A r c h i v e d  I n f o r m a t i o n

Biennial Evaluation Report - FY 93-94

Chapter 502

Federal Family Education Loan Program

(CFDA No. 84.032)

I. Program Profile

Legislation: Higher Education Act (HEA) of 1965, Title IV-B, as amended by P.L. 103-66 (20 U.S.C. 1071-1087-2) (expires September 30, 1997).

Purpose: To help financially needy undergraduate and graduate students meet the costs of their education at participating postsecondary institutions by encouraging private lenders to provide federally subsidized and insured long-term loans to students and their parents.

Funding History

Fiscal Year Appropriation Fiscal Year Appropriation
1966 $ 10,000,000 1986 $3,265,941,000
1970 74,726,000 1987 2,717,000,000
1975 580,000,000 1988 2,565,000,000
1980 1,609,344,000 1989 4,066,828,000
1981 2,535,470,000 1990 3,826,314,000
1982 3,073,846,000 1991 5,381,422,000
1983 3,100,500,000 1992 6,865,000,000
1984 2,256,500,000 1993 5,825,338,000
1985 3,799,823,000 1994 3,026,991,000

II. Program Information and Analysis

Population Targeting and Services

The Omnibus Budget Reconciliation Act of 1993 made major changes in the Federal Family Education Loan (FFEL) program that became effective during FY 1994. A major change in the structure of the program was the merge of the former Federal Supplemental Loans for Students Program into the unsubsidized component of the Federal Stafford Loan Program, and its elimination as a separate program. FFEL now includes four components: the Federal Stafford Loan program, the Federal Unsubsidized Stafford Loan program, the Federal PLUS program, and the Federal Consolidation Loan program. Subsidized Federal Stafford Loans provide Federal reinsurance and interest subsidies on loans for eligible undergraduate, graduate and professional students. Unsubsidized Stafford loans provide reinsurance on loans for graduate and professional students, as well as independent undergraduate students. PLUS loans provide Federal reinsurance on loans to parents of dependent undergraduate students to help them meet their dependent's cost of education. Consolidation loans allow a borrower to consolidate multiple student loans into a single loan during repayment.

FFELs are available to help students who attend participating postsecondary institutions and meet the applicable eligibility criteria. Students receiving a subsidized Stafford Loan must demonstrate financial need based on the cost of education and the ability of the student or the student's family to pay this cost. The calculation of need is based on a Congressionally specified formula that analyzes the financial data of the student and/or the student's family. Unsubsidized SLS and PLUS loans are not need based and may be used to offset the student or parent borrower's expected contributions towards the cost of education.

Participation: In FY 1993, the amount of loans guaranteed by the FFEL programs was $6.2 billion. The total number of loans was 5.8 million. This compares with FY 1982 loan volume of $6.2 billion and 2.8 million individual loans. Table 1 shows the loan amount and number of loans for four of the individual FFEL programs.

Table 1

Number, Volume, and Percent of Total FFELs by Programs FY 1993

Number of Loans (in thousands) Loan Volume (in millions) Percent of Loan Volume
Stafford Loans 4,173 $12,456 69.7
Unsubsidized Stafford 425 1,015 5.7
SLS Loans 810 3,067 17.2
PLUS Loans 349 1,334 7.5
Total FFELs 5,757 17,872 100.1 1/

Source: III.1. (Based on loan commitments)

1/ Due to rounding.

Distribution By Sector: Among undergraduate borrowers, the largest percentage of awards went to those attending four-year public institutions. Borrowers attending proprietary institutions received a somewhat lower percentage of loans as did those attending private, non-profit institutions. However, borrowers attending private institutions received the largest percentage of loan dollars because of higher costs and larger average loan amount.

Distribution By Dependency Status And Income Level: The percentage distribution of Stafford Loans by type of student and family income for the 1989-90 award year was as follows:

Program Administration

Program Operations: The Federal Family Education Loan program makes below-market, variable-interest rate, long-term loans available to help students attending participating postsecondary schools. For FY 1993, the current interest rate for new Stafford and the unsubsidized Stafford Loan borrowers was the 91-day Treasury bill rate plus 3.1 percent, not to exceed nine percent. PLUS loan borrowers pay a variable annual interest rate tied to the 52-week Treasury bill rate plus 3.1 percentage points. Beginning July 1, 1994, Stafford loans were capped at 8.25 percent; PLUS was be capped at nine percent.

The program uses private loan capital supplied primarily by commercial lenders. Lenders receive interest subsidies and special allowance payments when applicable on eligible Stafford Loans to offset the below-market interest rate they charge for a Stafford Loan. Lenders do not receive interest benefits for unsubsidized Stafford or PLUS loans but may receive special allowance payments if the variable rate exceeds the applicable cap. Borrowers generally have a maximum of 10 years to repay an FFEL loan, but may receive periods of deferment or forbearance and income-sensitive or graduated-repayment options.

These loans are guaranteed by individual State or private, nonprofit guaranty agencies and are reinsured by the Federal government. Beginning with FY 1994, an administrative cost allowance (ACA) will be paid out of Direct Loan transition costs and will no longer be part of the FFEL account. Also, the reinsurance fees previously paid by guaranty agencies are eliminated.

Maximum Loan Limits: Under the Stafford Loan program, first-year undergraduate students may borrow up to $2,625 per year; second-year undergraduate students may borrow up to $3,500; third-, fourth-and fifth-year students may borrow up to $5,500; graduate or professional students may borrow up to $8,500 per year. The aggregate maximum borrowing limit for an undergraduate student in the Stafford Loan program is $23,000; graduate and professional students have an aggregate maximum borrowing limit of $65,500 which includes amounts borrowed as an undergraduate.

Under the PLUS Loan program, for loans disbursed prior to July 1, 1993, a parent may borrow an amount up to the cost of attendance. For PLUS loans in which the first disbursement is on or after July 1, 1993, the annual and aggregate loans limits have been eliminated. These loans may equal the cost of attendance less other financial aid.

For SLS loans disbursed on or after July 1, 1993, the limit is $4,000 for first or second year and $5,000 for each additional full academic year in the program. If the program remaining is less than a full year, students may borrow up to $3,325 if at least two-thirds of the year remains, and up to $1,675 if at least one third but less than two thirds of a year remains. For graduate or professional students the new limit is $10,000 per academic year with an aggregate limit of $73,000 including undergraduate SLS borrowing. This information for new loans disbursed as of July 1, 1993, is summarized in Table 2.

Table 2

Annual and Maximum Loan Limits by Program for New Loans as of July 1, 1993

First or Second Year Student Third, Fourth,or Fifth Year Student Total Program Debt Limit
Stafford Undergraduate $2,625 (1st) 3,500 (2nd) $5,500 $23,000
Stafford Graduate $8,500 $8,500 $65,500
PLUS Cost of attendance Cost of attendance Cost of attendance
SLS Undergraduate $4,000 $5,000 $23,000
Graduate $10,000 $10,000 $73,000

Source: III.1.

Student Loan Defaults: During FY 1993, the Department continued its initiative to reduce defaults. The major results of that initiative are shown below:

Type and Control Borrower Default Rate
Proprietary 30.2 %
Public 2-year 14.5
Private 2-year 14.3
Public 4-year 7.0
Private 4-year 6.4


Analyses from the National Postsecondary Student Aid Study (NPSAS), by the Department's Planning and Evaluation Service, show that:

During FY 1991, the General Accounting Office addressed aspects of the Federal Family Education Loan Program.

In Stafford Student Loans: Millions of Dollars in Loans Awarded to Ineligible Borrowers, the GAO found that ED did not use the Stafford Loan tape dump to identify student loan defaulters who were trying to obtain new loans or determine whether borrowers had exceeded legal loan limits. Their analysis indicated that loan defaulters may have received $109 million in new loans and that students received millions of dollars in loans over the legal loan limits (III.3).

In Student Loans: Characteristics of Defaulted Borrowers in the Stafford Student Loan Program, the GAO identified nine defaulter characteristics most frequently cited in published studies of defaults. These are:

  1. attended vocational/trade schools
  2. had low incomes
  3. had little financial support
  4. had minority backgrounds
  5. lacked high school diplomas
  6. failed to complete education programs
  7. attended school for one year or less
  8. borrowed small amounts
  9. were unemployed when defaulting.

Defaulter characteristics cannot be used to predict who will default. An often misunderstood fact about default is that while most defaulters have certain characteristics, the majority of borrowers with these characteristics do not default on their loans (III.4).

In Analysis of Factors Related to Default, Mathematica Policy Research, Inc., found three key results from their analyses of the 1986-1987 NPSAS study (III.6):

Management Improvement Strategies

The Omnibus Budget Reconciliation Act of 1993 incorporated numerous provisions that will enhance managment improvement strategies in the FFEL program. These include:

The Department also published a booklet, Reducing Student Loan Defaults: A Plan for Action (III.5). The booklet describes the rising cost of defaults, which types of students default, and the most common reasons for default. It also contains recommendations on what steps can be taken by postsecondary institutions, lenders, guarantee agencies, accrediting agencies, States, and the Federal Government to reduce defaults. The booklet recommends that:

As part of the Department's quality-control program, mandatory verification continued to be employed in FY 1993 to include, along with other Federal student aid programs, the FFEL program. Nationally, an overall average of 30 percent of all financial aid applications are selected for verification. Verification requires submission by students (and parents, if dependent) and review by institutions of documentation for key items in the student aid application form (such as tax forms and asset estimates). Verification and institutional documentation requirements reduce student misreporting in the program.

The Department is working on the implemention of the National Student Loan Data System. The System, when completed, will contain data on all FEEL borrowers and will allow ED to detect overpayments and ineligible borrowers before payments are made.

In 1990, the Department released a study entitled Integrated Quality Control Measurement Project. The study found that the overcertification rate attributable to institutional error in the Stafford Loan program is 6.0 percent of the dollars certified, while the overcertification rate attributable to student error is only 4.2 percent of total certification dollars (III.7).

III. Sources of Information

  1. Program files.

  2. National Postsecondary Student Aid Study 1989-90 school year. Data Files. (Washington, DC: U.S. Department of Education, National Center for Education Statistics, 1991.)

  3. Stafford Student Loans: Millions of Dollars in Loans Awarded to Ineligible Borrowers (Washington, DC: General Accounting Office, December 1990).

  4. Student Loans: Characteristics of Defaulted Borrowers in the Stafford Student Loan Program (Washington, DC: General Accounting Office, April 1991).

  5. Reducing Student Loan Defaults: A Plan for Action (Washington DC: U.S. Department of Education, August 1990).

  6. Analysis of Factors Related to Default (Washington, DC: Mathematica Policy Research, Inc., April 1991).

  7. Integrated Quality Control Measurement Project, Executive Summary (Washington, DC: Price Waterhouse, Inc., September 1990).

IV. Planned Studies


V. Contacts for Further Information

Program Operations:
Gary Beanblossom, (202) 708-8242

Program Studies:
Dan Morrissey, (202) 401-0182

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