EnterChapterTitle: Federal Family Education Loan Programs
Part B of Title IV of the Higher Education Act of 1965 created
the guaranteed student loan programs. The Higher Education
Amendments of 1992 (P.L. 102-325) reauthorized the Act and
renamed the guaranteed student loan programs the Federal Family
Education Loan (FFEL) Program. Individual program names have
been changed to Federal Stafford Loans (formerly Guaranteed
Student Loans), Federal PLUS loans, and Federal Consolidation
Loans. These programs make long-term loans available to students
attending institutions of higher education, vocational,
technical, business, and trade schools, and some foreign schools.
State or private nonprofit guaranty agencies insure FFEL Program
loans and are reimbursed by the federal government for all or
part of the insurance claims they pay to lenders. The guarantee
replaces the security or collateral usually required for a
long-term consumer loan.
Although all guaranty agency programs must meet the federal
requirements discussed in this chapter, INDIVIDUAL
GUARANTY AGENCIES MAY HAVE ADDITIONAL
REQUIREMENTS. You can obtain specific information about a
guaranty agency's procedures by contacting that agency.
Appendix A of this chapter contains a list of guaranty agencies
and their addresses and telephone numbers.
Stafford Loans are available to undergraduate and graduate
students. Formerly, the Federal Supplemental Loans for Students
(SLS) Program provided loans for graduate or professional
students and for independent undergraduates; however, the SLS
Program has been merged into the unsubsidized Stafford Loan
Program. While many of the SLS Program terms and conditions
will be available through unsubsidized Stafford Loans, no new SLS
loans may be made for a period of enrollment beginning on or
after July 1, 1994. See Sections Three and Four of this chapter
for more information affecting the elimination of the SLS
Program. PLUS loans are for parents of dependent students.
Stafford, SLS, Federal Insured Student Loans (FISLs), Federal
Perkins Loans, PLUS loans, Health Education Assistance Loans,
and Health Professions Student Loans may be consolidated, if the
borrower meets certain other conditions (discussed in Section
Five). For a spousal (joint) consolidation, the borrower and his
or her spouse must meet these conditions.
New legislation and changes to FFEL Program regulations, and
other points of special interest, are highlighted in the chapter
through use of margin notes and graphics. When "Dear Colleague"
letters are used to explain changes in the FFEL programs,
reference to the appropriate Dear Colleague letter is made in the
text. For example, a "Dear Colleague" letter (GEN-94-3, January
1994) provided information about the delivery of federal student
financial aid to schools in areas designated as natural disaster
areas due to the earthquake in California.
SUMMARY OF NEW REQUIREMENTS AND INITIATIVES
Two new major pieces of legislation affect the FFEL Program for
the 1994-95 academic year and subsequent academic years. The
Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66),
sometimes known as the Student Loan Reform Act, made significant
changes to the FFEL Program, and set requirements for the
transition of the FFEL Program to the Federal Direct Student Loan
(FDSL) Program. The Higher Education Technical Amendments of
1993 (P.L. 103-208) also made major changes to the FFEL Program
by clarifying and expanding provisions of the Higher Education
Amendments of 1992.
The U.S. Department of Education (the Department) has issued
several regulations in the past year so that provisions of these
laws can be implemented. In most cases, the publication dates
and names of the regulations, published as FEDERAL REGISTER
Final Rules, are referenced throughout this chapter of the
Please note that a "work in progress" symbol is used in the
margin to alert you to provisions requiring further regulation.
**[To view these graphics please refer to the paper copy of the
THE WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM
The Student Loan Reform Act of 1993 established a new loan
program, the William D. Ford Federal Direct Loan (Direct Loan)
Program. Participation in the program began with the 1994-95
academic year with 5 percent of new Direct Loan and FFEL volume,
and increased substantially to 40 percent of new loan volume
during the 1995-96 academic year. The percentage of Direct Loan
volume will then increase gradually over the next several
academic years. A FEDERAL REGISTER notice published on
January 4, 1994 outlined the operations and procedures during the
first year of the program. A notice published July 1, 1994 explained
the repayment options and provisions available under the new
program, including a description of the Federal Direct
Consolidation Loan Program. A notice published December 22,
1994 superseded the July 1 provisions regarding income-contingent
repayment for the first year of the program. Finally, a notice
published December 1, 1994 provides program guidance for the
second and subsequent years of the program (1995-96 and beyond).
Because the Direct Loan Program is separate from the FFEL
Program, separate materials have been prepared for schools
participating in the program, and no further discussion of Direct
Loans will be provided here. If your school would like more
information about the Direct Loan Program, you may write to:
U.S. Department of Education
Office of Postsecondary Education
Direct Loan Task Force, Room 4025
600 Independence Ave. S.W.
ROB-3, Room 4025
Washington, D.C. 20202-5162
RECENT FFEL PROGRAM CHANGES
Other FFEL Program changes to note include the following:
SECTION ONE: ELIGIBILITY
- The provisions that enable a parent with an adverse
credit history to secure an endorser without an adverse
credit history in order to qualify for a PLUS Loan were
published as an FFELP Final Rule on November 29, 1994.
Definition of adverse credit history was provided in a final
regulation published June 28, 1994. Please refer to pages
10-11 and 10-12.
- The Department has developed regulations for programs
of 600 clock hours or less; these provisions were published
April 29, 1994 as an Interim Final Rule governing both
Student Assistance General Provisions and the FFEL Program.
Please refer to pages 10-13 and 10-14.
SECTION TWO: FEDERAL STAFFORD LOANS
- To account for the effect of a variable interest rate
on a student's outstanding debt, which must be repaid within
the maximum repayment period, a lender may either make
adjustments in each borrower's monthly payment amount or
must grant a mandatory administrative forbearance as
described on pages 10-23 and 10-62 of the Handbook, and in
the June 29, 1994 FFELP Final Rule (effective July 1, 1995).
The length of time for which a forbearance can be granted
under this provision has been increased to three years under
a standard or graduated repayment schedule, and to five
years under an income-sensitive repayment schedule. Please
refer to page 10-62 of Section Six, "Comparing Loan
- Changes have been made to the definition of economic
hardship deferment as a result of the provisions stated in
the FFELP Final Rule published November 29, 1994 and the
Improving America's Schools Act (IASA) enacted October 20,
1994. Details are provided on pages 10-35 to 10-36 after
the margin note "Deferments for new borrowers with loans
disbursed on or after July 1, 1993". The definition is also
found on pages 10-72 to 10-73 of Section Six, "Comparing
Loan Programs". This new definition of economic hardship
becomes effective July 1, 1995.
- New timeframes have been established for determination
of student withdrawal dates. The revised section 668.22 can
be found in the November 29, 1994 General Provisions and
FFELP Final Rule (effective date July 1, 1995). 34 CFR
668.22(j), "Refund dates," refers to students who have
officially withdrawn, have dropped out, or have failed to
return from an approved or unapproved leave of absence.
The November 29, 1994 FFELP Final Rule (a different
regulation than the one above) references the General
Provisions section; it states that a school must follow the
procedures in 34 CFR 668.22 to determine student withdrawal
and refund dates, and to report withdrawal dates to
lenders. Its effective date is also July 1, 1995.
- Finally, please note that the FFELP Final Rule
published November 29, 1994 ensures reasonable comparability
between FFEL Program and Direct Loan Program regulatory
SECTION FIVE: LOAN REFINANCING AND
- On June 29, 1994, the Department issued a regulation
providing detailed guidance to lenders concerning standard,
graduated, or income-sensitive repayment of loans. Please
refer to page 10-29 of Section Two, and page 10-53.
SECTION SIX: COMPARING LOAN PROGRAMS
- Provisions have been added that lenders must grant
mandatory forbearance to borrowers eligible for forgiveness
of a loan under the Federal Stafford Loan Forgiveness
Demonstration Program (if that program is funded), and to
borrowers eligible for partial repayment of a loan under the
Student Loan Repayment Programs administered by the
Department of Defense.
Mandatory administrative forbearance must be granted to
borrowers or endorsers residing in a geographical area which
has been designated a state or federal disaster area. It
must also be granted to borrowers or endorsers subject to
exceptional circumstances, such as a local or national
emergency or a military mobilization.
Forbearances described in the previous two paragraphs are
also listed on pages 10-61 and 10-62.
The new provisions described above are effective July 1,
- Consistent with the Bankruptcy Reform Act of 1994
enacted October 22, 1994, a borrower whose FFEL loan was
previously discharged in bankruptcy is no longer required to
reaffirm his or her loan obligation. Similarly, the
Department no longer requires borrowers to reaffirm a debt
previously cancelled due to a determination of permanent and
total disability. An explanation of changes in
reaffirmation procedures is provided on page 10-63 of the
- The Department published a Final Rule dated April 29,
1994 which clarified the eligibility criteria and
application procedures for a closed school or false
certification discharge. Please refer to page 10-64 of the
- For the purposes of consolidating a defaulted loan, the
number of payments to make under a "satisfactory repayment
arrangement" have been reduced from six to three (effective
July 1, 1995).
For clarification of what constitutes a "reasonable and
affordable payment" for reinstatement of SFA eligibility
or for loan rehabilitation, please refer to the section on
"Loan Rehabilitation" on pages 10-68 and 10-69 of the
Guidance on loan rehabilitation and on reinstatement of SFA
eligibility was provided in an FFELP Final Rule published
June 28, 1994.
SECTION EIGHT: PAYMENT TO THE STUDENT
- New timeframes regarding the disbursement of FFEL loans
by EFT or by master check are given on pages 10-95 and 10-96
of the Handbook. Regulatory guidance was provided in a
Student Assistance General Provisions and FFELP Final Rule
published December 1, 1994 (effective date July 1, 1995).
New rules regarding timeframes for second and subsequent
disbursements were provided in the same December 1
regulation cited above. For these disbursements, a school
may pay directly, or credit the account of, an enrolled
student no earlier than ten days before the first day of the
enrollment period (semester, term, or other period of
enrollment for which the disbursement is to be made). These
procedures are explained on page 10-96.
SECTION NINE: DEFAULT REDUCTION MEASURES
- Effective since October 1, 1994, before a final cohort
default rate for a school is calculated, each guaranty
agency that has insured loans for current or former students
for a school must give that school a reasonable opportunity
to review and correct errors in the information it provided
to the guaranty agency. Please refer to page 10-102.
Guidance concerning timeframes for appeal are provided in
the November 29, 1994 General Provisions regulation.
- It is now possible for institutions to file default
rate appeals based on allegations of improper loan servicing
and collection. The ability to make such an appeal was
contained in the Student Assistance General Provisions
Interim Final Rule published on April 29, 1994, effective
July 18, 1994. Comprehensive regulatory guidance was
published as a Student Assistance General Provisions Final
Rule dated November 29, 1994. More information on this type
of appeal is provided on pages 10-112 and 10-113.
SECTION ELEVEN: ADDITIONAL REQUIREMENTS AND
RESPONSIBILITIES OF SCHOOLS
- New refund policy timeframes are provided on page
10-130. As stated in the November 29, 1994 FFELP Final
Rule, a school may now make a refund to a lender within 60
days after the student's withdrawal date has been determined
under 34 CFR 668.22. (The timeframe had previously been
reduced from 60 days to 30 days.) The revised section
668.22 can be found in the November 29, 1994 General
Provisions and FFELP Final Rule (a different regulation than
the one referred to above). 34 CFR 668.22 (j), "Refund
dates", refers to students who have officially withdrawn,
have dropped out, or have failed to return from an approved
or unapproved leave of absence.
The November 29, 1994 FFELP Final Rule references the
General Provisions section; it states that a school must
follow the procedures in 34 CFR 668.22 to determine student
withdrawal and refund dates, and to report withdrawal dates
Both of the regulations referred to above have an effective
date of July 1, 1995.
GENERAL TOPIC SUMMARY OF EACH SECTION
Section One of this chapter covers borrower eligibility criteria
of particular interest to students with FFEL Program loans; more
detail on general eligibility requirements is provided in Chapter
Two of the Handbook.
Sections Two through Five cover the FFELP provisions, including a
short section (Section Five) on loan consolidation and
Section Six concentrates on elements common to all FFEL programs, and
includes some program differences.
Section Seven takes you step-by-step through the loan application
process. Section Eight covers payment of loan proceeds. Section
Nine focuses on default reduction measures, especially those
requirements that are mandatory for schools with default rates
above a given level.
Section Ten covers the requirements of loan counseling and offers
suggestions about how loan information might be presented to
students. Finally, Section Eleven covers those responsibilities
and requirements of schools that have not been addressed in