The Transition to Direct Lending

As Martha alluded to, we are focusing very hard in FSA to really do one thing, and that
is to take Americans who have great capability and matching them up with the capital to make
their educational dreams come true.
I think everyone in this room is pretty aware of the President’s goal. So I will not bore
you with those details, but I will focus on a couple of critical themes that we walk away
from the slide and it’s greater access, expansion of our current capabilities of delivering
aid to students, simplification, not just in terms of forms, but the entire process.
Greater reliability regardless of the economic conditions and then efficiency to make sure
we are stewards and excellent stewards of the taxpayer’s dollars. Now with this goal
set we needed a legislative change to take place that will lead toward a significant
transformation. And on March 30th, we received that particular legislation becoming law.
What’s in it for Title IV Aid? Fairly significant. The big item being the move to 100% direct
lending which is another way of saying on July 1 the FFEL program ends, and also through
the savings associated with the FFEL program, as Arne alluded to, significant dollars being
reallocated to the Pell program and also more favorable terms for income-based repayment.
Now, in terms of the transition, the FSA team has been working very closely with many groups
within the Department of the transition. So the transition did not start the day after
the legislation passed. I had to drive that point home to some of our friends on the Hill.
That this transformation really started back when the credit markets were impacted back
in ’07 when we had to purchase many more loans through the Castle legislation. But
also in that time frame for having a number of schools who made the conscience decision
to move from the FFEL program to a much more stable program in the Direct Loan program.
So we really have been intensifying our activities on a number of different fronts. First of
all, in terms of origination, we have upgraded our systems there some might be familiar with
our college system. We have made three upgrades to build capacity. Also in terms of the backing
of the process. Once the funds are disbursed we have to service those loans.
Last summer the RFP award to four new servicers to take on that additional volume was completed
and that transition is going very smooth today. In fact, we think that all four servicers
will come on line six weeks ahead of time. We have also been adding staff for those areas
in FSA that were understaffed. Activities that are deemed inherently governmental. We
want to make sure that we have the right people, with the right skills, in the right place
to be able to manage the business going forward, and that also the outreach to both domestic
and foreign schools to help them along the way.
Now you might be saying: well, why were these actions needed? Why do we have to be so proactive?
Well, one thing you learn if you are running any group that is operationally based, there
is no such thing as just in time delivery of technology, human capital, and process
improvements. That you really have to work in a proactive manner to get that work done.
You can take a look at these stats and they are fairly impressive. When you take a look
at the loan volume going up 300%, the number of borrowers up over 300%, the number of schools
participating in the program over 200%. Now the great thing is that we started early in
this process, and we are well positioned. All of our status reports that we have on
both sides of the equation whether it is readiness of schools or whether it is readiness of FSA
infrastructure, it is very positive, thus far.
Here is a chart. Although I didn’t know when I took this appointment that my influence
would be global--Thank you for this great responsibility--but we have been reaching
out to a number of different schools across the globe, and we have done everything from
webinars to 40 regional training sessions going to where the schools are. The 15 specific
regional programs that we put together for the schools themselves to our annual conference
back in December of which we were able to interact with 5300 financial aid professionals
at a number of different schools. And we also have, based on legislation, $50 million for
technical assistance for those schools who may have some difficulty with the transition.
This chart here, the punch line for this charts is that we’ve got 66% of the schools that
are ready for direct lending today. Another key point of this chart, if you take a look
at the bottom of the chart and you see that is a hockey stick in terms of the increase
in loan originations. We will originate and assist schools in origination process based
on when those originations need to take place in their calendar year – meaning we need
to be ready when they are. Most originations will take place over the next 90 days and
so we have laser focus on each school to make sure that they are ready to originate loans
when students need them.
The bottom chart is from the foreign schools who start the process there. In terms of the
educational process, we are in ten cities across the globe doing hands-on training of
those schools and thus far the feedback from schools that have gone through the program
is that they are pretty well satisfied with what we’ve done. Now it is one thing for
us to say this, but I will leave you with the following. Student lending put forth a
survey of 200 schools – feedback from that survey – 83% of the respondents said that
the service that they received was acceptable or higher. If you won't take that as a complement
in terms of the work that has been done thus far, the NASFA Association put forth another
survey in which 80% of the respondents said they were satisfied. So it is all about the
Pell program. We’ve a lot of activity that has taken place. You see many, many more applications
come in. There is a great need for it and we are doing what we need to do to deliver
aid to students who are in need. I think that’s all the time I have, I will ask Brenda to
come up for OVAE.