Student loans and grants are waiting in the wings in Washington.
It’s a big issue in a college town.
Especially if one of the titans in the college loan industry is headquartered right here.
In the stack of legislation backed up behind health care reform is President Barack Obama’s proposal to convert a hybrid college loan structure into a unitary system of direct government loans.
The Obama plan has passed its House test and is awaiting a tougher Senate exam.
Obama wants to use the "savings" derived from his proposed change to increase and expand Pell grants, opening the door to a college education for more students with modest resources.
The private student loan industry is fighting the president’s plan and offering a compromise of its own.
In the center of this arena is Nelnet, a student loan giant with headquarters in Lincoln. The company employs 900 people here.
Its annual Lincoln payroll is an eye-popping $33 million.
Add to that local purchases, infrastructure investments, taxes.
Although Nelnet firmly opposes the Obama proposal, the company has taken transformative steps to survive and thrive in the future, whatever Congress decides to do.
"We have positioned ourselves to be fine, no matter what happens," says Jeff Noordhoek, president of Nelnet.
In recent years, Nelnet has diversified into a company offering a host of education-related products and services in addition to federal student loans.
Last June, Nelnet was one of four lenders awarded a lucrative five-year federal contract to service direct student loans the government has assumed.
This is big bucks.
Not only nationally and for Nelnet, but in terms of individual student debt.
University of Nebraska-Lincoln students who acquired student debt at UNL and received an undergraduate degree last May walked out with a diploma and an average $17,551 student debt.
Under the standard repayment plan, they will pay $201.39 a month for the next 10 years.
And, at the end of it, they will have paid $24,166.80 in principal and interest.
If that lesson in compound interest is a little jarring, the figures for Law College graduates are even more bracing.
Average student debt for 2009 UNL Law College graduates who borrowed as an undergraduate or law student while at UNL was $49,698.
Steel yourself now: $571.93 a month for the next 120 months. Total principal and interest: $68,631.60.
In addition to those student debt figures, there often are additional family student loans on top of it.
This is big business.
More than $100 million was loaned to UNL students and their parents last school year.
The resulting debt represents a big obligation for individual students that will influence — and sometimes change, disrupt or delay — decisions in their lives.
But it’s also an investment.
"I tell (undergraduate) students it’s a car that won’t rust out," says Craig Munier, director of scholarships and financial aid at UNL.
Achieving a college degree will yield an estimated $1 million more in lifetime earnings than the amount earned by those who gain only a high school education, according to studies that Munier cites.
"There’s good borrowing and bad borrowing," he says.
Back to Nelnet.
What if the president’s plan is approved?
"It’s a mixed bag for us," Noordhoek says.
"Short-term, a net negative. A push long-term."
If Obama’s plan is adopted by Congress, some positions at Nelnet — including front-end jobs originating loans — would disappear, while the number of jobs servicing loans would grow.
"There will be winners and losers," Noordhoek says.
"The vast majority of lenders in the industry would be eliminated."
Nelnet’s favorable positioning does not erase its staunch opposition to the Obama proposal.
Private sector jobs would be lost, Noordhoek says. Companies would fail.
"We believe choice and competition is essential," he says.
It’s the same philosophical argument the Obama administration makes in pushing for health care reform, he suggests.
"Here, we already have a government option and a private option," Noordhoek says.
The current student loan system wastes taxpayer money on subsidies for private lenders when those funds could be used to increase access to college, Obama argues.
"Tax dollars (should) go directly to help students pay for tuition, not to pad the profits of private lenders," the president said in remarks at the White House last April.
Federal Family Education Loans, the student loans administered in the private sector, come with "a big government subsidy," Obama said, while the government assumes the risk.
Tens of billions of dollars could be recaptured over the next 10 years to pay for expansion of Pell grants, the president says.
The 10-year estimate from the Congressional Budget Office is $87 billion.
Most of that would be plowed into Pell grants that go to low-income students based on need.
The House bill would increase the maximum annual Pell grant from $5,350 to $5,550 in 2010 and to $6,900 by 2019.
Those figures also would be linked to inflationary increases in the future.
The House Education and Labor Committee argues that the bill would continue to secure a vital role for the private sector.
"Rather than force private industry out of the system, the bill will forge a new public-private partnership that provides all borrowers with the highest-quality customer service when repaying their loans and maintains jobs," according to a committee statement.
Private lenders would be selected to service loans based on their track record for serving borrowers.
Nelnet was one of four providers — including Sallie Mae, the nation’s largest college loan company — to pass a performance test last June.
Students at UNL receive direct government loans rather than subsidized private sector loans.
"We love the program," Munier says.
"It’s simpler to administer and to understand. It’s a streamlined process.
"There is significantly lower administrative cost," he says.
After the traumatic plunge in family investment values during the current economic recession, students have found themselves more and more on their own.
"A lot more are applying for financial aid this year," Munier said.
About 3,700 students at UNL benefit from Pell grants, and almost all of them also have student loans.
"A lot of them would not be in college without Pell," Munier says.
"Not only are they here, but Pell grants allow them to have a much different experience. A fuller college experience.
"They can be in student government or play in the marching band, and have the experience of living on campus, instead of working 40 to 50 hours a week.
"A lot of good things can happen," he says.
Munier suggests he and other members of his generation have a vested interest in seeing more of these kids acquire a college education.
"The standard of living I enjoy in retirement will depend on how well they’re doing," he says.
The terms and conditions for direct government loans and government-subsidized private sector loans are essentially the same.
"Students are charged one rate," Noordhoek says.
"We’re allowed to keep a small portion. It’s really a negative subsidy, or interest rate rebate."
Interest does not accrue on the loan while the student is in school; the federal government pays the interest during those years.
The current interest rate for subsidized, or needs-based, loans for undergraduate students is 5.6 percent, but some students borrowed money earlier at a rate as high as 6.8 percent.
The rate for unsubsidized loans and graduate student loans is 6.8 percent.
Interest rates are scheduled to dip as low as 3.4 percent in 2011.
The House legislation would prevent them from jumping back to 6.8 percent in 2012, as currently scheduled.
"It’s very likely interest rates would come down if it’s all government loans," Munier says.
"No one can borrow at a lower rate than the U.S. government."
Southeast Community College has enjoyed "excellent relations" with Nelnet, Dave Sonenberg says.
But the dean of student services/financial aid at SCC’s Lincoln campus says he harbors "no real concerns" about the proposed switch from private lending to direct government loans on his campus.
"I don’t anticipate any real problems for us," he says.
Although opponents of the Obama plan argue that such a massive transfer of loan responsibilities from an estimated 4,500 colleges to the federal government will be chaotic, Sonenberg says the feedback he’s received from other institutions points to "no significant issues in terms of staffing or budgeting."
At this point, he says, he sees "no reason to be fearful of that potential switch."
SCC will prepare for the possibility of moving to direct government loans, he says, and be ready to "pretty much flip the switch when it’s time."
"We don’t care which way we go," Sonenberg said.
"We support whatever benefits the student the best."
Sonenberg is an enthusiastic supporter of expanded Pell grants.
"That would be a positive step," he says. "It would help an awful lot of needy students.
"No question, there are many students who wouldn’t be here without Pell grants."
SCC enrollment is headed for record numbers again. Among the 10,600 students, more than 8,000 are enrolled on the Lincoln campus.
About 80 percent of them receive some type of financial aid, including student loans, Pell grants and institutional aid.
Last year, 5,647 students received loans. There will be more this year, Sonenberg says.
Pell grants on the campus last year exceeded $10 million.
"The great thing about where we work is we realize the impact they have on students," Sonenberg says.
"We’re in position to change lives here.
"Without that funding, those students do not walk across the stage."
Private lenders have proposed an alternative to the Obama plan that protects private sector jobs and still funds increased Pell grants, Noordhoek says.
Recently, lenders tweaked their proposal to essentially free "virtually the same amount of money" for Pell grants, says Noordhoek, who himself was a recipient of a Pell grant when he was in school.
Call upon the private sector student loan infrastructure to continue to originate, deliver, service and maintain the loans, a coalition of private lenders argues.
Contract with them in a new fee-for-service system for loan origination, servicing and collection, they suggest.
No good reason to risk 35,000 private sector jobs, Noordhoek says.
No reason to further strain a burgeoning national debt, he says.
"We have a firm belief they should not nationalize a massive student lending program," Noordhoek says.