Colleges Act Quickly To Switch Student Lending Systems

March 26, 2010

loan applicationThe landmark student loan overhaul passed in Congress yesterday will compel hundreds of colleges and universities to rapidly switch from private lenders to the U.S. Education Department as the sole provider of government-backed student loans.

The Washington Post reports that according to federal data, nearly 48 percent of the nationwide total of colleges and universities have already made the transition to direct lending--2,462 schools in all. About 40 percent, or 2,094 schools, are in the process of making the switch or are taking steps to prepare for it. About 600 schools have not yet acted at all.

"This isn't an easy transition," noted Justin Draeger, vice president for public policy for the National Association of Student Financial Aid Administrators, who was quoted by the Post. "But I think colleges and universities are going to do everything they can to ensure that students have an uninterrupted supply of loans this year. Now it's crunch time. It's going to take some resources, some time, some outreach to students."

Schools which have already switched systems report that the transition was relatively painless and very worthwhile. "The program has allowed (us) to provide our students with loan funds very quickly and with minimal paperwork on their part," said Christopher D. Murr, interim director of financial aid and scholarships for Texas State University, who was interviewed by the Austin American-Statesman. "The short processing time with Direct Loans had generally reduced stress among our student loan borrowers, who are sometimes in serious financial need, and allowed them to better focus on their academics rather than worrying about when their loan funds will arrive."

The Statesman reports that even before the legislation was passed, the University of Texas planned to switch to the Federal Direct Loan Program by this summer.

"We simply can't afford the risk of the disruption in the flow of loans to students who rely on them to pay their college costs," explained Tom Melecki, director of student financial services at UT.

Many colleges are still concerned about making the transition. Michael Angulo, executive director of the state Higher Education Student Assistance Authority, told New Jersey's Star-Ledger that switching would involve retraining and changing computer systems prior to the fall semester.

"This is the busiest time of year for our schools," he said. "We're not sure whether the federal government has provided enough support or resources to help these institutions--which may have one person in their financial aid offices--try to process all of this."

Others are concerned about the Education Department's ability to handle the jump in student loan applications. "We'll see how that goes," said Melissa Gregory, director of financial aid at Montgomery College in Maryland, who was interviewed by National Public Radio. "Can they handle the service component? Calls from students, explaining things to students--that will be a real challenge for the Department of Education, and it's once they say they're ready to handle."

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