The University of Texas at Austin Makes Transition to Direct Loans

March 15, 2010

AUSTIN, Texas — Beginning with the 2010 summer term, The University of Texas at Austin will join thousands of U.S. colleges and universities in the William D. Ford Federal Direct Student Loan Program.

The university is making the move to ensure continuity of service for its federal student loan recipients in light of uncertainties surrounding the future of the bank-based Federal Family Education Loan Program (FFELP), according to Tom Melecki, director of student financial services.

Many lenders have withdrawn from student loans in the last two years, and federal legislation that could bring FFELP to an end as early as July 2010 is pending before Congress. About 90 percent of what the university's students and parents borrow comes from federal loans.

"Students who borrow to help cover their expenses simply cannot afford a disruption in the flow of loans on which they rely," said Melecki.

Under the direct loan program, loans are made by the U.S. Department of Education instead of the private lenders that make federal loans in return for federal subsidies.

Direct loans are largely the same from the borrower's perspective. Students and parents will have the same or better interest rates and repayment terms and conditions.

In general, the process by which students and parents obtain direct loans will be the same as they went through to obtain bank-based loans. But because students and parents will be borrowing from a new lender, federal law will require those who previously obtained federal bank loans to execute new promissory notes before obtaining their first direct loans. Student borrowers will also be required to undergo entrance counseling specific to direct loans. Borrowers will be able to complete their promissory notes and entrance counseling through online services provided by the Department of Education.

The university's Office of Student Financial Services will provide guidance on completing promissory notes and entrance counseling when it awards federal loans to students and parents.

"UT Austin recognized the possibility of the bank-based program ending several months ago," said Melecki. "For the last year, our offices of accounting and student financial services have been working on computer system and process changes to be ready to participate in direct loans."

For more information, contact: Tom Melecki, director, Office of Student Financial Services, 512-475-6203.

6 Comments to "The University of Texas at Austin Makes Transition to Direct Loans"

1.  Sarah Swallow said on March 17, 2010

I am so glad that this change has occurred. I have student loans and am grateful that UT is prepared to accommodate new laws that may give us better rates.

2.  Ovata Nance said on March 18, 2010

As a parent of a UT student who depends on student loans for tuition, I appreciate you letting us know about this change.

3.  Michael Fleyzor said on March 18, 2010

Thank you for the explanation of how Federal Direct Student Loans will work. Let's all hope this program works in the students' and parents' favor.

4.  Joseph Michael McCarthy said on March 21, 2010

President Obama has encouraged all college students on the graduate and underegraduate level to take advantage of this loan program. In the long run fees for loans taken out will be much cheaper than what they are now. Also interest rates will be lower. It's a win-win situation for all students.

5.  Amanda said on May 22, 2010

The saddest part about this for me is that I graduated literally just before this took place. I'm now trying to manage my repayment options. The most frustrating part is keeping up with who has my loan now. They keep buying and selling my loans to different "servicers" and "lenders." They don't explain the whole process or ask for your opinion or permission to switch things up on you. It seems impossible to keep up with who gave me the loan and who I need to pay or ask for more time. I'm an extremely organized person and I ask a lot of questions, and still this is a huge challenge to undertake such a confusing mess. The worst part is the people who have my life in their hands aren't exactly organized; they confirm one thing with me and shortly after I realize something went wrong on their side, but I'm responsible for their mistake and "system errors." There's no comfort. I would rather pay a larger amount and at least have a CLEAR understanding of who, where, when and how much I owe (and what my options are, what they mean, and how to interpret the terms and conditions). That's most of the battle that I can't AFFORD.

6.  Greg Peterson said on July 13, 2010

"For the last year, our offices of accounting and student financial services have been working on computer system and process changes to be ready to participate in direct loans."

I really appreciate that the university foresaw this problem and has been working on fixing it before it actually happened. That was a great course of action on their part. And the fact that us students will possibly get even better interest rates is great. I started considering getting personal loans until I saw this. Thanks so much for posting it, and thanks UT for the change!