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Letter from Special Advisor to the Secretary on Direct Lending

PublicationDate: 5/3/96
Summary: Letter from Special Advisor to the Secretary on Direct Lending
Author: DLTF - Direct Loan Task Force

May 3, 1996

Dear Colleague:

We are pleased to announce that Congress has completed their action on the
FY 1996 appropriation for the Department of Education. This appropriation
act allows the current law governing the William D. Ford Federal Direct Loan
Program to remain intact--there will be no cap on the program. This means
that all schools have the clear option of choosing to participate in Direct

President Clinton signed the new legislation on April 26, 1996, ending one of
the most intense and sometime contentious debates ever affecting any Title IV
student financial assistance program. The final deciding factor, we believe,
was the overwhelming support of the higher education community to continue
to allow schools the choice of either Direct Loans or FFEL or both.
Interestingly enough, many non-Direct Loans schools supported the
President's position to maintain choice. We view the outcome of
the legislative debate to be beneficial for all students and all institutions.

The new law does eliminate the provision that allows the Department to make
Payments for Origination Services (POS) to schools. This means that we are
no longer authorized to pay Level 1 and Level 2 (Option 2 and Option 1 in
1996-97) $10 and $7 per borrower, as we had in the past.

The law does not affect the POS payments that are currently underway,
based on loans reconciled by April 26, 1996. These payments will be going
out during the week of May 6. In addition, we may be able to make POS
payments for loans made before the law became effective. We are working
out the procedures to make those payments and will let you know the process
as soon as the final decisions are made. Of course, any future payments will
be paid after the "eligible" loans are reconciled.

We will continue to keep you posted on program developments and look
forward to working with you as we move forward to make Direct Loans
more successful than ever.

Thanks for your continued support.


Leo L. Kornfeld
Senior Advisor to the Secretary

Last Modified: 08/16/1999