The New York Times: Colleges Are Pushed to Convert Loan System

Congress has not given final approval to legislation ending federal subsidies for private student loans for college. But Secretary of Education Arne Duncan sent a letter Monday to thousands of colleges and universities urging them to get ready to use the government’s Direct Loan Program in the 2010-11 school year.

The House of Representatives last month passed the Student Aid and Fiscal Responsibility Act, expanding the government’s direct lending and ending the current program of government subsidies and loan guarantees for private lenders. Under that law, all colleges would be required to convert to the federal Direct Loan Program by July 1.

But the Senate has yet to take action on the legislation, and it is uncertain whether it will do so before the health care debate is resolved.

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Private lenders are fighting to stop the switch to direct federal lending. And at their third-quarter earnings conference call last Wednesday, executives of Sallie Mae, a private lender, spoke of the “transition risks,” saying many schools’ financial aid offices are thinly staffed, have only just finished processing loans for this academic year and would have trouble making the transition to a new lending system in time for next year.

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