A r c h i v e d I n f o r m a t i o n

    FOR RELEASE                   Contact:  Stephanie Babyak (202) 401-2311     March 29, 1996                          Jane Glickman (202) 401-1307

1st Year College Direct Loans Reconciled

U.S. Secretary of Education Richard W. Riley announced today that all accounts for the first year of the Direct Student Loan program for college -- transactions totaling more than $1.5 billion -- have been reconciled.

Riley said that reconciliation of a federal student aid program within six months after the end of a fiscal year is unprecedented. Reconciliation is not possible for the Federal Family Education Loan Program (FFELP).

"Direct Loans are setting the standard for simplified, standardized disbursal and reconciliation of student aid funds," Riley said. "Direct lending is off to a great start. I hope we're allowed to continue."

Under the William D. Ford Federal Direct Loan program, college student aid offices bypass the traditional middlemen, lenders, guaranty agencies, and secondary loan markets. As a result, students receive funds for school faster and easier. Surveys show the new system is very popular with both students and college loan administrators.

However, Riley said, Congress may cripple direct lending by placing a limit on the number of loans that may be issued to college students.

"It would be a great mistake," Riley said, "to place profits ahead of students and their families. Direct loans should be allowed to compete freely, with no restrictions."

Reconciliation is the process that matches all records of cash outlays from the U.S. Treasury to school records of loan disbursements.

Students received more than 450,000 direct loans during academic year 1994-1995 in more than 852,000 disbursements. These disbursements, plus any undisbursed cash that schools returned to the federal treasury, were matched with the amount withdrawn from the treasury.

Because of the complex structure of multiple lenders, guarantors and secondary markets in FFELP, this type of streamlined federal management has never been possible in that program.