THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Wednesday, March 6, 1996 TAG: 9603060011
SECTION: FRONT PAGE: A10 EDITION: FINAL
TYPE: Letter
LENGTH: Short : 45 lines
A letter (Jan. 26) gave an unfair portrait of several features of the new direct-student-loan program.
The old guaranteed-student-loan program has grown cumbersome and unduly expensive for taxpayers. The need for change led the Clinton administration and a bipartisan coalition in Congress to create the direct-student-loan program - a simpler, faster, more-efficient way of getting loan funds to students.
Direct lending delivers loan funds to students in a matter of days, compared to six weeks or more in the guaranteed program. Direct lending gives students the choice of repaying the loans as a percentage of their income - an important option that makes debts more manageable when their incomes are low.
Colleges are free to choose which program they use. Now in its second year, direct lending is getting high marks from administrators and almost 2 million student borrowers at more than 1,350 participating colleges, including Old Dominion University, the University of Virginia and Virginia Tech. Another 500 schools are scheduled to join next year.
Federal funds make up the financial backbone of both programs. The term ``guaranteed'' refers to the fact that banks that issue student loans assume virtually no risk. Ninety-eight cents of every dollar lent to a student by a bank is guaranteed by the federal government.
Direct lending is administered by private-sector contractors who obtain the work through competitive bidding. Under the old guaranteed-loan system, banks and guaranty agencies receive fixed federal subsidies without competitive bidding.
The congressional leadership wants to limit direct lending to 10 percent of national loan volume, a move that would deny hundreds of colleges the choice that they made to enlist in direct lending. The Clinton administration supports continued competition between the programs to provide choices for students and colleges.
RICHARD W. RILEY, secretary
U.S. Department of Education
Washington, D.C., Feb. 16, 1996 by CNB