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Direct Hit – Direct Loans could sink some colleges
July 22nd, 2010 by Ken 1 Comment »
As of July 1, 2010 the entire federal student loan program officially transitioned to the Direct Loan program. Direct Loans is the Department of Education’s method of processing all Stafford and Parent Plus loans for students and schools around the country. This transition is a massive federal takeover of the now defunct Federal Family Education Loan Program (FFELP) . The FFELP program worked with private banks to process federal loans on behalf of the government in exchange for subsidies and guaranteed repayments. The passing of the Health Care and Education Reconciliation Act earlier this year eliminated the FFELP program as it was deemed a wasteful practice to guarantee loans for student lending companies.
This transition has many school administrators nervous. As of 2008-2009 academic year there was $62.6 billion in federal loans disbursed through FFELP and $21 billion disbursed through Direct Loans. For the 2010-2011 academic year Direct Loans will assume disbursal for all $83 billion or more. Schools are highly dependent on timely disbursals of student loans and are worried that the Fed cannot transition to handle such a high volume increase this fast. This is an epic increase in processing for a federal government that is already swamped with the expansion of health care, foreign wars and oil spills.
The Department of Education can be of little help to assist schools in this transition because there are now over 6,000 colleges in the direct loan program. Schools are forced to handle all the necessary transition steps on their own. Schools must reformat their loan processing methods to match Direct Loans or they will be unable to acquire any student loans at all. This means an overhaul of the schools electronic processing systems that were originally designed to handle FFELP.
This has repercussions on students. Any continuing student that previously had a FFELP loan with lenders like Sallie Mae, Wells Fargo, Citibank etc. must complete a new Master Promissory note for Direct Loans. If the student does not complete the new Direct Loan promissory note, they cannot receive any loan proceeds.
Ken’s Tip: Best advice for students is to complete all forms in a timely manner and to follow up with their school account to ensure disbursal. Make sure you complete the Master Promissory note and entrance interview with Direct Loans if you have not already done so. If there are any issues with disbursal, first check with the Department of Ed and then your financial aid office to confirm required documents are in order. If the issue is due to your schools inability to process the new electronic transfer of loans, then it is mostly out of your hands. Hopefully your school is ready to handle the Direct Loan transition.
Tags: accountability, direct loans, education loan program, federal family education, federal loans, federal student loan, federal student loan program, federal takeover, ffelp loan, ffelp program, master promissory note, necessary transition, parent plus loans, private banks, reconciliation act, sallie mae, student loan program, transition steps, volume increase, wasteful practice, wells fargo
Yes, it is important to fill out the Master Promissory Note online. I was unaware of this transition of direct loans now through federal program. As my school informed me, if I do not fill out the form online, then I won’t be able to get those loan and furthermore, it will affect my financial aid package for 2010-2011 year. So, please do so as Ken Said in his writing.