NELNET INC - FORM 8-K - EX-99.2 - SUPPLEMENTAL FINANCIAL INFORMATION

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8-K - CURRENT REPORT - NELNET INC	nelnet_8k-110910.htm
EX-99.1 - PRESS RELEASE - NELNET INC	ex99-1.htm

EXHIBIT 99.2

For Release: November 9, 2010

Media Contact: Ben Kiser, 402.458.3024

Investor Contact: Phil Morgan, 402.458.3038

Nelnet, Inc. supplemental financial information for the third quarter 2010

(All dollars are in thousands, except per share amounts, unless otherwise noted)

The following information should be read in connection with Nelnet, Inc's (the "Company's") press release for third quarter 2010 earnings, dated November 9, 2010 and the Company's Quarterly Report on form 10-Q for the quarter ended September 30, 2010.

This earnings supplement contains forward-looking statements and information that are based on management’s current expectations as of the date of this document. Statements that are not historical facts, including statements about the Company’s plans and expectations for future financial condition, results of operations or economic performance or that address management’s plans and objectives for future operations, and statements that assume or are dependent upon future events, are forward-looking statements. The words “may,” “should,” “could,” “would,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate,” “assume,” “forecast,” “will,” and similar expressions, as well as statements in future tense, are intended to identify forward-looking statements.

The forward-looking statements are based on assumptions and analyses made by management in light of management’s experience and its perception of historical trends, current conditions, expected future developments, and other factors that management believes are appropriate under the circumstances. These statements are subject to known and unknown risks, uncertainties, assumptions, and other factors that may cause the actual results and performance to be materially different from any future results or performance expressed or implied by such forward-looking statements. These risks and uncertainties are described in the “Risk Factors” section included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 and subsequent Quarterly Reports on Form 10-Q and the discussion of risks and uncertainties set forth elsewhere in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, and include such risks and uncertainties as:

•

risks related to the Company’s student loan portfolio, such as interest rate basis and repricing risk resulting from the fact that the interest rate characteristics of the Company’s student loan assets do not match the interest rate characteristics of the funding for those assets, the risk of loss of floor income on certain student loans originated under the prior FFEL Program, risks related to the use of derivatives to manage exposure to interest rate fluctuations, and potential losses from loan defaults, changes in prepayment rates, guaranty rates, loan floor rates, and credit spreads;

•

risks related to the Company’s liquidity and funding requirements, including the Company’s ability to maintain credit facilities or obtain new facilities, the ability of lenders under the Company’s credit facilities to fulfill their lending commitments under these facilities, the Company’s ability to satisfy debt obligations secured by student loan assets and related collateral, and changes in the general interest rate environment and in the securitization markets for education loans which may increase the costs or limit the availability of financings necessary to purchase, refinance, or continue to carry education loans;

•

risks from changes in the student loan and educational credit marketplace resulting from the implementation of, or changes in, applicable laws and regulations, including the discontinuance of private sector student loan originations under the FFEL Program effective July 1, 2010, and the Company’s ability to maintain its loan servicing contract with the Department of Education to service federally-owned student loans;

•

risks from changes in the demand or preferences for educational financing and related services by educational institutions, students, and their families;

•

uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations;

•

uncertainties related to the estimation of expenses that may be incurred and cost savings that may result from restructuring plans;

•

risks associated with litigation, complex government regulations, and changes in general economic and credit market conditions; and

•

uncertainties inherent in the estimates and assumptions about future events that management is required to make in the preparation of the Company’s consolidated financial statements.

All forward-looking statements contained in this report are qualified by these cautionary statements and are made only as of the date of this document. Although the Company may from time to time voluntarily update or revise its prior forward-looking statements to reflect actual results or changes in the Company’s expectations, the Company disclaims any commitment to do so except as required by securities laws.

Certain amounts previously reported have been reclassified to conform to the current period presentation. The reclassifications were made to change the income statement presentation to provide the users of the financial statements additional information related to the operating results of the Company. The reclassifications had no effect on consolidated net income or consolidated assets and liabilities.

Condensed Consolidated Statements of Operations

	Three months ended									Nine months ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2010			2010			2009			2010			2009
	(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)

Interest income:
Loan interest	$	171,208			167,902			162,786			490,158			529,558
Amortization of loan premiums and deferred origination costs		(11,921	)		(12,549	)		(19,531	)		(40,551	)		(54,971	)
Investment interest		1,169			1,304			1,943			3,474			8,810
Total interest income		160,456			156,657			145,198			453,081			483,397

Interest expense:
Interest on bonds and notes payable		68,243			59,243			76,016			178,345			328,600

Net interest income		92,213			97,414			69,182			274,736			154,797
Less provision for loan losses		5,500			6,200			7,500			16,700			23,000

Net interest income after provision for loan losses		86,713			91,214			61,682			258,036			131,797

Other income (expense):
Loan and guaranty servicing revenue		33,464			36,652			26,006			106,510			81,280
Tuition payment processing and campus commerce revenue		14,527			12,795			12,987			44,704			40,373
Enrollment services revenue		36,439			35,403			30,670			105,113			88,188
Software services revenue		4,624			5,499			4,600			14,467			16,424
Other income		9,432			8,496			5,846			25,188			20,298
Gain on sale of loans and debt repurchases, net		9,885			8,759			14,036			28,821			27,571
Derivative market value and foreign currency adjustments		(32,805	)		(7,231	)		2,826			(35,931	)		(36,067	)
Derivative settlements, net		(2,586	)		(3,377	)		4,914			(8,386	)		38,807
Total other income		72,980			96,996			101,885			280,486			276,874

Operating expenses:
Salaries and benefits		41,085			40,962			36,398			122,691			113,322
Litigation settlement		55,000			—			—			55,000			—
Cost to provide enrollment services		23,709			24,111			20,323			69,845			56,208
Restructure expense		4,751			72			3,340			6,020			6,628
Other expenses		35,742			43,076			32,601			118,656			106,431
Total operating expenses		160,287			108,221			92,662			372,212			282,589

Income (loss) before income taxes		(594	)		79,989			70,905			166,310			126,082

Income tax benefit (expense)		226			(29,996	)		(24,501	)		(62,363	)		(46,020	)

Net income (loss)	$	(368	)		49,993			46,404			103,947			80,062

Earnings (loss) per common share:

Net earnings (loss) - basic	$	(0.01	)		1.00			0.93			2.09			1.60

Net earnings (loss) - diluted	$	(0.01	)		0.99			0.93			2.08			1.60

Dividends per common share	$	0.07			0.07			—			0.21			—

Weighted average shares outstanding:

Basic		48,938,333			49,735,398			49,611,423			49,460,625			49,432,165

Diluted		48,938,333			49,934,648			49,808,856			49,663,505			49,633,290

Condensed Consolidated Balance Sheets

	As of		As of		As of
	September 30,		December 31,		September 30,
	2010		2009		2009
	(unaudited)				(unaudited)

Assets:
Student loans receivable, net	$	24,436,162		23,926,957		23,764,263
Student loans receivable - held for sale		2,109,440		—		1,627,794
Cash, cash equivalents, and investments (trading securities)		349,443		338,181		339,062
Restricted cash and investments		747,234		717,233		849,419
Goodwill		143,717		143,717		175,178
Intangible assets, net		43,352		53,538		59,803
Other assets		757,231		696,801		776,343
Total assets	$	28,586,579		25,876,427		27,591,862

Liabilities:
Bonds and notes payable	$	27,391,188		24,805,289		26,586,093
Other liabilities		350,777		286,575		277,695
Total liabilities		27,741,965		25,091,864		26,863,788

Shareholders' equity		844,614		784,563		728,074

Total liabilities and shareholders' equity	$	28,586,579		25,876,427		27,591,862

OVERVIEW

The Company is a transaction processing and finance company focused primarily on providing quality education related products and services to students, families, schools, and financial institutions nationwide. The Company earns its revenue from fee-based processing businesses, including its loan servicing, payment processing, and interactive marketing businesses, and the net interest income on its student loan portfolio.

The Company has certain business objectives in place that include:

·	Grow and diversify revenue from fee based businesses

·	Manage operating costs

·	Maximize the value of existing portfolio

·	Use liquidity to capitalize on market opportunities

Achieving these business objectives has impacted and will continue to impact the financial condition and operating results of the Company during 2010. Each of these items are discussed below.

Recent Developments

Litigation Settlement

On August 13, 2010, the Company reached an agreement in principal to pay $55.0 million to settle all claims associated with the previously disclosed “qui tam” action brought by Jon H. Oberg on behalf of the United States of America. The settlement agreement was finalized on October 25, 2010. As a result of the settlement, the Company recorded a $55.0 million pre-tax charge ($34.1 million after tax) during the third quarter of 2010. The Company expects that the Internal Revenue Service (the “IRS”) will review the settlement agreement as part of its normal procedures for settlements with government agencies, to determine if the payments are deductible as ordinary and necessary business expenses. While the Company believes that the payments are fully deductible under applicable tax law, the IRS may not agree with that position.

The Company believed it had strong defenses to the Oberg Complaint, but entered into the settlement agreement in order to eliminate the uncertainty, distraction, and expense of a trial.

Legislation – FFELP

On March 30, 2010, President Obama signed into law the Reconciliation Act of 2010. Effective July 1, 2010, this law prohibits new loan originations under the FFEL Program and requires that all new federal loan originations be made through the Direct Loan Program. If a first disbursement has been made on a FFELP loan prior to July 1, 2010, subsequent disbursements of that loan may still be made under the FFELP. The new law does not alter or affect the terms and conditions of existing FFELP loans.

As a result of the Reconciliation Act of 2010, the Company no longer originates new (first disbursement) FFELP loans after June 30, 2010. As such, subsequent to 2010, the Company will no longer recognize a gain from originating and subsequently selling FFELP loans to the Department of Education under the Department’s Purchase Program. During the third and fourth quarters of 2009, the Company recognized a pre-tax gain of $9.7 million and $26.9 million, respectively, from selling $427.7 million and $1.6 billion, respectively, of 2008-2009 academic year loans to the Department under the Purchase Program. As of September 30, 2010, the Company had $2.1 billion of 2009-2010 academic year loans classified as held for sale funded in the Department’s Participation Program that were sold to the Department under the Purchase Program during October 2010. Upon selling the $2.1 billion in loans held for sale, the Company recognized a pre-tax gain during the fourth quarter 2010 of $33.8 million. The Company earned approximately $1 million in 2009 and approximately $6 million during the nine months ended September 30, 2010 in net interest income on the 2009-2010 academic year loans prior to selling them to the Department.

In addition, as a result of the Reconciliation Act of 2010, net interest income on the Company’s existing FFELP loan portfolio, as well as fee-based revenue from guarantee and third-party FFELP servicing and education loan software licensing and consulting fees, will decline over time as the Company and its customers’ FFELP loan portfolios are paid down. During the nine month period ended September 30, 2010 and year ended December 31, 2009, the Company recognized approximately $280 million and approximately $247 million, respectively, of net interest income on its FFELP loan portfolio; approximately $80 million and approximately $100 million, respectively, in guarantee and third-party FFELP servicing revenue; and approximately $6 million and approximately $12 million, respectively, in education loan software licensing and consulting fees related to the FFEL Program.

Due to the legislative changes in the student loan industry, the Company believes there will be opportunities to purchase FFELP loan portfolios and/or expand its current level of guarantee and third-party FFELP servicing volume on behalf of current FFELP participants looking to modify their involvement in FFELP and/or exit that business. For example, during the first nine months of 2010, the Company purchased $2.5 billion of FFELP student loans from various third-parties.

Direct Loan Servicing Contract

In June 2009, the Company was one of four private sector companies awarded a student loan servicing contract by the Department of Education to provide additional servicing capacity for loans owned by the Department. These loans include Direct Loan Program loans and FFEL Program loans purchased by the Department under the authority granted in the ECASLA legislation. In September 2009, the Department began assigning FFEL purchased loans to the four servicers. Beginning with the second year of servicing in July 2010, the Department began allocating new loan volume among the four servicers based on five performance metrics.

·	Three metrics measure the satisfaction among separate customer groups, including borrowers, financial aid personnel at postsecondary schools participating in the federal student loan programs, and Federal Student Aid and other federal agency personnel or contractors who work with the servicers.

·	Two performance metrics measure the success of default prevention efforts as reflected by the percentage of borrowers and percentage of dollars in each servicer’s portfolio that go into default.

Based on the first year of survey results, the Company will be allocated 16% of the new loan volume originated by the Department for the period from August 15, 2010 through August 14, 2011 (the second year of the servicing contract). The Department is projecting an estimated 6 million new borrowers in total during the second year of this contract to be allocated to the four servicers. As of September 30, 2010, the Company was servicing $21.8 billion of loans for 2.5 million borrowers under this contract. For the three and nine months ended September 30, 2010, the Company earned $8.7 million and $18.4 million, respectively, in revenue under this contract.

Fourth quarter cash dividend

The Nelnet Board of Directors declared a fourth-quarter cash dividend on its outstanding shares of Class A common stock and Class B common stock of $0.49 per share. The dividend consists of a quarterly dividend of $0.07 per share, and an additional $0.42 per share representing $0.07 per share for each of the six quarters in 2008 and 2009 during which the Company had suspended dividend payments to preserve capital during a volatile period in the market. The dividend will be paid on December 15, 2010 to shareholders of record at the close of business on December 1, 2010.

Grow and Diversify Revenue from Fee-Based Businesses

The Company has expanded products and services generated from businesses that are not dependent upon the FFEL Program, thereby reducing legislative and political risk related to the education lending industry. Revenues from these businesses are primarily generated from products and services offered in the Company’s Tuition Payment Processing and Campus Commerce and Enrollment Services operating segments. In addition, in September 2009, the Company began servicing federally-owned student loans for the Department of Education. The amount of federally-owned student loans originated through the Direct Loan Program is expected to increase substantially, which will lead to an increase in servicing volume and related revenue for the Company. As shown below, revenue earned from the Company’s fee-based operating segments has grown $14.3 million (19.1%) and $43.6 million (19.1%) for the three and nine months ended September 30, 2010 compared with the same periods in 2009.

	Three months ended
	September 30,		September 30,
	2010		2009		$ Change		% Change
Student Loan and Guaranty Servicing (a)	$	38,101		31,147		6,954		22.3	%
Tuition Payment Processing and Campus Commerce		14,539		13,003		1,536		11.8
Enrollment Services		36,439		30,670		5,769		18.8

Total revenue from fee-based businesses	$	89,079		74,820		14,259		19.1	%

	Nine months ended
	September 30,		September 30,
	2010		2009		$ Change		% Change
Student Loan and Guaranty Servicing (a)	$	121,793		99,448		22,345		22.5	%
Tuition Payment Processing and Campus Commerce		44,728		40,430		4,298		10.6
Enrollment Services		105,113		88,188		16,925		19.2

Total revenue from fee-based businesses	$	271,634		228,066		43,568		19.1	%

(a)

The Student Loan and Guaranty Servicing operating segment included $5.3 million and $0.6 million of revenue earned from rehabilitation collections on defaulted loans for the three months ended September 30, 2010 and 2009, respectively, and $27.6 million and $6.9 million for the nine months ended September 30, 2010 and 2009, respectively.

Manage Operating Costs

As shown below, excluding the litigation settlement, the cost to provide enrollment services, restructure expense, and collection costs related to loan rehabilitation revenue, operating expenses increased $5.5 million (8.1%) and $8.8 million (4.1%) for the three and nine months ended September 30, 2010 compared with the same periods in 2009. These increases are due primarily to an increase in the number of employees in the Student Loan and Guaranty Servicing operating segment due to the significant increase in servicing loan volume as a result of the government servicing contract. Operating expenses decreased $2.1 million (2.7%) for the three months ended September 30, 2010 compared to the prior quarter. The Company continues to focus on managing costs as it grows its fee-based revenue.

	Three months ended
	September 30,		September 30,
	2010		2009		$ Change		% Change

Salaries and benefits	$	41,085		36,398		4,687		12.9	%
Other expenses (a)		32,750		31,933		817		2.6
Operating expenses, excluding the litigation settlement, the cost to provide enrollment services, restructure expense, and collection costs related to loan rehabilitation revenue		73,835		68,331	$	5,504		8.1	%
Litigation settlement		55,000		—
Cost to provide enrollment services		23,709		20,323
Restructure expense		4,751		3,340
Collection costs related to loan rehabilitation revenue (b)		2,992		668
Total operating expenses	$	160,287		92,662

	Three months ended
	September 30,		June 30,
	2010		2010		$ Change			% Change

Salaries and benefits	$	41,085		40,962		123			0.3	%
Other expenses (a)		32,750		34,933		(2,183	)		(6.2	)
Operating expenses, excluding the litigation settlement, the cost to provide enrollment services, restructure expense, and collection costs related to loan rehabilitation revenue		73,835		75,895	$	(2,060	)		(2.7	) %
Litigation settlement		55,000		—
Cost to provide enrollment services		23,709		24,111
Restructure expense		4,751		72
Collection costs related to loan rehabilitation revenue (b)		2,992		8,143
Total operating expenses	$	160,287		108,221

	Nine months ended
	September 30,		September 30,
	2010		2009		$ Change			% Change

Salaries and benefits	$	122,691		113,322		9,369			8.3	%
Other expenses (a)		102,298		102,886		(588	)		(0.6	)
Operating expenses, excluding the litigation settlement, the cost to provide enrollment services, restructure expense, and collection costs related to loan rehabilitation revenue		224,989		216,208	$	8,781			4.1	%
Litigation settlement		55,000		—
Cost to provide enrollment services		69,845		56,208
Restructure expense		6,020		6,628
Collection costs related to loan rehabilitation revenue (b)		16,358		3,545
Total operating expenses	$	372,212		282,589

(a)	Excludes the litigation settlement, the cost to provide enrollment services, restructure expense, and collection costs related to loan rehabilitation revenue.

(b)

The Company incurred collection costs directly related to revenue earned from rehabilitation loans. These costs are included in “other expenses” in the accompanying condensed consolidated statements of operations and are shown separately in the above table for comparability purposes for the periods shown.

Maximize the Value of Existing Portfolio

Fixed rate floor income

Loans originated prior to April 1, 2006 generally earn interest at the higher of a floating rate based on the Special Allowance Payment or the SAP formula set by the Department and the borrower rate, which is fixed over a period of time. The SAP formula is based on an applicable index plus a fixed spread that is dependent upon when the loan was originated, the loan’s repayment status, and funding sources for the loan. The Company generally finances its student loan portfolio with variable rate debt. In low and/or declining interest rate environments, when the fixed borrower rate is higher than the rate produced by the SAP formula, the Company’s student loans earn at a fixed rate while the interest on the variable rate debt typically continues to decline. In these interest rate environments, the Company earns additional spread income that it refers to as floor income. For loans where the borrower rate is fixed to term, the Company earns floor income for an extended period of time, which the Company refers to as fixed rate floor income.

The Company’s core student loan spread (variable student loan spread including fixed rate floor contribution) and variable student loan spread (net interest margin excluding fixed rate floor income) is summarized below.

(a)

The interest earned on the majority of the Company’s FFELP student loan assets is indexed to the three-month commercial paper index. The Company funds the majority of its assets with three-month LIBOR indexed floating rate securities. The relationship between these two indexes has a significant impact on student loan spread. This table (the right axis) shows the difference between the average three-month LIBOR and commercial paper indexes by quarter.

As reflected in the previous table, the Company’s core and variable student loan spread increased in 2010 compared with the same periods in 2009. The Company’s variable student loan spread increased throughout 2009 and the first half of 2010 as a result of the tightening of the commercial paper rate, which is the primary rate the Company earns on its student loan portfolio, and the LIBOR rate, which is the primary rate the Company pays to fund its student loan assets. Variable student loan spread decreased during the third quarter of 2010 due to the CP/LIBOR spread widening compared to the previous quarter.

The primary difference between variable student loan spread and core student loan spread is fixed rate floor income. A summary of fixed rate floor income and its contribution to core spread follows.

	Three months ended September 30,						Nine months ended September 30,
	2010			2009			2010			2009

Fixed rate floor income, gross	$	38,263			39,284			112,731			106,623

Derivative settlements (a)		(4,040	)		(436	)		(12,183	)		(436	)

Fixed rate floor income, net	$	34,223			38,848			100,548			106,187

Fixed rate floor income contribution to spread, net		0.51	%		0.61	%		0.53	%		0.56	%

(a)	Includes settlement payments on derivatives used to hedge student loans earning fixed rate floor income.

The high levels of fixed rate floor income earned during 2009 and 2010 are due to historically low interest rates. If interest rates remain low, the Company anticipates continuing to earn significant fixed rate floor income in future periods.

Future Cash Flow from Portfolio

The majority of the Company’s portfolio of student loans is funded in asset-backed securitizations that are structured to substantially match the maturity of the funded assets, thereby minimizing liquidity risk. In addition, due to (i) the difference between the yield the Company receives on the loans and cost of financing within these transactions, and (ii) the excess servicing and administration fees the Company earns from these transactions, the Company has created a portfolio that will generate earnings and significant cash flow over the life of these transactions.

As of September 30, 2010, based on cash flow models developed to reflect management’s current estimate of, among other factors, prepayments, defaults, deferment, forbearance, and interest rates, the Company currently expects future undiscounted cash flows from its portfolio to be approximately $1.72 billion as detailed below.

The forecasted cash flow presented below includes all loans currently funded in asset-backed securitizations. As of September 30, 2010, the Company had $21.3 billion of loans included in asset-backed securitizations, which represented 88 percent of its total FFELP student loan portfolio classified as held for investment. The forecasted cash flow does not include cash flows that the Company expects to receive related to loans funded through the Department of Education’s Conduit and Loan Participation and Purchase Programs and other warehouse facilities or loans originated and/or acquired subsequent to September 30, 2010.

The Company expects the future cash flows shown below would correspond to earnings when excluding the amortization of loan premiums/discounts and deferred origination costs, potential derivative activity used by the Company to hedge the portfolio, and other portfolio management and administrative costs. Because the Company does not use gain-on-sale accounting when issuing asset-backed securitizations, the future earnings of these transactions are not yet reflected in the Company’s consolidated financial statements.

The increase in the Company’s expected portfolio cash flows from December 31, 2009 (which was $1.43 billion) is due to the completion of additional asset-backed securitizations during 2010 and favorable changes in forward interest rates, offset by cash received during the first three quarters of 2010.

(a)	The Company uses various assumptions, including prepayments and future interest rates, when preparing its cash flow forecast. These assumptions are further discussed below.

Prepayments: The primary variable in establishing a life of loan estimate is the level and timing of prepayments. Prepayment rates equal the percentage of loans that prepay annually as a percentage of the beginning of period balance, net of scheduled principal payments. A number of factors can affect estimated prepayment rates, including the level of consolidation activity and default rates. Should any of these factors change, management may revise its assumptions, which in turn would impact the projected future cash flow. The Company’s cash flow forecast above assumes prepayment rates that are generally consistent with those utilized in recent asset-backed securities transactions. If management used a prepayment assumption two times greater than what was used to forecast the cash flow, the cash flow forecast would be reduced by approximately $350 million to $400 million.

Interest rates: The Company funds the majority of its student loans with three-month LIBOR (“LIBOR”) indexed floating rate securities. Meanwhile, the interest earned on the Company’s student loan assets are indexed primarily to a commercial paper rate (“CP”). The different interest rate characteristics of the Company’s loan assets and liabilities funding these assets result in basis risk. The Company’s cash flow forecast assumes LIBOR will exceed CP by 12 basis points for the life of the portfolio, which approximates the historical relationship between these indexes. If the forecast is computed assuming a spread of 24 basis points between CP and LIBOR for the life of the portfolio, the cash flow forecast would be reduced by approximately $100 million to $130 million.

The Company uses the current forward interest rate yield curve to forecast cash flows. A change in the forward interest rate curve would impact the future cash flows generated from the portfolio. An increase in future interest rates will reduce the amount of fixed rate floor income the Company is currently receiving. The Company attempts to mitigate the impact of a rise in short-term rates by hedging interest rate risks. As of September 30, 2010, the fair value of the Company’s interest rate derivatives used to hedge loans earning fixed rate floor income was a negative $32 million (a liability on the Company’s balance sheet).

FFELP 2009-2010 Academic Year Originations

During the third quarter 2010, the Company continued to use the Department’s Participation Program to fund loans originated for the 2009-2010 academic year. As of September 30, 2010, the Company had $2.1 billion of FFELP loans funded using the Participation Program, which are classified as held for sale on the Company’s consolidated balance sheet. These loans were sold to the Department under its Purchase Program during October 2010. Upon selling the $2.1 billion in loans held for sale, the Company received $125.9 million in cash proceeds and recognized a pre-tax gain of $33.8 million. Cash proceeds significantly exceeded the gain primarily due to the receipt of interest income that had accrued on the student loans funded in the Participation Program. Prior to paying the Participation off in full, all cash generated on loans funded by the Participation was required to pay interest and principal on the participation.

Use Liquidity to Capitalize on Market Opportunities

The Company has used and will continue to use its improved liquidity position to capitalize on market opportunities, including debt repurchases, student loan purchases, and stock repurchases, as discussed further below.

Debt Repurchases

During 2010, the Company used operating cash to repurchase outstanding debt as summarized below.

	Asset-backed securities						Junior Subordinated Hybrid Securities
	Notional amount		Purchase price		Gain		Notional amount		Purchase price		Gain

Three months ended March 31, 2010	$	274,250		264,073		10,177		—		—		—

Three months ended June 30, 2010		117,775		109,016		8,759		—		—		—

Three months ended September 30, 2010		85,675		80,712		4,963		34,995		30,073		4,922

Nine months ended September 30, 2010	$	477,700		453,801		23,899		34,995		30,073		4,922

Subsequent to September 30, 2010, the Company repurchased an additional $107.8 million (notional amount) of asset-backed securities resulting in a gain of approximately $4 million.

Student Loan Purchases

During the first nine months of 2010, the Company purchased $2.5 billion (par value) of student loans. The Company believes there will be additional opportunities to purchase FFELP loan portfolios and/or expand its current level of guarantee and third-party FFELP servicing volume from current FFELP participants looking to modify their involvement and/or exit the market.

Stock Repurchases

During 2010, the Company repurchased and retired shares of its Class A common stock as shown in the table below.

			Purchase		Average price of
	Total shares		Price		shares repurchased
	repurchased		(in thousands)		(per share)

Three months ended March 31, 2010		12,936	$	236	$	18.28

Three months ended June 30, 2010		663,443		12,821		19.33

Three months ended September 30, 2010		1,184,261		26,615		22.47

Nine months ended September 30, 2010		1,860,640	$	39,672	$	21.32

Non-GAAP Performance Measures

In accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”), the Company prepares financial statements in accordance with generally accepted accounting principles (“GAAP”). In addition to evaluating the Company’s GAAP-based financial information, management also evaluates the Company on a non-GAAP performance measure referred to as “base net income”. While “base net income” is not a substitute for reported results under GAAP, the Company provides “base net income” as additional information regarding its financial results.

“Base net income” is the primary financial performance measure used by management to develop financial plans, establish corporate performance targets, allocate resources, track results, evaluate performance, and determine incentive compensation. The Company’s board of directors utilizes “base net income” to set performance targets and evaluate management’s performance. The Company also believes analysts, rating agencies, and creditors use “base net income” in their evaluation of the Company’s results of operations. While “base net income” is not a substitute for reported results under GAAP, the Company utilizes “base net income” in operating its business because “base net income” permits management to make meaningful period-to-period comparisons by eliminating the temporary volatility in the Company’s performance that arises from certain items that are primarily affected by factors beyond the control of management. Management believes “base net income” provides additional insight into the financial performance of the core business activities of the Company’s operations.

The following table provides a reconciliation of GAAP net income (loss) to “base net income”.

	Three months ended									Nine months ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2010			2010			2009			2010			2009

GAAP net income (loss)	$	(368	)		49,993			46,404			103,947			80,062
Base adjustments:
Derivative market value and foreign currency adjustments		32,805			7,231			(2,826	)		35,931			36,067
Amortization of intangible assets		5,355			6,232			5,312			18,103			17,251
Compensation related to business combinations		—			—			—			—			159
Variable rate floor income, net of settlements on derivatives		—			—			—			—			(7,502	)
Total base adjustments before income taxes		38,160			13,463			2,486			54,034			45,975
Net tax effect		(14,501	)		(5,116	)		(859	)		(20,533	)		(16,781	)
Total base adjustments		23,659			8,347			1,627			33,501			29,194
Base net income	$	23,291			58,340			48,031			137,448			109,256

Earnings (loss) per share:
GAAP net income (loss)	$	(0.01	)		1.00			0.93			2.09			1.60
Adjustment for application of the two-class method
of computing earnings per share (a)		—			0.01			0.01			0.01			0.02
Total base adjustments		0.48			0.16			0.03			0.68			0.59
Base net income	$	0.47			1.17			0.97			2.78			2.21

(a)

On January 1, 2009, the Company began applying the two-class method of computing earnings per share. The two-class method requires the calculation of separate earnings per share amounts for unvested share-based awards and for common stock. Unvested share-based awards that contain nonforfeitable rights to dividends are considered securities which participate in undistributed earnings with common stock. GAAP net earnings per share in the above table represents earnings per share attributable to common stockholders. The adjustment to “base net income” reflects the earnings allocated to outstanding shares of unvested restricted stock.

The following table summarizes the impact to “base net income” from litigation settlements and restructuring charges recognized by the Company.

	Three months ended									Nine months ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2010			2010			2009			2010			2009

Base net income	$	23,291			58,340			48,031			137,448			109,256
Adjusted base adjustments:
Litigation settlement		55,000			—			—			55,000			—
Restructuring charges		4,751			72			3,340			6,020			6,628
Adjusted base adjustments before income taxes		59,751			72			3,340			61,020			6,628
Net tax effect		(22,705	)		(27	)		(1,154	)		(23,187	)		(2,419	)
Total adjusted base adjustments		37,046			45			2,186			37,833			4,209

Base net income, excluding litigation settlement and restructuring charges (net of tax)	$	60,337			58,385			50,217			175,281			113,465

Earnings per share:
Base net income		0.47			1.17			0.97			2.78			2.21
Total adjusted base adjustments	$	0.76			—			0.04			0.76			0.09

Base net income, excluding litigation settlement and restructuring charges (net of tax)	$	1.23			1.17			1.01			3.54			2.30

Limitations of Base Net Income

While GAAP provides a uniform, comprehensive basis of accounting, for the reasons discussed above, management believes that “base net income” is an important additional tool for providing a more complete understanding of the Company’s results of operations. Nevertheless, “base net income” is subject to certain general and specific limitations that investors should carefully consider. For example, as stated above, unlike financial accounting, there is no comprehensive, authoritative guidance for management reporting. The Company’s “base net income” is not a defined term within GAAP and may not be comparable to similarly titled measures reported by other companies. Investors, therefore, may not be able to compare the Company’s performance with that of other companies based upon “base net income”. “Base net income” results are only meant to supplement GAAP results by providing additional information regarding the operational and performance indicators that are most closely monitored and used by the Company’s management and board of directors to assess performance and information which the Company believes is important to analysts, rating agencies, and creditors.

Other limitations of “base net income” arise from the specific adjustments that management makes to GAAP results to derive “base net income” results. These differences are described below.

Differences between GAAP and Base Net Income

Management’s financial planning and evaluation of operating results does not take into account the following items because their volatility and/or inherent uncertainty affect the period-to-period comparability of the Company’s results of operations. A more detailed discussion of the differences between GAAP and “base net income” follows.

Derivative market value and foreign currency adjustments: “Base net income” excludes the periodic unrealized gains and losses that are caused by the change in fair value on derivatives used in the Company’s risk management strategy in which the Company does not qualify for “hedge treatment” under GAAP. As such, the Company recognizes changes in fair value of derivative instruments currently in earnings. The Company maintains an overall interest rate risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative instruments primarily used by the Company to manage interest rate risks include interest rate swaps and basis swaps. Management has structured the majority of the Company's derivative transactions with the intent that each is economically effective. However, the Company does not qualify its derivatives for “hedge treatment,” and the stand-alone derivative must be marked-to-market in the income statement with no consideration for the corresponding change in fair value of the hedged item. The Company believes these point-in-time estimates of asset and liability values that are subject to interest rate fluctuations make it difficult to evaluate the ongoing results of operations against its business plan and affect the period-to-period comparability of the results of operations. Included in “base net income” are the economic effects of the Company’s derivative instruments, which includes any cash paid or received being recognized as an expense or revenue upon actual derivative settlements. These settlements are included in “derivative settlements, net” on the attached condensed consolidated statements of income.

“Base net income” excludes the foreign currency transaction gains or losses caused by the re-measurement of the Company’s Euro-denominated bonds to U.S. dollars. In connection with the issuance of the Euro-denominated bonds, the Company has entered into cross-currency interest rate swaps. Under the terms of these agreements, the principal payments on the Euro-denominated notes will effectively be paid at the exchange rate in effect at the issuance date of the bonds. The cross-currency interest rate swaps also convert the floating rate paid on the Euro-denominated bonds (EURIBOR index) to an index based on LIBOR. Included in “base net income” are the economic effects of any cash paid or received being recognized as an expense or revenue upon actual settlements of the cross-currency interest rate swaps. These settlements are included in “derivative settlements, net” on the attached condensed consolidated statements of income. However, the gains or losses caused by the re-measurement of the Euro-denominated bonds to U.S. dollars and the change in market value of the cross-currency interest rate swaps are excluded from “base net income” as the Company believes the point-in-time estimates of value that are subject to currency rate fluctuations related to these financial instruments make it difficult to evaluate the ongoing results of operations against the Company’s business plan and affect the period-to-period comparability of the results of operations. The re-measurement of the Euro-denominated bonds generally correlates with the change in fair value of the cross-currency interest rate swaps. However, the Company will experience unrealized gains or losses related to the cross-currency interest rate swaps if the two underlying indices (and related forward curve) do not move in parallel.

The gains and/or losses included in “derivative market value and foreign currency adjustments” on the attached condensed consolidated statements of income are primarily caused by interest rate and currency volatility, as well as the volume and terms of derivatives not receiving hedge treatment. “Base net income” excludes these unrealized gains and losses and isolates the effect of interest rate and currency volatility related to the fair value of such instruments during the period. Under GAAP, the effects of these factors on the fair value of the derivative instruments (but not the underlying hedged item) tend to show more volatility in the short term.

Amortization of intangible assets: “Base net income” excludes the amortization of acquired intangibles, which arises primarily from the acquisition of definite life intangible assets in connection with the Company’s acquisitions, since the Company feels that such charges do not drive the Company’s operating performance on a long-term basis and can affect the period-to-period comparability of the results of operations.

Compensation related to business combinations: The Company has structured certain business combinations in which the consideration paid has been dependent on the sellers’ continued employment with the Company. As such, the value of the consideration paid is recognized as compensation expense by the Company over the term of the applicable employment agreement. “Base net income” excludes this expense because the Company believes such charges do not drive its operating performance on a long-term basis and can affect the period-to-period comparability of the results of operations. If the Company did not enter into the employment agreements in connection with the acquisition, the amount paid to these former shareholders of the acquired entity would have been recorded by the Company as additional consideration of the acquired entity, thus, not having an effect on the Company’s results of operations. The compensation expense related to these existing agreements was fully expensed in 2009.

Variable rate floor income, net of settlements on derivatives: Loans that reset annually on July 1 can generate excess spread income compared with the rate based on the special allowance payment formula in declining interest rate environments. The Company refers to this additional income as variable-rate floor income. The Company excludes variable-rate floor income, net of settlements paid on derivatives used to hedge student loan assets earning variable-rate floor income, from its “base net income” since the timing and amount of variable-rate floor income (if any) is uncertain, it has been eliminated by legislation for all loans originated on and after April 1, 2006, and it is in excess of expected spreads. In addition, because variable-rate floor income is subject to the underlying rate for the subject loans being reset annually on July 1, it is a factor beyond the Company’s control which can affect the period-to-period comparability of results of operations.

Operating Segments

The Company earns fee-based revenue through its Student Loan and Guaranty Servicing, Tuition Payment Processing and Campus Commerce, and Enrollment Services operating segments. In addition, the Company earns net interest income on its student loan portfolio in its Asset Generation and Management operating segment. The Company’s operating segments are defined by the products and services they offer or the types of customers they serve, and they reflect the manner in which financial information is currently evaluated by management. In the first quarter of 2010, internal reporting to executive management (the “chief operating decision maker”) changed to reflect operational changes made within the organization. The operations of various segments changed in the first quarter of 2010 in order for the Company to capitalize on external servicing opportunities while obtaining maximum operating leverage. The change in operating results reviewed by management changed the operating segments historically reported by the Company. The operational and internal reporting changes included moving the majority of software and information technology products and services and related expenses to the Student Loan and Guaranty Servicing operating segment. The internal and external revenue and expenses related to these products and services were historically included within Corporate Activities and the former Software and Technical Services operating segment. The Software and Technical Services operating segment no longer meets the definition of an operating segment as described in the Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting. Prior period segment operating results were restated to conform to the current period presentation.

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 to another segment that provides the product or service. Intersegment revenues and expenses are included within each segment consistent with the income statement presentation provided to management. Changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial information. In 2010, the Company began allocating certain corporate overhead expenses to the individual operating segments. These expenses include certain corporate activities related to executive management, human resources, accounting and finance, legal, and marketing. These costs are allocated to each operating segment based on estimated use of such activities and services. These allocations were not made in 2009, and thus are not reflected in the 2009 segment operating results.

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. Management, including the Company’s chief operating decision maker, evaluates the performance of the Company’s operating segments based on their profitability. As discussed further below, management measures the profitability of the Company’s operating segments based on “base net income.” Accordingly, information regarding the Company’s operating segments is provided based on “base net income.” The Company’s “base net income” is not a defined term within generally accepted accounting principles (“GAAP”) and may not be comparable to similarly titled measures reported by other companies. Unlike financial accounting, there is no comprehensive, authoritative guidance for management reporting.

Fee-Based Operating Segments

Student Loan and Guaranty Servicing

The following are the primary product and service offerings the Company offers as part of its Student Loan and Guaranty Servicing segment:

Origination and servicing of FFELP loans

Origination and servicing of non-federally insured student loans

Servicing federally-owned student loans for the Department of Education

Servicing and support outsourcing for guaranty agencies

Student loan servicing software and other information technology products and services

The Student Loan and Guaranty Servicing operating segment provides for the servicing of the Company’s student loan portfolios and the portfolios of third parties. The loan servicing activities include loan origination activities, loan conversion activities, application processing, borrower updates, payment processing, due diligence procedures, 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 June 2009, the Department of Education named the Company as one of four private sector companies awarded a servicing contract to service federally-owned student loans. In September 2009, the Company began servicing loans under this contract. The contract spans five years with one, five-year renewal at the option of the Department. Servicing loans under this contract will increase revenue earned by this segment. However, as the portfolio ages, operating margins under this contract are expected to be lower than historical levels achieved.

This operating segment also provides servicing activities for guarantee agencies. These activities include providing software and data center services, borrower and loan updates, default aversion tracking services, claim processing services, and post-default collection services.

This operating segment also develops student loan servicing software, which is used internally by the Company and also licensed to third-party student loan holders and servicers. In addition, this operating segment provides information technology products and services, with core areas of business in educational loan software solutions, business intelligence, technical consulting services, and Enterprise Content Management solutions.

Student Loan and Guaranty Servicing –Summary of Results

Significant items impacting 2010 operating results include:

$18.4 million of government servicing revenue earned in 2010, growth of number of borrowers to 2.5 million, and growth of loan volume to $21.8 billion under this contract.

$27.6 million of guaranty servicing revenue earned in 2010 from rehabilitation collections on defaulted loan assets.

Tuition Payment Processing and Campus Commerce

The Tuition Payment Processing and Campus Commerce operating segment provides products and services to help institutions and education seeking families manage the payment of education costs during the K-12 and higher education stages of the education life cycle. The Company provides actively managed tuition payment solutions, online payment processing, detailed information reporting, financial needs analysis, and data integration services to K-12 and higher educational institutions, families, and students. In addition, the Company provides customer-focused electronic transactions, information sharing, and account and bill presentment to colleges and universities.

This segment of the Company’s business is subject to seasonal fluctuations which correspond, or are related to, the traditional school year. Tuition management revenue is recognized over the course of the academic term, but the peak operational activities take place in summer and early fall. Revenue associated with providing electronic commerce subscription services is recognized over the service period with the highest revenue months being July through September and December and January. The Company’s operating expenses do not follow the seasonality of the revenues. This is primarily due to fixed year-round personnel costs and seasonal marketing costs.

Tuition Payment Processing and Campus Commerce –Summary of Results

Significant items impacting 2010 operating results include:

$4.3 million (10.7%) increase in revenue from 2009 as a result of an increase in the number of managed tuition payment plans and campus commerce transactions processed.

Enrollment Services

The Enrollment Services segment offers products and services that are focused on helping colleges recruit and retain students (interactive and list marketing services) and helping students plan and prepare for life after high school (publishing services and resource centers). Interactive marketing products and services include vendor lead management services, admissions lead generation, pay per click marketing management, email marketing, and admissions consulting. Publishing services includes test preparation study guides. Resource centers and list marketing products and services include online courses and related services and list marketing services.

Approximately 95% of interactive marketing revenue included in this segment is generated from for-profit schools. The revenue and margins of the Enrollment Services operating segment could be negatively impacted by decelerations in growth rates and declines in enrollments at for-profit schools.

Enrollment Services –Summary of Results

Significant items impacting 2010 operating results include:

$16.9 million (19.2%) increase in revenue as a result of an increase in interactive marketing services volume.

$3.1 million increase in operating expenses due to accelerating the amortization of student list costs in 2010.

Asset Generation and Management Operating Segments

The Asset Generation and Management operating segment includes the acquisition, management, and ownership of the Company’s student loan assets. Revenues are primarily generated from the Company’s earnings from the spread, referred to as the Company’s student loan spread, between the yield received on the student loan portfolio and the costs associated with originating, acquiring, and financing its student loan portfolio. The Company generates student loan assets through direct origination or through acquisitions. The student loan assets are held in a series of education lending subsidiaries designed specifically for this purpose. In addition to the student loan portfolio, all costs and activity associated with the generation of assets, funding and servicing of those assets, and maintenance of the debt transactions are included in this segment.

Asset Generation and Management – Summary of Results

Significant items impacting 2010 operating results include:

Continued recognition of significant fixed rate floor income of $100.5 million (net of settlement payments on derivatives used to hedge student loans earning floor income of $12.2 million) due to historically low interest rates.

A gain of $23.9 million in 2010 from the purchase of $477.7 million of the Company’s asset-backed securities.

Improved student loan spread compared to 2009 as a result of significant tightening of the CP/LIBOR spread.

The purchase of $2.5 billion of FFELP student loans during the first nine months of 2010 from various third-parties.

Corporate Activity and Overhead

Corporate Activity and Overhead in the following tables primarily includes the following items:

Income earned on certain investment activities

Interest expense incurred on unsecured debt transactions

Other products and service offerings that are not considered operating segments

Corporate Activities also includes certain corporate activities and overhead functions related to executive management, human resources, accounting and finance, legal, and marketing. Beginning in 2010, these costs were allocated to each operating segment based on estimated use of such activities and services.

Segment Operating Results

The tables below reflect “base net income” for each of the Company’s operating segments. Reconciliation of the segment totals to the Company’s operating results in accordance with GAAP is also included in the tables below.

	Three months ended September 30, 2010
	Fee-Based
				Tuition
	Student			Payment
	Loan			Processing									Asset			Corporate
	and			and						Total			Generation			Activity			Eliminations						Adjustments			GAAP
	Guaranty			Campus			Enrollment			Fee-			and			and			and			Base net			to GAAP			Results of
	Servicing			Commerce			Services			Based			Management			Overhead			Reclassifications			income			Results			Operations

Total interest income	$	13			12			—			25			159,752			1,919			(1,240	)		160,456			—			160,456
Interest expense		—			—			—			—			64,302			5,181			(1,240	)		68,243			—			68,243
Net interest income (loss)		13			12			—			25			95,450			(3,262	)		—			92,213			—			92,213

Less provision for loan losses		—			—			—			—			5,500			—			—			5,500			—			5,500
Net interest income (loss) after provision for loan losses		13			12			—			25			89,950			(3,262	)		—			86,713			—			86,713

Other income (expense):
Loan and guaranty servicing revenue		33,464			—			—			33,464			—			—			—			33,464			—			33,464
Intersegment servicing revenue		20,045			—			—			20,045			—			—			(20,045	)		—			—			—
Tuition payment processing and campus commerce revenue		—			14,527			—			14,527			—			—			—			14,527			—			14,527
Enrollment services revenue		—			—			36,439			36,439			—			—			—			36,439			—			36,439
Software services revenue		4,624			—			—			4,624			—			—			—			4,624			—			4,624
Other income		—			—			—			—			4,710			4,722			—			9,432			—			9,432
Gain on sale of loans and debt repurchases, net		—			—			—			—			4,963			4,922			—			9,885			—			9,885
Derivative market value and foreign currency adjustments		—			—			—			—			—			—			—			—			(32,805	)		(32,805	)
Derivative settlements, net		—			—			—			—			(2,131	)		(455	)		—			(2,586	)		—			(2,586	)
Total other income (expense)		58,133			14,527			36,439			109,099			7,542			9,189			(20,045	)		105,785			(32,805	)		72,980

Operating expenses:
Salaries and benefits		22,682			6,652			6,142			35,476			1,054			4,615			(60	)		41,085			—			41,085
Cost to provide enrollment services		—			—			23,709			23,709			—			—			—			23,709			—			23,709
Other expenses		18,583			2,383			4,180			25,146			2,937			62,055			—			90,138			5,355			95,493
Intersegment expenses, net		1,166			992			705			2,863			20,295			(3,173	)		(19,985	)		—			—			—
Total operating expenses		42,431			10,027			34,736			87,194			24,286			63,497			(20,045	)		154,932			5,355			160,287

Income (loss) before income taxes and corporate overhead allocation		15,715			4,512			1,703			21,930			73,206			(57,570	)		—			37,566			(38,160	)		(594	)
Corporate overhead allocation		(1,676	)		(559	)		(559	)		(2,794	)		(2,793	)		5,587			—			—			—			—
Income (loss) before income taxes		14,039			3,953			1,144			19,136			70,413			(51,983	)		—			37,566			(38,160	)		(594	)
Income tax (expense) benefit		(5,335	)		(1,502	)		(435	)		(7,272	)		(26,757	)		19,754			—			(14,275	)		14,501			226
Net income (loss)	$	8,704			2,451			709			11,864			43,656			(32,229	)		—			23,291			(23,659	)		(368	)


Additional information:
Net income (loss)	$	8,704			2,451			709			11,864			43,656			(32,229	)		—			23,291			(23,659	)		(368	)
Plus: Litigation settlement (a)		—			—			—			—			—			55,000			—			55,000			—			55,000
Plus: Restructure expense (b)		4,751			—			—			4,751			—			—			—			4,751			—			4,751
Less: Net tax effect		(1,805	)		—			—			(1,805	)		—			(20,900	)		—			(22,705	)		—			(22,705	)

Net income (loss), excluding litigation settlement and restructure expense	$	11,650			2,451			709			14,810			43,656			1,871			—			60,337			(23,659	)		36,678

	(a)	During the third quarter of 2010, the Company recorded a $55.0 million litigation settlement charge.

	(b)	During the third quarter of 2010, the Company recorded restructuring charges associated with previously implemented restructuring plans.

	Three months ended June 30, 2010
	Fee-Based
				Tuition
	Student			Payment
	Loan			Processing									Asset			Corporate
	and			and						Total			Generation			Activity			Eliminations						Adjustments			GAAP
	Guaranty			Campus			Enrollment			Fee-			and			and			and			Base net			to GAAP			Results of
	Servicing			Commerce			Services			Based			Management			Overhead			Reclassifications			income			Results			Operations

Total interest income	$	17			4			—			21			155,701			1,922			(987	)		156,657			—			156,657
Interest expense		—			—			—			—			54,105			6,125			(987	)		59,243			—			59,243
Net interest income (loss)		17			4			—			21			101,596			(4,203	)		—			97,414			—			97,414

Less provision for loan losses		—			—			—			—			6,200			—			—			6,200			—			6,200
Net interest income (loss) after provision for loan losses		17			4			—			21			95,396			(4,203	)		—			91,214			—			91,214

Other income (expense):
Loan and guaranty servicing revenue		36,652			—			—			36,652			—			—			—			36,652			—			36,652
Tuition payment processing and campus commerce revenue		—			12,795			—			12,795			—			—			—			12,795			—			12,795
Enrollment services revenue		—			—			35,403			35,403			—			—			—			35,403			—			35,403
Software services revenue		5,499			—			—			5,499			—			—			—			5,499			—			5,499
Other income		295			—			—			295			4,636			3,565			—			8,496			—			8,496
Gain on sale of loans and debt repurchases, net		—			—			—			—			8,759			—			—			8,759			—			8,759
Intersegment revenue		23,834			66			14			23,914			—			4,098			(28,012	)		—			—			—
Derivative market value and foreign currency adjustments		—			—			—			—			—			—			—			—			(7,231	)		(7,231	)
Derivative settlements, net		—			—			—			—			(3,377	)		—			—			(3,377	)		—			(3,377	)
Total other income (expense)		66,280			12,861			35,417			114,558			10,018			7,663			(28,012	)		104,227			(7,231	)		96,996

Operating expenses:
Salaries and benefits		23,327			6,594			6,447			36,368			1,286			3,808			(428	)		41,034			—			41,034
Restructure expense- severance and contract terminination costs		84			—			—			84			—			(12	)		(72	)		—			—			—
Cost to provide enrollment services		—			—			24,111			24,111			—			—			—			24,111			—			24,111
Other expenses		19,825			2,611			4,065			26,501			2,992			7,351			—			36,844			6,232			43,076
Intersegment expenses		3,014			945			655			4,614			21,891			1,007			(27,512	)		—			—			—
Total operating expenses		46,250			10,150			35,278			91,678			26,169			12,154			(28,012	)		101,989			6,232			108,221

Income (loss) before income taxes and corporate overhead allocation		20,047			2,715			139			22,901			79,245			(8,694	)		—			93,452			(13,463	)		79,989
Corporate overhead allocation		(1,484	)		(495	)		(495	)		(2,474	)		(2,473	)		4,947			—			—			—			—
Income (loss) before income taxes		18,563			2,220			(356	)		20,427			76,772			(3,747	)		—			93,452			(13,463	)		79,989
Income tax (expense) benefit		(7,053	)		(844	)		135			(7,762	)		(29,173	)		1,823			—			(35,112	)		5,116			(29,996	)
Net income (loss)	$	11,510			1,376			(221	)		12,665			47,599			(1,924	)		—			58,340			(8,347	)		49,993

Additional information:
Net income (loss)	$	11,510			1,376			(221	)		12,665			47,599			(1,924	)		—			58,340			(8,347	)		49,993
Plus: Restructure expense (a)		84			—			—			84			—			(12	)		—			72			—			72
Less: Net tax effect		(32	)		—			—			(32	)		—			5			—			(27	)		—			(27	)

Net income (loss), excluding litigation settlement and restructure expense	$	11,562			1,376			(221	)		12,717			47,599			(1,931	)		—			58,385			(8,347	)		50,038

(a) During the second quarter of 2010, the Company recorded restructuring charges associated with previously implemented restructuring plans.

	Three months ended September 30, 2009
	Fee-Based
				Tuition
	Student			Payment
	Loan			Processing									Asset			Corporate
	and			and						Total			Generation			Activity			Eliminations						Adjustments			GAAP
	Guaranty			Campus			Enrollment			Fee-			and			and			and			Base net			to GAAP			Results of
	Servicing			Commerce			Services			Based			Management			Overhead			Reclassifications			income			Results			Operations

Total interest income	$	23			16			—			39			144,310			1,191			(342	)		145,198			—			145,198
Interest expense		—			—			—			—			69,914			6,444			(342	)		76,016			—			76,016
Net interest income (loss)		23			16			—			39			74,396			(5,253	)		—			69,182			—			69,182

Less provision for loan losses		—			—			—			—			7,500			—			—			7,500			—			7,500
Net interest income (loss) after provision for loan losses		23			16			—			39			66,896			(5,253	)		—			61,682			—			61,682

Other income (expense):
Loan and guaranty servicing revenue		26,387			—			—			26,387			—			(381	)		—			26,006			—			26,006
Intersegment servicing revenue		21,512			—			—			21,512			—			—			(21,512	)		—			—			—
Tuition payment processing and campus commerce revenue		—			12,987			—			12,987			—			—			—			12,987			—			12,987
Enrollment services revenue		—			—			30,670			30,670			—			—			—			30,670			—			30,670
Software services revenue		4,600			—			—			4,600			—			—			—			4,600			—			4,600
Other income		137			—			—			137			4,104			1,605			—			5,846			—			5,846
Gain on sale of loans and debt repurchases, net		—			—			—			—			14,643			(607	)		—			14,036			—			14,036
Derivative market value and foreign currency adjustments		—			—			—			—			—			—			—			—			2,826			2,826
Derivative settlements, net		—			—			—			—			4,914			—			—			4,914			—			4,914
Total other income (expense)		52,636			12,987			30,670			96,293			23,661			617			(21,512	)		99,059			2,826			101,885

Operating expenses:
Salaries and benefits		20,044			6,399			5,337			31,780			1,693			4,099			(1,174	)		36,398			—			36,398
Cost to provide enrollment services		—			—			20,323			20,323			—			—			—			20,323			—			20,323
Other expenses		14,731			2,265			3,266			20,262			4,801			5,565			1			30,629			5,312			35,941
Intersegment expenses, net		1,154			608			411			2,173			20,764			(2,598	)		(20,339	)		—			—			—
Total operating expenses		35,929			9,272			29,337			74,538			27,258			7,066			(21,512	)		87,350			5,312			92,662

Income (loss) before income taxes		16,730			3,731			1,333			21,794			63,299			(11,702	)		—			73,391			(2,486	)		70,905
Income tax (expense) benefit		(6,357	)		(1,418	)		(507	)		(8,282	)		(24,054	)		6,976			—			(25,360	)		859			(24,501	)
Net income (loss)	$	10,373			2,313			826			13,512			39,245			(4,726	)		—			48,031			(1,627	)		46,404


Additional information:
Net income (loss)	$	10,373			2,313			826			13,512			39,245			(4,726	)		—			48,031			(1,627	)		46,404
Plus: Restructure expense (a)		3,151			—			—			3,151			—			189			—			3,340			—			3,340
Less: Net tax effect		(1,197	)		—			—			(1,197	)		—			43			—			(1,154	)		—			(1,154	)

Net income (loss), excluding restructure expense	$	12,327			2,313			826			15,466			39,245			(4,494	)		—			50,217			(1,627	)		48,590

(a) During the third quarter of 2009, the Company recorded restructuring charges associated with previously implemented restructuring plans.

	Nine months ended September 30, 2010
	Fee-Based
				Tuition
	Student			Payment
	Loan			Processing									Asset			Corporate
	and			and						Total			Generation			Activity			Eliminations						Adjustments			GAAP
	Guaranty			Campus			Enrollment			Fee-			and			and			and			Base net			to GAAP			Results of
	Servicing			Commerce			Services			Based			Management			Overhead			Reclassifications			income			Results			Operations

Total interest income	$	43			24			—			67			450,715			5,439			(3,140	)		453,081			—			453,081
Interest expense		—			—			—			—			164,063			17,422			(3,140	)		178,345			—			178,345
Net interest income (loss)		43			24			—			67			286,652			(11,983	)		—			274,736			—			274,736

Less provision for loan losses		—			—			—			—			16,700			—			—			16,700			—			16,700
Net interest income (loss) after provision for loan losses		43			24			—			67			269,952			(11,983	)		—			258,036			—			258,036

Other income (expense):
Loan and guaranty servicing revenue		106,764			—			—			106,764			—			(254	)		—			106,510			—			106,510
Intersegment servicing revenue		63,594			—			—			63,594			—			—			(63,594	)		—			—			—
Tuition payment processing and campus commerce revenue		—			44,704			—			44,704			—			—			—			44,704			—			44,704
Enrollment services revenue		—			—			105,113			105,113			—			—			—			105,113			—			105,113
Software services revenue		14,467			—			—			14,467			—			—			—			14,467			—			14,467
Other income		519			—			—			519			14,114			10,555			—			25,188			—			25,188
Gain on sale of loans and debt repurchases, net		—			—			—			—			23,899			4,922			—			28,821			—			28,821
Derivative market value and foreign currency adjustments		—			—			—			—			—			—			—			—			(35,931	)		(35,931	)
Derivative settlements, net		—			—			—			—			(7,931	)		(455	)		—			(8,386	)		—			(8,386	)
Total other income (expense)		185,344			44,704			105,113			335,161			30,082			14,768			(63,594	)		316,417			(35,931	)		280,486

Operating expenses:
Salaries and benefits		69,591			19,864			18,660			108,115			3,698			12,540			(1,662	)		122,691			—			122,691
Cost to provide enrollment services		—			—			69,845			69,845			—			—			—			69,845			—			69,845
Other expenses		55,216			7,435			13,307			75,958			10,150			75,465			—			161,573			18,103			179,676
Intersegment expenses, net		4,158			2,645			1,779			8,582			63,011			(9,661	)		(61,932	)		—			—			—
Total operating expenses		128,965			29,944			103,591			262,500			76,859			78,344			(63,594	)		354,109			18,103			372,212

Income (loss) before income taxes and corporate overhead allocation		56,422			14,784			1,522			72,728			223,175			(75,559	)		—			220,344			(54,034	)		166,310
Corporate overhead allocation		(4,349	)		(1,450	)		(1,450	)		(7,249	)		(7,247	)		14,496			—			—			—			—
Income (loss) before income taxes		52,073			13,334			72			65,479			215,928			(61,063	)		—			220,344			(54,034	)		166,310
Income tax (expense) benefit		(19,788	)		(5,068	)		(27	)		(24,883	)		(82,053	)		24,040			—			(82,896	)		20,533			(62,363	)
Net income (loss)	$	32,285			8,266			45			40,596			133,875			(37,023	)		—			137,448			(33,501	)		103,947


Additional information:
Net income (loss)	$	32,285			8,266			45			40,596			133,875			(37,023	)		—			137,448			(33,501	)		103,947
Plus: Litigation settlement (a)		—			—			—			—			—			55,000			—			55,000			—			55,000
Plus: Restructure expense (b)		6,040			—			—			6,040			—			(20	)		—			6,020			—			6,020
Less: Net tax effect		(2,295	)		—			—			(2,295	)		—			(20,892	)		—			(23,187	)		—			(23,187	)

Net income (loss), excluding litigation settlement and restructure expense	$	36,030			8,266			45			44,341			133,875			(2,935	)		—			175,281			(33,501	)		141,780

(a) During the third quarter of 2010, the Company recorded a $55.0 million litigation settlement charge.

(b) During 2010, the Company recorded restructuring charges associated with previously implemented restructuring plans.

	Nine months ended September 30, 2009
	Fee-Based
				Tuition
	Student			Payment
	Loan			Processing									Asset			Corporate
	and			and						Total			Generation			Activity			Eliminations						Adjustments			GAAP
	Guaranty			Campus			Enrollment			Fee-			and			and			and			Base net			to GAAP			Results of
	Servicing			Commerce			Services			Based			Management			Overhead			Reclassifications			income			Results			Operations

Total interest income	$	102			57			—			159			473,130			3,930			(1,324	)		475,895			7,502			483,397
Interest expense		—			—			—			—			306,846			23,078			(1,324	)		328,600			—			328,600
Net interest income (loss)		102			57			—			159			166,284			(19,148	)		—			147,295			7,502			154,797

Less provision for loan losses		—			—			—			—			23,000			—			—			23,000			—			23,000
Net interest income (loss) after provision for loan losses		102			57			—			159			143,284			(19,148	)		—			124,295			7,502			131,797

Other income (expense):
Loan and guaranty servicing revenue		82,424			—			—			82,424			—			(1,144	)		—			81,280			—			81,280
Intersegment servicing revenue		62,246			—			—			62,246			—			—			(62,246	)		—			—			—
Tuition payment processing and campus commerce revenue		—			40,373			—			40,373			—			—			—			40,373			—			40,373
Enrollment services revenue		—			—			88,188			88,188			—			—			—			88,188			—			88,188
Software services revenue		16,424			—			—			16,424			—			—			—			16,424			—			16,424
Other income		498			—			—			498			12,974			6,826			—			20,298			—			20,298
Gain (loss) on sale of loans and debt repurchases, net		—			—			—			—			14,263			13,308			—			27,571			—			27,571
Derivative market value and foreign currency adjustments		—			—			—			—			—			—			—			—			(36,067	)		(36,067	)
Derivative settlements, net		—			—			—			—			38,807			—			—			38,807			—			38,807
Total other income (expense)		161,592			40,373			88,188			290,153			66,044			18,990			(62,246	)		312,941			(36,067	)		276,874

Operating expenses:
Salaries and benefits		63,645			19,346			17,295			100,286			5,203			11,958			(4,284	)		113,163			159			113,322
Cost to provide enrollment services		—			—			56,208			56,208			—			—			—			56,208			—			56,208
Other expenses		45,965			7,012			9,602			62,579			15,635			17,592			2			95,808			17,251			113,059
Intersegment expenses, net		2,777			1,790			1,188			5,755			59,372			(7,163	)		(57,964	)		—			—			—
Total operating expenses		112,387			28,148			84,293			224,828			80,210			22,387			(62,246	)		265,179			17,410			282,589

Income (loss) before income taxes		49,307			12,282			3,895			65,484			129,118			(22,545	)		—			172,057			(45,975	)		126,082
Income tax (expense) benefit		(18,738	)		(4,667	)		(1,480	)		(24,885	)		(49,066	)		11,150			—			(62,801	)		16,781			(46,020	)
Net income (loss)	$	30,569			7,615			2,415			40,599			80,052			(11,395	)		—			109,256			(29,194	)		80,062


Additional information:
Net income (loss)	$	30,569			7,615			2,415			40,599			80,052			(11,395	)		—			109,256			(29,194	)		80,062
Plus: Restructure expense (a)		6,408			—			—			6,408			—			220			—			6,628			—			6,628
Less: Net tax effect		(2,339	)		—			—			(2,339	)		—			(80	)		—			(2,419	)		—			(2,419	)

Net income (loss), excluding restructure expense	$	34,638			7,615			2,415			44,668			80,052			(11,255	)		—			113,465			(29,194	)		84,271

(a) During 2009, the Company recorded restructuring charges associated with restructuring plans.

The adjustments required to reconcile from the Company’s “base net income” measure to its GAAP results of operations relate to differing treatments for derivatives, foreign currency transaction adjustments, amortization of intangible assets, and certain other items that management does not consider in evaluating the Company’s operating results. See “Non-GAAP Performance Measures.” The following tables reflect adjustments associated with these areas by operating segment and Corporate Activity and Overhead:

	Student			Tuition
	Loan			Payment				Asset		Corporate
	and			Processing				Generation		Activity
	Guaranty			and Campus		Enrollment		and		and
	Servicing			Commerce		Services		Management		Overhead		Total

	Three months ended September 30, 2010

Derivative market value and foreign currency adjustments	$	—		—		—		24,966		7,839		32,805
Amortization of intangible assets		2,112		1,120		2,123		—		—		5,355
Compensation related to business combinations		—		—		—		—		—		—
Variable-rate floor income, net of settlements on derivatives		—		—		—		—		—		—
Net tax effect (a)		(803	)	(426	)	(807	)	(9,487	)	(2,978	)	(14,501	)

Total adjustments to GAAP	$	1,309		694		1,316		15,479		4,861		23,659

	Three months ended June 30, 2010

Derivative market value and foreign currency adjustments	$	—		—		—		550		6,681		7,231
Amortization of intangible assets		2,114		1,591		2,527		—		—		6,232
Compensation related to business combinations		—		—		—		—		—		—
Variable-rate floor income, net of settlements on derivatives		—		—		—		—		—		—
Net tax effect (a)		(803	)	(605	)	(958	)	(209	)	(2,541	)	(5,116	)

Total adjustments to GAAP	$	1,311		986		1,569		341		4,140		8,347

	Three months ended September 30, 2009

Derivative market value and foreign currency adjustments	$	—		—		—		(2,826	)	—		(2,826	)
Amortization of intangible assets		1,219		1,842		2,251		—		—		5,312
Compensation related to business combinations		—		—		—		—		—		—
Variable-rate floor income, net of settlements on derivatives		—		—		—		—		—		—
Net tax effect (a)		(464	)	(700	)	(855	)	1,074		86		(859	)

Total adjustments to GAAP	$	755		1,142		1,396		(1,752	)	86		1,627

	Nine months ended September 30, 2010

Derivative market value and foreign currency adjustments	$	—		—		—		20,955		14,976		35,931
Amortization of intangible assets		6,462		4,636		7,005		—		—		18,103
Compensation related to business combinations		—		—		—		—		—		—
Variable-rate floor income, net of settlements on derivatives		—		—		—		—		—		—
Net tax effect (a)		(2,456	)	(1,763	)	(2,665	)	(7,963	)	(5,686	)	(20,533	)

Total adjustments to GAAP	$	4,006		2,873		4,340		12,992		9,290		33,501

	Nine months ended September 30, 2009

Derivative market value and foreign currency adjustments	$	—		—		—		37,499		(1,432	)	36,067
Amortization of intangible assets		3,659		5,598		7,994		—		—		17,251
Compensation related to business combinations		—		—		—		—		159		159
Variable-rate floor income, net of settlements on derivatives		—		—		—		(7,502	)	—		(7,502	)
Net tax effect (a)		(1,391	)	(2,127	)	(3,037	)	(11,399	)	1,173		(16,781	)

Total adjustments to GAAP	$	2,268		3,471		4,957		18,598		(100	)	29,194

(a)	Income taxes are based on 38% for the individual operating segments.

Net interest income after provision for loan losses (net of settlements on derivatives)

The following table summarizes the components of “net interest income after provision for loan losses,” net of “derivative settlements, net” included in the attached condensed consolidated statements of operations.

	Three months ended									Nine months ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2010			2010			2009			2010			2009

Variable student loan interest margin, net of settlements on derivatives	$	59,416			67,804			39,749			179,750			94,183
Fixed rate floor income, net of settlements on derivatives		34,223			31,054			38,848			100,548			106,187
Variable rate floor income, net of settlements on derivatives		—			—			—			—			7,502
Investment interest		1,169			1,304			1,943			3,474			8,810
Corporate debt interest expense		(5,181	)		(6,125	)		(6,444	)		(17,422	)		(23,078	)
Provision for loan losses		(5,500	)		(6,200	)		(7,500	)		(16,700	)		(23,000	)

Net interest income after provision for loan losses (net of settlements on derivatives)	$	84,127			87,837			66,596			249,650			170,604

Student Loan Servicing Volumes (dollars in millions)

(a)

As of September 30, 2010, the Company was servicing $2.1 billion of loans owned by the Company and approximately $140 million of loans for third parties that were sold to the Department in October 2010 pursuant to the Department’s Loan Purchase Commitment Program. The Company retained servicing on these loans and, as of October 31, 2010, these loans are included in the Government Servicing volume in the above table.

	Sep 30, 09			Dec 31, 09			Mar 31, 10			Jun 30, 10			Sep 30, 10			Oct 31, 10
Company Owned	$	24,889		$	23,139		$	24,378		$	26,351		$	26,183		$	24,025

% of total		70.2	%		61.6	%		56.7	%		55.3	%		47.0	%		42.6	%

Number of borrowers:

Government servicing:		22,478			441,913			1,055,896			1,530,308			2,510,630			2,643,398

FFELP servicing:		2,431,612			2,311,558			2,327,016			2,329,150			2,227,288			1,926,767

Derivative Market Value and Foreign Currency Adjustments

The following table summarizes the components of “derivative market value and foreign currency adjustments” included in the attached condensed consolidated statements of operations.

	Three months ended									Nine months ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2010			2010			2009			2010			2009

Change in fair value of derivatives - (expense) income	$	73,663			(100,632	)		42,182			(94,539	)		19,912
Foreign currency transaction adjustment (re-measurement of Euro notes) - (expense) income		(106,468	)		93,401			(39,356	)		58,608			(55,979	)

Derivative market value and foreign currency adjustments - (expense) income	$	(32,805	)		(7,231	)		2,826			(35,931	)		(36,067	)

Derivative Settlements, net

The following table summarizes the components of “derivate settlements, net” included in the attached condensed consolidated statements of operations.

	Three months ended									Nine months ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2010			2010			2009			2010			2009
Settlements:
Average/discrete basis swaps	$	—			—			646			—			11,707
1/3 basis swaps		893			80			3,071			974			20,473
Interest rate swaps - floor income hedges		(4,040	)		(4,286	)		(436	)		(12,183	)		(447	)
Interest rate swaps - unsecured debt hedges		(242	)		(79	)		—			(242	)		—
Cross-currency interest rate swaps		1,025			917			1,633			3,243			7,074
Other		(222	)		(9	)		—			(178	)		—

Total settlements - (expense) income	$	(2,586	)		(3,377	)		4,914			(8,386	)		38,807

Student Loans Receivable

The tables below outline the components of the Company’s student loan portfolio:

	As of September 30, 2010					As of December 31, 2009			As of September 30, 2009
	Held for investment			Held for sale (a)		Held for investment			Held for investment			Held for sale (a)
Federally insured loans	$	24,132,245			2,081,827		23,472,553			23,295,203			1,607,169
Non-federally insured loans		126,923			—		163,321			167,114			—
		24,259,168			2,081,827		23,635,874			23,462,317			1,607,169
Unamortized loan discount/premiums and deferred origination costs, net		227,206			27,613		341,970			352,066			20,625
Allowance for loan losses – federally insured loans		(32,962	)		—		(30,102	)		(29,015	)		—
Allowance for loan losses – non-federally insured loans		(17,250	)		—		(20,785	)		(21,105	)		—
	$	24,436,162			2,109,440		23,926,957			23,764,263			1,627,794

(a)

2008-2009 and 2009-2010 academic year loans were eligible to be participated and sold to the Department under the Department’s Participation and Purchase Programs. As of September 30, 2010, the 2009-2010 academic year loans were classified as held for sale and were sold to the Department during October 2010.

Student Loan Spread

The following table analyzes the student loan spread on the Company’s portfolio of student loans and represents the spread on assets earned in conjunction with the liabilities and derivative instruments used to fund the assets.

	Three months ended									Nine months ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2010			2010			2009			2010			2009
Variable student loan yield		2.63	%		2.72	%		2.64	%		2.64	%		2.95	%
Consolidation rebate fees		(0.64	)		(0.67	)		(0.68	)		(0.68	)		(0.70	)
Premium and deferred origination costs amortization		(0.18	)		(0.19	)		(0.31	)		(0.21	)		(0.29	)
Variable student loan net yield		1.81			1.86			1.65			1.75			1.96
Student loan cost of funds - interest expense		(0.94	)		(0.81	)		(1.07	)		(0.83	)		(1.58	)
Student loan cost of funds - derivative settlements		0.03			0.01			0.08			0.02			0.20
Variable student loan spread		0.90			1.06			0.66			0.94			0.58
Variable-rate floor income, net of
settlements on derivatives		—			—			—			—			(0.04	)
Fixed rate floor income, net of
settlements on derivatives		0.51			0.48			0.61			0.53			0.56

Core student loan spread		1.41	%		1.54	%		1.27	%		1.47	%		1.10	%

Average balance of student loans	$	26,548,957			25,931,220			25,056,836			25,520,327			25,148,707
Average balance of debt outstanding		26,636,184			26,124,574			25,677,213			25,661,594			25,704,825

Fixed Rate Floor Income

The following table shows the Company’s student loan assets that are earning fixed rate floor income as of September 30, 2010:

	Borrower/	Estimated	Balance of
Fixed	lender	variable	assets earning fixed-rate
interest	weighted	conversion	floor income as of
rate range	average yield	rate (a)	September 30, 2010

3.0 - 3.49%	3.21%	0.57%	$	1,819,477
3.5 - 3.99%	3.65%	1.01%		1,855,477
4.0 - 4.49%	4.20%	1.56%		1,456,116
4.5 - 4.99%	4.72%	2.08%		803,727
5.0 - 5.49%	5.25%	2.61%		541,746
5.5 - 5.99%	5.67%	3.03%		327,331
6.0 - 6.49%	6.19%	3.55%		384,992
6.5 - 6.99%	6.70%	4.06%		344,836
7.0 - 7.49%	7.17%	4.53%		120,850
7.5 - 7.99%	7.71%	5.07%		211,468
8.0 - 8.99%	8.16%	5.52%		474,388
> 9.0%	9.04%	6.40%		280,930
			$	8,621,338

(a)	The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to variable rate. As of September 30, 2010, the short-term interest rate was 30 basis points.

The following table summarizes the outstanding derivatives instruments as of September 30, 2010 used by the Company to hedge fixed-rate student loan assets.

			Weighted
			average fixed
	Notional		rate paid by
Maturity	Amount		the Company (a)

2010	$	3,750,000		0.48	%
2011		5,750,000		0.54
2012		950,000		1.08
2013		650,000		1.07
2015		100,000		2.26
2020		100,000		3.23

	$	11,300,000		0.64	%

(a) For all interest rate derivatives, the Company receives discrete three-month LIBOR.

Subsequent to September 30, 2010, the Company entered into additional derivatives to hedge loans earning fixed rate floor income. The following table summarizes these derivatives.

Maturity	Notional Amount		Weighted average fixed rate paid by the Company (a)

2012	$	3,000,000		0.54	%

(a) For all interest rate derivatives, the Company receives discrete three-month LIBOR.

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