Department of Education

STUDENT LOANS OVERVIEW

Fiscal Year 2015 Budget Proposal

CONTENTS

Page

Account Summary Table..............................................................................................................S-1

Program Description:

Federal Student Loans.............................................................................................................S-3

Interest Rates and Terms—By Type of Loan ..........................................................................S-4

Borrower Interest Rates By Academic Year and Program Component ..................................S-6

Student Loan Program Maximums ..........................................................................................S-7

Lender Interest Rate and Special Allowance ..........................................................................S-9

Special Allowance Related to Tax-Exempt Financing.............................................................S-9

FFEL and Direct Loans Funding............................................................................................S-10

Credit Reform Estimates........................................................................................................S-10

Program Subsidy Costs .........................................................................................................S-11

FY 2015 Budget Proposal:

Student Loan Reform Proposals ...........................................................................................S-13

FY 2015 Estimated New Direct Loan Volume .......................................................................S-15

FY 2015 Estimated Consolidation Loan Volume...................................................................S-16

The Role of Student Loans ....................................................................................................S-16

Postsecondary Cost and Enrollment by Institutional Sector..................................................S-17

FFEL Liquidating Account......................................................................................................S-19

Federal Student Loan Reserve Fund ....................................................................................S-19

Program Output Measures:

Direct Loans ...........................................................................................................................S-20

FFEL Loans............................................................................................................................S-21

Student Borrowing..................................................................................................................S-21

Borrower Average Stafford Debt and Total Debt—Academic Year 2011-2012....................S-22

Median Federal Student Loan Debt.......................................................................................S-23

Undergraduate Stafford Loan Borrower Distribution by Family Income................................S-24

Undergraduate Students by Income Category ......................................................................S-25

Loan Volume by Institutional Sector ......................................................................................S-26

Loan Volume by Subsidized and Unsubsidized Stafford Loans ...........................................S-27

Program Performance Information:

Performance Measures..........................................................................................................S-27

National Student Loan Cohort Default Rate ..........................................................................S-28

National and Perkins Loan Cohort Default Rates..................................................................S-30

FY 2015 Cohort Lifetime Dollar Default and Recovery Rates...............................................S-30
Account SummaryTable

DEPARTMENT OF EDUCATION FISCAL YEAR 2015 PRESIDENT'S BUDGET

Click here for accessible version

(in thousands of dollars) 2015

Category 2013 2014 President's

Account, Program and Activity Code Appropriation Appropriation Budget Amount Percent

Federal Direct Student Loans Program Account (HEA IV-D) 

 1. New loan subsidies (HEA IV-D) M 0 0 0 0 ---

 2. New net loan subsidy (non-add) 1 M (30,032,763) (21,585,226) (14,399,517) 7,185,709 -33.290%

 3. Upward reestimate of existing loans M 3,273,880 16,254,117 0 (16,254,117) -100.000%

 4. Downward reestimate of existing loans (non-add) M (11,425,597) (9,460,485) 0 9,460,485 -100.000%

 5. Net reestimate of existing loans (non-add) M (8,151,717) 6,793,632 0 (6,793,632) -100.000%

 6. Upward modification of existing loans 2 M 0 0 7,243,186 7,243,186 ---

 7. Downward modification of existing loans (non-add) M 0 0 0 0 ---

 8. Net modification of existing loans (non-add) M 0 0 7,243,186 7,243,186 ---

Subtotal, loan subsidies 3,273,880 16,254,117 7,243,186 (9,010,931) -55.438%

Subtotal, new loan subsidies and net reestimate/modification (non-add) (38,184,480) (14,791,594) (7,156,331) 7,635,263 -51.619%

Total M 3,273,880 16,254,117 7,243,186 (9,010,931) -55.438%

Federal Family Education Loans Program Account (HEA IV-B) 

 1. Upward reestimate of existing loans M 3,102,483 2,269,320 0 (2,269,320) -100.000%

 2. Downward reestimate of existing loans (non-add) M (9,946,125) (3,924,999) 0 3,924,999 -100.000%

 3. Net reestimate of existing loans (non-add) M (6,843,641) (1,655,679) 0 1,655,679 -100.000%

 4. Upward modification of existing loans M 0 0 0 0 ---

 5. Downward modification of existing loans (non-add) 3 M 0 (4,020,363) 0 4,020,363 -100.000%

 6. Net modification of existing loans (non-add) M 0 (4,020,363) 0 4,020,363 -100.000%

Total, FFEL Program Account M 3,102,483 2,269,320 0 (2,269,320) -100.000%

Total, new loan subsidies and net reestimate/modification (non-add) (6,843,641) (5,676,042) 0 5,676,042 -100.000%

Federal Family Education Loans Liquidating Account (HEA IV-B)

1. Pre-1992 student loans M (133,093) (177,849) (149,347) 28,502 -16.026%

NOTES: D = discretionary program; M = mandatory program; FY= fiscal year

For mandatory programs, the levels shown in the 2014 Appropriation column reflects the 7.2 percent sequester that went into effect October 1, 2013, pursuant to the Budget Control Act of 2011 (P.L. 112-25); 

the 2015 President's Budget column does not reflect a sequester in 2015. 

Detail may not add to totals due to rounding. 

1 The Budget Control Act of 2011 (P.L. 112-25) specifies a small percentage increase in the origination fee charged to students and parents for new Direct Student Loans made after the 2013 and 2014 sequester orders. 

The 2014 sequester increase is slightly higher than the one in 2013. This results in greater estimated revenue to the Federal Government. The Direct Loan levels reflect enacted legislation from the Bipartisan 

Student Loan Certainty Act of 2013 (P.L. 113-28).

2 The 2015 President's Budget reflects proposed policy expanding the income-based repayment program, Pay As You Earn (PAYE).

3 The FY 2014 amount reflects a FFEL downward modification based on the Bipartisan Budget Act (P.L. 113-67).

Compared to 2014 Appropriation

2015 President's Budget 

S-1
STUDENT LOANS OVERVIEW

S-2

Federal Family Education Loan Program (FFEL)

 (Higher Education Act of 1965, Title IV, Part B)

William D. Ford Federal Direct Loan Program (Direct Loan)

 (Higher Education Act of 1965, Title IV, Part D)

(dollars in thousands)

FY 2015 Authorization: Indefinite1

Mandatory Budget Authority:

2014 2015

 

Change

Net Loan Subsidies:

DL New Loan Subsidy2 -$21,585,226 -$14,399,517 +$7,185,709

DL Net Reestimate3 6,793,632 0 -6,793,632

DL Net Modification4 0 7,243,186 +7,243,186

 DL Total Net Subsidy5 -14,791,594 -7,156,331 +7,635,263

FFEL New Loan Subsidy2 0 0 0

FFEL Net Reestimate3 -1,655,679 0 +1,655,679

FFEL Net Modification4 -4,020,363 0 +4,020,363

 FFEL Total Net Subsidy5 -5,676,042 0 +5,676,042

____________________

Details may not sum to totals due to rounding. 

 1

 Language authorizing the loan programs beyond FY 2008 was contained in the Higher Education Reconciliation 

Act (HERA) of 2005 (P.L. 109-171). The College Cost Reduction and Access Act (CCRAA) (P.L. 110-84) amended 

loan and other Higher Education Act (HEA) programs, starting October 1, 2007. The Ensuring Continued Access to 

Student Loans Act (ECASLA) of 2008 (P.L. 110-227) provided the Government with purchase authority to buy 

Federal guaranteed student loans from lenders and ensure access to FFEL loans. The law also increased 

Unsubsidized Stafford loan limits for undergraduates. The SAFRA Act, Title II, Part A, of the larger Health Care and 

Education Reconciliation Act of 2010 (P.L. 111-152) terminated the FFEL loan program. All new student loans now 

originate in the Direct Loan (DL) program as of July 1, 2010. The Budget Control Act of 2011 (P.L. 112-25) 

generated savings by eliminating Subsidized Stafford Loans for graduate and professional students and eliminating 

most repayment incentives for all borrowers—starting July 1, 2012. The Consolidated Appropriations Act, 2012,

eliminated interest payments during the grace period for loans made in AY 2012-13, and 2013-14, and introduced a 

lender option to choose an alternative index—the 1-month London InterBank Offered Rate (LIBOR)—for determining 

special allowance. The Moving Ahead for Progress in the 21st Century Act (MAP-21) (P.L. 112-141), signed 

July 6,2012, extended the Subsidized Stafford interest rate of 3.4 percent for 1 year and limited the Subsidized 

Stafford in-school interest subsidy to 150 percent of normal program length. The Bipartisan Student Loan Certainty 

Act of 2013 (P.L. 113-28) tied student loan interest rates to the high-yield 10-year Treasury note plus a basis point 

add-on per loan type and a cap. The Bipartisan Budget Act of 2013 (P.L. 113-67) required certain reforms to the 

loan rehabilitation program including reducing guaranty agency maximum collection fees from 18.5 to 16 percent. 2 Estimated cost of loans—not applicable to FFEL which has no new loans. A program account does not show

subsidy budget authority if it is negative. Instead, it is reported (as negative outlays) in a negative subsidy receipt 

account. However, for informational purposes, amounts shown reflect estimated negative budget authority. 3

 Annual reestimates of prior loans costs to the Government are performed usually in the December timeframe. 4

 Modification: in FY 2015, reflects a DL proposal to expand and extend the Pay As You Earn repayment plan to 

all qualified student borrowers; in FY 2014, P.L. 113-67 reduced FFEL guaranty agency default collection fees. 5

 Provides a total net subsidy cost of the loan programs including positive and negative subsidies, upward and 

downward impacts of reestimates and modifications, consistent with the presentation on page S-1.
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

S-3

PROGRAM DESCRIPTION

Federal Student Loans

The Federal student loan programs provide students and their families with the funds to help 

meet postsecondary education costs. Student loans also address the important Administration 

strategic goal of ensuring the affordability, accessibility and accountability of higher education, 

and that students and adults are prepared for employment and future learning. Because funding 

for the loan programs is provided through permanent and indefinite budget authorities, for 

budget purposes, student loans are considered separately from other Federal student financial 

assistance programs. However, as part of the overall Federal effort to expand access to higher 

education, they are viewed in combination with those other programs. 

As provided by SAFRA (Student Aid and Fiscal Responsibility Act), Title II, Part A of the Health 

Care and Education Reconciliation Act of 2010, the Federal Family Education Loan (FFEL) 

program ceased making new loans as of July 1, 2010, and as of that date, the Direct Loan (DL) 

program has originated all new such loans. Federal student loans were first disbursed in the 

FFEL program in 1965. From its inception through the end of June 2010, the FFEL program 

provided almost $899 billion in student loans to postsecondary students and their parents.

The Direct Loan program, created by the Higher Education Amendments of 1992 as a pilot 

program and then expanded by the Student Loan Reform Act of 1993, has operated since 

July1, 1994. Under this program, the Federal Government provides the loan capital while loan 

origination is done by postsecondary institutions and loan servicing is handled by the 

Department through private sector contractors. The DL program began operation in academic 

year 1994-1995 with 7 percent of overall loan volume; as of July 1, 2010, the program accounts 

for 100 percent of all new loan volume. Because lenders continue to service billions of dollars in 

outstanding FFEL loans still in repayment, this description includes information on both 

programs. 

Four types of loans are available under the Direct Loan program: Subsidized Stafford, 

Unsubsidized Stafford (Unsub), PLUS, and Consolidation. Loans can be used only for qualified 

educational expenses. A financial needs test based on family income is required for an

undergraduate student to receive a Subsidized Stafford Loan. Unsubsidized Stafford, PLUS, 

and Consolidation Loans are available to borrowers at all income levels. PLUS Loans are 

available to parents of dependent undergraduate students and to graduate and professional 

students. Consolidation Loans allow borrowers to combine all their loans made under Title IV of 

the Higher Education Act—FFEL, Direct Loans, and Perkins Loans as well as some loans made 

under the Public Health Service Act—into one loan, eliminating multiple monthly payments 

during the repayment term. 

Direct Loan borrowers are charged an origination fee. Stafford and Unsubsidized Stafford Loan 

borrowers are charged an origination fee equal to 1 percent of principal. PLUS borrowers are 

charged a 4 percent origination fee. Under the special rules of the sequestration, borrower 

origination fees for Subsidized Stafford, Unsubsidized Stafford, and PLUS Loans were slightly 

increased as a cost savings mechanism to the Government. During part of fiscal year 2013,

Stafford Loan origination fees increased to 1.051 percent and PLUS Loan origination fees 
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

S-4

increased to 4.204 percent. In fiscal year 2014, based on a new sequestration order, Stafford 

Loan origination fees were 1.072 percent and PLUS origination fees were 4.288 percent. 

In the FFEL program, private lenders provided loan capital, facilitated by a Federal guarantee on 

the loans. The Federal Government also promised interest subsidies to lenders for certain 

situations, and reimbursement to guaranty agencies for most costs associated with loan defaults 

and other write-offs. State and private nonprofit guaranty agencies acted as government agents 

providing services that included insurance payments to lenders for defaults, collection of some 

defaulted loans, default avoidance activities, and counseling to schools, students, and lenders. 

There are still 30 active guaranty agencies. The Bipartisan Budget Act of 2013 eliminated the 

guaranty agencies’ current retention share of the original defaulted student loan amount, and 

reduced the maximum collection amount they can charge a borrower on a rehabilitated loan 

from 18.5 to 16 percent. Guaranty agencies also were required to send rehabilitated loans to 

the Department of Education if they could not find a private lender buyer. Some guaranty 

agencies also act as Direct Loan servicers contracted to the Department of Education, servicing 

loans under the Direct Loan program

Under the FFEL program, lenders may receive a special allowance, a type of interest subsidy 

paid by the Government to ensure a specified yield, or rate of return, on their loans. Special 

allowance payments vary by loan type (e.g., Subsidized Stafford, Unsub.), are determined 

quarterly, and are based on current borrower interest rates and market-yield formulas. For 

periods when the borrower interest rate exceeds the special allowance rate on FFEL loans made

on or after April 1, 2006, lenders remit the difference back to the Government; lenders retain the 

difference on loans made before April 1, 2006. For outstanding FFEL loans serviced by FFEL 

lenders, the guarantee percentage paid by guaranty agencies to lenders on most defaults (for 

those loans disbursed as of July 1, 2006) is 97 percent of unpaid loan principal (including any 

accrued interest on the full loan principal). 

As of July 1, 2010, the Direct Loan program originates all Subsidized and Unsubsidized Stafford 

Loans, PLUS, and Consolidation Loans. New loan volume typically reflects new borrower 

demand, and therefore does not include Consolidation loan volume, which includes older loans. 

(Consolidation loan volume is included when reporting total student loan volume.) In fiscal year 

2015, new Direct Loan volume is estimated at $102 billion and Consolidation Loans are

estimated at $27 billion, for a total of about $129 billion, accounting for about 76 percent of all 

postsecondary aid available from the Department of Education. 

Interest Rates and Terms—By Type of Loan

How interest rates on Federal student loans are set has varied over time. From inception in 

1965 to 2013, interest rates on Federal student loans were set in statute. As of July 1, 2006, the 

borrower interest rate on all Unsubsidized Stafford loans was fixed at 6.8 percent while the 

borrower interest rate on Direct PLUS loans was fixed at 7.9 percent. The CCRAA of 2007

included a phased interest rate reduction for new undergraduate Subsidized Stafford loans, with 

fixed interest rates dropping from 6.8 percent to 6.0 percent on July 1, 2008, to 5.6 percent on 

July 1, 2009, 4.5 percent on July 1, 2010, and 3.4 percent on July 1, 2011. The Moving Ahead 

for Progress in the 21st Century Act (MAP-21) (P.L. 112-141), signed July 6, 2012, extended the 

Subsidized Stafford interest rate of 3.4 percent for 1 year.
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

S-5

The Bipartisan Student Loan Certainty Act of 2013, signed on August 9, 2013, established a 

new market-based system tying rates to the high-yield 10-year Treasury bill plus a statutorily-set 

basis point add-on and set a statutory cap on those rates. Interest rates for each loan type are 

set annually before the academic year but will remain fixed for the life of the loan. The 10-year 

Treasury rate is determined each year at the Treasury bill auction held prior to June 1. 

Summaries of each loan type appear below: 

• Subsidized Stafford (Stafford) Loans are low-interest, fixed rate loans for 

undergraduates based on financial need. The Government pays the interest while 

the student is in school or deferment. The Budget Control Act of 2011 eliminated 

graduate and professional student eligibility for these loans, effective July 1, 2012. 

Normally, interest does not accrue during the 6-month grace period—when the loan 

first enters repayment. However, the Consolidated Appropriations Act of 2012 

eliminated this grace period benefit in 2 academic years, 2012-2013 and 2013-2014.

Under the Bipartisan Student Loan Certainty Act of 2013, Subsidized Stafford loans

disbursed between July 1, 2013 and June 30, 2014, will have an interest rate of 

3.86 percent based on the 10-year Treasury rate of 1.81 percent plus a statutory 

add-on of 2.05 percent. The interest rate is fixed for the life of the loan and can not 

exceed a cap of 8.25 percent. The rate for AY 2014-2015 will be set in June 2014.

• Unsubsidized Stafford (Unsub.) Loans are low-interest loans available to student 

borrowers, regardless of financial need. Interest accrues while the borrower is in 

school. Borrowers may defer payment of interest while in school and have it 

capitalized upon entering repayment. As of July 1, 2013, new Unsub. loans to 

undergraduates receive the same rate and cap as Subsidized loans. However, the 

interest rate for graduate students who receive Unsub. loans has an add-on of 

3.60 percent and a cap of 9.5 percent. For AY 2013-2014, the graduate Unsub. rate 

is 5.41 percent based on the add-on and 10-year Treasury note of 1.81 percent. The 

rate for AY 2014-2015 will be set in June 2014.

• PLUS Loans are available to parents of dependent undergraduate students and to 

graduate and professional degree students. There is no annual or aggregate limit on 

the amount that can be borrowed other than the cost of attendance minus other 

student financial aid. Generally, to be eligible, PLUS Loan applicants must not have 

an adverse credit history. The Government does not pay interest accruing on PLUS 

Loans. Under the Bipartisan Student Loan Certainty Act of 2013, the PLUS Loan 

interest rate for new loans issued between July 1, 2013 and June 30, 2014, is 

6.41 percent based on the 10-year Treasury note of 1.81 percent and an add-on of 

4.60 percent. The PLUS rate cap is 10.5 percent. 

• Consolidation Loans allow borrowers with existing Federal loans to combine their 

loans and possibly extend their repayment schedules based on their total student 

loan debt outstanding. The interest rate for Consolidation Loans is equal to the 

weighted average of the interest rates on the loans consolidated rounded to the 

nearest higher 1/8 of 1 percent, which is then fixed for the life of the loan. The 

Bipartisan Student Loan Certainty Act of 2013 eliminated the cap of 8.25 percent. 
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

S-6

Borrower Interest Rates By Academic Year and Program Component

Type of Loan Loans made on or 

after Oct. 1, 19981

Loans made on or 

after July 1, 20062

Loans made on or 

after July 1, 20133

Stafford and 

Unsubsidized 

Stafford 

91-day Treasury bill rate 

+1.7%, during in-school, 

grace, or deferment 

periods, but T-bill 

+2.3% during 

repayment; not to 

exceed 8.25%

Both types: 6.8%; only 

Stafford loans reduced:

6.0%--2008-2009

5.6%--2009-2010

4.5%--2010-2011

3.4%--2011-2012

3.4%--2012-2013

Undergrads: [Sub and 

Unsub] 10-yr Treasury 

note + 2.05%, w/cap of 

8.25%;

Grads: [Unsub] 10-yr 

Treasury note + 3.6%; 

w/cap of 9.5% 

PLUS 91-day Treasury bill rate 

+3.1%, not to exceed 

9%

Fixed rate of 7.9% for 

Direct PLUS;

increased to 8.5% 

under HERA for FFEL 

PLUS

Grad and parent: 10-yr 

Treasury note + 4.6%, 

w/cap of 10.5%.

FFEL 

Consolidation 

Loans4

Weighted average of 

the interest rates on the 

loans consolidated, 

rounded up to the 

nearest one-eighth of 1 

percent, not to exceed 

8.25%

Weighted average of 

the interest rates on the 

loans consolidated, 

rounded up to the 

nearest one-eighth of 1 

percent, not to exceed 

8.25%

N/A 

Direct 

Consolidation 

Loans-- 

Stafford and 

Unsubsidized 

Stafford

91-day T-bill rate 

+2.3%, not to exceed 

8.25% for applications 

received 10-1-98 

through 1-31-99; 

weighted avg. basis, as 

above, thereafter

Weighted avg. basis, as 

above

Weighted average of 

the interest rates on the 

loans consolidated, 

rounded to the nearest 

higher one-eighth of 1 

percent

Direct PLUS 

Consolidation

Same as Direct 

Consolidation Loans for 

Stafford and 

Unsubsidized Stafford 

Same as Direct 

Consolidation Loans for 

Stafford and 

Unsubsidized Stafford 

Same as Direct 

Consolidation Loans for 

Stafford and 

Unsubsidized Stafford 

 1 The Transportation Equity Act for the 21st Century lowered interest rates for new Stafford, Unsubsidized Stafford, 

and PLUS loans made on or after July 1, 1998, and before October 1, 1998. These rates were extended under the 

HEA of 1998 to July 1, 2003, and further extended to July 1, 2006, through P.L 107-139. 2 Interest rates from CCRAA of 2007 (P.L. 110-84). 3 Interest rates from the Bipartisan Student Loan Certainty Act of 2013 (P.L. 113-28). 4 The Emergency Student Loan Consolidation Act of 1997, which was included in the Department’s fiscal year

1998 appropriations act, temporarily changed a number of laws affecting Consolidation Loans. Under this Act, which 

expired September 30, 1998, the interest rate for FFEL Consolidation Loans made on or after November 13, 1997, 

was based on the Treasury bill--91 Day T-bill + 3.1%, not the weighted average of the interest rates on the loans 

consolidated. SAFRA Title II A, as part of the Health Care and Education Reconciliation Act of 2010 (HCERA) 

(P.L. 111-152), eliminated new FFEL Loans as of July 1, 2010. 
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

S-7

Student Loan Program Maximums

(Whole dollars)

STUDENT STATUS STAFFORD 

(Subsidized)

TOTAL (Stafford & 

Unsubsidized Stafford)

DEPENDENT 

UNDERGRADUATES

Annual Limits Annual Limits

Dependent Undergraduates:First-Year Student $3,500 $5,500 1

Dependent UndergraduatesSecond-Year Student $4,500 $6,500 1

Dependent UndergraduatesThird-Year+ Student $5,500 $7,500 1

INDEPENDENT 

UNDERGRADUATES 2,3

Stafford Total (Stafford & 

Unsubsidized Stafford)

Independent Undergraduates: First-Year Student $3,500 $9,500 1

Independent Undergraduates: Second-Year Student $4,500 $10,500 1

Independent Undergraduates: Third-Year+ Student $5,500 $12,500 1

GRADUATE STUDENTS 4 0 $20,500 

STUDENT STATUS AAggregate Limits Aggregate Limits

DEPENDENT 

UNDERGRADUATES

$23,000 $31,000 1

INDEPENDENT 

UNDERGRADUATES 2,3

$23,000 $57,500 1

GRADUATE STUDENTS 4 $23,000 $138,500 

 1 ECASLA of 2008 increased Unsubsidized Stafford amounts by $2,000 annually for loans first disbursed on or 

after July 1, 2008. Aggregate amounts for dependent undergraduates increased by $8,000 and for independent 

undergraduates by $11,500. Graduate student levels did not change.

 2 And dependent undergraduates whose parents are unable to borrow under the PLUS program.

 3 Students who qualify for only a portion of the maximum Stafford Loan limit may borrow up to the remaining loan 

amount under the Unsubsidized Stafford Loan program, with the total amount borrowed limited to cost of attendance 

minus other aid. For example, a dependent first-year student who qualifies for a $2,000 Stafford Loan would be 

eligible for an additional $3,500 in Unsubsidized Stafford up to the total of $5,500. For students borrowing under 

both programs, the loan limits displayed above in the Total (Stafford and Unsubsidized Stafford) column apply.

 For independent undergraduate students (or dependent undergraduate students whose parents cannot borrow 

under the PLUS program) and for graduate and professional students, the maximum limit during any academic year 

is: the combined Stafford and Unsub.. loan limit shown under the column entitled, "Total (Stafford and Unsubsidized 

Stafford)." For example, a second-year independent student could borrow up to $4,500 in Stafford Loans and up to 

an additional $6,000 in Unsub. Loans for a total of $10,500. Under HERA, qualified graduate and professional 

students are eligible to borrow PLUS loans, where the only limit is the cost of attendance minus other student aid.

 4 As of July 1, 2012, graduate and professional students are not eligible for Stafford Loans. Total Stafford 

Aggregate Limit of $23,000 reflects the maximum undergraduate amount, which is included in the graduate level 

cumulative limit. The aggregate loan limit for graduate students is regulated by the Secretary of Education.
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

S-8

Loan repayment plans: Students may choose from four general types of repayment plans: 

standard, graduated, extended, and income-driven. The repayment period is 10 years for 

standard, graduated, and income-sensitive repayment plans. Under Pay As You Earn (PAYE) 

and current statutory Income-Based-Repayment (IBR), the repayment period is 20 years, and 

under extended, income-based, and income-contingent repayment (ICR) plans, it is 25 years. 

The extended plan of up to 25 years is available for qualified borrowers who have outstanding 

loans totaling more than $30,000.

Income-driven plans, excluding ICR, require partial financial hardship in order to qualify for 

reduced payments—equal to 10 or 15 percent of the borrower’s annual discretionary income. 

After the end of the repayment term of an income-driven plan, qualified borrowers may have any 

remaining balance forgiven. Currently, FFEL borrowers may change repayment plans once per 

year and Direct Loan borrowers may switch between repayment plans at any time. In general, 

student loans may be discharged when borrowers die, are totally and permanently disabled, or, 

under limited hardship circumstances, declare bankruptcy.

CCRAA established the IBR plan, which capped monthly loan repayments based on borrowers’ 

income and family size. Most Stafford, Grad PLUS, and Consolidation Loans made under the 

Direct Loan or Federal Family Education Loan programs are eligible, although Consolidation 

Loans that repay Parent PLUS Loans are ineligible. Non-Federal loans, loans now in default, 

and Parent PLUS Loans are not eligible for the IBR plan. 

The IBR plan lowers monthly payments for borrowers who have high loan debt and modest 

incomes, but it may increase the length of loan repayment, accruing more interest over the life of 

the loan. Under CCRAA, monthly payment amounts under IBR were set at 15 percent of a 

borrower’s discretionary income, capped at the 10-year standard repayment plan amount, and

any outstanding balances remaining after 25 years of IBR repayments were forgiven.

To ensure that student debts are manageable, SAFRA reduced monthly payments in IBR for 

future borrowers starting in July 1, 2014, from 15 percent of a borrower’s discretionary income to 

10 percent, and reduced the maximum length of time for a borrower to receive loan forgiveness 

from 25 years to 20 years. In October 2011, the Administration accelerated these benefits for 

qualified borrowers who were new borrowers as of October 1, 2007, and had received a Direct 

Loan disbursement on or after October 1, 2011. This PAYE plan became available for eligible 

borrowers as of December 21, 2012. The 2015 Budget proposes to extend the PAYE plan 

beginning in FY 2015 to all qualified student borrowers regardless of when they borrowed and 

will tailor the program to ensure the neediest borrowers maintain their benefits. Further details 

appear under the 2015 Budget Proposal. 

Loan forgiveness: Under both FFEL and Direct Loan programs, new borrowers after October 1, 

1998, who are employed as teachers in schools serving low-income populations for 5

consecutive, complete school years, qualify for up to $5,000 in loan forgiveness; this benefit is 

increased to $17,500 for mathematics, science, and special education teachers considered 

highly qualified under criteria established in the No Child Left Behind Act of 2001.

In addition, the CCRAA of 2007 provided a public-service loan forgiveness program for nonprofit 

and public-sector employees. Eligible borrowers who make 120 qualifying payments under the 

10-year standard repayment, Income-Based Repayment, Pay As You Earn or the Income-
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

S-9

Contingent Repayment plans on their student loan debt will have any remaining loan balance 

forgiven. This benefit is only available in the Direct Loan program, though FFEL borrowers may 

access the benefit by taking out a Direct Consolidation Loan, available for all borrowers. The 

2015 Budget proposes to change some aspects of this forgiveness program, including the 

required payment plan and the limits on the amount forgiven. Further details are included in the 

2015 Budget Proposal narrative. 

Outstanding Loan Volume—September, 2013: At the end of fiscal year 2013, outstanding FFEL 

and Direct Loans totaled approximately $977 billion. This total was comprised of: 1) $585 billion 

in Direct Loans; 2) $296 billion in FFEL loans; 3) $6 billion in FFEL Liquidating Account loans; 

and 4) $90 billion in the FFEL-derived program known as Ensuring Continued Access to Student 

Loans (ECASLA of 2008) program loans. By the end of fiscal year 2014, total outstanding FFEL 

and Direct student loans are estimated at $1.03 trillion.

Lender Interest Rate and Special Allowance

Since January 1, 2000, FFEL lenders earn a guaranteed lender yield on the loans they hold and 

may receive Federal interest subsidy payments to ensure they receive this yield. The interest 

subsidy, which is called a “special allowance payment” is based on a formula in law and paid by 

the Government to lenders on a quarterly basis when the guaranteed lender yield exceeds the 

interest rate paid by a student loan borrower. The guaranteed lender yield is based on the 

average of bond equivalent rates for 3-month commercial paper during a quarter, plus a factor 

for loans in repayment, and a factor during in-school, grace, or deferment periods. Under 

current law, FFEL lenders receive the higher of the borrower interest rate or the guaranteed 

lender yield. If the borrower rate is lower than the guaranteed lender yield, the Government pays 

lenders an interest subsidy called a “special allowance.” Under HERA, for new loans made on 

or after April 1, 2006, when the borrower rate is higher than the guaranteed lender yield, lenders 

are required to rebate the difference to the Government.

Under CCRAA, the guaranteed lender yield formula factors cited above for most lenders were 

reduced by 55 basis points to 1.79 percent for loans in repayment and 1.19 percent for loans in 

an in-school, grace, or deferment period. Eligible non-profit lenders had their factor reduced by 

40 basis points to 1.94 percent for loans in repayment and 1.34 percent for loans in an in-school, 

grace, or deferment period. The Consolidated Appropriations Act of 2012 gave loan holders an 

option to make a one-time switch from the commercial paper rate to the 1-month London 

InterBank Offered Rate (LIBOR) index for determining special allowance, starting April 1, 2012. 

For PLUS loans disbursed on or after October 1, 2007, and held by for-profit lenders, the 

guaranteed lender yield is the average of 3-month commercial paper for the quarter and 1.79 

percent. For non-profit loan holders, the yield formula is the average of 3-month commercial 

paper rate and 1.94 percent. 

Special Allowance Related to Tax-Exempt Financing

Loans funded with proceeds of tax-exempt securities originally issued before October 1,1993, 

receive substantially higher special allowance payments than are currently paid on other types of 

loans. These loans have come to be known as “9.5 percent” loans for their higher special 

allowance treatment. The Taxpayer-Teacher Protection Act of 2004 temporarily limited the 
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S-10

ability of loan holders to retain these higher subsidies indefinitely by refinancing the underlying 

securities. These temporary provisions were in effect through December 30, 2005. HERA made

this change permanent and also eliminated “recycling” loans for most loan holders, thereby 

conforming these older loans to the special allowance rates paid on most other loans. 

FFEL and Direct Loans Funding 

Both FFEL and Direct Loans are mandatory programs whose costs are largely driven by Federal 

borrowing costs, defaults, repayment terms, and loan volume demand. The programs are 

funded by mandatory and indefinite budget authority and therefore do not receive annual 

discretionary appropriations. A loan subsidy—the portion of cost paid by the Federal 

Government—is calculated for each loan cohort based on accounting rules in the Federal Credit 

Reform Act of 1990, and reflects the net present value of future cash flows associated with the 

Direct Loan or FFEL guaranteed loan.

Both the FFEL and Direct Loan programs incur various administrative expenses, some of which 

are funded through mandatory appropriations within the loan programs, while most are funded 

through discretionary administrative funds outside of the loan accounts. In fiscal year 2015, the 

Administration requests $1.447 billion in discretionary funding to administer the Federal student 

aid programs in the Student Aid Administration (SAA) account. This includes $675.2 million for 

student aid administration, and $771.7 million for loan servicing activities. The 2015 SAA budget 

is discussed in the Student Aid Administration section, beginning on page AA-1.

Credit Reform Estimates 

Student loan program costs are estimated consistent with the terms of the Federal Credit 

Reform Act (FCRA) of 1990. Under the Act, future costs and revenues associated with a loan 

are estimated for the life of the loan and discounted back to the date of disbursement using 

Treasury interest rates. Costs related to pre-1992 loans in the FFEL Liquidating account and 

most Federal administrative costs are statutorily excluded from credit reform calculations. For 

FFEL, key credit reform costs include reimbursements for in-school interest benefits and special 

allowance payments to lenders, and default reinsurance payments to guaranty agencies. These 

costs can be partially or more than completely offset by various fees, negative special allowance 

payments—referred to as rebates—and collections on defaulted loans. 

In the Direct Loan program, cash transactions consist of Federal Government loan 

disbursements to students, payments of origination and other fees, and borrower loan 

repayments. Defaults and loan discharges reduce future loan repayments. In fiscal years 2013

and 2014, the Direct Loan program reflects an estimated net total negative subsidy—due in part 

to lower borrowing costs paid by the Federal Government, and the impact of the Bipartisan 

Student Loan Certainty Act. Borrower repayments and loan fees contribute to cash flows as 

collections to the Government, helping to offset Federal costs.

Federal loan programs are often compared using subsidy rates, which represent the Federal 

cost (the appropriation) as a percentage of loan originations. For Direct Loans, the overall 

weighted average negative subsidy rate was estimated to be -19.73 percent in fiscal year 2013; 

that is, the overall program on average was projected to earn about 19.73 percent on each dollar 

of loans made, thereby providing net revenue to the Federal Government.
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In an effort to reflect interest rate variability of future estimates, the Department in 2006 

implemented probabilistic scoring for the FFEL and Direct Loan programs similar to the 

Congressional Budget Office methodology. Previously, estimates were developed using point 

estimates of future interest rates. The updated method factors in the probability that a range of 

interest rate scenarios may occur and differ from current economic projections about future 

interest rates.

Program Subsidy Costs

The largest loan subsidy costs involve in-school interest benefits for borrowers and costs 

associated with borrowers who default on their loans. The Direct Loan negative subsidy costs in 

fiscal year 2015 are estimated at -$14.4 billion, and will support approximately $141 billion in 

estimated total Direct Loan gross (volume) commitments, or $129 billion in aid available (net 

commitments including Consolidation loans). Net commitments reflect loan volume after loan 

cancellations. This level reflects the new interest rate structure from the Bipartisan Student Loan

Certainty Act in 2013 as well as updated assumptions about student borrower participation in 

income-based repayment programs.

The 2015 Budget level proposes changes to the income-based repayment programs and 

reflects the new interest-rate terms from the Bipartisan Student Loan Certainty Act of 2013. The 

negative subsidy cost of the 2015 Budget policy is -$7.2 billion. The Direct Loan program 

weighted average subsidy rate is estimated to be -10.14 percent. This reflects the projection 

that, on average, the Federal Government will earn 10.14 percent on each dollar of loans 

originated in fiscal year 2015. However, subsidy rates vary significantly by loan types. For 

example, under the 2015 Budget proposal, subsidized Stafford loans have an estimated positive 

subsidy rate, which means the Federal Government will lose 5.26 percent on each dollar of 

loans originated in 2015. 

Generally, subsidy costs may reflect a combination of positive and negative subsidy by loan type 

with the relative weightings by loan type and other accounting rules determining the overall net 

positive or negative subsidy. A negative subsidy occurs when the present value of cash inflows 

to the Government is estimated to exceed the present value of cash outflows. Thus, the Federal 

Government is earning more than it is spending. Currently, the overall Direct Loan program 

reflects a negative subsidy overall but subsidy rates between the various loan types vary 

significantly. Under Federal Credit Reform Act rules, costs such as defaults and in-school 

interest benefits are embedded within the program subsidy, while Federal administration costs 

are treated on a cash basis and are not included in the subsidy rate.

A subsidy rate is the Federal portion of non-administrative costs—principally interest subsidies 

and defaults—associated with each borrowed dollar over the life of the loan. The subsidy rate 

reflects the estimated unit cost per loan, over the life of the loan, to the Federal Government. 

For example, a $1,000 loan with Federal subsidy costs of $100 would have a subsidy rate of 

10 percent. If loan subsidy costs were negative, such as -$100, the loan would have a negative 

subsidy rate of -10 percent, indicating that the Federal Government was earning 10 percent on 

each dollar of loans made instead of incurring a cost. Program changes, economic conditions, 

and borrower repayment patterns can affect subsidy estimates and reestimates.
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Annual variations in the subsidy rate are largely due to the relationship between the OMBprovided discount rate that approximates the Government’s borrowing rate, the interest rate at 

which borrowers repay their loans, as well as technical assumptions for defaults, repayment 

patterns, and other borrower characteristics. The loan subsidy estimates are particularly 

sensitive to fluctuations in the discount rate. Even small shifts in economic projections may 

produce substantial changes in the subsidy rate.

Reestimates of Subsidy Costs

Under credit reform, the Department annually reestimates the cost of all outstanding loans by 

cohort to reflect updated modeling assumptions, the President’s Budget economic assumptions,

and loan performance. The cost reestimating process for prior year cohorts reflects the 

application of the most recent economic assumptions and any statutory changes affecting 

student loans. 

For the approximately $585 billion in Direct Loans outstanding at the end of 2013, the 2015 

Budget projects that net future Federal costs in fiscal year 2013 were lower than estimated in 

last year’s President’s Budget. This total change in net future costs for all outstanding Direct 

Loans at the end of fiscal year 2013 is the 2014 reestimate. The 2014 total net upward 

reestimate of +$6.8 billion reflects an upward component of about +$16.3 billion and a

downward component of -$9.5 billion. The upward reestimate will be funded with an indefinite

mandatory appropriation in 2014.

Similarly, the total change in costs for all outstanding FFEL guaranteed loans at the end of 2013

is the 2014 reestimate. The 2014 FFEL guaranteed loan reestimate reflects an upward 

component of +$1.44 billion and a downward component of -$1.96 billion for a total net 

downward reestimate of -$0.52 billion. Thus, the estimated Federal cost of prior FFEL 

guaranteed loan cohorts (1992-2013) is now lower by $0.52 billion.

The ECASLA programs show a net downward reestimate of -$1.14 billion, which when 

combined with the FFEL guaranteed portion produces an overall net downward FFEL reestimate 

of -$1.66 billion in fiscal year 2014. This net downward FFEL reestimate in the 2015 Budget is 

due primarily to changes in economic assumptions. 

Total net FFEL and Direct Loan subsidy costs for the past 5 fiscal years are shown below:

(dollars in thousands)

Fiscal Year FFEL Direct Loans

2010 -$9,104,047 -$11,215,767

2011 -24,492,931 -27,448,992

2012 -15,011,166 -21,534,522

2013 -6,843,641 -38,184,480

2014 -5,676,042 -14,791,594

Note: Subsidy costs include net reestimates (combined upward and downward) of prior cohorts and net 

modifications, which may produce significant annual fluctuations. FFEL totals also reflect ECASLA programs.

Corresponding fiscal year loan volume totals, excluding Consolidation Loans, are shown on page S-15.
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FY 2015 BUDGET PROPOSAL

Student Loan Reform Proposals

Several new loan reforms are proposed in the 2015 Budget. In general, these student loan 

reforms will help lower costs to student borrowers, reduce debt burden, make higher education 

more affordable, and improve loan system efficiencies.

Expand and Improve the Pay As You Earn Repayment (PAYE) Plan to All Borrowers

The 2015 Budget proposes to extend PAYE to all student borrowers and reform the PAYE terms 

to ensure that program benefits are targeted to the neediest borrowers. The reforms also aim to 

safeguard the program for the future, including by protecting against institutional practices that 

may further increase student indebtedness. The most substantial change will be to expand 

PAYE to all student borrowers, regardless of when they borrowed. In addition, to simplify 

borrowers' experience while reducing program complexity, PAYE would become the only 

income-driven repayment plan for borrowers who originate their first loan on or after 

July 1, 2015, which would allow for easier selection of a repayment plan. Students who 

borrowed their first loans prior to July 1, 2015, would continue to be able to select among the 

existing repayment plans (for plans for which they now qualify and for loans originated through 

their current course of study), in addition to the modified PAYE.

The Budget proposes additional changes to PAYE to include:

• Eliminating the standard payment cap under PAYE so that high-income, high-balance 

borrowers pay an equitable share of their earnings as their income rises;

• Calculating payments for married borrowers filing separately on the combined household 

Adjusted Gross Income;

• Capping Public Sector Loan Forgiveness (PSLF) at the aggregate loan limit for 

independent undergraduate students to protect against institutional practices that may 

further increasestudent indebtedness, while ensuring the program provides sufficient 

relief for students committed to public service;

• Establishing a 25-year forgiveness period for borrowers with balances above the 

aggregate loan limit for independent undergraduate students ;

• Preventing payments made under non-income driven repayment plans from being 

applied toward PSLF to ensure that loan forgiveness is targeted to students with the 

greatest need; and

• Capping the amount of interest that can accrue when a borrower’s monthly payment is 

insufficient to cover the interest to avoid ballooning loan balances.
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Despite the generous benefits, income-based repayment take-up rates have been very low but 

have grown significantly over the past 2 years. It appears that the vast majority of borrowers are 

unaware of income-based or other repayment options. Starting in 2013, the Department has 

contacted struggling borrowers to make sure they are aware of these new options, and ensure 

that they have the information they need to choose the best option for them. The Department 

has also streamlined the application process for the income-based repayment plans. For the 

2015 Budget, the Department will continue its outreach to all borrowers to ensure that they have 

the necessary information to choose the repayment that is right for their circumstances.

Modernize and Expand Perkins Loan Program

Current annual loan limits in the Federal student loan programs are inadequate for some 

students. As a result, the 50-year-old Perkins Loan program has served as a supplementary 

source of low-interest loans. However, the program is too small and its current structure is 

inefficient and inequitable. Loans are serviced directly by institutions at considerable cost, and 

students at many institutions often have little or no access to the program.

The Administration proposes reforming and expanding the current Perkins Loan program into a 

new Perkins Loan program which would provide up to $8.5 billion in new loan volume annually, 

as well as increasing the existing number of approximately 1,700 participating institutions by up 

to an additional 2,700 postsecondary institutions. As part of an overall campus-based aid 

reform, the Department would allocate Perkins loan volume to those institutions based on their 

students’ financial needs and their record in enrolling and graduating higher numbers of Pelleligible students, and offering an affordable and quality education such that graduates can repay 

their educational debt. Institutions would retain flexibility in awarding loans among their students 

and determining student eligibility. The Department would service the new Perkins Loans, as it 

does other Direct Loans. 

Under the Administration’s proposal, the Department would set the interest rate on Perkins 

Loans at the same annually determined interest rate that applies to Unsubsidized Stafford 

Loans: that is, the Perkins Loan interest rates would be determined each year based on the 

then-prevailing 10-year Treasury Note plus an add-on of 2.05 percentage points for 

undergraduate students and 3.60 percentage points for graduate students. Loan limits for both 

undergraduate and graduate students would remain the same as in the current Perkins program.

The 2015 estimated 10-year savings of $6.3 billion would be reinvested in the Pell Grant 

program to provide funding to maintain the maximum award in future years.

Modify Automatic Dialing System Procedures for Debt Collection

The Administration proposes modifying current law regarding the use of automatic dialing 

systems and prerecorded voice messages to contact wireless phones in the collection of debt 

owed to or granted by the Federal Government. This approach is consistent with the legal 

authority for automatic dialing for land-line phones. The Department employs many tools to 

assist borrowers in avoiding the negative consequences of default by offering numerous, 

affordable loan repayment options, including PAYE and other income-driven repayment plans.
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FY 2015 Estimated New Direct Loan Volume 

New loan dollar volume has increased significantly since 1992, especially from 2007 to 2011, but 

has been slowing since then. In general, Stafford and Unsubsidized Stafford loans account for 

about 80 percent of new Direct Loan volume, with PLUS loans accounting for approximately 

20 percent. This table shows actual, and estimated, new loan volume, excluding Consolidation 

Loans, for fiscal years 2010-2015.

New Student Loan Volume (Non-Consolidation)

Program Volume1 FY2010 FY2011 FY2012 FY20132 FY20142 FY20152

New Loan Volume

($ in millions)

New Loan Volume:FFEL $19,618 0 0 0 0 0

New Loan Volume:Direct Loans 80,710 $109,894 $104,451 $101,256 $99,647 $101,555

New Loan Volume:Total 100,328 109,894 104,451 101,256 99,647 101,555

Number of Loans 

(thousands)

2008 2009 2010 2011 20121 20131

Number of loans:FFEL 5,220 0 0 0 0 0

Number of loans:Direct Loans 16,617 24,079 21,893 20,241 19,240 19,086

Number of loans:Total 21,837 24,079 21,893 20,241 19,240 19,086

Notes: Details may not sum to totals due to rounding. Loan volume and number of loans reflect net commitments. 1 Includes Subsidized and Unsubsidized Stafford Loans, and PLUS loans originated in each fiscal year. 2 Estimated.

Many factors such as college costs, legislative changes, eligibility changes, State aid, Federal 

aid, economic conditions, and enrollment demographics may interact to affect new loan demand. 

Historical loan volume data and current projections are shown below. 

 New Student Loan Volume (Non-Consolidation)

0

20

40

60

80

100

120

'92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

Fiscal Year

$ (Billions)
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FY 2015 Estimated Consolidation Loan Volume 

Direct Loan Consolidations are estimated at almost $27 billion in fiscal year 2015. A spike in 

new Consolidation Loan volume occurred in 2012 due to a special one-time only 6-month period 

(January – June 2012), when borrowers in repayment who had both a FFEL and a Direct Loan 

had an interest rate reduction incentive to consolidate their loans. Repayment incentives 

included the regular 0.25 percent interest rate reduction for electronic payment and an additional 

0.25 percent rate reduction on each of the loans repaid by the special Direct Consolidation Loan.

Consolidation Loan Volume

0

10

20

30

40

50

60

70

80

'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

Fiscal Year

Volume: $ Billions

FFEL

Direct Loans

Consolidation Loan trends reveal how a favorable interest rate environment and highly 

competitive lender marketing helped to drive new consolidations. A dramatic surge in FFEL 

Consolidation Loan volume occurred from fiscal year 2001 to fiscal year 2006, rising from 

$9.4 billion in 2001 to $22.9 billion in 2002, and to a record high $72.5 billion in 2006. FFEL 

volume then declined, but remained high at $47.3 billion in 2007. From fiscal year 2001 to fiscal 

year 2006, Direct Loan Consolidation Loan volume also increased significantly, growing from 

$7.8 billion to over $19 billion. Borrowers in both programs sought to lock-in lower interest rates 

through consolidation, prior to the annual variable in-repayment interest rate jumping from 

5.3 percent to 7.14 percent as of July 1, 2006. Based on SAFRA, no new Consolidation Loans 

could be made in the FFEL program, as of July 1, 2010, although FFEL Consolidation activity 

had already slowed by that time.

The Role of Student Loans

A major goal of the Federal student aid programs is to assist families in meeting college costs. 

Federal student loans play a key role along with grants and college work-study funds, as well as 

Federal student aid tax credits. The chart below shows these key areas. Overall, Federal 
STUDENT LOANS OVERVIEW

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S-17

student loans constitute the largest component of the Federal postsecondary aid system. Data 

show new Federal student loans (not including Consolidation Loans ) accounted for about 

60 percent of academic year (AY) 2012-2013 student aid. This data is based on Table 1 in the 

“College Board Trends in Student Aid 2013” (Student Aid Trends) online report,

http://trends.collegeboard.org/student-aid.

Federal Postsecondary Assistance: Academic Year 2012-2013

Federal student 

loans

60%

Federal 

education tax 

credits

12%

Federal grants 

and work-study

28%

According to that report, approximately $247 billion in total funds from Federal, State, 

institutional, and private sources were used to finance postsecondary expenses for AY 2012-

2013. The Federal Government provided about 69 percent of all these funds, while State, 

institutional, and private sources (i.e., non-Federal) provided about 31 percent. Of the total 

Federal funds, about 60 percent supported student loans. 

Private sector loans, most often available through commercial banks, increased from $8.9 billion 

(using constant 2012 dollars) in (AY) 2002-03 to a peak of $23.2 billion in AY 2007-08, but have 

declined to about $7.2 billion in AY 2012-13. Private sector loans accounted for about 

6.7 percent of all postsecondary aid in 2002-03, 12.5 percent in 2007-08, and just 2.9 percent in 

AY 2012-13. Meanwhile, over these same time periods, Federal loans accounted for 

approximately 41 percent of all postsecondary student aid.

Postsecondary Cost and Enrollment by Institutional Sector

The 2013 “College Board Trends in College Pricing” report shows that the average total cost of 

attendance, including tuition and fees and room and board (in current dollars) at a 4-year private 

college increased 57 percent from $26,057 in 2003-04 to $40,917 in 2013-14 (see Table 2, 

http://trends.collegeboard.org/college-pricing). Over the same 10-year period, the average total 

cost at a 4-year public college increased 75 percent, from $10,530 to $18,391. Table 2 shows 

that in constant 2013 dollars, after adjusting for inflation, private 4-year college costs increased 

about 25 percent from $33,098 to $40,917, while public 4-year college costs increased about 

37 percent from $13,376 to $18,391 during this same 10-year period.
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According to the National Center for Education Statistics (NCES) 2008 report, “Trends in 

Undergraduate Borrowing II: Federal Student Loans in 1995-96, 1999-2000, and 2003-04,” the 

demand grew for both Subsidized and Unsubsidized Stafford Loans. This report analyzed 

several National Postsecondary Student Aid Study (NPSAS) data sets over time and found that,

in 1995-96, 25 percent of all undergraduates received either a Subsidized or an Unsubsidized 

Stafford Loan, or both. By 2003-04, this measure increased to 33 percent and data available 

from the 2008 NPSAS shows it increased to 34.5 percent. The National Center of Education

Statistics (NCES) released data from the 2012 NPSAS showing further growth to 40.1 percent. 

Federal borrowing for Stafford Loans varies considerably by type of undergraduate school 

attended. Based on the 2012 NPSAS, students at for-profit schools had the highest reported 

percentage of borrowers (74.5 percent) while those at 2-year public institutions, primarily 

community colleges, had the lowest (16.7 percent). 

NPSAS reports undergraduate Stafford borrowing at 4-year schools according to whether the 

universities grant doctorate or non-doctorate degrees. In general, the percentage of 

undergraduates who borrowed a Stafford loan at 4-year public universities ranged from 

37.4 percent for a non-doctoral degree granting institution to 53.4 percent for a doctorate degree 

granting institution and private 4-year schools reported a range of 61.3 to 73.1 percent of 

undergraduates borrowing Stafford loans.

Using undergraduate enrollment data from the Department’s Integrated Postsecondary 

Education Data System (IPEDS), the College Board’s 2013 “Trends in Student Aid” report

estimates student full-time equivalency (FTE) patterns. This provides perspective on which 

institutions undergraduates choose to attend. For the latest enrollment data (fall 2012), the 2013 

report estimates about 41 percent of all undergraduate students were enrolled at 4-year public 

institutions, while 17 percent were enrolled at 4-year private nonprofit institutions. Some 

30 percent of all undergraduates were enrolled at 2-year public colleges and about 12 percent 

were enrolled at private for-profit schools.

Fall 2012 Undergraduate Enrollment (Percent of FTE)

Public 4-Year

41%

Private Nonprofit 

4-Year

17%

For-Profit

12%

Public 2-Year

30%
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FFEL Liquidating Account

The cost of FFEL student loan commitments made prior to fiscal year 1992 (the implementation

of credit reform) is appropriated annually under indefinite authority and shown in a Liquidating 

Account on a cash basis. This account does not issue any new loans, nor estimate loan-lifetime 

costs by cohort, and does not use a net present value calculation. The Liquidating Account pays 

for pre-1992 student loan activities, such as loan default payments, special allowance payments, 

and interest benefits. Consequently, as default and in-school interest costs on these older loans 

decline over time, and recoveries on defaulted loans continue to be collected, annual 

revenues—offsetting collections—will more than offset annual costs, resulting in negative 

program costs for which no new budget authority is needed. In the 2015 Budget, total net 

outlays are estimated to be -$178 million in fiscal year 2014 and -$149 million in fiscal year 2015, 

a net budget savings in each year. A portion of these collections is returned to the U.S. 

Treasury as a capital transfer each year.

Federal Student Loan Reserve Fund

The Higher Education Amendments (HEA) of 1998 clarified that reserve money held by public 

and non-profit guaranty agencies participating in the FFEL program are Federal property. These 

funds are used to pay default claims from FFEL lenders, as well as other claims related to death, 

disability, bankruptcy, and closed schools. This fund, the Reserve Fund, also pays fees to 

support successful guaranty agency efforts to avert defaults. Federal payments reimbursing 

agencies for default claim payments are paid into these funds. 

The FY 2002 President’s Budget clarified that the Reserve Fund should be included on-budget. 

As required by law, the Reserve Fund returned $1.085 billion to the Treasury in fiscal year 2002. 

This transfer of funds occurred under a scheduled recall of $1 billion in reserves mandated by 

the 1997 Balanced Budget Act, and the return of an additional $.085 billion in reserves, required 

by the HEA of 1998. 

The Reserve Fund began fiscal year 2013 with an adjusted balance of about $1.3 billion. The 

Fund’s major revenues are primarily reinsurance payments from the Federal Government and its 

major expenses are insurance payments to lenders. These and other cash flows are estimated 

to result in an ending balance in fiscal year 2013 of about $1.2 billion that becomes the Reserve 

Fund starting position for fiscal year 2014. When new FFEL loans were eliminated, the fund 

ceased to collect revenues related to new originations. Consequently, the Reserve Fund annual 

account balances are projected to decline in future years.
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PROGRAM OUTPUT MEASURES

Direct Loans

Loan Type FY 2013 FY 2014 FY 2015

Direct Stafford Loans:

Direct Stafford: Loan volume ($ in millions)

1 $27,398 $26,226 $25,984

Direct Stafford Number of loans (in thousands) 8,525 8,069 7,944

Direct Stafford Average loan (whole $) $3,214 $3,250 $3,271

Direct Stafford Subsidy rate2 9.68% -0.44% 5.26%

Direct Unsubsidized Stafford Loans (Undergraduate):

Direct Unsubsidized:Loan volume ($ in millions)

1 $29,033 $28,099 $28,324

Direct Unsubsidized:Number of loans (in thousands) 8,455 8,006 7,954

Direct Unsubsidized:Average loan (whole $) $3,434 $3,510 $3,561

Direct Unsubsidized:Subsidy rate2 -10.53% -14.12% -10.53%

Direct Unsubsidized Stafford Loans (Graduate):

Direct Unsubsidized:Loan volume ($ in millions)

1 $26,841 $26,564 $27,452

Direct Unsubsidized:Number of loans (in thousands) 1,953 1,856 1,871

Direct Unsubsidized:Average loan (whole $) $13,740 $14,314 $14,676

Direct Unsubsidized:Subsidy rate2 -17.75% -28.44% -24.66%

Direct PLUS Loans (Undergraduate):

Direct Unsubsidized:Loan volume ($ in millions)

1 $10,258 $10,815 $11,482

Direct Unsubsidized:Number of loans (in thousands) 821 826 833

Direct Unsubsidized:Average loan (whole $) $12,492 $13,087 $13,787

Direct Unsubsidized:Subsidy rate2 -23.17% -32.95% -27.44%

Direct PLUS Loans (Graduate): 

Direct PLUS: Loan volume ($ in millions)

1 $7,726 $7,943 $8,313

Direct PLUS: Number of loans (in thousands) 486 484 485

Direct PLUS: Average loan (whole $) $15,894 $16,427 $17,141

Direct PLUS: Subsidy rate2 -26.16% -42.60% -37.74%

Direct Consolidation Loans:

Direct Consolidation:Loan volume ($ in millions)

1 $27,503 $25,447 $26,963

Direct Consolidation:Number of loans (in thousands) 670 511 523

Direct Consolidation:Average loan (whole $) $41,080 $49,823 $51,554

Direct Consolidation:Subsidy rate2 -7.10% -3.83% 6.65%

Total Direct Loans:

Total Di: Loan volume ($ in millions)

1 $128,759 $125,094 $128,518

Total Dire ct Number of loans (in thousands) 20,910 19,751 19,609

Total DirectAverage loan (whole $) $6,158 $6,334 $6,554

Subsidy Cost

Total DirectNew loan subsidy cost ($ in millions)

3 -$30,033 -$21,585 -$14,400

Total Direct Subsidy Net Reestimate ($ in millions)

3 -8,152 6,794 0

Total Direct Net Modification ($ in millions)

3 0 0 7,243

 DL Total Net Subsidy ($ in millions) -38,185 -14,792 -7,156

Total Direct Average Weighted Subsidy rate2 -8.82% -15.64% -10.14%
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S-21

Outstanding Loan Volume ($ in billions): FY 2013 FY 2014 FY 2015

 Total Direct Loans Outstanding4 $585 $680 $770

NOTES: Details may not sum due to rounding.

Subsidy amounts in fiscal years 2013, 2014, and 2015 reflect enacted interest rate legislation (P.L. 113-28). 1 Net commitments (disbursements) which are less than amounts committed (e.g., due to loan cancellations). 2 This rate generally reflects the Federal cost per new loan dollar. When negative, this rate indicates a net gain to 

the Federal Government. For fiscal year 2013 only, subsidy rates include the actual executed rates and the effect of 

the 2014 reestimate on those rates. 3 Subsidy amounts of existing loans are estimated on a net present value basis. Negative subsidy results in a net 

gain to the Federal Government. Net reestimates and modifications may reflect both upward and downward 

amounts—consistent with data on page S-1. Fiscal years 2013 and 2014 reflect the 2013 and 2014 sequesters. 4 Reflects total Direct Loan principal (including Consolidations) as end-of-year estimate.

FFEL Program Loans

There are no new FFEL loans, only the FFEL annual reestimates and in some cases, subsidy 

modifications, are presented below.

 

FFEL Loans

oan type FY 2013 FY 2014 FY 2015

Subsidy Cost

Total FFEL Net subsidy cost ($ in millions)

1 0 0 0

Total FFE Subsidy Net Reestimate ($ in millions)

1 -$6,844 -$1,656 0

Total FFEL Net Modification ($ in millions $)1 0 -4,020 0

TFFEL Total Net Subsidy ($ in millions) -6,844 -5,676 0 Total FFEL

Outstanding Loan Volume ($ in billions):

Outstanding: Total FFEL Loans $296 $262 $230

 Total ECASLA Loans 90 81 69

Outstanding: Total Liquidating Account Loans 6 5 5

 Total Combined Outstanding Loan Volume2 392 348 304

NOTES: Details may not sum due to rounding.

 1 Subsidy amounts are estimated on a net present value basis and since no new loans are made, only net 

reestimates and modifications are reported. Reestimates and Modifications may reflect both upward and downward 

amounts—consistent with data on page S-1. 2 Reflects total FFEL and Liquidating account loan principal (including Consolidations) as end of year estimate.

Student Borrowing

Students rely on the Federal loan programs to help close the gap between what their families 

can afford to pay (“estimated family contribution”) and the cost of attendance (including tuition, 

fees, and room and board). Based on the 2008 NPSAS, slightly over 60 percent of college 

seniors who graduated in 2007-2008 from a 4-year institution reported borrowing a Federal loan 

at some point in their undergraduate studies, whereas in the 2012 NPSAS, approximately 

66 percent of college seniors reported having borrowed during their undergraduate years.
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S-22

Data available from the 2008 and 2012 NPSAS show that for those seniors who borrowed, the 

average cumulative Stafford Loan debt (including subsidized and unsubsidized loans) owed by 

“graduating seniors” in 2007-2008 at 4-year undergraduate schools was $17,063, while in 

2011-2012 it was $24,006—an increase of 41 percent. The average cumulative total debt for 

graduating seniors, including private student loan debt, reported in the 2008 NPSAS, was 

$23,118, while in the 2012 NPSAS, average cumulative total debt reported was $29,384—an 

increase of 27 percent.

The following table, based on data from the 2012 NPSAS, provides a snapshot of the average 

Stafford Debt and average Total Debt (which could include private student loans) by Associate’s 

and Bachelor’s degrees for each school sector for students completing their educational 

programs in 2011-2012. As seen in the table, debt levels may vary considerably by institutional 

sector and credential.

Borrower Average Stafford Debt and Total Debt—Academic Year 2011-2012

Degree and School Sector Avg. Stafford Debt Avg. Total Debt

Associate’s: Public $4,594 $5,888

Associate’s: Private Not-for-Profit $17,229 $21,986

Associate’s: Proprietary $18,521 $21,795

Bachelor’s: Public $13,146 $16,435

Bachelor’s: Private Not-for-Profit $16,726 $23,753

Bachelor’s: Proprietary $29,985 $34,922

Note: Average Stafford (subsidized and unsubsidized) and total debt amounts reflect only 

program completers and include nonborrowers. Therefore, averages reflect all students by 

sector, including those with no loans.
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Median Federal Student Loan Debt

As shown below, data from the National Student Loan Data System (NSLDS) reveals that the 

median level of cumulative Federal borrowing (i.e., Stafford and Unsubsidized Stafford Loans) 

per student for all undergraduate borrowers upon entering repayment has increased 

substantially over time. Cumulative Federal debt for undergraduates increased from $3,560 in 

1990, to almost $9,000 in 2000, and $14,499 for those who entered repayment in 2012. 

Median Undergraduate Federal Student Loan Debt When Entering Repayment

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Debt Level: Whole Dollars

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

Enter Repayment Fiscal Year 
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Undergraduate Stafford Loan Borrower Distribution by Family Income

The Subsidized Stafford Loan is a need-based loan program that goes mainly to lower- and 

middle-income students, as demonstrated in the table below. Unsubsidized Stafford Loans are 

not need-based and are available regardless of income. These charts reflect the percentage of 

dependent and independent undergraduate borrowers of Subsidized and Unsubsidized Stafford 

Loans at various family income levels, according to NSLDS data for academic year 2012-2013. 

About 71 percent of Subsidized Stafford Loan dependent borrowers come from families with 

under $80,000 in family income, while about 55 percent of the Unsubsidized (Unsub.) Stafford 

Loan dependent borrowers come from families with under $80,000 in family income. At the 

upper income levels, about 29 percent of Subsidized Stafford Loan borrowers are from families 

with income over $80,000, while about 45 percent of Unsubsidized Stafford Loan borrowers are 

in the over $80,000 category. In fact, 43 percent of all Unsubsidized Loan dollars goes to

dependent students from families with incomes over $100,000.

Independent student borrowers are fairly similar in their borrowing pattern for both Subsidized 

and Unsubsidized Stafford loans. Over half of all independent student recipients of Subsidized 

or Unsubsidized loans are from households in the under $20,000 income category. 

Percentage of Recipients and Dollars of Aid by Income Category: AY 2012-13 (NSLDS)

Dependent Students (Income Categories = dollars in thousands)

Loan Type Measure 0-$20 $20-40 $40-60 $60-80 $80-100 $100+

Subsidized Stafford Recipients 19.53% 19.71% 16.56% 15.36% 12.01% 16.83%

Subsidized Stafford Dollars 18.91% 19.78% 17.05% 15.72% 12.00% 16.54%

Unsub. Stafford Recipients 14.13% 14.73% 13.10% 13.43% 12.92% 31.69%

Unsub. Stafford Dollars 11.76% 11.83% 10.12% 10.88% 12.42% 42.99%

Independent Students (Income Categories = dollars in thousands)

Loan Type Measure 0-$20 $20-40 $40-60 $60-80 $80-100 $100+

Subsidized Stafford Recipients 59.63% 23.51% 9.16% 4.43% 2.06% 1.22%

Subsidized Stafford Dollars 58.88% 23.83% 9.40% 4.54% 2.12% 1.23%

Unsub. Stafford Recipients 55.21% 21.83% 10.30% 5.61% 3.26% 3.78%

Unsub. Stafford Dollars 55.97% 19.69% 10.27% 5.73% 3.58% 4.76%

Note: Loan Type measures for Recipients, and Dollars, add across columns to 100 percent.

Income category columns $20-40 through $100+ reflect income amounts of $20,001- $40,000 

and so forth.
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S-25

Undergraduate Students by Income Category

The tables that follow are based on NPSAS 2012 data from academic year (AY) 2011-2012, and 

show the percentage of all undergraduates according to income categories; and within income 

categories, the percentage of each income group that received Subsidized Stafford Loans, 

Unsubsidized (Unsub.) Stafford Loans, or any form of Federal aid, such as Pell Grants, Work 

Study, or student loans. For example, in the Dependent Students table, 15.8 percent of all 

dependent undergraduates are from families with total income under $20,000 and, of that group, 

43.7 percent received Subsidized Stafford Loans, 33 percent received Unsub. Stafford Loans, 

and 83.2 percent reported receiving some type of Federal aid.

Both the Dependent and Independent Students tables clearly show that Subsidized Stafford aid 

and Federal aid goes to lower and middle income groups, as intended. For instance, for 

dependent students, the two lowest family income categories—0-$20,000 and $20,001-

$40,000—have the highest percentages of students receiving some form of Federal aid,

corresponding to 83.2 percent and 73.8 percent, respectively, while the highest income 

category—“$100,000+”—reflects the lowest percentage of dependent undergraduates receiving 

aid, at 38 percent. 

Percentage of Undergraduate Students by: 1) Income Level and 2) Within Income Level,

By Type of Federal Aid1

: AY 2011-12 (NPSAS)

Dependent Students (Income Categories = dollars in thousands)

Group Type Measure 0-$20 $20-40 $40-60 $60-80 $80-100 $100+

Undergraduates Students 15.8% 17.9% 12.4% 13.7% 11.9% 28.3%

Subsidized Stafford % Receiving 43.7% 40.8% 48.7% 39.9% 32.1% 17.8%

Unsub. Stafford % Receiving 33.0% 31.3% 39.1% 37.4% 36.9% 33.2%

Federal Aid2 % Receiving 83.2% 73.8% 69.2% 49.0% 44.3% 38.0%

Independent Students (Income Categories = dollars in thousands)

Group Type Measure 0-$20 $20-40 $40-60 $60-80 $80-100 $100+

Undergraduates Students 50.0% 24.1% 11.9% 6.9% 3.5% 3.7%

Subsidized Stafford % Receiving 44.0% 37.5% 28.4% 23.0% 21.0% 9.9%

Unsub. Stafford % Receiving 37.3% 32.4% 25.1% 23.3% 23.1% 19.6%

Federal Aid2 % Receiving 69.6% 54.9% 42.4% 31.7% 27.8% 20.8%

 1 In both tables, the “Undergraduates” percentages will add across columns to 100 percent. However, the 

“% Receiving” aid measures are not all mutually exclusive and therefore are not intended to, and will not, sum to 

100 percent, either across columns or by income level. 2 Reflects percentages of students receiving any form of Federal aid including student loans, grants, or work study.
STUDENT LOANS OVERVIEW

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S-26

Loan Volume by Institutional Sector

Based on NSLDS and related data, about 70 percent of all Direct Loan dollar volume occurred at 

4-year public and private institutions. 

Distribution of New Loan Volume Dollars by Institution

FY 2013 4-Yr. Public 4-Yr. Private 2-Yr. Public 2-Yr. Private Proprietary

Direct Loans 37.1% 33.1% 8.2% 0.2% 21.4%

The following graph depicts annual gross commitment loan volume trends by 4-year, 2-year, and 

proprietary school sectors. (DL volume data is from program inception in fiscal year 1994.)

Annual Loan Volume by 4-Year, 2-Year, and Proprietary School Sectors

0

10

20

30

40

50

60

70

80

90

'83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13

Fiscal Years 1983 - 2013

Volume: $ Billions

4-year 2-year Proprietary

• Loan volume at 4-year institutions grew considerably from about $5 billion in fiscal year 1983 

to over $82 billion in fiscal year 2011, although recent total 4-year volume has declined 

slightly from fiscal year 2011 to fiscal year 2013. The loan volume at 4-year institutions

accounts for about 70 percent of all gross commitment loan volume in 2013. 

• Loan volume at proprietary institutions increased substantially between fiscal years 2007 and 

2010. However, loan volume has declined between fiscal years 2010 and 2013 from 

$29.5 billion to $24.3 billion. In 2010, proprietary school loan volume was almost 26 percent

of total volume, while in fiscal year 2013 it was about 21.4 percent.

• Loan volume at 2-year institutions remained steady during the early 1990’s. However, 

volume has grown noticeably since then, from $1.9 billion in fiscal year 2000 to around
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

S-27

$9.5 billion in fiscal year 2013. Relative to the other sectors, volume at 2-year schools is 

comparatively small, only 8.4 percent of all gross commitment loan volume in 2013.

Loan Volume by Subsidized and Unsubsidized Stafford Loans

A substantial portion of loan volume growth in the last decade is attributable to the Unsubsidized 

Stafford Loan program, where students, regardless of financial need, may borrow up to the cost 

of attendance subject to certain loan limits. As of July 1, 2012, graduate and professional 

students are no longer eligible for regular Subsidized Stafford Loans, which helps explain the 

sharp decrease in the Subsidized Stafford Loan volume starting in fiscal year 2012.

Stafford Loan and Unsubsidized Stafford Loan Volume

0

10

20

30

40

50

60

'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

Fiscal Year

Volume: $ Billions

Stafford

Unsubsidized Stafford

Note: Loan volume is estimated for fiscal years 2014-2015.

PROGRAM PERFORMANCE INFORMATION

Performance Measures 

This section presents selected program performance information, including GPRA goals, 

objectives, measures, and performance targets and data; and an assessment of the programs’ 

progress in achieving program results. Achievement of program results is in part based on the 

cumulative effect of the resources provided in previous years and those requested in fiscal year

2015 and future years, as well as the resources and efforts invested by those served by this 

program. The student loan programs and other Federal student financial aid programs help 

remove financial barriers to postsecondary education. Because these programs rely on the 

same performance measures, strategies, and program improvement activities, such measures 

are discussed in the Student Aid Overview, section P, and are not repeated here. 

Based on NPSAS:2008, 46.9 percent of all undergraduates reported receiving some type of 

Federal Title IV financial aid in 2007-08 and 34.5 percent reported borrowing a Federal Stafford 

(Subsidized or Unsubsidized) Loan. In the most recent NPSAS:2012, 57.2 percent of 
STUDENT LOANS OVERVIEW

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S-28

undergraduates reported receiving some type of Federal Title IV aid and 40.1 percent reported 

having borrowed a Federal Stafford Loan in 2011-12. Of undergraduates in 2007-08 who 

borrowed a Federal Stafford Loan, the average amount borrowed was $5,000, while in 2011-12, 

the average amount was $6,400—a 28 percent increase. 

In addition, graduate and professional student borrowing has also increased. According to 

NPSAS:2008, 38.9 percent of graduate and first-professional students reported borrowing a 

Subsidized or Unsubsidized Stafford Loan in 2007-08 while in 2011-12 this figure was 

43 percent. The average Stafford Loan amount borrowed by graduate and first-professional 

students in 2007-08 was $15,600, while in 2011-12 the average loan was $17,000. Also, the 

percentage of graduate students who reported borrowing PLUS loans jumped from 4.9 percent 

to 9.9 percent with the average amount growing from $15,500 to $18,600. These summary 

statistics highlight the significant role that the Federal loan programs play in facilitating access to 

higher education for many postsecondary students.

In fiscal year 2013, the Direct Loan program, excluding Consolidations, provided approximately 

$101 billion in new loan assistance to over 9.9 million qualified borrowers. In doing so, the 

Federal student loan programs helped ensure access to postsecondary education by providing 

loans to students and their families that they would be unlikely to obtain elsewhere, and at lower 

interest rates and with more favorable repayment terms. Without access to Federal student 

loans, many students might not be able to obtain educational loans, since many private lenders 

do not provide loans or provide loans with less borrower-friendly terms to students with little or 

no work experience or credit history. Given the volume of Federal student loans provided 

annually, ensuring that those taxpayer-funded loans are repaid and enabling their repayment is 

critical to the long-term success of the student loan program.

National Student Loan Cohort Default Rate 

One key measure related to all student loan programs is default management. The national 

student loan “cohort default rate” provides a measure of student loan borrower default behavior 

in the first 3 years of repayment, but excludes PLUS loan defaults. This national cohort default 

rate measure was first established by the Omnibus Budget Reconciliation Act of 1990 (OBRA) to 

exclude “high-default” institutions from participation in the loan programs and originally set the 

default timeframe at 2 years. Under this law, these institutions were excluded from FFEL, Direct 

Loan, and Pell Grant program eligibility—for at least 3 years—if they hit or exceeded a 

25 percent default rate threshold for 3 consecutive years. 

The Higher Education Opportunity Act of 2008 (HEOA) raised the 25 percent statutory default 

rate threshold to 30 percent for fiscal years 2012 and beyond. HEOA also amended the window 

for determining if a borrower would be included in the cohort default rate from the first 2 years of 

repayment to the first 3 years of repayment, effective for fiscal years 2009 and beyond, because 

the 3-year rate better reflects the percentage of borrowers who ultimately default. 

The first official 3-year cohort default rate issued for the 2009 cohort was 13.4 percent and was 

published on September 28, 2012. The most recent 3-year cohort default rate issued for the 

2010 cohort was 14.7 percent for borrowers whose loans entered repayment between 

October 1, 2009, and September 30, 2010, and who defaulted before September 30, 2012. 

Over 4 million borrowers from over 5,900 postsecondary institutions entered repayment during 

this period, and approximately 600,000 of them defaulted. The 2-year rate, which dates back to 
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S-29

1987, is based on the fiscal year 2011 cohort of borrowers who entered repayment between 

October 1, 2010, and September 30, 2011, and who defaulted before September 30, 2012. 

This most recent 2011 cohort default rate—published in September 2013—was 10 percent. 

According to statute, this is the last 2-year rate that will be computed. Starting in 2014, only the 

3-year cohort default rate will be published. 

The HEOA provides for a transition period during which no institutions would be sanctioned 

based on the new 3-year rate until there are 3 consecutive years of such calculations. During 

this transition, any sanctions will be driven by calculations made according to pre-HEOA criteria.

The national cohort default rate published each fall also includes component data on cohort 

default rates by various school sectors. The sector with the highest cohort default rates in 

almost every year since the rates were first published is the proprietary school sector. For the 

most recent 2011 national cohort default rates, proprietary school borrowers showed a 2-year

cohort default rate of 13.6 percent compared to 6.8 percent for borrowers from public 4-year 

schools and 5.1 percent for borrowers from private 4-year institutions. 

The overall 2011 2-year cohort default rate of 10 percent reflects a noticeable increase in the 

annually reported measure for the fifth year in a row, and is almost double the national cohort 

rate of 5.2 percent in 2006. This increase may be due to tough economic conditions and 

relatively high unemployment rates.

2-Year and 3-Year National Cohort Default Rates

17.617.2

21.422.4

17.8

15

11.610.710.49.6 8.8

6.9 5.6 5.9 5.4 5.2 4.5 5.1 4.6 5.2

6.7 7.0

8.8 9.1 10

14.7 13.4

0

5

10

15

20

25

'87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Fiscal Year (Repayment Cohort)

Default Rate (%)

2-Yr National

3-Yr National

The national “cohort default rate” (as shown above) measures borrower default behavior in just 

the first 2 years of repayment—any defaults occurring outside this statutory period are not 

incorporated into the default rate for that particular cohort. As a result, this index does not reflect 

the “lifetime dollar default rates” that are used in budget formulation to project future default 

costs. The lifetime default rates account for defaults over the entire life of the loan and are 

significantly higher than the national cohort default rates that occur over a 2- or 3-year period.

Thus, the national cohort default rate should be viewed in context with the lifetime rate.
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National and Perkins Loan Cohort Default Rates

The following graph compares both the National Cohort Default Rate and, beginning in 1998, the 

Perkins Loan Program Cohort Default Rate. (A description of the Perkins Loan Program and the 

2015 Budget proposed legislation designed to expand and modernize the Perkins Loan Program 

is contained in the Student Financial Assistance account, and Student Aid Overview.) Since 

the technical definitions for computing the rates differ between the programs, comparisons and 

conclusions drawn from such comparisons are limited. Also, the scale of the national student 

loan programs is vastly greater, involving some 3.4 million Direct Loan student borrowers 

entering repayment compared to fewer than 400,000 Perkins Loan borrowers. 

The national loan cohort rate over the past decade has tended to be lower than the Perkins 

Loan cohort default rate, although both have increased during the recent economic downturn.

National and Perkins Loan Cohort Default Rates

0

5

10

15

20

25

'87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Fiscal Year (Repayment Cohort)

Default Rate (%)

National Perkins

FY 2015 Cohort Lifetime Dollar Default and Recovery Rates

The following table shows the estimated dollar default and recovery rates for the 2015 cohort of 

loans in the Direct Loan program. The default rates reflect the percentage of dollars that are 

estimated to go into default over the life of the particular cohort. The recovery rates reflect the 

percentage of dollars the Federal Government estimates it will recover on those defaults. Since 

interest continues to accrue during default, the interest component becomes a primary driver of 

total collections. Nevertheless, the Federal Government may only recover some or no defaulted 

loans, while the Government may collect substantial amounts on other loans.
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FY 2015 Cohort Lifetime Dollar Default and Recovery Rates

Column 1: Default rates anticipated for the 2015 cohort of Direct Loans range from a high of 

22.82 percent for Unsubsidized Stafford Loans (undergraduates) to a low of 7.08 percent for 

Unsubsidized Stafford Loans (graduates).

Column 2: The cash recovery rates exceeding 100 percent indicate that the Federal 

Government, on average, expects to collect principal, interest, and penalty fees that would more 

than offset defaulted dollars. This cash recovery rate follows the methodology used in previous 

years where contract collection costs (CCC) are included in the gross recovery rate.

Column 3: The cash recovery rates of less than 100 percent, in column three, show recovery 

rates net of contract collection costs—where contract collection costs are not included—

reflecting the fact that those collection costs are kept by the private debt-collection contractors 

and are not retained by the Government.

Column 4: Shows recovery rates net of contract collection costs using a net present value 

(NPV) basis, which takes into account the factor of time on the dollar value of missed payments 

due to default and subsequent default collections. Under the NPV basis, the recovery rates 

reflect the discounting of missed payments due to default and subsequent loan collections over 

a 40-year loan lifetime window. The NPV recovery rate helps provide a broader context over 

time for determining the success of collection efforts to recover defaulted Direct Loans. 

FY 2015 Cohort Lifetime Dollar Default and Recovery Rates

Direct Loans

Default 

Rate1

Cash 

Recovery 

Rate2

Cash Recovery 

Rate3 (net of 

CCC)

NPV Recovery 

Rate4 (net of 

CCC)

Stafford 22.17% 108.58% 95.98% 81.82%

Unsub Stafford (Undergrad) 22.82% 107.07% 94.69% 81.80%

Unsub Stafford (Graduate) 7.08% 99.85% 89.18% 78.90%

Unsub Stafford (Combined) 15.07% 105.40% 93.42% 81.14%

PLUS (Undergrad) 8.63% 100.18% 89.15% 77.66%

PLUS (Graduate) 7.20% 97.30% 86.72% 76.55%

PLUS (Combined) 8.03% 99.10% 88.23% 77.25%

 1 Lifetime dollar defaults as a percentage of disbursements, reflecting outstanding principal and interest at time of 

default divided by original loan dollar amounts disbursed, all on a cash basis, without adjusting for net present value.

 2 Reflects cumulative principal, interest, and fee recoveries on defaulted loans divided by the outstanding principal 

and interest at time of default, all on a cash basis. Includes collection costs that are assessed on the loans of 

defaulted borrowers and paid to collection agencies.

 3 Reflects cumulative principal, interest, and fee recoveries on defaulted loans divided by the outstanding principal 

and interest at time of default, all on a cash basis. Does not include collection costs.

 4 Reflects cumulative principal, interest, and fee recoveries on defaulted loans divided by the outstanding principal 

and interest at time of default on a net present value (NPV) basis, using 2015 budget discount rates. Does not 

include collection costs.