WASHINGTON – Angelo State University's financial aid office may not be large enough to handle President Barack Obama's plan for the student loan industry.
Lyn Wheeler,director of financial aid for the university in San Angelo,Texas,said her office is doing its best to prepare for a possible switch to the Federal Direct Loan Program,which allows the Education Department to provide loans.
Obama wants all loans to go through the program by July 1,2010,dealing a blow to the private student loan industry.
Wheeler said the switch would put a cumbersome administrative burden on her staff of 11,which deals with an enrollment of 6,155 students.
Nearly three-fourths of Angelo State undergraduate students received financial aid as of fall 2008.
According to the 2006-2007 College Board's Annual Survey of Colleges,60 percent of students graduate with debt that averages $22,700.
“That's a good question,” she said about having the resources to handle the burden. “I don't know.”
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 Wheeler and financial aid officials at thousands of colleges and universities will have to revamp how they advise students who need to borrow money.
The administration has touted the plan as way to save taxpayers $4 billion that now goes to subsidize payments to the private sector. The savings would be used to expand Pell Grants,which go to low-income undergraduates.
Democrats on the House Education and Labor Committee on Tuesday 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 bill that emulates Obama's plan to shift all lending to the federal government.
At an April press conference,Obama cited the student loan system as being rigged to reward private lenders who had no risk.
In 2007,a few lenders were accused of unethically rewarding universities and student aid officials in exchange for exclusive rights to gain access to students.
Wheeler said that,under the new plan,her office would advance money to students and be reimbursed by the federal government. In the private program,lenders transfer money to the university,which then gives it to students.
Wheeler said the university would rather continue to partner with private lenders because students can select a lender and receive quality customer service,including guidance on repayment and default prevention counseling.
The federal government has selected four companies to service loans,but Wheeler said she does not know if the government would provide quality customer service.
Kristina Tirloni,public relations director at the Texas Guaranteed Student Loan Corp.,a non-profit guarantee agency,said TG already provides quality services.
She said the company has submitted a proposal to have companies like TG provide customer service in a federal program.
“We are experienced in it,” Tirloni said. “We know the different laws for whatever the program entails,so we can help with compliance to make sure schools,borrowers,families and students understand the rules and regulations.”
Tirloni said the Education Department acknowledges the need for these services.
“I think everyone in the industry is kind of waiting to see what's going on,” she said.
Kevin Bruns,executive director of America's Student Loan Providers,a trade association for private providers,said 4,000 of 6,000 universities and colleges partner with private lenders and would have to switch systems in less than a year.
The sheer number of schools changing systems could result in delivery delays,he said.
“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.”
In a July 8 letter to universities,William Taggart,chief operating officer for the federal student aid office,said the Education Department has expanded its origination system for direct loans along with providing electronic account access for students to ensure a seamless transition.
In light of the industry's skepticism,private loan companies,including longtime lenders EdFinancial Services,Nelnet and Sallie Mae,have proposed an alternate plan.
Bruns said private lenders want a service fee for origination,which is proposed with Obama's plan,to go to them in place of federal subsidies.
He 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.
Federal direct loans do have some advantages. On July 1,the Education 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.