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Colleges urge retention of federal loan programs

More than 400 college presidents, including MIT President Charles Vest and Harvard President Neil Rudenstine, this week wrote Speaker of the House Newt Gingrich, Senate Majority Leader Bob Dole and President Bill Clinton to oppose restrictions on the Federal Direct Student Loan Program.

The letter, from the American Council on Education, urged them to oppose limits on direct lending by the government, which currently provides about 38 percent of all student loans.

The letter said, in part:

"We are very concerned with efforts in Congress to limit direct lending, which currently provides about 38 percent of all student loans. We oppose any provision that would arbitrarily limit the ability of schools to participate in direct lending, as we would oppose any effort to force schools into direct lending against their wishes. We ask that in your deliberations with the Administration about the future of federal student loans, you retain institutional choice with regard to the participation of colleges and universities in either the direct student loan or the guaranteed student loan (Federal Family Educational Loan) program.

"Maintaining the availability of both direct and guaranteed loans is a sound policy that should be preserved, because schools' ability to join either of the two programs has improved the student loan process for all students and schools, regardless of whether or not they participate in direct lending.

"Those of us representing colleges and universities already in direct lending can attest to the improvements it has brought about for our institutions. We can report first-hand on the benefits of direct lending for our students: the simplicity of application, the speed of delivery of funds, the disappearance of lines of students waiting to endorse their checks at registration time, the precipitous drop in the number of emergency loans issued to students waiting to hear about their loans from banks and guarantors, and fewer visits to financial aid offices. Students often borrow less under direct lending because they know they can adjust their loan amounts without repeating the entire application process, and therefore only borrow what they believe they need, not the maximum for which they are eligible. Students will also reap the benefits of the income-contingent repayment option, which is only possible through direct lending. At the institutional level, direct lending has eliminated redundant paperwork, reduced staff time allocated to dealing with thousands of lenders and dozens of guarantors and other intermediaries, and vastly improved our overall aid delivery processes because it seamlessly integrates with other federal aid programs.

"Those of us representing institutions that are satisfied with the guaranteed student loan program also support the continued availability of the direct loan program to institutions. The competition created by the direct lending program has induced banks and guarantors to improve the efficiency of their delivery process, and has for the first time provided the student loan industry with market-based incentives to provide better service.

"Schools now have the option of participating in direct lending or the guaranteed student loan program based on their assessment of which program works best for their students. This has provided a strong incentive to both the Department of Education and to the student loan industry to improve the quality of their service to borrowers and schools. This is precisely the outcome that the bipartisan architects of current direct lending law intended in reforming the student loan system two years ago. We urge you to allow the forces of competition to continue to determine what percentage of the student loan market each program captures by retaining the current direct lending law," the letter concluded.

A version of this article appeared in MIT Tech Talk on November 15, 1995.

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