The U.S. Department of Education announced in early November that it is taking further actions to protect and foster the Federal Family Education Loan Program and the Direct Loan Program so students and families will continue to have access to loan money.
The actions, under the umbrella of the Ensuring Continued Access to Student Loans Act of 2008, are designed to give private lenders incentive to provide students their federal loans. Recently, many banks began refusing to give out such loans because there was not enough profit involved.
“We recognize that the current economic situation has created real financial challenges for students and their families, who are increasingly concerned about how they can secure loans to help cover college costs,” U.S. Secretary of Education Margaret Spellings said in a media release. “I want to reassure students and their families that federal student aid – both grants and loans – remains available to eligible students.”
Although this action is reassuring for many college students and families, University Director of Student Financial Aid Elizabeth Bickford said it does not affect University students because the University does not participate in FFELP.
“At the University of Oregon, we haven’t been worrying,” Bickford said. “But we’re glad that (the government is) continuing (its) support … for the families of college students.”
The student loan crisis that spurred government intervention began when private banks and lending agencies started to pull out of FFELP lending because it was not financially lucrative enough, Bickford said. This left fewer and fewer banks for students to take out their federal loans.
Universities can chose to provide students access to their federal loans either through FFELP or by becoming a direct lender. Universities that choose to become a direct lender essentially allow students to obtain their federal money directly from the government without going through an outside agency.
FFELP, created by Congress in the 1960s, is a public-private partnership where private lenders give out federal loans to qualified students with the support of both the participating institution and government, according to the FFELP Web site.
If the institution chooses to participate in the Direct Lending Program, it essentially cuts out the middle man so students do not have to find an agency to access their loan money through, Bickford said.
“The University of Oregon is a direct lender,” Bickford said. “When our students (take out) student loans … they are borrowing directly from the federal treasury; they don’t have to find a lender or agency.”
Most public universities in Oregon are direct lenders, Bickford said, with the exception of Portland State University.
Philip Rodgers, director of financial aid at PSU, said as a participant in FFELP, having so many banks either fold altogether in the current economic crisis or withdraw from the program because it is not fruitful enough is a major concern for the institution.
“When (PSU) joined the FFELP program in 1992, FFELP was the best program and no one wanted to do direct lending,” Rodgers said. “The banks were doing the lending, (so) FFELP or direct lending was the same. Now banks are choosing not to lend.”
Rodgers said that PSU is currently exploring its options and critically looking at whether to remain in FFELP or become a direct lender.
“Because a lot of people got really nervous, (I think) there are a lot of schools that moved from the FFELP program to direct lending,” Bickford said.
Rodgers insists that although the situation is concerning, it has not stopped PSU students from accessing their federal loans because all loans in the FFELP program are federally backed. Additionally, because of the federal action to entice banks to participate in the program, there are still many large banks that will give out the loans.
The Department of Education said in a media release that it will be working during the 2009-10 school year to ensure availability of federal student loans, maintain the public/private partnership in the loan program and provide liquidity and support to stabilize the student loan marketplace. To protect taxpayers’ interest, it will do this without adding net cost to the federal government.
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