The junior from
Texas State University-San Marcos is one of a few
Texas State University-San Marcos offers students federal direct loans and private loans. New students are steered into direct loans, while transferring students can keep their debt with private lenders. Financial aid assistants Peggy Picasio, back left, and Elda Cruz, back right, counsel students.
Williams, who is on the hook for $5,000 and expects to owe as much as $15,000 to Uncle Sam by the time she graduates, said, "It was easy to do."
It's easy for
"We cut out the middleman," said Mariko Gomez, director of student financial aid at
Only about 1,100 of the nation's colleges, universities and other post-secondary institutions have opted to participate in the direct loan program. That amounts to about 20 percent of the federal loan pie.
Some studies show that direct loans cost taxpayers far less than private-lender loans, as much as $5.89, or 78 percent, less for every $100 loaned.
Banks and other lenders say they dominate the market by offering lower fees and interest rates than the government. But critics say the industry has engaged in questionable practices.
SLM Corp., known as Sallie Mae, reportedly offered
A nationwide investigation by New York State Attorney General Andrew Cuomo has revealed payments by loan companies to some colleges that list them as preferred lenders, as well as ownership of loan company stock by some college financial aid administrators.
The various developments have created new interest in the direct loan program, which was established in the early 1990s. The National Direct Student Loan Coalition, an alliance of participating colleges, has fielded inquiries from dozens of schools in recent weeks.
"A lot of people are now saying that those schools that went into direct lending really avoided much of the current controversy and, in hindsight, did the right thing," said Craig Munier, chairman of the coalition and director of scholarships and financial aid at the University of Nebraska-Lincoln.
Proponents of direct loans say they save taxpayers money by eliminating fees and other subsidies paid by the government to lenders. In addition, they note, borrowers pay interest to the government rather than to lenders. Interest rates are similar for both programs.
Bush's 2007 budget shows that direct loans cost taxpayers $1.70 for every $100 loaned, compared with $7.59 for loans by private lenders, according to an analysis by the student loan coalition.
If every school in the
Banks and other lenders contend that those studies rely on accounting rules that exaggerate the cost of the Federal Family Education Loan Program, the one they participate in, and understate the cost of the William D. Ford Federal Direct Loan Program, named for the late
"The cost savings are not nearly as great as portrayed by advocates of direct loans," said Fritz Elmendorf, a spokesman for the Consumer Bankers Association, which represents lenders. "We believe strongly that students get better service from private lenders."
The debate has taken on a partisan tone, with many Republicans in Congress defending private-sector involvement and Democrats arguing that the direct loan program should be expanded.
The prospect of dealing with one lender rather than many appealed to the university's president at that time, Jerome Supple.
Gomez, the financial aid director, said the direct loan program is simpler to administer. She is thinking about dropping the private-lender program.
Some financial aid administrators seem to have an emotional attachment to the private-lender program, she said. "I don't want to say they're brainwashed," Gomez said. "Possibly, service has improved, and they see no impetus to change."