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UTSA changes federal financial aid application process

By Marianne McBride Lewis
Director of Public Affairs

(Nov. 19, 2008)--The University of Texas at San Antonio will change the way it processes federal student loans beginning with financial aid awarded for the 2009-2010 academic year. UTSA will become a direct-lending school through the William D. Ford Federal Direct Loan program.

With the new loan process, all students receiving subsidized or unsubsidized Stafford, Parent PLUS or Graduate PLUS loans must fill out a new federal direct loan master promissory note. UTSA financial aid staff will help students complete this task.

Currently, UTSA processes federal loans through the Federal Family Education Loan Program (FFELP), a system of banks and credit unions acting as private lenders and service providers. With FFELP, the federal government gives banks an interest rate subsidy and a repayment guarantee. However, in September 2007, Congress cut approximately $20 billion in subsidies for the bank-based FFELP system.

"There's a trend nationally where private and public lenders are getting out of the student loan business," said Lisa Blazer, UTSA assistant vice president for student finanicial aid and enrollment services. "We are feeling that impact here as well and will shift to a direct-lending school."

According to Rex Algate, UTSA assistant director of financial aid - student loans, "In the past six months or so, many lenders have left the program because they no longer have the capital to support it. Funds have dried up for secondary markets that traditionally purchased loans from the original lender, and with no one to buy loans, originating lenders no longer had the funding for new ones."

"There are several advantages to the direct loan program," said Blazer. "Participating in the program guarantees our students an opportunity to borrow federal loans in the most efficient way possible. Unlike with FFELP, there's a single point of service for the life of the loan with the direct loan program."

The change does not affect deadlines for the FAFSA (Free Application for Federal Financial Aid), nor does it affect repayment schedules for the loans. The direct loan program also offers advantages over FFELP if students want to consolidate their loans. In FFELP, students who consolidate federal loans with a Perkins loan lose the grace period associated with the Perkins loan. In the direct loan program, Perkins loan holders will not lose the grace period if they consolidate.

In order to guarantee that enough students can get loans in the future, the U.S. Education Department has expanded its direct lending program. According to an Oct. 10, 2008, article in the Chronicle of Higher Education, borrowing through the direct lending program at universities is up 50 percent over last year. Up to 19,000 UTSA students take out student loans each year.

"Every student loan borrower at UTSA will borrow from the direct lending program beginning with the fall 2009 semester," said Blazer. "We will continue to use lenders for private, alternative loans as needed."

More information will be available in spring 2009 for students receiving federal financial aid and submitting a new federal direct loan master promissory note for 2009-2010 financial aid awards. Students are encouraged to read e-mails on this issue, which will be sent from the UTSA Student Financial Aid and Enrollment Services offices.

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