New Federal Loan Program Gives Students Repayment Options By Mike Field Students who finance their educations with the help of guaranteed student loans should find the process simpler, faster and will receive their money almost immediately beginning this September. That's when Hopkins joins the growing wave of colleges and universities to participate in the federal government's new William D. Ford Direct Loan Program. "We see this program as a way to provide better and quicker services to students by cutting out the middleman," said Robert Massa, associate dean for Enrollment Services. "By eliminating the banks and the state guarantee agencies, we will now be able to turn around these loans very quickly--often, within two or three days." In the past, students participating in the Federal Family Education Loan program were required to apply to a bank for the loan, an often lengthy process involving filling out two or more applications and then waiting for the check to arrive through the mail. Many students rely on their student loans to pay part or all of their everyday living expenses, say university financial officers, making the time between the start of classes and the arrival of the loan check particularly difficult. "We have often experienced students receiving their loan checks late and having to scramble to find money to tide them over," said John Zito, director of business services at the School of Nursing. Zito previously served as manager of Student Loans, Grants and Contracts Receivable in the university business office. He believes the new direct loan program will benefit both students and the university. "It's a win-win situation," he said. "Students will have less paperwork to fill out and will receive their money quicker. At the same time, we estimate that paperwork will be cut in half for the financial offices charged with administering the loans." The new system replaces paperwork and the mail system with computers and the electronic transfer of funds. Under the existing program, students receive a check from the lending institution that they must endorse and then turn over to the university. After the university processes the check and subtracts tuition and fees, the remainder is returned to the student. Beginning in September, students will apply for all financial aid, including loans, by filling out a single application available through the university financial aid office. Those who are eligible for a direct loan will receive a promissory note to sign. The notes will be processed and transmitted to the Department of Education in batches of 100. Within days of receiving the notes, the Department of Education electronically transfers funds for approved loans directly to the university. Funds in excess of tuition and fees are available to students almost immediately. The Department of Education estimates the federal government will save more than $6 billion in interest payments and unnecessary fees over the next five years because of the new program. It has advocated turning all student loans into direct student loans by the year 1998, a plan it claims will save an additional $5 billion or more by the year 2000. Current law mandates that direct student loans climb to no more than 60 percent of total federal guaranteed loan volume. The Clinton administration's effort to eliminate the old Federal Family Education Loan program in favor of the new direct student loan program has encountered resistance in Congress, where some members have expressed concern that direct student lending will result in a new and unwanted federal bureaucracy. However, advocates of the new system point out that third party servicers in conjunction with the educational institutions will be responsible for administering and collecting the loans. The new system, they say, will involve less paperwork, lower costs and deliver greater efficiency than the program it was designed to replace. The new program also allows students the option of tailoring their repayment schedule to their future needs, an increasingly important concern now that the cost of four years of undergraduate education alone can easily surpass $100,000. It is increasingly common for some students to graduate tens of thousands of dollars in debt. Repaying such sizable loans over the standard 10-year period can amount to payments of several hundred dollars each month. Under the new program, borrowers can open an Individual Education Account, giving them the option to repay their loan in one of four ways and to switch repayment plans as their financial situations change. The intent is to reduce the rate of defaults on student loans and to encourage borrowers to assume more control over their financial future. The four repayment plans include the standard 10-year repayment plan; an income contingent plan in which borrowers repay based on a formula derived from income level, family size and loan amount; an extended plan in which monthly payments are fixed up to a period of 30 years; and a graduated plan, in which payments start low but increase every two years over a period of 12 to 30 years. All eligible students, both graduate and undergraduate, may participate in the program. Currently, 1,761 of the university's 4,200 full-time undergraduate students and another 1,543 of 6,300 full-time graduate students receive some kind of guaranteed student loan. Next year, all those students who remain eligible will be switched to the direct student loan program. The university has created a special task force with representatives from each division to ensure the program is successfully implemented. "Some of us have been out to visit Colorado, one of the places where the direct student lending program was introduced last year," said task force member Anita Goodwin, director of financial aid at Peabody. "Everyone there was very pleased and said it works much smoother than the old system. We're very excited to be bringing it here because we believe it is going to make things faster and easier for us all."
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