Daily Nebraskan

Officials have promised a partnership between the University of Nebraska-Lincoln and a for-profit student loan lender is a win-win situation.

But that win will be larger for some than for others.

At its Oct. 29 meeting, the NU Board of Regents will consider a partnership with NelNet Inc., a Lincoln-based private student loan lender.

The partnership could generate up to $15 million in new business for NelNet.

As an incentive, UNL could receive up to a $600,000 cut from NelNet’s profits – earmarked for UNL’s own financial aid funds.

NelNet would waive upfront loan costs for UNL graduate and professional students who opt for a bank loan. Federal loans usually require a 1.5 percent upfront payment.

Right now, UNL provides direct federal loans, such as the Federal Direct Stafford Loan, which allow students to borrow directly from the federal treasury to pay college expenses. Interest money paid on the loans is funneled directly back to the government.

NelNet provides private bank loans through the Federal Family Education Loan Program, which is subsidized and guaranteed by the government. In UNL’s case, the university would be considered the official lender and would be backed by Lincoln’s Union Bank.

“We, the American taxpayers, would be paying banks for the use of their capital to give students loans,” said Craig Munier, UNL director of scholarships and financial aid.

Profits earned from interest of these loans would go to NelNet, Union Bank and UNL. With 1,300 graduate and professional student borrowers attending UNL, administrators expect UNL’s profit to be between $300,000 and $600,000 the first year.

Bank loans through NelNet only would be available to graduate and professional students – not undergraduates. Those students would continue to have the option of direct federal loans.

Although UNL Chancellor Harvey Perlman briefed the regents on NelNet basics at their September meeting, regents will not receive full information about the program until mid-October. Several regents said Monday they were not ready to comment on the issue.

But NelNet is old news to Regent Randy Ferlic of Omaha, who alerted fellow regents about the controversy surrounding NelNet’s packaging of old loans with new loans to increase interest rates and maximize profits.

Ferlic said he has not made up his mind about which way he will vote on the matter, but the controversy will play into his decision.

“The university might be putting itself in the position of fronting for an organization that uses unethical, but not illegal, practices,” he said. “It seems to me that the person who falls victim to this is the taxpayer.”

James Griesen, vice chancellor for Student Affairs, said the controversy at NelNet has nothing to do with the proposed use of bank loans at UNL.

“There is no direct correlation,” he said. “They are a very responsible lender – and they are not the only ones getting 9.5 percent interest by using a loophole. To us, that’s one aspect of their business we are not going to take any responsibility for.”

Griesen said UNL has looked for two years into offering private bank loans through the university. Officials selected NelNet from a number of similar companies because it offered the most benefits.

Munier said he is wary of indirect loans because they often are more of an inconvenience for students than direct loans.

When Kansas State University offered its students loans like NelNet’s last year, many students had problems receiving their loans on time and efficiently, he said.

“Students like the simpler business process of getting a direct loan,” Munier said.

In the long run, indirect loans like NelNet could actually end up costing taxpayers, Munier said. Extra interest on the loans goes to the banking industry – instead of to the government and back to the university.

“Some of us have resisted (bank loans),” Munier said. “We want the whole pie instead of just part of it.”

But the added revenue UNL would receive from NelNet is hard to pass up in times of budget cuts, said Christine Jackson, vice chancellor for business and finance.

The amount of money from NelNet depends on the percentage of student borrowers choosing a NelNet loan. If 100 percent of eligible students participate, the university would receive about $600,000.

Jackson said such a feat likely would not happen.

UNL officials estimate 80 percent of eligible students will use the loans, earning UNL about $442,000. Griesen said he expected the university would add these additional funds to already allocated financial aid funds.

Such funds will fill a shrinking university budget, Jackson said.

“As our budgets have gotten tighter, we have started looking for other ways to add funds,” Jackson said. “This probably looks more attractive now than it did in the days when things were not so difficult.”

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