Yale Switches to Federal Direct Loan Program for Students

To ensure efficient and continuous access to the major federally funded student loan programs used by students, Yale will convert from the Federal Family Education Loan (FFEL) program, funded by private lenders, to the Federal Direct Loan (DL) program beginning with the 2010–2011 academic year, Yale Director of Student Financial Services Caesar Storlazzi announced.

There is a proposal before Congress to eliminate the existing privately funded FFEL program in favor of the DL program in which student loans are made directly by the federal government. The federal government plans to use the anticipated savings from a 100% conversion to DL to increase funding to the Pell Grant and other financial aid programs. The proposed date of the conversion to DL is July 1, 2010, which would make the current academic year the last year of FFEL.

To date, Yale has been a FFEL school and has not participated in the DL program. In the 2008–2009 academic year, $39.5 million in Stafford loans and $18.7 million in PLUS/GradPLUS were disbursed to students in all of the schools at Yale, both undergraduate and graduate. When the DL program began in the 1980s, Yale decided not to participate because 1) the program was new and there was some doubt about the ability of the federal government to administer the program efficiently and 2) private lenders had provided a high level of service and customer satisfaction for the University and for students. The University continued with FFEL in the 1990s and early years of this century because during those years borrower benefits (e.g., reduced interest rates for on-time payments, reduced fees, and other incentives) were at their peak and a DL loan was almost always more expensive than the competitively priced privately funded loan. The decreases in FFEL benefits, mainly the result of general financial turmoil, have all but removed the differences between FFEL and DL.

While the legislation requiring schools to convert to DL by July 1, 2010 would not be in place until the end of this year, Storlazzi said Yale will not wait until then before beginning a conversion effort, because such a delay would put Yale’s ability to deliver Stafford and PLUS loan funds to students next fall at risk.

In addition, since the “bailout” of private student lenders under the Ensuring Continued Access to Student Loan Act (ECASLA) will not be renewed by the federal government, many more private lenders will drop out of the FFEL business, some even before the end of the current academic year, making it all the more difficult for students to obtain loans through that program.

Yale will authorize DL loans to its students in the 2010–2011 academic year and has already begun the conversion process.

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Media Contact

Dorie Baker: dorie.baker@yale.edu, 203-432-1345