Due to recent shortcomings with the current Federal Family Education Loan (FFEL) program, Cal Poly will institute the Direct Lending program in order to distribute financial aid more efficiently and effectively.
Come fall 2009, the William D. Ford Federal Direct Student Loan (DL) program will allow students and parents to directly borrow loans through the U.S. Department of Education, which provides a stable source of funds and one entity (the Direct Lending Servicing Center) for everything related to the repayment of loans, according to Cal Poly’s Financial Aid Web site.
There will be one site for the master promissory note (MPN), entrance counseling and exit counseling, making the process quicker and easier. Students can always access account information online and multiple payment plans are offered to accommodate students.
“You are borrowing through the federal government, the loan is being serviced by the federal government and you are repaying the federal government,” said director of Financial Aid Lois Kelly. “We’ve cut out a bunch of people in that whole process.”
The FFEL program’s “whole process” involves a partnership between the school that certifies the student’s eligibility for the loan, the student who chooses a particular lender to borrow from, such as a bank who puts up the capital of the funding, and a servicing agency who processes the loans, Kelly explained. Also, a guarantee agency acts on behalf of the federal government to assure all the correct processes are followed and the lender’s investment is returned.
Cal Poly saw this as an opportunity to economically improve the financial aid process through the DL program, Kelly said.
“I think it will make the process a lot more seamless,” said industrial technology junior Jeff Bruchez, who has depended on financial aid throughout college. “Because right now if you go through a third-party lender, you have to send the paperwork through them and it might take two or three weeks before you hear back.”
The DL application process closely mirrors its predecessors because the electronic submission process is the same as three other current grant programs, Kelly said. Families will still complete the Free Application for Federal Student Aid (FASFA) and the Cal Poly Financial Aid Office will determine the student’s eligibility for loans. A new electronic promissory must be signed and a 1.5 percent loan fee will be added to the amount of each Stafford loan. But before the money is disbursed, there is a 1 percent rebate automatically deducted, unless a student fails to repay the loan. This fee helps reduce the cost of making these low-interest loans.
Some of the difficulties Cal Poly has encountered with the FFEL program include inefficient means of processing loans, lenders pulling out of the program due to the poor economy, not providing the last disbursement of loans and decline in customer service, Kelly said.
Cal Poly currently has 79 different lenders to accommodate and by law they cannot “stop students from borrowing from a lender back East that might have a different process (to evaluate the loan), such as a different guarantee agency,” she said. “That means we have to accommodate every process that every lender across the country uses.”
Accommodating these processes is a time-consuming endeavor that the depleted Financial Aid office has less staff to commit to. There is a common electronic submission process that some lenders prefer not to use, causing Cal Poly to do applications by hand, fax lenders information and receive more individual disbursements that must be processed manually, Kelly said.
“All of that means th e electronic system we had in place is now stumbling because there are more exception processing,” she added. “This increases cost and decreases service to our students because students have to wait longer. If there was a problem with the processing we would call the lender (and have to communicate) through voice mail” because lenders are forced to decrease staffing to accommodate budget cutbacks.
About 17 percent of the lenders have left the FFEL program over the last few years, Kelly said. Thus, students were forced to accumulate loans with different lenders, and to the “few hundred students that impacted, it was a real pain. One of the reasons we chose the DL program is because they are the largest single consolidator in the country, so if you have loans with several different lenders, then they can purchase all of those loans so you can pay one entity back,” which would give students longer to repay the loan.