UM drops out of direct-lending plan

March 03, 1995|By David Folkenflik | David Folkenflik,Sun Staff Writer

University of Maryland College Park informed the U.S. Department of Education yesterday that it will not participate in a direct-lending program for student aid, a centerpiece of President Clinton's education policy.

The move will not affect the ability of any students to get loans -- they would get them from private lenders, as they did before the government began direct lending.

While it should have little effect on students, the UMCP action is clearly a blow to the Clinton administration as it attempts to rally support for accelerating the program.

UMCP joins only a handful of other schools that agreed to participate, then backed out.

"The administration is putting a lot of its apples into the direct-loan basket -- in budget terms, in terms of delivering on its promises, in its credibility," said David Merkowitz, vice president for public affairs at the American Council on Education. "This won't help."

The program has served as a symbolic battleground between politicians backing the role of government in public life and those fighting to roll it back.

UMCP officials said the political atmosphere in Washington made involvement chancy at best. While the administration wants to extend the program to all colleges, some moderate Republicans in both houses of Congress have suggested limiting participation to 40 percent. U.S. House Speaker Newt Gingrich has called for abolishing it altogether.

"It's a possibility that direct lending is not ever going to be at 100 percent and the resources that were promised won't appear," said William D. Leith, UMCP's director of student financial aid.

Under the system the Clinton administration wants to replace, students receive loans from banks or other lending agencies. A number of other private agencies are involved in guaranteeing or buying and selling the loans.

Defenders of the old system say even with the fees, the banks can do the job more efficiently than the federal bureaucracy.

Direct lending, which began at the first pilot-test schools last summer, involves the government and the host school; the administration says it will result in savings by eliminating the overhead and the fees taken by the banks, guarantee agencies and other middlemen.

Leo Kornfeld, a senior adviser to U.S. Education Secretary Richard Riley, said the lending agencies are fighting for their existence, and are exerting heavy pressures on colleges to duck out of the program.

"They're all dipping into the federal trough," Mr. Kornfeld said. "The name of the game is job survival. As direct lending succeeds, the guarantee agencies are eliminated."

Mr. Leith said UMCP was able to negotiate with lenders to capture the efficiencies promised by direct lending, posting student loans electronically and enabling students to avoid waiting in long lines for their checks.

Tom Taylor, assistant provost at University of Maryland Baltimore County, said he was also leaning toward not joining the program.

The Clinton administration estimates savings of $12 billion for the federal budget over the next five years if all schools were covered by the program. Starting July 1, 40 percent of the nation's colleges and universities -- about 1,400 schools -- are scheduled to take part in direct lending.

There are 11,500 undergraduates at College Park who receive approximately $50 million in federally backed student loans each year, Mr. Leith said.

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