By Bernie DeGroat
News and Information Services
Although still in its early stages, the new Federal Direct Student Loan Program is already making life easier for students receiving such aid and for staff who administer the loans, according to the Office of Financial Aid.
The new program, utilized for the first time this year by 104 public and private colleges, universities and proprietary schools nationwide, allows students to borrow money directly from the U.S. Department of Education, precluding the involvement of banks, other private lenders and guarantee agencies in the student loan process.
Under the direct loan program, the federal government serves as the only lender, so students no longer have to fill out several forms from various lending institutions with multiple deadlines and policies.
“It removes much of the cumbersome nature of the process for students in that they only need to make one application and have to deal only with us, as opposed to going out and finding a lender on their own,” says Harvey P. Grotrian, director of financial aid. “It literally puts us much, much more in control and will significantly improve the flow of funds to the students, as well as to their school.”
He says that by eliminating the need for private lending institutions and loan guarantee agencies, the new program enables the Office of Financial Aid to better serve students by eliminating the handling of loan applications by organizations outside the University.
“If there’s an error anywhere along the process, it’s probably going to be seen as a difficulty in this office,” Grotrian says. “The old system was error-prone and very difficult to monitor because we were working with middlemen. It was the very processes of the old program that prevented us from doing as good a job as we wanted. Now, we’re liberated.”
Margaret H. Rodriguez, assistant director of financial aid, says that her office previously dealt with dozens of guarantee and service agencies, and hundreds of banks and other lending institutions nationwide, often resulting in paperwork problems for loan recipients.
“Students no longer have to be confused about their banks sending them a letter saying one thing, and us sending them a letter saying another thing, and their servicers sending them a letter that might not agree with either of us,” she says. “Who do they believe? How do they sort it out? Who do they call? Now, they come to us and we can answer their questions.”
Rodriguez says that under the new program, loan application forms are easier to understand, thereby decreasing the likelihood of mistakes and delays in loan disbursement.
In addition, students are receiving loan monies much earlier, she says. Loan amounts now are directly applied to student accounts, with only excess aid disbursed in check form.
According to University cashier James W. Middlemas, the result has been fewer students waiting in line to pick up financial aid checks from his office.
“We’ve experienced less window traffic,” he says. “It has had a positive impact on students and on us, and has made life much easier, I suspect, for both.”
Robert L. Barbret, who manages federal-sponsored programs in financial operations, says that while the new program has meant more work for his office, which channels the loan funds from the federal government to students, he doesn’t mind the increased workload.
“Obviously, it’s a good program for the University because it benefits the students,” he says. “It makes it easier for them to get the funding they need to go to school and that’s what this whole thing is about.”
The Federal Direct Student Loan Program not only helps students secure loans to attend the University, it also makes it easier for them to repay those loans once they graduate, Grotrian says.
In addition to the standard repayment plan, consisting of fixed payments for up to 10 years, borrowers can choose an extended, graduated or income-contingent repayment plan, depending on their circumstances.
He says that no matter which repayment plan is chosen, students won’t have to worry about a direct-loan servicing agency selling their portfolio to another servicer, a common practice under the old loan program. This often resulted in confusion as to where borrowers should send payments or loan deferment forms.
Grotrian expects his office alone to disburse about $70 million in direct student loans to more than 10,000 students in 1994–95 on the Ann Arbor campus, excluding the law and medical schools. Overall, the U-M, including the Flint and Dearborn campuses and the law and medical schools, is currently the largest user of the new program.
The program will be phased in nationally over a five-year period, he says. The 104 institutions involved in the program this year account for about 5 percent of the direct student loan volume in the country. By next year, 40 percent of the volume will be represented by hundreds more participating schools.
In addition to financial aid administrators, others who played key roles in pushing for the University’s involvement in the new program are President James J. Duderstadt, U.S. Rep. William D. Ford and Thomas A. Butts, associate vice president for government relations and executive director of the U-M’s Washington, D.C., office.
“This really has changed the way students finance their education,” Butts says. “It’s a much more streamlined system, more cost-effective.”
Robert S. Holbrook, associate provost for academic affairs, agrees.
“By being selected by the Department of Education for participation in the program in its inaugural year, we are able to deliver federal loan funds to students in a more efficient and timely manner,” he says. “This is one of our service-delivery goals, and we were delighted with our selection as a first-year school.”
