By Bernie DeGroat
News and Information Services
The U-M is among some 100 colleges and universities nationwide selected from a field of 1,100 to participate in the initial phase of a new federal direct student loan program, the U.S. Department of Education announced Nov. 15.
Under direct lending, U-M students eligible for federal loans will receive them via the same single-application process currently used by the Office of Financial Aid. Students will no longer apply for loans through private lenders and guarantee agencies. The loans will be financed by the sale of government securities to the private sector.
Advantages of the new program for students include a streamlined application process, lower interest rates and loan origination fees, and expanded repayment options.
Currently, some 10,500 U-M students receive federal loans, totaling approximately $62 million. For undergraduates, federal loans constitute the largest single source of financial aid.
The initial phase of the direct loan program will take effect July 1, 1994, and will apply to loans for the 1994–95 academic year.
“I am pleased that the University is among the institutions chosen to implement this important program,” says President James J. Duderstadt, a strong supporter of student loan reform and an early proponent of direct lending. “Removing obstacles to financial support for students and families is a critical, overdue step in maintaining access to higher education.”
Duderstadt credits U.S. Rep. William D. Ford, D-Taylor, chair of the House Education and Labor Committee, for shepherding direct lending through Congress. The legislation passed Aug. 10 as part of President Clinton’s deficit reduction bill.
Harvey P. Grotrian, director of the Office of Financial Aid, emphasizes that eligibility criteria for federal loans will not change under the new loan program. Students will apply for loans through the University, which will, in turn, request the funds from the government and deliver the funds to student borrowers upon signature of a promissory note.
An advantage of the new program, Grotrian notes, is that students will not have to complete multiple loan applications, “nor will they have to wait while their lender puts their application through what can be a lengthy approval and disbursement process.
“We have always strived to deliver funds to students efficiently, at the beginning of each term,” Grotrian adds. “Standardizing and simplifying the process can only help us achieve this goal.”
The 100 institutions selected by the Education Department represent 5 percent of the country’s total volume of student loans. Over the next five years, direct lending will be expanded to 60 percent of all colleges and universities, and is expected to save the federal government about $4.3 billion.
