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The DL program was originally enacted in 1990 by President George H.W. Bush as a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 -1–
www.directstudentloancoalition.org
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 -2–
www.directstudentloancoalition.org
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 -3–
www.directstudentloancoalition.org