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Nelnet (NNI) Issues Statement Regarding Department of Education NextGen Business Process Operations Proposal

June 22, 2020 8:17 AM EDT

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Nelnet (NYSE: NNI) announced today that the U.S. Department of Education, Office of Federal Student Aid (Department) has notified the company that the company's proposal in response to the Business Process Operations (BPO) component of the Department's Next Generation Financial Services Environment (NextGen) contract procurement process has been determined to be ineligible for award, claiming the company's response did not meet certain requirements related to small business participation. BPO is the back office and call center operational functions for servicing the Department's 43 million student loan customers. Nelnet has requested a debriefing by the Department, and the company is considering its legal options, including filing a protest challenging the decision.

"We are shocked that the two highest rated servicers and the dedicated employees who are responsible for achieving those rankings will not be considered by the Department for this contract," said Jeff Noordhoek, chief executive officer of Nelnet. "We are frustrated and disappointed by this decision and the lack of transparency in the process and will pursue every legal avenue available to ensure that students have the high quality service they've come to expect from us. The federal student loan program is very complicated to administer, and to simply throw away the training and experience of Nelnet, Great Lakes, and our dedicated associates is a recipe for an implementation disaster that will negatively impact borrowers."

The Department's NextGen contract procurement process is comprised of solicitations, including BPO and the Enhanced Processing Solution (EPS) transitional information technology platform, which will make up a new framework for the servicing of all of the student loans owned by the Department. On April 2, 2020, Nelnet announced that the Department had notified the company that the company's response to the EPS component was determined to be outside of the competitive range and would receive no further consideration for an award. The company has filed an initial and two supplemental protests with the Government Accountability Office challenging the Department's EPS decision. The company cannot predict the outcome of these protests. A decision is expected by late July.

Nelnet Servicing, LLC (Nelnet Servicing) and Great Lakes Educational Loan Services, Inc. (Great Lakes) were awarded student loan servicing contracts by the Department in June 2009 to provide servicing for loans owned by the Department. As of March 31, 2020, Nelnet Servicing was servicing $185.5 billion of student loans for 5.5 million borrowers under its contract, and Great Lakes was servicing $243.2 billion of student loans for 7.3 million borrowers under its contract. These servicing contracts expire on December 14, 2020 with two potential six-month extensions at the Department's discretion through December 14, 2021. If the Department's contract decisions stand, Nelnet Servicing and Great Lakes will eventually be required to migrate these portfolios onto another provider's system and the company would restructure the company's loan servicing segment for long-term success.

Nelnet will continue to be a leader in servicing Federal Family Education Loan (FFEL) Program, private education, and consumer loans for clients. As of March 31, 2020, the company was servicing $48.7 billion in FFEL Program, private education, and consumer loans for 2.1 million borrowers. The company continues to have opportunities to increase its private and consumer loan servicing for FinTech lenders, as well as professional services for businesses and states.

"The Department's contracting decisions are difficult and, if they stand, they will have a long-term impact on Nelnet," added Noordhoek. "Fortunately, we are financially strong and have diversified significantly over the years. Moving ahead, I'm confident there will be better days and we will continue to grow our core businesses and invest in new opportunities by focusing on exceptional service and leveraging our great place to work."



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