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Financial aid switches to direct lending

Published on March 23, 2010 by Melissa Bernadel

Beginning this summer, students receiving financial aid will no longer take out loans from banks; all loans will then come directly from KSU. The deadline to accept all loans is April 1.

The university will transition from offering bank loans to offering student loans directly from the U.S. Department of Education, which will be dispensing these loans directly to KSU.

“The benefit of this would be students getting their loan money faster,” said Dr. Philip E. Hawkins, associate director of financial aid at KSU. We [KSU] have a little more control over the timing.”

The Department of Education’s policies are the same as those of banks that offer loans. Students will be offered a subsidized or unsubsidized Stafford loan.

Repayments and rates will remain the same. The only differences will be the procedure and source - where the loan comes from and process in which money is delivered to students.

The [reason for the switch] is directly connected to the declining economy said Hawkins. “Banks end up having to sell their student loan portfolios to the U.S. Department of Education,” said Hawkins. “So why not get the money from the source?”

So far, three major  banks have stopped offering student loans. In total, banks have sold 76.1 percent of their student loan portfolios to the U.S. Department of Education, a percentage that equates to $46,252, 966,517.

“Under President Barack Obama’s administration, they want every American to have at least one year of college by 2020,” said Hawkins. “He wants all universities to switch to direct lending. It would save between $62 to 87 billion that can be used toward the cost of college.”

The drawback to direct lending is the limitation of choice. Under the new guideline,  students will have to get their student loans only from KSU.

“With banks dropping out and delaying payment of loans, we [KSU] honestly felt it was time to move to direct lending,” Hawkins said.

All students with loans will have to sign a new promissory note promising to repay the loan through KSU’s financial aid Web site. More information about the change to direct lending visit kennesaw.edu/financial_aid/loans/loans.html.