WASHINGTON – The financial aid office at California State University Channel Islands is moving forward as it prepares to switch student loan providers.
But uncertainty remains about whether the switch from private lending to government-controlled lending will be seamless.
Tracie Matthews,the university's financial aid director,said she cannot gauge whether her office will be burdened with more responsibilities after a switch to the Federal Direct Loan Program,in which the federal government provides loans.
“We don't have an opinion one way or the other because it's something we have to do,” she said. “We are just moving forward.”
The university will switch systems next year after Chancellor Charles Reed ordered every university in the California State system to change to direct lending.
Reed,who has been a proponent of direct loans,coincidentally ordered the switch about the time President Barack Obama announced his intention to have all universities adopt direct lending by July 1,2010.
The announcement has left private lenders in a tizzy as they try to figure out their future role.
Congress is likely to act on Obama's plan before the fiscal year ends Sept. 30. But the longer it takes to change the law,the less time Matthews and financial aid officials at thousands of colleges and universities will have to revamp how they advise students who need to borrow money.
Matthews said that her office will bring in consultants in January to help change systems and train the staff.
Channel Islands is one of the smallest in the California State system. Of 3,783 students who attended the university last year,62 percent received some form of financial aid.
According to the 2006-2007 College Board's Annual Survey of Colleges,60 percent of students graduate with debt that averages $22,700.
Matthews said her office should not be overburdened with new duties,including taking on some servicing duties. The private sector provided services such as loan counseling when it partnered with a university.
“I don't have a way to gauge it one way or the other at this point,” she said.
Many universities that partner with private lenders are concerned about a decline in servicing,if Obama's plan is approved.
About 4,000 universities will have to switch under his plan. In response to the criticism,the Education Department has contracted with four private companies to service loans.
Matthews said her concerns about servicing subsided after the department finalized the agreement.
“I'm not too concerned about it anymore because I think [Obama] put entities in place on the servicing side,” she said.
Sam Kipp,president of EdFund,a California loan guarantee agency,said Obama's plan will burden universities,especially if they have just six months to change systems.
He said the private sector offers the best benefits for students because the companies have the trust of universities to provide quality services.
Kipp said time will judge the effect of Obama's plan.
“At this point,we're staring through a murky prism,” he said.
On July 21,Democrats on the House Education and Labor Committee defeated an amendment to the Student Aid and Fiscal Responsibility Act that would have preserved the private student lending sector. Instead,the committee approved a measure that emulates Obama's plan to shift all lending to the federal government.
The Obama administration says the plan would save $4 billion annually now spent on payments to private sector lenders. At an April news conference,Obama said the student loan system rewards private lenders,but the lenders have no risk because they are loaning public money.
The industry was tarnished by a 2007 scandal in which three major lenders,Sallie Mae,Citibank and Education Finance Partners,settled with the New York attorney general for $6.5 million after an investigation showed the three had given universities kickbacks in exchange for being granted “preferred lender” status.
Kevin Bruns,executive director of America's Student Loan Providers,a trade association for private providers,said the sheer number of universities changing systems in less than a year could result in delivery delays.
“It's not like your iPhone takes two more weeks to arrive,” he said. “If you don't get your loan,you may not be able to enroll.”
Bruns said Obama's plan does not include enough services for students.
“If you have a monopoly,there's no incentive to provide the level of service,” Bruns said.
The Education Department has recently offered additional services.
On July 1,the department launched a repayment plan based on borrowers' incomes and a loan-forgiveness program for students who work in public service. Those who work in public service – including government,public schools and nonprofits – have their loans forgiven after 10 years. Others may reduce their monthly payments based on their incomes,and their loans are forgiven after 25 years if they make their payments on time.