Nelnet Targets Financial Aid Consulting Business

Student loan giant Nelnet has set its sights on the enrollment management business. Advocates of middle class and needy students should be concerned.

Enrollment managers are key players in the secret world of financial aid packaging. They show colleges how to use institutional grant aid to lure wealthy students instead of helping admitted middle class and needy kids. The central enrollment management technique is to use formerly need-based institutional grant aid instead to finance merit (partial) scholarships for wealthy students. Once told they’re worthy of a special (again, partial) institutional scholarship, these wealthy students enroll in colleges they otherwise would not. They pay their remaining freight in full, and the receiving college uses the cash to lure in yet more wealthy students.

What happens to admitted middle class and low-income students who used to get need-based, institutional grant aid? They end up borrowing larger federal student loans and vastly more expensive private loans as well. Get why Nelnet is interested?

Nelnet CEO Describes Strategy to Wall Street

Last month during a conference call that Higher Ed Watch monitored, Nelnet Co-Chief Executive Officer Mike Dunlap told Wall Street analysts how enrollment management (also known as “financial aid leveraging”) works for Nelnet:

“Our diverse fee generating product suite has been created to span the lifecycle of the student, as well as help schools better fill gaps and meet their needs. These products, which are offered by Nelnet Business and Enrollment Solutions, include enrollment management. Combined with our more traditional fee for service activities related to loan and guarantee servicing, they generated more than $308 million of fee based revenue during 2006, nearly $92 million in the fourth quarter alone. Revenues primarily from Nelnet Business and Enrollment Solutions nearly tripled, increasing $67 million to $102 million compared to last year.

These fee based products and service offerings are an important part of our strategic vision because they allow us to continue to diversify our revenue streams…[T]hey will be an integral component of our long term goal of leveraging fee income into assets and assets into fee income.”

Translation

In other words, Nelnet offers enrollment management services to institutions of higher education for a fee. Nelnet then leverages its fee income, financial aid consulting work, and relationship with the relevant school into federal student loan business and even more lucrative private loans that go to the middle class and needy students who no longer receive generous grant aid packages from their colleges. Servicing and guaranteeing of these bigger loans for middle class and needy students generates additional fee income to Nelnet, not to mention additional interest payments that come on top. Nelnet is working hand in hand with colleges to create student loan customers.

Dunlap calls it tapping the “life cycle of the student.” Although imprisoning the student in a life cycle of debt might be a more accurate description, especially for middle and low income students.

Keep your eye on Nelnet and enrollment management. It’s a dangerous combination.