There have been numerous reports and inquiries focused on the relationships between lenders and institutions of higher education participating in the FFEL Program. We are strong supporters of choice, competition, and access and believe that increased emphasis on disclosure and transparency can only enhance the value provided to students and their families.
Some recent accounts suggest possible improprieties related to Nelnet's relationships with two very separate and distinct entities: the University of Nebraska-Lincoln ("UNL") and the University of Nebraska Foundation (the "Foundation").
One account suggested a "conflict of interest" when the Board of Regents approved Nelnet as the provider of services under UNL's school as lender program because of the relationship between Nelnet and the Foundation.
Following is a brief description of the facts about these relationships:
Under the provisions of Higher Education Act an institution of higher education may serve as a lender ("school as lender") for loans made to its own graduate students. Once loans are originated, they are assets of the institution and may be held or sold to a third party for value. UNL has indicated that they began exploring the school as lender program when it became apparent that other universities in the program were providing advantageous loan terms to their students and in addition were securing additional resources that could be used for financial aid. UNL initiated a public bid process, allowing any interested private lenders to respond. Nelnet was one of five companies that responded to the bid process and each proposal was evaluated by the financial and student loan staff at UNL. Nelnet's proposal was selected based on financial aid terms, benefits to students and transition services. Through its relationship, Nelnet pays the university a premium of 6.05 percent on the total value of the loan portfolio which as required by federal law is used for financial aid. Last year this program provided UNL with approximately $350,000 in financial aid, according to UNL, that would otherwise not have been available.
The University of Nebraska Foundation is a private, nonprofit corporation securing financial support for each of the four campuses of the University of Nebraska since 1936. The Foundation bridges relationships with alumni, friends, corporations and other foundations interested in academic excellence for the University.
The Foundation is not involved in any way, shape or form with the financial aid delivery or student loan processing at the UNL. The Foundation will, and is proud to, receive donations from various alumni and university patrons. These donations have included stock in Nelnet. The Foundation has received stock in Nelnet from two primary sources:
1. Donations from the Barkley Trust, and
2. Donations from Mike Dunlap, Co-CEO of Nelnet and alumnus of UNL and University of Nebraska College of Law.
The Barkley Trust was established in the 1940's by William E. and Edna M. Barkley to help them plan for their philanthropic goals. In 1996, upon the death of the last beneficiary of the trust, the remaining interest in the trust, then valued at $30 million, was automatically turned over to the Foundation in accordance with the trust documents. At the time the remainder in the trust was donated, it held shares of Union Bank & Trust. In 2000, UNIPAC Service Corporation ("UNIPAC"), a wholly-owned subsidiary of Union Bank was spun out as a separate company. As part of that transaction, the Barkley Trust and as such the Foundation received ownership shares in UNIPAC. UNIPAC is the predecessor company to Nelnet and went public in December of 2003. The Foundation has advised us that it began selling shares after the company went public in 2003 but still holds shares today.
Mike Dunlap, Nelnet's CEO and alumnus of UNL, periodically makes donations of Nelnet stock to the Foundation as part of his normal charitable giving and estate planning. During the past three years, Dunlap has donated 40,000 shares of Nelnet stock to the Foundation and will continue to donate shares in the future based on the same normal charitable giving and estate planning practices.
Given the public bidding process and extensive proposal evaluation process UNL engaged in, we struggle to see how it could be suggested that a "conflict of interest" existed. In fact, UNL followed a structured process of selection in awarding a contract to the company it felt would best serve its students, with no relationship to the investments of a separate and distinct organization such as the Foundation.