FFELP or direct lending: A comparison of the decision-making process at two universities
There have been myriad changes in the student loan industry since the passage of the Higher Education Act in 1965 (HEA). The 1992 reauthorization of the HEA changed the landscape for federal loan programs with the introduction of the William D. Ford Direct Loan Program (Direct Lending, Direct Loans, or DL). Prior to 1992, schools and borrowers relied on one primary loan program---the Guaranteed Student Loan Program (GSL), now known as the Federal Family Education Loan Program (FFELP)---as the primary source of federal guaranteed loan funds for higher education. FFELP uses commercial lenders, relying on a federal government guaranty to make loans to students and their parents. Direct Lending eliminated the need for both commercial lenders and guaranty agencies, by making student loan funds available directly from the federal government. ^ Beginning in 1994, colleges and universities were given an option---FFELP or Direct Lending. Over the past 11 years, colleges and universities have chosen one of these two programs for their student and parent borrowers. This study documents the decision-making process used at each of two private research universities to determine whether to enter the Direct Lending program. Using a case study approach, individuals who had participated in each university's decision-making process were interviewed; the processes were documented, and then compared. While both universities used a similar decision-making process, the result was two different decisions---one university selected Direct Lending and the other decided to stay with the FFELP. This study found four factors that contributed to the different choices. Of the four factors, the governance model---whether the financial aid office was centralized or decentralized---was a primary driver in decision-making. Financial considerations did not overrule what was in the best interests of the students. In the end, the decision for each university was based on the best fit---the challenges each university faced, and which program best met both the school and students needs. ^
Education, Finance|Education, Administration|Education, Higher
Debra J Chromy,
"FFELP or direct lending: A comparison of the decision-making process at two universities"
(January 1, 2006).
Dissertations available from ProQuest.