Penn State moves to become a direct loan participant for students

In an effort to provide its students with a stable and predictable source of funding for their federal student loans, Penn State intends to become a direct student loan participant, with money coming from the U.S. Department of Education. The initiative will give the 44,000-plus Penn State students who currently have federal loans a secure source of funding along with a streamlined process for obtaining loans.

Recent reports of instability in the national credit markets -- initially caused by problems with subprime mortgages -- have been compounded by new concerns over capital and bond markets. The turmoil has placed a burden on federal student loan lenders and raised concerns about the accessibility of federal student loan funding.

A little more than a week ago, the Pennsylvania Higher Education Assistance Agency (PHEAA) announced that it will no longer serve as a lender for federal Stafford Loans, a move that directly affects 40,800 Penn State students who use PHEAA as their lender. Some lenders of private student loans also are cutting back on loan services, although Penn State will continue to assist students with suggestions for private loan providers from which to choose.

"We have a responsibility to our students to help them obtain financial aid that allows them access to a Penn State education," said Penn State President Graham Spanier. "Given the circumstances we believe that affiliating with the federally guaranteed Direct Student Loan Program will enable our students to continue their education without worrying about where their federal student loans will be coming from."

Penn State as a direct loan participant will provide students a simple process for receiving loans. As a participant in the program, Penn State – rather than a bank or other lender -- will be afforded the maximum capability to ensure timely disbursement of student loans each semester, like hundreds of other colleges and universities that currently participate in the direct loan program. The Department of Education secures the funding directly from the U.S. Treasury, so instability in financial markets does not affect this source of funding for student loans.

In addition, the Direct Loan Program offers students a number of repayment plans not available from the loans made through other lenders. Recent legislation provides students in Direct Lending with a new partial forgiveness program for those who enter public service during their repayment period. This loan is easy to receive with a single point of contact. Students also will have on-line access to their loan account information all day, every day.

PHEAA, as a federal loan guarantor, will continue to originate and service student loans, but intends to turn over lending to private banks and other lenders.

"Penn State has had a long-standing and collaborative relationship with PHEAA. The University will maintain that cooperation in relation to PHEAA's continuing services," said Al Horvath, Penn State vice president for Finance and Business.

Penn State's Office of Student Aid will provide further information to all students in the coming weeks about the Federal Direct Student Loan Program and Penn State's participation. Student aid programs, such as Pell Grants and state grants, are not affected by the changes. Students in the Pell Grant program will actually see an increase in their grant for next year.

"Removing the uncertainty for our students and letting them know their loans will be funded is an assurance we need to provide," said Anna Griswold, assistant vice president and executive director of Student Aid for the University. "We think Penn State students will find this program to be simple and easy to understand; they will join their peers at many of the Big Ten schools and other flagship universities who have been receiving their loans through the Direct Loan Program for over a decade."

A list of frequently asked questions related to the Direct Loan Program, and accompanying answers that should help families understand how this program will serve their student, can be found at http://live.psu.edu/story/29429.