BREAKING NEWS: Penn State Joins Direct Loan Program

Penn State University announced this afternoon that it will be joining the Department of Education's Direct Loan program as a way of ensuring its students maintain stable access to federal aid.

The decision comes a little over two weeks after turmoil in the credit markets caused the Pennsylvania Higher Education Assistance Agency to temporarily suspend its federal loans and stop originating out-of-state loans. PHEAA served as the lender for 40,800 of Penn State’s roughly 44,000 students, according to the release.Graham Spanier, the president of Penn State, said the shift to direct lending would guarantee that students would not lose access to federal aid:

“We have a responsibility to our students to help them obtain financial aid that allows them access to a Penn State education,” Granier said. “Given the circumstances we believe that affiliating with the federally guaranteed Direct Student Loan Program will enable our students to continue their education without worrying about where their federal student loans will be coming from.”

The shift to Direct Lending means that rather than dealing with private lenders and guaranty agencies such as PHEAA, Penn State will now receive federal student loan funds directly through the Department of Education via the U.S. Treasury.

Penn State’s shift away from the Federal Family Education Loan (FFEL) program underscores a point both Higher Ed Watch, Members of Congress, and the Secretary of Education have said before: there is no need to panic on student loans because of the presence of direct lending. Because the Direct Loan program uses Treasury Funds, it will remain insulated from fluctuations in the private market, ensuring that students are always able to receive their Stafford and PLUS loans. Students will also continue to receive the same borrower benefits, such as a 6.8 percent interest rate and flexible repayment terms, which are legislatively guaranteed for all federal aid recipients.Penn State’s release notes that it is joining the Direct Loan program will give its students advantages not provided to FFEL borrowers. The most obvious of these is a new public service loan forgiveness program that absolves borrowers of all remaining interest and principal who enter a public service profession for 10 years (FFEL borrowers have to consolidate into the direct lending program to be eligible).

Penn State’s move is far from unprecedented. Five other schools in the school’s athletic conference (the University of Illinois, the University of Iowa, the University of Michigan, the University of Minnesota, and the Ohio State University), are all already members of the Direct Loan program.