The U.S. Department of Education announced today the availability of $ 25 million to help loan servicers in the Federal Family Education Loan (FFEL) program for retraining and redeployment of workers most affected by the higher education provisions of the Health Care and Education Reconciliation Act of 2010, which eliminated origination of new loans under the bank-run FFEL program.
From July 1, 2010, all loans previously made under the FFEL program are being made under the Direct Loan Program, in which students borrow directly from the Education Department instead of banks. This change will save the federal government 68 billion U.S. dollars over the next 11 years, according to the Congressional Budget Office. The savings are used to increase Pell Grants and other programs to make college more affordable and accessible for all Americans.
“The reform of student loans is a great victory for students, their families and taxpayers, and allow many more Americans to pay for college and earn a degree,” said U.S. Secretary of Education Arne Duncan. “But we also know that there is a need for workers in transition to FFEL origination positions and training programs for the work of others, especially in areas that have been hardest hit by the recession. We have worked quickly since the adoption law three months ago to establish the mechanisms for the timely publication of these funds for fiscal year 2010. ”
While banks and other lenders are no longer able to originate federal student loans, the Direct Loan Program serves as a public-private partnership, leveraging the low costs of capital from the federal government with private sector experience. The Education Department provides the capital for all new direct loans, disbursement of private sector partners, maintenance and collection of loans. The relationship of contractor-to-employee for Federal Student Aid (FSA), the office that administers the loan program, is currently about ten to one. The Department is in the process of gradual introduction of four new loan servicers to handle the increased loan portfolio, and will be contracting with nonprofit organizations to help some the direct service portfolio.
FSA has been working closely with higher education institutions to prepare and complete the transition to the Direct Loan Program. In the past nine months, the FSA has trained more than 10,000 financial aid professionals from schools around the world participating in federal loan programs for students.
Today, schools represent 93% of all federal inmates volume of loans for students are participating in the Direct Loan Program. Other schools, which mostly operate in other academic schedules and may not originate in his first loan for several months, continuing the transition time and will continue for the remainder of the year.
The program funds to keep their jobs are distributed among the managers of loans with a high number of workers employed in the loan origination activities in each particular location, weighted by the unemployment rates in communities where, in all likelihood the dismissed workers have the hardest time finding new employment. Funds will be used for training and related services to employees leading to continued employment.
Congress authorized a total of $ 50 million for these activities, with the remaining $ 25 million to be allocated in fiscal year 2011. Today’s announcement also describes an approach to the Education Department may use in 2011, using a similar methodology and also considering the efforts of a loan administrator job retention since the enactment of the law. Department officials invite public comments on the proposal for next year.