Direct Loan Evaluation Report
	Highlights A Survey of Direct Loan Program and Federal Family Education Loan Program Borrowers Volume One - Summary Report February 1997
U.S. Department of Education - Postsecondary Education Division

Institutional and borrower surveys comprise one component of an overall evaluation of the Federal Direct Loan Program conducted by Macro International under contract to the U.S. Department of Education. The goal of the evaluation is to assess the effectiveness of Direct Lending in terms of simplified administration, customer satisfaction, and reduced costs to the Federal Government. The surveys are designed to determine the level of customer satisfaction with the Federal Direct Loan and Federal Family Education Loan (FFEL) Programs.

This report presents the findings of a telephone survey of approximately 3600 student and parent borrowers participating in the Title IV loan programs who originated loans during the 1994-95 academic year. The borrower survey was conducted from November 1995 through March 1996. The specific objective of the survey was to provide baseline comparisons of borrower satisfaction and experiences with each program, including:

• Overall quality and perceived ease of loan program administration;

• Satisfaction with the loan application process and servicing experiences;

• Effectiveness of borrower counseling;

• Satisfaction with communications and support from the Department of Education and other service providers (i.e., lenders and guarantee agencies); and

• Borrowers' understanding of the key terms and features of the respective loan programs.

In addition, differences in borrowers' experiences were examined over time, and by several key borrower and institutional characteristics.

To help interpret the findings, Macro International cautions the reader that at least two types of comparisons are presented in this report. The first involves asking borrowers who have actually participated in both loan programs about their comparative experiences, which from an inferential standpoint, produces the most generalizable results. The second type of comparison involves asking borrowers about their experiences in one program only, which provides less information for comparing the relative merits of the two loan programs. An important caution, however, is that both types of comparisons involve the experiences of borrowers in the first year of the Direct Loan program only (1994-95), so that any generalizations to subsequent years of the program would be inappropriate.

Findings

• Direct Loan borrowers with previous FFEL loans were more likely than FFEL borrowers with previous FFEL loans to cite their 1994-95 loan experience as more positive than their prior experience. Borrowers with multiple loans were asked to compare their 1994-95 loan to their most recent prior loan. Students in the Direct Loan Program were significantly more likely than FFELP borrowers to cite their 1994-95 loan process as more positive than their prior FFELP experience.⁽¹⁾ In fact, Direct Loan students were almost twice as likely as those in the FFEL Program to cite their 1994-95 experience as more positive (39 percent for Direct Loan vs. 21 percent for FFEL) (Figure 1).

Direct Loan students were also more likely than FFEL students to mention easier processing and reduced paperwork as reasons for increased satisfaction.

• The vast majority (over 80 percent) of Title IV borrowers perceived their 1994-95 loan origination process as very easy or somewhat easy. No statistically significant differences were found between the Direct Loan and FFEL Programs. The percentages of students indicating an overall positive rating for ease of loan origination were virtually identical between the two programs (85 percent for Direct Loan vs. 84 percent for FFEL) (Figure 2).

As shown in Figure 3, the overall ratings for ease of loan origination were also essentially identical for Direct Loan and FFEL parent borrowers (i.e., borrowers who originated PLUS loans during the 1994-95 academic year), with 79% of Direct Loan PLUS borrowers indicating an overall positive rating compared to 81% of FFEL PLUS borrowers.

Full size Figure 3

When the results were examined by borrower and institutional characteristics, institutional control appeared to have a significant impact on opinions regarding loan origination, particularly among student borrowers.⁽²⁾ Students in proprietary schools were more likely to perceive the loan process as easy than those in private or public schools.

Significant relationships were also found between ease of loan origination and gender, with female respondents (students and parents) indicating higher levels of satisfaction with loan origination than male respondents; and dependency status, with independent students expressing higher levels of satisfaction with ease of loan origination than dependent students.

• Borrowers were generally satisfied with the timeliness of their 1994-95 loan funds. No significant differences were found between Direct Loan and FFEL borrowers. The percent of respondents indicating timely receipt of funds was 83 for FFEL student borrowers, 85 for Direct Loan student borrowers, 88 for Direct Loan parent borrowers, and 90 for FFEL parent borrowers.

Significant relationships were found between perceived timeliness of funds and several institutional characteristics. Student borrowers attending proprietary schools indicated the greatest satisfaction with timeliness of funds, and those attending public schools were least satisfied. A similar pattern was found for parent borrowers.

Both student and parent FFEL borrowers in institutions that use EFT displayed lower satisfaction levels with the timeliness of funds than those in schools that do not use EFT to process student loans.

• Most borrowers were satisfied with their entrance/exit counseling and other contacts with the Financial Aid Office. No significant differences were found between the Direct Loan and FFEL Programs. The specific aspects examined included satisfaction with both ED and the Financial Aid Office in explaining loan terms, satisfaction with the Financial Aid orientation, and satisfaction with exit counseling and the associated printed information.

• Borrowers indicated a relatively low awareness of the key terms and features of the loan programs. No significant differences in borrower awareness were found between the Direct Loan and FFEL Programs. When borrower responses were compared to information from the National Student Loan Data System (NSLDS), roughly one-half of the student borrowers and less than three-fourths of the parent borrowers were able to correctly identify their loan amount within 50 percent of the actual amount. Further, only a third of the student borrowers and half of the parent borrowers knew the interest rate on their loan within two percentage points of the actual rate, and fewer than five percent of the respondents (students and parents) knew the exact interest rate.

The majority of student and parent borrowers in both loan programs were able to correctly estimate the amount of time that it would take to pay off their loans, which suggests that borrowers were aware that their loans had to be repaid.

In terms of the borrower and institutional characteristics examined, student and parent borrowers with loans in repayment were significantly more familiar with their loan information than those in any other loan status category. Previous borrowers (students and parents) were less likely to know their loan amount than first-time borrowers or those in repayment. Students with graduate-level education were more aware of their loan amount and interest rate than were those with lower education levels. Students attending proprietary schools indicated lower awareness of their loan amount than those attending private or public institutions; and students attending schools with the highest levels of institutional loan program satisfaction typically displayed the greatest awareness of their loan terms.

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