Colleges Ready, Nervous About Federal Lending Program
Financial aid managers at Central Massachusetts colleges are anticipating approval in the U.S. Senate of a law that would make the federal government the only provider of student loans, and while some colleges have already made the changes necessary to comply with the new program, others are nervously waiting until the last minute.
The law passed the House of Representatives last month and is expected to pass the Senate very soon and seeks to strip the profit motive out of the student lending market.
Transformation Time
The new program would eliminate the Federal Family Education Loan Program used by many colleges and shift loans into a direct lending program run by the U.S. Department of Education. The change is expected to save the federal government $86 billion over 10 years, according to the Congressional Budget Office. Under the new plan, the money saved will be directed toward federal educational priorities. Private student lending firms like Sallie Mae will still be able to compete with the government for contracts to service the federal loans, but will no longer be allowed to make student loans themselves.
Since the near collapse of the country’s banking system last year, the number of private loans available to students has dropped significantly, according to Monica Blondin, director of financial aid at Worcester Polytechnic Institute. Also, “the requirements are much tougher now,” she said.
“It’s a tough time for kids just out of high school to get lessons on debt management,” she continued. “It is early for these kids. They’re taking on debt, and a lot of kids don’t realize what it means...”
WPI hasn’t yet begun direct lending, but is waiting for the bill to come closer to becoming law.
“We can’t wait until it actually passes, because we wouldn’t have the time, but there’s been a lot of talk out there from the Department of Education to get the ball rolling so that schools are ready when they’re ready,” Blondin said.
For now, WPI remains part of the Federal Family Education Loan Program (FFELP), but Blondin said it will be a direct lender of government loans in time for the 2010-11 school year, as required.
Others aren’t waiting. The College of the Holy Cross in Worcester went from being a FFELP school to being a direct lending school last year.
“It was very easy,” said Lynne Myers, the college’s director of financial aid. “The conversion can be seamless. It changes the way we do business as far as processing, but the Department of Education was quite hands-on as far as all the customer service. Response time is quicker for students, and doing direct lending, we’re able to offer loans at lower interest rates.”
Myers said she’s heard the concerns of schools that are unsure about their ability to cope with the new system.
“There’s concern about the ability to make the transition, most from schools with homegrown platforms, but when a school says, ‘We fear the transition,’ others say, ‘We’ll show you.’ I think it’s a knee-jerk response, just resistance to change.”
But Myers warned that all colleges should be prepared by now.
“It’s been on the horizon for a year,” she said. “This is our second year processing through, and the program is intended to be in the best interest of the students and their families. When push came to shove, we had banks that would lend to students at some schools but not others. Parents are very glad that we’re securing their loans.”
“This is a necessary change. We do have to move to secure lending and remove the profit motive from it,” Myers said.
Like Holy Cross, Clark University also made the change last year. Mary Ellen Severance, the school’s head of financial aid, said the transition was smooth save for “a few bumps in the road here and there.”
Framingham State College has not yet made the switch, and it’s beginning to worry Susan Lanzillo, director of financial aid.
“We do have concerns about the effective date. It really is right around the corner,” she said.
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