New Student Loan Plan to Include 2 County Schools : Education: UC Irvine and a Newport Beach interior design school will be among the first to participate in the federal government program.

The Clinton Administration announced Monday that UC Irvine, a Newport Beach interior design school and four other California schools will be among the first 105 institutions nationwide to participate in a radically restructured federal student loan program.

Under the program approved by Congress in August, as many as 300,000 students may pay for school in the next academic year with loans provided directly from the federal government instead of through banks and other financial institutions.

“It’s the best thing I’ve seen on the horizon for students in 20 years,” said Otto Reyer, assistant chancellor for financial aid at UC Irvine, where about 8,000 students could benefit initially. “It was designed because they had to find ways to save money because of the budget deficit, but they’ve actually put together a program that helps students tremendously.”

The other Orange County school chosen to participate is Interior Designers Institute of Newport Beach. Officials there could not be reached for comment.

Robert Atwell, president of the American Council on Education, applauded the Administration’s commitment to the program and the speed with which it moved to implement it, calling the effort a departure from the more hands-off approach of the Ronald Reagan and George Bush administrations.

“It’s a great start in a remarkably short period of time,” he said.

Under the new program, schools will receive money directly from the federal government and disburse it to their students. For the first year, the direct loans will be limited to 5% of the total student loan program, or about $1 billion. The amount will increase each year until it reaches about 60% of the total for the 1998-99 school year.

Now, students go through several steps before they can obtain education loans, which are granted by banks or other private lenders and guaranteed by the federal government. Each organization charges a fee for its services.

The initiative will save students money by abolishing the fees, lowering interest rates and enabling borrowers to repay loans at a slower pace, depending on income.

The Administration’s approach to student loans demonstrates President Clinton’s intention to follow through on promises to breathe life into federal departments and turn them into instruments for helping government to improve people’s lives, Sen. Paul Simon (D-Ill.) said.

“With Clinton, this really is a priority,” said Simon, a longtime leader in the push for direct student loans. “They’re doing everything right on schedule.”

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But banks and other agencies that profit from the current system have criticized the new program, arguing that the Education Department--which through the years has been criticized as inept--will prove incapable of running it.

“We believe a full and fair review of direct lending will reveal that the current public-private partnership is the best way to serve the interests of students, schools and taxpayers,” said Daniel Cheever, president of American Student Assistance, the nation’s oldest student loan guarantee agency. “We hope Congress will reverse its decision.”

Secretary of Education Richard W. Riley and other higher education leaders noted that 1,100 public and private universities, four-year colleges, two-year colleges and proprietary schools had applied to participate in direct lending. That proves the institutions’ confidence in the initiative and the department, they said.

“The message today is that the higher education community sees direct lending as a program that meets the real needs of their students,” Riley said at a news conference during which he released the names of the 105 institutions his department had selected. “Our goal is . . . above all, a program that makes good on our pledge to save taxpayers $4.3 billion in the course of the next five years.”

Besides the two Orange County institutions, participating California schools are: Caltech in Pasadena, the Bryan College of Court Reporting in Los Angeles, the California Academy of Merchandising, Art and Design in Sacramento and the Modern Technology School of X-Ray in North Hollywood.

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Under the program, students will make only one stop, at their institution’s financial aid office, and will obtain loans within 72 hours. Students now must wait weeks to obtain loans.

“It has been brutal for the kids and their parents,” said UCI’s Reyer. “Sometimes it takes as many as 20 to 25 transactions before a loan can be approved. Under this new system, it can be done in about three steps.”

Reyer said he believes UCI was picked because the campus had previously assisted the U.S. Department of Education with other pilot programs.

“Our data processing at UCI is very good, and we’ve developed several other systems for both the Department of Education and for Congress,” Reyer said. “Also, this (simplification of financial aid) is something I’ve been seeking--been speaking out about--for a long time.”

Reyer said the new federal program will be launched at UCI on July 1. In the first academic year, about 8,000 of UCI’s 17,500 students could receive direct government loans at no extra cost to the university, he said.

Dave Yun, 22, of Canoga Park, UCI student government vice president, praised the prospects for quicker, easier financial aid.

Yun said he thinks UCI was selected to participate because Reyer’s office has “a very good national reputation.”

“I’m not surprised we were selected because Otto (Reyer) has done a great job with financial aid,” Yun said.

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Times staff writer Bill Billiter in Orange County contributed to this story.