Bill simplifies federal loan disbursement

By Brooke Olson
Daily Bruin Staff

In a move designed to infuse a governmental program with private
sector innovation, Gov. Pete Wilson last week signed a far-reaching
higher education bill that restructures the way California operates
its federal student loan program.

Assembly Bill 3133, authored by Assemblyman and chair of the
California Higher Education Committee Brooks Firestone (R-Los
Olivos) will go into effect on Jan. 1, 1997, creating a nonprofit
corporation specifically designed to administer the federal loan
programs. The purpose is to enable students to receive their
federal loans faster by allowing them to bypass certain state rules
and regulations.

Currently, all state and federal loans are administered under
the Student Aid Commission, which approves the federal "guarantee"
or insurance on the loan and collects on any loans that go into
default. UCLA is one of the largest benefactors of the
Commission.

Only the federal loan program operations of the Commission will
be converted to nonprofit corporation status, theoretically
eliminating the basic red tape which often faces a state agency,
said Dana Callihan, the deputy director of public relations for the
commission.

The state’s Cal Grant programs will continue to be administered
by the Commission as a state agency.

"This is a landmark event for students who are now attending
college and for those who hope to have that opportunity in the
future," said Maridel Moulton, chair of the commission in a press
release Friday. "(The Commission’s) priority will now be
operational excellence over bureaucracy."

Supporters of the bill contend that too many state colleges and
universities have turned to outside organizations due to lack of
technological resources.

By comparison, the new corporation will focus greatly on the
delivery of services through the Internet, providing the
opportunity for students to access loan information from their
homes or dormitory rooms.

But opponents of the legislation fear that moving control of the
student loan programs outside of the commission may make the
program "less controllable, and then, once it is outside the
commission, the money could be eaten up in other ways," said
Assembly Democratic Leader Richard Katz (D-Panorama City).

"The (Republicans’) argument is that it was more efficient,"
while Assembly Democrats are taking a "wait and see" attitude
toward the legislation, Katz said.

Californians currently borrow more than $2.7 billion a year from
federal loan programs to attend college – a $1.3 billion increase
over the last five years.

Founded in 1955, the California Student Aid Commission is a
self-supporting organization.

As the primary state guarantee agency for the administration of
state-and federally-authorized financial aid programs, the
Commission operates the Cal Grant programs and the Federal Family
Education Loan Program.

Today, the Commission operates with 357 employees and guaranteed
a total of $1.4 billion in loans for 1995-96. The Commission
administers a total portfolio of loans worth $16 billion, 10
percent of which is paid in full, while 36 percent is currently in
repayment.

The increased need for financial aid by students has spurred
substantial growth in the Commission’s responsibilities. Loan
volume grew from just over $1 billion in 1990-91 to $1.8 billion in
1994-95.

For nearly 40 years, the Commission functioned as the dominant,
if not sole, provider of loans to students in California.

However, competition for this market increased substantially
over the last few years due to the Federal Direct Lending program,
which allows individual lenders to deal directly with the federal
government.

In 1995-96, the Commission guaranteed just 53 percent of all
loans to California students, a 24 percent decrease since 1992.

"The changing structure of higher education will require a
premiere student financial aid program for the future," said Jon
Shaver, executive director of the commission, in a press release
Friday.

"To do this, we need to be more responsive, productive and
flexible in dealing with our customers … in essence, cutting the
red tape to provide high quality, rapid student loan services – for
the first time in the Commission’s history, (the bill) sets the
stage for accomplishing that objective," Shaver added.