Nelnet (NYSE: NNI) announced yesterday that it has entered into a definitive and binding agreement with Great Lakes Higher Education Corporation to acquire 100% of the stock of their student loan servicing company, Great Lakes Educational Loan Services, Inc. (Great Lakes).
Jeff Noordhoek, Nelnet CEO said,
"We are bringing together 90 years of industry experience, including providing outstanding service to federal and private student loan borrowers, lenders, and schools. With our combined resources, we will take an approach that features best-in-class technology systems, proven operational capabilities, and customer experience innovations, to create a superior experience that ensures all borrowers find the best repayment options for their individual circumstances. Great Lakes and Nelnet now have the opportunity to transform student loan servicing for millions of borrowers, providing a consistent and unmatched borrower experience and the best technology for student loan servicing."
Headquartered in Madison, Wisconsin, Great Lakes and its parent affiliated group have been helping students access higher education since 1967. Today, Great Lakes has 1,800 employees. Great Lakes CEO Jeff Crosby said,
"Today is a great day for Great Lakes and our employees, and the customers we have the opportunity to serve. Great Lakes and Nelnet have been leaders in student loan servicing for decades by focusing on operational excellence and by believing we can always do more to serve our customers. Our values and teams complement each other and I am confident we will be able to do even more to improve the lives of the borrowers, lenders, and schools we serve as a part of the same team."
In 2009, Great Lakes and Nelnet were awarded contracts to service government-owned student loans on behalf of the U.S. Department of Education. These contracts are set to expire in June 2019.
According to the company announcement, Great Lakes and Nelnet will maintain their distinct brands, servicing operations, and operational teams, with Jeff Crosby leading Great Lakes as its CEO, and each will continue to compete for new student loan volume under its respective existing contract with the Department of Education. Over time, shared services teams will integrate and support both the Great Lakes and Nelnet servicing operations.
Nelnet and Great Lakes have also been working together for almost two years to develop a new, world class servicing system for government-owned student loans through a joint venture. The servicing platform under development will utilize modern technology to effectively scale for additional volume, protect customer information, and support enhanced borrower experience initiatives. The efficiencies gained by leveraging a single platform for government-owned loans supporting millions more borrowers will give Great Lakes and Nelnet opportunities to invest in strategies to further enhance borrower experiences.
"Moving forward with the development of our state-of-the-art loan servicing platform will enable us to provide the best possible experience for borrowers as our organizations come closer together," said Joe Popevis, president of Nelnet Diversified Solutions (NDS). NDS owns Nelnet Servicing, Nelnet's servicing business, and will also own Great Lakes' servicing business. "This transaction accelerates our technology integration and collaboration, leaving us in the strongest position possible to enhance the development of the new platform."
Under the terms of the agreement, Nelnet will pay $150.0 million in cash for all of the outstanding stock of Great Lakes. The transaction will settle on January 1, 2018, subject to customary closing conditions, primarily the expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
Great Lakes will also continue to provide technology and certain administrative support services to Great Lakes Higher Education Corporation pursuant to a guarantor services agreement.
Nelnet's expected acquisition of Great Lakes pairs two of ED's four primary student loan servicers; the others are Navient and FedLoan Servicing.
This transaction comes just a few months after U.S. Secretary of Education (ED) Betsy DeVos announced her intent to transform how the Federal Student Aid Fund (FSA) provides customer service to more than 42 million student loan borrowers, calling it “Next Generation Processing and Servicing.” As part of ED's August announcement, Dr. A. Wayne Johnson, the new Chief Operating Officer of FSA commented:
“The FSA Student Loan Program represents the equivalent of being the largest special purpose consumer bank in the world. To improve customer service, we will take the best ideas and capabilities available and put them to work for Americans with student loans. When FSA customers transition to the new processing and servicing environment in 2019, they will find a customer support system that is as capable as any in the private sector. The result will be a significantly better experience for students – our customers – and meaningful benefits for the American taxpayer.”
A single-platform for servicing ED's portfolio, estimated $1.4 trillion, certainly makes sense for borrowers with multiple loans, who may currently deal with multiple servicers on different databases. It seems that the ongoing project to develop a servicing platform was a bet by Nelnet and Great Lakes that their system (known as "GreatNet") would be just what ED would be looking for. Perhaps the closer ties between the companies were to be expected.