Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, October 17, 1994 TAG: 9410170006
SECTION: VIRGINIA PAGE: C-1 EDITION: METRO
SOURCE: BETTY HAYDEN CORRESPONDENT
DATELINE: BLACKSBURG LENGTH: Long
The Virginia Student Assistance Authorities, which handles student loans for several local banks, had problems after changing computer systems.
This year's delays brought complaints about the student loan program close to home for Sina, making her wish that Tech could switch to the new Federal Direct Student Loan program right away.
"With direct lending, students will no longer have to deal with a check that is not here or has been held up," she said, as the money is transferred electronically to their university accounts.
The U.S. Department of Education began the direct loan program July 1, with 104 colleges on board, including Old Dominion University. Tech and more than 15 other Virginia educational institutions, including Hollins College and National Business College, will join the program next fall.
The program offers students "one-stop shopping" for financial aid with only one application to fill out, said Diane Sedicum, head of the Direct Student Loan Task Force. The federal government will lend money directly to students rather than requiring them to apply through a private lender.
Sina looks forward to the day when her office no longer will have to wait for checks from various banks or make students wait in line to sign those checks.
If federal officials have their way, the headaches often associated with all the paperwork required under the Federal Family Education Loan Program will be cured, and taxpayers will save $4.3 billion at the same time.
Sedicum said she and the Clinton administration are convinced the direct student loan program is superior to the guaranteed loan program.
The middlemen - the 7,000 banks and 47 guaranty agencies that participate in the family education program - don't agree with the government's positive outlook.
"I personally believe that the private sector does a better job of managing money than the federal government does," said John Dean of the Consumer Banking Association.
He said the program's projected savings are too high - he expects direct lending will save about $1billion because of the administrative cost of servicing loans, compared with the $4billion that federal officials predict.
Jean Frohlicher of the National Council of Higher Education Loan Programs agrees with Dean.
Issuing the loans "is the easy part of the process; collection is a lot harder," she said.
Federal officials expect default rates to decrease because students can choose from a variety of repayment plans.
Sedicum said students often default because they are confused after lenders sell their loans to a third party, or because they've borrowed money from more than one institution. With the direct loan program, there is only one lender and one address to which students mail payments, she said.
Sedicum said the government will cap the interest rate at 150 percent of the principal, which quells banking industry claims that students might end up paying back 400 percent.
Students also will receive an annual statement updating them on how much they've borrowed, the interest accrued and the minimum payment required to cover the interest, she said.
While the experts disagree about long-term management of the program, the customers - college students and parents - can attest to direct lending's benefits.
Lisa Cork, a 26-year-old graduate student at West Virginia University, became the first person in the country to receive her loan directly from the Department of Education.
Her college's financial aid director, a supporter of direct lending, wanted to be the first to use the program, so he arranged for Cork's account to be credited a few minutes after midnight July 1.
Cork attended the "midnight madness" and had her picture snapped for the school paper. She liked the convenience of one form instead of the runaround she experienced under the old program, with multiple forms and a wait to see if her application would be approved.
Nearly 800 WVU students followed Cork in receiving direct loans for summer classes. Between 8,000 and 9,000 are expected to get aid for the 1994-95 academic year, said Brenda Thompson, associate financial aid director. There have been only minor problems thus far.
Other first-year participants share WVU's opinion of the new loan program.
Sedicum said Rutgers University reports a 65 percent reduction in overtime, and the University of Michigan has reassigned seven staff members because of the direct loan program.
The speed of the transactions has impressed Helga Greenfield, director of financial aid at Old Dominion University.
Greenfield said a student's account is credited about 10 days after a promissory note is sent to the loan servicer. Under the old federal program, it took as long as six weeks for funds to appear in a student's account.
She said her office is pleased with the program so far, and student response has been favorable.
Tech's Sina has received positive feedback even before the program is implemented.
A father recently called to find out why his child has so many forms to fill out. He complained because he has another child enrolled at a school with the direct lending program, where he completed only one form. He much preferred the direct lending process.
But at some schools where the program is a year away, officials are not as sure of the benefits.
"Ask me in November," said Laura Troy, financial aid director at Hollins College, who will attend a program training session in November.
Though the program will simplify the loan process for students, for the financial aid office, frustration surrounds anything with a lot of paperwork, and it takes time to get used to anything new, she said.
"We will have to have a whole new mind-set," Troy said of the office that has processed loans through the same system for at least nine years.
Hollins College joined the program because "you never know until you try for sure," Troy said.
The program will not have "any effect at all" on National Business College's financial aid department, which adjusts to new systems and procedures every year, said Frank Longaker, the school's chief executive officer. It joined the program because few alternatives existed as the system of banks and guaranty agencies was being phased out, Longaker said. Not all schools will be eligible for the direct loan program.
To qualify, schools must have participated in the old loan program, have a loan default rate of less than 25 percent, be able to transfer funds electronically, and demonstrate administrative and financial responsibility.
A large group of Virginia schools will be added to the program in 1995-96.
Other schools accepted into the program include: Emory & Henry College, George Mason University, Hampton University, Marymount University, Norfolk State University, Southern Virginia College for Women, University of Virginia, Virginia Commonwealth University, Virginia Union University, Washington Business School and several community colleges and professional training schools.
Now that the first loan has been made, the task force's Sedicum says, "the system is in place, and the system works."
Tech's Sina sees the program as a way to improve her office's service.
"It is a challenge for us in that we will need to learn a new way of doing business - but one that will better serve students."
Staff writer Crystal Chappell contributed to this story.
by CNB