Talking Points on Costs of FFELP

 FFEL and Direct Lending Comparison

• In 1965, President Lyndon Johnson signed the Higher Education Act, which created the federal student loan program. For nearly 40 years, this unique public-private partnership of schools, students, loan providers, and the government has made the dream of college a reality for more than 50 million students and their families.
• The $400 billion provided through the private sector student loan program has helped increase the percentage of Americans with a college degree from 9% in 1965 to 27% in 2003.
• In the private sector student loan program, private companies and non-profit agencies raise the funds for student loans from the worldwide capital market.
• In 2003, the private sector student loan program raised and lent $34 billion for college loans for nearly 5 million students and their parents.
• FFELP lenders represent 74% of the total guaranteed student loan market.
• The private sector student loan program costs and defaults are the lowest rate in the history of the program. From FY 1991 to FY 2003 the cost of all entitlement spending increased by 52 percent while the cost of the private sector student loan program – which is also an entitlement program - declined by 100 percent.
• In FY 2003, private sector student loan providers managed a $214 billion student loan portfolio at no net cost to the federal government.
• Since FY 2001, the FFELP has returned more than $12 billion to the Treasury because the government had significantly overestimated the cost of this program.

• The government-run Direct Loan student loan program was created in 1993 with the promise that it would save taxpayers billions.
• After 10 years, the Direct Loan program has not saved a single dime. In fact, the Direct Loan program has spent $10.7 billion more on interest payments than it has collected in interest and fees.
• At the end of FY 2003, the Direct Loan program owed taxpayers $92 billion but had only $82 billion in outstanding student loans to cover this debt.
• Nearly $6 billion of loans in the Direct Loan program are in default.
• Unlike the private sector student loan program, which provides funding through the financial markets, the government program borrows from taxpayers.
• In FY 2003, the Direct Loan program collected $2.9 billion less in interest and fees from borrowers than it paid in interest on its borrowings from the taxpayer.
• The Direct Loan program provides about 24 percent of the federal guaranteed student loans, down from 33 percent in 1998.
• The non-partisan U.S. Government Accountability Office (GAO) found that the Direct Loan program has spent more than it has collected in fees and interest in every year since 1997.
• GAO also found that the government cannot accurately estimate how much the Direct Loan program will make or lose in any given year.
• In recent years, taxpayers have provided an additional $7 billion to the Direct Loan program because the government has significantly underestimated the cost of the program.
• Since 1998, 500 schools have left the Direct Loan program to return to the private sector student loan program.

Department of Education and President’s FY 2005 Budget

President’s FY 2005 Budget

GAO-04-567R FDLP Cost Estimates

FY 2003 Performance and Accountability Report

FY 2003 Performance and Accountability Report

GAO-04-567R FDLP Cost Estimates