More than a dozen top banks and other organizations lending to college students have banded together to take on the federal government's new direct loan program.

The institutions have developed an electronically standardized process for applying for government-backed loans.

By speeding up applications and approvals, they hope to strengthen their grip on a market that generates $80 billion in lending each year.

The student loan business has become much tighter since the federal Department of Education decided last year that it would begin to take over the process gradually, enabling colleges and universities to lend directly to students.

"The federal goal is to have 60% of the schools go through the federal program," said Kathy Cannon, vice president and manager of student loans for BankAmerica Corp., one of the member banks. "That still leaves 40% that need to be processed more efficiently."

The coalition - known as Educational Loan Management, or ELM, Partners - - comprises 16 banks, financial institutions, and processors that hav e automated the college financial aid process.

In addition to BankAmerica, the other member banks are Fleet Financial Group, Barnett Banks' ClassCredit, Chemical Banking Corp.'s Educational Financing Group, Citicorp's Student Loan Corp., First National Bank of Chicago, Union Bank of Nebraska, Wells Fargo & Co., Household International, Great Western Bank, and BAC International, a foreign bank.

The consortium also includes TransAmerica Corp.'s Educaid division, the New England Educational Loan Marketing Association, known as Nellie Mae, the XAP Co. - which designed the computer application - and two private, non-profit secondary market lenders, the California Higher Education Loan Authority and the Student Loan Funding Corp.

ELM Partners will offer students the opportunity to apply for various types of aid by computer, rather than by filling out paper forms.

ELM's computer financial aid application process was developed in the same fashion as XAP's earlier college admissions software.

Students can obtain the data-collection software through electronic data interchange at their high schools and send their completed applications via modem to an ELM service bureau, or receive the disk in the mall and return it to ELM the same way. The XAP software-which is compatible with DOS, Windows, and Macintosh systems -- provides multimedia presentations, combining voice, animation, and text, to describe the college and full application process in an interactive fashion.

The student fills out the uniform financial aid application, which integrates the university's specific loan and scholarship data requests with federal and state information requirements.

After completing the form, the student immediately receives a preliminary needs analysis, which provides a rough idea of how much financial aid the student can expect.

It traditionally takes about three weeks to receive a preliminary analysis. said Allen Firstenberg, the president of XAP.

Although the partnership does not yet have any universities signed on, the software was tested in 1994. The group expects to have 1,000 colleges and universities using the system by June 1995, the start of the next lending cycle.

The federal program has 105 participating schools, and the Department of Education in January tapped Computer Data Systems Inc., a Rockville, Mr.-based government contractor, to handle its processing.

The processor, in turn, has sub-contracted with many companies, including Fleet's Academic Financial Services Association Data Corp. The parent company of the Long Beach, Calif.-based student loan processing unit is also a member of ELM.

So, it would appear that the banks and financial firms will not be entirely cut out of this segment of the student-processing market.

But this has indeed stirred up the already competitive loan- processing business.

The two driving factors behind the ELM partnership and its newly developed loan application system were "the new competitor ... and eliminating the excess paper," Ms. Cannon said.

Also, the government subsidizes only about one-quarter of the annual $80 billion for college loans, Ms. Cannon said. But nonetheless, this has not removed the competition - even from within the ranks of ELM itself.

"ELM has standardized this for students, but we still can enhance our own process," Ms. Cannon said. "I'm still competing with those banks for loans."


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