Department Prepares Direct Loan Program to Handle All Student Loans

The Department of Education recently updated the budget section of its Web site to include frequently asked questions and answers about key aspects of its operational plans for Direct Lending.

In the article, Questions &: Answers on the Transition to 100 Percent Direct Lending, the Department states that "the Direct Loan program has ample capacity to assume significantly more origination volume with no impact to existing service levels and will be able to assume 100% of FFEL volume by the end of 2009. Currently, Direct Loan servicing can also assume significant more volume, including increased customer service activity. The Department is in the process of developing even more capacity over the next several months. These steps will mean that all aspects of the Direct Loan Program will be fully supported both prior to the start of 2010-11 activity and when the program assumes 100% of the volume."

The Department also states that "depending on the status of the President's proposal and other factors, some FFEL lenders may choose to withdraw from, or scale back their participation in, the FFEL Program" earlier than July 2010, and that institutions should "begin a review of their internal policies, business processes, and systems to determine what changes they will need to make, and when, for conversion to the Direct Loan Program."

If President Obama's 2010 budget proposal is approved by the Congress, all loans made on or after July 1, 2010 would be Direct Loans. Recently, Bob Shireman, consultant and senior adviser to Secretary Duncan, said that the Department is ensuring it will have the capacity handle 100 percent of loan volume whether the budget proposal succeeds or not. He explained that even if the Obama administration is unable to eliminate FFEL through the budget process, the expiration of the Department's authority to purchase FFEL loans under the Ensuring Continued Access To Student Loans Act (ECASLA) will soon expire, which could severely inhibit FFEL lending in the future. The law temporarily authorized the Department to purchase FFEL loans, but this authority expires on July 1, 2010. Last year Congress passed a year-long extension of ECASLA, but it is unknown if Congress will extend ECASLA again.

By Darrill Anderson
NASFAA Associate Director of Communications

Posted 04/15/09 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web site questions or comments to Web@NASFAA.org.