Direct Lending Will Reduce Paperwork

WASHINGTON (AP)-Students at four colleges in Massachusetts won't have to fill out as much paperwork to get loans next year under a program the government says will save students and taxpayers money.

The Federal Direct Student Loan Program eliminates the gobetweens--lenders and guarantor agencies. That means the U.S. Department of Education can offer students the low interest rates available to the government without the fees charged by banks.

And students will have a repayment schedule negotiated to fit their income, a plan the government says will lower the default rate.

It's "one-stop shopping," Education Secretary Richard Riley said yesterday. "We are on track to make good on our pledge to save taxpayers $4.3 billion in the course of the next five years."

Riley named 105 schools that will offer direct loans to almost 300,000 students next year, accounting for 5 percent of the nation's total new student loans.

The following year, nearly half of the schools that provide federal student aid will offer direct loans. By 1998, those loans will make up 60 percent of all student lending.

"This is going to help us all," said Kassahun Tefera, a junior at the University of the District of Columbia, which will offer direct loans next year. "Now it's so confusing with all the papers to fill out."

"You shouldn't have to have an MBA in finance to understand how to get and process a loan," agreed Riley.

In Massachusetts, four universities and colleges will offer loans direct to students: Amherst, Harvard, Stonehill and Williams.

"The most important thing is that it simplifies the student loan process," said Eileen O'Leary, Stonehill's financial aid director. "Instead of a student being told by the school that they are eligible for the federal Stafford Loan and then having to get an application from the bank, forward it to the school and then the school sending it to the guarantee agency and then the bank sending it to the school, the students get one-stop shopping." out," O'Leary said.

Under the current Federal Family Education LoanProgram, students apply for loans throughcolleges. Banks provide the money and thegovernment pays the loan's interest until thestudent leaves school. If a student defaults, oneof 47 guarantor agencies repays the lender andthen tries to collect the debt.

The Clinton administration estimates directloans could save $4.3 billion in five years, fromthe fees it now pays lenders and from fewerdefaults. In fiscal 1993, for example, thegovernment issued 6.1 million loans worth $18billion. Default costs totaled $2.5 billion.

About 1,100 institutions applied for thedirect-loan program. About 900 were eligible: Theyparticipate in FFELP, have a default rate lessthan 25 percent and can electronically processloan applications or are implementing themachinery to do so.

When a student applies for a direct loan, thecollege will electronically send the applicationto the Education Department, which will in 72hours decide if the student is eligible and send acheck.

But not everybody believes direct lending isthe way to go.

Gettysburg College in Pennsylvania didn't applybecause of fear that the computer system andsoftware involved would cost too much.

"We didn't want to be one of the trailblazers,"said financial aid Director Ronald Shunk. "Ireally anticipate funding problems."

American Student Assistance, the nation'soldest student loan guarantor, said the industryis reforming itself, to make applying for andrepaying loans simpler.

"The current public-private partnership is thebest way to serve the interests of students,schools and taxpayers," said President DanielCheever

Under the current Federal Family Education LoanProgram, students apply for loans throughcolleges. Banks provide the money and thegovernment pays the loan's interest until thestudent leaves school. If a student defaults, oneof 47 guarantor agencies repays the lender andthen tries to collect the debt.

The Clinton administration estimates directloans could save $4.3 billion in five years, fromthe fees it now pays lenders and from fewerdefaults. In fiscal 1993, for example, thegovernment issued 6.1 million loans worth $18billion. Default costs totaled $2.5 billion.

About 1,100 institutions applied for thedirect-loan program. About 900 were eligible: Theyparticipate in FFELP, have a default rate lessthan 25 percent and can electronically processloan applications or are implementing themachinery to do so.

When a student applies for a direct loan, thecollege will electronically send the applicationto the Education Department, which will in 72hours decide if the student is eligible and send acheck.

But not everybody believes direct lending isthe way to go.

Gettysburg College in Pennsylvania didn't applybecause of fear that the computer system andsoftware involved would cost too much.

"We didn't want to be one of the trailblazers,"said financial aid Director Ronald Shunk. "Ireally anticipate funding problems."

American Student Assistance, the nation'soldest student loan guarantor, said the industryis reforming itself, to make applying for andrepaying loans simpler.

"The current public-private partnership is thebest way to serve the interests of students,schools and taxpayers," said President DanielCheever