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Higher Ed Watch

A Blog from New America's Higher Education Initiative

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The End of FFEL

Published:  March 26, 2010

A little more than 15 years ago, the Federal Family Education Loan (FFEL) program was on the verge of extinction. A Democratic president pushed Congress to phase out the FFEL and replace it with a program in which the U.S. Department of Education would provide federal loans directly to students through their colleges. The transition, however, came to a grinding halt on election night 1994. Republicans gained control of Congress and gave the FFEL program a new lease on life.

But during the intervening years, the student loan industry ran amok. When it came to power, the Bush administration put loan industry officials and lobbyists in charge of the Education Department. Meanwhile, lenders such as Sallie Mae and Nelnet showered Congressional leaders with hundreds of thousands of dollars in contributions each election cycle. The result: a virtually unregulated industry exploiting a federal program to enrich itself at the expense of students and taxpayers alike.

These were the years in which, among other things:

  • A group of lenders systematically overcharged the federal government more than $1 billion in improper 9.5 percent loan subsidy payments.
  • Student loan providers routinely violated a federal law forbidding lenders from providing "illegal inducements" to colleges and financial aid administrators in exchange for getting the schools to steer borrowers their way.
  • Loan companies used relationships they had forged with colleges and trade schools through the FFEL program to push dangerously high levels of expensive private loan debt on low-income and working-class students who had little hope of paying it back.

All the while, the direct student loan program was delivering the same federal loans to students at lower costs for taxpayers and without all the scandals.

Yesterday, Congress finally said enough is enough. We salute those policymakers in the White House and on Capitol Hill who courageously decided to put the interests of students and taxpayers first.

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