Nelnet, the nation's largest servicer of federal student loans, has filed an application to establish a Utah-chartered industrial bank.

Nelnet, of Lincoln, Neb., said Thursday it filed applications with the Utah Department of Financial Services and the Federal Deposit Insurance Corp.

Industrial banks can make loans and take deposits like other banks, but they are exempt from the requirements of the 1956 Bank Holding Company Act, which means they can be owned and operated by nonfinancial companies. The Bank Holding Company Act restricts regulated institutions to activities closely related to banking.

Community bank advocates, including the Independent Community Bankers of America, have grown increasingly leery of industrial loan applications in recent years, expressing concerns that mammoth companies such as Walmart or Amazon could use the charter as a back door into banking.

In October, in response to applications for deposit insurance and an industrial bank charter filed by the payment processing firm Square, the ICBA wrote to the FDIC opposing the application. The trade group urged the agency to impose a two-year moratorium on consideration of deposit insurance for any proposed industrial bank.

According to the Utah Department of Financial Services, 14 institutions currently hold active industrial bank charters, with applications from Square and now Nelnet pending.

Nelnet spokesman Ben Kiser said the company expects the application process to take "an extended period of time."

Nelnet’s planned bank would be an online institution focused on gathering deposits and making private student loans.

"When in-school borrowers exhaust their federal student loan options, they need alternative sources of funding with affordable interest rates,” Tim Tewes, Nelnet's president, said in a press release.

To manage the application process, Nelnet tapped veteran banker Andrea Moss, who recently stepped down as president of the $8.3 billion-asset Comenity Capital Bank in Salt Lake City, which is itself an industrial bank. Moss would also lead Nelnet Bank if its applications are approved.

In addition to the massive, $470 billion portfolio it services, Nelnet was a major originator of student loans prior to 2010, under the Federal Family Education Loan Program, or FFELP. In 2010, the government began making student loans directly through the Department of Education, limiting Nelnet’s asset-generation operations.

While Nelnet still holds loans it made before 2010 and has purchased a number of portfolios originated by other lenders, its student loan assets have been steadily rolling off. The company's average balance of loans fell by 12% in the first quarter from a year earlier, to $21.9 billion.

In its 2017 annual report, Nelnet identified repositioning the company "for the post-FFELP environment” as a key corporate goal.

Nelnet has historical ties to the banking industry. It was founded in Lincoln in 1978 to service student loans for two local community banks.

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