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Derivative Financial Instruments
 12 Months Ended
Dec. 31, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments Derivative Financial Instruments
Non-Nelnet Bank Derivatives
The Company uses settled-to-market derivative financial instruments to manage interest rate risk. The Company is exposed to interest rate risk in the form of basis risk and repricing risk because the interest rate characteristics of the Company's assets do not match the interest rate characteristics of the funding for those assets. The Company periodically reviews the mismatch related to the interest rate characteristics of its assets and liabilities together with the Company's outlook as to current and future market conditions. Based on those factors, the Company uses settled-to-market derivative instruments as part of its overall risk management strategy. Settled-to-market derivative instruments used as part of the Company's interest rate risk management strategy are discussed below.
Basis Swaps
The Company earns interest on the majority of its FFELP student loan assets based on a 30-day average SOFR index while a portion of its FFELP loan assets is funded with 90-day average SOFR and 3-month CME term SOFR. Prior to the discontinuation of LIBOR on June 30, 2023, interest earned on the majority of the Company's FFELP student loan assets was indexed to the one-month LIBOR rate. Meanwhile, the Company funded a portion of its FFELP loan assets with three-month LIBOR indexed floating rate securities. The differing interest rate characteristics of the Company's loan assets versus the liabilities funding these assets results in basis risk, which impacts the Company's excess spread earned on its loans.
The Company also faces repricing risk due to the timing of the interest rate resets on its liabilities, which may occur as infrequently as once a quarter, in contrast to the timing of the interest rate resets on its assets, which generally occur daily.
As of December 31, 2024, the Company’s AGM operating segment had $7.9 billion, $0.3 billion, and $0.3 billion of FFELP loans indexed to the 30-day average SOFR rate, three-month commercial paper rate, and the three-month treasury bill rate, respectively, the indices for which reset daily, and $2.0 billion of debt indexed to 90-day average SOFR and 3-month CME term SOFR, the indices for which reset quarterly, and $5.0 billion of debt indexed to 30-day average SOFR and 1-month CME term SOFR, the indices for which reset monthly.
The Company has used derivative instruments to hedge its basis risk and repricing risk. The Company has entered into basis swaps in which the Company receives and pays the term adjusted SOFR plus the tenor spread adjustment to LIBOR. Prior to the discontinuation of LIBOR on June 30, 2023, the Company received three-month LIBOR set discretely in advance and paid one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps").
The following table summarizes the Company’s 1:3 Basis Swaps outstanding:
As of December 31,
20242023
MaturityNotional amountNotional amount
2024$— 1,750,000 
20261,150,000 1,150,000 
2027250,000 250,000 
$1,400,000 3,150,000 
The weighted average rate paid by the Company on the 1:3 Basis Swaps as of December 31, 2024 and 2023 was the term adjusted SOFR (plus the tenor spread adjustment relating to LIBOR) plus 10.4 basis points and 10.1 basis points, respectively.
Interest Rate Swaps – Floor Income Hedges
FFELP loans originated prior to April 1, 2006 generally earn interest at the higher of the borrower rate, which is fixed over a period of time, or a floating rate based on the Special Allowance Payments (SAP) formula set by the Department. The SAP rate is based on an applicable index plus a fixed spread that depends on loan type, origination date, and repayment status. The Company generally finances its student loan portfolio with variable rate debt. In low and/or certain declining interest rate environments, when the fixed borrower rate is higher than the SAP rate, these student loans earn at a fixed rate while the interest on the variable rate debt typically continues to reflect the low and/or declining interest rates. In these interest rate environments, the Company may earn additional spread income that it refers to as floor income.
Depending on the type of loan and when it was originated, the borrower rate is either fixed to term or is reset to an annual rate each July 1. As a result, for loans where the borrower rate is fixed to term, the Company may earn floor income for an extended period of time, which the Company refers to as fixed rate floor income, and for those loans where the borrower rate is reset annually on July 1, the Company may earn floor income to the next reset date, which the Company refers to as variable rate floor income. All FFELP loans first originated on or after April 1, 2006 effectively earn at the SAP rate, since lenders are required to rebate fixed rate floor income and variable rate floor income for these loans to the Department.
Absent the use of derivative instruments, a rise in interest rates may reduce the amount of floor income received and this may have an impact on earnings due to interest margin compression caused by increasing financing costs, until such time as the federally insured loans earn interest at a variable rate in accordance with their SAP formulas. In higher interest rate environments, where the interest rate rises above the borrower rate and fixed rate loans effectively become variable rate loans, the impact of the rate fluctuations is reduced.
As of December 31, 2024, 2023, and 2022, the Company had $0.4 billion, $0.3 billion, and $0.9 billion, respectively, of FFELP student loan assets that were earning fixed rate floor income.
The following table summarizes the outstanding derivative instruments used by the Company as of December 31, 2024 and 2023 to economically hedge loans earning fixed rate floor income.
MaturityNotional amountWeighted average fixed rate paid by the Company (a)
2026$200,000 3.92 %
202850,000 3.56 
2029 (b)50,000 3.17 
2030 (c)100,000 3.63 
 $400,000 3.71 %
 
(a)    For all interest rate derivatives, the Company receives payments based on SOFR, the majority of which reset quarterly.
(b)    This $50 million notional amount derivative has a forward effective start date in January 2026.
(c)    A $50 million notional amount derivative maturing in 2030 has a forward effective start date in November 2025.
During the first quarter of 2023, the Company received cash proceeds of $183.2 million, which included $19.1 million related to 2023 settlements, to terminate $2.8 billion in notional amount of floor income interest rate swaps prior to their final maturity.
Nelnet Bank Derivatives
Interest Rate Swaps
Non-centrally cleared derivative instruments are used by Nelnet Bank to hedge the exposure to variability in cash flows of variable rate intercompany deposits primarily to minimize the exposure to volatility in cash flows from future changes in interest rates. Nelnet Bank has structured these derivatives so that each is economically effective; however, because these derivatives are hedging intercompany deposits, the derivative instruments are not eligible for hedge accounting in the consolidated financial statements. As a result, the change in market value of these derivative instruments is reported in current period earnings and presented in "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of income.
The following table summarizes the outstanding derivative instruments used by Nelnet Bank to hedge exposure to variability in cash flows related to variable rate intercompany deposits.
As of December 31, 2024As of December 31, 2023
MaturityNotional amountWeighted average fixed rate paid by the Company (a)Notional amountWeighted average fixed rate paid by the Company (a)
2028$40,000 3.33 %$40,000 3.33 %
202925,000 3.37 — — 
2030 (b)50,000 3.06 50,000 3.06 
2032 (c)25,000 4.03 25,000 4.03 
2033 (d)25,000 3.90 25,000 3.90 
 $165,000 3.44 %$140,000 3.46 %
(a)    For all interest rate derivatives, the Company receives monthly or quarterly payments based on SOFR that resets daily.
(b)    These $25 million notional amount derivatives have forward effective start dates in April 2026 and May 2026, respectively.
(c)    This $25 million notional amount derivative has a forward effective start date in February 2027.
(d)    This $25 million notional amount derivative has a forward effective start date in November 2025.
Consolidated Financial Statement Impact Related to Derivatives
Balance Sheets
Unlike the Company's Non-Nelnet Bank derivatives, Nelnet Bank's derivatives are not cleared post-execution at a regulated clearinghouse. As such, the Company records these derivative instruments in the consolidated balance sheets on a gross basis as either an asset (included in "other assets") or liability (included in "other liabilities") measured at fair value. The following table summarizes the fair value of the Company's Nelnet Bank derivatives as reflected in the consolidated balance sheets.
As of December 31,
2024202320242023
Fair value of asset derivativesFair value of liability derivatives
Interest rate swaps - Nelnet Bank$3,232 452 53 1,976 
Statements of Income
The following table summarizes the components of "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of income.
Year ended December 31,
202420232022
Settlements:  
1:3 basis swaps$929 1,544 (206)
Interest rate swaps - floor income hedges4,288 23,044 33,149 
Interest rate swaps - Nelnet Bank917 484 — 
Total settlements - income6,134 25,072 32,943 
Change in fair value:   
1:3 basis swaps(860)(567)2,262 
Interest rate swaps - floor income hedges6,282 (39,683)229,429 
Interest rate swaps - Nelnet Bank4,702 (1,523)— 
Total change in fair value - income (expense)10,124 (41,773)231,691 
Derivative market value adjustments and derivative settlements, net - income (expense)$16,258 (16,701)264,634 
Derivative Instruments - Market Risk
Interest rate movements have an impact on the amount of variation margin and collateral the Company may be required to pay to its third-party clearinghouse and counterparties, respectively. The Company attempts to manage market risk associated with interest rates by establishing and monitoring limits as to the types and degree of risk that may be undertaken. The Company's derivative portfolio and hedging strategy is reviewed periodically by its internal risk committee, Board of Directors' Risk and Finance Committee, and Nelnet Bank’s Board of Directors (for Nelnet Bank derivatives). With the Company's current derivative portfolio, the Company does not currently anticipate any movement in interest rates having a material impact on its liquidity or capital resources, nor expects future movements in interest rates to have a material impact on its ability to meet variation margin and collateral payments