“With the credit environment we’re in, the banks don’t have funding to lend, so they wind up selling the loans back to the Department of Education anyway. So the ultimate holder ends up being the Department of Education, not the bank.”

Booker said it makes sense for schools to begin to make the switch even without Congress’ mandate. “That way, you’re sure to have the funds when students start school in the fall,” he said.

A growing need for loans

The changes in student lending come as more students and parents are looking for ways to pay for a college education amid a slumping economy, including applying for more loans.

Students are borrowing more to pay for college, according to numbers from ED. Federal student-loan disbursements, which is the total amount borrowed by students and received by schools, in the 2008-09 academic year totaled $75.1 billion, growing about 25 percent over the previous year.

Scott Klene, senior director of student financial services at Bellevue University in Nebraska, said he has seen a significant increase in students applying for federal aid at his school as well.

“There’s an increase in need,” he said. “But overall, students are still getting financing in the way they were before. We haven’t seen a decrease in students who are able to pay for school.”


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