The U.S. Department of Education today announced the availability of $25 million to help loan servicers in the Federal Family Education Loan (FFEL) Program retrain and redeploy workers most affected by the higher education provisions of the Health Care and Education Reconciliation Act of 2010, which eliminated new loan originations under the bank-run FFEL program.
Beginning 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 over the next 11 years, according to the Congressional Budget Office. Savings will be used to increase Pell Grants and other programs to make college more affordable and accessible for all Americans.
“Student loan reform is a huge win for students, their families, and taxpayers, and will enable many more Americans to afford college and earn a degree,” said U.S. Secretary of Education Arne Duncan. “But we also know there is a need to transition workers out of FFEL program origination jobs and retrain them for other employment, especially in areas that have been hardest hit by the recession. We have worked quickly since the passage of the legislation three months ago to put the mechanisms in place for timely release of this funding for fiscal year 2010.”
While banks and other lenders are no longer able to originate federal student loans, the Direct Loan Program operates as a public-private partnership, leveraging the federal government’s lower cost of capital with the expertise of the private sector. The Department of Education provides the capital for all new Direct Loans, with private sector partners disbursing, servicing and collecting the loans. The contractor-to-employee ratio at Federal Student Aid (FSA), the office that manages the loan program, is currently about ten to one. The Department is in the process of phasing in four new loan servicers to handle the growing portfolio of loans, and will be contracting with not-for-profit organizations that will help service a portion of the Direct Loan portfolio.
FSA has been working closely with higher education institutions to prepare for and complete the transition to the Direct Loan Program. In the past nine months, FSA has provided training to over 10,000 financial aid professionals from schools around the world participating in the federal student loan programs.
Today, schools representing 93% of all domestic federal student loan volume are participating in the Direct Loan Program. The remaining schools, which mostly operate on alternative academic schedules and may not originate their first loan for several months, continue to transition on schedule and will continue to do so through the remainder of the year.
Funds under the job retention program will be allocated among loan servicers with high numbers of employees engaged in loan origination activities at each particular location, weighted by the unemployment rates in those communities where, in all likelihood, laid-off workers would have the hardest time finding new work. The funds are to be used for training and related services that will lead employees 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 notice also outlines an approach the Education Department may use in 2011, using a similar methodology and also considering a loan servicer’s job retention efforts since the law’s enactment. Department officials invite public comment on the proposal for next year.
Additional information and the application for the funding announced today can be found at http://www2.ed.gov/programs/safra/index.html. Eligible loan servicers must submit applications for each location by August 6, 2010.