According to a survey conducted by Student Lending Analytics (SLA), an independent research and advisory firm, 35.7 percent of 416 responding postsecondary educational institutions were either considering or were committed to changing from the federally-guaranteed Federal Family Education Loan (FFEL) program to the federally-funded William D. Ford Direct Loan program for the 2009-2010 award year.
Reasons to Change to Direct Lending
According to SLA, schools cited the following 5 reasons for changing or considering a change to Direct Lending:
- Concerns about lender financial strength
- Borrower confusion
- Poor customer service or loan processing
- Time required to maintain school lender lists
- Decreases in borrower benefits
Reasons to Stay with the FFEL Program
Schools choosing to remain in the FFEL program cited the following 5 reasons for their decision:
- Customer service
- Borrower choice
- Borrower benefits
- Concerns about conversion of institutional systems to implement Direct Lending program
- Reconciliation required by Direct Lending program
It's interesting to note that many of the reasons to change were the same as the reasons not to change from FFEL to Direct lending.
There May be No Choice
Schools choosing to stay with the FFEL program for 2009-2010 may not have a choice in the future. President Obama has proposed phasing out the FFEL program in the 2010 federal budget in favor of school participation in the Direct Loan program, which many experts believe is a much more cost effective way to provide loan funding for postsecondary education. According to CNNMoney.com, the White House anticipates that eliminating the FFEL program could save $4 billion in annual subsidies that the feds are currently paying to lending institutions.
All federal budget proposals are subject to Congressional changes and approval. No timetable for phase-out has yet been proposed but the coming weeks could determine the short-term and ultimate fate of the FFEL program.
About the Author:
Judi Sandall is a graduate of the State University of New York, with a BA in English Literature. She is a technical writer and editor who worked in student financial aid for over 20 years.
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