THE ADAGE "if it's not broke, don't fix it" comes to mind with some Republicans in Congress opposing a loan program that allows college students to borrow directly from the government, rather than from banks.
The Republican opposition is puzzling because the program appears to benefit every one involved: government, schools and students. Also, it will save the government more than $4 billion over the next five years, by making loans directly rather than paying processing fees to banks.
The federal direct student-loan program was established under President Clinton to simplify the student loan process. Under the direct-loan program, the government makes the loans and the schools disburse the funds.
The program began this school year at 104 colleges. The Department of Education plans to expand the program from its current 5 percent of the market to 100 percent by the 1997-1998 school year. More than two million students at 1,495 institutions are expected to participate in the direct-loan program in 1995-96, and more than 2,300 schools have applied to participate.
Congressional foes of the plan want to limit the scope of the direct student-loan program. Rep. William F. Goodling, R-Pa., is sponsoring a measure that would bar the direct-loan program from expanding beyond 40 percent of the student-loan market.
The Republicans' recent attacks strongly suggest they are merely bowing to pressure from the banking lobby. Financial institutions make billions annually in the student-loan business.
Opponents of direct lending have created the impression that hundreds of new government employees will need to be added, in contrast to a "private" guarantee system with few government bureaucrats.
In reality, according to testimony by Sen. Paul Simon, D-Ill., in March, six times as many federally funded government employees -- nearly 3,000 people -- work in the current guarantee program as would under the direct-lending program. In addition to staff working in both federal and state government agencies, federal tax dollars pay for well over 2,000 employees at so-called "non-profit" guaranty agencies backed by the federal government.
In addition to saving money and eliminating bureaucrats, this is a government program that actually reduces paperwork.
Students no longer have to deal with guarantors, lenders and secondary markets. Borrowers only need to work with the federal government and the school. Everything happens so much faster than it used to and there are fewer errors and hassles.
Under the old system involving separate bank loan applications and reviews by state guarantee agencies, it often took 8 to 12 weeks from the time a student applied for a loan until approval. With direct lending the loan money is often in a student's account within 25 days.
Direct lending makes it easier for students to keep track of their loan obligations, too.
For example, one Salisbury State University student had four student loans -- one for each year of enrollment -- with the same bank. Each year that bank sold its student loan portfolio to different banks. As a result, the student had four separate payment books to juggle. That's ridiculous. Under the direct-lending program, there's just one payment book.
Concerns about the difficulty in collecting payments also are unfounded. Sen. James M. Jeffords, R-Vt., has said that "loan collection and servicing are much tougher tasks than loan disbursements. Anybody can give money away. Getting it back is not so easy."
That's not true when it comes to federal student loans. The government has better access to records than most collection agencies and can easily garnish Internal Revenue Service refund checks or wages. In the first quarter of this year, an estimated $224 million was collected by the IRS, working in cooperation with the U.S. Education Department. In 1994, nearly $600 million was recovered from more than 780,000 taxpayers. Repayment shouldn't be a major problem.
Default rates have been steadily dropping since 1991 and may decline even more with direct lending, since students can select a "pay-as-you-can" option. This enables students to take lower-paying jobs while avoiding default.
The direct-loan program is streamlining administrative work, getting loan money to students faster and will eliminate $12 billion in government payments to banks over five years.
Colleges and universities should not be penalized by a government-imposed cap on the system, which would only benefit the banking industry. It's the only group that stands to profit or benefit if the direct-lending program is eliminated or not allowed to expand.
Beverly N. Horner is director of financial aid at Salisbury State University. Salisbury State, part of the University of Maryland System, was among the 104 institutions that pioneered direct lending last year.
