The William D. Ford Federal Direct Loan Program (also called FDLP, FDSLP, and 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 ... rather than a bank or other financial institution."
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Following the passage of the Health Care and Education Reconciliation Act of 2010, the Federal Direct Loan Program is the sole government-backed loan program in the United States. Guaranteed loans—loans originated and funded by private lenders but guaranteed by the government—were eliminated because of a perception that they benefited private student loan companies at the expense of taxpayers, but did not help reduce costs for students.
Political history
President George H. W. Bush authorized a pilot version of the Direct Loan program, by signing into law the 1992 Reauthorization of the Higher Education Act of 1965.
President Bill Clinton set a phase-in of direct lending, by signing into law the Omnibus Budget Reconciliation Act of 1993, although in 1994 the 104th Congress passed legislation to prevent the switch to 100% direct lending.
Funding for new direct loans in the Federal Direct Student Loan Program increased from $12.6 billion in 2005 to $17.8 billion in 2008.
President Obama organized all new loans under the Direct Loan program by July 2010, netting $6 billion in annual savings. The switch to 100% Direct Lending effective July 1, 2010 was enacted by the Health Care and Education Reconciliation Act of 2010.
In comparison, other countries have also experimented with government-sponsored loan programs. New Zealand, for instance, now offers 0% interest loans to students who live in New Zealand for 183 or more consecutive days (retroactive for all former students who had government loans), who can repay their loans based on their income after they graduate. This program was a Labour Party promise in the 2005 general election.
Current program size
The Federal Student Aid (FSA) loan portfolio balances were $896 billion at the end of 2012. The FSA managed $473 billion under the Federal Direct Student Loan Program at the end of 2012. New loans originated under the program during 2012 totaled $106.7 billion. Loan portfolio balances managed by the FSA for the Federal Family Education Loan Program are slowly and steadily shrinking as new loans offered to students by the U.S. Department of Education originate under the FDSL program. Most of the growth in FDSL loan portfolio balances can be attributed to new loan originations, while being the sole government program for student loans. Another contributor to the rapid escalation in loan balances is due to the cost of higher education increasing rapidly, faster than inflation. Students are spending and borrowing more to finance their higher-priced, higher education.
As of the 2015 GAO audit, the total of the Federal Student Aid loan portfolio was one trillion dollars.
Possible problems in the future
Some believe that the growth of student loan debt is reaching problematic levels. Economists point to a drag on the economy as a whole because of high levels of student debt. One way that has been suggested to help students with loan repayment is to lower interest on balances. U.S. Senator Richard Blumenthal urged, "We must reduce the student loan interest rate back to 3.4 percent immediately, and then even lower, and develop ways for past students to reduce and erase the $1 trillion in existing debt. The failure of Congress to act now threatens our all too slow and fragile economic recovery and job creation." Another way to deal with debt to income levels is to require higher learning accountability. "Only recently have government regulators demanded accountability for the educational benefits universities produce and the efficiency with which they produce them: What does college cost? How many students are admitted? How many graduate? How long does it take them to graduate? How many get good jobs? At the same time, accrediting bodies have changed their measurement emphasis from inputs and activities to outcomes...Students want not just high-paying jobs, but an acceptable ratio of starting salary to student debt. Governments likewise care not just about the number of graduates but the total cost of producing each graduate.” These questions warrant consideration in the future conversations about the Federal Student Loan Program.