Head of direct student loans gives bankers fair warning.

The Department of Education's experimental program to cut the banking middleman out of the student loan business isn't scheduled to get off the ground till July 1994.

But Larry Oxendine, the man in charge of launching it, says the new direct loan program will set high standards for efficiency and quality that its rivals will be hard pressed to match.

"We're essentially creating a bank with only one product: student loans," Mr. Oxendine last week told a workshop sponsored by the Consumer Bankers Association. Its members include banks that dominate the $13 billion-a-year guaranteed student loan program.

"Even if the direct loans are not the way we go in the long term, it's my hope that we can use this experiment to standardize guaranteed student loans," Mr. Oxendine added.

A Bid to Control Costs

Bankers had battled to block the direct loan pilot program, arguing that it put the government in competition with the private sector. But Congress, in an effort to control the soaring costs and high default rates of the guaranteed student loan program, approved the pilot program in July. It is expected to generate $750 million in loans during its first year.

About 250 colleges, universities, and other institutions will participate in the program.

Students at those schools will have to go to the government for student loans; they won't be eligible for the guaranteed student loan program.

|Schools Are Highly Frustrated'

One of the current loan program's biggest problems is a lack of standardization, Mr. Oxendine said. "The bottom line is, schools are highly frustrated."

The direct loans will be funded through sales of Treasury securities, and the Department of Education will be able to draw on the way money electronically. Even promissory notes will be delivered on-line.

"It's difficult for you to get to that level of automation with [schools], because they deal with a lot of banks and guarantee agencies," he said.

Student loan executives at the meeting said they would heed Mr. Oxendine's warnings.

"We have to put a delivery system in place by the time this program is put in place," said William Banks, vice president of Chemical Bank, Jericho, N.Y.

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