A newly-created federal loan system proposes to offer students a direct
loan program designed to fit the individual's financial ability, according
to a report from the U.S. Department of Education.

The 1993 Student Loan Reform Act implemented an Individual Education
Account, offering repayment plans which can lengthen the time of
reimbursement, decrease the monthly bill and cap the interest rates on

As part of the William D. Ford Federal Direct Loan Program proposed by
President Bill Clinton, the IEA loan system permits students to receive
money through the local campus financial aid office. Loans are given
directly to the students from the federal government, eliminating guaranty
agencies, lenders and secondary markets, said the Department of

Wayne Breazeale, the associate director of UT's Financial Aid Office, said
the office needs more time to scrutinize the effectiveness of the loan
program before implementation at UT.

"Right now, we just have broad outlines with no details," Breazeale said.
"We want to be sure that this will be good for our students."

James Duderstadt, president of the University of Michigan, said IEA
"simplified the financial aid application process for students" at the

"With one-stop shopping, students have been able to obtain their loans in
record time. This has been accomplished eliminating the need for the Office
of Financial Aid to deal with more than 40 guaranty agencies and nearly 700
lenders," Duderstadt said.

The University of Michigan is among the first 104 institutions to implement

IEA consists of the Direct Stafford Loans, the Direct Unsubsidized Loans,
the Direct PLUS (for parents) and the Direct Consolidation Loans, the
report stated.

The structure of IEA offers four repayment plans to offer choice and
flexibility for borrowers, according to the Department of Education's

The Pay-As-You-Can repayment plan bases a monthly bill on the borrower's
annual income and the loan amount. This plan's fixed percentage means that
repayment installments increase when income goes up and decrease when
income goes down, according to the report.

The Standard Repayment Plan allows borrowers to choose the amount of fixed
payment during a 10Ðyear period. In the Extended Repayment Plan, the
borrowers can pay a fixed percentage between 12 and 30 years, depending on
loan amounts.

The Graduated Repayment Plan lets the borrower have lower monthly payments
initially, with payment increasing every two years over a period of 12-30

A recent college graduate, who typically owes $10,000 in student loans,
will pay a rate of approximately $120 per month under the standard 10-year,
fixed repayment plan, according to the Department of Education.

If a student selects the IEA's Income-contingent plan, then the student can
pay as low as $105 per month during 12-year period, the report stated.

The Extended repayment plan would cost the same student equal monthly
payments of about $90 for a 15-year period. Also for the same student, the
Graduated repayment plan would initially cost less than $70 per month, but
gradually increase to approximately $160 per month during a 15-year
repayment term.

Clinton is working on a new Pay-As-You-Can plan that gives borrowers the
option to pay back loans either through community service with Americorps
or as a percentage of a borrower's income with the Individual Education
Account. After a 25-year period, if a borrower cannot continue payments,
then the remaining balance will be forgiven, according to the plan.

All borrowers will pay more interest if they choose repayment plans with
longer repayment periods, the report noted. The rates on each account vary,
but are not to exceed 8.25 percent on student loans and 9 percent for
parent loans.

The 300,000 students using IEA for the 1994-95 academic year collectively
received more than $1.2 billion directly from the Federal government, the
report stated.

Duderstadt said during the first month of the Federal Direct Student Loan,
the University of Michigan had a "43 percent increase over 1993 in loans
originated and funds disbursed to students."

In a five-year period, the direct federal service will save taxpayers
approximately $4.3 billion by streamlining the loan procedures for
students, parents and schools, the Department of Education said.

Duderstadt said, "Well-informed students will make wise choices in the
management of their debt and the repayment flexibility provided by these
new options will allow them to change plans to fit their financial