Paying for higher education is just one of many worries facing Americans during these troubling economic times. People understand that, in order to be qualified for many jobs in today’s society, some sort of higher education is necessary. But how will they find the finances to help them expand their professional skills? Earlier this year, the House of Representatives passed the Student Aid and Fiscal Responsibility Act which gives the government sole control over lending student loans. With the proposed new loan program, private lenders would no longer have the ability to directly grant loans to students. While the new legislation passed in the House, it still has yet to receive approval from the Senate.
As with any issue that involves change, individuals, companies and schools all differ in opinion as to why the new program would be beneficial and/or detrimental. Luke Thomas, Communications Manager for the Career College Association, said the direct lending program is a “really clear and direct signal that no matter what the economic background, the government is going to provide a clear, safe, secure way to get the resources you need to pursue postsecondary education.”
The University of Missouri – Kansas City (UMKC) converted to the direct lending program at the beginning of the 2009-2010 school year. Simplification is a reason UMKC converted, as well as the fact that borrowing directly from the government offers the most secure and efficient manner of obtaining federal loans for
For schools that have interest in making the conversion to the Federal Direct Lending Program, the National Direct Student Loan Coalition offers many services to help make the transition as smooth as possible. The coalition consists of financial aid professionals with expertise in federal compliance who serve as mentors to provide schools with information such as communication strategies for students and parents and training options for staff members.
Janice Dorian, owner of Mansfield Beauty Schools, converted to the direct loan program many years ago. She said, “The FFELP program was too confusing, and students never knew when their loans were sold or who was servicing their loans.” Students did not know who to contact and often ended up going to the wrong person, and loans often ended up delinquent or defaulted. Dorian made the conversion on her own without any new software, configurations or additional costs. She said she is her own I.T. department and a one-person financial aid office. “A lot of people think it’s a lot harder than it really is,” said Dorian. Administering direct loans is exactly like administering the Pell Grant program, which all Title IV institutions currently do.
Anthony Fragomeni, Director of NWSHC, also switched over to the direct loan program many years ago. His reasoning for choosing the direct loan program involved the issue of lender last resort. By choosing loans directly from the government, Fragomeni’s students no longer had to worry about the possibility of not receiving loans from private lenders. He said the issue with the direct lending program today has to do with the servicing of the government’s program. One of the biggest selling points of the proposed bill revolves around the single point of contact. With the increased number of loans the government will be issuing, additional servicers will be needed to manage the collection and servicing of the loans. Fragomeni believes this potentially the poses same problems that existed in the FFELP program. Fragomeni went on to say, “The single point of contact was such an attractive feature that cut down on students’ confusion as to who they owed money to. We’ll have to wait and see and trust that the Department has the answers that the private sector found
While some favor the Direct Federal Lending Program, many others do not see the conversion as necessary or in the best interest or students. In a statement from the Consumer Bankers Association President, Richard Hunt said, “We believe a competition-based student loan program is still the best choice for students, schools and taxpayers. Bipartisan reform that saves money and preserves choice for schools and students is still achievable.”
Sharon O’Neal, Director of Corporate Communications at the National Student Loan Program, says that lenders and guaranty agencies in the private sector Federal Family Education Loan Program provide a wide range of high-quality borrower support services for college outreach, loan counseling, borrower advocacy, financial literacy, repayment assistance and default prevention. “Lawmakers should make sure these critical services continue,” said O’Neal. “Many of them came about as a result of competition and because there’s a choice of loan providers. Without these types of services, student loan borrowers may suffer.”
With the bill still in question, Representative John Kline and Senator Mike Enzi are trying to deter the bill from passing. In a press release on November 18, Kline and Enzi introduced a bipartisan legislation with the purpose of extending the Ensuring Continued Access to Student Loans Act. If passed, this act would allow higher education institutions to remain in their current student loan programs. Enzi said, “Serious problems persist in the financial markets, and many private and nonprofit lenders are considering leaving the program when the current extension expires on July 1 of next year. The potential consequences could be catastrophic for America’s college students, and many of them might not be able to get student loans for the 2010-2011 academic year.”
By Rachel Ryan