Direct Loan Issues

1
Session 33

• Direct Loan Issues
• Karen Smith
• The University of Memphis

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General Information

• The University of Memphis is a public
  state-funded university (under the Board of
  Regents system).
• Fall 2004 enrollment -over 20,000 students
  (includes undergraduate, graduate and law
  students).
• Direct Lending school since 1994-1995 (one of the
  original 104 institutions).

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System Information

• Currently we utilize the SCT PLUS system to
  process all financial aid, including student
  loans.
• Switching to SCT BANNER implementation process
  to take two to three years since all current
  systems (i.e. ADS, FRS, HRS and SIS) are
  converting to new system.

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Direct Loans Facts and Figures

• The University of Memphis has the second largest
  loan volume in the state of Tennessee. We
  currently have the largest loan volume in the
  Board of Regents system.
• In the 2003-2004 year, we had over 70 million in
  booked loan disbursements. We process both
  Stafford and PLUS Loans through Direct Loans.

5
Direct Loan Facts and Figures Continued

• Number of Direct Loan Recipients
• 2004/05 year - 12,400 (projected)
• 2003/04 year - 11,600
• 2002/03 year - 10,452
• Loan Volume (includes Stafford and PLUS)
• 2004/05 year - 80,000,000 (projected)
• 2003/04 year - 70,605,414
• 2002/03 year - 59,447,877

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PLUS Loans

• 2004/05 year 500 recipients (projected)
• 2003/04 year 468 recipients
• 2002/03 year - 315 recipients
• NOTE Total Loan Volume includes both Stafford
  and PLUS Loans. PLUS LOAN volume listed
  separately below
• 2004/05 year - 2,500,000 (projected)
• 2003/04 year - 2,220,485
• 2002/03 year - 1,376,865

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Direct Loan Volume -2002/03 year
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Benefits of Direct Lending

• Stream-lined delivery
• Greater control over loan process
• Timely delivery of loan funds
• Can track loans easily over time
• Loan adjustments/refunds handled more easily
• No third party to deal with and loans are not sold

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Disadvantages of Direct Lending

• Currently, lending institutions are offering no
  or smaller origination fees on student loans
• Lack of choice
• Reconciliation is difficult and cumbersome
• Schools and borrowers miss out on borrower
  benefit programs.
• Hard to sell sometimes since the program is
  constantly under scrutiny

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Question Do the Benefits Outweigh the
Disadvantages?

• Each institution needs to decide what is best for
  their institution.
• At The University of Memphis, we have gone
  through many loan processing changes. In our
  first year, we used the EDE Express software to
  process student loans and it was very labor
  intensive. Then we used SCT PLUS to process
  student loans with paper promissory notes and
  manifests. We also used our automated packaging
  system to process estimated Stafford Loans.
  Estimated Stafford Loans were then converted to
  actual loans for enrolled students through a loan
  conversion program.

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Question continued

• In March 2003, we went to electronic Master
  Promissory Notes. The following year, we went to
  electronic PLUS promissory notes. For the
  current year, we became a full COD participant.
  Now loan problems/promissory note issues can be
  easily handled/viewed using the COD website.
• Our students were happy when we started with
  Direct Lending, since they no longer had to wait
  for their loan checks. We now had a three day
  turn around on loan disbursements.

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Question continued

• Today students can complete on-line Master
  Promissory Notes in our computer lab. We can
  immediately view the COD website to see that the
  promissory notes and/or Entrance Interviews
  (through DL Servicing) are completed and code our
  system to disburse the loans. Our biggest
  complaint now is You mean I cannot get my
  money today! Our Bursars Office disburses all
  funds either through Direct Deposit or check by
  mail.

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Return to FFELP

• The University of Memphis has no plans at this
  time to return to the FFELP program. In the last
  two years, our institution has been approached by
  at least five major lending agencies to either
  get out of Direct Lending entirely or act as a
  School of Lender program. NOTE We are one of
  the top 100 Direct Loan institutions.
• Currently we process many private loans through a
  variety of lending agencies. We have a good
  rapport with these lenders.

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Return to FFELP continued

• Nevertheless, we have weighed the advantages and
  disadvantages and have decided that Direct Loans
  works best for our institution and our students.
  For us, service delivery is number one. We have
  worked hard over the last 11 years to make the
  whole student loan process as automated as
  possible. In fact, over the years, we have
  reduced staffing in the loans area and moved
  employees to more customer service areas.

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Stay or Leave FFELP/Direct Loans

• FFELP To Direct Loans Reasons to Leave
• Not satisfied with current loan process
• Too many lenders and too many choices
• Want to streamline the loan process
• Expect the Direct Loan system to be easier

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Stay or Leave continued

• Direct Loans to FFELP- Reasons to Leave
• Not satisfied with certain aspects of the loan
  process, like reconciliation too much work
• Little or no computer support
• Too much political/administration pressure
• Better borrower benefits
• Lower or no origination fees

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Reasons to Stay for Both Programs

• Happy with the current loan process.
• It works, why fix it!
• Do not want to be pressured to leave current loan
  process.
• Respect both loan processes competition is
  great.

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Other Considerations

• Reauthorization Issues
• Curtailment or elimination of school as lender
  programs.
• Elimination of borrower origination fees.
• Elimination of 9.5 Return Tax Exempt Bonds.
• Direct Loan Reward Program.
• Elimination of Student Rate/Lender Rate Payment
  Mismatch.
• Pilot Program IRS Direct Loan Collection.