Federal Student Loans Made Under the Federal Family Education Loan Program and the William D. Ford Federal Direct Loan Program: Terms and Conditions for Borrowers

David P. Smole
Specialist in Education Policy

The federal government operates two major student loan programs: the Federal Family Education Loan (FFEL) program, authorized under Title IV, Part B of the Higher Education Act (HEA), and the William D. Ford Federal Direct Loan (DL) program, authorized under Title IV, Part D of the HEA. These programs make available loans to undergraduate and graduate students and the parents of dependent undergraduate students to help them finance the costs of postsecondary education. Together, these programs provide more direct aid to support students' postsecondary educational pursuits than any other single source. In FY2010, it is estimated that these programs will provide more than $108 billion in new loans to students and their parents. 

Under the FFEL program, loan capital is provided by private lenders, and the federal government guarantees lenders against loss through borrower default, death, permanent disability, or, in limited instances, bankruptcy. Under the DL program, the federal government provides the loans to students and their families, using federal capital (i.e., funds from the U.S. Treasury). The two programs rely on different sources of capital and different administrative structures, but essentially disburse the same set of loans: Subsidized Stafford Loans and Unsubsidized Stafford Loans for undergraduate and graduate students; PLUS Loans for graduate students and the parents of dependent undergraduate students; and Consolidation Loans through which borrowers may combine their loans into a single loan payable over a longer term, which varies according to the combined loan balance. 

The loans made through the FFEL and DL programs are low-interest loans, with maximum interest rates for each type of loan established by statute. Subsidized Stafford Loans are unique in that they are only available to students demonstrating financial need. The Secretary of Education pays the interest that accrues on Subsidized Stafford Loans while borrowers are in school, during a six-month grace period, and during authorized periods of deferment. Unsubsidized Stafford Loans and PLUS Loans are available to borrowers irrespective of their financial need; and borrowers are responsible for paying all the interest that accrues on these loans. 

FFEL and DL program loans have terms and conditions that may be more favorable to borrowers than private and other non-federal loans. These beneficial terms and conditions include interest rates that are often lower than rates that might be obtained from other lenders, opportunities for repayment relief through deferment and forbearance, loan consolidation, and several loan forgiveness programs. 

In recent years, numerous changes to the terms and conditions of FFEL and DL program loans have been made under the College Cost Reduction and Access Act (P.L. 110-84), the Ensuring Continued Access to Student Loans Act (P.L. 110-227), the Higher Education Opportunity Act (P.L. 110-315), the 2009 technical corrections to the HEA (P.L. 111-39), and the SAFRA Act, part of the Health Care and Education Reconciliation Act of 2010 (P.L. 111-152). In accordance with provisions enacted in the SAFRA Act, federal student loans will no longer be made through the FFEL program after June 30, 2010. This report describes the terms and conditions of loans currently available to borrowers.


Date of Report: April 21, 2010
Number of Pages: 67
Order Number: R40122
Price: $29.95

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