Johns Hopkins Gazette: March 6, 1995

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

     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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