ED prepared for direct loan transition
By Matthew Dembicki, Published February 5, 2010

The U.S. Department of Education (ED) is moving ahead with preparing higher education institutions to transition into the federal direct student loan program.

The current Family Federal Education Loan (FFEL) program, which provides subsidies to private lenders to service student loans, would be nixed July 1 under H.R. 3221. The bill would also create the American Graduation Initiative (AGI) and use part of the FFEL savings to pay for AGI.

Even if Congress doesn’t pass the bill, advocates say legislation that extends the FFEL program is set to expire at the end of the year, and congressional leaders have indicated they don’t plan to extend it again.

Last week, ED held a Webinar with the American Association of Community Colleges (AACC) outlining to public two-year colleges the technical aspects of moving to the direct loan program.

Although the transition is currently voluntary, it may become mandatory by July.

“It’s important that all institutions begin getting ready for direct loans,” said David Baime, AACC’s senior vice president for government relations and research.

ED officials said the department has developed a system to handle a large number of colleges and universities making the switch. It has enhanced its customer service, increased staff and training and created special direct loan transition teams, including one that is focused on community colleges.

The department will hold “spring training” sessions at about 15 sites around the country to provide information and hands-on help to colleges, said Susan O’Flaherty, who works for the department's student aid office.

The disbursement process for direct loans will be the same as for other federal student aid programs, including Pell Grants, said Wood Mason, who also works at the department’s student aid office.

“It makes all the processing exactly the same,” he said.

The department is particularly focused preventing loan delinquencies and defaults. Some community colleges had expressed concerns that changes in services prompted by moving to direct loans could increase their student loan default rates.

Department officials said students will be offered several repayment options and activities, such as counseling students before they begin loan repayments and contacting students a month after a payment is due, Mason said.

The department is also encouraging colleges to visit the Web site of the National Direct Student Loan Coalition, which provides advice from the field.

For more information on direct loans, click here. To e-mail the direct loan team, click here.