[Congressional Record Volume 141, Number 49 (Thursday, March 16, 1995)]
[Extensions of Remarks]
[Pages E613-E615]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                  FEDERAL DIRECT STUDENT LOAN PROGRAM

                                 ______


                           HON. PAT WILLIAMS

                               of montana

                    in the house of representatives

                       Wednesday, March 15, 1995
  Mr. WILLIAMS. Mr. Speaker, there's been an awful lot of talk recently 
abut the new Federal Direct Student Loan Program. As you recall, we 
enacted this program last Congress. It's currently being phased-in, and 
we're beginning to get some results from this phase-in. This school 
year 104 colleges and universities are direct lenders. Their students 
are able to get all of their student aid needs addressed at one 
location, the college financial aid office. From what people in my home 
State of Montana tell me, the program is good for students and parents, 
and it's bringing some simplicity to a student aid system that is often 
too complex. The only complaint I hear in Montana is that not enough 
schools are direct lenders. Starting this coming July, another 1,400 
schools will become direct lenders. This is a big jump in participation 
rates, but from the preliminary reports we're getting I don't think 
it's an impossible hurdle to overcome. Recently the Association of 
Community College Trustees surveyed community colleges who already are 
direct lenders. The results from this survey are impressive: Direct 
loans appear to serve students better; schools benefit more from this 
program; and the Department of Education appears to be running the 
program quite well. I'm enclosing a copy of this report for my 
colleagues review. I urge you all to read it.
                 Community Colleges and Direct Lending

 (By Melanie Jackson, Director of Federal Regulations, Association of 
               Community College Trustees, February 1995)


                          background--history

       Community colleges have supported the concept of a direct 
     loan program as an additional choice or option (with 
     institutional participation voluntary) for the distribution 
     of federal guaranteed student loan funds since the proposal 
     for a small, pilot program was launched by the Bush 
     Administration in 1991. The 1992 Amendments to the Higher 
     Education Act, signed on July 23, 1992, included the Bush 
     proposal for a pilot program. However, before it could be 
     implemented, the new Clinton Administration took office and 
     pushed for legislation to change to a full-blown system of 
     direct lending, with the federal government making loans to 
     students through their colleges. The Clinton proposal 
     eliminated banks, secondary markets, and guaranty agencies, 
     and claimed the federal government would save billions in 
     costs by this move. Although the 103rd Congress was eager to 
     apply the billions in savings toward deficit reduction, 
     concerns were raised about possible disruption in the 
     financial markets and the ability of the U.S. Department of 
     Education to effectively and efficiently manage a full-blown 
     program.
       Congress and the Administration compromised, and the 1993 
     Budget Reconciliation bill yielded a dual program. The 
     current bank-based system was continued, but federal 
     subsidies to lenders and guaranty agencies were reduced. 
     Expanded authority was given to the Department of Education 
     to implement a direct government loan program for students, 
     but a five-year phase-in was required and caps were set on 
     the amount of loan volume allowed to be handled by the 
     government for each year. The program was to start small in 
     the 1994-1995 academic year, with a first-year cap at 5 
     percent of the loan volume, rising to 40 percent the second 
     year (plus institutional demand), and a fifth-year cap set at 
     60 percent (plus institutional demand). One hundred and four 
     schools, nine of which are community colleges, were selected 
     by the Department of Education to participate in the 
     program's initial year.


           the current policy climate--conflicting proposals

       Just as the second semester of the first year of direct 
     lending got underway (January 1995), winds of change for the 
     program appeared to be blowing again from Washington. The 
     Administration is pushing for a 
     [[Page E614]] complete switch to direct lending. Included in 
     the President's Fiscal Year 1996 budget is a proposal calling 
     for participation in the direct
      loan program to be expanded to include 80 percent of loan 
     volume in academic year 1996-97, with full implementation 
     of the program (100 percent) in academic year 1997-98. The 
     budget projects that a move to full implementation of 
     direct lending (and the elimination of the bank-based 
     program) would save the government an additional $6.8 
     billion (on top of previous savings already achieved--more 
     than $4 billion) by the year 2000. However, the 104th 
     Congress appears to be heading in a different direction. 
     Some in the Republican-controlled Congress are suggesting 
     that the federal government's involvement in this program 
     is inappropriate and therefore the program should be ended 
     altogether. Others in Congress want to insure that the 
     dual program continues; they are proposing to lower the 
     maximum participation cap to a ceiling of 40 percent of 
     loan volume (the authorized level for the 1995-96 academic 
     year).
       Meanwhile, as these conflicting proposals are being tossed 
     about in Washington, more than 125 community colleges that 
     volunteered (and were approved by the Department) to become 
     participants in the program for the 1995-96 academic year are 
     planning, training, and gearing up to become loan 
     originators.


            the acct community college direct lending survey

       To enable trustees (and ACCT staff) to respond effectively 
     to Congressional office and press inquires about how 
     community colleges view the direct lending program, and how 
     community college students might be affected if the program 
     were reduced or eliminated, the Association of Community 
     College Trustees conducted a survey of the nine schools 
     currently participating in the program: Cloud County 
     Community College, KS; Cuyahoga Community College, OH; 
     Delaware Technical and Community College, DE; Gaston College, 
     NC; Hudson Valley Community College, NY; Lehigh Carbon 
     Community College, PA; New Mexico Junior College, NM; Red 
     River Technical College, AR; and Tarrant County Junior 
     College, TX.
       The ACCT Direct Lending Survey instrument consisted of six 
     simple questions: how many loans were originated (and 
     corresponding enrollment numbers compared to the prior year), 
     how the direct lending program better serves students (if it 
     does), how direct lending benefits institutions, the 
     perception of the quality of service rendered by the 
     Department of Education (and its ability to manage the 
     program), advice that could be offered to institutions who 
     are considering participation in direct lending in future 
     years, and finally, what message the participating 
     institution would send to the 104th Congress that evaluates 
     or describes their experience with the program.
       The ACCT survey questionnaire was distributed by fax to the 
     financial aid administrators at the nine colleges, after they 
     had been notified by telephone of its purpose. Eight to the 
     nine community colleges completed the survey (Delaware 
     Technical and Community College was the only non-respondent).


                  the community college survey results

       Overall, the survey responses demonstrated that community 
     college aid administrators like the new direct loan program. 
     All responses to the questions asked about the program's 
     benefits to students and institutions were favorable. 
     Similarly, all responses were positive to the question about 
     the Department's management of the program and quality of 
     service rendered. The general advice that was repeatedly 
     offered by survey respondents for colleges that might be 
     considering participation in direct lending in the future: 
     plan early, get top-of-the-line computer hardware and 
     software, and attend all training sessions offered! The 
     message current program participants would send to the 104th 
     Congress: the program works, it is simple, we like it, and 
     the students like it.
       The following is a compilation of the survey questions and 
     responses ACCT received. The comments listed (to all but the 
     first question regarding number of loans and enrollment) are 
     direct quotes from community college aid administrators. 
     Their responses are presented in random order for each 
     question, to retain anonymity.


        numbers of loans and institution size--a cautionary note

       The community colleges participating in this first year of 
     direct lending range in size from very small (less than 1,000 
     headcount enrollment to very large (over 26,000 headcount 
     enrollment), but four (half of the respondents), fell in the 
     3,000-4,000 enrollment range. The number of direct loans 
     originated by each institution did not correlate to the size 
     of enrollment at the institution. (For example, the number of 
     loans originated at the smallest institution was more than 
     200, while the smallest total number of direct loans 
     originated by a community college this first year was 60, 
     from a college with 4,000 headcount enrollment.) The total 
     number of direct loans originated by the eight respondent 
     colleges was just over 8,500. The colleges reported a 
     previous year's total of students with loans (from the bank-
     based program) of approximately 6,400. This represents a 25 
     percent, one-year increase in the number of community college 
     student borrowers (from these eight institutions). Although 
     this percentage increase is based on a small sample, it does 
     seem to illustrate a continuing trend of upward growth in 
     borrowing by community college students to meet their 
     educational expenses. (In 1993-94 the number of community 
     college borrowers increased by 31 percent over the 1992-93 
     academic year.)


       survey responses about how direct lending serves students

       ``Students (and the parents of dependent students) are very 
     pleasantly surprised by the ease and efficiency associated 
     with the Direct Loan Program. There are times when a student 
     can walk in to the Financial Aid Office and walk out with a 
     Direct Loan. Borrowers know when disbursement will occur, 
     since the school is drawing down the funds versus waiting for 
     a lender to disburse a check or wire-transfer funds. It is 
     simple, quick, and less confusing.''
       The application process is simplified. The repayment 
     options are greater than those in the Stafford Loan Program. 
     The loan is held by the Department of Education and will not 
     be sold to a secondary market. We have been able to spend 
     more time with students exploring other financial aid options 
     and debt management issues since we have implemented the 
     Direct Loan Program.
       Faster delivery of loan dollars to students.
       Direct lending currently offers the income contingent 
     repayment option not available under Stafford. Also, direct 
     loans eliminate the need for a student to deal with a 
     middleman, the bank. Everything is handled through the 
     school. They deal with one service.
       One lender is very beneficial. Students are able to keep 
     track of their loan responsibilities. In the past, valuable 
     time was spent locating information. Consolidation is very 
     available to students. Repayment options are extended.
       One stop for all student financial aid. Less time required 
     from time student comes in until he/she receives loan.
       We are our students personal contact from the initial loan 
     application until disbursement. Our disbursements to our 
     students are much sooner. Adjustments are completed and 
     processed in a more timely manner.
       The process is simpler and more direct for the student. We 
     can control the disbursement process so we can be sure that 
     the students receive their funds on a timely basis.


    Survey responses about direct lending's benefits to institutions

       Direct Loan has enabled us to offer aid to more students 
     more quickly than processing FFELP loans, therefore allowing 
     more needy students to enroll. Despite a decline in 
     enrollment at the college, financial aid has awarded more 
     money to more students. Direct loan has also improved cash 
     flow to the college and the student. Is it easier to 
     administer? No! It's different, but no easier this first 
     year--maybe next year. We need to tie our business office 
     into our computer network to facilitate cash flow and 
     reconciliation.
       Saves time. Does NOT necessarily save on institutional 
     costs.
       Electronic transfers, crediting student accounts in a 
     timely fashion, provides good tracking and records for 
     auditing purposes. It saves time. Disbursement rosters allow 
     the Business Office to date loan checks on a schedule. 
     Students appreciate the personal service and exact date 
     concerning disbursements. The students are informed of 
     disbursement dates and come that day to get their loan checks 
     rather than call and come by numerous times checking to see 
     if checks are in.
       Again, it eliminates the middleman; less room for error, 
     fewer contact persons. Currently it does not save time 
     operationally because I have no interface from PC to VAX. 
     Cost factor minimal.
       We have more control over the program. Administering the 
     program is more efficient. Our cost is less and we have 
     satisfied students.
       Easier to deliver. More efficient. Can do more loans with 
     less human resources.
       We have found that direct lending saves costs. However, it 
     does not take additional staff or resources to implement the 
     program. We have been able to shift staff time to other areas 
     such as debt management. Students receive the greatest 
     benefit in the direct lending program. That is, the 
     application, disbursement, and repayment process is greatly 
     simplified.
       The software provided by the Department enables us to do 
     electronically what would be time consuming and expensive 
     manually. Simple tasks that needed three copies sent various 
     places now just demand one notification.


     Comments from aid administrators about program management and 
   institutional service rendered by the U.S. Department of Education

       Nothing short of excellent.
       With direct lending the U.S. Department of Education has 
     shifted their emphasis from prescriptive methods to 
     regulating outcomes. Our experience has been that the 
     Department can provide the necessary service to this program. 
     We have received the training and support needed to implement 
     this program from the Department of Education.
       Our school relations group has provided excellent service 
     to us. Our calls were returned and personnel were very 
     patient, courteous, helpful and supportive.
       Seems to be running relatively smoothly. Of course being a 
     year-one school has meant our share of bugs to work out.
       [[Page E615]] It appears to have gone well in the first 
     year. Both the Department and the services have been very 
     supportive.
       The Department service has been good and timely. Our 
     services have been very supportive, helpful, and extremely 
     courteous and polite.
       ``Department has been very responsive. They have listened 
     to our suggestions and modified the software when needed. The 
     draw down of cash has been simple.''
       ``Very good service! Everyone has been helpful and responds 
     quickly. We have been very pleased. This was one area I had a 
     concern about, but Direct Loan Task Force, NCS, and the 
     Direct Loan Servicer have been responsive and very 
     professional.''


  Tips offered for colleges planning to become future participants in 
                             direct lending

       ``Plan ahead! Test your plan! Take advantage of training 
     opportunities. Make sure you involve the financial aid 
     office, business officers, and computer technology staff from 
     the beginning!''
       ``Take the time to plan. Call those of us involved now. Get 
     top-of-the-line computer for software.''
       ``We honestly feel this program is successful and should be 
     continued in 100% participation. This program provides 
     students with funds for education in an efficient, 
     responsible, and cost-efficient system.''
       ``Start early planning. Buy the biggest/fastest hardware 
     you can afford.''
       ``Attend all training sessions. Conduct on-site visits to 
     first-year schools comparable to yours.''
       ``The process is more efficient and timely. Our students 
     receive disbursement in a more timely manner. Out staff enjoy 
     working with the program because it is computerized.''
       ``Yes, we recommend this program. Our advice is to plan for 
     several months prior to implementation. That is, set up 
     institutional task force (financial aid, business office, 
     computer support, etc.) and review current operating 
     procedures. How will these change? How will the tasks be 
     split among the various offices? Contact like institutions 
     already in the program.''


The Message Community College Aid Administrators would send to Congress

       ``Do not cap this program. Interest groups are lobbying for 
     a cap on the direct lending program. Who would benefit from a 
     limit on this program? Ask current participants to evaluate 
     the program. Let the FFELP and William D. Ford Direct Loan 
     program exist together and schools will choose the program 
     that best meets the needs of their students.''
       ``Direct lending should be encouraged at the legislative 
     level. It is refreshing to think that a program like this is 
     more efficient, cost effective, and a valuable service to the 
     student. Many programs never reach the students as rapidly as 
     this has. Be bipartisan and keep the best interest of the 
     students up front.''
       ``This is the first time in my experience that a program 
     was started where institutions could select how they 
     participated and really had institutional flexibility and 
     control. This program works and works well for students. It 
     does not depend upon outside agencies as to whether 
     institutions participate, drop from the program, merge with 
     others, farm out originations, or sell to various other 
     agencies. It is easy for the student to grasp the concept 
     that they owe the federal government. I truly believe that 
     this simplification will go a long way toward helping with 
     `paper' defaults.''
       ``This has been the freshest breath of air in a long time. 
     Finally, a program that the financial aid office controls. We 
     like that and the students like it.''
       ``I have been very pleased with the program. I enjoy the 
     fact that there is no third party.''
       ``Finally, financial aid offices have a program that works 
     with us and not against us. Also, this loan program is 
     student friendly.''
       ``My school's experience with Direct Loan has been a 
     positive one. We are pleased with the benefits this program 
     offers the students and the school. We experience far fewer 
     difficulties than we did with FFELP, i.e., many problems with 
     lenders, slow or a lack of response from guarantors, big 
     problems with servicers that provide students with little or 
     no service, and enormous paperwork.''
     

                          ____________________