had to pay the origination fee owed on each loan it made to the Secretary of Education. An eligible lender was required to charge the borrower of a PLUS Loan an origination fee equal to 3% of the principal amount of the loan. This fee had to be deducted proportionately from each disbursement of the PLUS Loan and had to be remitted to the Secretary of Education. Lender fee. The lender of any loan made under the Federal Family Education Loan Program was required to pay a fee to the Secretary of Education. For loans made on or after October 1, 2007, the fee was equal to 1.0% of the principal amount of such loan. This fee could not be charged to the borrower. Rebate fee on Consolidation Loans. The holder of any Consolidation Loan made on or after October 1, 1993, was required to pay to the Secretary of Education a monthly rebate fee. For loans made on or after October 1, 1993, from applications received prior to October 1, 1998, and after January 31, 1999, the fee is equal to 0.0875% (1.05% per annum) of the principal and accrued interest on the Consolidation Loan. For loans made from applications received during the period beginning on or after October 1, 1998, through January 31, 1999, the fee is 0.0517% (0.62% per annum). Interest subsidy payments Interest subsidy payments are interest payments paid on the outstanding principal balance of an eligible loan before the time the loan enters repayment and during deferment periods. The Secretary of Education and the guarantee agencies enter into interest subsidy agreements whereby the Secretary of Education agrees to pay interest subsidy payments on a quarterly basis to the holders of eligible guaranteed loans for the benefit of students meeting certain requirements, subject to the holders' compliance with all requirements of the Higher Education Act. Subsidized Stafford Loans are eligible for interest payments. Consolidation Loans for which the application was received on or after January 1, 1993, are eligible for interest subsidy payments. Consolidation Loans made from applications received on or after August 10, 1993, are eligible for interest subsidy payments only if all underlying loans consolidated were Subsidized Stafford Loans. Consolidation Loans for which the application is received by an eligible lender on or after November 13, 1997, are eligible for interest subsidy payments on that portion of the Consolidation Loan that repaid subsidized FFELP Loans or similar subsidized loans made under the Direct Loan Program. The portion of the Consolidation Loan that repaid HEAL Loans is not eligible for interest subsidy, regardless of the date the Consolidation Loan was made. Special allowance payments The Higher Education Act provides for special allowance payments (SAP) to be made by the Secretary of Education to eligible lenders. The rates for special allowance payments are based on formulas that differ according to the type of loan, the date the loan was originally made or insured, and the type of funds used to finance the loan (taxable or tax-exempt). Stafford Loans. The effective formulas for special allowance payment rates for Subsidized Stafford and Unsubsidized Stafford Loans are summarized in the following chart. The T-Bill Rate mentioned in the chart refers to the average of the bond equivalent yield of the 91-day Treasury bills auctioned during the preceding quarter. A - 10 Date of Loans Annualized SAP Rate On or after October 1, 1981 T-Bill Rate less Applicable Interest Rate + 3.5% On or after November 16, 1986 T-Bill Rate less Applicable Interest Rate + 3.25% On or after October 1, 1992 T-Bill Rate less Applicable Interest Rate + 3.1% On or after July 1, 1995 T-Bill Rate less Applicable Interest Rate + 3.1% (1) On or after July 1, 1998 T-Bill Rate less Applicable Interest Rate + 2.8% (2) On or after January 1, 2000 3 Month Commercial Paper Rate less Applicable Interest Rate + 2.34% (3)(6) On or after October 1, 2007 and held by a Department of Education certified not-for-profit holder or Eligible Lender Trustee holding on behalf of a Department of Education certified not-for-profit entity 3 Month Commercial Paper Rate less Applicable Interest Rate + 1.94% (4)(6) All other loans on or after October 1, 2007 3 Month Commercial Paper Rate less Applicable Interest Rate + 1.79% (5)(6) (1) Substitute 2.5% in this formula while such loans are in-school, grace, or deferment status (2) Substitute 2.2% in this formula while such loans are in-school, grace, or deferment status. (3) Substitute 1.74% in this formula while such loans are in-school, grace, or deferment status. (4) Substitute 1.34% in this formula while such loans are in-school, grace, or deferment status. (5) Substitute 1.19% in this formula while such loans are in-school, grace, or deferment status. (6) The Military Construction and Veterans Affairs and Related Agencies Appropriations Act of 2012 provides an alternate calculation method that substitutes for 3 Month Commercial Paper Rate “1 Month London Inter Bank Offered Rate (LIBOR) for United States dollars in effect for each of the days in such quarter as compiled and released by the British Banker's Association." This method has to be selected by each lender or beneficial holder before April 1, 2012 and applies to all loans held under the same lender identification number for the quarter beginning April 1, 2012 and all succeeding 3-month periods. PLUS, SLS, and Consolidation Loans. The formula for special allowance payments on PLUS, SLS, and Consolidation Loans are as follows: Date of Loans Annualized SAP Rate On or after October 1, 1992 T-Bill Rate less Applicable Interest Rate + 3.1% On or after January 1, 2000 3 Month Commercial Paper Rate less Applicable Interest Rate + 2.64% (1) PLUS loans on or after October 1, 2007 and held by a Department of Education certified not-for-profit holder or Eligible Lender Trustee holding on behalf of a Department of Education certified not-for-profit entity 3 Month Commercial Paper Rate less Applicable Interest Rate + 1.94% (1) All other PLUS loans on or after October 1, 2007 3 Month Commercial Paper Rate less Applicable Interest Rate + 1.79% (1) Consolidation loans on or after October 1, 2007 and held by a Department of Education certified not-for-profit holder or Eligible Lender Trustee holding on behalf of a Department of Education certified not-for-profit entity 3 Month Commercial Paper Rate less Applicable Interest Rate + 2.24% (1) All other Consolidation loans on or after October 1, 2007 3 Month Commercial Paper Rate less Applicable Interest Rate + 2.09% (1) (1) The Military Construction and Veterans Affairs and Related Agencies Appropriations Act of 2012 provides an alternate calculation method that substitutes for 3 Month Commercial Paper Rate “1 Month London Inter Bank Offered Rate (LIBOR) for United States dollars in effect for each of the days in such quarter as compiled and released by the British Banker's Association." This method has to be selected by each lender or beneficial holder before April 1, 2012 and applies to all loans held under the same lender identification number for the quarter beginning April 1, 2012 and all succeeding 3-month periods. For PLUS and SLS Loans made prior to July 1, 1994, and PLUS loans made on or after July 1, 1998, which bear interest at rates adjusted annually, special allowance payments are made only in quarters during which the interest rate ceiling on such loans operates to reduce the rate that would otherwise apply based upon the applicable formula. See “Interest Rates for PLUS A - 11 Loans” and “Interest Rates for SLS Loans.” Special allowance payments are available on variable rate PLUS Loans and SLS Loans made on or after July 1, 1987, and before July 1, 1994, and on any PLUS Loans made on or after July 1, 1998, and before January 1, 2000, only if the variable rate, which is reset annually, based on the weekly average one-year constant maturity Treasury yield for loans made before July 1, 1998, and based on the 91-day or 52-week Treasury bill, as applicable for loans made on or after July 1, 1998, exceeds the applicable maximum borrower rate. The maximum borrower rate is between 9% and 12% per annum. The portion, if any, of a Consolidation Loan that repaid a HEAL Loan is ineligible for special allowance payments. Recapture of excess interest . The Higher Education Reconciliation Act of 2005 provides that, with respect to a loan for which the first disbursement of principal was made on or after April 1, 2006, if the applicable interest rate for any three-month period exceeds the special allowance support level applicable to the loan for that period, an adjustment must be made by calculating the excess interest and crediting such amounts to the Secretary of Education not less often than annually. The amount of any adjustment of interest for any quarter will be equal to: • The applicable interest rate minus the special allowance support level for the loan, multiplied by • The average daily principal balance of the loan during the quarter, divided by • Four. Special allowance payments for loans financed by tax-exempt bonds . The effective formulas for special allowance payment rates for Stafford Loans and Unsubsidized Stafford Loans differ depending on whether loans to borrowers were acquired or originated with the proceeds of tax-exempt obligations. The formula for special allowance payments for loans financed with the proceeds of tax-exempt obligations originally issued prior to October 1, 1993 is: T-Bill Rate less Applicable Interest Rate + 3.5% 2 provided that the special allowance applicable to the loans may not be less than 9.5% less the Applicable Interest Rate. Special rules apply with respect to special allowance payments made on loans • Originated or acquired with funds obtained from the refunding of tax-exempt obligations issued prior to October 1, 1993, or • Originated or acquired with funds obtained from collections on other loans made or purchased with funds obtained from tax-exempt obligations initially issued prior to October 1, 1993. Amounts derived from recoveries of principal on loans eligible to receive a minimum 9.5% special allowance payment may only be used to originate or acquire additional loans by a unit of a state or local government, or non-profit entity not owned or controlled by or under common ownership of a for-profit entity and held directly or through any subsidiary, affiliate or trustee, which entity has a total unpaid balance of principal equal to or less than $100,000,000 on loans for which special allowances were paid in the most recent quarterly payment prior to September 30, 2005. Such entities may originate or acquire additional loans with amounts derived from recoveries of principal until December 31, 2010. Loans acquired with the proceeds of tax-exempt obligations originally issued after October 1, 1993, receive special allowance payments made on other loans. Beginning October 1, 2006, in order to receive 9.5% special allowance payments, a lender must undergo an audit arranged by the Secretary of Education attesting to proper billing for 9.5% payments on only eligible “first generation” and “second generation” loans. First generation loans include those loans acquired using funds directly from the issuance of the tax-exempt obligation. Second-generation loans include only those loans acquired using funds obtained directly from first-generation loans. Furthermore, the lender must certify compliance of its 9.5% billing on such loans with each request for payment. Adjustments to special allowance payments . Special allowance payments and interest subsidy payments are reduced by the amount which the lender is authorized or required to charge as an origination fee. In addition, the amount of the lender origination fee is collected by offset to special allowance payments and interest subsidy payments. The Higher Education Act provides that if special allowance payments or interest subsidy payments have not been made within 30 days after the Secretary of Education receives an accurate, timely, and complete request, the special allowance payable to the lender must be increased by an amount equal to the daily interest accruing on the special allowance and interest subsidy payments due the lender. A - 12