March 11, 2008

Nelnet Abandons 'School-as-Lender,' One of Last Year's Political Targets

Washington — Just a few months ago, the “school-as-lender” program was one of many hot topics for those decrying abuses in student lending. Its critics included both Sen. Edward M. Kennedy, the Democratic chairman of the Senate education committee, and the Consumer Bankers Association, both of whom derided it as a way for some banks to provide hidden inducements to colleges.

Now, it may become just another victim of the nation’s overall credit crunch.

Nelnet, one of the nation’s largest providers of student loans, has sent letters to participating colleges saying it will no longer operate its school-as-lender program.

“As a result of the ongoing crisis in the financial markets, we are in the process of discontinuing our school-as-lender relationships,” Nelnet’s spokesman, Ben Kiser, told The Chronicle. He declined to elaborate on the reasons.

Under school-as-lender arrangements, a college acts as the provider of loans to its students, but typically uses money provided by a private lender. The college often then sells the loan to that lender shortly after the borrower finalizes the loan.

Senator Kennedy and the Consumer Bankers Association are among critics who see the practice as little different from other arrangements that have been criticized in the past year by both lawmakers and prosecutors as giving colleges a financial incentive to steer their students toward a particular private lender.

About 150 colleges have engaged in the practice of school-as-lender. Nelnet has been involved in about 20 of them, Mr. Kiser said. Congress enacted a moratorium in February 2006, preventing any new colleges from starting such a program.

Nelnet is among several student-loan companies that have laid off staff members and announced cutbacks in student lending in recent months as a result of subsidy cuts enacted last September, combined with the general tightening of credit in the U.S. economy. Its decision to abandon school-as-lender is a logical next step, said Mark Kantrowitz, publisher of FinAid, a Web site that provides student-aid advice.

“I doubt the nonbank lenders can afford to pay much of a premium in the current environment,” Mr. Kantrowitz said. —Paul Basken

Comments

1. The sad thing is that as a result of the changes in the school loan industry and the school-as-lender- program, the university I work for now has $1 million less in need-based aid per year to award to students. There was a real benefit to students with this program and it helped provide access to higher education for more students who otherwise might not have been able to afford college.

   — JD    Mar 12, 09:39 AM    #

2. My son is going to have to work more hours to make up for the loan he won’t be able to get now.

   — bb    Mar 12, 12:11 PM    #

3. Too many of the do-gooders acts have hurt those we were trying to help—-the students. Unintended consequences ? Or poor legislation ?

   — hawkeye    Mar 13, 12:45 PM    #

4. This school-as-lender “crackdown” has severely cut the need-base aid (scholarship) program at our small college. Now the lenders will just keep that money for themselves!

   Very poor decision by those with the means to cut programs for those without the means!

   — Gibran Ramos    Mar 24, 11:56 PM    #

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