Student loan legislation won't affect local community college lending

While community college officials across the suburbs express resounding support for the student loan overhaul signed into law by President Barack Obama, they also admit the legislation won't change much about the way they're doing business.

A majority of local schools have already made the switch to direct lending, where loans are provided from the federal government directly to students and their families.

For both Harper College in Palatine and Waubonsee Community College in Sugar Grove, the move away from the Family Federal Education Loan Program, where private banks acted as intermediaries and received subsidies, was inspired by two things.

The colleges were, months ago, anticipating a change to student loan legislation. And they were sick and tired of having private lenders turn their backs on some of the neediest students.

Over the summer of 2008, as the economy began to worsen, more and more banks began curtailing their relationships with community colleges, all the while continuing to lend money to students at more expensive four-year institutions.

One Saturday morning that summer, Harper Financial Aid Director Earl Dowling received a call from a bank that served as the second-largest lender for Harper students.

The institution would no longer be doing business with Harper or any other community college, Dowling said he was told, because it wasn't profitable enough.

"That was huge," he said. "A decision on a Saturday morning that adversely affected my students' lives." He called that phone conversation the "final push" to have the school change over to direct lending.

Harper and Waubonsee each started using the direct lending program last fall.

The transition at Waubonsee, Financial Aid Director Chuck Boudreau said, was almost seamless.

No update was required to the financial aid department's computer system, because the software already being used could support both bank loan and direct loan applications.

For schools, the switch cuts out the middle man.

"Interacting with a lender and then a loan guarantor are two intermediate steps that we are no longer doing," Dowling said. "It's two less bumps that can occur that would delay a student's loan."

"It's not like when I first entered the business," Dowling said.

The College of DuPage still has a number of students taking out federal loans through banks. Charter One is listed as one of the school's major lenders.

After the legislation takes effect, private lenders still will be able to offer students loans that are not backed by the government.

As COD moves toward direct lending, Associate Vice President Joseph Moore said, "We are looking at the possibility of entering into a preferred provider relationship. This would be a single bank to which we could refer students who would in turn receive a preferential rate when their financial assistant needs are not covered by government programs."

Students at schools just making the switch, financial aid officers say, likely won't notice much of a difference. Whether dealing with banks or the federal government, they will still have to fill out a Free Application for Federal Student Aid (commonly known as FAFSA) form to determine eligibility.

Oakton Community College in Des Plaines switched over to direct lending in the fall of 2008.

Elgin Community College has used the program for more than a decade, said Vice President of Business and Finance Sharon Konny. She raves about both the speed and ease of the program.

"It's a matter of days between the time they start and when it's finished," she said.

The new law, part of a package that also includes fixes to the health care overhaul, makes government the primary issuer of student loans.

It eliminates fees paid to private banks to act as intermediaries in providing student loans and will use much of the projected $68 billion in savings over 11 years to expand Pell grants for students and make it easier for students to repay loans after graduating.

Pell grants, according to the Department of Education, are need-based grants for low-income students. Grant amounts are dependent on a student's expected family contribution; the cost of attending a college; and a student's full- or part-time enrollment status.

The size of Pell grants will increase along with inflation, and by 2017 the maximum grant should rise to $5,975 from $5,550, according to the White House.

"That increase in grant funds, at a time when families are not earning as much money, is going to be significant to our students," Dowling said.

The extra money also will address shortfalls in the Pell grant program that have developed because students are qualifying for more and larger grants. More than 6 million students across the country received such grants in the 2008-09 academic year, an increase of about 50 percent from a decade earlier, according to the College Board.

At ECC, students received $6.9 million in Pell grants this year, an increase of $2.6 million from 2008-09.

Roughly $2 billion of the savings accrued by the legislation by not paying subsidies to banks, Obama said, will be invested in community colleges through a competitive grant program.

Institutions that serve mostly minority student bodies will share $2.55 billion nationally in additional funding over the next decade. College figures show that 32.5 percent of ECC's 12,000 students are Hispanic. Roughly 5 percent are black and another 7.2 percent are Asian, bringing the total percentage of minority students to near 50 percent.

"We're definitely going to try to get a piece of that," Konny said.

• Daily Herald news services contributed to this report.