“Leaders of public colleges in California are seriously considering withdrawing from the federal government’s direct-loan program in a deal that could protect them from further deep budget cuts as the state struggles to close a vast deficit.
Direct lending’s supporters fear that if the Californians adopt the plan, which would affect 17 campuses in the state’s two public university systems, it will hasten similar proposals in other states and put the program, already on shaky footing, in even greater jeopardy. New York and at least three other states are considering such proposals.
If the California plan is approved, other states are likely to follow suit, said Eileen K. O’Leary, chairwoman of the National Direct Student Loan Coalition, an advocacy group for direct lending.
‘When that happens, so much volume will be lost from the direct-loan portfolio that it will be very questionable whether the Department of Education will continue to support the program,’ Ms. O’Leary said. ‘If all those states fall, I don’t think direct lending will be around in five years.’
Direct lending, which was created by Congress in 1993 and was championed by the Clinton administration, provides loans directly to students through their colleges, eliminating the role that banks and guarantee agencies play in the federal government’s main student-loan program.”
More for Chronicle of Higher Education subscribers at http://chronicle.com/prm/daily/2004/04/2004042901n.htm