[ Golden Gater Online - October 23, 1997 ]
Jennifer Flescher
Medill News Service
WASHINGTON -- The House of Representatives voted Tuesday to expand options for students consolidating their loans.
The bill was introduced in the House last month after the Department of Education announced a backlog of 84,000 federal student loan consolidation requests. Admitting that it could no longer keep up with borrowers' demands, the department said it would accept no new applications until theproblem was under control.
Legislators hope that rapid passage of the new bill will alleviate the hardship felt by thousands of students who were left in limbo by the department's freeze.
"We have 100,000 students dangling in the wind," said Rep. Bill Goodling, R. Pa., co-sponsor of the emergency bill. "The Department of Education had no business becoming the largest bank in the world," Goodling said. "We bailed them out."
Department of Education officials disputed the criticism, saying in a statement that they will work to amend the bill in the Senate. The administration is calling for, among other things, a change in funding for the proposed bill. As it was written, the $25 million in overhead will be taken from the administration budgets of the Direct Loan and Federal Family Education Loans programs to relieve the pressure on the beleaguered Direct Loan Program.
The bill would allow immediate consolidation of federal student loans through the FFEL, a separate program within the Department of Education, with the same rates and privileges they enjoy under the Direct Loan Program. The FFEL program works with non-governmental banks and lending institutions to guarantee federal loans and has been excluded from government subsidies on interest rates and deferment privileges.
The Department of Education underestimated the number of schools that would sign up for the Direct Loan program this year. "It was not clear to us that the department was prepared to deal with the direct loans," said Jim Belvin, director of financial aid at Duke University. Belvin said that because of administration and service capabilities, Duke has kept its federal loans with the FFEL program. "We frankly felt that it was very important that we keep control over the quality of service for our lenders," he said.
Nevertheless, for countless students, the federal Direct Loan Program has been a major relief from the burden and confusion of multiple lenders and accounts. The program allows students and recent graduates to consolidate loans into one package, with a single monthly payment and a variety of refinancing options.
Its popularity has contributed to the backlog, but critics of the Direct Loan program said that the department never had the technology or experience to handle the volume of business necessary to make the program work.
"I don't think that the Department of Education has been given the resources to do the job they've been given," said Diane Saunders, spokeswoman for Nellie Mae, the largest non-profit provider of student loans in the country and an FFEL guarantor.
If the bill becomes law, Nellie Mae is just one of the institutions that could experience a flood of new work.
"We don't know quite what to expect in terms of increased volume," said Saunders, who added that unlike the government, private institutions are experienced in consolidations, continually updating software and staff according to demand.
Although the bill will take effect for one year, and was written as a response to the Direct Loan consolidation crisis, the legislation has been making its way to the House floor for many months.
"We think it's consistent with the Higher Education Act," said Larry Zaglaniczny, associate director of government affairs at the National Association of Student Financial Aid Administrators. The Higher Education Act is expected to be reauthorized for five years, and Zaglaniczny said the bill could easily be extended for the same period.
"The fate of the Direct Loan Program depends on politics," said Saunders.
"There are people out there who are saying, 'I told you so.'"
[ Golden Gater - October 23, 1997 ]