The Role The Federal Student Loan Programs Play in Supporting Postsecondary Students

The Role The Federal Student Loan Programs Play in Supporting Postsecondary Students

Order Code RL30880
CRS Report for Congress
Received through the CRS Web
The Role The Federal Student Loan Programs
Play in Supporting Postsecondary Students
March 12, 2001
Adam Stoll
Analyst in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

The Role The Federal Student Loan Programs Play in
Supporting Postsecondary Students
Summary
The federal government operates two major student loan programs: the Federal
Family Education Loan (FFEL) program, authorized by Part B of Title IV of the
Higher Education Act (HEA) and the William D. Ford Direct Loan (DL) program
authorized by Part D of Title IV of the HEA. These programs provide loans to
undergraduate and graduate students and the parents of undergraduate students to
help them meet the costs of postsecondary education.
Under the FFEL program, loan capital is provided by private lenders, and the
federal government guarantees lenders against loss through borrower default, death,
permanent disability, or in limited instances, bankruptcy. Under the DL program, the
federal government provides the loans to students and their families, using federal
capital (i.e., funds from the U.S. Treasury). The two programs rely on different
sources of capital and different administrative structures, but essentially disburse the
same set of low-interest loans.
The federal student loan programs are the largest component of a broad, multi-
faceted federal financial aid effort. Together, federal aid programs aim to broadly
encourage qualified students to pursue postsecondary education, and to ensure that
the benefits of postsecondary education are available to qualified lower and mid
income students.
The federal student loans, like most other forms of federal financial aid, are
awarded directly to students and their families, and can be used to support students
at the postsecondary institution they choose to attend. They play an important role
in helping students meet the cost of postsecondary education and in enabling students
to choose the postsecondary institution they want to attend.
Federal student loan volume has grown steadily since the inception of federal
loans, and dramatically over the last decade. The loan programs now provide more
direct aid to support students’ postsecondary educational pursuits than any other
source of aid (federal or non-federal). In FY2000, these programs provided an
estimated $31.6 billion in new loans to students and their parents. Approximately
24% of the nation’s undergraduate students benefit from federal loans annually, and
these loans cover an average of approximately 40% of their cost of attendance.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
About This Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Introduction to Federal Student Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Situating The Federal Student Loan Programs Within the Federal Financial Aid
Effort . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Types of Federal Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Amount of Federal Aid Made Available . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Balance Between Loans and Grants . . . . . . . . . . . . . . . . . . . . . . . . . 10
Situating the Federal Student Loan Programs Within the Broader Landscape
of Student Financial Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Aggregate Levels of Aid Being Disbursed . . . . . . . . . . . . . . . . . . . . . . . . 12
Balance Between Loans and Other Sources of Aid . . . . . . . . . . . . . . 13
Who Receives Federal Loans? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
List of Figures
Figure 1. Federal Financial Aid For Students in Higher Education . . . . . . . . . . 7
Figure 2. Estimated Student Financial Aid Made Available Through
Federal Programs in FY2000 (in billions) . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Figure 3. Trends in Student Loan Borrowing in Current and Constant Dollars . 9
Figure 4. Historical Comparison of Aid Made Available Through Federal
Student Loans and Pell Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Figure 5. Estimated Student Financial Aid by Source for Academic
Year 1999-2000
(in Billions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Figure 6. Comparison of Grant and Loan Aid Made Available to Students
Through all Major Sources
(in Billions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
List of Tables
Table 1. Percentage of Undergraduates With Various Characteristics Who
Received FFEL or DL Program Federal Loans, and Average Amount
Received, Academic Year 1995-1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Table 2: Federal Aid and FFEL and DL Program Federal Loans as
Average Percentages of Total Aid Received by Undergraduate Students
with Various Characteristics Who Received FFEL or DL Loans, Academic
Year 1995-1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Table 3: Total Aid, Federal Aid, and FFEL and DL Federal Loans as
Average Percentages Cost of Attendance for Undergraduate Students
with Various Characteristics Who Received FFEL or DL Federal
Loans, Academic Year 1995-1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

The Role The Federal Student Loan
Programs Play in Supporting Postsecondary
Students
Introduction
About This Report
This report provides background information on the role that the FFEL and DL
federal student loan programs play in supporting the educational pursuits of the
nation’s postsecondary students. Specifically, it describes the role assumed by the
federal loan programs within the federal financial aid effort and within the broader
landscape of student financial aid. It also provides trend data on aid disbursed
through the loan programs and other major aid programs, as well as data on the
characteristics of current loan recipients and the extent to which loans help them meet
their cost of attendance. The report basically attempts to situate the federal student
loan programs within the broader context of student financial aid. It does not,
however, attempt to examine advantages and disadvantages associated with using
loans as a source of aid. The report will be updated only if new data become available
suggesting that an important shift has occurred in the role federal loans are playing in
supporting students.
Introduction to Federal Student Loans
The federal government operates two major student loan programs: the Federal
Family Education Loan (FFEL) program and the William D. Ford Direct Loan
(DL) program.1 These programs aim to enhance the access students from low and
middle income families have to postsecondary education by providing them with low-
interest loans.
The FFEL program, formerly named the Guaranteed Student Loan (GSL)
program, is authorized by Part B of Title IV of the Higher Education Act (HEA).

1 There is a smaller, separate, campus-based student loan program (the Federal Perkins Loan
program) that is also authorized by the Higher Education Act. The Perkins Loan program will
be discussed within the context of “campus-based” assistance later in this report.

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Under the FFEL program, loan capital is provided by private lenders, and the federal
government guarantees lenders against loss through borrower default.2
The Federal Direct Student Loan program, established in 1993, and authorized
under Part D of Title IV of the HEA, was intended to streamline the student loan
delivery system and achieve cost savings. The DL program provides the same set of
loans as the FFEL program, but uses a different administrative structure and draws
on a different source of capital. Under the DL program, the federal government
essentially serves as the banker — the federal government provides the loans to
students and their families, using federal capital (i.e., funds from the U.S. Treasury),
and owns the loans.3
While the DL program was originally introduced to replace the FFEL program,
the 1998 HEA amendments removed the provisions of the law that referred to a
“phase-in” of the DL program and those which specified the proportion of new
student loan volume to be made through the DL program in particular academic years.
Currently both programs are authorized and the two programs compete for student
loan business.
The FFEL and DL programs provide the following types of loans to students and
their parents:
! Subsidized Stafford loans: Low interest loans to undergraduate and graduate
students. The federal government “subsidizes” these loans by paying the
interest on the loans while the student is in school and during grace periods and
deferment periods. To qualify for a subsidized Stafford loan, a student must
4
establish financial need.
! Unsubsidized Stafford loans: Low interest loans to undergraduate and
graduate students. The federal government does not pay the interest on these
loans while the student is in school or during deferment or grace periods.5
Students can qualify for unsubsidized Stafford loans regardless of financial
need.
! PLUS loans: Low interest loans to parents of dependent undergraduate
students. Parents can qualify for PLUS loans regardless of financial need.
! Consolidation loans: Loans that offer borrowers refinancing options.
2 For more information on FFEL program features see CRS Report RL30636, The
Administration of Federal Student Loan Programs: Background and Provisions, by Adam
Stoll.

3 For more information on DL program features see CRS Report RL30655, Federal Student
Loans: Terms and Conditions for Borrowers, by Adam Stoll.

4 “Grace” is a 6-month period beginning immediately after a student ceases to be enrolled in
a school on at least a half-time basis, and deferment periods are periods during which
borrowers are able to suspend loan repayment (e.g., due to pursuit of additional studies, or
due to economic hardships).
5 During these periods, the borrower can begin paying the interest or it is capitalized (i.e.,
added to the loan principal).

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The Stafford and PLUS loans made to students and parents through the FFEL
and DL programs are low-interest variable rate loans with interest caps that limit the
cost to borrowers. Interest rates are determined by statutorily set market-indexed
interest rate formulas. Annual and aggregate borrowing limits are also determined by
statute.
Loans made through these programs support students pursuing postsecondary
studies on at least a half-time basis at eligible postsecondary institutions. Student
borrowers receiving loans through these programs are allowed to postpone loan
repayment until they complete their academic programs. Students are also able to
defer repaying their loans in order to pursue additional postsecondary studies.6
Situating The Federal Student Loan Programs
Within the Federal Financial Aid Effort
The federal student loan programs can trace their origins to the GSL program,
which was initially enacted in the original HEA of 1965. Over time, the HEA has
created a series of new federal student aid programs that have represented a major
boost in the federal government’s commitment to providing direct aid to
postsecondary students. It has also established an enduring set of aims for the federal
student assistance effort. Federal aid programs aim to broadly encourage qualified
students to pursue postsecondary education, and to ensure that the benefits of
postsecondary education are available to qualified lower and mid income students.
Today, the federal student loan programs work in conjunction with other federal aid
programs to achieve these aims.
In the years since the passage of the HEA, the federal government has assumed
the preeminent role in providing “direct aid” to the nation’s students and their families
(i.e., providing aid awarded directly to students and their families). This aid
complements direct aid from states and higher education institutions as well as
sources of “indirect aid” such as state and local appropriations which also play an
important role helping to subsidize students’ studies.7
Types of Federal Aid
The federal student loan programs are part of a broad multi-faceted federal effort
to provide aid to postsecondary students. Generally available federal financial aid is

6 For more information on the loans made through the student loan programs see CRS Report
RL30655, Federal Student Loans: Terms and Conditions for Borrowers, by Adam Stoll.
7 Several sources of “indirect aid” play a large role in subsidizing students’ studies. Of
particular importance are state and local government appropriations which provide more
revenue than tuition at public institutions, and gift and endowment revenues which provide
considerable revenue to private institutions. These sources of revenue enable colleges and
universities to keep tuition lower. See The Condition of Education, p. 110, NCES, 1999 for
additional information.

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disbursed in the form of loans, grants, tax benefits and college work study funds.8
The larger federal aid programs provide portable aid. This aid can be awarded to
students at any qualified institution they chose to attend. Federal financial aid is used
9
by students and their families to cover tuition and fees at postsecondary institutions
as well as other qualified expenses including room and board, books and
transportation.
Federal aid programs disburse need-sensitive aid. Applicants for federal financial
aid are required to complete the Free Application for Federal Student Aid (FAFSA).10
Information provided on the FAFSA is fed into the federal need analysis system which
is used to determine: the financial contribution the student and his or her family can
be expected to make to help cover the cost of the student’s education; the student’s
level of financial need; and the student’s eligibility for various types of federal financial
aid.
Essentially, information on family assets and income provided on the FAFSA is
processed by the Central Processing System (CPS) of the U.S. Department of
Education (ED) and used to calculate an expected family contribution (EFC) toward
postsecondary education. The EFC is transmitted to a college financial aid
administrator who compares the EFC to the student’s cost of attendance (which is
calculated in a manner specified by federal statute) and the gap between the EFC and
cost of attendance constitutes the student’s financial need. Need-based federal aid can
be awarded to help students close the gap between the EFC and cost of attendance,
and non-need based federal aid can be awarded without regard to the EFC, but may
not be awarded in sums that exceed cost of attendance minus any other aid awarded.11
The federal aid programs that provide need-based and non need-based generally
available aid to support students enrolled in postsecondary institutions include:
! The FFEL and DL programs which disburse need-based and non need-based
low interest loans to students and parents of dependent students through the
institutions of higher education the student has chosen to attend. The FFEL

8 “Generally available” aid is broadly available aid intended to encourage students to pursue
postsecondary education. In addition to generally available aid, the federal government also
provides “specially-directed” financial aid. This aid is intended to support particular types
of postsecondary educational pursuits (e.g., job-related training), or it is provided as a benefit
to individuals for pursuing specific occupations. Specially directed aid programs include:
veterans education benefits, employer educational assistance, and various loan forgiveness and
service payback programs.
9 An institution must be eligible to receive aid under Title IV of the HEA. For more
information on this see CRS Report 97-671, Institutional Eligibility for Student Aid Under
the Higher Education Act: Background and Issues, by Margot A. Schenet.

10 This requirement applies to all forms of federal aid with the exception of tax benefits which
are handled through tax filing.

11 Tax benefits are the lone form of federal aid discussed in this report that are not “awarded”
or subject to the need analysis process. For information on the determinants of eligibility for
tax benefits see CRS Report 97-915, Tax Benefits for Education in the Taxpayer Relief Act
of 1997: New Legislative Developments, by Bob Lyke.

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and DL programs are entitlement programs (i.e., funding to support loans
made through these programs is available on a permanent indefinite basis, and
loan availability is not subject to the annual appropriations process).
! The Pell Grant program which disburses grants to postsecondary students
with higher levels of financial need through the institutions of higher education
the student has chosen to attend. Pell grant awards are largely determined by
the difference between the EFC and the maximum Pell award level established
in annual appropriations legislation. Pell grants are the first form of federal
need-based aid awarded to students and in practice are directed to low-income
students.12
! The Hope Scholarship and Lifetime Learning Tax Credits which provide
13
relief from tax liability for students and their families to support students’
studies at the institutions of higher education they have chosen to attend.14
! Campus-Based Aid programs, a set of programs which disburse funds
directly to institutions of higher education and afford institutions discretion in
packaging such aid to students. The amount of aid available through th
15
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campus-based programs is affected by the annual federal appropriation levels.
Campus-based aid programs include:
Federal Supplemental Educational Opportunity Grants which
provide extra grant assistance — in addition to Pell grants — to
students with exceptional levels of financial need.
Federal Perkins Loans which provide more favorable interest-rate
benefits than FFEL and DL program Stafford loans, and are only
available to support students with exceptional levels of financial need.
12 For additional information on Pell Grants see CRS Report 97-101, Pell Grants:
Background and Issues, by Margot A Schenet.
13 The federal tax benefits discussed through the remainder of this report are the Hope
Scholarship and Lifetime Learning tax credits. It should be noted that there are additional
postsecondary education tax benefits provided by the federal government, including
educational IRAs and tax deductions on interest for qualified educational loans. These
benefits can be realized well in advance of a student’s attending a postsecondary institution
(in the case of tax exempt IRAs) which can be established before students are college age;
or well after postsecondary attendance (in the case of interest deductions) which benefit
students repaying loans years after attendance. These benefits have not been included in this
report which will only deal with aid made available to students enrolled in postsecondary
institutions.

14 Tax credits are available to families with sufficient tax liability to claim them and begin to
be phased out for families with adjusted gross incomes over $40,000 ($80,000 in the case of
a joint return). Tax credits may be claimed by taxpayers for themselves, their spouses or their
dependents. For additional information see CRS Report 97-915, Tax Benefits for Education
in the Taxpayer Relief Act of 1997: New Legislative Developments, by Bob Lyke.

15 Some constraints are placed on this discretion, relating to minimum need criteria students
must meet to be eligible for these forms of aid.

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Federal Work Study which provides funds that subsidize up to 75%
of a student’s wage for a part-time job (usually an on-campus job),
available only to students with financial need.
! Leveraging Educational Assistance Partnership program which disburses
funds to states, that are matched by the state, and awarded as state grants to
students.
Figure 1 below illustrates the methods of distribution and intended beneficiaries of
these federal aid programs.

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Figure 1. Federal Financial Aid For Students in Higher Education
Financial Aid Program
Aid Disbursement
Intended Beneficiaries
Loans to Students and Parents
FFEL and DL Program Loans
Aid disbursed directly to students to support their studies at the
Undergraduate and
institutions they have chosen to attend
Graduate Students
Stafford Subsidized Loan
Stafford Unsubsidized Loans
Aid disbursed directly to parents to support their dependent
Undergraduate
PLUS Loans
students studies at the student’s chosen institutions
Students
Grants to Students
Aid disbursed directly to students to support their studies at the
Undergraduate
Pell Grants
institutions they have chosen to attend
Students
Tax Benefits for Students and Their Families
No disbursement, relief from tax liability provided for
Undergraduate
independent students or families supporting dependent students
Hope Scholarship Tax Credit
Students
Lifetime Learning Tax Credit
No disbursement, relief from tax liability provided for
Undergraduate and
independent students or families supporting dependent students
Graduate Students
Campus-Based Aid to Institutions
Aid disbursed to institutions, which are afforded discretion in
Work Study
Undergraduate and
packaging such aid to students
Perkins Loans
Graduate Students
Supplemental Educational Opportunity
Grants
Aid disbursed to institutions, which are afforded discretion in
Undergraduate
packaging such aid to students
Students
Incentive Grants to States
Leveraging Educational Assistance
Aid disbursed as matching grants to states, and subsequently
Undergraduate and
Partnership Program
awarded to students by states
Graduate Students

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Amount of Federal Aid Made Available
Approximately two thirds of federal student aid is provided in the form of FFEL
and DL program loans. This is revealed by Figure 2 below, which depicts th
16
e
amount of generally available aid being provided through the federal aid programs in
FY2000. An estimated $31.6 billion in new loans were made available in FY2000,
accounting for roughly 66% of the $48 billion in federal aid made available to students.
Pell Grants provided roughly 17% of the federal aid; tax credits provided an estimated
11%; campus-based aid provided an estimated 6%; and LEAP provided well under
1%.
Figure 2. Estimated Student Financial Aid Made Available Through Federal
Programs in FY2000
(in billions)
$31.6
$7.9
$5.4
$3.0
$0.1
FFEL & DL Programs (66%)
Pell Grants (17%)
Tax Credits (11%)
Campus Based Aid (6%)
LEAP (<1%)

16 Data upon which Figure 2 is based come from two sources: 1) ED’s projections of student
aid to be made available through federal financial aid programs in FY2000, presented in the
Appendix of ED’s budget proposal for FY2001; and 2) The Joint Committee on Taxation’s
projections of aid to be made available through tax credits, presented in Tax Analysts Special
Report January 3, 2000: Estimates of Federal Tax Expenditures for Fiscal Years 2000-
2004. It should be noted that the data on loans represent loan volume, the data on tax credits
represent tax expenditures (i.e., tax revenue losses), and the other data presented represent
appropriations.

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As Figure 2 shows, student loans are, by a wide margin, the largest source of
17
direct federal aid to postsecondary students. From fairly early on in the evolution of
the federal student aid effort loans have been the dominant form of aid made available.
Figure 3 (below) illustrates borrowing increases that have occurred since federally
sponsored student loans first became available.18
Figure 3. Trends in Student Loan Borrowing in Current and Constant
Dollars
35
30
25
20
Billions
15
10
1992 HEA
amendments
5
0
1965-66
1969-70
1973-74
1977-78
1981-82
1985-86
1989-90
1993-94
1997-98
Academic Year
Current Dollars
Constant Dollars
Some of the growth in borrowing displayed in Figure 3 is attributable to the
increase in college attendance that has occurred over the duration of the loan
programs, as a larger percentage of the population has sought the economic
advantages associated with higher educational attainment. Increases in college costs
which have consistently out-paced inflation, also explain some of the growth in
borrowing.
19
At the same time, over the history of the federal student loan programs numerous
changes have been enacted to expand borrowing opportunities as have several

17 Figure 3 presents unpublished data from the U.S. Department of Education on annual loan
volume from the DL program and FFEL program (formerly the GSL program) in current
dollars. Current dollars reflect the actual dollar amount made available to borrowers in any
given year. Constant dollar adjustments have been made by the author. Constant dollars are
“inflation-adjusted” dollars. They reflect the value of funds in terms of 1998-1999 dollars.
The constant dollars presented in Figure 3 were calculated using a Consumer Price Index
(CPI) deflator.

18 In Figure 3 and through the remainder of this report data are presented on an academic year
basis. The academic award year spans from July 1 to June 30. Most available longitudinal
data on student aid are available on an academic year basis.
19 See Trends in College Pricing, The College Board, 2000.

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provisions to reduce costs for borrowers.20 In general, these changes have involved
making statutory adjustments to: borrower interest rates, annual and aggregate
borrowing limits, loan eligibility rules (particularly for subsidized loans), and borrower
subsidy levels. These adjustments have generally reflected an ongoing commitment to
encourage college-going by providing enhanced borrowing opportunities, and have
clearly contributed to the growth of the loan programs.
As Figure 3 illustrates, for the most part, student loan volume grew steadily over
the first 25 years of the federal student loan programs. By academic year1989-1990,
annual new loan volume had reached roughly $12 billion. Borrowing then increased
quite dramatically in the 1990s. During the period from academic year 1992-1993 to
fiscal year 1998-1999, new loan volume more than doubled, going from roughly $13
billion to more than $30 billion. Much of this growth is thought to be related to the
changes enacted in the 1992 HEA amendments which increased borrowing limits and
introduced unsubsidized Stafford loans — a move that greatly expanded the availability
of non-need based loans.
Balance Between Loans and Grants. The balance among forms of
generally available federal financial aid is often examined by comparing the balance
between Pell grants and student loans. These are the main sources of federal aid and
they represent very different approaches toward assisting students: loans require
repayment with interest; and grants (often called “gift aid”) do not require repayment.
Together Pell grants and FFEL and DL student loans currently account for
roughly 83% of generally available federal aid. Prior to the introduction of federal tax
credits in 1997 these sources accounted for a larger proportion of such aid. As Figure
4 reveals, from fairly early on in the ev
21
olution of the federal financial aid effort, loans
have been the dominant form of aid the federal government has made available, with
this trend becoming strongly accentuated after the 1992 HEA amendments.

20 Although some measures have also been enacted to reduce costs to the federal government
— sometimes at the expense of borrowers.

21 Figure 4 presents unpublished data from ED on annual student loan volume from the DL
program and FFEL program (formerly the GSL program) and on Pell grant expenditures.

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Figure 4. Historical Comparison of Aid Made Available Through Federal
Student Loans and Pell Grants
35
30
25
20
Billions
15
10
5
-
1973-74
1975-76
1977-78
1979-80
1981-82
1984-85
1986-87
1988-89
1990-91
1992-93
1994-95
1996-97
1998-99
Academic Year
Federal Student Loans
Pell Grants
The relationship between these sources of aid illustrates the relative emphasis
being placed on providing grant aid and providing borrowing opportunities. In the
aggregate, loans have long been the dominant form of federal aid made available to
students and their families. At the same time, the federal government has sustained a
strong commitment to providing grant support to students with high levels of financial
need.22

22 Maximum Pell grants in the 1999-2000 academic year cover roughly 40% of the cost of
attendance for students at public 4-year institutions and 20% of the cost of attendance for
students at private 4-year institutions. See Trends in Student Aid 2000, The College Board,
p.13.

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Situating the Federal Student Loan Programs Within
the Broader Landscape of Student Financial Aid
Aggregate Levels of Aid Being Disbursed
To gain a full appreciation of the importance of federal student loans and other
sources of federal aid, it is helpful to examine them within the broader context of total
(federal and non-federal)financial aid available to students. Figure 5 present
23
s
estimates of the amount of student financial aid provided by the nation’s major sources
of aid in academic year 1999-2000. These estimates were produced by the College
Board and presented in Trends in Student Aid 2000. According to College Board
data, in academic year 1999-2000, the federal government was the primary supporter
of direct financial aid. Aid provided through federal programs accounted for
approximately $48 billion, roughly 70% of available aid. As Figure 5 shows, FFEL
and DL program loans accounted for more aid than any other source (approximately
51%).24 The remaining aid was provided in the following manner: 19% through
institutional and other grants; 11% through Pell grants; 6% through non-federal loans
(i.e., private loans and state sponsored loans); 5% through state grants; 4% through
federal Campus-Based Aid; and 4% through other federal programs.25
23 Figure 5 is based on estimates presented in Trends in Student Aid 2000, The College
Board. College Board estimates are based on data compiled on the vast majority of state and
institutional aid as well as federal aid. Data on tax benefits, credit card financing and certain
other types of private credit/loans which may be used for financing postsecondary expenses
were not available for inclusion in the College Board study.

24 Data on the federal loan programs’ loan volume are based on estimates derived from the
National Student Loan Data System (NSLDS). NSLDS data are sampled to produce
estimates. Data sampled at different intervals in a year provide varying snapshots of the
year’s likely new loan volume — due to the “fluidity”of this database (i.e., fluctuations in
school and loan servicer reporting schedules, and fluctuations in student enrollment status).
College Board estimates of academic year 1999-2000 loan volume were produced prior to
those presented earlier in this report (in Figure 4) and for that reason do not align perfectly
with those estimates.

25 Other federal programs include military and veterans aid, LEAP, and some other relatively
small grant and loan programs.

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Figure 5. Estimated Student Financial Aid by Source for Academic
Year 1999-2000
(in Billions)
$35.2
$13.3
$7.3
$3.8
$3.6
$2.7
$2.4
FFEL and DL Programs (51%)
Institutional and Other Grants (19%)
Pell Grants (11%)
Non-Federal Loans (6%)
State Grants Programs (5%)
Federal Campus Based Aid (4%)
Other Federal Programs (4%)
Balance Between Loans and Other Sources of Aid. As borrowing has
grown in recent years (spurred primarily by growth in federal student loan volume), the
overall balance between loans and other types of aid provided to students has shifted.
College Board data spanning the major sources of federal and non-federal aid
illuminate this trend (see Figure 6). According to these data, over the last decade, the
balance between aid provided via loans and grants — the two primary source of aid
— has changed considerably. In academic year 1990-1991, loans accounted fo
26
r
approximately 48% of aid to students and grants 49%; whereas by 1999-2000 loans
accounted for an estimated 59% and grants 40%.27

26 Loan data presented in Figure 6 are from the FFEL and DL programs, the Campus-Based
Perkins Loan program, non-federal loans, and other relatively small federal loan programs.
Grant data are from the Pell and SEOG programs, LEAP, military and veterans aid, state
grants, and institutional and other grants.

27 Trends in Student Aid 2000, The College Board, p.12.

CRS-14
Figure 6. Comparison of Grant and Loan Aid Made Available to Students
Through all Major Sources
(in Billions)
45
40
35
30
25
20
15
10
5
0
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
Academic Year
Grants
Loans
In earlier years (prior to the early 1980s), grants had been the more dominant
form of aid. This comparison sheds some light on the extent to which direct student
aid nationally is focused on providing students with opportunities to invest in their
education versus providing types of assistance that require no repayment.
Proportionally, loans are becoming increasingly dominant. It should be noted,
however, that tax credits, established in 1997, and upon which trend data were not yet
available for inclusion in this comparison, constitute the third major source of aid. Tax
credits may restore more balance between loans and sources of aid that do not require
repayment.
Who Receives Federal Loans?
Having considered the FFEL and DL program loans within the broader context
of aid being made available by the federal government and the other major providers
of direct student aid, it is useful to examine who receives loans and the extent to which
loans help these students meet their cost of attendance. These issues are explored
below through analyses of nationally representative data on the financial aid provided
to postsecondary students. The data used in this examination are from the National
Postsecondary Student Aid Study (NPSAS) conducted in the 1995-1996 academic
year (which offers the most up to date available nationally representative data on
student aid).

CRS-15
The analysis presented below examines the characteristics of FFEL and DL
program loan recipients and the extent to which FFEL and DL program loans help
them cover their higher education costs. The analysis focuses exclusively on
undergraduate students. Students attending all types of public and private institutions
are included in the examination. Data presented in the tables prepared for the
examination are disaggregated by the major factors that account for variation in aid
received: attendance status; type of institution attended; and dependency status and
income level.28
Table 1 shows the percentage of the nation’s undergraduate students in a variety
of categories who received FFEL and DL federal loan aid and the amount they
received. This table enables one to examine who’s receiving loans.

28 Income categories have been constructed to correspond with some of the basic thresholds
created in aid disbursement policies. It should be noted that while the same set of income
categories are used to study both dependent and independent students, these groups of students
may differ in important ways. Dependent students’ parents’ financial resources (along with
the student’s) are used to determine their income category. Whereas, for independent students,
only their own financial resources (and a spouse’s, if applicable) are used.

CRS-16
Table 1. Percentage of Undergraduates With Various
Characteristics Who Received FFEL or DL Program Federal
Loans, and Average Amount Received, Academic Year 1995-1996
FFEL and DL
Federal Loans
(total) a
Stafford Loans
PLUS Loans
Percent
Average
Percent
Average
Percent
Average
All undergraduates
24%
4,453
23%
3,924
2%
5,902
Attendance status
Full-time
34%
4,555
33%
3,972
4%
5,937
Part-time
7%
3,658
6%
3,564
<1%
4,456
Income (dependent)
Less than $20,000
33%
3,658
32%
3,331
3%
4,053
$20,000 to $29,999
35%
3,953
34%
3,449
4%
4,739
$30,000 to $49,999
35%
4,195
34%
3,446
5%
5,086
$50,000 or more
22%
5,013
22%
3,515
5%
6,919
Income
(independent)
Less than $20,000
27%
4,574
27%
4,574
N/A
N/A
$20,000 to $29,999
15%
4,626
15%
4,626
N/A
N/A
$30,000 to $49,999
11%
4,792
11%
4,791
N/A
N/A
$50,000 or more
5%
4,676
5%
4,676
N/A
N/A
Sector
Public 2-year
6%
2,884
6%
2,852
<1%
low n b
Public 4-year
35%
4,426
35%
3,980
3%
5,273
Private 4-year
44%
5,175
43%
4,230
6%
7,455
Proprietary
53%
4,495
53%
4,037
5%
4,487
Other
19%
4,382
19%
4,050
2%
3,722

a This column presents the percentage of students having benefitted from any FFEL and DL program
loan and the average amount of loan aid they received through these programs in the 1995-1996
academic year. Students in this category may have benefitted from Stafford loans, PLUS loans, or
both.

b Too few cases for a reliable estimate.
As Table 1 shows, 24% of the nation’s undergraduates and 34% of full-time
undergraduates benefitted from FFEL or DL federal loans in 1995-1996. These loans
are an important source of aid for dependent students spanning all income categories,
and for independent students in the lower income categories. Fifty-three percent of the
undergraduates at proprietary schools, 44% of the undergraduates at private 4-year
institutions, and 35% of the undergraduates at 4-year public institutions benefitted
from FFEL and DL federal loan aid. Students attending 2-year public institutions are
much less likely to be receiving loan aid than students in all other types of institutions.

CRS-17
This is likely due to the fact that many of these students attending 2-year public
institutions do so on a less than half time basis and are therefore ineligible for most
federal loan assistance.
Table 2 shows FFEL and DL federal loans as an average percentage of the total
aid received by loan recipients. Additionally, it shows federal aid as an average
percentage of the total aid received by these students. This information allows one to
examine the role loans play in the aid packages received by various types of loan
recipients and also allows for comparisons of the relative contributions of different
types of aid.
Table 2: Federal Aid and FFEL and DL Program Federal Loans
as Average Percentages of Total Aid Received by Undergraduate
Students with Various Characteristics Who Received FFEL or DL
Loans, Academic Year 1995-1996
Federal aid as a
FFEL and DL loans as a
percentage of total aid
percentage of total aid a
All undergraduate loan
83%
68%
recipients
Attendance status
Full-time
82%
67%
Part-time
93%
79%
Income (dependent)
Less than $20,000
79%
51%
$20,000 to $29,999
77%
58%
$30,000 to $49,999
77%
68%
$50,000 or more
80%
77%
Income (independent)
Less than $20,000
89%
68%
$20,000 to $29,999
89%
74%
$30,000 to $49,999
89%
84%
$50,000 or more
91%
91%
Sector
Public 2-year
93%
76%
Public 4-year
87%
72%
Private 4-year
66%
54%
Proprietary
93%
76%
Other
85%
73%

a This column presents information on students having benefitted from any FFEL and DL program
loans in the 1995-96 academic year. Students in this category may have benefitted from Stafford
loans, PLUS loans, or both.

CRS-18
As Table 2 reveals, FFEL and DL federal loans comprise a very large percentage
of the aid received by their recipients. On average, loans account for 68% of the aid
received by these students. FFEL and DL loan aid accounted for more than half the
aid received by these students spanning all income categories, for both dependent and
independent students.
Table 3 shows the average percentage of loan recipients’ cost of attendance
covered by their total aid package, their FFEL and DL federal loans, and all federal aid
received. This table enables one to examine the extent to which federal loans and other
aid received are helping loan recipients meet their cost of attendance.
Table 3: Total Aid, Federal Aid, and FFEL and DL Federal Loans
as Average Percentages Cost of Attendance for Undergraduate
Students with Various Characteristics Who Received FFEL or DL
Federal Loans, Academic Year 1995-1996
FFEL and DL
Total aid as a
Federal aid as a
loans as a
percentage of
percentage of
percentage of
cost of
cost of
cost of
attendance
attendance
attendance a
All undergraduate loan
62%
50%
40%
recipients
Attendance status
Full-time
62%
49%
39%
Part-time
64%
59%
50%
Income (dependent)
Less than $20,000
71%
54%
34%
$20,000 to $29,999
66%
49%
35%
$30,000 to $49,999
59%
43%
37%
$50,000 or more
53%
41%
39%
Income (independent)
Less than $20,000
68%
57%
45%
$20,000 to $29,999
60%
53%
44%
$30,000 to $49,999
55%
48%
45%
$50,000 or more
47%
41%
41%
Sector
Public 2-year
59%
54%
42%
Public 4-year
65%
55%
44%
Private 4-year
65%
41%
32%
Proprietary
51%
47%
38%
Other
59%
49%
41%

a This column presents information on students having benefitted from any FFEL and DL program
loans in the 1995-96 academic year. Students in this category may have benefitted from Stafford
loans, PLUS loans, or both.

CRS-19
Table 3 shows that the financial aid received by FFEL and DL loan recipients
plays a significant role in helping them cover their cost of attendance. The average
percentage of higher education expenses covered for these students by their total aid
package is 62%. On average their FFEL and DL federal loans covered 40% of their
cost of attendance. FFEL and DL loans covered at least one third of the cost of
attendance for recipients spanning all income categories. These loans also covered at
least 32% of higher education costs for recipients across all types of institutions of
higher education