Three years ago, the University of Nebraska’s Board of Regents, eager to find more funds for undergraduate need-based financial aid for students at its flagship campus in Lincoln, struck a deal in which the National Education Loan Network, would provide loan funds that the university would administer to its graduate and professional students. As part of the arrangement, authorized through a process known as “school as lender,” Nelnet, as the Lincoln-based lender is known, would give the institution more than 6 percent of the profits to use for need-based aid...

It appears to have been a win-win-win situation for the university, actually. The student newspaper at Nebraska reported last month that at the time the university’s regents approved the deal with Nelnet, the University of Nebraska Foundation, which supports the institution financially but is independently controlled, owned more than 840,000 shares of Nelnet stock (some of which the foundation sold the following year, at a significantly higher price). That fact was not revealed to the regents, nor did the one regent who was also a trustee of the foundation, James McClurg, disclose it under state contracting rules...

“Why is this a big deal?” Higher Ed Watch, a blog produced by the New America Foundation, said last month. "The Nelnet-NU Foundation-University of Nebraska love triangle demonstrates how, behind the scenes, universities can have multiple financial relationships with student loan providers that may undermine the integrity of their role as informed intermediaries between banks and students..."

The school as lender program has grown controversial amid concerns that by letting colleges share in lender profits, it gives institutions a financial incentive to increase their students’ loan burden. Amid those and other concerns, Congress has cooled on the program, voting last year not to let any more colleges enter into such arrangements, though allowing existing programs to continue, at least for now...

“It’s hard not to find the conflict of interest,” wrote Michael Dannenberg of the Higher Ed Watch blog last month. “UNL is a direct beneficiary of the Nebraska University Foundation, and thus has an undeniable stake in its financial health. Choosing Nelnet as its partner in 2004 (over four other student loan providers) was a profitable choice for UNL for reasons outside of the actual arrangement...”

For the complete article, please visit the Inside Higher Ed website.