It may seem odd to hear the CEO of one of America’s largest student loan companies say that student debt is a problem, but that’s exactly how Jeff Noordhoek sees it.
The Nelnet CEO showed shareholders a chart during Thursday’s annual meeting in Lincoln that illustrated how the amount of outstanding student loan debt has grown more than five-fold in less than 20 years — from $330 million in 2003 to $1.75 trillion last year.
“That’s a big number,” Noordhoek said. “In fact, it’s too big.”
He and other Nelnet officials expect that President Joe Biden is going to use an executive order to forgive some level of student loan debt, but as far as Noordhoek is concerned, that won’t solve the problem of the runaway cost of higher education.
“Even if they forgive debt to any level, there will be $160 billion more borrowed the next year and the year after that and the year after that,” he said.
Jacque Mosely, the company’s director of government relations, said “the probability’s pretty high” that Biden will provide student loan forgiveness through executive action of $10,000 per borrower, possibly within the next few weeks.
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Jim Krueger, Nelnet’s chief financial officer, estimated that a $10,000-per-borrower loan forgiveness program would reduce the company’s expected future cash flow from its loan portfolio by about $600 million, from $1.8 billion to $1.2 billion.
Nelnet, which has a portfolio of older federal loans and also services billions of dollars of federal student loans, would not be on the hook for the forgiven debt, but it would lose servicing fees as well as future interest payments if loans are paid off early.
On the other hand, those prepayments would mean more revenue than expected in the short term, Krueger said, which the company could choose to deploy in existing businesses or new ones.
Student loan forgiveness is not the only threat Nelnet is facing. Rising interest rates and rising inflation are both likely to have a mixed bag of effects on the company.
Mike Dunlap, Nelnet’s executive chairman, said the company could benefit from higher interest rates in its payments division and also could get higher rates on the cash it holds. On the other hand, higher interest rates could hurt Allo Communications, which Nelnet has a minority interest in, because the company carries a lot of debt due to recent expansions.
Noordhoek said one effect of inflation is increased wages for its roughly 8,000 employees, although Dunlap said that could be offset somewhat by the ability to raise prices.
Overall, 2021 was a strong year for Nelnet, with total earnings per share of $8.37, its second-best performance ever. As for 2022, Noordhoek said it’s “shaping up to be another wild ride of a year.”
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