Student Lending Analytics Blog

Nelnet 10-Q Provides Details on DL Servicing Contract and Another Whistleblower Suit

First the earnings report, which Wall Street cheered by pushing the stock higher by 7% to $15.64:

Nelnet (NYSE: NNI) today reported base net income of $50.2 million, or $1.01 per share, for the third quarter of 2009, compared with $23.4 million, or $0.47 per share, for the same quarter a year ago. For the first nine months of 2009, the company reported base net income of $113.5 million, or $2.30 per share, compared with $65.2 million, or $1.33 per share, for the first nine months of 2008. Base net income excludes discontinued operations, restructuring charges, and certain liquidity-related charges.

Here are a few of the highlights of the Nelnet 10-Q filed today:

• Nelnet provided some additional details on the federal loan servicing contract which they were awarded with Sallie Mae, Great Lakes and AES/PHEAA (bold type below is provided for emphasis):

SEC To Probe Revenue Recognition Practices of University of Phoenix Parent

Apollo Group, the parent company of the University of Phoenix, is facing an informal probe from the SEC into their revenue recognition practices.  This probe, disclosed by the company in their quarterly conference call today, led to the stock dropping as much as 20% in after-market trading.  Details seemed scant, which may have led to the sharp selloff, given how much investors detest uncertainty:

"Apollo, parent of the University of Phoenix, said on Tuesday that it intends to cooperate with the U.S. Securities and Exchange Commission's inquiry, but did not give further details. The scope, duration or outcome of the inquiry could not be determined, Apollo said.  A spokeswoman for Apollo, Sara Jones, said the information in the statement was all it had at the moment."

This is how they disclosed the probe in the 10-K, which was also filed today:

Whistleblower Lawsuit Filed Against Nelnet and Other Student Lenders

From an exhibit to Nelnet's 8-K filing earlier this week:

• What is a qui tam lawsuit?:  "...a civil case brought by one or more individuals (a “relator”) on behalf of the federal government for an alleged submission to the government of a false claim for payment." Also known as a whistleblower case where "If successful, the relator may claim a share of the government’s recovery in the case."

• What are the allegations?:  "The Complaint alleges that the defendants knowingly presented and caused to be presented to the Department of Education false and fraudulent claims, records and statements in order to obtain illegal special allowance payments on FFELP loans in violation of the Federal False Claims Act. Specifically, the Complaint alleges that from 2002 through 2006, Nelnet and other defendants submitted claims to the Department of Education for special allowance payments on certain FFELP loans at a rate of 9.5%, which the relator alleges is higher than that allowed under applicable law."

Proposed Self-Certification Form Posted; Comment Period Ends December 1st

Here is a download of the proposed form which appeared in this Federal Register announcement last Friday:  Download Att_Private Loan Self Cert Form.09.21.09.CLEAN.

The sixty day comment period for this proposed form ends on December 1, 2009.  Based on my earlier analysis of HEOA, NPRM and Regulation Z, here are some of the requirements with this form: 

More On Curing A Defaulted Loan...And A Mounting Backlog of Rehab. Loans in the Pipeline

Thanks to Tim Fitzgibbon of NCHELP for providing a clarification on my recent post "How Do I Cure A Defaulted Student Loan?"

On Private Loans and Bankruptcy

I spent more time rereading written testimony given to a subcommittee of the House Judiciary Committee to and thinking about this issue of how private student loans should be treated in bankruptcy. The crux of the matter seems to be an access issue vs. an equity issue.  On the access side, there are those who will argue that private loans will be more difficult to get if the rules are changed to make them fully dischargeable in bankruptcy.  On the equity side, are the consumer advocates who ask why private student loans seem to receive the same special consideration in bankruptcy as outstanding income taxes, alimony, maintenance and child support in not being fully dischargeable. 

Here are some answers to questions that I thought might further the debate: 

What happened to interest rates on private student loans after the provisions limiting the dischargeability of private student loans passed in October 2005? 

How Is Senate Student Loan Reform Bill Different From House Bill?

The Chronicle of Higher Education reports the following differences (the draft of a Senate bill is expected to be released next week, a bit later than the September 30th mark-up date for the HELP committee that had been reported earlier):

• Senate version has larger minimum Pell Grant
• Senate version has more money going to states and colleges; $4.25 billion vs. $3.0 billion for College Access and Completion Innovation Fund.  
• Distribution method for Perkins Loans differs:
  • House version would make of the award based on graduation of Pell recipients and keeping tuition increases to a minimum.
  • Senate version awards funds based on need and reduces the size of the Perkins awards based on institutions' failure to hit targets for enrolling and graduating Pell Grant recipients.  
• Draft Senate bill also includes 5% match requirement for Perkins loans which could be reduced if student borrowing was limited. 

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Here is an undated draft of the Senate bill:  Download Senate Bill_Draft   Please note that this version is probably already outdated so read the 284 pages with caution. 

SLA To Host Webinar On Complying With Regulation Z and HEOA

Here is a link to register for the event.

Please join industry expert Tim Ranzetta of Student Lending Analytics on Tuesday, October 6th from 1:00 p.m. - 2:30 p.m. (EDT) for an informative presentation on what schools need to do now to comply with the new private student loan and preferred lender regulations in Regulation Z and HEOA. 

Get answers to such questions as:

• What constitutes a "preferred lender arrangement"?
• What new requirements are in place if a school has a "preferred lender arrangement"?
  
• What will be the new disclosure requirements for institutional loan programs?
  
• What requirements will schools have if they provide any information about private education loans?
  
• What are the new disclosures that students must see when they apply for a private student loan?  

All webinar participants will receive checklists and sample disclosures to help implement the new regulations.  Participants are also encouraged to send in any questions they might have prior to the event to ensure that they are addressed during the webinar.

The registration fee for the event is $99. 

Rep. Cohen To File Legislation To Provide More "Equitable Treatment" In Bankruptcy For Private Loan Borrowers

Here is the story in Inside Higher Education, which summarizes yesterday's hearing of the House Judiciary Subcommittee on Commercial and Administrative Law (SLA Blog has summaries of written testimony of the five witnesses here). 

Congressman Cohen's press release after the hearings indicated that "Congressman Cohen announced he will soon file legislation soon to give private student loan borrowers more equitable treatment during the bankruptcy process." 

Stay tuned...

Student Loans Not Qualified Education Expense For 529 Plans

I came across this helpful Q&A on Marketplace: 

Question: I have a 529 fund for my daughter. she graduated in May. In the process of her going to school we went ahead and took out school loans. There is enough money in the 529 fund to pay the loans off. It seems to me since the funds are going to pay off an education fund there should not be any tax issues but the fund management company says paying of the school loans is not a an "approved" use of the funds. They are right that is is not "listed" on the approved list but it is paying off college loans by definition the loan was for school and went toward tuition etc. I have checked with several accountants no one seems to give me a straight answer. Eric, Grand Island, NE