Higher Ed Watch Investigation Pays Off

In a reversal, student loan giant Nelnet will pay $1 million to settle a Nebraska investigation into deceptive marketing practices after all. Two weeks ago, Nebraska Attorney General Jon Bruning's office announced he would forgive Nelnet its original $1 million settlement commitment and close the case without further action. But after a storm of criticism, instigated and led by Higher Ed Watch, Bruning reversed himself late last Friday.

The controversy has its origins in New York State Attorney General Andrew Cuomo's nationwide investigation of the student loan industry. In April of this year, as Cuomo's investigation gained steam, Nebraska-based Nelnet cut a deal with its home state attorney general in the hopes of insulating itself from New York claims. The company agreed to pay $1 million to a national student financial aid education fund in exchange for state attorney general Jon Bruning agreeing not to pursue state action against Nelnet regarding its student loan marketing practices. But the effort failed, and Cuomo's investigation continued.

In early August, Cuomo also settled with Nelnet -- for $2 million. In a surpising turn, however, Bruning decided to forgive Nelnet its $1 million obligation to the State of Nebraska, "because if wouldn't make sense to have two funds." The explanation led Higher Ed Watch to dig deeper, because at the time Bruning cut his original $1 million deal with Nelnet in April, Cuomo already had a multi-million dollar financial aid fund created and financed by settlements with student loan giants Sallie Mae, Citibank, Education Finance Partners, and a series of colleges and universities.

After Bruning's decision to forgive Nelnet its $1 million obligation, Higher Ed Watch revealed that the state attorney general recently received significant political contributions from Nelnet employees and their family members. According to Federal Election Commission records, officials from Nelnet and Union Bank & Trust, which are both owned by the same family, are responsible for approximately one in ten dollars donated this year to Bruning's campaign to unseat incumbent Senator Chuck Hagel (R-NE).

When confronted with our findings by local Nebraska reporters, Bruning reacted with anger and denial. He attacked Cuomo's investigation into the student loan industry, saying it was "widely perceived as an embarrassment" and defended Nelnet, characterizing it as an "ethical, decent, and honest company." He said he would "never apologize for being a defender of Nelnet." That struck us as strange given that Bruning is supposed to be the chief prosecutor for the State of Nebraska.

Bruning told the Omaha World-Herald that "he never really wanted to fine Nelnet in the first place," but that the company had approached him with the idea, and that he "never initiated an investigation of Nelnet."

"Quite frankly, Nelnet and the state were partners in an effort to end the ransom efforts going on from some of my colleagues," Bruning told the newspaper. "I'm not going to stand by and watch a good Nebraska company be held hostage." In other words, the state attorney general acknowledged collaborating with Nelnet to stave off a prosecution without even knowing the facts of the case.

The 38 year old Nebraska Attorney General's comments and actions led state Democrats like Chuck Hassebrook, a member of the University of Nebraska's Board of Regents, to lash out accusing Bruning of doing favors for "his rich campaign donors."

With a political firestorm brewing, late last week Bruning quietly approached Nelnet about reinstating the $1 million settlement. Luckily for him, Jeff Noordhoek, Nelnet's president, released a statement saying that the company was happy to make a "contribution that fulfills the commitment we made in our voluntary agreement with the State of Nebraska."

Half the money from the reinstated settlement will go to need-based scholarships for Nebraska students, and the other half will go into a loan repayment program designed to attract and retain legal aid attorneys in the state. Both are good causes.

We at Higher Ed Watch are pleased to see some benefit come to Nebraska students from the whole episode and to see Nelnet not pocket another million dollars given its long history of bad behavior.