Support for the Continuation of Both Federal Student Loan Programs

Current Situation:

Both the Federal Family Education Loan Program (FFELP) and the William D. Ford Federal Direct Loan Program (FDLP) are authorized under Title IV of the Higher Education Act of 1965 and together make up the largest source of aid for students.  The FFELP utilizes funds from private lenders and guaranty agencies to protect the federal fiscal interest and insure the loans.  FDLP utilizes federal funds and third party, private companies for loan servicing.  Borrower terms, benefits and interest rates are essentially the same between both programs and throughout their history, parity has been encouraged.

Issues:

The existence of dual programs has been extremely beneficial to the student loan industry by fostering a healthy competition.  Since both programs have been in existence, origination fees have fallen, loan consolidation has become more beneficial to borrowers, repayment options have expanded, customer service has improved and the loan origination process has been significantly enhanced.

As schools currently have choice between programs, FDLP and FFELP administrators are constantly challenged to ensure smooth processing, constant improvement of process and appropriate response to maintain market share.

Proposed:

Continue to support both the FFELP and FDLP at their current levels.  Without the competition, it is questionable whether the improvements seen over the last few years would be maintained and extended.

Possible Objections:

Some proponents from either program argue that maintaining both programs increases costs unnecessarily.

Proponents of both programs have been able to show that each is the less costly of the two and therefore should be maintained while the other is eliminated.

Counter Argument:

Eliminating one of the programs would also eliminate competition, which would affect customer service and eventually, could result in increased student loan defaults.  Student loan defaults are bad public policy and cost taxpayers many dollars in collection, court and attorney's fees.

A true point to point independent audit of program costs would need to be completed to truly make such a comparison.