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UPDATE: One company will now handle close to -2-2-9-18 4:29 PM EST

Months after the subsidy scandal, Nelnet found itself caught up in a probe led by then New York Attorney General Andrew Cuomo.

As part of the probe, Cuomo singled out Nelnet for its relationship with alumni associations. He claimed the company entered into agreements with these groups that in some cases, allowed the firm to use the schools' logo for marketing purposes and in others, provided a kickback to alumni associations when they steered borrowers towards the company's product. What's more, Cuomo alleged Nelnet paid for spa treatments and sports tickets for financial aid employees.

Ultimately, Nelnet paid $2 million (https://ag.ny.gov/press-release/attorney-general-cuomo-announces-settlement-nations-2nd-largest-loan-consolidator) to settle the claims. Nelnet's president at the time and its current chief executive, Jeffrey Noordhoek, claimed that the company hadn't violated any laws, according to a 2007 New York Times report.

"We are pleased to put this inquiry behind us," he told investors (http://www.nytimes.com/2007/08/01/education/01loan.html) on a conference call, according to the report.

But the company found a protector of sorts in Jon Bruning, Nebraska's attorney general at the time. He initially waived the nearly $1 million settlement the company agreed to with his state after Cuomo announced his $2 million deal and repeatedly criticized his New York colleague over the investigation.

Ultimately Bruning reinstated his deal with Nelnet amid criticism that $16,000 worth of campaign donations from Nelnet and those affiliated with it made him too cozy with the company, according to a Lincoln Journal-Star article from the time (http://journalstar.com/business/in-about-face-bruning-says-nelnet-will-pay-million/article_7b1e2f3e-bc07-5ced-9228-72f07370d252.html). A year later, he bought a $675,000 vacation home with two Nelnet executives, according to the Omaha World-Herald (http://online.wsj.com/public/resources/documents/Nelnethouse.pdf).

The company has continued to work to stay on politicians' good side -- donating $167,587 during the 2016 campaign cycle (https://www.opensecrets.org/orgs/summary.php?id=D000022144ID=D000022144&cycle=2016), according to the Center for Responsive Politics, which tracks political giving. The Great Lakes deal has the potential to help increase goodwill among lawmakers towards Nelnet, Bergeron said. Great Lakes is headquartered in Madison, Wisc., expanding Nelnet's footprint beyond Nebraska. That geographic diversity offers more politicians eager to protect the company in its constituency, he said.

Nelnet has largely stayed out of the headlines since the 2007 settlements -- even as the student loan industry began to capture the attention of regulators, policymakers and the public.

As more students have increasingly taken on more debt, consumer advocates and regulators have raised concerns about the companies that help borrowers manage this growing debt are treating them. They've said that servicers often don't provide borrowers with the right information to find repayment programs that work for them.

The government can incentivize servicers to do the right thing through its contract with the companies, advocates say. The Trump administration is in the midst of soliciting proposals from companies to participate in the student loan program when the current contract expires in 2019.

It's hard to say, once the new contract is awarded, whether the combined Nelnet and Great Lakes will be responsible for the same large percentage of loans they handle currently. Still, Tarkan, who follows education companies, said in a recent note that the deal "positions Nelnet well to participate," in the new contract.

Some of Nelnet's competitors, meanwhile, have attracted unwanted attention.

Navient is facing multiple lawsuits (http://www.marketwatch.com/story/feds-sue-student-loan-giant-navient-2017-01-18), alleging the company steered borrowers towards repayment options that were better for its bottom line than that of their customers. And the Pennsylvania Higher Education Assistance Agency (PHEAA), another major servicer, was the subject of a New York Times investigation (https://www.nytimes.com/2017/07/17/business/dealbook/student-loan-debt-collection.html) last year that accused the company of collecting money from borrowers for loans for which they didn't have proper documentation.

Still, Nelnet's history and the potential pitfalls of concentrating so much power in a handful of companies has some consumer advocates wary. And as government contract officers mull whether to award Nelnet more lucrative business, Deanne Loonin, a consumer advocate and the co-author of Student Loan Law, a book detailing the rights of student loan borrowers, said the company's track record and history should be an important consideration.

"We forget at our peril," she said.

-Jillian Berman; 415-439-6400; AskNewswires@dowjones.com

 

(END) Dow Jones Newswires

02-09-18 1629ET

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