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WASHINGTON - Right on the heels of the sub-prime mortgage debacle, which saw mortgage lenders providing predatory loans to people who could not afford them, it has been learned that a company attempted to buy itself favorable positioning in the highly profitable student loan business. A leading student loan company attempted to obtain special placement on the University of Maryland's preferred lender list last year, according to university officials and a government report released Tuesday.
Nelnet, based in Lincoln, Neb., tried in March 2006 to leverage its support of several university events - including $7,500 for "Maryland Day" - into being one of the companies recommended by the university for student loans. The attempt was rebuffed, university officials said.
Nelnet's actions were "perhaps the most egregious example" of a lender offering "donations or other funds in exchange for preferential treatment," the report by a U.S. Senate committee said, adding the request was rejected and other officials were notified.
An employee in the University of Maryland's office of development, which does fund-raising, came to Sarah Bauder, the director of financial aid, and said Nelnet wanted to be rated favorably for students seeking loans.
"Unbeknownst to me, Nelnet was working with our development office and our alumni office," said Bauder. "Development didn't know we had a lender list." She added that the employee approached her "innocently."
Bauder refused the request and notified the chief executive officer of Nelnet Education Services, David A. Bottegal. She also notified the office of University President C.D. "Dan" Mote.
Nelnet was one of 16 lenders, representing 72 percent of the nation's student loans, engaged in questionable practices, according to the report, which was prepared by Sen. Edward M. Kennedy's, D-Mass., staff, for the Senate Health, Education, Labor and Pensions Committee.
The report said Nelnet gave $50,000 to sponsor the University's 2006 "Maryland Day," but Millree Williams, a university spokesman, disputed the numbers. He said that while "roughly $50,000" came from Nelnet to support a documentary marking the university's 150th anniversary, only an additional $7,500 went toward Maryland Day.
Nelnet was "one of many sponsors" of Maryland Day, Williams said. At first, he said he thought the company simply wanted to benefit from exposure to students, until it became clear that "Nelnet wanted to leverage" the backing into preferential treatment.
"We said, 'Absolutely not,'" said Williams. "Lending institutions or financial service providers have to compete like any other."
Eric Solomon, a spokesman for Nelnet, called the report's findings "old news" and referred to a company statement that said, "Nelnet has helped lead the student loan industry to increase transparency in our relationships with colleges and universities. We publicly released a review of our own business practices on our Web site, which included references to virtually all of the matters in the report."
Part of Nelnet's internal review said the action was "neither condoned nor authorized, and was inconsistent with Nelnet?s policies against prohibited inducements." The review stated that the employee was no longer employed by Nelnet.
"I can only imagine what happened to the employee," said Bauder, but she said she does know that employee was working for another lender "within 48 hours."
"This is kind of a hot issue," said Andrew Friedson, student body president at the University of Maryland. "It's obviously disturbing and distressing, as a student. ... But not every company is bad and not every student loan officer is bad."
At the University of Maryland, lenders answer a biannual survey, and a committee - which Bauder is not on - maintains a list of favored lenders, which is presented to students seeking loans.
With more than 24,000 undergraduates at the university, and the average freshman receiving several thousand dollars in loans, a student loan company on the preferred list stands to attract much more business.
The list decisions are based on survey answers and other "qualitative measures," Bauder said, including customer service quality and pricing.
"People don't just ask to be on the preferred lender list," she said, calling the list stringently regulated and "stagnant."
Nelnet also approached Bauder directly about participating in Maryland Day; the company was giving away a number of scholarships at a Maryland Day game.
"(Nelnet) asked me specifically to be at the booth with them," she said, adding that she refused.