8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)

February 27, 2017

NELNET, INC.

(Exact name of registrant as specified in its charter)

Nebraska	001-31924	84-0748903
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

121 South 13th Street, Suite 100 Lincoln, Nebraska	68508
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code (402) 458-2370

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act

(17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

(17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

On February 27, 2017, Nelnet, Inc. (the “Company”) issued a press release with respect to its financial results for the quarter ended December 31, 2016. A copy of the press release is furnished as Exhibit 99.1 to this report. In addition, a copy of the supplemental financial information for the quarter ended December 31, 2016, which was made available on the Company's website at www.nelnetinvestors.com on February 27, 2017 in connection with the press release, is furnished as Exhibit 99.2 to this report. A copy of the 2016 letter to the Company's shareholders from the Chief Executive Officer of the Company is also furnished as Exhibit 99.3 to this report.

The above information and Exhibits 99.1, 99.2, and 99.3 shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), nor shall such information and Exhibits be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing. In addition, information on the Company's website is not incorporated by reference into this report and should not be considered part of this report.

Certain statements contained in the exhibits furnished with this report may be considered forward looking in nature and are subject to various risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, the Company's actual results may vary materially from those anticipated, estimated, or expected. Among the key risks and uncertainties that may have a direct bearing on the Company's future operating results, performance, or financial condition expressed or implied by the forward-looking statements are the matters discussed in the Risk Factors section of the Company's Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on February 27, 2017. Although the Company may from time to time voluntarily update its prior forward-looking statements, it disclaims any commitment to do so except as required by securities laws.

Item 9.01 Financial Statements and Exhibits.

(d)Exhibits. The following exhibits are furnished as part of this report:

Exhibit No.	Description
99.1	Press Release dated February 27, 2017 - “Nelnet Reports Fourth Quarter 2016 Results”
99.2	Supplemental Financial Information for the Quarter Ended December 31, 2016
99.3	2016 Letter to Shareholders from the Chief Executive Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: February 27, 2017

NELNET, INC.

By: /s/ JAMES D. KRUGER

Name: James D. Kruger

Title: Chief Financial Officer

EX-99.1

Nelnet Reports Fourth Quarter 2016 Results

• GAAP net income $2.32 per share, $1.05 per share excluding adjustments

• 10 percent increase in student loan servicing volume to $195 billion

• 11 percent increase in Tuition Payment Processing and Campus Commerce revenue

LINCOLN, Neb., February 27, 2017-Nelnet (NYSE: NNI) today reported GAAP net income of $98.3 million, or $2.32 per share, for the fourth quarter of 2016, compared with GAAP net income of $83.4 million, or $1.86 per share, for the same period a year ago.

Net income, excluding derivative market value and foreign currency adjustments, was $44.5 million, or $1.05 per share, for the fourth quarter of 2016, compared with $59.0 million, or $1.31 per share, for the same period in 2015. For additional information on these non-GAAP metrics, including reconciliations to GAAP net income, see "Non-GAAP Performance Measures" below.

The decrease in net income, excluding derivative market value and foreign currency adjustments, for the fourth quarter of 2016, compared with the same period in 2015, was expected due to the runoff of the company's student loan portfolio and lower student loan spread, which decreased net interest income. In addition, during the fourth quarter of 2016, the company redeemed certain debt securities prior to their legal maturity and recognized $7.4 million, or $0.11 per share after tax, in interest expense to write off the remaining debt discount associated with these bonds.     

“It was another solid year for Nelnet in 2016. We generated strong earnings from operations and our student loan portfolio, while also achieving further diversification,” said Jeff Noordhoek, chief executive officer of Nelnet. “Our core fee-based businesses, payment processing and student loan servicing, grew, and we invested significant capital with the addition of our ALLO fiber-optic communications business.”

Nelnet operates four primary business segments, earning interest income on student loans in its Asset Generation and Management segment, and fee-based revenue in its Loan Systems and Servicing, Tuition Payment Processing and Campus Commerce, and Communications segments.

Asset Generation and Management

For the fourth quarter of 2016, Nelnet reported net interest income of $79.0 million, compared with $112.2 million for the same period a year ago. The company's average balance of student loans decreased to $25.5 billion for the fourth quarter of 2016, compared with $28.9 billion for the same period in 2015. As a result of a widening in the basis between the indices in which the company earns interest on its loans and funds such loans and a decrease in fixed rate floor income as a result of an increase in interest rates, core student loan spread decreased to 1.24 percent for the fourth quarter of 2016, compared with 1.45 percent for the same period in 2015. Net interest income included $38.3 million and $52.8 million of fixed rate floor income in the fourth quarter of 2016 and 2015, respectively.

Loan Systems and Servicing

Revenue from the Loan Systems and Servicing segment was $53.8 million for the fourth quarter of 2016, compared with $56.7 million for the same period in 2015.

During the fourth quarter of 2016, the company had no guaranty servicing and collection revenue. The company's guaranty servicing and collection revenue previously came from two guaranty servicing clients, but one contract expired on October 31, 2015, and the other client exited the guaranty business at the end of its contract term on June 30, 2016. Revenue from these clients was $9.6 million for the fourth quarter of 2015.

As of December 31, 2016, the company was servicing $162.5 billion of loans for the U.S. Department of Education (Department), compared with $147.3 billion of loans as of December 31, 2015. Revenue from this contract increased 16 percent to $39.3 million for the fourth quarter of 2016, up from $33.9 million for the same period a year ago. The growth in government servicing revenue partially offset the loss of guaranty servicing and collection revenue.

In April 2016, the Department's Office of Federal Student Aid released information regarding a new contract procurement process for the Department to acquire a single servicing system platform with multiple customer service providers to manage all federal student loans owned by the Department.  The contract solicitation process is divided into two phases.

On May 6, 2016, the company and Great Lakes Educational Loan Services, Inc. (Great Lakes) submitted a joint response to Phase I as part of a newly created joint venture to respond to the contract solicitation process and to provide services under the new contract if awarded the contract by the Department. The joint venture operates as a new legal entity called GreatNet Solutions, LLC (GreatNet). The company and Great Lakes each own 50 percent of the ownership interests of GreatNet. In addition to the company, Great Lakes is one of four private sector companies (referred to as Title IV Additional Servicers, or TIVAS) that currently has a student loan servicing contract with the Department to provide servicing for loans owned by the Department. On June 30, 2016, the Department announced that GreatNet and the two other TIVAS were selected to respond to Phase II of the procurement selection process. On January 6, 2017, GreatNet submitted its Phase II response to the Department and is currently awaiting announcement from the new administration on the next steps in the procurement process.

Tuition Payment Processing and Campus Commerce

For the fourth quarter of 2016, revenue from the Tuition Payment Processing and Campus Commerce segment was $30.5 million, an increase of $3.0 million, or 11 percent, from the same period in 2015. The increase in revenue was primarily driven by growth in managed tuition payment plans, transaction and payments volume, and new school customers. This operating segment serves more than 10 million students and families at nearly 13,500 K-12 schools and 970 colleges and universities.

Communications

In March 2016, ALLO Communications began the build-out of its fiber optic network in Lincoln, Nebraska, resulting in capital expenditures of $38.8 million in 2016, including $14.2 million for the fourth quarter. The company anticipates total network capital expenditures of approximately $80 million in 2017; however, the amount of capital expenditures could change based on customer demand for ALLO's services.

For the fourth quarter of 2016, ALLO recognized a net loss of $2.6 million. The company anticipates this operating segment will be dilutive to consolidated earnings over the next several years as it continues to build its network in Lincoln, Nebraska, due to large upfront capital expenditures and associated depreciation and upfront customer acquisition costs. ALLO's management uses earnings before interest, income taxes, depreciation, and amortization (EBITDA) to eliminate certain non-cash and non-operating items in order to consistently measure performance from period to period. For the fourth quarter of 2016, ALLO had negative EBITDA of $1.7 million. For additional information on this non-GAAP metric, including a reconciliation to ALLO's GAAP net loss, see "Non-GAAP Performance Measures" below.

Liquidity and Capital Activities

For the year ended December 31, 2016, the company generated $325.3 million in net cash provided by operating activities. As of December 31, 2016, the company had cash and cash equivalents of $69.7 million. In addition, the company had a portfolio of available-for-sale and trading investments, consisting primarily of student loan asset-backed securities, with a fair value of $106.6 million as of December 31, 2016.

The company intends to use its liquidity position to capitalize on market opportunities, including student loan acquisitions; strategic acquisitions and investments; expansion of ALLO's telecommunications network; and capital management initiatives, including stock repurchases, debt repurchases, and dividend distributions. The timing and size of these opportunities will vary and will have a direct impact on the company's cash and investment balances.

During 2016, the company repurchased a total of 2,038,368 shares of Class A common stock for $69.1 million ($33.90 per share), including 225,776 shares of Class A common stock purchased during the fourth quarter of 2016 for $8.9 million ($39.63 per share). Weighted average common shares outstanding for the fourth quarter of 2016 was 42.3 million, compared with 44.8 million for the same period in 2015.

On January 23, 2017, the company initiated a cash tender offer to purchase its outstanding unsecured hybrid securities. In February 2017, the company paid $24.6 million to redeem $29.2 million in aggregate principal amount of notes. After the completion of this tender offer, the company has $21.0 million of hybrid securities that remain outstanding.

Year-End Results

GAAP net income for the year ended December 31, 2016 was $256.8 million, or $6.02 per share, compared with GAAP net income of $268.0 million, or $5.89 per share, for 2015. Net income, excluding derivative market value and foreign currency adjustments, in 2016 was $212.3 million, or $4.97 per share, compared with $250.2 million, or $5.50 per share, for 2015. For additional

information on these non-GAAP metrics, including reconciliations to GAAP net income, see "Non-GAAP Performance Measures" below.

Non-GAAP Performance Measures

A reconciliation of the company's GAAP net income to net income, excluding derivative market value and foreign currency adjustments, is provided below.

	Three months ended December 31,					Year ended December 31,
	2016			2015		2016		2015
	(dollars in thousands, except share data)
GAAP net income attributable to Nelnet, Inc.	$	98,346		83,350		256,751		267,979
Derivative market value and foreign currency adjustments	(86,844		)	(39,350	)	(71,744	)	(28,651	)
Tax effect	33,001			14,953		27,263		10,887
Net income, excluding derivative market value and foreign currency adjustments	$	44,503		58,953		212,270		250,215
Earnings per share:
GAAP net income attributable to Nelnet, Inc.	$	2.32		1.86		6.02		5.89
Derivative market value and foreign currency adjustments	(2.05		)	(0.88	)	(1.68	)	(0.63	)
Tax effect	0.78			0.33		0.63		0.24
Net income, excluding derivative market value and foreign currency adjustments	$	1.05		1.31		4.97		5.50

The company provides additional non-GAAP financial information related to specific items management believes to be important in the evaluation of its operating results and performance, including specifically, the impact of unrealized gains and losses resulting from changes in fair values of derivative instruments that do not qualify for “hedge treatment” under GAAP and foreign currency transaction gains or losses resulting from the re-measurement of the company's Euro-denominated bonds to U.S. dollars. The company believes these point-in-time estimates of asset and liability values related to these financial instruments that are subject to interest and currency rate fluctuations are subject to volatility mostly due to timing and market factors beyond the control of management, and affect the period-to-period comparability of the results of operations. Accordingly, the company's management utilizes operating results excluding these items for comparability purposes when making decisions regarding the company's performance and in presentations with credit rating agencies, lenders, and investors. Consequently, the company reports this non-GAAP information because the company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance. The tax effects of the derivative market value and foreign currency adjustments are calculated by multiplying those adjustments by the applicable statutory income tax rate.

A reconciliation of ALLO's GAAP net loss to earnings (loss) before net interest, income taxes, depreciation, and amortization (EBITDA), is provided below.

	Three months ended December 31, 2016
	(dollars in thousands)
Net loss	$	(2,599	)
Net interest expense	600
Income tax benefit	(1,593		)
Depreciation and amortization	1,923
Earnings (loss) before interest, income taxes, depreciation, and amortization (EBITDA)	$	(1,669	)

EBITDA is a supplemental non-GAAP performance measure that is frequently used in capital-intensive industries such as telecommunications. ALLO's management uses EBITDA to compare ALLO's performance to that of its competitors and to eliminate certain non-cash and non-operating items in order to consistently measure performance from period to period. EBITDA

excludes interest and income taxes because these items are associated with a company's particular capitalization and tax structures. EBITDA also excludes depreciation and amortization expense because these non-cash expenses primarily reflect the impact of historical capital investments, as opposed to the cash impacts of capital expenditures made in recent periods, which may be evaluated through cash flow measures. The company reports EBITDA for ALLO because the company believes that it provides useful additional information for investors regarding a key metric used by management to assess ALLO's performance. There are limitations to using EBITDA as a performance measure, including the difficulty associated with comparing companies that use similar performance measures whose calculations may differ from ALLO's calculations. In addition, EBITDA should not be considered a substitute for other measures of financial performance, such as net income or any other performance measures derived in accordance with GAAP.

Forward-Looking and Cautionary Statements

This press release contains forward-looking statements within the meaning of federal securities laws. These statements are based on management's current expectations as of the date of this release and are subject to known and unknown risks and uncertainties that may cause actual results or performance to differ materially from those expressed or implied by the forward-looking statements. Such risks include, but are not limited to: risks related to the company's student loan portfolio, such as interest rate basis and repricing risk and changes in levels of student loan repayment or default rates; the use of derivatives to manage exposure to interest rate fluctuations; the uncertain nature of expected benefits from Federal Family Education Loan Program (FFELP) and private education loan purchases and initiatives to purchase additional FFELP and private education loans; financing and liquidity risks, including risks of changes in the securitization and other financing markets for student loans; risks related to adverse changes in the company's volumes under the company’s loan servicing contract with the Department to service federally owned student loans; risks related to the Department's initiative to procure a new contract for federal student loan servicing to acquire a single servicing platform to service all loans owned by the Department, including the risk that the company's joint venture with Great Lakes may not be awarded the contract; risks and uncertainties from changes in the educational credit and services marketplace resulting from changes in applicable laws, regulations, and government programs and budgets, such as the expected decline over time in FFELP loan interest income and fee-based revenues due to the discontinuation of new FFELP loan originations in 2010 and the resulting initiatives by the company to adjust to a post-FFELP environment; the uncertain nature of the expected benefits from the acquisition of ALLO and the ability to successfully integrate its communications operations and successfully expand its fiber network in existing service areas and additional communities and manage related construction risks; risks and uncertainties related to initiatives to pursue additional strategic investments and acquisitions, including investments and acquisitions that are intended to diversify the company both within and outside of its historical core education-related businesses; and changes in general economic and credit market conditions.

For more information, see the "Risk Factors" sections and other cautionary discussions of risks and uncertainties included in documents filed or furnished by the company with the Securities and Exchange Commission, including the cautionary information about forward-looking statements contained in the company's supplemental financial information for the fourth quarter ended December 31, 2016. All forward-looking statements in this release are as of the date of this release. Although the company may voluntarily update or revise its forward-looking statements from time to time 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.

(code #: nnif)

Consolidated Statements of Income

(Dollars in thousands, except share data)

(unaudited)

	Three months ended							Year ended
	December 31, 2016			September 30, 2016		December 31, 2015		December 31, 2016		December 31, 2015
Interest income:
Loan interest	$	183,505		193,721		190,778		751,280		726,258
Investment interest	2,792			2,460		2,303		9,466		7,851
Total interest income	186,297			196,181		193,081		760,746		734,109
Interest expense:
Interest on bonds and notes payable	107,337			96,386		80,866		388,183		302,210
Net interest income	78,960			99,795		112,215		372,563		431,899
Less provision for loan losses	3,000			6,000		3,000		13,500		10,150
Net interest income after provision for loan losses	75,960			93,795		109,215		359,063		421,749
Other income:
Loan systems and servicing revenue	53,764			54,350		56,694		214,846		239,858
Tuition payment processing, school information, and campus commerce revenue	30,519			33,071		27,560		132,730		120,365
Communications revenue	4,492			4,343		—		17,659		—
Enrollment services revenue	—			—		11,279		4,326		51,073
Other income	15,218			15,150		11,587		53,929		47,262
Gain on sale of loans and debt repurchases, net	5,720			2,160		166		7,981		5,153
Derivative market value and foreign currency adjustments, net	86,844			42,262		39,350		71,744		28,651
Derivative settlements, net	(3,657		)	(6,261	)	(7,715	)	(21,949	)	(24,250	)
Total other income	192,900			145,075		138,921		481,266		468,112
Operating expenses:
Salaries and benefits	68,017			63,743		64,862		255,924		247,914
Depreciation and amortization	9,116			8,994		7,203		33,933		26,343
Loan servicing fees	5,726			5,880		7,384		25,750		30,213
Cost to provide communications services	1,697			1,784		—		6,866		—
Cost to provide enrollment services	—			—		9,190		3,623		41,733
Other expenses	31,245			26,391		28,584		115,419		123,014
Total operating expenses	115,801			106,792		117,223		441,515		469,217
Income before income taxes	153,059			132,078		130,913		398,814		420,644
Income tax expense	54,128			47,715		47,395		141,313		152,380
Net income	98,931			84,363		83,518		257,501		268,264
Net income attributable to noncontrolling interests	585			69		168		750		285
Net income attributable to Nelnet, Inc.	$	98,346		84,294		83,350		256,751		267,979
Earnings per common share:
Net income attributable to Nelnet, Inc. shareholders - basic and diluted	$	2.32		1.98		1.86		6.02		5.89
Weighted average common shares outstanding - basic and diluted	42,314,467			42,642,213		44,834,662		42,669,070		45,529,340

Condensed Consolidated Balance Sheets

(Dollars in thousands)

(unaudited)

	As of		As of	As of
	December 31, 2016		September 30, 2016	December 31, 2015
Assets:
Student loans receivable, net	$	24,903,724	25,615,434	28,324,552
Cash, cash equivalents, investments, and notes receivable	323,798		324,682	367,210
Restricted cash	1,100,663		964,379	977,395
Goodwill and intangible assets, net	195,125		198,276	197,062
Other assets	656,798		566,840	552,925
Total assets	$	27,180,108	27,669,611	30,419,144
Liabilities:
Bonds and notes payable	$	24,668,490	25,320,878	28,105,921
Other liabilities	440,693		367,637	421,065
Total liabilities	25,109,183		25,688,515	28,526,986
Equity:
Total Nelnet, Inc. shareholders' equity	2,061,655		1,972,085	1,884,432
Noncontrolling interests	9,270		9,011	7,726
Total equity	2,070,925		1,981,096	1,892,158
Total liabilities and equity	$	27,180,108	27,669,611	30,419,144

Contacts:

Media, Ben Kiser, 402.458.3024, or Investors, Phil Morgan, 402.458.3038, both of Nelnet, Inc.

EX-99.2

For Release:February 27, 2017

Investor Contact: Phil Morgan, 402.458.3038

Nelnet, Inc. supplemental financial information for the fourth quarter 2016

(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 fourth quarter 2016 earnings, dated February 27, 2017, and the Company's Annual Report on Form10-K for the year ended December 31, 2016 (the "2016 Annual Report").

Forward-looking and cautionary statements

This 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 factors include, among others, the risks and uncertainties set forth in the “Risk Factors” section of the Company's 2016 Annual Report and elsewhere in this supplement, and include such risks and uncertainties as:

• student loan portfolio risks such as interest rate basis and repricing risk resulting from the fact that the interest rate characteristics of the 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 Federal Family Education Loan Program (the "FFEL Program" or "FFELP"), risks related to the use of derivatives to manage exposure to interest rate fluctuations, uncertainties regarding the expected benefits from purchased securitized and unsecuritized FFELP student loans and initiatives to purchase additional FFELP and private education loans, and risks from changes in levels of student loan prepayment or default rates;

• financing and liquidity risks, including risks of changes in the general interest rate environment and in the securitization and other financing markets for student loans, including adverse changes resulting from slower than expected payments on student loans in FFELP securitization trusts, which may increase the costs or limit the availability of financings necessary to purchase, refinance, or continue to hold student loans;

• risks from changes in the educational credit and services markets resulting from changes in applicable laws, regulations, and government programs and budgets, such as the expected decline over time in FFELP loan interest income and fee-based revenues due to the discontinuation of new FFELP loan originations in 2010 and potential government initiatives or legislative proposals to consolidate existing FFELP loans to the Federal Direct Loan Program or otherwise allow FFELP loans to be refinanced with Federal Direct Loan Program loans, risks related to adverse changes in the Company's volumes allocated under the Company's loan servicing contract with the U.S. Department of Education (the "Department"), which accounted for approximately 20 percent of the Company's revenue in 2016, risks related to the Department's initiative to procure a new contract for federal student loan servicing to acquire a single servicing platform to service all loans owned by the Department, including the risk that the Company's joint venture with Great Lakes Educational Loan Services, Inc. ("Great Lakes") may not be awarded the contract, and risks related to the Company's ability to comply with agreements with third-party customers for the servicing of FFELP, Federal Direct Loan Program, and private education and consumer loans;

• risks related to a breach of or failure in the Company's operational or information systems or infrastructure, or those of third-party vendors, including cybersecurity risks related to the potential disclosure of confidential student loan borrower and other customer information;

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

• the uncertain nature of the expected benefits from the acquisition of Allo Communications LLC and the ability to integrate its communications operations and successfully expand its fiber network in existing service areas and additional communities and manage related construction risks;

• risks and uncertainties related to initiatives to pursue additional strategic investments and acquisitions, including investments and acquisitions that are intended to diversify the Company both within and outside of its historical core education-related businesses; and

• risks and uncertainties associated with litigation matters and with maintaining compliance with the extensive regulatory requirements applicable to the Company's businesses, reputational and other risks, including the risk of increased regulatory costs, resulting from the recent politicization of student loan servicing, 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 supplement 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.

1

Consolidated Statements of Income

(Dollars in thousands, except share data)

(unaudited)

	Three months ended							Year ended
	December 31, 2016			September 30, 2016		December 31, 2015		December 31, 2016		December 31, 2015
Interest income:
Loan interest	$	183,505		193,721		190,778		751,280		726,258
Investment interest	2,792			2,460		2,303		9,466		7,851
Total interest income	186,297			196,181		193,081		760,746		734,109
Interest expense:
Interest on bonds and notes payable	107,337			96,386		80,866		388,183		302,210
Net interest income	78,960			99,795		112,215		372,563		431,899
Less provision for loan losses	3,000			6,000		3,000		13,500		10,150
Net interest income after provision for loan losses	75,960			93,795		109,215		359,063		421,749
Other income:
Loan systems and servicing revenue	53,764			54,350		56,694		214,846		239,858
Tuition payment processing, school information, and campus commerce revenue	30,519			33,071		27,560		132,730		120,365
Communications revenue	4,492			4,343		—		17,659		—
Enrollment services revenue	—			—		11,279		4,326		51,073
Other income	15,218			15,150		11,587		53,929		47,262
Gain on sale of loans and debt repurchases, net	5,720			2,160		166		7,981		5,153
Derivative market value and foreign currency adjustments, net	86,844			42,262		39,350		71,744		28,651
Derivative settlements, net	(3,657		)	(6,261	)	(7,715	)	(21,949	)	(24,250	)
Total other income	192,900			145,075		138,921		481,266		468,112
Operating expenses:
Salaries and benefits	68,017			63,743		64,862		255,924		247,914
Depreciation and amortization	9,116			8,994		7,203		33,933		26,343
Loan servicing fees	5,726			5,880		7,384		25,750		30,213
Cost to provide communications services	1,697			1,784		—		6,866		—
Cost to provide enrollment services	—			—		9,190		3,623		41,733
Other expenses	31,245			26,391		28,584		115,419		123,014
Total operating expenses	115,801			106,792		117,223		441,515		469,217
Income before income taxes	153,059			132,078		130,913		398,814		420,644
Income tax expense	54,128			47,715		47,395		141,313		152,380
Net income	98,931			84,363		83,518		257,501		268,264
Net income attributable to noncontrolling interests	585			69		168		750		285
Net income attributable to Nelnet, Inc.	$	98,346		84,294		83,350		256,751		267,979
Earnings per common share:
Net income attributable to Nelnet, Inc. shareholders - basic and diluted	$	2.32		1.98		1.86		6.02		5.89
Weighted average common shares outstanding - basic and diluted	42,314,467			42,642,213		44,834,662		42,669,070		45,529,340

2

Condensed Consolidated Balance Sheets

(Dollars in thousands)

(unaudited)

	As of		As of	As of
	December 31, 2016		September 30, 2016	December 31, 2015
Assets:
Student loans receivable, net	$	24,903,724	25,615,434	28,324,552
Cash, cash equivalents, investments, and notes receivable	323,798		324,682	367,210
Restricted cash	1,100,663		964,379	977,395
Goodwill and intangible assets, net	195,125		198,276	197,062
Other assets	656,798		566,840	552,925
Total assets	$	27,180,108	27,669,611	30,419,144
Liabilities:
Bonds and notes payable	$	24,668,490	25,320,878	28,105,921
Other liabilities	440,693		367,637	421,065
Total liabilities	25,109,183		25,688,515	28,526,986
Equity:
Total Nelnet, Inc. shareholders' equity	2,061,655		1,972,085	1,884,432
Noncontrolling interests	9,270		9,011	7,726
Total equity	2,070,925		1,981,096	1,892,158
Total liabilities and equity	$	27,180,108	27,669,611	30,419,144

3

Overview

The Company is a diverse company with a focus on delivering education-related products and services and student loan asset management. The largest operating businesses engage in student loan servicing, tuition payment processing and school information systems, and communications. A significant portion of the Company's revenue is net interest income earned on a portfolio of federally insured student loans. The Company also makes investments to further diversify the Company both within and outside of its historical core education-related businesses, including, but not limited to, investments in real estate and start-up ventures.

GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments

A reconciliation of the Company's GAAP net income to net income, excluding derivative market value and foreign currency adjustments, is provided below.

	Three months ended							Year ended December 31,
	December 31, 2016			September 30, 2016		December 31, 2015		2016		2015
GAAP net income attributable to Nelnet, Inc.	$	98,346		84,294		83,350		256,751		267,979
Derivative market value and foreign currency adjustments	(86,844		)	(42,262	)	(39,350	)	(71,744	)	(28,651	)
Tax effect (a)	33,001			16,060		14,953		27,263		10,887
Net income, excluding derivative market value and foreign currency adjustments (b)	$	44,503		58,092		58,953		212,270		250,215
Earnings per share:
GAAP net income attributable to Nelnet, Inc.	$	2.32		1.98		1.86		6.02		5.89
Derivative market value and foreign currency adjustments	(2.05		)	(0.99	)	(0.88	)	(1.68	)	(0.63	)
Tax effect (a)	0.78			0.37		0.33		0.63		0.24
Net income, excluding derivative market value and foreign currency adjustments (b)	$	1.05		1.36		1.31		4.97		5.50

(a) The tax effects are calculated by multiplying the derivative market value and foreign currency adjustments by the applicable statutory income tax rate.

(b) The Company provides additional non-GAAP financial information related to specific items management believes to be important in the evaluation of its operating results and performance. "Derivative market value and foreign currency adjustments" include (i) the unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP; and (ii) the foreign currency transaction gains or losses caused by the re-measurement of the Company's Euro-denominated bonds to U.S. dollars. The Company believes these point-in-time estimates of asset and liability values related to these financial instruments that are subject to interest and currency rate fluctuations are subject to volatility mostly due to timing and market factors beyond the control of management, and affect the period-to-period comparability of the results of operations. Accordingly, the Company’s management utilizes operating results excluding these items for comparability purposes when making decisions regarding the Company’s performance and in presentations with credit rating agencies, lenders, and investors. Consequently, the Company reports this non-GAAP information because the Company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance.

In the third quarter of 2016, the Company revised its policy to correct for an error in its method of applying the interest method used to amortize premiums and accrete discounts on its student loan portfolio. Previously, the Company amortized premiums and accreted discounts by including in its prepayment assumption forecasted payments in excess of contractually required payments as well as forecasted defaults. The Company has determined that only payments in excess of contractually required payments should be included in the prepayment assumption. Under the Company's revised policy, as of September 30, 2016, the constant prepayment rate used by the Company to amortize/accrete student loan premiums/discounts was decreased. During the third quarter of 2016, the Company recorded an adjustment to reflect the net impact on prior periods for the correction of this error that resulted in an $8.2 million reduction to the Company's net loan discount balance and a corresponding pre-tax increase to interest income ($5.1 million, or $0.12 per share, after tax). The Company concluded this error had an immaterial impact on 2016 results as well as the results for prior periods.

During the fourth quarter of 2016, the Company redeemed certain debt securities prior to their legal maturity and recognized $7.4 million, or $4.6 million ($0.11 per share) after tax, in interest expense to write off the remaining debt discount associated with these bonds.

4

Operating Results

The Company earns net interest income on its FFELP student loan portfolio in its Asset Generation and Management ("AGM") operating segment. This segment is expected to generate a stable net interest margin and significant amounts of cash as the FFELP portfolio amortizes. As of December 31, 2016, the Company had a $24.9 billion student loan portfolio that will amortize over the next approximately 25 years. The Company actively seeks to acquire FFELP loan portfolios to leverage its servicing scale and expertise to generate incremental earnings and cash flow.

In addition, the Company earns fee-based revenue through the following reportable operating segments:

• Loan Systems and Servicing ("LSS") - referred to as Nelnet Diversified Solutions ("NDS")

• Tuition Payment Processing and Campus Commerce ("TPP&CC") - referred to as Nelnet Business Solutions ("NBS")

• Communications - referred to as Allo Communications ("Allo")

Other business activities and operating segments that are not reportable are combined and included in Corporate and Other Activities ("Corporate"). Corporate and Other Activities also includes income earned on certain investments and interest expense incurred on unsecured debt transactions.

Prior to January 1, 2016, the Company allocated certain corporate overhead expenses that are incurred within the Corporate and Other Activities segment to the other operating segments. These expenses included certain corporate activities related to executive management, internal audit, enterprise risk management, and other costs incurred by the Company due to corporate-wide initiatives. Effective January 1, 2016, internal reporting to executive management (the "chief operating decision maker") changed to eliminate the allocation of these expenses to the other segments. Management believes the change in its allocation methodology results in a better reflection of the operating results of each of the reportable segments as if they each operated as a standalone business entity, which also reflects how management evaluates the performance of the segments. Prior period segment operating results have been restated to conform to the current period presentation.

The information below provides the operating results for each reportable operating segment and Corporate and Other Activities for the years ended December 31, 2016, 2015, and 2014 (dollars in millions).

(a) Revenue includes intersegment revenue earned by LSS as a result of servicing loans for AGM.

(b) Total revenue includes "net interest income after provision for loan losses" and "total other income" from the Company's segment statements of income, excluding the impact from changes in fair values of derivatives and foreign currency transaction adjustments. Net income excludes changes in fair values of derivatives and foreign currency transaction adjustments, net of tax. For information regarding the exclusion of the impact from changes in fair values of derivatives and foreign currency transaction adjustments, see "GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above.

(c) Computed as income before income taxes divided by total revenue.

5

The Company’s current outlook for 2017-2019 operating results is that the Company believes that net income for those years will be at decreased levels compared to 2016, due to the continued amortization of the Company’s FFELP loan portfolio and anticipated increases in interest rates. The Company currently believes that in the short-term it will most likely not be able to invest the excess cash generated from the FFELP loan portfolio into assets that immediately generate the rates of return historically realized from that portfolio. In addition, the Company currently anticipates Allo's operating results will be dilutive to the Company's consolidated earnings over the next several years as it continues to build its network in Lincoln, Nebraska, due to large upfront capital expenditures and associated depreciation and upfront customer acquisition costs.

A summary of the results and financial highlights for each reportable operating segment and a summary of the Company's liquidity and capital resources follows.

Loan Systems and Servicing

• As of December 31, 2016, the Company was servicing $194.8 billion in FFELP, private, and government owned student loans, as compared with $176.4 billion and $161.6 billion of loans as of December 31, 2015 and 2014, respectively. The year over year increase was due to an increase in government and private loan servicing volume.

• Revenue decreased in 2016 compared to 2015 and 2015 compared to 2014 due primarily to the loss of two guaranty servicing and collection clients. The Company's guaranty servicing and collection revenue was earned from two guaranty clients, and a significant amount of such revenue came from one of those clients. The contract with this client expired on October 31, 2015. The other guaranty servicing and collection client exited the FFELP guaranty business at the end of their contract term on June 30, 2016. After this customer's exit from the FFELP guaranty business effective June 30, 2016, the Company has no remaining guaranty revenue. FFELP guaranty servicing and FFELP guaranty collection revenue recognized by the Company from these clients for the years ended December 31, 2016, 2015, and 2014, was $9.6 million, $56.9 million, and $66.7 million, respectively. The decrease in revenue was partially offset by an increase in government and private servicing revenue.

• Revenue from the government servicing contract increased to $151.7 million in 2016 compared to $133.2 million and $124.4 million in 2015 and 2014, respectively. The increase in 2016 compared to 2015 was due to a shift in the portfolio of loans serviced to a greater portion of loans in higher paying repayment statuses, an increase in billable applications for TPD borrowers due to a new change request matching eligible borrowers to the social security administration database, and the transfer of borrowers from a not-for-profit servicer who exited the loan servicing business in August 2016. The increase in 2015 compared to 2014 was due to an increase in the number of borrowers serviced under the government servicing contract.

• In April 2016, the Department's Office of Federal Student Aid released information regarding a new contract procurement process for the Department to acquire a single servicing system platform with multiple customer service providers to manage all student loans owned by the Department.  The contract solicitation process is divided into two phases.

On May 6, 2016, the Company and Great Lakes submitted a joint response to Phase I as part of a newly created joint venture to respond to the contract solicitation process and to provide services under the new contract in the event that the Department selects it to be awarded with the contract. The joint venture will operate as a new legal entity called GreatNet Solutions, LLC ("GreatNet"). The Company and Great Lakes each own 50 percent of the ownership interests of GreatNet. In addition to the Company, Great Lakes is also one of four TIVAS that currently has a student loan servicing contract with the Department to provide servicing for loans owned by the Department. GreatNet was one of three entities selected to respond to Phase II of the procurement selection process. On January 6, 2017, GreatNet submitted its Phase II response to the Department and is currently awaiting announcement from the new administration on the next steps in the procurement process.

Tuition Payment Processing and Campus Commerce

• Revenue increased in 2016 and 2015, compared to 2015 and 2014, respectively, due to increases in the number of managed tuition payment plans, campus commerce customer transaction volume, and new school customers. In addition, the Company purchased RenWeb on June 3, 2014, which contributed revenue of $8.8 million, $19.9 million, and $23.2 million in 2014, 2015, and 2016, respectively.

6

Communications

• On December 31, 2015, the Company purchased the majority of the ownership interests of Allo for total cash consideration of $46.25 million.  On January 1, 2016, the Company sold a 1.0 percent ownership interest in Allo to a non-related third-party for $0.5 million. The remaining 7.5 percent of the ownership interests of Allo is owned by members of Allo management, who have the opportunity to earn an additional 11.5 percent (up to 19 percent) of the total ownership interests based on the financial performance of Allo.  The Allo assets acquired and liabilities assumed were recorded by the Company at their respective estimated fair values at the date of acquisition, and such assets and liabilities were included in the Company's balance sheet as of December 31, 2015.  However, Allo had no impact on the consolidated statement of income for 2015.  On January 1, 2016, the Company began to reflect the operations of Allo in the consolidated statements of income.

• For the year ended December 31, 2016, the operating segment recorded a net loss of $5.9 million. The Company anticipates this operating segment will be dilutive to consolidated earnings over the next several years as it continues to build its network in Lincoln, Nebraska, due to large upfront capital expenditures and associated depreciation and upfront customer acquisition costs.

• The Company anticipates total network capital expenditures of approximately $80 million in 2017; however, such amount could change based on customer demand for Allo's services. For the year ended December 31, 2016, Allo's capital expenditures were $38.8 million.

Asset Generation and Management

• During the year ended December 31, 2016 compared to the same period in 2015, the average balance of the Company's student loan portfolio decreased $1.8 billion, to $26.9 billion, due primarily to the amortization of the portfolio, and limited portfolio acquisitions from third parties. The Company acquired $356.1 million of FFELP and private education student loans during 2016, compared to $4.0 billion in 2015 and $6.1 billion in 2014.

• Core student loan spread decreased to 1.28% for 2016, compared to 1.43% for 2015. This decrease was a result of decreases in variable student loan spread and fixed rate floor income. Variable student loan spread decreased due to a widening in the basis between the asset and debt indices in which the Company earns interest on its loans and funds such loans. Fixed rate floor income decreased due to an increase in interest rates.

• Due to historically low interest rates, the Company continues to earn significant fixed rate floor income. During 2016, 2015, and 2014, the Company earned $152.3 million, $184.7 million, and $179.9 million, respectively, of fixed rate floor income (net of $17.6 million, $23.0 million, and $24.4 million of derivative settlements, respectively, used to hedge such loans).

Corporate and Other Activities

• Whitetail Rock Capital Management, LLC, the Company's SEC-registered investment advisory subsidiary, recognized investment advisory revenue of $6.1 million, $4.3 million, and $17.7 million for 2016, 2015, and 2014, respectively. These amounts include performance fees earned from the sale of managed securities or managed securities being called prior to the full contractual maturity. Due to improvements in the capital markets, the opportunities to earn performance fees on the sale of student loan asset-backed securities were more limited in 2016 and 2015 as compared to 2014.

• On February 1, 2016, the Company sold 100 percent of the membership interests in Sparkroom LLC, which includes the majority of the Company's inquiry management products and services within Nelnet Enrollment Services. The Company retained the digital marketing and content solution products and services under the brand name Peterson's within the Nelnet Enrollment Services business, which include test preparation study guides, school directories and databases, career exploration guides, on-line courses, scholarship search and selection data, career planning information and guides, and on-line information about colleges and universities. The Company reclassified the revenue and cost of goods sold attributable to the Peterson's products and services from "enrollment services revenue" and "cost to provide enrollment services" to "other income" and "other expenses," respectively, on the consolidated statements of income. After this reclassification, "enrollment services revenue" and "cost to provide enrollment services" include the operating results of the products and services sold as part of the Sparkroom disposition for all periods presented. These reclassifications had no effect on consolidated net income.

7

Liquidity and Capital Resources

• As of December 31, 2016, the Company had cash and cash equivalents of $69.7 million. In addition, the Company had a portfolio of available-for-sale and trading investments, consisting primarily of student loan asset-backed securities, with a fair value of $106.6 million as of December 31, 2016.

• For the year ended December 31, 2016, the Company generated $325.3 million in net cash provided by operating activities.

• Forecasted undiscounted future cash flows from the Company's student loan portfolio financed in asset-backed securitization transactions are estimated to be approximately $2.07 billion as of December 31, 2016.

• As of December 31, 2016, no amounts were outstanding on the Company's unsecured line of credit and $350.0 million was available for future use. The unsecured line of credit has a maturity date of December 12, 2021.

• During 2016, the Company repurchased a total of 2,038,368 shares of Class A common stock for $69.1 million ($33.90 per share).

• During 2016, the Company paid cash dividends of $21.2 million ($0.50 per share).

• The Company intends to use its liquidity position to capitalize on market opportunities, including FFELP and private education loan acquisitions; strategic acquisitions and investments; expansion of Allo's telecommunications network; and capital management initiatives, including stock repurchases, debt repurchases, and dividend distributions. The timing and size of these opportunities will vary and will have a direct impact on the Company's cash and investment balances.

Operating Segments

As discussed previously, the Company has four reportable operating segments. The Company's reportable operating segments include:

• Loan Systems and Servicing

• Tuition Payment Processing and Campus Commerce

• Communications

• Asset Generation and Management

The Company earns fee-based revenue through its Loan Systems and Servicing, Tuition Payment Processing, and Communications operating segments. In addition, the Company earns 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 and the types of customers they serve, and they reflect the manner in which financial information is currently evaluated by management. See note 1 of the notes to consolidated financial statements included in the 2016 Annual Report for a description of each operating segment, including the primary products and services offered.

The management reporting process measures the performance of the Company’s operating segments based on the management structure of the Company, as well as the methodology used by management to evaluate performance and allocate resources. Executive management (the "chief operating decision maker") evaluates the performance of the Company’s operating segments based on their financial results prepared in conformity with U.S. GAAP.  

Intersegment revenues are charged by a segment that provides a product or service to another segment.  Intersegment revenues and expenses are included within each segment consistent with the income statement presentation provided to management.  Income taxes are allocated based on 38% of income before taxes for each individual operating segment. The difference between the consolidated income tax expense and the sum of taxes calculated for each operating segment is included in income taxes in Corporate and Other Activities.

Corporate and Other Activities

Other business activities and operating segments that are not reportable are combined and included in Corporate and Other Activities. Corporate and Other Activities includes the following items:

• Income earned on certain investment activities

• Interest expense incurred on unsecured debt transactions

8

• Other product and service offerings that are not considered reportable operating segments including, but not limited to, WRCM, the SEC-registered investment advisory subsidiary, and the Enrollment Services business

Corporate and Other Activities also includes certain corporate activities and overhead functions related to executive management, internal audit, human resources, accounting, legal, enterprise risk management, information technology, occupancy, and marketing. These costs are allocated to each operating segment based on estimated use of such activities and services.

Segment Results of Operations

The following tables include the results of each of the Company's reportable operating segments reconciled to the consolidated financial statements.

	Three months ended December 31, 2016
	Loan Systems and Servicing			Tuition Payment Processing and Campus Commerce		Communications		Asset Generation and Management		Corporate and Other Activities		Eliminations		Total
Total interest income	$	31		2		—		184,398		4,386		(2,520	)	186,297
Interest expense	—			—		600		107,883		1,373		(2,520	)	107,337
Net interest income	31			2		(600	)	76,515		3,013		—		78,960
Less provision for loan losses	—			—		—		3,000		—		—		3,000
Net interest income (loss) after provision for loan losses	31			2		(600	)	73,515		3,013		—		75,960
Other income:
Loan systems and servicing revenue	53,764			—		—		—		—		—		53,764
Intersegment servicing revenue	10,945			—		—		—		—		(10,945	)	—
Tuition payment processing, school information, and campus commerce revenue	—			30,519		—		—		—		—		30,519
Communications revenue	—			—		4,492		—		—		—		4,492
Other income	—			—		—		3,348		11,871		—		15,218
Gain on sale of loans and debt repurchases, net	—			—		—		3,585		2,135		—		5,720
Derivative market value and foreign currency adjustments, net	—			—		—		79,132		7,712		—		86,844
Derivative settlements, net	—			—		—		(3,439	)	(219	)	—		(3,657	)
Total other income	64,709			30,519		4,492		82,626		21,499		(10,945	)	192,900
Operating expenses:
Salaries and benefits	35,221			16,470		2,857		481		12,987		—		68,017
Depreciation and amortization	540			2,884		1,923		—		3,770		—		9,116
Loan servicing fees	—			—		—		5,726		—		—		5,726
Cost to provide communications services	—			—		1,697		—		—		—		1,697
Other expenses	9,080			5,364		1,260		1,238		14,303		—		31,245
Intersegment expenses, net	6,036			1,925		347		11,702		(9,066	)	(10,945	)	—
Total operating expenses	50,877			26,643		8,084		19,147		21,994		(10,945	)	115,801
Income (loss) before income taxes	13,863			3,878		(4,192	)	136,994		2,518		—		153,059
Income tax (expense) benefit	(5,268		)	(1,473	)	1,593		(52,057	)	3,077		—		(54,128	)
Net income (loss)	8,595			2,405		(2,599	)	84,937		5,595		—		98,931
Net loss (income) attributable to noncontrolling interests	—			—		—		—		(585	)	—		(585	)
Net income (loss) attributable to Nelnet, Inc.	$	8,595		2,405		(2,599	)	84,937		5,010		—		98,346

9

	Three months ended September 30, 2016
	Loan Systems and Servicing			Tuition Payment Processing and Campus Commerce		Communications		Asset Generation and Management		Corporate and Other Activities		Eliminations		Total
Total interest income	$	37		2		—		194,701		2,370		(930	)	196,181
Interest expense	—			—		318		95,383		1,615		(930	)	96,386
Net interest income	37			2		(318	)	99,318		755		—		99,795
Less provision for loan losses	—			—		—		6,000		—		—		6,000
Net interest income (loss) after provision for loan losses	37			3		(318	)	93,318		755		—		93,795
Other income:
Loan systems and servicing revenue	54,350			—		—		—		—		—		54,350
Intersegment servicing revenue	11,021			—		—		—		—		(11,021	)	—
Tuition payment processing, school information, and campus commerce revenue	—			33,071		—		—		—		—		33,071
Communications revenue	—			—		4,343		—		—		—		4,343
Other income	—			—		—		4,265		10,886		—		15,150
Gain on sale of loans and debt repurchases, net	—			—		—		2,160		—		—		2,160
Derivative market value and foreign currency adjustments, net	—			—		—		42,546		(284	)	—		42,262
Derivative settlements, net	—			—		—		(6,028	)	(233	)	—		(6,261	)
Total other income	65,371			33,071		4,343		42,943		10,369		(11,021	)	145,075
Operating expenses:
Salaries and benefits	32,505			15,979		2,325		486		12,448		—		63,743
Depreciation and amortization	557			2,929		1,630		—		3,878		—		8,994
Loan servicing fees	—			—		—		5,880		—		—		5,880
Cost to provide communication services	—			—		1,784		—		—		—		1,784
Other expenses	8,784			4,149		1,545		1,769		10,143		—		26,391
Intersegment expenses, net	5,825			1,616		279		11,146		(7,845	)	(11,021	)	—
Total operating expenses	47,671			24,673		7,563		19,281		18,624		(11,021	)	106,792
Income (loss) before income taxes	17,737			8,401		(3,538	)	116,980		(7,500	)	—		132,078
Income tax (expense) benefit	(6,740		)	(3,192	)	1,344		(44,571	)	5,443		—		(47,715	)
Net income (loss)	10,997			5,209		(2,194	)	72,409		(2,057	)	—		84,363
Net loss (income) attributable to noncontrolling interests	—			—		—		—		(69	)	—		(69	)
Net income (loss) attributable to Nelnet, Inc.	$	10,997		5,209		(2,194	)	72,409		(2,126	)	—		84,294

10

	Three months ended December 31, 2015 (a)
	Loan Systems and Servicing			Tuition Payment Processing and Campus Commerce		Asset Generation and Management		Corporate and Other Activities		Eliminations		Total
Total interest income	$	15		—		191,300		2,334		(568	)	193,081
Interest expense	—			—		79,604		1,830		(568	)	80,866
Net interest income	15			—		111,696		504		—		112,215
Less provision for loan losses	—			—		3,000		—		—		3,000
Net interest income after provision for loan losses	15			—		108,696		504		—		109,215
Other income:
Loan systems and servicing revenue	56,314			—		—		—		380		56,694
Intersegment servicing revenue	13,233			—		—		—		(13,233	)	—
Tuition payment processing, school information, and campus commerce revenue	—			27,560		—		—		—		27,560
Enrollment services revenue	—			—		—		11,279		—		11,279
Other income	—			(925	)	4,101		8,411		—		11,587
Gain on sale of loans and debt repurchases, net	—			—		34		132		—		166
Derivative market value and foreign currency adjustments, net	—			—		38,579		771		—		39,350
Derivative settlements, net	—			—		(7,463	)	(252	)	—		(7,715	)
Total other income	69,547			26,635		35,251		20,341		(12,853	)	138,921
Operating expenses:
Salaries and benefits	34,821			14,636		549		14,856		—		64,862
Depreciation and amortization	474			2,400		—		4,329		—		7,203
Loan servicing fees	—			—		7,384		—		—		7,384
Cost to provide enrollment services	—			—		—		9,190		—		9,190
Other expenses	13,221			3,668		1,255		10,440		—		28,584
Intersegment expenses, net	7,506			2,173		12,986		(9,811	)	(12,853	)	—
Total operating expenses	56,022			22,877		22,174		29,004		(12,853	)	117,223
Income (loss) before income taxes	13,540			3,758		121,773		(8,159	)	—		130,913
Income tax (expense) benefit	(5,145		)	(1,429	)	(46,273	)	5,452		—		(47,395	)
Net income (loss)	8,395			2,329		75,500		(2,707	)	—		83,518
Net loss (income) attributable to noncontrolling interests	15			—		—		(183	)	—		(168	)
Net income (loss) attributable to Nelnet, Inc.	$	8,410		2,329		75,500		(2,890	)	—		83,350

(a) Does not include the Communications segment, which was initiated as a result of the acquisition of Allo on December 31, 2015.

11

	Year ended December 31, 2016
	Loan Systems and Servicing			Tuition Payment Processing and Campus Commerce		Communications		Asset Generation and Management		Corporate and Other Activities		Eliminations		Total
Total interest income	$	111		9		1		754,788		10,913		(5,076	)	760,746
Interest expense	—			—		1,271		385,913		6,076		(5,076	)	388,183
Net interest income	111			9		(1,270	)	368,875		4,837		—		372,563
Less provision for loan losses	—			—		—		13,500		—		—		13,500
Net interest income (loss) after provision for loan losses	111			9		(1,270	)	355,375		4,837		—		359,063
Other income:
Loan systems and servicing revenue	214,846			—		—		—		—		—		214,846
Intersegment servicing revenue	45,381			—		—		—		—		(45,381	)	—
Tuition payment processing, school information, and campus commerce revenue	—			132,730		—		—		—		—		132,730
Communications revenue	—			—		17,659		—		—		—		17,659
Enrollment services revenue	—			—		—		—		4,326		—		4,326
Other income	—			—		—		15,709		38,221		—		53,929
Gain on sale of loans and debt repurchases, net	—			—		—		5,846		2,135		—		7,981
Derivative market value and foreign currency adjustments, net	—			—		—		70,368		1,376		—		71,744
Derivative settlements, net	—			—		—		(21,034	)	(915	)	—		(21,949	)
Total other income	260,227			132,730		17,659		70,889		45,143		(45,381	)	481,266
Operating expenses:
Salaries and benefits	132,072			62,329		7,649		1,985		51,889		—		255,924
Depreciation and amortization	1,980			10,595		6,060		—		15,298		—		33,933
Loan servicing fees	—			—		—		25,750		—		—		25,750
Cost to provide communications services	—			—		6,866		—		—		—		6,866
Cost to provide enrollment services	—			—		—		—		3,623		—		3,623
Other expenses	40,715			18,486		4,370		6,005		45,843		—		115,419
Intersegment expenses, net	24,204			6,615		958		46,494		(32,889	)	(45,381	)	—
Total operating expenses	198,971			98,025		25,903		80,234		83,764		(45,381	)	441,515
Income (loss) before income taxes	61,367			34,714		(9,514	)	346,030		(33,784	)	—		398,814
Income tax (expense) benefit	(23,319		)	(13,191	)	3,615		(131,492	)	23,074		—		(141,313	)
Net income (loss)	38,048			21,523		(5,899	)	214,538		(10,710	)	—		257,501
Net loss (income) attributable to noncontrolling interests	—			—		—		—		(750	)	—		(750	)
Net income (loss) attributable to Nelnet, Inc.	$	38,048		21,523		(5,899	)	214,538		(11,460	)	—		256,751

12

	Year ended December 31, 2015 (a)
	Loan Systems and Servicing			Tuition Payment Processing and Campus Commerce		Asset Generation and Management		Corporate and Other Activities		Eliminations		Total
Total interest income	$	49		3		728,199		7,686		(1,828	)	734,109
Interest expense	—			—		297,625		6,413		(1,828	)	302,210
Net interest income	49			3		430,574		1,273		—		431,899
Less provision for loan losses	—			—		10,150		—		—		10,150
Net interest income (loss) after provision for loan losses	49			3		420,424		1,273		—		421,749
Other income:
Loan systems and servicing revenue	239,858			—		—		—		—		239,858
Intersegment servicing revenue	50,354			—		—		—		(50,354	)	—
Tuition payment processing, school information, and campus commerce revenue	—			120,365		—		—		—		120,365
Enrollment services revenue	—			—		—		51,073		—		51,073
Other income	—			(925	)	15,939		32,248		—		47,262
Gain on sale of loans and debt repurchases, net	—			—		2,034		3,119		—		5,153
Derivative market value and foreign currency adjustments, net	—			—		27,216		1,435		—		28,651
Derivative settlements, net	—			—		(23,238	)	(1,012	)	—		(24,250	)
Total other income	290,212			119,440		21,951		86,863		(50,354	)	468,112
Operating expenses:
Salaries and benefits	134,635			55,523		2,172		55,585		—		247,914
Depreciation and amortization	1,931			8,992		—		15,420		—		26,343
Loan servicing fees	—			—		30,213		—		—		30,213
Cost to provide enrollment services	—			—		—		41,733		—		41,733
Other expenses	57,799			15,161		5,083		44,971		—		123,014
Intersegment expenses, net	29,706			8,617		50,899		(38,868	)	(50,354	)	—
Total operating expenses	224,071			88,293		88,367		118,841		(50,354	)	469,217
Income (loss) before income taxes	66,190			31,150		354,008		(30,705	)	—		420,644
Income tax (expense) benefit	(25,153		)	(11,838	)	(134,522	)	19,132		—		(152,380	)
Net income (loss)	41,037			19,312		219,486		(11,573	)	—		268,264
Net loss (income) attributable to noncontrolling interests	20			—		—		(305	)	—		(285	)
Net income (loss) attributable to Nelnet, Inc.	$	41,057		19,312		219,486		(11,878	)	—		267,979

(a) Does not include the Communications segment, which was initiated as a result of the acquisition of Allo on December 31, 2015.

13

Net Interest Income, Net of Settlements on Derivatives

The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative settlements for each applicable period should be evaluated with the Company's net interest income.

The following table summarizes the components of "net interest income" and "derivative settlements, net."

	Three months ended							Year ended
	December 31, 2016			September 30, 2016		December 31, 2015		December 31, 2016		December 31, 2015
Variable student loan interest margin, net of settlements on derivatives (a)	$	38,255		56,571		59,075		195,823		222,479
Fixed rate floor income, net of settlements on derivatives	35,848			36,352		45,204		152,336		184,746
Investment interest	2,792			2,460		2,303		9,466		7,851
Non-portfolio related derivative settlements	(219		)	(233	)	(252	)	(915	)	(1,014	)
Corporate debt interest expense	(1,373		)	(1,616	)	(1,830	)	(6,096	)	(6,413	)
Net interest income (net of settlements on derivatives)	$	75,303		93,534		104,500		350,614		407,649

(a) In the third quarter of 2016, the Company revised its policy to correct for an error in its method of applying the interest method used to amortize premiums and accrete discounts on its student loan portfolio. Under the Company's revised policy, as of September 30, 2016, the constant prepayment rate used by the Company to amortize/accrete student loan premiums/discounts was decreased. During the third quarter of 2016, the Company recorded an adjustment to reflect the net impact on prior periods for the correction of this error that resulted in an $8.2 million reduction to the Company's net loan discount balance and a corresponding increase in interest income (an increase to variable student loan interest margin).

During the fourth quarter of 2016, the Company redeemed certain debt securities prior to their legal maturity and recognized $7.4 million in interest expense (a decrease to variable student loan interest margin) to write off the remaining debt discount associated with these bonds.

14

Student Loan Servicing Volumes (dollars in millions)

Company owned	$21,237	$21,397	$19,742	$19,369	$18,934	$18,593	$18,886	$18,433	$18,079	$17,429	$16,962
% of total	21.8%	15.5%	12.2%	11.5%	11.1%	10.6%	10.7%	10.1%	9.8%	9.0%	8.7%
Number of servicing borrowers:
Government servicing	3,892,929	5,305,498	5,915,449	5,882,446	5,817,078	5,886,266	5,842,163	5,786,545	5,726,828	6,009,433	5,972,619
FFELP servicing	1,626,146	1,462,122	1,397,295	1,358,551	1,353,785	1,339,307	1,335,538	1,298,407	1,296,198	1,357,412	1,312,192
Private servicing	173,948	195,580	202,529	205,926	209,854	230,403	245,737	250,666	267,073	292,989	355,096
Total:	5,693,023	6,963,200	7,515,273	7,446,923	7,380,717	7,455,976	7,423,438	7,335,618	7,290,099	7,659,834	7,639,907
Number of remote hosted borrowers	6,912,204	1,915,203	1,611,654	1,592,813	1,559,573	1,710,577	1,755,341	1,796,783	1,842,961	2,103,989	2,230,019

15

Communications Financial and Operating Data

Certain financial and operating data for Allo is summarized in the tables below.

	Three months ended December 31, 2016			Year ended December 31, 2016
Residential revenue	$	2,786		10,480
Business revenue	1,585			6,362
Other revenue	121			817
Total revenue	$	4,492		17,659
Net loss	$	(2,599	)	(5,899	)
EBITDA (a)	(1,669		)	(2,184	)
Capital expenditures	14,170			38,817
Revenue contribution:
Internet	41.4		%	38.8	%
Telephone	26.1			26.5
Television	32.1			32.1
Other	0.4			2.6
	100.0		%	100.0	%

	As of December 31, 2016	As of December 31, 2015
Residential customer information:
Households served	9,814	7,600
Households passed (b)	30,962	21,274
Total households in current markets	137,500	28,874

(a) Earnings (loss) before interest, income taxes, depreciation, and amortization ("EBITDA") is a supplemental non-GAAP performance measure that is frequently used in capital-intensive industries such as telecommunications. Allo's management uses EBITDA to compare Allo's performance to that of its competitors and to eliminate certain non-cash and non-operating items in order to consistently measure performance from period to period. EBITDA excludes interest and income taxes because these items are associated with a company's particular capitalization and tax structures. EBITDA also excludes depreciation and amortization expense because these non-cash expenses primarily reflect the impact of historical capital investments, as opposed to the cash impacts of capital expenditures made in recent periods, which may be evaluated through cash flow measures. The Company reports EBITDA for Allo because the Company believes that it provides useful additional information for investors regarding a key metric used by management to assess Allo's performance. There are limitations to using EBITDA as a performance measure, including the difficulty associated with comparing companies that use similar performance measures whose calculations may differ from Allo's calculations. In addition, EBITDA should not be considered a substitute for other measures of financial performance, such as net income or any other performance measures derived in accordance with GAAP. A reconciliation of EBITDA from net income (loss) under GAAP is presented in the table immediately below.

	Three months ended December 31, 2016			Year ended December 31, 2016
Net loss	$	(2,599	)	(5,899	)
Net interest expense	600			1,270
Income tax benefit	(1,593		)	(3,615	)
Depreciation and amortization	1,923			6,060
Earnings (loss) before interest, income taxes, depreciation, and amortization (EBITDA)	$	(1,669	)	(2,184	)

(b) Represents the estimated number of single residence homes, apartments, and condominiums that Allo already serves and those in which Allo has the capacity to connect to its network distribution system without further material extensions to the transmission lines, but have not been connected.

16

Other Income

The following table summarizes the components of "other income."

	Three months ended					Year ended
	December 31, 2016		September 30, 2016	December 31, 2015		December 31, 2016	December 31, 2015
Peterson's revenue	$	3,599	4,128	4,902		14,254	19,632
Borrower late fee income	2,928		3,158	3,335		12,838	14,693
Investment advisory fees	2,762		1,535	2,135		6,129	4,302
Realized and unrealized gains/(losses) on investments classified as available-for-sale and trading, net	1,329		506	(1,088	)	2,773	143
Remeasurement of business acquisition contingent consideration	—		—	(925	)	—	(925	)
Other	4,600		5,823	3,228		17,935	9,417
Other income	$	15,218	15,150	11,587		53,929	47,262

Derivative Market Value and Foreign Currency Adjustments

"Derivative market value and foreign currency adjustments" include (i) the unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP; and (ii) the foreign currency transaction gains or losses caused by the re-measurement of the Company's Euro-denominated bonds to U.S. dollars.

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

	Three months ended					Year ended
	December 31, 2016		September 30, 2016		December 31, 2015	December 31, 2016	December 31, 2015
Change in fair value of derivatives - income (expense)	$	61,452	47,093		28,030	59,895	(15,150	)
Foreign currency transaction adjustment - income (expense)	25,392		(4,831	)	11,320	11,849	43,801
Derivative market value and foreign currency adjustments - income (expense)	$	86,844	42,262		39,350	71,744	28,651

Derivative Settlements

The following table summarizes the components of "derivative settlements, net" included in the attached consolidated statements of income.

	Three months ended							Year ended
	December 31, 2016			September 30, 2016		December 31, 2015		December 31, 2016		December 31, 2015
1:3 basis swaps	$	555		523		491		1,493		1,058
Interest rate swaps - floor income hedges	(2,402		)	(5,157	)	(7,551	)	(17,643	)	(23,041	)
Interest rate swaps - hybrid debt hedges	(219		)	(233	)	(252	)	(915	)	(1,012	)
Cross-currency interest rate swaps	(1,591		)	(1,394	)	(403	)	(4,884	)	(1,255	)
Total settlements - expense	$	(3,657	)	(6,261	)	(7,715	)	(21,949	)	(24,250	)

17

Student Loans Receivable

Student loans receivable consisted of the following:

	As of			As of		As of
	December 31, 2016			September 30, 2016		December 31, 2015
Federally insured loans
Stafford and other	$	5,186,047		5,353,052		6,202,064
Consolidation	19,643,937			20,189,881		22,086,043
Total	24,829,984			25,542,933		28,288,107
Private education loans	273,659			276,432		267,642
	25,103,643			25,819,365		28,555,749
Loan discount, net of unamortized loan premiums and deferred origination costs	(148,077		)	(152,361	)	(180,699	)
Allowance for loan losses – federally insured loans	(37,268		)	(37,028	)	(35,490	)
Allowance for loan losses – private education loans	(14,574		)	(14,542	)	(15,008	)
	$	24,903,724		25,615,434		28,324,552

Loan Activity

The following table sets forth the activity of loans:

	Three months ended December 31,					Year ended December 31,
	2016			2015		2016		2015
Beginning balance	$	25,819,365		29,188,203		28,555,749		28,223,908
Loan acquisitions	117,515			200,350		356,110		4,036,333
Repayments, claims, capitalized interest, and other	(531,029		)	(566,141	)	(2,520,835	)	(2,466,378	)
Consolidation loans lost to external parties	(302,208		)	(266,663	)	(1,242,621	)	(1,234,118	)
Loans sold	—			—		(44,760	)	(3,996	)
Ending balance	$	25,103,643		28,555,749		25,103,643		28,555,749

18

Student Loan Spread

The following table analyzes the student loan spread on the Company’s portfolio of student loans, which represents the spread between the yield earned on student loan assets and the costs of the liabilities and derivative instruments used to fund those assets.

	Three months ended						Year ended
	December 31, 2016		September 30, 2016		December 31, 2015		December 31, 2016		December 31, 2015
Variable student loan yield, gross	3.03	%	2.93	%	2.66	%	2.90	%	2.59	%
Consolidation rebate fees	(0.84	)	(0.83	)	(0.82	)	(0.83	)	(0.83	)
Discount accretion, net of premium and deferred origination costs amortization (a)	0.06		0.06		0.06		0.06		0.05
Variable student loan yield, net	2.25		2.16		1.90		2.13		1.81
Student loan cost of funds - interest expense (b)	(1.55	)	(1.44	)	(1.07	)	(1.41	)	(1.02	)
Student loan cost of funds - derivative settlements	(0.02	)	(0.01	)	—		(0.01	)	—
Variable student loan spread	0.68		0.71		0.83		0.71		0.79
Fixed rate floor income, net of settlements on derivatives	0.56		0.55		0.62		0.57		0.64
Core student loan spread	1.24	%	1.26	%	1.45	%	1.28	%	1.43	%
Average balance of student loans	25,538,721		26,368,507		28,892,571		26,863,526		28,647,108
Average balance of debt outstanding	25,362,201		26,235,053		28,881,167		26,729,196		28,687,086

(a) In the third quarter of 2016, the Company revised its policy to correct for an error in its method of applying the interest method used to amortize premiums and accrete discounts on its student loan portfolio. Under the Company's revised policy, as of September 30, 2016, the constant prepayment rate used by the Company to amortize/accrete student loan premiums/discounts was decreased. During the third quarter of 2016, the Company recorded an adjustment to reflect the net impact on prior periods for the correction of this error that resulted in an $8.2 million reduction to the Company's net loan discount balance and a corresponding increase in interest income. The impact of this adjustment was excluded from the above table.

(b) In the fourth quarter of 2016, the Company redeemed certain debt securities prior to their legal maturity and recognized $7.4 million in interest expense to write off the remaining debt discount associated with these bonds. The impact of this expense was excluded from the above table.

19

A trend analysis of the Company's core and variable student loan spreads is summarized below.

(a) The interest earned on a large portion of the Company's FFELP student loan assets is indexed to the one-month LIBOR rate.  The Company funds the majority of its assets with three-month LIBOR indexed floating rate securities.  The relationship between the indices in which the Company earns interest on its loans and funds such loans has a significant impact on student loan spread.  This table (the right axis) shows the difference between the Company's liability base rate and the one-month LIBOR rate by quarter.

Variable student loan spread decreased during the three months ended December 31, 2016 as compared to the three months ended December 31, 2015 due to a widening in the basis between the asset and debt indices in which the Company earns interest on its loans and funds such loans (as reflected in the table above).

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 student loan spread follows:

	Three months ended							Year ended
	December 31, 2016			September 30, 2016		December 31, 2015		December 31, 2016		December 31, 2015
Fixed rate floor income, gross	38,250			41,509		52,754		169,979		207,787
Derivative settlements (a)	(2,402		)	(5,157	)	(7,551	)	(17,643	)	(23,041	)
Fixed rate floor income, net	$	35,848		36,352		45,203		152,336		184,746
Fixed rate floor income contribution to spread, net	0.56		%	0.55	%	0.62	%	0.57	%	0.64	%

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

20

Fixed Rate Floor Income

The following table shows the Company’s federally insured student loan assets that were earning fixed rate floor income as of December 31, 2016.  

Fixed interest rate range	Borrower/lender weighted average yield	Estimated variable conversion rate (a)	Loan balance
3.0 - 3.49%	3.37%	0.73%	$	618,437
3.5 - 3.99%	3.65%	1.01%	2,068,884
4.0 - 4.49%	4.20%	1.56%	1,554,758
4.5 - 4.99%	4.72%	2.08%	936,646
5.0 - 5.49%	5.22%	2.58%	591,452
5.5 - 5.99%	5.67%	3.03%	416,122
6.0 - 6.49%	6.19%	3.55%	480,089
6.5 - 6.99%	6.70%	4.06%	468,555
7.0 - 7.49%	7.17%	4.53%	163,681
7.5 - 7.99%	7.71%	5.07%	279,873
8.0 - 8.99%	8.18%	5.54%	645,611
> 9.0%	9.05%	6.41%	225,746
			$	8,449,854

(a) The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to a variable rate. As of December 31, 2016, the weighted average estimated variable conversion rate was 2.42% and the short-term interest rate was 61 basis points.

The following table summarizes the outstanding derivative instruments as of December 31, 2016 used by the Company to economically hedge loans earning fixed rate floor income.

	Notional amount		Weighted average fixed rate paid by the Company (a)
Maturity
2017	$	750,000	0.99	%
2018	1,350,000		1.07
2019	3,250,000		0.97
2020	1,500,000		1.01
2025	100,000		2.32
	$	6,950,000	1.02	%

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

21

EX-99.3

2016 Letter to Shareholders | Page 1 Dear Shareholders: Nelnet closed out another solid year in 2016. With the addition of our fiber-optic communications business, ALLO, and our preparation for the federal student loan servicing procurement, it was a transitional year for the company. As anticipated, we grew our payment processing and loan servicing businesses, we experienced runoff in our Federal Family Education Loan (FFEL) Program student loan portfolio, and we invested significant time and capital in ALLO. The year began on a high note when we took ownership of ALLO Communications on December 31, 2015. ALLO is a unique, Nebraska-based telecommunications company that provides a pure, end-to-end fiber-optic network to businesses and residences, providing customers with ultra-fast internet, phone, and television services. This acquisition increased ALLO’s immediate market opportunity sixfold, from 23,000 to 137,000 homes, with a plan to pass fiber within reach of all residences in our hometown and corporate headquarters of Lincoln, Nebraska. As expected, the U.S. Department of Education (Department) issued a procurement in early 2016 that may have a large impact on the future of our federal student loan servicing business. This procurement seeks a single servicing system platform with multiple customer service providers. Aggregating all loans held by the federal government to one system platform will help create a common experience for borrowers, encourage affordable repayment, minimize defaults, consolidate data to allow better analysis, reduce the administrative burden for the government, maintain competition among the servicers, and create maximum flexibility for the government to reposition the program for any future scenario. In short, moving to a single system platform will help improve the servicing experience for borrowers and solidify a public/private servicing program that encourages competition and maximizes flexibility to rapidly adapt to future administrative and congressional student loan policies. While the presidential election dominated the public’s attention in 2016, we concentrated our efforts on what was under our control. Our goals are to focus on our customers by providing great products and services, to always innovate, to stay in front of the competition, and to position ourselves to overcome challenges and seize opportunities that come along with change. That said, we are always encouraged when there is an open discussion on reducing federal corporate tax rates, as we pay approximately 36% of our income in corporate taxes. The potential for decreased tax rates brings the opportunity for us to pursue increased investments, diversification, and growth in employment. Another item of interest occurred toward the end of 2016. The Office of the Comptroller of Currency invited public comments on the prospect of issuing limited-purpose national lending charters to qualifying FinTech companies. This is something we will be following closely in 2017, as it may align with our financial strengths, February 27, 2017

2016 Letter to Shareholders | Page 2 given the fact that our book value crossed over $2 billion and our equity-to-assets ratio was nearly 8% at year- end. If this opportunity materializes, we believe it could create an avenue for Nelnet to offer an evolving set of products and services to our growing FinTech lender customer base. While we want to avoid over-emphasizing this potential opportunity, we want to communicate that we are aware of it and that we will remain attentive to it as a developing possibility. We created many successes in 2016, across all divisions of our company. We are proud to share the accomplishments of our talented teams, including milestones we reached and the framework we laid in preparation for the future. ancia Nelnet Diversified Solutions (NDS) is the largest fee-for-service business at Nelnet. The NDS segment provides federal student loan servicing for the Direct Loan Program, FFEL Program, and consumer loan servicing for private lenders and banks. We also offer a suite of technology solutions to other loan servicing entities. At the end of 2016, NDS serviced $162.5 billion in government-owned student loans for 5.97 million borrowers, $24.4 billion in FFEL Program loans for 1.31 million borrowers, and $7.9 billion in private or consumer loans for 355,000 borrowers. This is a total of $194.8 billion serviced for 7.64 million borrowers. In addition, NDS licenses its servicing system to three other entities that service loans for over 2.2 million borrowers for the federal government. In 2016, we saw the elimination of our guaranty servicing operations when our remaining full-service guarantor exited the business at the end of its contract in June. This client generated revenue of $9.6 million in 2016. Despite that lost revenue, NDS ended the year with a pre-tax net income of $61.4 million. Our company continues to capitalize on opportunities during the wind-down of the FFEL Program, which ceased originations in 2010. While the program sees no new volume, we were able to add loans to our servicing platform by taking over portfolios from entities exiting the servicing business. As a result, we were able to minimize the runoff of the FFEL Program loans we service. We ended 2016 with a FFEL Program-serviced volume of 1.31 million borrowers, compared to 1.34 million borrowers at the end of 2015. Nelnet is one of four primary Title IV Additional Servicers (TIVAS) that won a share of the federal Direct Loan Program student loan servicing portfolio in 2009. As previously mentioned, the Department issued a request for proposal (RFP) to procure a single servicing system platform for all federally owned student loans. Nelnet engaged in discussions with another TIVAS, Great Lakes Educational Loan Services, Inc. (Great Lakes), to form a partnership of the top two ranked government servicers to specifically bid on the contract. Nelnet chose to partner with Great Lakes, one of the most respected players in the servicing industry, because their core values align with our own. Great Lakes has demonstrated its dedication to providing the highest level of customer service, promoting a culture focused on hiring the most talented and driven associates in the industry, and maintaining an unwavering dedication to ethics and consumer regulatory compliance. // Loan Servicing

2016 Letter to Shareholders | Page 3 After spending several months bringing the experience and talent of the two organizations together, this collaboration came to life on April 30, 2016, when GreatNet Solutions, LLC (GreatNet) was formed. On May 6, 2016, GreatNet bid on Phase I of the Department’s servicing procurement. On June 30, 2016, we were notified that GreatNet was one of three finalists chosen to move forward to Phase II of the solicitation process. On January 6, 2017, GreatNet submitted its Phase II response and is currently awaiting announcement from the new administration on the procurement process. After 25 years of working on mergers, acquisitions, and partnerships, I am not sure that I could point to a situation where the cultures and people of two companies fit together more perfectly. After spending the last year working closely with the Great Lakes management team, we remain confident in our partnership decision to help fulfill the Department’s vision for student loan servicing. NDS also expanded its footprint in the consumer loan space as an originator and servicer for both private education and personal loan products. We now service loans for 24 third-party entities. Thanks in part to four large-scale private loan conversions, our private loan servicing volume grew $3.3 billion, or 70%, in 2016. With the growth of our servicing portfolio, we continue to make significant investment into our technology and infrastructure. Implementing Nuance, a natural language interactive voice response (IVR) system, and a state- of-the-art Cisco telephony platform, as well as expanding and enhancing ancillary tools for our customer service agents, we were able to successfully support 8.5 million inbound borrower inquiries. Borrower calls made to our customer interaction centers were answered in less than one minute, on average, over the course of the year. We also performed over 27 million outreach activities to student loan borrowers to provide student loan counseling and to encourage repayment plans that borrowers can afford. We celebrate the fact that the student loan borrowers we service loans for paid down over $8.55 billion in principal in 2016! Our servicing enhancements have made it easier and more convenient for borrowers to reach us through their channel of choice and at times that are convenient for them. We will continue to focus on borrower experience through ongoing enhancements and improvements while we prepare for additional growth in our loan products and services in 2017. // Education Commerce and Payment Processing Nelnet Business Solutions (NBS) is our education commerce and payment processing division. The business had a record year in 2016, earning revenue of $132.7 million, up from $120.4 million in 2015, and earning a pre-tax net income of $34.7 million, up from $31.2 million in 2015. We continue to invest in innovative payment solutions for both higher education and private, faith-based K-12 schools. We are the largest provider of these services in K-12 (nearly 13,500 schools), and we are also proud to serve over 900 higher education institutions in the United States and nearly 70% of all higher education institutions in Australia. In 2016, we processed nearly $24 billion in payments for the schools we serve. We are continuing to expand our services to private, faith-based K-12 schools with deep integration between our products and services, allowing schools the ability to use our products a la carte or as a package of services. We bring these products to market under the FACTS brand for tuition management, commerce services, and

2016 Letter to Shareholders | Page 4 // Telecommunications We spent a large amount of time integrating ALLO into Nelnet in 2016. We pride ourselves on allowing the companies we acquire to keep the best of what made them successful on their own, while providing them our vast toolkit of resources, including accounting, marketing, human resources, legal, audit, compliance, risk management, and infrastructure, as well as our deep pool of capital. After significant work on engineering plans and scaling construction and operational contractors and teams, we began putting fiber into the ground across Lincoln in 2016, allowing us to begin offering our services in parts of the city. We spent $39 million in capital expenditures in 2016 and plan to accelerate our construction across Lincoln in 2017, spending an anticipated $80 million in total capital expenditures. At the acquisition’s first anniversary, ALLO has celebrated many accomplishments and continues to execute its long-term plan to expand its fiber footprint and operations. We completed the construction of almost one million linear feet of conduit across multiple communities, passing our initial 5,000 homes and businesses in Lincoln. We launched a full suite of business, residential, and governmental services in the Lincoln market, and further designed our excellent product offerings to give us a competitive edge on other market incumbents. We also added over 200 associates to our operations staff in Lincoln and Denver. The customer demand for our gigabit broadband internet, television, and telephone services continues to be very strong in ALLO’s western Nebraska markets as well as in Lincoln. Our 2017 focus will primarily be on expanding our fiber services and beginning to establish meaningful market share in Lincoln. In our six other Nebraska communities, we continue to increase our market presence and minimize competitor churn. We are evaluating the potential for expansion to additional markets in Nebraska and the region. scholarship administration, and the RenWeb brand for student information, learning management, enrollment management, emergency notification, donation, and parent portal reporting. Cross-sell activity is strong between RenWeb and FACTS schools as we continue to create a compelling value proposition for school management teams. We also launched our FACTS product in Australia and are encouraged by the opportunity to increase our business down under. Our higher education business, now known as Nelnet Campus Commerce, is focused on making college education more affordable by providing tuition payment plans and a full suite of commerce services to students. We continue to innovate mobile solutions on campus, while maintaining the highest level of security and Payment Card Industry (PCI) compliance. We will continue to invest in technologies that benefit both students and administrators in the United States and Australia. We are pleased with the consistent performance in NBS, and expect its revenue and earnings to continue to grow. Revenue streams from payments are recurring and increase as our economy grows. We will continue to innovate in payments and drive additional value as we add schools both domestically and internationally.

2016 Letter to Shareholders | Page 5 // Asset Generation and Management After several years of acquiring $4 billion or more in whole student loan or student loan residual securitizations, 2016 saw far fewer acquisition opportunities. Volatility in the student loan asset-backed securities market caused potential FFEL Program whole loan sellers to stay on the sideline throughout the year as prices dipped to reflect the more expensive secured financing conditions. However, as that market rallied through the end of 2016 and in the beginning of 2017, we are hopeful that our acquisition volume will rebound. Nelnet issued two securitizations in 2016. Notably, in December, Nelnet executed its first-ever term private student loan securitization. We securitized a combination of newer originations and legacy assets, obtaining permanent liquidity for the majority of our private loan portfolio. We think this securitization also lays the foundation for future securitization opportunities, not only in private student loans, but potentially in other asset classes as well. Another highlight for the year was the strong performance of Whitetail Rock Capital Management, our registered investment advisor. Our team navigated the market volatility well, and at the end of 2016, our FFEL Program student loan asset-backed securities under management crossed $900 million, a record high for us. // Venture and Real Estate Investments In recent years, we have begun making investments in new ventures and real estate developments, including modest early-round investments in more than 40 startups, largely software companies in the Midwest. The exception was in 2015, when the company made a significant $41 million investment in Hudl, the sports software company revolutionizing how teams around the world analyze game and practice film. We are excited to be investors in Hudl and a part of their rapid growth. We are highly confident in their products, business plan, and management team. We continue to partner with proven investors and developers to invest in real estate, including four development projects in our hometown of Lincoln. The largest project will be the revitalization of a more than 20-acre area in east downtown Lincoln, known as the Telegraph District. The redevelopment has provided office and retail space for ALLO’s growth, and the renovation of an outdated office building will provide much-needed space for our student loan customer service teams when it is completed later this year. Our other Lincoln projects include retail, office, multi-family, and hotel developments. Our goal is to leverage our equity investments in real estate to generate returns in the upper teens or higher. We currently have funded $48 million in real estate with cash and debt.

2016 Letter to Shareholders | Page 6 // Capital Deployment Nelnet continues to generate significant cash flow from our student loan portfolio and operations; although we saw fewer opportunities to purchase FFEL Program loans in 2016, we made significant investments for long-term returns and value creation. After utilizing nearly $600 million of cash in 2015, Nelnet utilized cash totaling almost $550 million in 2016 toward: • $175 million reduction of debt on unsecured facilities • $115 million in income taxes • $77 million in debt repurchases • $69 million in stock repurchases • $51 million in non-ALLO capital expenditures and real estate, venture capital, and other investments • $39 million in ALLO network expenditures • $21 million in dividends We believe the future is bright and will continue to make a variety of strategic, long-term investments to deploy capital in 2017, as we did in 2016 and 2015. We plan to make investments as market opportunities arise to acquire student loans, diversify, and repurchase stock and debt, as well as continue to invest in our core fee-based businesses, ALLO's network expansion, and issuing dividends. In addition, depending on market conditions and the timing of opportunities, we may also accumulate cash for the future. Nelnet’s Corporate Performance (Annual Percentage Change) Nelnet Per Share Book Value With Dividends Included Nelnet Per Share Market Value With Dividends Included S&P 500 With Dividends Included 2004 49.2% 20.2% 10.9% 2005 41.5% 51.1% 4.9% 2006 6.3% (32.7)% 15.8% 2007 (1.6)% (52.5)% 5.5% 2008 6.6% 13.3% (37.0)% 2009 21.0% 20.7% 26.5% 2010 23.7% 41.6% 15.1% 2011 22.6% 4.9% 2.1% 2012 16.7% 27.5% 16.0% 2013 26.1% 42.8% 32.4% 2014 21.1% 10.9% 13.7% 2015 16.0% (26.6%) 1.4% 2016 15.4% 52.7% 12.0% CAGR 19.7% 7.8% 7.7%

2016 Letter to Shareholders | Page 7 // Our Future Each year, we believe it is important to share Nelnet’s “fair value approach” with our shareholders. We feel it is a fundamental component to existing and potential shareholders’ understanding of how we operate our company and where it is going in the future. It is our goal for each Nelnet shareholder to record a gain or loss in market value proportional to the gain or loss in per-share fundamental value recorded by the company. To achieve this goal, we strive to maintain a one-to-one relationship between the company’s fundamental value and the market price. As that implies, we would rather see Nelnet’s stock price at a fair level than at an artificial level. Our fair value approach may not be preferred by all investors, but we believe it aligns with Nelnet’s long-term approach to both our business model and market value. Undoubtedly, 2017 will present both challenges and opportunities. Fortunately, we are extremely well positioned to break down those challenges and capitalize on opportunities that arise by utilizing our strengths, outlined below. 1. We have over $2 billion in capital with an equity-to-assets ratio of 7.59%. 2. We have a robust infrastructure (both physical and intellectual property). 3. We have vast industry experience in our businesses. 4. We have a long-term view of the world. 5. We have an excellent management team and talented associates. It is interesting to note that in 2003, the year we took Nelnet public, our total revenue was $297 million and our net income was $27 million, or $0.60 per share. In 2016, in our NBS division alone, our revenue was $133 million, our net income was $22 million, and our earnings per share contribution from that single division was $0.50 per share. We have come a long way in our diversification plans and look forward to a successful year in 2017 and beyond. Thank you for your continued investment in our company. Sincerely, Jeff Noordhoek, Chief Executive Officer

2016 Letter to Shareholders | Page 8 Forward-Looking and Cautionary Statements This letter to shareholders contains forward-looking statements within the meaning of federal securities laws. 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 “anticipate,” “believe,” “continue,” “could,” “expect,” “forecast,” “future,” “intend,” “may,” “plan,” "potential,” “should,” “would,” “will,” and similar expressions, as well as statements in future tense, are intended to identify forward-looking statements. These statements are based on management’s current expectations as of the date of this letter and are subject to known and unknown risks and uncertainties that may cause actual results or performance to differ materially from those expressed or implied by the forward-looking statements. Such risks include, but are not limited to: risks related to the company’s student loan portfolio, such as interest rate basis and repricing risk and changes in levels of student loan repayment or default rates; the use of derivatives to manage exposure to interest rate fluctuations; the uncertain nature of expected benefits from FFEL Program and private education loan purchases and initiatives to purchase additional FFEL Program and private education loans; financing and liquidity risks, including risks of changes in the securitization and other financing markets for student loans; risks related to adverse changes in the company’s volumes under the company’s loan servicing contract with the Department to service federally owned student loans; risks related to the Department’s initiative to procure a new contract for federal student loan servicing to acquire a single servicing platform to service all loans owned by the Department, including the risk that the company’s joint venture with Great Lakes may not be awarded the contract; risks and uncertainties from changes in the educational credit and services marketplace resulting from changes in applicable laws, regulations, and government programs and budgets, such as the expected decline over time in FFEL Program loan interest income and fee-based revenues due to the discontinuation of new FFEL Program loan originations in 2010 and the resulting initiatives by the company to adjust to a post-FFEL Program environment; the uncertain nature of the expected benefits from the acquisition of ALLO and the ability to successfully integrate its telecommunications operations and successfully expand its fiber network in existing service areas and additional communities and manage related construction risks; risks and uncertainties related to initiatives to pursue additional strategic investments and acquisitions, including investments and acquisitions that are intended to diversify the company both within and outside of its historical core education-related businesses; and changes in general economic and credit market conditions. For more information, see the “Risk Factors” sections and other cautionary discussions of risks and uncertainties included in documents filed or furnished by the company with the Securities and Exchange Commission (SEC), including the most recent Form 10-K filed by the company with the SEC. All forward-looking statements in this letter are as of the date of this letter. Although the company may voluntarily update or revise its forward-looking statements from time to time 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.