Banks Double Student Loan Volume by Infiltrating Financial Aid Packaging Business
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Higher Ed Watch
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.
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An irony
The 1996 article from Harvard on enrollment management has this quote:
"Walter C. Cathie, who left a financial aid post at Carnegie Mellon partly due to ethical concerns, concurs: 'This is an ugly, ugly business.' "
The ugly business he was referring to was enrollment management. This is the same Walter Cathie who is currently on leave from his post as financial aid director at Widener U. because of the allegations that a consulting firm he owns received $80,000 in fees from Student Loan Xpress. Guess that wasn't an ethical concern.
BANK DOUBLES- IMPOSSIBLE WITHOUT ANOTHER COMPETITOR LOSING 50%
Did you consider the fact that if Nelnets doubled than a competitors went down? If you are going to print it, put in all the rest of the story.Some other competitor therefore lost market share.You cannot give a student more loan money than they are eligible to receive.Loan volume at a school may also go up because of 1. Cost of education went up. 2. Enrollment is up. 3. More students are applying for financial aid because of lack of funds or loss of jobs.
There is no way a loan company can double their volume of a schools total volume. first find out what the schools volume was and who was getting it. Then determine who is getting it now, how much enrollment is up, and the demographics of the school. For example, if you are in an area of a large corporation going under, you may have a large number of people coming back to school and needing to borrow money to pay for it cuz they have lost their job.
You have once again mislead your readers into thinking a loan company has preyed on poor need students. As a reporter you should have the facts and print in the variables. If Nelnet doubled, than most likely whomever spot they took on that lender list, ie Sallie Mae, lost their share and Nelnet took it and therefore Nelnets is up and Sallie Maes (or whoever they won it from because of a better borrower benefit for students most likely) is down. Kay
Nelnet's Doubling Claim
Truth to Power
Higher Ed Watch
Higher Ed Watch has addressed the issue of tuition discounting multiple times in the past. Below are two blog posts referencing the issue.
http://www.newamerica.net/blogs/2007/04/sunshine
http://www.newamerica.net/blogs/2007/02/aid_packaging
In fact, we've taken on higher education institutions on a variety of practices, including notably admissions policies and preferences. Here are two more in house publications in that regard.
http://www.newamerica.net/publications/articles/2006/debating_early_admission
http://www.newamerica.net/blogs/2006/09/princeton_harvard_end_early_admissions
Finally and as reported widely, we've also spotlighted individual higher education officials engaged in questionable ethical practices. Our goal is to discuss topics and ideas that promote higher education access, affordability, and quality.
http://www.newamerica.net/publications/policy/a_college_access_contract
We encourage you to take a close look at all of our material. Regardless of your opinion of our work, we thank you for your readership.
Naivete taken to a new level
As someone who has devoted much of his professional career to enrollment management, it's disturbing to read such a bevy of half-truths and outright inaccuracies about it on blogs like this and in other sources. Most enrollment management professionals focus on providing access regardless of internal and external pressures to grow enrollments, increase revenues, improve in league tables and/or bend rules to suit some special interest. Day-to-day decision-making is most often about access, and trying to balance the factors I listed, plus myriad others. The use of financial aid leveraging is not mystical, nor is it some sort of complicated hocus-pocus. The truth of the matter is that the use of leveraging frequently lowers the cost of attendance for lower income students. Period.
Awarding "Meritorious students", as snidely vilified as it is in the above post, is to most observers a reasonable practice for an academic institution to undertake. These awards are granted to students based on academic performance regardless of which economic strata the student comes from. Of course, this includes lower-, middle- and high-income students. It is simply incorrect to assume that this practice - giving academic awards by an academic institution - automatically advantages higher-income students. It does not.
As a former Noel-Levitz client, I must say that it is ridiculous (based on my experience, anyway) to make some vague connection between the company's good work and a suggestion that it is somehow feeding its college clients to its corporate parent (despite the comments made by other loan industry stakeholders). During my institution's four years time as a Noel-Levitz client, there was never, ever any direct or indirect reference or connection made by a Noel-Levitz representative to Sallie Mae. The most disturbing part of the above comment for me is the connection made by the loan industry CEO suggesting that enrollment management could and will be used to increase loan volumes. That was certainly not a practice of Noel-Levitz as I observed them.
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