NNI - NYSE

Phil Morgan – Investor Relations Michael S. Dunlap – Chairman of the Board, Chief Executive Officer Jeffrey R. Noordhoek – President Jim Krueger – Controller

Sameer Gokhale – Keefe, Bruyette & Woods Matt Snowling – Friedman, Billings, Ramsey Capital Markets Moshe Orenbuch – Credit Suisse

Welcome to Nelnet's third quarter 2008 conference call. Today's call is being recorded and broadcast live over the Internet. At this time for opening remarks and introductions I would like to turn the conference over to Mr. Phil Morgan.

Good afternoon and welcome to Nelnet's 2008 third quarter earnings conference call. On today's call Jeff Noordhoek, President, and Jim Krueger, Controller, will be making formal remarks, and Mike Dunlap, Chief Executive Officer, will be joining us for the question and answer session. Please note that during the conference call we may discuss predictions and expectations and may make other forward-looking statements. Actual results may differ from those discussed here based on a variety of factors. These factors are discussed in the company's Form 10-K and other filings with the SEC. The company does not intend to update any forward-looking statements made during the call. During the course of the call we will refer to a non-GAAP financial measure which the company defines as base net income. A description of base net income and a reconciliation of GAAP net income to base net income is included in our third quarter 2008 supplemental earnings disclosure which is posted at our investor relations website at www.nelnetinvestors.com. After Jeff and Jim have concluded their formal remarks we will open up the call for questions. Thank you and now I'll turn the call over to Jeff.

As Phil mentioned joining me on the call is Jim Krueger our Controller. Jim is filling in for Terry Heimes who recently had surgery for a knee injury making him unavailable to join us on the call. One of the things we worked on over the years is developing a strong bench in our associate base. As most of you know Jim works alongside Terry in the preparation and analysis of the financial statements. In short, we are quite pleased with our results for the third quarter. While operating in an unprecedented period of market disruption, our performance this year demonstrates the strong fundamentals of our company including our diversification into fee-based businesses which have significant growth opportunities and operating margins. On today's call we plan to discuss three items that have impacted the operating results of the company. Strong revenue generated from our fee-based businesses and better than expected student loan spread, lower operating expenses, and an update on our liquidity. Before I discuss our liquidity, Jim will address our operating results.

As Jeff indicated we reported very strong earnings for the third quarter. Our earnings performance was driven by increased revenue from our fee-based businesses, better than anticipated core student loan spread and reduced operating expenses. Let's start by reviewing the high level financial results. Our GAAP net income for the quarter was $0.48 per share. Our base net income was $0.47 per share for the third quarter compared to $0.54 in the second quarter and $0.45 per share last year. We continue to be pleased with our revenue growth and significant operating margins from our fee-based businesses. During the third quarter our total fee-based revenues was $76.7 million, an increase of $4.6 million from last year. Our enrollment services, tuition payment and campus commerce businesses continue to perform well. Total revenue for these businesses was $39.4 million, an increase of 27% from last year. It is important to remember these businesses are not related to the federal student loan program and therefore have little legislative risk. Not only do we continue to focus on growing our fee-based revenues, but also in making sure we allocate appropriate corporate overhead to our various business units for improved transparency and analysis. Operating margins for our fee-based businesses for the third quarter remain healthy at 20%, and excluding the allocation of corporate overhead, the margin was 28%. We continue to focus on decreasing the operating costs related to corporate activities. Core student loan spread remained strong at 102 basis points for the quarter compared with 107 basis points during the second quarter. The compression in spread was due to a reduction and fixed rate for income and the full impact of ABS transactions completed during the second quarter. Spread benefited in the third quarter due to the relationship between CP and LIBOR indices. We would expect the core student loan spread to remain relatively stable in the 90 to 100 basis point range in the fourth quarter and in the first quarter of 2009. In October we did see an unprecedented diversion in the CP LIBOR spread when the world's major banks ceased lending to each other. However, because of the timing and limited duration of this event it is not expected to have a significant impact on our fourth quarter results. However, our spread could be impacted if there was a prolonged spike or divergence in the CP LIBOR indices. Operating expenses for the quarter decreased more than $15 million or 13% compared to last year, and $56 million or 16% year-to-date. The decreases would have been greater but operating expenses for the third quarter included $2.8 million of severance and retention costs related to strategic operating decisions. There will be continued focus on operating efficiency throughout the enterprise with particular attention on information technology, operating systems and loan origination and servicing platforms. Those are the highlights of our earnings for the quarter. I will now turn the call over to Jeff to address our liquidity.

Our short-term liquidity is primarily affected by two items, new loan originations and the mark-to-market provision included in our $2.1 billion FFELP warehouse facility. We have originated more than $400 million of federal student loans this quarter. All new loan originations are being funded through the government's participation facility. In addition, we are encouraged that Congress extended Ensuring Continued Access to Student Loans Act for a second academic year. In the spirit of this legislation, we are committed to making federal loans for all students attending all eligible schools through the 2009-2010 academic year. The main pressure that we are receiving on our liquidity is coming from the mark-to-market formula used to value the loans included in our FFELP warehouse facility. This has resulted in a significant equity contribution to support the federally guaranteed loans in this facility. This mark-to-market evaluation formula is mostly driven by current spreads in the a-backed securities market. As you know, ABS spreads have continued to widen as these securities are liquidated in an unprecedented manner. Without an active market for these securities, we believe the mark-to-market formula is broken and unreasonable. As of today, the mark-to-market formula has required us to post $375 million as equity funding support including $165 million in October. This level of equity support applies a value on the loans of approximately $0.83 on the dollar. This seems irrational given these loans are guaranteed by the federal government, are available rate assets and can be pledged by the banks to the federal reserve at a 90% advance rate. Another example of the irrational amount of equity support to these assets is the fact there are thousands of banks in America that could own these loans on their balance sheet and earn a return on equity in excess of 25%. We have utilized our $750 million unsecured line of credit to fund the equity advances and have $51 million available for future use on this facility. In addition, as of last week we had over $100 million in cash, approximately $90 million of unencumbered private loan assets, and approximately $80 million of our own unencumbered subordinated bonds. To reduce our exposure from the mark-to-market advance rate provisions included in our warehouse facility, we have signed a letter of agreement engaging Bank of America Securities to arrange an amendment of certain of our credit facilities, including but not limited to an amendment to place a floor on evaluation of collateral in our FFELP warehouse conduit for which Bank of America acts as administrative agent. Bank of America Securities has commenced amendment process and together with us is seeking the approval of our lenders of a proposed amendment of such credit facilities on mutually agreeable terms. In addition, the Department of Education has announced a new funding facility for government guaranteed student loans awarded after October 1, 2003. We believe approximately $900 million of loans in our warehouse will be eligible for this program. We are also encouraged by Secretary Paulson's remarks today in which he said "with the Federal Reserve we are exploring development, the potential liquidity facility for highly rated AAA Asset-Backed Securities. We are looking at ways to possibly use the TARP to encourage private investors to come back to this troubled market by providing them access to federal financing while protecting the taxpayer's investment. Addressing the needs of the securitization sector will help get lending going again, helping consumers and supporting the U.S. economy." He also indicated the goal for the program has increased the supply of consumer credit including student loans. We believe this type of program would reduce ABS spreads and improve the mark-to-market valuation in our warehouse facility. Finally, we continue to look at various alternatives to remove loans from the warehouse including other financing arrangement and/or selling loans. We are encouraged by these recent events and announcement and believe they have the potential to alleviate the liquidity pressure the company is facing related to the mark-to-market provisions in our FFELP warehouse facility. With that I would like to now open the call to your questions.

We see our primary originations in the future coming through our own channel. We have seen decreases in the lender partner's channel. That said, we saw some timing differences where we accelerated some purchases in the last quarter and that's how we see it in a go forward basis.

We have not seen any details on that yet, if there is going to be a fee.

The other thing you need to take a look at is how much debt does the government want to put on their balance sheet and if there's a way to have a public private/partnership to keep some of that debt off the federal balance sheet, we think this is a great program that can do that. If you look at the number of loans that are being originated over the next 10 years it could be a trillion dollars of guaranteed student loans and if there's a way for that to not show up on the government's balance sheet we think that’s another real valuable argument. More so now than ever given all the other things that are going on to add to the federal deficit.

Gentleman, with no further questions in the queue I'd like to turn things back to Mr. Noordhoek for any additional or closing comments.

In closing, it's important to remember the fundamentals of our business remain strong. Approximately 90% of our portfolio was financed to term for the life of the loan at rates which will create a significant and viable cash flow stream for the company of $1.4 billion. We have capital and liquidity for new loan originations through the government participation and put programs and see opportunities for growth in the loan generation area. We have maintained the value of our service and delivery platforms while reducing our operating costs in excess of $56 million for the first nine months of the year. We have developed a broad diversified offering of fee-based businesses with significant growth opportunities in operating margins and we have a strong capital base with which to create long-term value for our shareholders. We are encouraged by recent events and announcements that can improve our liquidity concerns relating to the mark-to-market provisions including our FFELP warehouse facility. Thank you all very much for your participation in the call this afternoon.