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A Switch to Direct Lending for Students Taking Out Federal Loans
February 9, 2010, Volume 56, No. 21

The University of Pennsylvania will switch to Direct Lending for graduate and undergraduate students who wish to obtain federal loans for educational costs. The change will take effect with the first summer session for the 2010-11 academic year.

Currently, Penn students or their parents who take out loans rely on private lenders in the Federal Family Education Loan Program (FFELP).

“Approximately 80 percent of Penn students who borrowed under the FFELP were forced to select new lenders in the past two years, and lenders continue to leave the market,” said Michelle Brown-Nevers, associate vice president for student services and university registrar. “These changes created confusion in the application, origination and servicing processes.”

“It got so that lender lists on our website were changing weekly, and the students really felt pushed around,” Sharon Pepe, senior director for credit services in Student Financial Services, said. “And the benefits of having multiple lenders to choose from—such as no origination fee or reduced interest rates for on-time payments during repayment—have disappeared.”

Direct Loans will offer students a single application process and reduced origination fees —.05 percent for the subsidized/unsubsidized Direct Loan, for example—making more of the loan funds available to the borrower to use for expenses.

Another benefit of Direct Loans is reduced interest rates. The rate of 7.9 percent for Direct PLUS loans for parents and Direct Grad PLUS loans for graduate and professional students is lower than the FFEL’s 8.5 percent.

“Another value of moving to Direct Loans is that the funds come directly from the federal government to the University, enabling the students to receive their money more quickly,” said Steve Golding, vice president for finance and treasurer. “Students will no longer need to wait for the lenders to disburse the funds.”

During the coming academic year, all new graduate and undergraduate students will automatically be assigned to the Direct Loan program, but continuing students will need to complete a new Direct Loan master promissory note. Graduating students may opt to consolidate their current loans if they are being handled by multiple servicers.

Penn began the process of moving to Direct Lending in August 2008 in order to have the necessary structure in place for a 2010-11 implementation. The change will also streamline the Student Financial Services administrative process, which Ms. Brown-Nevers said will improve SFS customer service to student and parent borrowers.

Even though Penn provides no-loan financial-aid packages for dependent undergraduate students with financial need, some graduate, professional and undergraduate students as well as some parents still choose to borrow.

Additional information on Direct Loans at Penn is available using the “askBEN” tool at www.sfs.upenn.edu.


Almanac - February 9, 2010, Volume 56, No. 21