Colleges Urged To Convert Loan System

By Yaffa Klugerman
October 27, 2009

Secretary of Education Arne Duncan sent a letter yesterday to thousands of institutions of higher learning encouraging them to get ready to switch to the government's Direct Loan Program next year.

"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, reports Inside Higher Ed. The letter urged colleges to take steps to make sure their institutions are "Direct-Loan ready" to ensure that "loan access for your students will be assured."

The New York Times explains that even though the House of Representatives last month passed the Student Aid and Fiscal Responsibility Act, the Senate has yet to take action on the legislation, which calls for all colleges to convert to the federal Direct Loan Program by July 1. The measure expands the government's direct lending and is expected to save billions of dollars in subsidies that private lenders currently receive. But most colleges and universities have not taken steps to convert to direct federal lending, which prompted Duncan's recent letter.

"Some campuses are thinking they'll wait until Congress acts," said Robert Shireman, the deputy under secretary of education, who was quoted in The Times. "But to wait is to endanger loan access for students."

He noted that most colleges and universities can make the switch in three weeks to four months. The new system will require changing computer programs and retraining financial aid administrators.

Some officials are worried that a sudden switch could lead to mass confusion. The St. Louis Post-Dispatch [from an article originally located at] reports that student financial aid directors from Missouri colleges expressed concerns to Senator Claire McCaskill in a roundtable discussion last week about the proposed changes to financial aid.

Julie Fraser, director of admissions and financial aid at Jefferson College, remarked that the transition to direct federal lending was a frightening idea for the limited staff at her office. She noted that they are already dealing with increased enrollment and requests in changes to financial aid packages due to changes in family income.

Private lenders are also warning of major "transition risks," reports The Times. Last week during a conference call, executives of private lender Sallie Mae said that many schools' financial aid offices would have trouble making the transition to a new lending system in time for next year.

But the Times-Dispatch reports that other officials who have already made the switch said that the change has not caused major problems. "The transition went very smoothly," said Jeff Herman, associate director of financial aid at Washington University, which switched to direct federal lending over the summer. But he added that there might be more challenges ahead if all schools in the country are attempting to meet a deadline at the same time.

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