U.S. Urges Colleges to Get 'Direct Loan Ready'
Data released by the U.S. Education Department this month showed that the share of federal student loans disbursed through the government's direct loan program rose by 47 percent from 2008 to 2009, while the share distributed through the lender-based Family Federal Education Loan Program fell by 17 percent. Much of that shift was attributable to the turbulence in the financial markets that threatened the capital available to private-sector lenders, leading Congress and the Bush administration to step in last year to pass legislation ensuring the continued flow of student loans.ensure Even the dramatic shift in loan volume over the past 12 months, though, has left the guaranteed loan program with 58 percent of all federal loans disbursed in the first quarter of the current 2009-10 fiscal year -- even though, under legislation promoted by the Obama administration and now before Congress, the lender-based program could vanish by the start of the 2010-11 fiscal year, a mere nine months from now. That prospect has created some anxiety (readily stoked by supporters of the bank-based program) among financial aid officers, many of whom like the guaranteed loan program, are nervous about the switch, and/or are feeling pressure from the Education Department to make the switch, as if passage of the bill is a legislative fait accompli. (Some college officials have bristled at the oft-repeated suggestions that the guaranteed loan program "is on life support.") On Monday, Education Secretary Arne Duncan sent a letter to college presidents Monday with a slightly softer tone, though the same basic message. It urged them to take a series of steps to make sure their institutions are "Direct Loan-ready," so that "loan access for your students will be assured." "As you may know, President Obama has proposed that Congress make the loan system more reliable by moving to a 100 percent Direct Loan delivery system," Duncan wrote. "In any event, under current law, [the 2008 law that provided federal money to buttress the bank-based program] will expire, and the continued participation of FFEL Program lenders will be in question."
