Two of the largest loan servicers in the country announced last week that they are merging. Nelnet, a publicly traded company, purchased Great Lakes Higher Education Corporation, a nonprofit, for $150 million. Both are contracted with the federal government to service billions of dollars of federal student loans.

Two Distinct Companies Collaborate

According to a press release from Nelnet, the two companies will operate separately for the time being and gradually merge their operations. Both of them have contracts with the Department of Education to separately service federal loans. The contracts expire in June of 2019. “[Each company] will continue to compete for new student loan volume under its respective existing contract with the Department of Education,” the release says.

Nelnet, which is headquartered in Lincoln, Nebraska, has grown its workforce to 4,000 employees in the past few years. In addition to student loan servicing, they’ve diversified their business portfolio, including creating or purchasing finance companies, purchasing Allo Communications in 2015, and investing in numerous start-ups. Great Lakes, located in Madison, Wisconsin, is a smaller organization with 1,800 employees. The nonprofit, in addition to servicing loans, holds the guarantees for $77 billion in FFELP loans. Great Lakes also funds educational grants and programs to boost college entry and success rates for underserved populations. Each company services over $200 billion in federal and private loans.

Nelnet and Great Lakes had already been collaborating on a new servicing platform for student loan borrowers. The Obama administration proposed a single servicing platform in 2016, and the Trump administration is also looking to implement one. (Remember, this is different from the nixed single servicer model that the current administration proposed and then canceled. Multiple servicers will remain, but borrowers will access their accounts through a single platform.)

Effects of the Merger

What does this mean for student loan borrowers whose loans are serviced by these two companies? Right now, nothing will change. Loans will continue to be serviced as normal by the two separate companies. It will be at least a year and a half until operations may change for the borrower, if at all. However, given that borrowers’ loan servicers can change anytime, this is much like business as usual.

How will this affect the general loan servicing landscape? Some experts are concerned that a merger of two of the biggest loan servicers will lower servicing quality as the competition, and the incentive to be better, diminishes. Federal servicers already face significant numbers of borrower complaints that have even led to state investigations and lawsuits. Whether things will improve or worsen with this new merger is unclear.

While Nelnet and Great Lakes have entered into a “binding agreement” between themselves, the deal is not complete until federal regulators certify it’s in compliance with anti-trust laws. It is expected to officially be settled by January 1, 2018.