UP will switch from private lenders to lending from the federal government
By Sydney Syverson
The University of Portland will switch to a system of loans next year in which students will borrow directly from the federal government versus borrowing from a private lender.
According to a letter that will be sent to all University of Portland students and parents in December, Director of Financial Aid Janet Turner explains that UP will switch from the Federal Family Education Loan Program to the William D. Ford Federal Direct Loan Program beginning next school year.
The letter states that the Secretary of Education, Arne Duncan, is urging all colleges and universities to change from the FFELP to the Direct Loan Program.
"Honestly, I don't think many students know much about the entire loan process, except that it's pretty confusing," Junior Jeni Mussio said. "From what I know about these two loans it doesn't seem like the change is going to affect the students that much."
The letter from Turner explains what this means to students and parents.
All borrowers will have to eSign a Federal Direct Loan Promissory Note as well as complete Federal Direct Loan Entrance Counseling.
Three types of loans will be available to students and parents.
The Direct Subsidized and Direct Unsubsidized Loans are the two appropriate for students.
The Direct Subsidized Loan is for students who qualify for financial need and no interest is charged while enrolled in school.
The Direct Unsubsidized Loan is not based on financial need and interest is charged while enrolled in school.
The Direct PLUS Loan is meant for parents of dependent students and for graduate or professional degree students.
Interest is charged for these loans while the student is enrolled in school.
Students may wonder what will happen to their existing loans that they borrowed from private lenders.
Turner explains that when students graduate, they can either make payments to both their private lenders and to the US Department of Education, or they can decide to consolidate their loans into one payment that goes to either the private lender or to the US Department of Education.
"I'm still going to have loans when I graduate," Mussio said. "So I guess it doesn't really matter to me who I pay them to, but it seems like this will be better for the federal government and U.S. Department of Education."
For now, the change seems minimal to students and parents.
The Financial Aid letter emphasizes that, "the switch to the Federal Direct Loan Program will offer our families a more predictable borrowing experience and will ensure uninterrupted access to student loans."
Calls for changing student loans intensified when the economy imploded and many private lenders decided to get out of the student loan business.
That prompted Congress to pass temporary legislation to ensure students could get loans directly through the government.
While permanent legislation - the Student Aid and Fiscal Responsibility Act - still has not made it through the U.S. Senate, financial aid offices at UP and other colleges are preparing to transition to direct lending.
President Obama was one of the early supporters of removing private lenders from federal college loans.
During a conference call with student reporters in 2007, he said, "One way we can help make college more affordable is by reforming a wasteful system of student loans that profit private banks at the cost of taxpayers. The system needs to be fixed. We shouldn't be providing billions in taxpayer-funded giveaways to private banks; we should be providing an affordable, accessible college education to every American."
The U.S. Department of Education Web site states that the current system - FFELP - was created in 1965 and is a public-private partnership.
The FFELP provides four types of loans; Stafford, Unsubsidized Stafford, PLUS and Consolidation.
Through the FFELP, private lenders make loans to students and parents.
Although, the loans are through private lenders, the FFELP does use government funds.
For example, if a student or parent does not make their payments, the private lender can be reimbursed for their losses by the federal government.
Under the William D. Ford Federal Direct Loan Program, the U.S. Department of Education will be the lender to students and parents.
Therefore, the student and/or parent borrow directly from the federal government with no use of private lenders.
