Student Loan Blog : direct lenders

Direct Loan Program Gaining Ground on Bank-Based FFEL Program

Student Loan Girl — Wed, 29 Oct 2008 23:27:00 GMT

According to a recent survey of college financial aid directors, the federal government’s Direct Loan Program — through which families get federal student loans directly from the Department of Education — could eclipse the government’s now dominant Federal Family Education Loan Program by next school year.

The survey’s findings reveal that the bank–based FFEL program is losing its hold as schools’ loan program of choice, now that 168 FFELP lenders have suspended all or part of their federal student loan programs. Third-party lenders have continued to drop out of the FFEL program as the ongoing credit crisis has choked investor interest in federal student loans, crippling lenders’ ability to sell loans in order to originate enough capital to issue new ones.

Of the 416 colleges and universities surveyed in a Web-based poll by Student Lending Analytics, a company that provides colleges with financial aid advice, 6 percent of schools currently using the bank-based system plan to switch to direct lending for the 2009–10 academic year, and 29 percent are considering a migration to direct lending (“Direct Lending Could Overtake Bank-Based Student Loan Programs Next Year,” The Chronicle of Higher Education, Oct. 28, 2008).

If only 57 percent of those schools who said they were considering the switch actually made it, The Chronicle suggests, the Direct Loan Program would edge out the FFEL program as the leading supplier of federal student loans.

Currently, 1,458 colleges and universities use the Direct Loan Program, up from 1,010 colleges last school year, while the number of colleges using the FFEL program is down from 4,417 schools to 4,274.

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Back from Surgery, Kennedy Calls On Community Colleges to Switch to Direct Lending

Student Loan Girl — Tue, 17 Jun 2008 18:11:00 GMT

Sen. Edward Kennedy, D-Mass., sent a letter Monday to the American Association of Community Colleges, urging its members to enroll in the government’s Direct Loan Program in order to ensure community college students have access to student loans for the 2008–09 academic year.

Kennedy, the chairman of the Senate Committee on Health, Education, Labor, and Pensions who is recovering from surgery to remove part of a malignant brain tumor, encouraged AACC member colleges to sign up for the direct lending program, which allows students and parents to take out student loans directly from the U.S. Department of Education.

Almost 100 lenders in the rival Federal Family Education Loan Program, in which student loans are provided by private lenders, have reduced or stopped offering borrower incentives, or have dropped out of the FFEL program altogether.

Government subsidy cuts and the fallout from the subprime mortgage crisis have hurt lenders and have prompted some to announce they will no longer offer student loans to certain community colleges and other two-year institutions whose borrowers tend to carry smaller, less-profitable loans.

"Since lenders continue to say they may have to limit new loans to certain colleges, it’s possible that the neediest students, particularly those at community colleges, will need an alternative to the bank-based FFEL program," Kennedy wrote.

David Baime, vice president of government affairs for the AACC, countered that the problem is not that student loans are inaccessible, but that community college students tend to borrow more money than they can afford to repay ("Kennedy Urges Community Colleges to Enroll in Direct-Loan Program," June 17, 2008).

That’s why the association is pushing a measure through Congress, Baime says, that would give colleges the authority to reduce maximum college loan amounts that students could borrow under the federal student loan programs.

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Two Purdue University Campuses Make the Switch to Direct Lending

Student Loan Girl — Tue, 20 May 2008 16:35:00 GMT

Beginning this fall, Purdue University’s West Lafayette and North Central campuses will become direct lending schools.

According to a press release issued by Purdue, the two campuses will offer federal student loans only through the U.S. Department of Education’s Direct Loan Program, under which students and parents will borrow directly through the Education Department (“2 Purdue Campuses Shift to Federal Direct Loan Program,” May 12, 2008).

The move marks a departure from the schools’ past ties to private lenders in the Federal Family Education Loan Program.

Pamela Horne, Purdue’s assistant vice president of enrollment management and dean of admissions, said the school made the switch to offer borrowers stability in a turbulent student loan credit market.

“We worked to identify sources for student loans that can provide stability and predictability to our families with a minimum of disruption,” she said.

More than 23,000 Purdue West Lafayette students and 5,500 parents borrowed $125 million in federal college loans during the 2006–07 academic year. During the same time frame, 5,118 students and 108 parents at the university’s North Central campus borrowed $9 million in federal student loans.

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