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

III. Planning for Direct Lending

New Planning Assistance Available

Changes and additions to the training activities of the Direct Loan Program aided Year Two and Year Three schools in planning for and implementing the Program. At the time of the site visits, the Year Three schools had not yet begun concrete planning for Direct Lending and had not taken advantage of these Program changes. Besides enjoying general refinements in training, Year Two schools and Year Three schools had access to the following ED-produced aids to planning for Direct Lending:

• Regional Office assistance through designated Account Managers;
• "Novice" and advanced EDExpress training sessions;
• Refined training materials available early in the planning process;
• Commercially developed mainframe software;
• Mainframe user groups;
• Reconciliation training and guide;
• Multiple Internet bulletin boards as a source of information and advice;
• In-person assistance and/or telephone advice from Year One schools; and
• Some training sessions led by Year One schools' FAOs.

Year Two and Year Three schools reported having discussions with schools already participating in Direct Lending. According to the FAOs, most of the discussions tended to be general, but in a few instances, Year One schools shared administrative advice. None of the Year Two or Year Three schools in the study sample visited a participating school to observe Direct Loan operations, but Year One schools in the sample reported on-site visits by nearby Year Two schools. As reported last year, School 15 received assistance from a Year One school in the form of shared mainframe software. One Year Three school contacted earlier Program participants and reported it was helpful in deciding to participate in Direct Lending. The FAOs suggested that ED continue to encourage this activity.

Year Three schools had the extra advantage of being able to attend training at Regional Offices and of enjoying state-of-the-art equipment, lower travel costs, more time for hands-on experience, and further refinements of content (such as a new emphasis on the sequencing of activities).

Schools Planning for Year Three

Year Three case study schools appeared to have begun preparing for Direct Lending later than the previous two cohorts. As late as March 1996, three of the four Year Three schools had not begun planning. Only one of the four Year Three schools had begun any planning, and that school was only at the information-gathering stage. In comparison, five of the 10 Year Two schools were actively planning procedures as early as fall 1994 for fall 1995 implementation, and only one had not begun any planning at the time of the second study year site visits.

In Years One and Two, training began with a national Direct Loan kickoff meeting. Its purpose was to provide new schools with an overview of Direct Lending. The kickoff meeting was followed by an intensive three-day training session on EDExpress and the administration of Direct Loans. For Year Three schools, the Regional Offices assumed responsibility for that introductory meeting. Some of the Regional Offices provided the three-day training session for Year Three schools and for new financial aid office personnel from some Year One and Year Two schools.

By March 1995, 9 of the 10 Year Two schools had participated in three-day ED training. Personnel from all four of the Year Three schools had attended a one-day introductory training session by the end of March 1996, but none had attended a full three-day EDExpress training session.

In the uncertain political climate of 1995-96, there appeared to have been less direction from ED regarding implementation of the Program and less certainty among prospective Direct Loan schools about participation than there used to be. A number of Year One and Year Two schools entered Direct Lending expecting it to be "the program of the future" and had a high level of commitment to the Program. In early March 1996, two of the four Year Three schools had only just received training announcements and some Direct Lending materials from ED. By contrast, kickoff meetings for Year One and Year Two schools were held months earlier.

All of the case study schools expressed concern about the future of the Program and the effects that a Congressionally-imposed cap might have on Direct Lending. Most schools in the first two cohorts, which phased in Direct Lending in 1994-95 or 1995-96, cited administrative reasons (e.g., time and effort needed to learn new procedures) for having less than 100 percent participation. Some of the Year Two and Year Three schools changed full implementation plans to incremental phase-in plans; others were thinking of reducing the proportion of loan volume phased into the new Program. While only one Year Two school developed a contingency plan, others said they were maintaining lender relationships to protect future borrowers. Some were maintaining those relationships by keeping the PLUS Program in FFEL or phasing a smaller percentage of borrowers into Direct Lending than initially planned. As noted above in the discussion of sample selection, some schools have changed their participation plans and will continue in FFELP--at least until the future of the Direct Loan Program is more assured.

Two of the Year Three schools cited another factor affecting their implementation plans. They reported dissatisfaction with the rules for calculating default rates for Direct Loans.⁽⁶⁾ One FAO said it is unfair for the school to be charged with a default if a former student is making regular payments of any size. She felt that ED was "changing the rules in the middle of the game." Another Year Three school was considering withdrawing from Direct Lending because of those rules.

Using a Third-Party Servicer

Two of the case study schools--from different cohorts--used a third-party servicer (TPS) for Direct Lending, with very different outcomes.

• School 20 used a TPS for processing Pell Grants and was very satisfied with the service. The TPS services Direct Loans for many other proprietary schools in the region. According to the FAO, it is held in high esteem. The school therefore decided to have the TPS service its Direct Loans. The TPS provided Direct Loan training, supported the school with technical assistance, and developed a good working relationship with the Account Managers in the Regional Office; the Regional Office has maintained and fostered the relationship. In short, the FAO of School 20 was very satisfied with that servicer.
• School 3 decided to use a TPS in the first year of participation because financial aid staff had not been trained in Direct Lending, computer-literate staff had no financial aid experience, and the TPS had administered the school's Pell Grants. The TPS, however, when informed that the schools planned to administer Direct Loans in-house after the first year, reacted by withholding Pell Grant disbursements. In the second year of its participation, the school employed a new FAO to administer Direct Loans in-house. He has since discovered inaccurate reporting and errors in data on borrowers in the records of the TPS.

If schools are interested in using a third-party servicer, case study schools recommended that FAOs check their track record and client satisfaction.

IV. Computer Systems

The most important decision in planning Direct Lending is the choice of computer system because it determines all the other operations of loan processing. The choice of computer system was determined by the schools themselves after examining a number of determining internal and external factors.⁽⁷⁾ Large schools with thousands of borrowers need mainframe computers or combination mainframe-and-PC systems. Freestanding PC systems work well for small schools, however, they lose their efficiency as the number of borrowers increases. FAOs reported that each type of system had its advantages and its drawbacks. Table 5 summarizes the types of computer systems used by the sampled schools.

*School 14 will use a mainframe-to-mainframe system if the problems with their operating platform are resolved; otherwise, the school will use a dual-mainframe-and-PC system.

**No interface. Staff must either double-enter or upload and download with diskettes.

***School 20 uses a freestanding PC with modem connection to the Third Party Servicer's computer and is using the TPS's software.

Hardware Used for Processing Direct Loans

Mainframe-to-Mainframe

Some schools reported that major improvements in mainframe-to-mainframe systems have come as a result of the availability of Direct Lending modules programmed into vendor software. There have, however, been transmission problems because, according to one FAO, the Servicer was not expecting mainframe transmissions and was not set up to readily deal with them. Schools also experienced delays in implementing Direct Lending because of problems obtaining complete and adequate specifications for mainframes or for mainframe-to-PC interfaces.

School 14 has a mainframe supported by a commercially-available operating platform. But because this system was not compatible with EDExpress, the school was unable to begin originating Direct Loans in Year Two. At the time of the visit, the administrators believed that most of the system problems had been resolved, but if they are not, the school will use independent mainframe and PC systems. In general, FAOs expressed the need for more ED support for mainframe schools.

Independent Mainframe and PC

Three schools operated independent mainframe and PC systems. Those systems required the FAO to upload and download data on diskette (School 18) or to double-enter data on each system (School 4). School 5 uploaded Direct Loan origination record data from the PC to the mainframe for internal reporting and generated lists of students' names when their loans were to be disbursed. Owing to the "independence" of the two systems, however, the mainframe systems required extra programming to enable them to accept the data from EDExpress or to reformat the data for downloading to EDExpress. School 18's system, which is more "integrated" than the other independent systems, required approximately 200 hours of programming to run successfully. Maintaining independent systems has caused problems in keeping the databases compatible. Any delay between uploading and downloading can cause discrepancies in the databases, which may lead to later reconciliation problems. For example, School 18 found that if a disbursement program is run on the mainframe on a Friday and on EDExpress on the next day (Saturday), EDExpress records the date as Monday and the records will not match or reconcile.

Using the ED-recommended hardware is an important factor in administering Direct Loans. School 4, which attempted to use a PowerMac with EDExpress, experienced many system problems.

Independent PC

Most of the schools that used an independent PC maintained separate EDExpress and financial aid databases--often on separate PCs. Because there was no interface between the school's database and EDExpress, data from one system had to be keyed into the other in order for both systems to have all the necessary data. For example, disbursement amounts and dates from EDExpress were keyed into the school's financial aid record on each student. That process was not always efficient, and some FAOs reported the risk of errors in transcription. One school generated hard-copy reports to ensure consistency between databases.

Software Used for Processing Direct Loans

Schools used three different types of software for processing Direct Loans:

• EDExpress
• Commercial Direct Loan software
• In-house Direct Loan software.

Three of the Year One schools and two of the Year Two schools used EDExpress. All four of the Year Three schools planned to use EDExpress. School 2 used mainframe software programmed by the school's Computer Support Services department. School 14 planned to use mainframe software, but had encountered problems of compatibility with its operating platform. Last year, a Year One school gave School 15 a mainframe program for interfacing with EDExpress. Members of School 15's contracted computer support staff adapted and refined that software for use in their system.

One Year One school and four Year Two schools used commercially-purchased mainframe software. In 1995-96, Direct Loan modules became available for this software for mainframe-to-mainframe loan processing. The modules, which are compatible with the vendor's modules now on the school's mainframe, were provided as part of the annual contract for the schoolwide software system (i.e., the Direct Loan module was included at no additional charge). School 20 used its third-party servicer's software. School 19 used a commercial software Direct Loan module that was compatible with the vendor's other PC modules for financial aid. Table 6 summarizes the type of software used by the case study schools.

EDExpress

The 1995-96 EDExpress software included improvements over the version used in 1994-95. Among the improvements were the following:

• Internal edits that prevented or limited the rejection of origination records caused by problems such as rounding errors or missing state data in the driver's license field;
• Improved screen layout that enabled FAOs to look at multiple loan records for a student simultaneously;
• The ability to print multiple promissory notes;
• The ability to save an origination record and copy information to other loan records without exiting the loan origination module; and
• The ability to enter loan amounts with a single keystroke instead of keying the amount from a different screen.

The School 5 staff said that the new software operated more smoothly than the 1994-95 version, but there were still many time-consuming "waits" and "saves." The programmer at School 18 reported that databases in EDExpress regularly corrupted and frequent reorganization was needed. Also, he said, EDExpress had many "holes," and the system was not adequately tested.

EDExpress "query" options were expanded, but early EDExpress training did not include much direction on using the query or report generation functions. Documents from the Regional Office Account Managers described how to use the query function for reviewing the status of loan records, identifying records with errors, or finding the source of other problems. However, one FAO mentioned that she was not aware of the EDExpress capacity for designing more efficient reports and only learned of it while attending a workshop.

Commercial Direct Loan Software

Commercial software programs for mainframe systems were reported to be excellent. Schools using commercial mainframe software had no need for an interface to EDExpress because the commercial software is programmed to mirror EDExpress and provides mainframe-to-mainframe communication.

Schools 11 and 16 developed and refined their software in collaborative efforts with their vendors and reported a high level of satisfaction with the arrangement.

Previous problems, such as the time-consuming PC transmission problems experienced at School 1, were resolved because the commercial software provided mainframe-to-mainframe transmission. Internal edits greatly reduced the number of rejected origination records, but some refinements were needed, such as edits checking anticipated graduation date on the Student Aid Report (SAR). For one school, using a commercially developed software package did not preclude the need for further in-house programming. School 16's FAO reported that some 300 hours were needed for programming batching capacities, internal reporting requirements, and for maintaining an audit trail.

Schools using commercial software had initial difficulties in learning new Direct Loan procedures; however, once the "bugs" in the software were corrected and the staff gained experience, the schools found it to be quite satisfactory. For example, in 1994-95, School 1 began administering Direct Lending with an in-house software program interfacing EDExpress with the school's mainframe. In 1995-96, the staff members of School 1 began using a commercial Direct Loan module and found loan processing much easier.

Schools 11 and 17 used a commercially-produced mainframe interface to EDExpress. School 11 was generally satisfied with its system, but reported numerous difficulties in start-up and loan processing. There were delays in implementing Direct Lending because the testing of commercial software took longer than expected. Those schools found that working with the system--particularly EDExpress--was more difficult than initially expected. There were also problems with interfacing the systems caused by "confusing and ambiguous documentation" provided by the EDExpress software contractor. The mainframe system and EDExpress did not have equivalent internal edits, which caused confusion among users. In comparison, School 17 reported a few "system bugs," such as differences in rounding procedures, but the FAO rated the vendor's product as "excellent."

School 19 used commercial PC software. The FAO had experience with the software's functions because it was used for Pell Grant processing. She said there were many advantages to the commercial Direct Loan module over EDExpress, including the following:

• Fewer keystrokes are necessary for data entry;
• Many fields are automatically populated, with data entered once;
• The commercial software is more "streamlined" and easier to operate; and
• Reports are easier to generate from an on-screen menu than by using the previous less user-friendly query function.

In-house Direct Loan Software

At the time of the visits, only two schools were using software systems programmed in-house--Schools 2 and 15. School 2 designed its own mainframe-to-mainframe system and encountered numerous software problems during the last two years. These problems were caused, in part, by changes in the personnel of FAOs and computer support staff and the programming of its mainframe without having complete specifications for the software. Although they originated and disbursed all the needed Direct Loans, the programmers did not complete the work necessary for reading the Servicer's acknowledgment reports. Internal edits were not initially programmed, so there were many records that the Servicer rejected. More programming was needed to perform reconciliation, and reprogramming was needed to meet ED's 1995-96 system specifications. As compared with the school's first year of Direct Lending, the software--with all functions and edits programmed--was operating smoothly in 1995-96.

School 15 operated a mainframe system networked to an integrated PC system. The school was initially unable to obtain system specifications from the EDExpress software contractor for the school's mainframe. The contracted computer support company placed a notice on the Internet to which a Year One school responded. The Year One school shared the interface software, and the computer programmer of School 15 adapted and refined it. The system, however, was not considered totally satisfactory, because keeping three systems (the Servicer's database, the PC database, and the mainframe database) compatible was difficult. Short delays in uploading and downloading data between the PC and the mainframe caused discrepancies--such as in recorded disbursement dates--between the systems. The school was in the process of implementing a new system that will allow the PC to be used as a terminal to the mainframe, eliminating the need to transmit through a commercial operating protocol. However, it will not eliminate the need to upload and download data between the two systems.

Technical Support for Computer Software

In most instances, the Direct Loan Servicer was the first resource called when a school had a technical problem or a question about Direct Loans. Some of the FAOs referred to the Servicer as "NCS" and did not always distinguish between the two sources of support--the Direct Loan Servicer and the EDExpress software contractor. For example, one FAO said she called "NCS in Utica." If the Servicer staff could not solve the problem, the school was referred to the software contractor's support staff.

The most frequent complaint was that the Servicer and the EDExpress software contractor continued to shuffle schools between them, each saying that the problem experienced at the school was the other's responsibility. To some extent, the Regional Office Account Managers acted as liaisons with schools when that type of situation occurred, arranging conference calls to try to resolve problems.

Another problem reported was the delay in the Servicer's notifying the school about incomplete transmissions or other problems, such as record overwrites.

Although most of the schools reported satisfaction with the attitude and helpfulness of the Servicer's support staff, FAOs questioned whether the Servicer's technical support staff was adequately prepared to assist schools. FAOs supported this by saying that the Servicer's staff had inconsistent levels of technical expertise and often had little understanding of financial aid. Once schools found a support staff member who understood the problem--at either the Servicer or the software contractor--solutions were usually arrived at quickly; the difficulty was finding the right person. Schools appreciated that the Servicer's technical support staff knows who they are; that situation replicates the individualized and personal relationship that many FAOs had with lenders' account representatives.

A number of schools reported that the EDExpress software contractor worked to see a problem through until it was resolved. The most frequently mentioned source of discontent with the EDExpress software contractor was that the FAOs have to leave a voice-mail message and wait for a callback. One FAO stated, "When I am stuck in the middle, I need to talk to someone now, otherwise, the whole process is delayed."

Title IV WAN

Only five of the schools already administering Direct Loans were visited after the Title IV Wide Area Network (WAN) was implemented by ED and no systematic questions were asked about it. However, a general comment by FAOs was that ED needs to give schools sufficient advance notice and training when introducing any system changes so that they can implement the changes on their computer systems. Site visit teams also noted the following issues mentioned by FAOs:

• School 13 was not able to pull in 1994-95 data and was operating separate systems for 1994-95 loan data and 1995-96 data until the technical support staff could identify and resolve the problem;
• Schools 11 and 14 said they had no advance notice of the switch to the Title IV WAN and had to reprogram their systems;
• Schools 17 and 19 reported transmission problems that had not been resolved at the time of the site visit; and
• School 19 said that the technical support staff for the Title IV WAN gave her conflicting directions about resubmitting Pell Grants and that she did not know which directions to follow.

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