Prospective switch to direct loans raises concerns: smaller schools say they lack the infrastructure to take on student loan tasks traditionally performed by banks.(washington update)

In this tight fiscal era, President Barack Obama's plan to provide billions of dollars in new federal student aid hinges on a potentially controversial move: ending the bank-led--and subsidy-laden--Federal Family Education Loan (FFEL) program.

While the recent financial meltdown has reduced the capacity of some banks for loans, the Obama plan formally would require all colleges and universities to move into the federal government's Direct Loan program. Although many schools have made that switch in re cent years, some question whether smaller schools--such as community colleges or some Black colleges--could accommodate the switch easily.

"I don't have a lot of loan infrastructure," says Bill Spiers, financial aid director at Tallahassee Community College in Florida, where more than 40 percent of students are African-American. "And in this budget environment, it's unlikely I will get additional staff."

According to Spiers, a switch from FFEL to Direct Loans will require more internal college work to balance and reconcile accounts and do other paperwork often done by banks. "Community colleges are staffed at lower levels, and we have to wear more hats," he tells Diverse. Switching to Direct Loans "is going to take time and effort."

Yet for many nationally, the call for reform has financial appeal. The U.S. Education Department says ending FFEL subsidies would free up about $4 billion annually for higher education. The Obama administration says it would use the proceeds for annual Pell Grant increases, converting the program to an entitlement. The White House also would spend new money on college completion grants in a move to boost student success rates.

As a result, some groups are focused more on how to help colleges make the switch to Direct Loans.

For the United Negro College Fund, the promise of more federal aid makes the Obama agenda a promising one, says Edith Bartley, director of government affairs.