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Counterpoint: Why We Choose Direct Lending

Counterpoint: Why We Choose Direct Lending

May 27, 2009

President Obama’s proposal to end the Federal Family Education Loan Program (FFELP) and convert the savings ($94 billion, according to the Congressional Budget Office) to the Pell Grant Program will have a huge, positive impact for students.

Remember the years during which funding for the Pell Grant Program was an afterthought and our students suffered? Student loans increased each year that the Pell Grant Program stagnated. I know that at my school our student borrowing increased more than 150 percent during that time. I’ve talked with many financial aid directors, who utilize FFELP, and they acknowledge the fact that FFELP companies, such as Sallie Mae and Chase, are in the business to make a profit.

Well, where do you think that profit comes from? It comes from our students and it comes from us, the U.S. taxpayer. These loan companies and guarantors are in the business to make MONEY, period. I’m not against free enterprise and am not against any company making a profit. That is what they are supposed to do, but making that profit off of my students is unacceptable when there is a viable alternative available.

It also amazes me when diehard FFELP financial aid directors talk about how they don’t want to switch to the Direct Lending Program because they worry about increasing their default rates. The facts show that exactly the opposite is true. According to the Department of Education’s statistics, the Direct Lending Program in all but two years (yes, just two years) has had a markedly lower default rate on average, 20 percent lower, than FFELP.

While the Federal Family Education Loan Program has indeed improved over time, it still cannot compete with the simplicity and efficiency of the Direct Lending Program. In fact, in the time that it took me to write the last two sentences, I’ve sent up student loan originations, changes and disbursements to the Common Origination and Disbursement (COD) center and have already received acknowledgments back. I wonder if any FFELP school could say the same. Oh, and during that same time, I also received back acknowledgments for our Parent Loans (PLUS), Pell and Academic Competitiveness Grants.

Students utilizing the Direct Lending Program do not have to search through any preferred lender list to figure out which lender would be the best for them, because DL schools utilize one lender, the U.S. government. Speaking of lenders, I wonder how many students were caught unaware when their lenders went out of business or stopped making student loans because they weren’t as profitable as they once were a few years ago.

I also wonder how many students that utilized FFELP lost track of where their student loans were. In the financial aid office here, one of my financial aid advisers graduated from a FFELP school and has lost count how many times her student loans were sold to other lenders. While I haven’t experienced this for myself with the student loan program, I have experienced this several times over the years with my mortgage. Those experiences were not very encouraging.

At my school the Direct Lending Program has saved us countless hours on reconciling loans, and since we don’t have to get involved with each different lender to advocate for our students, we’ve been able to devote our time to help our students understand money management and budgeting, which will help them throughout their lifetimes.

Colleges all over the country are switching to the Direct Lending Program and are now finding out for themselves how streamlined it is. All of the processes, from entrance and exit counseling, to signing a multi-year electronic master promissory note, to origination, changes and disbursements are extremely user friendly for our students. The great thing about making the transition is that you are already using the COD system to originate your Pell, AC and SMART Grants, so there isn’t any learning curve.

These are just some of the many reasons that my college chose the Direct Lending Program for our students, and why we would make the same choice again.

Bio

Tim Wendt is director of financial aid and veteran services at Parkland College. This essay also represents the views of Peg Julius, director of enrollment management at Kirkwood Community College; Paula Carpenter, director of financial aid and veteran services at Lake Land Community College, and Judy Florian, director of financial aid at Macomb Community College.

 

 

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