Yesterday, the Department of Education began sending letters to college presidents and financial aid directors at schools currently participating in the Federal Family Education Loan Program (FFELP) to inform them of the steps the Department is taking to ease the transition into the Direct Loan program. One such step is the establishment of accounts to enable schools to send and receive Direct Loan records and reports electronically through the Common Origination and Disbursement (COD) system. A Department official made it clear that the establishment of these electronic accounts does not obligate any school to move into the Direct Loan program now, but if schools choose to transition, the account will already be established.
The Department is taking this action in response to the Obama Administration's proposal to eliminate the FFEL program on July 1, 2010. The establishment of these electronic accounts does not require any action by institutions at this point. Schools that choose to transition into Direct Lending will be required to perform several other actions as outlined by the Department. The Department is expected to issue another letter within the next few weeks outlining the processing steps schools need to take to transition fully into the Direct Loan program.
In a meeting with NASFAA yesterday, ED officials stressed that the Department currently has the capacity to originate and service all loans through the Direct Loan program. Recently the Department awarded four additional servicing contracts to Great Lakes Education Loan Services, Nelnet, Sallie Mae, and AES/PHEAA to service not only ECASLA loans, but also in preparation for all loans that may be eventually be serviced through the Direct Loan program. Latest reports show that the Department has purchased $12 billion in FFELP loans through ECASLA and has another $30 billion in participation interests that will be liquidated before September 1.
ED officials continue to stress that the success and wide use of ECASLA illustrates that these servicers will have the capacity to service all loans made through the Direct Loan program, and that the FFEL program is no longer functioning properly. The Department official said that loan volume would be awarded to servicers based on a combination of delinquency and default prevention and customer service standards as reported by borrowers and institutions, but details are still being worked out.
The switch to 100 percent Direct Lending -- as proposed by the Administration -- has not been mandated by law and debate on this issue continues. However, NASFAA urges you to learn more about the Direct Loan Program and the business processes associated with it so that you are prepared for possible legislative changes. NASFAA continues to advocate for a loan program that works for all students, provides significant savings to be allocated to the Pell Grant, and retains appropriate borrower support services. NASFAA has been very involved in the student loan program debate and we will continue to be engaged as legislative mark-ups approach.
By Justin Draeger
NASFAA Vice President of Public Policy, Advocacy, & Research
Posted 07/09/09 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web site questions or comments to Web@NASFAA.org.
