Federal Family Education Loan Program
Encyclopedia
The Federal Family Education Loan (FFEL) Program was the second largest of the U.S. higher education loan programs (Direct Loans
being the first). The FFEL was initiated by the Higher Education Act of 1965
and was funded through a public/private partnership administered at the state and local level. In 2007-08, FFEL served 6.5 million students and parents, lending a total of $54.7 billion in new loans (or 80% of all new federal student loans). Since 1965, 60 million Americans have used FFEL loans to pay for education expenses.
Following the passage of the Health Care and Education Reconciliation Act of 2010
on March 26, 2010 the program was eliminated, and no subsequent loans were permitted to be made under the program after June 30, 2010.
.
and the Federal PLUS Loan
for graduate students and for parents of dependent undergraduate students.
The main federal student loan is the Stafford Loan. There are two types of Stafford loans:
called for an end to the FFEL program, calling it a wasteful and inefficient system of "taxpayers...paying banks a premium to act as middlemen—a premium that costs the American people billions of dollars each year....a premium we cannot afford."
A Congressional Budget Office
review in July 2009 showed that if the government did the direct lending itself, rather than use private sector lenders via FFEL, it would save $80 billion over ten years.
Federal Direct Student Loan Program
The William D. Ford Federal Direct Loan Program provides "low-interest loans for students and parents to help pay for the cost of a student's education after high school. The lender is the U.S. Department of Education .....
being the first). The FFEL was initiated by the Higher Education Act of 1965
Higher Education Act of 1965
The Higher Education Act of 1965 was legislation signed into United States law on November 8, 1965, as part of President Lyndon Johnson's Great Society domestic agenda. Johnson chose Texas State University–San Marcos as the signing site...
and was funded through a public/private partnership administered at the state and local level. In 2007-08, FFEL served 6.5 million students and parents, lending a total of $54.7 billion in new loans (or 80% of all new federal student loans). Since 1965, 60 million Americans have used FFEL loans to pay for education expenses.
Following the passage of the Health Care and Education Reconciliation Act of 2010
Health Care and Education Reconciliation Act of 2010
The Health Care and Education Reconciliation Act of 2010 is a law that was enacted by the 111th United States Congress, by means of the reconciliation process, in order to amend the Patient Protection and Affordable Care Act...
on March 26, 2010 the program was eliminated, and no subsequent loans were permitted to be made under the program after June 30, 2010.
Overview of FFEL and DL
In the FFEL Program, private lenders made federally guaranteed student loans to parents and students. Commercial lenders (e.g. Sallie Mae) would use their private capital to finance loans under the FFELP but received subsidies from the federal government. These subsidies were used to maintain interest rates at the federally mandated levels, pay down fees associated with the loans and cover expenses associated with collection and defaults. The government also guaranteed a large portion of the loans, insuring private lenders against default. If a parent or student defaults, the private lender was reimbursed by the government for its losses. In contrast, under the Direct Loan program, the government lends directly to students using federal funds provided to it by the US TreasuryUnited States Department of the Treasury
The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...
.
Stafford and PLUS loans
Both federal student loan programs offer the Federal Stafford LoanStafford loan
A Stafford Loan is a student loan offered to eligible students enrolled in accredited American institutions of higher education to help finance their education...
and the Federal PLUS Loan
PLUS loan
A PLUS Loan is a student loan offered to parents of students enrolled at least half time in eligible programs at participating and eligible post-secondary institutions or graduate and professional students at participating and eligible postsecondary institutions.-Similarities with Stafford and...
for graduate students and for parents of dependent undergraduate students.
The main federal student loan is the Stafford Loan. There are two types of Stafford loans:
- Subsidized. For students who meet a financial needs test, the government pays all interest costs on behalf of borrowers while they are in school, and during grace and deferment periods. Repayment begins six months after graduation or the student withdraws to a less than half time status.
- Unsubsidized. Students who do not meet a financial needs test or who need to supplement their subsidized loans may receive unsubsidized Stafford loans. Borrowers may defer payment of interest during school, grace, and deferment periods, but they are responsible for all interest that accrues. Repayment begins six months after graduation or the student withdraws to a less than half time status.
Interest rates
Interest rates are set by law, as follows:- For most Stafford loans made before July 1, 2006: Variable rate applies (changing annually with an 8.25% cap).
- Stafford loans made beginning July 1, 2006: 6.8%.
- New subsidized Stafford loans to undergraduates beginning July 1, 2008 (per recent budget reconciliation law):
- 6.0% for a loan first disbursed between July 1, 2008, and June 30, 2009
- 5.6% for a loan first disbursed between July 1, 2009, and June 30, 2010
- 4.5% for a loan first disbursed between July 1, 2010, and June 30, 2011
- 3.4% for a loan first disbursed between July 1, 2011, and June 30, 2012
- Interest rate under the new law does not extend to loans disbursed after June 30, 2012. The rate for these new loans will revert to 6.8%. The law did not affect new unsubsidized Stafford loans. The rate remains 6.8%.
- PLUS loans made beginning July 1, 2006: 8.5% in FFEL Program; 7.9% in DL Program. For PLUS loans made before July 1, a variable rate applies (with a 9.00% cap).
Obama calls for end to FFEL
On 24 April 2009, President Barack ObamaBarack Obama
Barack Hussein Obama II is the 44th and current President of the United States. He is the first African American to hold the office. Obama previously served as a United States Senator from Illinois, from January 2005 until he resigned following his victory in the 2008 presidential election.Born in...
called for an end to the FFEL program, calling it a wasteful and inefficient system of "taxpayers...paying banks a premium to act as middlemen—a premium that costs the American people billions of dollars each year....a premium we cannot afford."
A Congressional Budget Office
Congressional Budget Office
The Congressional Budget Office is a federal agency within the legislative branch of the United States government that provides economic data to Congress....
review in July 2009 showed that if the government did the direct lending itself, rather than use private sector lenders via FFEL, it would save $80 billion over ten years.