Federal Family Education Loan Program

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 January 05, 2010 the program was terminated, and no subsequent loans were permitted to be made under the program after June 30, 2010.

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 Treasury.

Both federal student loan programs offer the Federal Stafford Loan 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:

Interest rates are set by law, as follows:

On 24 April 2009, President Barack Obama 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. That estimate was later downgraded to $61 billion after the Congressional Budget Office revised its estimates for 2010.

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