Purdue News
Purdue NewsFebruary 27, 1998
The new alliance with USA Group Inc., the nation's largest guarantor and administrator of student education loans, is being tested at the West Lafayette campus and could later be expanded to other Purdue campuses. The arrangement makes USA Group, based in Indianapolis, the single point of contact for the university's loan process and is expected to produce efficiencies that will allow Purdue students to save an estimated $600,000 in loan fees next year.
Student borrowers will continue to have their choice of banks, but those loans may not offer the cost-saving features of the USA Group-administered loans for their participating lenders.
"By using USA Group's entire student loan process, we can actually help reduce the financing costs our students face," explained Joyce Hall, director of Purdue's Division of Financial Aid. "This agreement will also free up my staff to focus more on financial aid counseling of students."
Under terms of the agreement, Purdue will use USA Group not only for loan guarantees but also for a complete package of services for its education loan program -- from application through repayment. Previously Purdue's financial aid office worked with more than 370 individual parties, including multiple guarantors, lenders and loan servicers. The savings achieved from this streamlined process will allow USA Group and participating lenders to pay the 1 percent guarantee fee normally paid by the student.
June McCormack, USA Group executive vice president of marketing, said the program is much more far-ranging than what's common at many colleges and universities and a first for USA Group.
"We are testing the notion that by handling the entire financial aid process for the school we can alleviate the substantial administrative burdens of the financial aid office and reduce the cost of processing loans," McCormack said. "We and the participating lenders are then able to pass back the savings to the students."
Initially, five lenders that have been responsible for providing nearly 70 percent of Purdue's education loans in the past will sign on with USA Group. Purdue students borrow between $80 million and $85 million annually, and the interest rate on loans averages 8.25 percent while in repayment.
Students will find the loan application process simpler and easier. Information on how to receive a loan will be included in their financial aid award package.
Besides saving money on up-front fees, Purdue's student borrowers can also save during repayment. Borrowers who make their first 48 scheduled payments on time will automatically have their interest rate reduced by two percentage points for the remaining life of the loan. Those using an automatic debit service will receive a 0.25 percentage point interest rate reduction. The savings for both of these programs can cut total interest costs for Purdue students by nearly $80 for every $1,000 borrowed.
The partnership takes effect immediately and will continue through June 1, 2001. At that point the program will be evaluated for future use, Hall said.
USA Group provides education loan services and other financial information and management consulting services to education. USA Group companies administer more than $9 billion in new student loans annually and service a student loan portfolio of more than $12 billion.
Source: Joyce Hall, (765) 494-5090; e-mail, jhall@dfa.purdue.edu
Writer: Sharon Bowker, (765) 494-2077;e-mail, sharon_bowker@purdue.edu
Purdue News Service: (765) 494-2096; e-mail, purduenews@purdue.edu
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