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Direct Loan Program: Not That Bad

NAICU Washington Update

November 3, 2011

A late October hearing by a House Education and the Workforce subcommittee looked at the effectiveness and efficiency of the Federal Direct Loan Program.  Despite some glitches, witnesses seemed generally satisfied with the transition.

Virginia Foxx (R-N.C.), chair of the Subcommittee on Higher Education and Workforce Training, has expressed concern about the federal government's takeover of the student loan program, held the hearing to carry out the subcommittee's responsibility to oversee the Direct Loan transition.  While there was a recent system crash, in which students were briefly able to see the personal and financial information of other students, all four witnesses agreed that no student who was eligible for a federal student loan and had sought one, had been denied. 

James Runcie, federal student aid chief operating officer, explained that the Department had gained experience and capacity for the transition through the earlier Ensuring Continued Access to Student Loans Act of 2008, which entailed the Department's purchasing of FFELP loans during the 2008-09 credit crunch. He noted that the assistance and training provided to colleges during the transition also contributed to the success.  

Runcie also offered statistics on student aid volume (below), and described the Department's continuing efforts to improve accuracy of information, risk management capacity, outreach, customer service, and default prevention. The department uses private collection agencies and guaranty agencies in its efforts.

Two NAICU member schools were represented on the panel.  Nancy Hoover, director of financial aid at Denison University in Ohio, and past chair of the National Direct Student Loan Coalition, described the work of the coalition's mentoring program that matched DLP-experienced student financial administrators with administrators from similar institutions. 

Marc Bandré, vice president for enrollment management and student affairs at Baker University in Kansas, reported that his institution successfully made the transition to the DLP.  He did note, however, that the transition was costly in terms of staff training and process changes, and that the assistance offered by the Department was limited.  He said that his staff now spend time explaining students' loans to the borrowers - a service that used to be provided by FFELP customer service representatives. Bandré suggested possible improvements to the DLP website.

Selected Student Aid Numbers
from James Runcie Testimony

• 21 million applications for federal student aid
• $150 billion in grant, work-study, and loan assistance 
• $102.2 billion in Direct Loans
• 15 million students and their families receive aid
• $848 billion in outstanding loans ($490 b = FFELP)
• 36 million loan borrowers

Contact

• Maureen Budetti
  maureen@naicu.edu