NELNET INC

(a)The Company utilized $34.0 million and $49.0 million of federal and state tax credits related primarily to renewable energy during the nine months ended September 30, 2024 and 2023, respectively.

The following table presents 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.

NELNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts, unless otherwise noted)

(unaudited)

1. Basis of Financial Reporting

The accompanying unaudited consolidated financial statements of Nelnet, Inc. and subsidiaries (the “Company”) as of September 30, 2024 and for the three and nine months ended September 30, 2024 and 2023 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2023 and, in the opinion of the Company’s management, the unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results of operations for the interim periods presented. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results for the year ending December 31, 2024. The unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Annual Report").

2. Reclassifications and Immaterial Error Corrections

During the second quarter of 2024, the Company identified certain immaterial errors in the previously issued consolidated financial statements that have been corrected to conform to the September 30, 2024 presentation.

Loan Sales

The Company determined the reversal of provision for loan losses resulting from the sale of loans should be presented as a reduction to the provision for loan losses rather than the historical presentation as a gain/(loss) on sale of loans included in "other income (expense)" on the consolidated statements of income. Prior period amounts have been corrected to conform to the current period presentation resulting in a reclassification of $6.4 million and $49.5 million for the three and nine months ended September 30, 2023, respectively. This correction had no impact on previously reported consolidated assets, liabilities, equity, net income, and cash flows from operating activities.

Solar Tax Equity Investments

The Company relies on audited financial statements provided by third parties to record its share of earnings or losses on its solar tax equity investments. The Company determined that the Hypothetical Liquidation at Book Value (HLBV) method of accounting was not consistently adopted by all third parties in such audited financial statements for those solar tax equity investments made under a lease pass-through structure. The adoption of the HLBV method of accounting accelerates accounting losses in the initial years of the investment but has no impact on the overall economics of the transaction. During the second quarter of 2024, the Company fully adopted HLBV accounting for these investments and prior period amounts have been corrected, resulting in an increase in solar investment losses included in "other, net" in "other income (expense)" on the consolidated statements of income of $2.9 million and $6.0 million for the three and nine months ended September 30, 2023, respectively, partially offset by an increase in "net loss attributable to noncontrolling interests" of $1.7 million and $3.0 million for the three and nine months ended September 30, 2023, respectively. The after-tax net income impact to Nelnet, Inc. was a reduction of $1.0 million and $2.3 million for the three and nine months ended September 30, 2023, respectively. Consolidated "total equity" on the consolidated balance sheet was reduced $21.8 million as of December 31, 2023 and $16.7 million as of December 31, 2022, with the 2022 impact reflecting the cumulative impact of this correction through such date.

3. Loans and Accrued Interest Receivable and Allowance for Loan Losses

Loans and accrued interest receivable consisted of the following:

The following table summarizes the allowance for loan losses as a percentage of the ending loan balance for each of the Company's loan portfolios.

(a) As of September 30, 2024 and December 31, 2023, the allowance for loan losses as a percent of the risk sharing component of federally insured student loans not covered by the federal guaranty was 20.7% and 21.8%, respectively.

(b) Decrease as of September 30, 2024 compared with December 31, 2023 is due to the change in the mix of loans outstanding at the end of each period reported.

Loan Sales

During the three months ended September 30, 2024 and 2023, the Company sold $1.1 million and $61.8 million, respectively, of consumer loans, and recognized losses from such sales of $0.1 million and $1.0 million, respectively. During the nine months ended September 30, 2024 and 2023, the Company sold $335.0 million and $482.0 million, respectively, of FFELP and consumer loans, and recognized losses from such sales of $1.7 million and $16.8 million, respectively. For certain of these loan sales, the Company has sold portfolios of loans to unrelated third parties who securitized such loans. As partial consideration received for the loans sold, the Company received residual interest in the loan securitizations and asset-backed investment securities that are included in "investments and notes receivable" on the Company's consolidated balance sheets.

Activity in the Allowance for Loan Losses

The following table presents the activity in the allowance for loan losses by portfolio segment.

(a) The following table presents the reduction to provision for loan losses as a result of the loan sales described under "Loan Sales" above.

The following table summarizes annualized net charge-offs as a percentage of average loans for each of the Company's loan portfolios.

The primary items impacting provision for loan losses during the periods presented above were the establishment of an initial allowance for consumer and other loans originated and acquired and the reversal of provision for consumer and other loans sold.

Unfunded Loan Commitments

As of September 30, 2024 and December 31, 2023, Nelnet Bank had a liability of approximately $371,000 and $158,000, respectively, related to $29.9 million and $12.3 million, respectively, of unfunded private education, consumer, and other loan commitments. When a new loan commitment is made, the Company records an allowance that is included in "other liabilities" on the consolidated balance sheet by recording a provision for loan losses. When the loan is funded, the Company transfers the liability to the allowance for loan losses. Below is a reconciliation of the provision for loan losses reported in the consolidated statements of income.

Key Credit Quality Indicators

Loan Status and Delinquencies

Key credit quality indicators for the Company’s federally insured, private education, consumer, and other 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. Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period (but, for purposes of the following tables, do not include those loans while they are in forbearance). The following table presents the Company’s loan status and delinquency amounts.

(a) For the periods presented for Nelnet Bank, the delinquency bucket periods conform with the delinquency bucket periods reflected in Nelnet Bank's Call Reports filed with the Federal Deposit Insurance Corporation.

FICO Scores

An additional key credit quality indicator for Nelnet Bank private education and consumer loans is FICO scores at the time of origination. The following tables highlight the gross principal balance of Nelnet Bank's portfolios, by year of origination, stratified by FICO score at the time of origination.

Nelnet Bank Private Education Loans

Nelnet Bank Consumer and Other Loans

(a) Loans with no FICO score available or required refers to loans issued to borrowers for which the Company cannot obtain a FICO score or are not required to under a special purpose credit program. Management proactively assesses the risk and size of this loan category and, when necessary, takes actions to mitigate the credit risk.

Nonaccrual Status

The Company does not place federally insured loans on nonaccrual status due to the government guaranty. The amortized cost of private education, consumer, and other loans on nonaccrual status, as well as the allowance for loan losses related to such loans, as of September 30, 2024 and December 31, 2023, was not material.

Amortized Cost Basis by Origination Year

The following table presents the amortized cost of the Company's private education, consumer, and other loans by loan status and delinquency amount as of September 30, 2024 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 of the Company’s federally insured loans were originated prior to July 1, 2010.

(a) For the periods presented for Nelnet Bank, the delinquency bucket periods conform with the delinquency bucket periods reflected in Nelnet Bank's Call Reports filed with the Federal Deposit Insurance Corporation.

4. Bonds and Notes Payable

The following tables summarize the Company’s outstanding debt obligations by type of instrument:

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. The following table summarizes the Company's warehouse facilities as of September 30, 2024.

(a) Effective March 6, 2024, the maximum financing amount on this facility was reduced from $1.25 billion to $950 million. On May 17, 2024, this facility was amended to reduce the maximum financing amount from $950 million to $875 million, and to extend the expiration of liquidity provisions and final maturity date to July 15, 2024 and July 15, 2025, respectively. On July 15, 2024, this facility was amended to reduce the maximum financing amount from $875 million to $800 million, and to extend the expiration of liquidity provisions and final maturity date to January 31, 2025 and January 31, 2026, respectively. On October 3, 2024, this facility was amended to reduce the maximum financing amount from $800 million to $600 million.

(b) This facility has a static advance rate until the expiration date of the liquidity provisions. The maximum advance rates for this facility are 90% to 96%, and the minimum advance rates are 84% to 90%. In the event the liquidity provisions are not extended, the valuation agent has the right to perform a one-time mark to market on the underlying loans funded in this facility, subject to a floor. The loans would then be funded at this new advance rate until the final maturity date of the facility.

(c) On April 2, 2024, this facility was amended to reduce the maximum financing amount from $432 million to $375 million, and to extend the expiration of liquidity provisions and final maturity date to April 1, 2025 and April 1, 2026, respectively.

(d) On March 11, 2024, this facility was amended to reduce the maximum financing amount from $200 million to $150 million. On September 6, 2024, this facility was amended to reduce the maximum financing amount from $150 million to $100 million.

(e) On July 1, 2024, the Company closed on this $125 million consumer loan facility.

Unsecured Line of Credit

The Company has a $495.0 million unsecured line of credit that has a maturity date of September 22, 2026. As of September 30, 2024, no amount was outstanding on the line of credit and $495.0 million was available for future use.

Repurchase Agreement

The Company has a repurchase agreement with a non-affiliated third party, the proceeds of which are collateralized by certain private education loan asset-backed securities (bond investments). The outstanding balance under this agreement as of September 30, 2024 was $108.2 million. The agreement has various maturity dates through December 20, 2024 and 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. See note 6 for additional information about the private education loan asset-backed securities investments serving as collateral for this repurchase agreement.

Debt Repurchases

The Company has repurchased certain of its own asset-backed securities (bonds and notes payable) in the secondary market. For accounting purposes, these notes are eliminated in consolidation and are not included in the Company's consolidated financial statements. However, these securities remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated by the trust estate. Upon a sale of these notes to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. As of September 30, 2024, the Company holds $309.5 million (par value) of its own FFELP asset-backed securities.

Debt Redemptions

Subsequent to September 30, 2024, in October 2024, the Company redeemed $169.3 million of FFELP loan asset-backed debt securities (bonds and notes payable) prior to their maturity. The Company had the ability and intention to redeem these asset- backed debt securities as of September 30, 2024. As such, the remaining unamortized debt discount associated with these bonds as of September 30, 2024 was written-off, resulting in a $5.6 million non-cash expense recognized in September 2024.

In April 2023, the Company redeemed $188.6 million of FFELP loan asset-backed debt securities (bonds and notes payable) prior to their maturity. The remaining unamortized debt discount associated with these bonds at the time of redemption was written-off, resulting in a $25.9 million non-cash expense recognized in April 2023.

The expense related to the acceleration of unamortized debt discount costs described above is included in "interest expense on bonds and notes payable and bank deposits" on the consolidated statements of income.

5. Derivative Financial Instruments

Non-Nelnet Bank Derivatives

The Company uses settled-to-market derivative financial instruments to manage interest rate risk. Derivative instruments used as part of the Company's interest rate risk management strategy are further described in note 5 of the notes to consolidated financial statements included in the 2023 Annual Report.

Basis Swaps

The following table summarizes the Company’s outstanding basis swaps, in which the Company receives and pays the term adjusted Secured Overnight Financing Rate (SOFR) plus the tenor spread adjustment to LIBOR. Prior to the discontinuation of LIBOR on June 30, 2023, the Company received three-month LIBOR set discretely in advance and paid one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps").

The weighted average rate paid by the Company on the 1:3 Basis Swaps as of September 30, 2024 and December 31, 2023 was the term adjusted SOFR (plus the tenor spread adjustment relating to LIBOR) plus 10.4 basis points and 10.1 basis points, respectively.

Interest Rate Swaps – Floor Income Hedges

The following table summarizes the outstanding derivative instruments used by the Company as of September 30, 2024 and December 31, 2023 to economically hedge loans earning fixed rate floor income.

(a) For all interest rate derivatives, the Company receives payments based on SOFR, the majority of which reset quarterly.

(b) This $50 million notional amount derivative has a forward effective start date in January 2026.

(c) A $50 million notional amount derivative maturing in 2030 has a forward effective start date in November 2025.

During the first quarter of 2023, the Company received $183.2 million, which included $19.1 million related to 2023 settlements, to terminate $2.8 billion in notional amount of floor income interest rate swaps prior to their final maturity.

Nelnet Bank Derivatives

Interest Rate Swaps

The following table summarizes the outstanding non-centrally cleared derivative instruments used by Nelnet Bank to hedge exposure to variability in cash flows related to variable rate intercompany deposits.

(a) For all interest rate derivatives, the Company receives monthly or quarterly payments based on SOFR that resets daily.

(b) These $25 million notional amount derivatives have forward effective start dates in April 2026 and May 2026, respectively.

(c) This $25 million notional amount derivative has a forward effective start date in February 2027.

(d) This $25 million notional amount derivative has a forward effective start date in November 2025.

Consolidated Financial Statement Impact Related to Derivatives

Balance Sheets

Unlike the Company's Non-Nelnet Bank derivatives, Nelnet Bank's derivatives are not cleared post-execution at a regulated clearinghouse. As such, the Company records these derivative instruments in the consolidated balance sheets on a gross basis as either an asset (included in "other assets") or liability (included in "other liabilities") measured at fair value. The following table summarizes the fair value of the Company's Nelnet Bank derivatives as reflected in the consolidated balance sheets.

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.

6. Investments and Notes Receivable

"Restricted investments" and “investments and notes receivable” consisted of the following:

(a) A portion of the private education loan asset-backed securities were subject to a repurchase agreement with a third party, as discussed in note 4 under "Repurchase Agreement." As of September 30, 2024, the par value and fair value of the securities subject to this agreement was $144.4 million and $128.5 million, respectively.

(b) On May 22, 2024, securities at Nelnet Bank with a fair value of $70.6 million were transferred from available-for-sale to held-to-maturity. The securities were reclassified at fair value at the time of the transfer, and such transfer represented a non-cash transaction. Accumulated other comprehensive income as of May 22, 2024 included pre-tax unrealized gains of $3.4 million related to the transfer. These unrealized gains are being amortized, consistent with the amortization of any premiums on such securities, over the remaining lives of the respective securities as an adjustment of yield.

(c) The Company accounts for its voting membership interests in ALLO under the Hypothetical Liquidation at Book Value (HLBV) method of accounting. Under the HLBV method of accounting on its ALLO voting membership interests investment, the Company recognizedno losses and $17.3 million of losses during the three months ended September 30, 2024 and 2023, respectively, and losses of $10.7 million and $49.7 million during the nine months ended September 30, 2024 and 2023, respectively. Losses from the Company's investment in ALLO are included in "other, net" in "other income (expense)" on the consolidated statements of income. Absent additional equity contributions with respect to ALLO's voting membership interests, the Company will not recognize additional losses for its voting membership interests in ALLO.

(d) As of September 30, 2024, the outstanding preferred membership interests and accrued and unpaid preferred return of ALLO held by the Company was $184.0 million and $11.4 million, respectively. The Company historically earned a preferred annual return of 6.25% that increased to 10.00% on April 1, 2024 for $155.0 million of preferred membership interests of ALLO held by the Company. During the second and third quarter of 2024, the Company purchased an additional $29.0 million of preferred membership interests of ALLO, which earn a preferred annual return of 20.0%. The Company recognized income on its ALLO preferred membership interests of $4.8 million and $2.3 million during the three months ended September 30, 2024 and 2023, respectively, and $11.4 million and $6.8 million during the nine months ended September 30, 2024 and 2023, respectively. This income is included in "other, net" in "other income (expense)" on the consolidated statements of income.

(e) The Company has partial ownership in certain consumer, private education, and federally insured student loan securitizations, which are accounted for as held-to-maturity beneficial interest investments. As of the latest remittance reports filed by the various trusts prior to or as of September 30, 2024, the Company's ownership correlates to approximately $1.19 billion, $480 million, and $315 million of consumer, private education, and federally insured student loans, respectively, included in these securitizations.

An increase in cumulative loss expectations on certain securitizations and loan vintages caused a change in estimate of future cash flows related to certain of the Company's beneficial interest securitization investments. As a result, during the second and third quarter of 2024, the Company recorded a $5.9 million and $29.0 million allowance for credit losses (and related provision expense), respectively, related to these investments.

(f) The Company invests in solar tax equity investments. Due to the management and control of each of these investment partnerships, such partnerships that invest in tax equity investments are consolidated on the Company’s consolidated financial statements, with the co-investor’s (syndication partner's) portion being presented as noncontrolling interests. As of September 30, 2024, the Company has funded a total of $543.7 million in solar investments that remain outstanding, which includes $241.4 million funded by syndication partners. The carrying value of the Company’s investment in a solar project is reduced by tax credits earned when the solar project is placed-in-service. As of September 30, 2024, the Company has earned a total of $524.6 million of tax credits on those projects that remain outstanding, which includes $238.7 million earned by syndication partners. The solar investment negative carrying value on the consolidated balance sheet of $197.6 million as of September 30, 2024 represents the sum of total tax credits earned on solar projects placed-in-service through September 30, 2024 and the calculated HLBV cumulative net losses being larger than the total investment contributions made by the Company and its syndication partners on such projects. The solar investment negative carrying value as of September 30, 2024, excluding the portion owned by syndication partners that is reflected as "noncontrolling interests" on the consolidated balance sheet, was $95.4 million.

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. The following table presents (i) the Company's recognized net losses, which include net losses attributable to third-party noncontrolling interest investors (syndication partners), included in “other, net” in "other income (expense)" on the consolidated statements of income, (ii) solar net losses attributed to noncontrolling interest investors included in “net loss attributable to noncontrolling interests” on the consolidated statements of income, and (iii) the Company's recognized net losses excluding net losses attributed to noncontrolling interest investors (such amount reflecting the before tax net income impact of such solar tax equity investments to the Company).

As of September 30, 2024, the Company is committed to fund an additional $107.9 million on solar investments, of which $89.5 million is expected to be provided by syndication partners.

The following table presents, by remaining contractual maturity, the amortized cost and fair value of debt securities as of September 30, 2024:

(a) The Company's beneficial interest in loan securitizations are not due at a single maturity date.

The following table summarizes the unrealized positions for held-to-maturity investments and the beneficial interest in loan securitizations as of September 30, 2024:

The following table presents securities classified as available-for-sale that have gross unrealized losses at September 30, 2024 and the fair value of such securities as of September 30, 2024. These securities are segregated between investments that had been in a continuous unrealized loss position for less than twelve months and twelve months or more, based on the point in time that the fair value declined below the amortized cost basis. All securities in the table below have been evaluated to determine if a credit loss exists. As part of that assessment, the Company concluded it currently has the intent and ability to retain these investments, andnone of the unrealized losses were due to credit losses.

The following table summarizes the gross proceeds received and gross realized gains and losses related to sales of available-for-sale asset-backed securities.

7. Intangible Assets

Intangible assets consisted of the following:

The Company recorded amortization expense on its intangible assets of $2.1 million and $5.4 million for the three months ended September 30, 2024 and 2023, respectively, and $6.4 million and $11.6 million during the nine months ended September 30, 2024 and 2023, respectively. The Company will continue to amortize intangible assets over their remaining useful lives. As of September 30, 2024, the Company estimates it will record amortization expense as follows:

8. Goodwill

The following table presents the carrying amount of goodwill as of September 30, 2024 and December 31, 2023 by reportable operating segment:

9. Impairment Expense, Provision for Beneficial Interests, and Restructure Charges

Impairment Expense and Provision for Beneficial Interests

The following table presents the impairment charges and provision for beneficial interests by asset and reportable operating segment recognized by the Company. These expense items are included in “impairment expense and provision for beneficial interests” in the consolidated statements of income.

(a) The Company recorded a non-cash allowance for credit losses (and related provision expense) related to the Company's beneficial interest in certain loan securitizations. See note 6 for additional information.

(b) In 2023, the Company recorded impairment charges related to operating lease assets and associated leasehold improvements, which included a $2.4 million lease termination fee paid to Union Bank, a related party. The Company recorded this impairment as a result of its on-going evaluation of the use of office space when a large number of associates continued to work from home.

(c) In April 2024, the Company announced a change in its solar engineering, procurement, and construction (EPC) operations to focus exclusively on the commercial solar market and will discontinue its residential solar operations. As a result, the Company recognized non-cash impairment charges on certain solar facilities and inventory related to the residential solar operations.

Restructure Charges

GRNE Solar

In April 2024, the Company announced a change in its solar EPC operations to focus exclusively on the commercial solar market and will discontinue its residential solar operations. The restructuring plan included a reduction in headcount of approximately 40 associates. The Company incurred a restructure charge of $1.6 million related to these staff reductions and commissions paid for canceled contracts, which is included in "salaries and benefits" in the consolidated statements of income.

Loan Servicing and Systems (LSS)

In June 2024, the Company announced a reduction in headcount after the completion of the transfer of direct loan servicing volume to one platform and the required servicing platform enhancements for the Company's new student loan servicing contract with the Department of Education. Approximately 220 associates who work in LSS, including some in related shared services that support LSS, were notified their positions were being eliminated. The Company estimates incurring a charge of $7.1 million related to these staff reductions, of which $2.1 million and $4.1 million was recognized in the second and third quarter of 2024, respectively, which is included in "salaries and benefits" in the consolidated statements of income. The remaining expense will be recognized during the fourth quarter of 2024.

10. Bank Deposits

The following table summarizes Nelnet Bank’s interest-bearing deposits, excluding intercompany deposits:

As of September 30, 2024 and December 31, 2023, Nelnet Bank had intercompany deposits from Nelnet, Inc. and its subsidiaries totaling $77.7 million and $104.0 million, respectively, including a $40.0 million pledged deposit from Nelnet, Inc. as required under a Capital and Liquidity Maintenance Agreement with the FDIC. All intercompany deposits held at Nelnet Bank are eliminated for consolidated financial reporting purposes.

The following table presents certificates of deposit remaining maturities as of September 30, 2024:

Retail and other savings deposits include deposits from Educational 529 College Savings and Health Savings plans, Short Term Federal Investment Trust (STFIT), and commercial and consumer savings. These deposits are large interest-bearing omnibus accounts structured to allow FDIC insurance to flow through to underlying individual depositors. The deposits exceeding the FDIC insurance limits as of September 30, 2024 was $44.5 million, the majority of which are intercompany deposits from Nelnet, Inc. and its subsidiaries.

11. Earnings per Common Share

The following table presents 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.

12. Segment Reporting

See note 16 of the notes to consolidated financial statements included in the 2023 Annual Report for a description of the Company's operating segments. The following tables present the results of each of the Company's reportable operating segments reconciled to the consolidated financial statements.

13. Disaggregated Revenue

The following tables present disaggregated revenue by service offering or customer type for the Company's fee-based operating segments.

Loan Servicing and Systems

Education Technology Services and Payments

Solar Construction

(a) In April 2024, the Company announced a change in its solar engineering, procurement, and construction operations to focus exclusively on the commercial solar market and will discontinue its residential solar operations. As a result, residential revenue will continue to decline from historical amounts as existing customer contracts are completed.

Other Income (Expense)

The following table presents the components of "other, net" in "other income (expense)" on the consolidated statements of income:

14. Major Customer

Government Loan Servicing

Nelnet Servicing, a subsidiary of the Company, earns loan servicing revenue from a servicing contract with the Department of Education (the "Department"). Revenue earned by the Company related to this contract was $85.2 million and $100.2 million for the three months ended September 30, 2024 and 2023, respectively, and $277.7 million and $304.8 million for the nine months ended September 30, 2024 and 2023, respectively.

The Company's legacy student loan servicing contract with the Department was scheduled to expire on December 14, 2023. In April 2023, Nelnet Servicing received a contract award from the Department, pursuant to which it was selected to provide continued servicing capabilities for the Department's student aid recipients under a new Unified Servicing and Data Solution (USDS) contract (the "New Government Servicing Contract") which replaced the legacy Department student loan servicing contract.

The New Government Servicing Contract became effective April 24, 2023 and has afive year base period, with 2 two-year and 1 one-year possible extensions. The Department's total loan servicing volume of existing borrowers was allocated by the Department to Nelnet Servicing and four other third-party servicers that were awarded a USDS contract. Under the New Government Servicing Contract, Nelnet Servicing immediately began to make required servicing platform enhancements, for which it will be compensated from the Department on certain of these investments. Servicing under the New Government Servicing Contract went live on April 1, 2024 and the Company recognized revenue in accordance with this new contract beginning in the second quarter of 2024. The Company earned revenue for servicing borrowers under the legacy servicing contract with the Department through March 31, 2024.

The New Government Servicing Contract has multiple revenue components with tiered pricing based on borrower volume, while revenue earned under the legacy servicing contract was primarily based on borrower status. Assuming borrower volume remains consistent under the New Government Servicing Contract, the Company expects revenue earned on a per borrower blended basis will decrease under the New Government Servicing Contract versus the legacy contract. However, consistent with the legacy contract, the Company expects to earn additional revenue from the Department under the New Government Servicing Contract for change requests and other support services. In addition, the Company has executed an agreement with a third-party servicer awarded a USDS contract to license its servicing software to such entity. The Company began earning remote hosted servicing revenue from this new customer during the second quarter of 2024. The amount of revenue earned by the Company from this new customer will depend on the number of servicing borrowers allocated by the Department to this servicer.

15. Fair Value

The following tables present the Company’s financial assets and liabilities that are measured at fair value on a recurring basis.

(a) In accordance with the Fair Value Measurements Topic of the FASB Accounting Standards Codification, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

The following table summarizes the fair values of all of the Company’s financial instruments on the consolidated balance sheets. The methodologies for estimating the fair value of financial assets and liabilities are described in note 23 of the notes to consolidated financial statements included in the 2023 Annual Report.