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More Schools Plan to Adopt Direct Lending in 2009

October 28, 2008

by Emily

Fewer students may have to worry about finding a new lender for their Stafford Loans next year, as more colleges are turning to federal Direct Loans for student loans.  A web-based poll of college financial aid administrators at schools participating in the Federal Family Education Loan Program (FFELP) revealed that six percent of those surveyed are planning to make the switch to direct lending next year, with an additional 29 percent seriously considering it as an option.

This means that Direct Loans could very likely become the leading supplier of student loans in 2009.  Since direct loans are taken out from the government, rather than from a bank, the stability they provide is proving popular among student borrowers.  Already, the amount of money in the direct borrowing system has grown by 50 percent this year, whereas the amount in FFELP is up only 7 percent.  While most students have been able to find different lenders and continue borrowing what they need in student loans, attending college at a school that participates in direct lending can save students a bit of hassle in getting financial aid

While a move towards direct lending means that students at participating schools won't be able to cash in on incentives banks might offer during student loan repayment in the future, these options have become scarce in the last year due to the federal subsidy cuts and credit troubles banks have faced.  The disappearance of the FFELP's advantages coupled with the uncertainty and instability caused by the credit crisis will likely continue encouraging schools to turn to Direct Loans to service their Federal Stafford Loans.


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