April 15, 2010

ISU helped pioneer direct lending plan

by Diana Pounds

Recent legislation that removed private lenders from the federal student loan process won't have much effect on Iowa State students.

"ISU students have been getting their federal loans without going through banks since 1994," said Roberta Johnson, director of student financial aid. "Iowa State was among the schools that helped pioneer direct lending."

The new legislation, the Student Aid and Fiscal Responsibility Act, ended the system of passing federal loans through private lenders en route to students. Lenders received subsidies for their role in the process. The savings generated by eliminating the lenders' subsidies will be directed to need-based Pell Grants, community college expansion and the federal deficit, Johnson said.

Johnson said the current bill has its roots in 1993 legislation that allowed some schools to pilot a direct-lending program. Iowa State joined 104 other schools, many of them public universities, in a first-year pilot of the program.

Johnson applauds the new legislation.

"It's better use of taxpayer dollars if we cut out the middle man," she said. "Banks should not need federal subsidies. Let's plug that back into the loan program. With this economy, students' need for Pell Grants is burgeoning."

In FY10, ISU students received 25,680 federal direct loans, totaling $136 million. Some students received more than one loan.

There's still a place for private loans in higher education, Johnson said, because there are caps on the amount of federal loans students can receive.

Johnson said about 73 percent of ISU students graduating in 2008-09 had taken out loans for their education. The average debt at graduation for these students was $29,767.