Jul 28, 2005

Nelnet Reports $3.5 Billion, or 28%, Student Loan Asset Growth; Record Consolidation Loan Activity

- Student loan assets up $3.5 billion, or 28%, year over year - Consolidation loan applications received in June greater than the combined applications received for the first five months of the year - Base net income for the second quarter was $0.58 per share

LINCOLN, Neb., July 28, 2005 /PRNewswire-FirstCall via COMTEX/ -- Nelnet, Inc. (NYSE: NNI) today reported base net income for the first six months of 2005 of $62.5 million, or $1.16 per share, compared with $96.4 million, or $1.80 per share, in the first six months of 2004. For the first six months of 2005, GAAP net income was $66.3 million, or $1.23 per share, compared to $94.4 million, or $1.76 per share, for the same period a year ago.

Base net income for the second quarter of 2005 was $31.0 million, or $0.58 per share, compared with $84.6 million, or $1.58 per share, in the second quarter of 2004. The company reported a second-quarter GAAP net loss of $1.8 million, or $0.03 per share, compared with GAAP net income of $85.3 million, or $1.59 per share, the year before.

The GAAP net loss for the quarter ended June 30, 2005, includes an unrealized loss in the fair-market value of derivative instruments of $51.4 million. The majority of derivatives held by Nelnet do not qualify for hedge accounting under FASB 133. As such, the mark-to-market gains or losses of derivatives each reporting period are included in the statement of operations, but removed from GAAP net income during the calculation of base net income.

Base net income as defined by Nelnet is GAAP net income excluding derivative market value adjustments, amortization of intangible assets, and variable-rate floor income. A description of base net income and reconciliation of GAAP net income to base net income is included in this release.

Net student loan assets at June 30, 2005 were $15.7 billion, up more than 28 percent, or $3.5 billion, from $12.2 billion at June 30, 2004. Since December 31, 2004, student loan assets have increased more than 16 percent, or $2.2 billion, from $13.5 billion.

Nelnet's direct-to-consumer channel experienced a record level of activity in the second quarter of 2005 as borrowers completed student loan consolidation applications before the interest rate increase on July 1. The company reported net new consolidation loan originations, meaning those acquired from other holders, of $404.3 million for the second quarter of 2005 and received a record number of consolidation loan applications in June, the majority of which will fund in the third quarter. The number of applications received in the single month of June was greater than the total number of applications received in the first five months of the year.

"The results from the first half of 2005 reflect the momentum of our business," said Steve Butterfield, Nelnet Vice Chairman and Co-Chief Executive Officer. "Student loan asset growth is the primary driver of our earnings and continues to be robust, while the integration of acquisitions diversifies our revenue streams and enhances our product offerings to schools and students."

Margin Analysis

Net interest income for the first six months of 2005 was $168.8 million compared to $218.6 million for the first six months of 2004. For the second quarter of 2005, Nelnet reported net interest income of $82.0 million compared to $175.2 million for the second quarter of 2004. The second quarter 2005 net interest income includes a special allowance yield adjustment of $25.9 million, down from $124.3 million in the same period a year ago, of which a portion had been previously deferred.

The company reported core student loan spread of 1.58 percent for the first six months of 2005 compared with 1.72 percent in the same period in 2004 and 1.50 percent for the second quarter of 2005 compared with 1.79 percent in the same period of 2004. The margin compression was attributable to higher short-term variable interest rates and an increase in lower-yield consolidation loans in the company's student loan portfolio. The impact of the margin compression was partially offset by the use of derivative products to hedge the majority of Nelnet's student loan portfolio earning at fixed rates.

Other Revenue

Income from loan and guarantee servicing fees reached $71.9 million for the first six months of 2005, up from $48.9 million in the first six months of 2004. In the second quarter of 2005, loan and guarantee servicing income grew to $34.7 million from $22.8 million in the second quarter of 2004. The increase is attributable to the acquisition of EDULINX.

Other fee-based income increased to $12.4 million for the first six months of 2005 compared to $3.5 million for the first six months of 2004. For the second quarter of 2005 other fee-based income increased to $9.0 million, up from $1.6 million in the same period a year ago. Recent acquisitions contributed to the increase.

Operating Expenses

For the first six months of 2005, the company reported operating expenses of $145.3 million compared to $129.4 million for the first six months of 2004. Operating expenses decreased to $73.9 million in the second quarter of 2005 from $76.2 million for the same period a year ago.

Reconciliation of GAAP Net Income to Base Net Income

Nelnet 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 certain non-GAAP performance measures that are referred to as base income adjustments. While base net income is not a substitute for reported results under GAAP, Nelnet provides base net income as additional information regarding the company's financial results.

Nelnet's base net income is a non-GAAP financial measure and may not be comparable to similarly titled measures reported by other companies. The company's base net income presentation does not represent another comprehensive basis of accounting.

The following table provides a reconciliation of GAAP net income to base
net income.



                                        Three months ended   Six months ended
                                             June 30,            June 30,
                                          2005     2004       2005     2004
                                     (dollars in thousands, except share data)

     GAAP net income (loss)              $(1,773) $85,253    $66,314  $94,374
     Base adjustments:
       Derivative market value
        adjustments                       51,372   (3,075)    (8,918)    (548)
       Amortization of intangible assets   1,559    2,079      2,732    4,157
       Variable-rate floor income             --       --         --     (348)
     Total base adjustments before
       income taxes                       52,931     (996)    (6,186)   3,261
     Net tax effect (a)                  (20,114)     379      2,351   (1,239)
     Total base adjustments               32,817     (617)    (3,835)   2,022
       Base net income                   $31,044  $84,636    $62,479  $96,396

       Base earnings per share, basic
        and diluted                        $0.58    $1.58      $1.16    $1.80

     (a)  Tax effect computed at 38%.

Nelnet will host a conference call to discuss this earnings release at 1:00 p.m. (Eastern) today. To access the call live, participants in the United States and Canada should dial 800.310.7032 and international callers should dial 719.457.2694 at least 15 minutes prior to the call. A live audio Web cast of the call will also be available at www.nelnetinvestors.netunder the conference calls and Web casts menu. A replay of the conference call will be available between 4:00 p.m. (Eastern) today and 11:59 p.m. (Eastern) August 5. To access the replay via telephone within the United States and Canada, callers should dial 888.203.1112. International callers should dial 719.457.0820. All callers accessing the replay will need to use the confirmation code 4818791. A replay of the audio Web cast will also be available at www.nelnetinvestors.net.

Supplemental financial information to this earnings release is available online at http://www.nelnetinvestors.net/releases.cfm?reltype=Financial.

Condensed Consolidated Statements of Operations

                              Three months ended       Six months ended
                                   June 30,                June 30,
                               2005        2004        2005        2004
                                             (unaudited)
                              (dollars in thousands, except share data)

     Interest income:
     Loan interest,
       excluding variable-
       rate floor income      $223,691    $239,436    $423,798    $347,632
     Variable-rate floor
       income                       --          --          --         348
     Amortization of loan
       premiums and deferred
        origination costs      (16,547)    (15,037)    (32,329)    (34,854)
     Investment interest         8,150       3,181      15,152       6,832
       Total interest income   215,294     227,580     406,621     319,958

    Interest expense:
      Interest on bonds and
       notes payable           133,277      52,352     237,802     101,395

      Net interest income       82,017     175,228     168,819     218,563

    Less provision
      (recovery) for loan
       losses                    2,124      (6,421)      4,155      (3,306)

      Net interest income
        after provision
         (recovery) for
          loan losses           79,893     181,649     164,664     221,869

    Other income:
     Loan and guarantee
       servicing income         34,678      22,846      71,854      48,909
     Other fee-based income      9,027       1,630      12,383       3,519
     Software services
       income                    2,602       1,780       4,808       3,672
     Other income                1,524       1,285       2,924       2,728
     Derivative market
       value adjustments       (51,372)      3,075       8,918         548
     Derivative
       settlements, net         (6,001)     (1,718)    (16,087)     (2,932)
      Total other income
        (loss)                  (9,542)     28,898      84,800      56,444

     Operating expenses:
      Salaries and benefits     39,977      49,036      79,304      76,805
      Other expenses            32,343      25,081      63,231      48,446
      Amortization of
        intangible assets        1,559       2,079       2,732       4,157
       Total operating
       expenses                 73,879      76,196     145,267     129,408

     Income (loss) before
       income taxes             (3,528)    134,351     104,197     148,905

    Income tax expense
      (benefit)                 (1,755)     49,098      37,883      54,531

       Net income (loss)       $(1,773)    $85,253     $66,314     $94,374

       Earnings (loss) per
         share, basic and
          diluted               $(0.03)      $1.59       $1.23       $1.76

     Weighted average
       shares outstanding   53,712,048  53,647,697  53,697,390  53,641,664



     Condensed Consolidated Balance Sheets and Financial Data

                                           As of        As of        As of
                                          June 30,   December 31,   June 30,
                                           2005         2004         2004
                                        (unaudited)               (unaudited)
                                               (dollars in thousands)
     Assets:
       Student loans receivable, net     $15,661,315  $13,461,814  $12,194,097
       Cash, cash equivalents, and
        investments                        1,110,109    1,302,954      899,987
       Other assets                          537,479      395,237      365,495
         Total assets                    $17,308,903  $15,160,005  $13,459,579

     Liabilities:
       Bonds and notes payable           $16,580,078  $14,300,606  $12,844,539
       Other liabilities                     205,155      403,224      214,058
         Total liabilities                16,785,233   14,703,830   13,058,597

     Shareholders' equity                    523,670      456,175      400,982

        Total liabilities and
         shareholders' equity            $17,308,903  $15,160,005  $13,459,579

     Return on average total assets            0.82%        1.11%        1.50%
     Return on average equity                  26.0%        39.7%        57.1%

Nelnet is one of the leading education finance companies in the United States and is focused on providing quality products and services to students and schools nationwide. Nelnet ranks among the nation's leaders in terms of total net student loan assets with $15.7 billion as of June 30, 2005. Headquartered in Lincoln, Nebraska, Nelnet originates, consolidates, securitizes, holds, and services student loans, principally loans originated under the Federal Family Education Loan Program of the U.S. Department of Education.

Additional information is available at www.nelnet.net.

Information contained in this press release, other than historical information, may be considered forward-looking in nature and is subject to various risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or expected. Among the key factors that may have a direct bearing on Nelnet's operating results, performance, or financial condition are changes in terms of student loans and the educational credit marketplace, changes in the demand for educational financing or in financing preferences of educational institutions, students and their families, or changes in the general interest rate environment and in the securitization markets for education loans.

(code #: nnif)

     Media Contact:  Sheila Odom, 402.458.2329
     Investor Contact:  Cheryl Watson, 317.469.2064

SOURCE Nelnet, Inc.

media, Sheila Odom, +1-402-458-2329, or investors, Cheryl Watson, +1-317-469-2064,
both of Nelnet, Inc.
http://www.prnewswire.com

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