Griswold testifies about Direct Loan Program to U.S. House committee

Washington, D.C. -- Anna M. Griswold, Penn State's assistant vice president for Undergraduate Education and executive director of the Office of Student Aid, testified May 21 before the U.S. House of Representatives Committee on Education and Labor. Her testimony focused on Penn State's switch to the Federal Direct Loan Program in March 2008, her assessment of the University's student aid operations since that time, and her expert opinion regarding the feasibility of a similar changeover at other colleges and universities.

The transcript of Griswold's testimony follows; a webcast of the hearing is available at http://edlabor.house.gov/hearings/2009/05/increasing-student-aid-through.shtml. Videos of Griswold's testimony and of the panelists' subsequent question-and-answer session with Rep. Rob Andrews (D-NJ) are viewable at /video/176363/2013/02/09/video-no-title and /video/176364/2013/02/09/video-no-title, respectively. Both videos are online courtesy of the House Committee on Education and Labor.

Anna M. Griswold
Assistant Vice President for Undergraduate Education
Executive Director Office of Student Aid
The Pennsylvania State University
May 21, 2009
Testimony before the House Committee on Education and Labor
Washington, D.C.

Good morning Mr. Chairman and members of the Committee. My name is Anna Griswold and I am the Assistant Vice President and Executive Director of Student Aid at The Pennsylvania State University. Penn State is a large public, multi-campus research university enrolling just over 90,000 undergraduate, graduate, medical and law students at 23 campuses. Over 60,000, or 73 percent, of our students receive some form of financial aid, including 23 percent of undergraduates receiving Pell Grants. About one-third of our undergraduates are the first generation in their families to attend college. Increased funding and simplifying and improving student aid programs and systems are matters of great importance at Penn State. The entire University is committed to maintaining a student-centered focus in all areas of service to students.

The federal student and parent loans represent over 50 percent of all our student aid funding. Last year, more than 46,000 Penn State students borrowed $466 million in federal loans to help pay their education costs. However, last year’s turmoil in the financial markets, together with changes in federal regulations affecting school use of preferred lenders, threatened to destabilize both the federal student loans and the efforts of our student aid office to maintain an efficient and student-friendly loan delivery model in the Federal Family Education Loan (FFEL) Program.

As lenders across the country began to terminate or suspend participation in the FFEL Program, this quickly became a cause for alarm for students and parents that relied heavily on both the Stafford student loan and Federal PLUS/Parent Loan. To allay the concern of our students and their families, we needed to act quickly and decisively to reassure them that they would still be able to find federal student and parent loans to help pay their costs. We turned to the Federal Direct Loan Program. We had 38,000 current student borrowers using a single nonprofit lender with whom we had worked for years and who had provided loans to our students, a lender that, unfortunately, had to suspend making loans last year. All these students were in need of locating another lender. Given the uncertainty about future lender participation, and the new restrictions that limit schools on advising students about lender selection, we felt we had few tools with which to guide our students. Direct Loans offered a logical alternative to the FFEL Program in light of our circumstances.

I would like to add that for about a decade, with the majority of our students selecting the Pennsylvania Higher Education Assistance Agency (PHEAA) as their lender, we were able to build compatible systems between Penn State and PHEAA to better facilitate the data exchange between us for processing of student loans. This certainly served students and our institution well. By trying to use a single lender, we had replicated most of the Direct Loan model within the FFEL Program, with the exception of cash draw down and return of funds. However, students choosing lenders outside this process required different handling depending on the lender, guarantor or servicer. Having had a good experience in FFEL as long as the majority of our students used PHEAA, we are pleased that Direct Lending is designed as a single lender program. That, and the added features of cash draw down and return of funds, further enhanced the model we previously had in place for processing student loans.

In March 2008, Penn State announced it would enter the Federal Direct Loan program. This offered several benefits to students including access to a secure source of funds, elimination of the need to find a new lender on their own, and providing a more efficient, single point of contact to transact their loans. In addition, Direct Loans would provide better loan repayment and loan forgiveness options.

In early March we identified a core team of 10 to 12 existing staff from Administrative Information Systems, the Bursar’s Office and the Student Aid Office and began the work of developing new automated systems and processes between the U.S. Department of Education’s Common Origination and Disbursement (COD) system and Penn State’s homegrown integrated student information system. Other staff in these offices also participated in supporting roles during the period of implementation. For example, in addition to the technical programming work, we executed an extensive communication plan to ensure that students and parents understood the changes in how they would now secure their loans and the steps they would need to take. We heard little resistance to this change and students reported on the ease of signing their electronic master promissory notes on the Department of Education’s Direct Loan Web site.

Our existing staff did all the work; we did not hire additional staff to convert to direct lending, and the cost to convert was within normal budgetary costs required for any adjustments that schools must make when regulations change. The work was not unlike implementing other new student aid programs such as ACG, SMART and Teach Grants in recent years. In some respects those programs presented greater challenges. During Direct Loan implementation, we were also implementing changes due to the increase in student borrowing limits and we were implementing new automation and the use of Commonline for alternative loan processing. When new programs are enacted into law or new regulations are passed, preparing systems to administer those programs is simply a part of the normal work of student aid offices. These types of changes do take extra time and effort. However, it is important to keep in mind Penn State’s unique circumstance last year: 1. the need to move quickly to convert to Direct Lending (four months); 2. our loan volume and the large number of students across 23 campuses that we needed to inform ($466M and 46K borrowers); and 3. the fact that we have a homegrown computing environment and use our own computer programmers (no vendor supported software) to run our student aid program. Most schools will not face these circumstances and would not require the same resources.

With adequate lead time, even most of the smaller schools will likely find converting to Direct Loans a manageable process, especially for those with vendor supported student aid software. I think most schools have such software. One smaller institution in Pennsylvania with whom I spoke began the conversion this January and is now ready to submit their first direct loan records to COD. They have vendor supported software and indicate that they were able to incorporate implementation tasks into the normal operational activity of their office. Since resources do vary across institutions, I am certain that the Department of Education will be ready to offer assistance where needed for schools that may need help, and the Department’s ED Express software works very well for schools with smaller loan volumes.

It is testimony to the streamlined nature of the direct loan process, and the single point of contact model it represents, that we were able to convert fairly quickly. Like most schools, we were already familiar with the COD system used for Pell Grant processing. Direct Loans uses this same system. We had excellent technical support from the Department of Education’s Direct Loan and COD staff. Ideally, an institution would benefit from having a year’s lead time to implement this program. But many schools that I am aware of have done so in less than a year. We often implement program changes with less time. Our first Direct Loan disbursements in summer of 2008, and the larger volume disbursed for the fall and spring semesters went very smoothly.

Our Bursar’s Office, with whom we partnered closely during the implementation, manages the loan disbursements, adjustments, cash drawdowns (G5) and reconciliation function. They indicated that the reconciliation in FFEL was not a required formal monthly process but was to match receipts with postings to students’ accounts on a daily basis. Now, under direct lending, we formally reconcile monthly, and this task takes about a few hours a month to perform. This adds greatly to program accountability. For summer 2008, we completed reconciliation four months ahead of the deadline. Other time savings with Direct Loans comes with the return of funds which are simply netted out of the cash drawdown. This compares to actual return of funds to the lender as required in the FFEL Program. Cash drawdown in direct lending takes us two days from origination of the loan to receipt of funds by the University. This is a one-day improvement over the FFEL Program and represents a significant improvement in cash flow.

In summary, we believe that by entering the Direct Loan Program, we have shielded our students from the impact of turmoil in the financial markets.
The state of the economy will make the availability of student aid funding even more important considerations for families in choosing a college or in determining whether they can even send their children to college in the coming years. Returning adult students face this same challenge. We continue to work hard to advocate in the best interest of our students for increased funding in the federal and state student aid programs. We encourage Congress to take whatever measures possible to increase appropriations in the Pell Grant program as we all work toward ensuring access and affordability of higher education for students from low and moderate income families.

Last Updated March 14, 2011