105 Postsecondary Schools Selected For Direct-Loan Program

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Secretary of Education Richard W. Riley last week unveiled a list of the 105 postsecondary institutions that were selected to participate in the first phase of the new federal direct-lending program.

"We are pleased and encouraged by the broad interest shown by the higher-education community for this new effort,'' Mr. Riley said at a news conference held at the University of the District of Columbia, one of the participating schools.

Under the new program, the federal government will make loans directly to postsecondary students through their institutions, rather than through private lenders.

Federal law requires that direct loans account for 5 percent of new student-loan volume in the 1994-95 academic year, and increase to at least 60 percent by the 1998-99.

The 105 schools chosen last week were from a pool of more than 1,100 applicants, about 900 of which met the department's criteria.

Institutions had to be eligible for the Federal Family Education Loan Program, have a student-loan-default rate of less than 25 percent in fiscal 1990 or 1991, and show the "technological capacity'' to administer the loans electronically.

The group is made up of nine public two-year colleges, 34 public four-year colleges, 24 private four-year colleges, and 38 proprietary schools.

Nonprofit higher-education institutions will disburse the bulk of the loan funds, however. Private colleges and public two-year and four-year institutions will collectively handle 94 percent of the $729 million in direct-loan volume that is to be disbursed this year.

Fewer, Larger Schools

Although Education Department officials initially planned to select as many as 400 institutions, fewer were chosen because more large schools applied than anticipated, according to David Longanecker, the assistant secretary for postsecondary education.

The 900 eligible schools represent $2.8 billion in loan volume, about four times that needed to meet the 5 percent goal, Mr. Riley noted.

Department officials said they expect to announce the institutions that will participate in the program's second year by next spring.

Sen. Paul Simon, D-Ill., a supporter of the direct-loan plan, praised last week's announcement.

"These schools are pioneers in a new loan program that will save taxpayers billions of dollars now spent on subsidies to lenders under the Guaranteed Student Loan Program,'' he said in a statement. "It will help restore accountability, it will reduce paperwork, and it will lower default rates.''

Those who operate the current loan system were more skeptical.

"We believe a full and fair review of direct lending will reveal that the current public-private partnership is the best way to serve the interests of students, schools, and taxpayers,'' said Daniel S. Cheever, the president of American Student Assistance, a Boston-based student-loan guarantee agency.

Guarantee agencies are non-profit organizations that insure and oversee loans and act as collection agencies, but the government ultimately picks up the tab for defaults.

"If direct lending fails to prove to be the most efficient system, we hope Congress will reverse its decision,'' Mr. Cheever said.

Vol. 13, Issue 12, Page 12

Published in Print: November 24, 1993, as 105 Postsecondary Schools Selected For Direct-Loan Program
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