In a statement yesterday, Kennedy said hebelieves the program will be a great success.

"I commend Harvard for its leadership insupporting the move to direct lending and inpioneering the new programs on campus," thestatement says. "Students will benefit directlyand immediately from lower loan fees, reducedinterest rates, flexible repayment options andsimplified applications."

The idea of direct loans has been around for afew years but only got the push it needed fromlast years' federal budget cuts, which forced asearch for savings in existing programs. Kennedytook the initiative to broaden the plan and forgea bipartisan coalition in support of it, Hickssays.

Nationwide, the new lending plan will be phasedin starting next year with 5 percent of allstudent loans going through the direct loanprogram, she says. That number will then increaseto 40, 50, 50 and 60 percent respectively in theyears through 1998, when the old program and thereforms will be reevaluated.

At that point, the decision will likely be madeas to whether or not to switch completely todirect lending.

Under the new system, all financial processingdone at the school itself, using data managementsoftware provided by the Department of Education.Once the loan has been completed, according toHicks, the money should be transferred into thestudents' accounts within three days. Under theold systems, students were forced to wait severalweeks.

The Congressional Budget Office has estimatedthat the shift to direct loans will save $4.5billion over three years.

"The saving will occur because the process willbe streamlined and the middle man will beeliminated," Hicks says.

Some have proposed changing the loans processto allow the Internal Revenue Service (IRS) topursue defaulted loans. That change is currentlybeing reviewed by the Department of Education andthe IRS. "Not surprisingly, students are notthrilled about that," Hicks says.

Last year the government issued 6.1 millionloans worth $18 billion, with default costsrunning $2.5 billion.

But not everyone is excited about the newsystem. Daniel Cheever, president of the studentloan guarantor America Student Assistance, ismore cautious about the prospects of directlending.

"We really don't know what the effect of thechanges are going to be," says Cheever, whosecompany frequently deals with Harvard. "Loans maybe able to get approved more quickly, but we don'tknow that yet."

He says the program will require an extra 600employees along with $2.5 billion in newsoftware, and that the savings being announcedjust take into account the savings on banksubsidies. "The new program will still cost thegovernment $15 billion, and that [cost] will justkeep going up," Cheever says.

Hicks says, however, that the CongressionalBudget Office, the General Accounting Office andthe U.S. Office of Management and Budget all foundthat the program would substantially reduce costs.

Cheever, to the contrary, insists that "underthe new program, taxpayers will pay more money."