Banks Double Student Loan Volume by Infiltrating Financial Aid Packaging Business

Student loan companies are reshaping college financial aid packages to create bigger debt loads for the neediest students. Higher Ed Watch has learned that officials at student loan giant Nelnet recently revealed to Wall Street analysts that "loan volumes have doubled at schools where Nelnet has provided college planning services." Doubled. Think about that.

Through the little understood method of financial aid packaging, lenders and their subsidiaries offer colleges "enrollment management" services to teach them how to redistribute institutional financial aid dollars away from poor students and to upper-income, "meritorious" students.

In a definitive article on the subject, the Atlantic Monthly describes how the process works. A college, for example, will divvy up a $20,000 institutional grant previously earmarked for a single low-income student into four separate $5,000 "merit" awards. The four $5,000 scholarships are used to attract high achieving, admitted rich students, who probably would attend another institution without the $5,000 discount. But once the upper income students receive the $5,000 discount and are lured to enroll, they're on the hook to pay out of pocket remaining outstanding tuition costs. Associated payments generate more total revenue for the college than a single poor student with a $20,000 need-based grant. And as an added bonus, the college gets more higher achieving high school students to enroll and a higher ranking, thus in turn increasing its desirability, which means even more revenue in the future.

The only problem is that admitted low-income students, who traditionally could rely on need-based aid, go without institutional grant support. But don't worry. They borrow more from (who else but) the lending arms of enrollment management companies.

As we have reported, Nelnet, the not so upright lender that overcharged taxpayers more than $1 billion in claimed 9.5 percent loan subsidies, is getting into enrollment management in a big way. Wall Street analysts say that Nelnet views enrollment management as central to their strategy of locking up college loan business.

"Through its fee based services such as enrollment management, Nelnet hopes to increase its value proposition to financial aid offices, which should increase its chances of being added to the preferred lender lists," the analysts write. And Nelnet Chief Executive Officer, Mike Dunlap, has told investors that enrollment management is an "integral component of our long term goal of leveraging fee income into assets and assets into fee income."

But Nelnet is hardly the only loan company that has recognized the strategic benefit of offering enrollment management services to colleges. In fact, one of the largest players in the business is Noel-Levitz, which is owned by the 800-pound gorilla of the loan industry, Sallie Mae.

The public needs to learn a lot more about these enrollment management / financial aid packaging operations and their effect on student enrollment and student debt. And the Department of Education already has the authority to require disclosure as per the Student Right to Know Act. The Act requires colleges to "accurately describe the student financial assistance programs available to students who enroll at such institution[s]" and "the methods by which such assistance is distributed among student recipients who enroll at such institution[s]."

If the student loan industry has evidence that their enrollment management relationships are not resulting in greater student debt, let alone restriction of access to higher education, they should come forward with it. And short of evidence disproving the current understanding of the practice, Congress should require loan companies like Sallie Mae and Nelnet to disclose and divest themselves of their enrollment management units--or face disqualification by the Department of Education as approved loan providers.