The yearlong deliberation in Congress over whether to end the bank-based system of distributing federally subsidized student loans may be getting largely resolved on its own. According to new figures from the U.S. Education Department, colleges that account for 96 percent of all federal student loans are now either currently participating in the department’s direct-lending system or “actively taking steps to prepare to participate in” the program.
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6 Responses to Nearly All Colleges Are Moving Toward Direct Lending, Department Says
inewbould - January 27, 2010 at 7:32 am
There is a major problem looming if Congress does not pass legislation that will allow US and other colleges overseas sign up for Direct Lending. Currently, the legislation does not include overseas direct lending. The Education Department thinks that the legislaton will be passed “in time”, but there is reason to worry. US students studying at an overseas university will be denied loans for next year if Congress does not act in time, and if private lending is ended. This could be a major problem if action is not taken soon. I. NewbouldRichmond, the American International University in London
atana09 - January 27, 2010 at 9:12 am
It appears that direct lending will be the dominant mode because academe has finally realized how detrimental to their own reputation the association with the lending cabal has actually been. It’s been hard for the Ivy towers to maintain their verdant foliage when the lenders in the temple have been loan sharking at the front door. Hopefully as this trend continues to develop it will also provide some impetus to reform in regards to restoring more consumer rights in regards to these forms of lending. And enough support for direct lending so that this program isn’t co-opted by proposals to let these companies administer those loans. If that happens all that’s been done is placing the devil behind very thin glass. Soon the last arena left to the corporate lenders will be the for profit and often fly by night schools operating on the margins of academe. And that somehow seems to be conceptually appropriate…As far as allowing US overseas colleges to sign up, that should happen. One of the elements which has bemused those overseas is why US academe burdens it’s progeny with such unfavorable conditions as those propagated via the corporate subsidized loan programs.
szwarck - January 27, 2010 at 9:15 am
Unfortunately, this does not provide the broader scope of the issue. This is not resolution without legislation. The heavy handed tactics of Secretary Duncan are essentially scaring schools into moving to Direct Lending out of fear that when Congress does finally make up their mind about what to do, the school will not have enough time to get everything set up for the 2010-2011 school year which many schools have already planned out or are inthe process of planning out.Schools have moved to DL because they are being bullied and manipulated into it and now it has become a self-fulfilling prophecy. I understand schools need to make the decision based on what is best for their students, but what is going on write now and the imaginary gun that Secretary Duncan is holding to the backs of Financial Aid Offices at Colleges and Universities across the nation has created this “new statistic”.
saasaa - January 27, 2010 at 9:59 am
Thank you szwarck. I refuse to be bullied. As a college financial aid director who has used Dl before, I do not like it. More importantly I do not appreciate the way we have been manhandled and scared into doing this. For years the Department has forced us to provide choices for our students. Making sure that we, as schools, did not allow jsut one lender to provide services. I applauded that and offered as many choices as lenders would do business with us. The students were offered full disclosure as to what front and back end discounts and interest rebates were offered and were allowed to chose their own lenders. In the last two years, or lenders list, NOT prefered list, just list of people who will do business with a small two-year school in the mid-west, has dwindlesd from around 14 to 4. At one time we only had 2 lenders until I stared calling and begging so that our students would have options. Now in a two year period our school has been betrayed. First, Our state pulled all state support from our school. Then the Federal government wants to pull all loan choices from our students. Not only that, but the lenders and the simple services they offer to small schools are invaluable. We will not get that sort of help from the Department, I know, I have already tried. I am disgusted. Maybe it is time for me to retire from financial aid. After 25 years in this business you would think that nothing would surprise me… Maybe a career in fortune telling is next, it would be about as stable…
atana09 - January 27, 2010 at 11:29 am
The issue with choice in regards to student lending is a bit of a chimera. Due to lobby influence and inside deals within the old USDOE what happpened was 2-3 large lenders and their subsidiaries ended up controlling the vast majority of the student lending market. Essentially what resulted was a governmentally derived private hunting ground-which had neither the benefits of a free market or the benefits of publically provided services. In all about as much choice as one would have dealing with a loan shark who’s cousin also happened to be the mayor. As far as Duncan’s supposed bullying and manipulation well perhaps that is necessary to finally break the toxic hold the loan cabal has had on students, families and academe. And whatever bullying Duncan is doing, well he’s a rank amateur compared to the level of coercion that some of these lenders can exert, both towards government and students. The abuses of the collections divisions of these lenders are legendary, including being the direct causes of suicides and mental breakdowns. Duncan, well if he did bully these executives and their shills in academe to that point and a few jumped off of buildings-it would not matter as their pockets would be so full of public monies and students cash that they would probably bounce. It would seem that academe would be in a better place not to have to associate with such a system, but it appears that given enough time people can actually grow attached to a crocodile in their bathtub.
sniktaw - January 28, 2010 at 10:02 am
I have never been a proponent of direct lending. However, most Stafford Loans morph in to direct loans right after disbursement. The lenders borrow from the Department of Education. They make the loan to the student. The loan is paid to the school. The lender sells the loan back to the Department of Education, which assumes it (the PUT program) and changes it from a Stafford to a Direct Loan. So, I ask, why am I having students pick a lender, only to have the lender sell the loan right after disbursement to the Department of Education. “No Sally, you did pick Main Street Bank, but they sold your loan so now you have a Direct Loan.” To my colleagues asking for choice – Take a good look at the process. Unless the lender is using their own funds to make the Stafford Loans and is not selling the loans back to the Department, THERE IS NO CHOICE. I always supported the Stafford Loan as a partnership, the lender providing the funding; the school certifying eligibility and the federal government issuing the loan guarantee. If the federal government is providing the money, the partnership has been breeched. If the banks returned to providing the capital for the loans and did not need the Department of Education funding, then I would wholeheartedly support the continuation of Stafford. In it’s present form, there is no logical reason not to move to direct lending. Dr. Pat