GW considers federal direct loan program

The University will decide in the next two months if it will switch from a private loan program to a federally administered direct loan program, a choice that may soon be mandated by Congress.

Dan Small, executive director of the Office of Student Financial Assistance, said senior administrators will soon reach a decision based on internal reviews to see if the federally administrated direct loan program would offer students the same level of support as private providers do.

In a direct lending program, the federal government is the owner of and supplies students with educational loans like the Stafford and Perkins loans. Students at GW currently secure those loans through private banks and lending sources, like Chase or Sallie Mae.

“One of the discussions we are having is whether we should we move in that direction and if should we do it before we are mandated,” Small said. “We’re trying to do the best thing for the students but we know we have to make the decision soon.”

GW students took out a total of $200 million dollars in educational loans for the 2009 – 2010 academic year, Small said.

Senior Vice President for Student and Academic Support Services Robert Chernak first said last fall that direct lending may be an option for GW after private loan provider National Education dropped 180 GW students who had loans with the company in 2008. Some students were unable to find financing because of a frozen credit market, leaving those who had been approved for loans without the money to finance their education.

Direct lending may become mandated, as the House of Representatives passed a bill last fall mandating that, starting in fall 2010, all new federal student loans will come directly from the government through a direct loan program, instead of being provided by private lenders. The Senate has yet to pass a similar bill and there is no guarantee a bill will pass both houses before the July 1 deadline imposed by the House’s version.

Small said GW is considering switching programs before being required to do so, in an attempt to make the process seamless for students. GW took the first steps in the fall and was approved for the federal government’s Direct Loan Program.

“There would have to be a series of notification, really for lack of a better word, a campaign, to inform students before bills came out in July,” he said of the possible switch.

If the University does switch, current students will be given the choice of continuing with their current loan providers or signing a new promissory note with the federal government. All new students entering in either fall 2010 or fall 2011 would be required to partake in the direct loan program if they were seeking Stafford or other student loans.

Small said both the private and federally administered programs have drawbacks and his office was initially concerned with maintaining the level of customer support students received from private loan providers.

“With the direct loan program we are asking if the up-front customer service will still be being given on the same level we are used to,” Small said. “We are also looking at what types of services they will get when repaying because we don’t want our students going into default.”

He added “there is the unknown over there,” referring to the direct lending programs.

Another issue for students is the benefits private companies were able to provide in the years before the economic downturn. Small said companies sometimes would knock two percentage points off of students’ interest rates if the student made payments on time. It is unlikely the federal government would offer the same bonuses.

Estimates from the Congressional Budget Office say that nearly $87 billion could be saved over the next 10 years through the student aid legislation, and savings could be funneled back into the Department of Education.

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