New FFELP replaces Direct Loan program

Accumulating the financial resources to pay for college is often a chief concern for students. Having the best terms for repayment of school loans is always an issue that borrowers would like to have some control over.

Now, at PSU, they do.

PSU’s Financial Aid office has diverged from its former financial aid provider, the Direct Loan program, to the new Federal Family Education Loan Program (FFELP) beginning in the 2003-04 academic year.

Employees at the PSU Financial Aid department believe they will be better situated to serve the needs of students’ financial matters while simultaneously assisting the department itself. Three reasons are given in support of the advantages FFELP will provide. Those reasons are:

Due to the large numbers of community college transfers to PSU who already have FFELP loans, the change in programs will allow those transfer students to stay with their current bank lender. Even though the transfer student must still sign a PSU financial aid Master Promissory Note, every other part of the process will be seamless.

The second reason regards the position of the lenders themselves. FFELP lenders are private, commercial banks that can offer incentives to students repaying loans, possibly reducing the total repaid by lowering interest rates to qualified borrowers.

“The FFEL Program offers schools and borrowers more benefits because of the competition between lenders, servicers and guarantors,” said Michele O’Leary, Oregon Student Assistance Commission’s FFELP training coordinator. “That is, borrowers receive more repayment benefits through a developed relationship with their lender; schools receive added benefits including support for tasks that are allocated to the lender instead of the school.”

Finally, lenders are eager to impress PSU in order to be selected as a “Preferred Member,” which promises an edge and more publicity from the university to the student body on behalf of those with elevated status. This means that services not before provided under the Direct Loan program will occur when commercial lenders supply such things as loan advice and support services in exchange for promotional privileges to potential borrowers.

The Preferred Members list will be reviewed yearly to find the lender with the most favorable loan terms and service agreements.

“Different bank representatives will have an opportunity to answer questions about student loans,” Kathy Goff, assistant director of Financial Aid, said. It’s providing more people to help serve the students. Having those local, live bodies I think will end up providing better service to the students in terms of information, and help us make better use of our Financial Aid staff time.”

All rules of eligibility and loan amounts stay the same under both programs with the primary variation being the funding sources.

While both old and new programs are related to the federal government, they are rooted in separate sectors.

Since some college students do not have credit history that would allow for dispersal of loans for the large sums that tuition at most institutions incur, these student loan programs were established. The Direct Loan program permitted students to borrow directly from the government, circumventing lenders and eliminating other stakeholders. FFELP, on the other hand, makes states and the federal government guarantor of student loans for private lenders, like banks and credit unions that provide the necessary financial resources to extend loans.

The interest rates of both programs abide by identical regulations, so the switch does not affect current or future borrowers. Any loan disbursed after July 1, 1998 has the same 3.46 percent interest rate, which is capped at 8.25 percent.

The near future will bring students the online option on banweb to choose their own lender and its corresponding loan terms and rates.

“By having students utilizing the web, we’ll have a lot less paper to handle,” Goff said. “If the majority of people are dealing with their acceptances or declines on the web, then we [Financial Aid] do not have to hand enter their responses. Less work will be involved.”

For more information on FFELP, stop in and see a representative at the Financial Aid Office on first floor of Neuberger Hall or call 503-725-3461, or toll free at 800-547-8887.