Sample Executive Summary
This document can be incorporated into a formal memo or letter to your Senior Administration providing the rationale for your school to participate in the Federal Direct Lending program instead of the Family Federal Education (FFEL) program.
To: (Insert name of institutional executive). From: (Insert name of Financial Aid executive) Subject: Proposal for (insert name of institution) to Participate in the Federal Direct Loan Program Date:
How Loan Processing Works: Today, students can borrow loans from two sources: (1) Federal Direct Student Loan (DL) Program (2) Lenders in the Federal Family Education Loan (FFELP) Program Before the DL program existed, the only choice for schools and students was dealing with the time consuming, abuse-prone and complex processes of more than 8,000 educational lenders, 10,000 commercial lenders, 45 state or nonprofit agencies and 35 secondary market institutions (Franklin Frazier, Director, Education and Employment Issues, Human Resources Division, GAO Testimony October 29, 1991.) Large, national universities processed student loans from over 600 lenders from all fifty states. Unlike commercial lending, lenders profits were guaranteed and competition did not mean better service or benefits to students. Lenders had different application forms, processes, and fee structures and financial aid staffs were unable to provide effective advice to students’ loan terms and repayment options. After the loans had been processed for students, they were often sold and the borrower default rate escalated, in part, because students did not know who was servicing their loans. The DL program was originally enacted in 1990 by President George H.W. Bush as a demonstration program to simplify the federal student loan delivery system. The DL program was expanded in 1993 to enable all eligible institutions of higher education to participate. The program revolutionized federal student loan delivery by providing borrowers and participating schools with a simple, streamlined, and accountable system that also saves taxpayers billions of dollars. In the DL program, the federal government lends money to the students with capital raised wholesale from the private sector through the auction of treasury securities. The Department of Education administers the program through competitively led contracts from the private sector. The loan applications are processed electronically by the universities with one servicer, allowing loan processors to easily track the status of all applications and quickly inform students when they will receive their funds. Since the federal government does not sell the loans made in the DL program, the students always know who is servicing their loans and as a consequence, the default rate has been greatly reduced.
Sample Executive Summary available at www.directstudentloancoalition.org
-1–
The lenders in the FFELP program are supported by significant government-funded and congressionally legislated subsidies, which amount to billions in profits annually. Recent national investigations of the student lending industry by Congress, state attorneys-general and the media have revealed that these excessive profits made from the federal subsidies have led to illegal and unethical business practices in the FFEL program On the other hand, the Direct Lending program does not benefit from government subsidies. There is no conflict of interest in the Direct Loan program; therefore, the illegal, unethical behaviors recently found in the FFELP program do not affect DL schools or their students.
Federal Direct Loan Program is Good for Students Federal Direct Loans are fully integrated into the Federal student aid delivery process. The Free Application for Federal Student Aid (FASFA) serves as the student loan application for Federal Direct Loans, eliminating the need for students to navigate the complicated, time-consuming FFELP bank loan delivery method. The Direct Loan Program eliminates the need for Preferred Lender Lists and the resulting potential conflicts of interests inherent in the FFELP bank loan program. Unlike the FFELP bank loan program, with 3,500 eligible participating lenders, the Federal Government is the single source of funds for Direct Loans which reduces the confusion and complications for students. Single point of service for schools means significantly lower administrative costs keeping tuition lower for all students Students and schools who participate in Federal Direct Loan program are not subjected to constant marketing campaigns by lenders who tout benefits that are contingent upon some action on the part of the borrower and are not in the promissory note Borrowers are free to consolidate their loans with any lender they choose once they graduate, thus protecting consumer choice. Only Federal Direct Loans offer a true, income contingent loan repayment option with loan forgiveness after 25 years of repayment. Borrowers with an interest in working in relatively low-paying, community service jobs can do so without fear of defaulting on the repayment of their student loans. Direct Lending has the new Public Service Loan Forgiveness program that will forgive remaining debt after 10 years of eligible employment and qualifying loan payments for people working in key public service professions such as teaching, government, social work, law enforcement, and non-profit 501(c)(3) organizations Direct Loans are never sold by the Federal Government, so student borrowers always know who holds their loans and what the terms are. FFELP loans are frequently sold, with promised benefits not honored by the new loan holder(s). The U.S. Department of Education states that in the last 4 years on average, each FFLEP loan was sold 2.5 times.
Federal Direct Loan Program Saves Taxpayers Money
Sample Executive Summary available at www.directstudentloancoalition.org -2–
Federal Direct Student Loans raise capital through the public auction of federal securities; these funds, at “wholesale” interest rates, are then loaned directly to students at significant savings to taxpayers. Rather than a negotiated cost of capital as is true in the FFELP bank loan program, market mechanisms ensure that capital for the Federal Direct Loan program are always available at the lowest possible cost to taxpayers. Competitively Bid Service Contracts are another reason Direct Lending saves taxpayers money. Federal Direct Loans are serviced by private American companies on the basis of competitively let “bid for service” contracts. This means Direct Loan borrowers receive superior “life of the loan” customer service at the lowest possible cost to borrowers and taxpayers. These savings could be used, if Congress chooses, to further help students from low-income families access a college education Every credible study conducted to determine the relative cost of the two delivery systems has empirically proven that the Direct Loan program is significantly cheaper for taxpayers than the highly-subsidized private lender FFELP program. The Government Accountability Office (GAO), the Congressional Budget Office (CBO), the Office of Management and Budget (OMB), The Heritage Foundation, the Center for American Progress, the Center for Studies in Higher education, every President’s budget since the inception of the Direct Loan Program, and most recently a joint study by CBO and Northwestern University all say the same thing: “Federal Direct Loans save taxpayers money over the heavily subsidized Federal Family Education Loan Program.”
Direct Loans are Good for Schools The Federal Government is the single source of funds for Direct Loans. This eliminates the need for schools to maintain “preferred lender” lists or other means of managing the 3500+ lenders in the bank run Federal Family Education Loan Program. Schools that participate in Federal Direct Loan program are not constantly visited by bank marketing representatives trying to convince them to help the bank increase its market share of student loans. Direct Loans are fully integrated with the federal financial aid process, simplifying the administration and oversight of government funds. Overseen by Federal Student Aid (FSA), schools have opportunities to continually work with the U.S. Department of Education to achieve continuous improvement in student loan delivery. Every school in America who administers the Federal Pell Grant, ACG and SMART programs has the knowledge, software and business process in place to administer Federal Direct Loans. In fact, that’s why Federal Direct Loans are often referred to as a “Pell Grant with a Promissory Note”.
Attached are some additional documents to support the proposal for (insert name of institution) to participate in the Federal Direct Loan program beginning in the Fall of (insert date).
Sample Executive Summary available at www.directstudentloancoalition.org
-3–