¹ Reflects only the LEAP program's statutory State matching requirements. State maintenance-of-effort and discretionary contributions above the required match significantly increase the number of grant recipients, the amount of available aid, and the average award.
² Due to the limited funding level available for this demonstration program, annual recipients are projected to total fewer than 500.

Number of Postsecondary Students Aided by Department Programs

The Administration's 2002 proposals for student aid focus on increasing support for the need-based Pell Grant program. In addition to this $1 billion new investment in fostering access to the benefits of postsecondary education for low- and middle-income students and families, the Administration is also proposing to more than triple loan forgiveness benefits for mathematic and science teachers in schools serving low-income populations. Lastly, the Administration will commit over $900 million in administrative funding to ensure the efficient, cost-effective delivery of over $60 billion in Federal student aid. Most of this is payments to private-sector contractors or guaranty agencies that help administer the student loan programs.

Pell Grants

	2000	2001	2002 Request
BA in millions	$7,639.7	$8,756.0	$9,756.0
Program costs ($ in millions)	7,944.0	9,192.0	9,582.0
Aid available ($ in millions)	7,925	9,172	9,562
Recipients (in thousands)	3,853	3,969	4,032
Maximum grant	$3,300	$3,750	$3,850
Average grant	$2,057	$2,311	$2,371

The Pell Grant program helps ensure financial access to postsecondary education by providing grant aid to low- and middle-income undergraduate students and is the most need-focused of the Department's student aid programs. Individual Pell Grant awards vary according to the financial circumstances of students and their families.

The Administration is proposing to increase the Pell Grant maximum award to $3,850 in 2002, up from $3,750 in 2001. This $100 increase would benefit an estimated 4 million disadvantaged students, expanding access to postsecondary education for the neediest students.

Recent program data indicate that more students are applying for Pell grants, and more of those applying are eligible to receive aid, than was previously forecast. As a result, the cost of funding awards for the 2001-2002 award year increased by $117 million since 2001 funds were appropriated; this additional need for 2001 would be funded from the proposed $1 billion increase for 2002. In addition, the 2001 appropriation used $319 million in surplus funds from prior years to fully fund the maximum award level of $3,750. No surplus is expected to be available to supplement 2002 appropriations, therefore $436 million of the proposed $1 billion increase for 2002 is needed to maintain the previous year's funding level, replacing the $117 million in supplemental funds and $319 million surplus used in 2001. An additional $78 million is needed to fully fund a $3,750 maximum in 2002. Increasing the maximum award by $100, to $3,850, for academic year 2002-2003 requires $312 million. The remaining $57 million of the proposed $1 billion would be set aside to account for the possibility of further growth in program costs. The allocation of the proposed $1 billion increase is shown in gray in the following table:

The Supplemental Educational Opportunity Grant, Work-Study, and Perkins Loan programs are collectively referred to as the "campus-based" programs because participating institutions are provided with funding that they are responsible for administering on their own campuses. These programs allow financial aid administrators considerable flexibility in the packaging of financial aid awards to best meet the needs of their students.

Supplemental Educational Opportunity Grants

	2000	2001	2002 Request
BA in millions	$631.01	$691.0	$691.0
Aid available (in millions)	799	875	875
Recipients (in thousands)	1,087	1,190	1,190
Average award	$735	$735	$735

¹ Includes $10 million in emergency funds reserved for disaster relief.

The Supplemental Educational Opportunity Grant (SEOG) program provides grant assistance of up to $4,000 per academic year to undergraduate students with demonstrated financial need. The $691 million request would leverage $184 million in institution matching funds to make available a total of approximately $875 million in grants to an estimated 1.2 million recipients.

SEOG funds are allocated to institutions on the basis of a statutory formula, and a 25 percent institutional match is required. Awards are determined at the discretion of institutional financial aid administrators, although schools are required to give priority to Pell Grant recipients and students with the lowest expected family contributions.

Work Study

	2000	2001	2002 Request
BA in millions	$934.0	$1,011.0	$1,011.0
Aid available ($ in millions)	1,120	1,215	1,215
Recipients (in thousands)	912	990	990
Average award	$1,228	$1,228	$1,228

The Work-Study program provides grants to participating institutions to pay up to 75 percent of the wages of needy undergraduate and graduate students working part-time to help pay their college costs. The school or other eligible employer provides the remaining 25 percent of the student's wages. Funds are allocated to institutions on the basis of a statutory formula, and individual award amounts to students are determined at the discretion of institutional financial aid administrators.

The program encourages institutions to use Work-Study funds to promote community service activities. Institutions must use at least 7 percent of their Work-Study allocations to support students working in community service jobs, and such activities must include at least one reading tutor or family literacy project. In addition, the Department waives the 25 percent employer-matching requirement for students who work as reading or math tutors.

Perkins Loans

	2000	2001	2002 Request
Federal Capital Contributions	$100.0	$100.0	$100.0
Loan Cancellation Payments	30.0	60.0	60.0
Loan volume ($ in millions)	1,084	1,113	1,113
Number of borrowers (in thousands)	677	695	695
Average loan	$1,600	$1,600	$1,600

The Perkins Loan program provides long-term, low-interest loans to undergraduate and graduate students with demonstrated financial need at 2,000 institutions. Total assets of $7.2 billion represent nearly 40 years of Federal capital contributions, institutional matching funds, repayments on previous loans, and reimbursements for cancellations.

As in past years, most funding for new loans will come from the repayment of outstanding loans to the program's institutional revolving funds. The $100 million request and the resources from borrower repayments on the outstanding loan portfolio to institutional revolving funds will be sufficient to provide over $1.1 billion in new Perkins loans to 695,000 students.

Perkins Loan borrowers pay no interest during in-school, grace, and deferment periods, and are charged 5 percent interest during the principal repayment period. Annual borrowing limits are $4,000 for undergraduate students and $6,000 for graduate and professional students.

Perkins Loan Cancellations reimburses institutional revolving funds for borrowers whose loan repayments are canceled in exchange for undertaking certain public service employment, such as teaching in Head Start programs, full-time law enforcement, or nursing. Cancellations have increased significantly in recent years due to the expansion of eligibility by the Higher Education Amendments of 1992 and 1998.

Leveraging Educational Assistance Partnerships

	2000	2001	2002 Request
BA in millions	$40.0	$55.0	$55.0
Aid available in millions1	90.0	135.0	135.0
Maximum grant	$5,000	$5,000	$5,000
Recipients	90,000	135,000	135,000
Average Grant	$1,000	$1,000	$1,000

¹ Reflects only the LEAP program's statutory dollar-for-dollar State matching requirement for BA up to $30 million and the two-to-one State matching requirement under Special LEAP for BA in excess of $30 million. State maintenance-of-effort and discretionary contributions above the required match, which are not reflected, significantly increase the number of grant recipients, the amount of available aid, and the average award.

The Leveraging Educational Assistance Partnership (LEAP) program provides Federal matching funds to encourage States to retain and expand need-based State grant programs, and to establish community service programs to help financially needy students pay for college. Appropriations in excess of $30 million are reserved for a separate program, Special LEAP, which requires a two-to-one match (rather than the dollar-for-dollar requirement of the regular program) and supports a variety of allowable activities including expanded LEAP awards, scholarships, and early intervention programs.

Loan Forgiveness for Child Care Providers

	2000	2001	2002 Request
BA in millions	—	$1.0	$1.0
Aid available in millions	—	1.0	1.0
Recipients	—	200	200
Average Grant	—	$5,000	$5,000

The Loan Forgiveness for Child Care Providers Program was authorized under the Higher Education Amendments of 1998 to encourage more highly trained individuals to enter and remain in the early child care profession. Under this demonstration program, Stafford and Unsubsidized Stafford Loan borrowers under the Federal Family Education Loan (FFEL) Program and the William D. Ford Direct Loan (Direct Loan) Program who have earned degrees in early childhood education and worked for two full years as child care providers in low-income communities may have a portion of their loan obligation forgiven. Additional forgiveness is awarded for each consecutive year of service, up to the total of the borrower's outstanding balance after five full years. Forgiveness is granted on a first-come, first-served basis. The Department will evaluate the effectiveness of this program in achieving its statutory goals.

Federal Family Education Loans and Direct Loans

	2000	2001	2002 Request
Federal Family Education Loans
New Loan Subsidies (BA)	$3,762.6	$3,852.1	$4,226.5
Re-estimate of Prior Loans 1	776.0	-4,727.8	—
Federal Administration	48.0	48.0	49.6
Total, FFEL Program BA	4,586.6	-827.7	4,276.1
FFEL Liquidating Account
New Budget Authority 2	-1,188.4	-741.8	-604.5
Direct Loans
New Loan Subsidy (BA)3	-1,068.7	-1,643.2	-1,411.7
Re-estimate of Prior Loans1	-2,442.3	481.2	—
Federal Administration 4	735.0	770.0	780.0
Total, New Budget Authority	-2775.9	-392.0	-631.7
Total, Student Loans (BA)	622.3	-1961.5	3,489.9

¹ Under Credit Reform, the subsidy amounts needed for active loan cohorts are re-estimated annually in both Direct Loans and FFEL to account for changes in actual data compared to projections. In 2000, the Direct Loans re-estimate primarily reflects higher interest rate projections leading to larger repayment estimates, while the FFEL re-estimate reflects higher interest rate costs. The 2001 re-estimate is largely attributable to revised default collection estimates in prior cohorts reflecting actual trends in default recoveries that exceed earlier experience.
² This account reflects costs associated with loans made prior to 1992. Budget authority is negative because collections on those loans will exceed default and in-school interest costs.
³ No new budget authority is required for Direct Loans because the value of future repayments of interest and collections on defaults will exceed default costs and in-school interest subsidies.
⁴ These costs include loan servicing, collection, and other administrative costs associated with Direct Loans, and student aid management costs such as application processing as well as other ADP contracts, including the National Student Loan Data System. In 2002, about 23 percent of these costs reflect payments to FFEL guaranty agencies.

New Loan Volume
(in millions)

	2000	2001	2002 Request
Federal Family Education Loans
New loans	$22,712	$23,903	$25,110
Consolidation loans	5,695	5,948	6,083
Subtotal, FFEL	28,407	29,851	31,193
Direct Loans
New loans	10,348	10,860	11,414
Consolidation loans	5,369	8,290	5,307
Subtotal, Direct Loans	15,717	19,150	16,721
Total	44,124	49,001	47,914

Number of Loans
(in thousands)

The Department of Education operates two major student loan programs: the Federal Family Education Loan (FFEL) program and the William D. Ford Federal Direct Loan (Direct Loan) program. The Administration is committed to these maintaining both student loan delivery systems, allowing individual institutions to choose which best meets their needs and the needs of their students.

The FFEL program makes loan capital available to students and their families through some 4,100 participating private lenders. There are 36 active State and private nonprofit guaranty agencies which administer the Federal guarantee protecting FFEL lenders against losses related to borrower default. These agencies also collect on defaulted loans and provide other services to lenders. The FFEL program accounts for about two-thirds of student loan volume.

The Direct Loan program was created by the Student Loan Reform Act of 1993. Under this program, the Federal Government uses Treasury funds to provide loan capital directly to schools, which then disburse loan funds to students. The Direct Loan program began operation in academic year 1994-95 and now accounts for about one third of student loan volume.

Basic Loan Program Components

Both FFEL and Direct Loans feature four types of loans with similar fees and maximum borrowing amounts:

• Stafford Loans are subsidized, low-interest loans based on financial need. The Federal Government pays the interest while the student is in school and during certain grace and deferment periods. The interest rate varies annually and is capped at 8.25 percent. For July 1, 2000 through June 30, 2001, the rate for borrowers in repayment has been set at 8.19 percent.

• Unsubsidized Stafford Loans are offered at the same low rates as subsidized Stafford Loans, but the Federal Government does not pay interest for the student during in-school, grace, and deferment periods.

• PLUS Loans are available to parents of dependent undergraduate students at slightly higher rates than Stafford or Unsubsidized Stafford Loans, and the Federal Government does not pay interest during in-school, grace, and deferment periods. The interest rate varies annually and is capped at 9 percent. The 2000-2001 rate is 8.99 percent.

• Consolidation Loans allow borrowers with multiple student loans who meet certain criteria to combine their obligations and extend their repayment schedules. The rate for both FFEL and Direct Consolidation Loans is based on the weighted average of loans consolidated rounded up to the nearest 1/8^th of a percent.

The 2002 budget request for student loans reflects the proposal to expand loan forgiveness for mathematics and science teachers. Currently, teachers in qualified low-income schools who were new borrowers as of October 1998 and teach for five consecutive years are eligible for up to $5,000 in loan forgiveness. The Administration proposes to substantially increase the amount of forgiveness up to $17,500 for individuals who major or minor in math or science and who teach those subjects in high-need schools. This proposal is estimated to cost about $12.8 million in additional subsidy for 2002 and prior cohorts.

The Department would spend $910 million in 2002 to administer the Federal postsecondary education programs and pay account maintenance fees to FFEL guaranty agencies, an increase of $15 million over the 2001 level. Of these funds, $730 million would support Department administrative activities, primarily for private-sector contracts to administer the student financial assistance programs, and $180 million would be paid to guaranty agencies. These funds, which make up more than 60 percent of the Department's overall administrative budget, are drawn from 3 sources: mandatory funding authorized under Section 458 of the Higher Education Act (85.7 percent of total funds available), the discretionary Program Administration account (8.8 percent), and a discretionary appropriation covering a portion of administrative costs for the FFEL program (5.5 percent). For more details, see Departmental Management.

In recognition of the importance of these management responsibilities, in 1998 Congress and the Department designated Student Financial Assistance as the Federal government's first performance-based organization. The Department is in the process of implementing a comprehensive modernization blueprint to create an integrated, streamlined system that delivers student aid more quickly and efficiently and eliminates costly, outmoded paper processes.

In 2002, a primary focus will be continued improvements in the delivery of student aid, integration of computer systems, and reduction in student loan default costs. Although the cohort default rate has been reduced from 22.4 percent to 6.9 percent, the cost of defaults remain high, and are targeted for reduction.

The Office of Postsecondary Education (OPE) maintains primary responsibility for developing student aid and higher education policy, drafting regulations, and conducting negotiated rulemaking, while at the same time providing national leadership and fostering strategic innovations to ensure access to postsecondary education, promote high standards and achievement for all postsecondary students, and expand linkages with other areas of national interest.