Government’s Direct Lending Program Sees 43-Percent Increase in Volume

Student Loan Girl — Wed, 03 Sep 2008 00:36:00 GMT

As cash-strapped lenders continue to drop out of the Federal Family Education Loan Program, the number of student loans originated for the 2008–09 school year through the government’s Direct Loan Program has increased by 43 percent, reports The Chronicle of Higher Education (“As ‘Crisis’ Deters Loan Companies, Direct Lending Sees 43-Percent Jump,” Sept. 2, 2008).

Lenders in the FFEL Program — through which borrowers take out federal student loans through private, third-party lenders including banks, state agencies, and nonprofit lenders — have generally accounted for 80 percent of all federal student loan volume, according to the House Committee on Education and Labor (“The College Loan Landscape,” March 2008).

But the Direct Loan Program, which provides loans to students and parents directly from the Department of Education, is gaining ground. As of August 8, the Direct Loan Program had already originated more than $10.84 billion in federal student loans at 1,156 colleges and universities. At this time last year, the direct-lending program, had originated just $7.55 billion in loans at 851 institutions.

And although the exact figures have yet to be released, the Education Department estimates that the Direct Loan Program, which has generally made up 20 percent of all federal college loan volume, will soon be comparable in size to the FFEL program. FFELP lenders have only issued $13 billion in federal student loans at 3,230 colleges and universities this academic year, compared to the $55.8 billion in student loans they originated at 4,612 schools last year.

So Far, A Smooth Transition to Direct Lending

Government subsidy cuts to FFELP lenders enacted by the College Cost Reduction and Access Act last September, as well as continued fallout from the subprime mortgage crisis, have led more than 100 lenders to suspend their participation in the FFEL program.

By April of this year, some 5.8 percent of lenders remaining in the FFEL program had switched over to the direct-lending program and another 19.3 percent said they were considering the switch, according to Student Lending Analytics, a company that provides financial aid administrators with data about lenders (“Drift Toward Direct Lending (Update),” Inside Higher Ed, April 30, 2008).

Although some lenders questioned the Education Department’s ability to handle an increase in loan volume through its Direct Loan Program, some financial aid administrators say the Department of Education has done well in handling the influx of business.

Anna Griswold, executive director of student aid and assistant vice president for undergraduate education at Penn State, says she has been “pretty pleased” with the Direct Loan Program and has not experienced any glitches. Penn State, the 10th-largest FFELP lender last year, became a direct-lending school this year after its FFELP lender, the Pennsylvania Higher Education Assistance Agency, stopped offering federal student loans in February.

Penn State borrowers have already taken out $100 million in student loans this year through the direct-lending program.

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Education Department at Fault for Low Participation in Grant Programs, Audit Shows

Student Loan Girl — Tue, 05 Aug 2008 00:58:00 GMT

In an audit of the Department of Education, the department’s own inspector general blames the lack of participation in the government’s Academic Competitiveness and National Smart Grant programs on his department’s failure to effectively promote the programs, according to an article in The Chronicle of Higher Education (“Education Dept. Blamed for Not Doing Enough to Promote Grants,” August 4, 2008).

Low-income students who completed their state’s rigorous coursework requirements in high school are eligible for Academic Competitive Grants, otherwise known as ACG, during their freshmen and sophomore years of college. Smart Grants are awarded to low-income college juniors and seniors who are taking classes toward the completion of specific majors, including math, engineering, or technology, and maintain a 3.0 GPA.

The audit, released Friday, suggests that the Education Department hasn’t done enough to “follow-up with nonparticipating schools to ensure those [schools] required to participate” in the two programs were doing so, the inspector general said.

Although Congress approved $790 million in grants for the two programs during the 2006–07 academic year and up to $4.5 billion through 2010, the Education Department only awarded $242 million in Academic Competitiveness Grants to 310,000 students, and only $206 million in Smart Grants to 64,000 students.

Secretary Spellings Justifies Programs’ Shortcomings

Last month, Education Secretary Margaret Spellings suggested that the low participation in the grant programs was due to the fact that not enough high schools were teaching courses that meet the academic standards of the program.

While Spellings lays the blame on high schools, the inspector general’s report showed that the department had a list of 640 nonparticipating colleges and universities that were potentially eligible for the ACG program.

More than half of the schools did not respond to the department when it attempted to contact them. In a random sample of 75, or 23 percent, of these 330 nonparticipating schools, however, the report found that more than 83 percent were considered eligible.

And among the 310 schools that did respond to the department’s outreach, administrators at 23 percent of these schools said they didn’t know their schools were eligible. The inspector general found that more than 73 percent of these school were, in fact, eligible for the programs.

To improve participation in the programs, the inspector general recommends that the Education Department do a better job of reaching out to colleges and universities with eligible students. The department should also consider fining schools or taking away their eligibility to participate in the federal Pell Grant program if they have qualified students enrolled but don’t participate in the ACG or the National SMART Grant programs.

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Student Loan Blog : Education Department inspector general

Government’s Direct Lending Program Sees 43-Percent Increase in Volume

Education Department at Fault for Low Participation in Grant Programs, Audit Shows