University decides on direct lending beginning this fall

St. Thomas is changing its federal student loan process and will require students to borrow from the federal government, not banks, beginning with the fall semester.

St. Thomas, along with many institutions, is concerned by the instability in the student loan markets and has made changes that will guarantee the ability of students to borrow and consolidate their federal loans, said Marla Friederichs, associate vice president for admissions and financial aid.

Changes to the subsidies that banks received for participating in federal student loans and instability in the loan markets have put pressure on the student loan industry. This pressure, along with the resulting loss of revenue for banks, has resulted in many lenders leaving the student loan business. At St. Thomas, more than 50 percent of student loan borrowers have lost their federal student loan lenders over the last few months.

St. Thomas has decided to join the William D. Ford Federal Direct Loan Program. Beginning with the fall 2008 term, all students and parents who wish to borrow in the federal student or parent loan programs will be required to do so through the Direct Loan program.

Here are some important Direct Loan highlights:

Funding is secure. Direct Loans go through the U.S. Department of Education, and the funds come directly from the U.S. Treasury.

Fees and interest rates are more favorable. Participating in this program is not only more secure, but many of the fees and rates are more favorable. For example:

  • Federal Direct Loan fees are the same for all borrowers.   When working with private lenders, these fees vary by lender and guarantor.
  • Federal Direct Loans have lower origination fees than their private lender counterparts, and that means more money to students up front.
  • All funds are received electronically, which means no paper checks and no delays in the disbursement of funds.
  • Interest rates for Federal Direct Loans and the Federal Family Education Loan Program are the same for federal student loans; however, they are lower in the Federal Graduate PLUS Loan program.

Processing is streamlined. Unlike working with private lenders, direct loans allow students to:

  • Borrow from one source – the U.S. Department of Education.
  • Complete one electronic application – via the Department of Education Web site.
  • Communicate with one entity regarding loan concerns – the Department of Education where these federal loans are made, guaranteed and serviced.

Consolidation Loans exist. The program will allow and help students consolidate their student loan debt. Many private lenders in Federal Family Education Loan Program have discontinued doing loan consolidation.

While this change will require all students and parents who wish to borrow in the Federal Stafford or Federal PLUS loan programs to do some work over the summer, the outcome should be well worth the effort, Friederichs said.

In July, St. Thomas will send information directly to students about the process for securing loans through the Direct Loan program.   The information will be detailed, thorough and time-sensitive, and Friederichs said it will be critically important for students to read the information and take action to ensure that their loan funds arrive on campus for the fall in a timely manner.

For more information, undergraduate students should go to UST’s undergraduate financial aid Web site, and graduate students should go the the graduate financial aid Web site.