Having a hard time swallowing this one.

We had to print this article out a second time, because after reading the first time, we spit a mouthful of coffee on the copy....we were absolutely agast at the claims made here. Go read this article, but make sure you don't have a mouthful of coffee.

We're not journalists, just people who know student loans and have strong opinions. But we presume that the people who run the Worcester Telegram are journalists. However, they cite statistics and fact, yet don't cite their sources, which leads us to the conclusion that the premise of the article is somewhat fabricated.

Basically, the article says that Sen. Kennedy is inclined to introduce legislation that will eleminiate the FFEL loan progam and support the Direct Loan Program. All this because loans made through the direct loan program are $6 per $100 lent cheaper than if banks/lenders made the loans. The cost saving statistic is not cited.

Now, it may be true, that to intermediate the loan it is cheaper for the government to support the direct loan program. However, those costs are transferred elsewhere. For example: the loan application processing and disbursement is really handled by the university's financial aid office. This is an additional cost to the university. Where do you think that extra administrative cost will be recouped? Yep, that's right -- increased tuition. So, yes, taxpayers win, but college students lose. Not to mention that when the direct loan program was introduced in about 1994 a staggering 1,900 schools were enrolled. But as the administrative burden of the program began to be realized that number has dropped to less than 500 since (source: July 20, 2004 "Dear Colleage" letter from Pete Hoekstra, Chairman, Select Education Subcommittee, Committee on Education and the Workforce).

Here's another fact to consider: the Direct Loan program is managed entirely by the government. That means servicing and collections (well they outsource it, but nonetheless managed by the government). We don't have hard numbers on default rates of the direct loan program vs the FFEL program, but we're working on that -- will post as soon as we get a bead on it. However, we've heard anecdotal evidence that charge-offs from the direct loan program are significantly higher than the FFEL program....again, that's a cost ultimately bourne by the taxpayer.

So, back to the Worcester Telegram article: yes, it may be cheaper for taxpayers to initiate a loan out of the direct loan program, but in the long run students and taxpayers pay more.