The Department of Education

STUDENT LOANS OVERVIEW

Fiscal Year 2018 Budget Proposal

CONTENTS

Page

Account Summary Table.........................................................................................................Q-1

Federal Student Loans:

Authorization .......................................................................................................................Q-2

Program Description ...........................................................................................................Q-3

Repayment Plans................................................................................................................Q-5

Interest Rates and Loan Limits—By Type of Loan...............................................................Q-9

Borrower Interest Rates By Academic Year and Program Component..............................Q-11

Student Loan Program Maximums ....................................................................................Q-12

Credit Reform Estimates ...................................................................................................Q-13

Outstanding Loan Levels...................................................................................................Q-14

FY 2018 Budget Proposal:

Student Loan Reform Proposals .......................................................................................Q-16

FY 2018 Estimated New Direct Loan Volume....................................................................Q-18

FY 2018 Estimated Consolidation Loan Volume................................................................Q-19

The Role of Student Loans................................................................................................Q-19

Postsecondary Cost, Borrowing, and Enrollment by Institutional Sector............................Q-21

FFEL Liquidating Account .................................................................................................Q-23

Federal Student Loan Reserve Fund.................................................................................Q-23

Program Output Measures:

Direct Loans......................................................................................................................Q-24

FFEL Loans ......................................................................................................................Q-25

Median Federal Student Loan Debt...................................................................................Q-26

Undergraduate and Graduate Borrower Distribution by Family Income.............................Q-27

Undergraduate Students by Income Category...................................................................Q-28

Loan Volume by Institutional Sector ..................................................................................Q-29

Loan Volume by Subsidized and Unsubsidized Stafford Loans.........................................Q-30

Program Performance Information:

Performance Measures.....................................................................................................Q-30

National Student Loan Cohort Default Rate.......................................................................Q-32

FY 2018 Cohort Lifetime Dollar Default and Recovery Rates ............................................Q-33

State tables1

1 State tables reflecting final 2016 allocations and 2017 and 2018 estimates are posted on the 

Department’s webpage at: https://www2.ed.gov/about/overview/budget/statetables/index.html
Q-1

Q-1

Account Summary Tabl e

Click here for accessible version
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-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 2018 Authorization: Indefinite

Mandatory Budget Authority:

Loan Subsidies 2017 2018 Change

Net Loan Subsidies1:

DL New Loan Subsidy -$1,961,127 -$10,662,798 -$8,701,671

DL Net Reestimate 28,430,232 0 -28,430,232

DL Net Modification 364,394 0 -364,394

DL Total Net Subsidy 26,833,499 -10,662,798 -37,496,297

FFEL Net Reestimate $10,785,834 0 -$10,785,834

FFEL Net Modification 0 -443,409 -443,409

FFEL Total Net Subsidy 10,785,834 -443,409 -11,229,243

NOTE: Fiscal year 2017 and 2018 data reflect the 2018 President’s Budget estimates and include the 

6.9 percent 2017 mandatory sequester that is applied to origination fees.

1 The Direct Loan Budget Authority (BA) amounts reflect estimated negative budget authority as shown 

on page Q-1 and consistent with the presentation in the 2018 Budget Appendix. The DL reestimate is 

primarily related to increased borrower participation in income-driven repayment plans and revised 

collection assumptions. The DL modification reflects costs associated with refunding borrowers under 

new closed school regulations.

The FFEL reestimate is related primarily to updated collection assumptions and includes ECASLA 

reestimates to be consistent with the Budget Appendix. The FFEL modification reflects a proposed policy 

to eliminate Account Maintenance Fees paid to guaranty agencies.

FEDERAL STUDENT LOANS

Authorization

Language authorizing the loan programs beyond fiscal year (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 
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-3

purchase authority to buy Federal guaranteed student loans from lenders and ensure access to 

FFEL loans and increased Unsubsidized Stafford loan limits for undergraduates. 

The SAFRA Act (formerly the Student Aid and Fiscal Responsibility 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. As of July 1, 2010, all new Federal student loans originate in the Direct 

Loan (DL) program. 

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. Savings helped cover a shortfall in the Pell 

Grant program.

The Consolidated Appropriations Act, 2012, eliminated interest payments during the grace 

period for loans made in award years (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 (BBA) of 2013 eliminated the amount that FFEL guaranty agencies—

state and private nonprofit entities that provided default insurance payments to lenders, as well 

as collection and default counseling activities—could keep from defaulted loan recoveries. The 

BBA also reduced the maximum amount guaranty agencies can charge a borrower on a 

rehabilitated loan (a defaulted loan that has returned to performing status) from 18.5 to 

16 percent. Guaranty agencies were also are required to send any rehabilitated loans to the 

Department if they could not find a private lender buyer.

The Consolidated Appropriations Act, 2016, increased the reimbursement percentage paid to 

guaranty agencies by the Department of Education from 95 percent to 100 percent and 

extended Account Maintenance Fees paid to guaranty agencies.

Program Description

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

meet postsecondary education costs. Because funding for the loan programs is provided 

through permanent and indefinite budget authority, student loans are considered separately for 

budget purposes from other Federal student financial assistance programs, but should be 

viewed as part of the overall Federal effort to expand access to higher education. In the FFEL 

program, private lenders provided loan capital, backed by a Federal guarantee on the loans. 

The Federal Government provided interest subsidies to lenders and reimbursement to guaranty 

agencies for most costs associated with loan defaults and other write-offs. As provided by 

SAFRA, the FFEL program ceased making new loans as of July 2010, and, as of that date, the 
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-4

Direct Loan program has originated all new Federal loans. 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 July 1, 1994. Under this program, the 

Federal Government provides the loan capital. Postsecondary institutions disburse loans, but 

loan servicing is handled by the Department through private sector contractors. 

New loan volume typically reflects new borrower demand. In fiscal year 2018, new Direct Loan 

volume is estimated at $105 billion and Consolidation Loans (which include older loans) are 

estimated at $48 billion, for a total of $153 billion. In fiscal year 2018, the new Direct Loan 

volume alone represents approximately 80 percent of all new postsecondary aid available from 

the Department.

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

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

educational expenses. Subsidized Stafford Loans are available to undergraduate students from 

low- and moderate-income families and are awarded based on family income reported on the 

Free Application for Federal Student Aid (FAFSA). 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 Higher Education Act Title IV loans—

including 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. 

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

Stafford Loan borrowers pay an origination fee equal to 1 percent of principal. PLUS borrowers 

pay a 4 percent origination fee. Under sequestration, origination fees for Subsidized Stafford, 

Unsubsidized Stafford, and PLUS Loans are required to be increased based on a percentage 

that OMB calculates for non-exempt nondefense mandatory programs. The sequestration 

percentage uses methodology described in the Budget Control Act of 2011 (BCA). In fiscal year 

2017, the sequester percentage is 6.9 percent, with Stafford and Unsubsidized Stafford loan 

origination fees equal to 1.069 percent and PLUS loan fees equal to 4.276 percent.

Loan repayment plans:

Borrowers may choose from four basic types of repayment plans: standard, graduated, 

extended, and income-driven repayment (IDR). The IDR plans include Income Contingent 

Repayment (ICR), Income-Based Repayment (IBR—pre and post July 1, 2014), Pay As You 

Earn (PAYE), and Revised Pay As You Earn (REPAYE).

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, meet limited hardship criteria, declare 

bankruptcy or when their schools close and the claims meet tests of timeliness. 

There are four main features of repayment plans: eligibility, monthly payment, repayment term, 

and forgiveness. Each repayment plan’s features are summarized below:
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-5

Repayment Plans

Key 

Features

Standard 

plan

Graduated

plan

Extended

plan ICR

IncomeBased

New

IncomeBased PAYE REPAYE

Eligibility All Direct

and FFEL 

loans

All Direct

and FFEL 

loans

Direct or 

FFEL 

Borrowers

w/$30,000

or more

in outstanding 

student

loans

All Direct

loans except 

for Parent 

PLUS; but 

Consol 

Parent PLUS 

are eligible--

only in ICR

IncomeEligible

borrowers

[loans 

issued

before

7-1-2014]1

IncomeEligible

borrowers

[loans 

issued

7-1-2014

or later]1

IncomeEligible

borrowers

[loans 

issued

10-1-2011

or later] 1

All Direct 

Loan

borrowers

1

Monthly

payment

Remains 

fixed

Increases 

over time

Fixed or 

increases 

over time

20 percent of 

borrower’s

discretionary income; 

max pay is 

12-yr fixed

15 percent of 

borrower’s

discretionary income; 

max pay is 

10-yr fixed

10 percent of 

borrower’s

discretionary income

10 percent 

of 

borrower’s

discretionary income

10 percent 

of borrower’s 

discretionary income

Repayment

terms

(in years) 10 10 up to 25 25 25 20 20 20 or 25

NOTES: Standard, Graduated, and Extended plans are fully repaid at the end of term. The five IDR plans 

shown above: ICR, Income-Based, New Income-Based, PAYE, and REPAYE provide forgiveness of any 

remaining balance at end of term. Only Direct Loans may be repaid under ICR, PAYE, and REPAYE 

plans. However, FFEL loans that are consolidated into a Direct Consolidation Loan are for the most part 

eligible to be repaid under ICR, PAYE, and REPAYE with the exception of Parent PLUS loans that are 

only allowed into ICR.

1 Generally, plans such as Income-Based, PAYE, and REPAYE are available to qualified borrowers who 

demonstrate a partial financial hardship. A partial financial hardship occurs when the monthly payment 

amount a borrower would otherwise have to make for 10 years under the standard repayment plan is 

more than the monthly payment under this plan.

According to the Department’s Federal Student Aid (FSA) Data Center Quarterly report released 

on December 20, 2016, enrollment in income-driven repayment (IDR) plans has increased 

substantially. As of September 2016, nearly 5.6 million DL borrowers, or about 26 percent of all 

DL borrowers, were enrolled in IDR plans representing a 33 percent increase from September 

2015 and a 101 percent increase from September 2014. Nearly 1.2 million ED-held FFEL 

borrowers were enrolled in income-base repayment and income-sensitive repayment plans. 

As part of its 2018 budget proposal, the Administration proposes to greatly simplify student loan 

repayment by consolidating five IDR options into a single IDR plan. 
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-6

History of repayment plans:

Most repayment plans have been available since the early 1990’s, and the number of available 

repayment plans remained constant until the latter 2000’s. CCRAA of 2007 established the 

Income-Based Repayment (IBR) plan, which set monthly loan repayments at 15 percent of a 

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

loan forgiveness after 25 years of repayment. 

The SAFRA Act of 2010 created a second IBR plan which reduced monthly payments for future 

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

10 percent, and reduced the maximum period for a borrower to receive loan forgiveness from 

25 years to 20 years. 

In October 2011, under regulatory authority, the Department 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 on December 21, 2012. 

In December 2015, under regulatory authority, the Department began offering the modified 

REPAYE plan, which resembles PAYE, with a few key exceptions (primarily the elimination of 

capping payment at the 10-year standard repayment plan amount), to all qualified student 

borrowers regardless of when they borrowed. 

At the end of any income-driven repayment plan term, qualified borrowers may have their

remaining balance forgiven. Under current law, these IDR forgiveness amounts are taxable.

Analysis of Borrower Obligations and Loan Payments across IDR Plans

The Department is fully supportive of recommendations by Congressional staff, the Government 

Accountability Office (GAO), the Office of Inspector General (OIG), and external policymakers to 

publish more detailed cost information on Income Driven Repayment. The Department is 

looking forward to providing more detailed information on the costs of these plans, including 

sensitivity analysis results, through the FY 2017 Agency Financial Report.

The following analysis provides insight into how borrower payments, a foundational driver of 

student loan program costs, vary significantly across different IDR plans. This analysis provides 

another helpful approach for examining IDR by showing how different borrowers are affected by 

the plans available under current law.

The table below compares the major income-driven repayment plan options. The plans are 

compared in terms of the ratio of estimated total amount of payments to the amount borrowed 

for different income and debt categories, which are approximately equal in size. The table is 

based on a representative sample of borrowers expected to enter IDR repayment in fiscal year 

2018 with income categories defined according to a borrower’s average projected income 

throughout the full repayment period. 
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-7

This method is designed to show how borrowers are affected by the different repayment plans 

but is not appropriate for comparing the costs of IDR plans, as costs to the Government of IDR 

loans are driven by the net present value of cash flows as the loans are repaid, not total 

payments made or total balances forgiven.

Estimated Ratio of Loan Payment Totals to Initial Principal Balance for Income-Driven 

Repayment Plans

Borrowers Entering Repayment in Fiscal Year 2018

Income and Debt ICR

Pre-2014 

IBR

PAYE & 

Post-2014 

IBR REPAYE

Income <= 70,000

Debt <= 25,000 1.66 1.54 1.28 1.25

Income <= 70,000

Debt > 25,000 1.64 1.30 .90 1.07

Income 70,001-110,00

Debt <= 40,000 1.54 1.58 1.42 1.32

Income 70,001-110,00

Debt > 40,000 1.72 1.54 1.09 1.35

Income > 110,000

Debt <= 60,000 1.51 1.62 1.47 1.38

Income > 110,000

Debt > 60,000 1.76 1.71 1.25 1.61

NOTE: This table combines PAYE and New Income Based repayment plans because they are very

similar.

For comparison purposes, the table analyzes the projected payments, assuming completion of 

the full expected repayment period, under each of the IDR repayment plans for all borrowers 

expected to enter IDR repayment in fiscal year 2018. Student borrowers will choose repayment

plans given their circumstances and overall participation in IDR plans will depend on the terms 

of the IDR plans available at a given time, although the complexity of choices may inadvertently 

lead to some confusion by borrowers.

From the borrowers’ perspective, a lower ratio usually indicates a more advantageous plan. 

However, the wide variation of ratios by income category across plans illustrates the trade-offs 

borrowers face when considering the payments required and the length of time that payments 

must be made. This applies mostly to the REPAYE plan where the absence of a standard 

repayment cap can lead to higher payments over a shorter time period that would lower the ratio 

of amount repaid to amount borrowed but might not be preferable to borrowers because the 

monthly amount due is higher, and therefore less affordable.

To better understand the ratios in the table, the following example may be helpful. For every 

$10,000 of loans borrowed, borrowers represented by the first category (where income is less 

than or equal to $70,000 and where debt is less than or equal to $25,000) would pay, on 

average, $16,600 over their entire repayment period under ICR versus $15,400 under pre-2014
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-8

IBR, $12,800 under PAYE/post-2014 IBR, and $12,500 under REPAYE. Based on the ratios 

above, borrowers generally would pay less in totality under PAYE and REPAYE. In general, the 

PAYE/post-2014 IBR and REPAYE options will consistently result in lower total repayment 

amounts for borrowers than ICR or pre-2014 IBR options. The lower total borrower payments 

do not necessarily reflect higher costs to the Government, which are determined by the net 

present value of repayment cash flows.

Loan forgiveness:

As noted previously, at the end of any income-driven repayment plan term, qualified borrowers 

may have their remaining balance forgiven. Budget estimates of forgiveness under the current 

IDR plans for borrowers entering repayment in 2018—combined across all IDR plans, since 

borrowers can switch between plans—assume about 17 percent of borrowers would pay their 

loans off in full, 30 percent would end up not completing their repayment term due to default, 

prepayment, or other discharge, 34 percent would get IDR forgiveness, and 19 percent would 

qualify for Public Service Loan Forgiveness (PSLF). 

Of those student borrowers whose balances are projected to be forgiven, about 67 percent 

would have an amount forgiven less than their original balance and about 33 percent would 

have an amount forgiven greater than their original balance. The original median balance for 

borrowers who would qualify for non-PSLF IDR forgiveness is estimated at $47,000 and the 

median amount forgiven is estimated at $29,000. The original median balance for borrowers 

who would qualify for PSLF is estimated at $42,000 and the median amount forgiven under 

PSLF is estimated at $34,000.

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 teacher loan forgiveness; this benefit is increased to 

$17,500 for mathematics, science, and special education teachers considered highly qualified 

under criteria defined in section 9101 of the Elementary and Secondary Education Act of 1965, 

as amended. The Budget retains teacher loan forgiveness programs in order to incentivize 

more high-quality teachers to teach in high-need schools and subjects.

In 2007, the CCRAA authorized a Public-Service Loan Forgiveness (PSLF) program for 

nonprofit and public-sector employees. The criteria for defining a “public service organization” is 

broad and covers any federal, state, or local government organization or agency and most 

charitable non-profit organizations. In addition, non-profit employers include most private 

schools, colleges, and universities and other employers with a 501 (c) (3) IRS designation. 

Moreover, the specific job performed does not matter as long as the organization meets the 

eligibility requirements. 

Borrowers must make 120 separate monthly payments while employed by an eligible public 

service organization, but the payments do not have to be consecutive. With PSLF, borrowers 

who make 120 qualifying payments under the 10-year standard repayment, or under any Direct 

Loan income-driven repayment plan, will have any remaining loan balance forgiven. Amounts 

forgiven under PSLF are exempt from taxation. This benefit is only available in the Direct Loan 
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-9

program, though FFEL borrowers may access the benefit by taking out a Direct Consolidation 

Loan.

Although no borrower will be eligible for PSLF until October 2017, the Department provides an 

Employment Certification Form that helps track progress in the program. Recent data from the 

Federal Student Aid Data Center show that through fiscal year 2016 about 1.1 million forms 

were submitted and about two-thirds of those were considered certified. However, it should be 

noted that submission of this form is optional; borrowers may apply for forgiveness after 

completion of their 120 qualifying payments.

Interest Rates and Loan Limits—By Type of Loan

Since 1965, interest rates on Federal student loans have been set in statute. For many years, 

the statute set the terms at fixed or variable rates reset annually. Starting July 1, 2006, as 

specified by amendments to the HEA passed on February 8, 2002 under P.L. 107-139, the rate 

on all Subsidized and 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 College Cost Reduction and Access Act (CCRAA) of 2007 included an annual phased 

interest rate reduction for all new undergraduate Subsidized Stafford loans, with fixed interest 

rates dropping from 6.8 percent to 6 percent on July 1, 2008, until reaching 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.

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

market-based system tying student loan interest rates to the high-yield 10-year Treasury bill 

plus a statutorily-set basis point add-on up to a statutory cap. Interest rates for each loan type 

are set annually before the award year begins on July 1 but are fixed for the life of the loan, 

similar to fixed-rate home mortgages. The 10-year Treasury rate is determined each year at the 

Treasury bill auction held prior to June 1. The interest rates for Award Year 2016-2017 were set 

in June 2016.

Summaries of each loan type follow:

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

based on financial need, and have loan limits. The Budget Control Act of 2011 eliminated 

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

interest rate is set annually, remains fixed for the life of the loan, and is capped at 8.25 

percent. The Government also pays the interest while the student is in school or deferment.

The 2018 Budget proposes to eliminate this subsidy for new borrowers on or after July 1, 

2018 with an exception for students who borrowed their first loans prior to July 1, 2018 and 

who are borrowing to complete their current course of study. Loans disbursed between July 

1, 2016 and June 30, 2017, (Award Year 2016-2017) will have an interest rate of 

3.76 percent, based on the 10-year Treasury rate of 1.71 percent plus a statutory add-on of 

2.05 percent. 
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-10

• Unsubsidized Stafford Loans are low-interest, fixed-rate loans available to student 

borrowers, regardless of financial need, and have loan limits. Interest accrues while the 

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

capitalized upon entering repayment. New Unsubsidized Stafford Loans to undergraduates 

have the same rate and cap as Subsidized Stafford Loans (3.76 percent). However, the 

interest rate for graduate students has an add-on of 3.60 percent and a 9.5 percent cap. 

For Award Year 2016-2017, the rate is 5.31 percent based on the 3.60 add-on and 10-year 

Treasury note of 1.71 percent. 

• 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, applicants must not have an adverse credit history. The Government does not 

pay interest accruing on PLUS Loans. The interest rate for new loans first disbursed 

between July 1, 2016 and June 30, 2017, is 6.31 percent based on the 10-year Treasury 

note of 1.71 percent and an add-on of 4.60 percent. The PLUS rate cap is 10.5 percent. 

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

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

outstanding. In general, to consolidate loans in the Direct Loan program, a borrower must 

have an outstanding principal balance on at least one eligible loan made under either the 

FFEL or DL program. Loans such as Subsidized Stafford, Unsubsidized Stafford, PLUS, 

and sometimes other Consolidation Loans are eligible. In addition, other federal student 

loans from different programs are also eligible such as Federal Perkins Loans, Federal 

Insured Student Loans (FISL), National Defense Student Loans (NDSL), Health Education 

Assistance Loans (HEAL), and Nursing Loans. 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 one-eighth 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

Q-11

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 inschool, 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 average

basis, as above, 

thereafter

Weighted average

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 percent, not the weighted average of the interest rates on the 

loans consolidated. SAFRA eliminated new FFEL Loans as of July 1, 2010.
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-12

Student Loan Program Maximums

(Whole dollars)

STUDENT STATUS

STAFFORD 

(Subsidized)

TOTAL (Stafford & 

Unsubsidized Stafford)

DEPENDENT 

UNDERGRADUATES

Annual Limits Annual Limits

Dependent U ndergraduates:First-Year Student $3,500 $5,5001

Dependent U ndergraduatesSecond-Year Student $4,500 $6,5001

Dependent U ndergraduatesThird-Year+ Student $5,500 $7,5001

INDEPENDENT 

UNDERGRADUATES 2,3 Stafford Total (Stafford & 

Unsubsidized Stafford)

Independent Undergraduates : First-Year Student $3,500 $9,5001

Independent Undergraduates : Second-Year Student $4,500 $10,5001

Independent Undergraduates : Third-Year+ Student $5,500 $12,5001

GRADUATE STUDENTS 4 0 $20,500 

STUDENT STATUS Aggregate Limits Aggregate Limits

DEPENDENT 

UNDERGRADUATES

$23,000 $31,0001

INDEPENDENT 

UNDERGRADUATES 2,3

$23,000 $57,5001

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 Also includes 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 students, the maximum limit during any academic 

year is: the combined Stafford and Unsubsidized Stafford 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 

Department.
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-13

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. 

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

cost as a percentage of loan originations. 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. 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.

Both FFEL and Direct Loans programs are funded by mandatory and indefinite budget authority 

and, therefore, do not receive annual discretionary appropriations. Both programs also incur 

various administrative expenses that are funded by the discretionary Student Aid Administration 

(SAA) account. In fiscal year 2018, the Administration requests $1.7 billion in SAA funding to 

administer all Title IV Federal student aid programs. This includes $680.7 million for student aid 

salaries and expenses, and $1,017 million for loan servicing activities. The 2018 SAA budget is 

discussed in the Student Aid Administration account. 

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

and defaults—associated with each dollar disbursed. 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, then the loan would have a negative subsidy rate 

of -10 percent, indicating that the Federal Government was receiving10 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.

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.

In fiscal year 2017, the Direct Loan program has an estimated net total negative subsidy—due 

in part to lower borrowing costs based on the discount rate paid by the Federal Government 

compared to the interest rates owed by borrowers. For Direct Loans, the overall weighted 

average negative subsidy rate for new and Consolidation Loans is estimated to be -1.21 percent 

in fiscal year 2017. 
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-14

However, subsidy rates can vary significantly by loan types and the estimated loan volume of 

specific loan types can also affect the overall subsidy rate. For example, Subsidized Stafford 

Loans at 8.76 percent and Consolidation Loans at 15.64 percent have positive subsidy rates 

representing a cost to the Government, while Unsubsidized Stafford loans for undergraduates at 

-5.54 percent and Unsubsidized Stafford loans for graduates at -11.95 percent have negative 

subsidy rates, reflecting a savings to the Government. PLUS loans also reflect negative subsidy 

rates at -32.84 percent for undergraduates and -15.69 percent for graduates. 

Subsidy rates also vary according to repayment options with the greatest differences appearing 

between income-driven repayment (IDR) plans and other plans such as Standard, Extended, 

and Graduated. For example, in fiscal year 2017, the cohort of Subsidized Stafford loans show 

an estimated subsidy rate of 6.41 percent under Standard (ten-year repayment), compared to a 

subsidy rate of 24.72 percent under all IDR plans. Unsubsidized Stafford loans show a subsidy 

rate of -16.74 percent under Standard repayment compared to 24.37 percent under IDR. 

However, in fiscal year 2018, under the Administration’s proposed policies, the estimated 

subsidy rate for Standard repayment for Subsidized Stafford is 4.42 percent compared to

8.13 percent under all IDR plans while the Standard repayment rate for Unsubsidized Stafford

loans is -16.45 percent versus 8.12 percent under all IDR plans. The lower overall IDR subsidy 

rates in FY 2018 reflect a reduced cost to taxpayers compared to IDR plans in FY 2017, while 

still preserving key repayment benefits for student borrowers. 

Outstanding Loan Levels

Based on the budget tables published in the 2018 Budget Appendix, at the end of fiscal year

2016, outstanding FFEL and Direct Loans principal totaled approximately $1,210 billion: 

903

232

5 70

Outstanding Loan Levels ($B): FY2016

Direct Loans

FFEL

FFEL Liquidating

ECASLA
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-15

Reestimates of Subsidy Costs

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

fiscal year 1992 by cohort to reflect updated modeling assumptions, the President’s Budget 

economic assumptions, statutory and regulatory changes, and historical loan performance. 

For the $903 billion in Direct Loan principal outstanding at the end of 2016, the 2018 Budget 

calculates that net future Federal costs of all outstanding loans is higher than projected in the 

2017 President’s Budget; this difference is the 2017 reestimate. The 2017 total net upward 

reestimate of +$28.4 billion reflects an upward component of about +$35.4 billion and a 

downward component of -$7 billion. The 2017 reestimate represents less than 4 percent of 

outstanding Direct Loan volume. The net upward reestimate is due to a variety of factors 

including updated repayment plan selection assumptions reflecting increased borrower 

enrollment in income-driven repayment plans—that as a group have higher subsidy rates—and 

collection rate assumptions reflecting lower actual collections on defaults since fiscal year 2011. 

Model assumptions affecting the 2016 cohort were also updated. These technical assumptions 

were not updated in the 2017 Budget due to the requirement in the Federal Credit Reform Act 

that estimates be based on current assumptions, as defined in section 250(c)(9) of the Balanced 

Budget and Emergency Deficit Control Act of 1985. The net upward reestimate also reflects 

costs associated with the recent increase in loan discharges for student borrowers harmed by 

institutional misconduct.

Similarly, the total change in costs for all outstanding FFEL loans at the end of fiscal year 

2016—starting with guaranteed loans made as of October 1, 1992—is the 2017 reestimate. 

The 2017 FFEL guaranteed loan reestimate reflects an upward component of +$6.37 billion and 

a downward component of -$370 million, for a total net upward reestimate of +$6 billion. Thus, 

the estimated Federal cost of prior FFEL loans (1992-2016) is higher by about $6 billion than 

previously projected and represents less than 3 percent of the guaranteed loan portfolio. Major 

drivers of the FFEL reestimate include changes to collection rate assumptions due primarily to 

collection rates on defaulted loans which were lower than anticipated. The ECASLA programs

show a net upward reestimate of +$4.79 billion, which when combined with the FFEL net 

upward guaranteed portion of +$6 billion produces an overall net upward FFEL reestimate of

+$10.79 billion in fiscal year 2017.

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

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

2014 -5,676,042 -15,715,097

2015 -3,293,567 17,303,195

2016 -1,074,690 -1,472,077

2017 10,785,834 26,833,499

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

modifications, which may produce significant annual fluctuations, such as in fiscal year 2015 when Direct Loans 

expanded an income-based repayment plan to all borrowers. FFEL totals also reflect ECASLA programs.
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-16

FY 2018 BUDGET PROPOSAL

The 2018 Budget addresses student debt by simplifying student loan repayment and redirecting 

inefficiencies in the student loan program to prioritize expedited debt relief for undergraduate 

borrowers. These loan proposals are part of a larger effort in the 2018 President’s Budget to 

simplify funding for college, while continuing to help make postsecondary education more 

affordable. 

All student loan policies would apply to loans originated on or after July 1, 2018, with an 

exception for students who borrowed their first loans prior to July 1, 2018 and who are 

borrowing to complete their current course of study. These policies would save approximately 

$143 billion over ten years and help put the Nation on a more sustainable fiscal path.

Student Loan Reform Proposals

Simplify Student Loan Programs and Repayment

In recent years, income-driven repayment (IDR) plans, which offer student borrowers the option 

of making affordable monthly payments based on factors such as income and family size, have 

grown in popularity. However, choosing and enrolling in the right repayment plan is overly 

complicated by the numerous repayment plans authorized and required by law to be offered to 

student borrowers. 

The 2018 Budget proposes to greatly simplify student loan repayment by consolidating five IDR 

plans into a single plan to make choosing a repayment plan less complex. The single IDR plan 

would apply to loans originated on or after July 1, 2018, although students who borrowed their 

first loans prior to July 1, 2018, would continue to be able to select among the existing 

repayment plans for loans borrowed to fund their current course of study and would be ineligible 

for the new proposed IDR plan. Thus, only new borrowers, (excluding Parent PLUS borrowers 

for undergraduates) as of July 1, 2018 would be eligible for the proposed single IDR plan.

This new IDR plan would set a borrower’s monthly payment at 12.5 percent of discretionary 

income, while eliminating the standard repayment cap to ensure that high-income, high balance 

borrowers make payments commensurate with their income. Married borrowers who file 

separately would have their payment determined based on both their and their spouse’s 

combined income. 

For borrowers with undergraduate student debt only, any balance remaining after 15 years of 

repayment would be forgiven. For borrowers with any graduate debt, any balance remaining 

after 30 years of repayment would be forgiven. 

To support this expedited pathway to debt relief for undergraduate borrowers, and to generate 

savings that help put the Nation on a more sustainable fiscal path, the Budget eliminates the 

Public Service Loan Forgiveness program. 
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-17

Eliminate Subsidized Stafford Student Loans

To simplify the types of loans undergraduate borrowers can take out, the Budget proposes to 

eliminate these inefficient subsidies. Therefore, all new undergraduate student loans would be 

unsubsidized. This policy would apply to loans originated on or after July 1, 2018, with an 

exception for borrowers continuing to borrow to complete their course of study.

Eliminate Account Maintenance Fees (AMF) paid to Guaranty Agencies

The 2018 Budget proposes to eliminate AMF payments to guaranty agencies given the 

significantly pared back services provided by guaranty agencies since the move to 100 percent 

direct lending and their ability to generate significant fee income through debt collection 

activities.

Accountability

Earning a college degree is one of the most important investments students can make in their 

future and remains a gateway to the middle class. Federal student grants and loans play a key 

role in helping students afford to enroll in and successfully complete college. However, some 

colleges do not hold up their end of the bargain, and they lack adequate incentives to support 

their students in graduating, finding a good job, and repaying their loans. A better system would 

create shared responsibility for success among students, schools, and the Federal Government 

to ensure students do not take on debt that they cannot afford to repay—leaving taxpayers on 

the hook for the costs of loan default or forgiveness. The Administration looks forward to 

working with Congress to address these issues in light of the anticipated HEA reauthorization.
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-18

FY 2018 Estimated New Direct Loan Volume

New Direct Loan dollar volume has increased significantly, especially from 2007 to 2011, as the 

financial crisis drove many non-traditional students to seek higher education. However, from 

2011 to 2016, as the economy recovered, volume declined. In keeping with the long-term trend 

in student loans, the budget estimates modest increases in loan volume in future years. 

Subsidized and Unsubsidized Stafford Loans are about 75 percent of new Direct Loan volume, 

with PLUS loans approximately 25 percent. Graduate school borrowing accounted for about 

34 percent of the total in fiscal year 2013 and the portion has been increasing with 39 percent 

estimated for fiscal year 2018.

New Student Loan Volume (Non-Consolidation)

(Dollars in Millions)

Program Volume FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

Subsidized Stafford $27,428 $25,730 $23,754 $22,423 $22,565 $14,528

Unsubsidized Stafford 56,111 54,590 51,791 50,643 51,651 64,439

PLUS 18,189 18,867 20,044 22,396 23,234 25,793

Total New Loan Volume 101,728 99,187 95,589 95,462 97,450 104,760

Graduate School Portion 34,814 35,335 35,330 36,551 37,535 41,122

NOTES: Loan volume and number of loans reflect net commitments.

Figures for fiscal years 2017-2018 are estimates.

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

aid, economic conditions, and enrollment demographics affect new loan demand. Historical 

loan volume data and current projections are shown below. 

0

20

40

60

80

100

120

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 18

$ (Billions)

Fiscal Year

 New Student Loan Volume (Non-Consolidation)
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-19

FY 2018 Estimated Consolidation Loan Volume

Direct Loan Consolidations grew substantially, from about $35 billion in fiscal year 2014 to 

$46 billion in fiscal year 2015, and are expected to remain steady at about $46 to $48 billion 

through fiscal year 2018. Although not definitive, the increase in 2015 may be due to increased 

marketing and outreach on the part of additional Consolidation Loan servicers brought under 

contract in July 2014. Additionally, increased borrowing in fiscal years 2009-2011 and higher 

loan balances of borrowers could all be contributing to the increase.

The noticeable increase that occurred in 2012 was due to a special temporary incentive 

program, where borrowers in repayment who had both a FFEL and a Direct Loan were offered 

an additional 0.25 percent interest rate reduction incentive to consolidate their loans under this 

special program (January-June 2012). Repayment incentives also included the regular 

0.25 percent interest rate reduction for electronic payment.

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 Federal grants, Federal Work-Study funds, and 

Federal education tax credits. The following charts show that Federal student loans are the 

largest component of the Federal postsecondary aid system. Data show new Federal student 

loans (excluding Consolidation loans) accounted for about 61 percent of academic year 2015-

2016 Federal student aid while Federal grants and work-study accounted for 28 percent. 

Federal tax benefits accounted for 11 percent. These data are based on Table 1 in the “College 

Board Trends in Student Aid 2016” (Student Aid Trends) online report, which is stated in 

constant 2015 dollars, https://trends.collegeboard.org/student-aid.

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 '16 '17 18

Volume: $ Billions

Fiscal Year

Consolidation Loan Volume

FFEL Direct Loans
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-20

Federal Postsecondary Assistance: Academic Year 2015-2016

According to this report, approximately $252 billion in total funds from Federal, State, 

institutional, and private sources were used to help finance postsecondary expenses for

academic year 2015-16. The Federal Government provided about $158 billion, or 63 percent of 

all these funds, while State, institutional, and private sources (i.e., non-Federal) provided about 

37 percent. The chart below shows the historical trend for major Federal aid programs over the 

past decade based on data in the College Board online report.

Private sector student loans are also available through commercial banks, usually with less 

generous terms than Federal student loans. Such loans increased from $19.5 billion (using 

constant 2015 dollars) in academic year 2005-2006 to a peak of $24.1 billion in academic 

year 2007-08, but declined to about $10 billion in academic year 2015-16. Private sector loans 

Federal student 

loans

61%

Federal grants 

and work-study

28%

Federal 

education tax 

credits

11%

0

25

50

75

100

125

150

175

200

05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16

Federal Aid AY 05-06 to 15-16

Pell Grants Federal Loans

Federal Work Study Federal Education Tax Benefits

Veterans and Military Grants
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-21

accounted for about 11 percent of all postsecondary aid in 2005-06, but just 3.9 percent in 

2015-16. Meanwhile, Federal loans accounted for approximately 40 percent of all 

postsecondary student aid during this time period.

Postsecondary Cost, Borrowing, and Enrollment by Institutional Sector

The 2016 “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 public 4-year

college increased by 63 percent from $12,837 in 2006-07, to $20,090 in 2016-17 (see Table 2, 

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

total cost at a private 4-year college increased by 49 percent, from $30,497 to $45,370. 

The “College Board Trends In College Pricing” report also shows (Table 2) that in constant 2016

dollars, after adjusting for inflation, during this same 10-year period, public 4-year college costs 

increased 32 percent from $15,180 to $20,090 while private 4-year college costs increased 

26 percent from $36,060 to $45,370. Historically, increases in public 4-year college costs are 

often tied to State budget reductions to higher education funding.

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

are expected to pay (“estimated family contribution”) and the cost of attendance (including 

tuition, fees, and room and board).

Stafford Loan borrowing varies considerably by type of postsecondary school attended. Based 

on the 2012 National Postsecondary Student Aid Study (NPSAS), less-than-2-year for-profit

schools had the highest reported percentage of borrowers (74.5 percent), while 2-year public

institutions, primarily community colleges, had the lowest (16.7 percent). The following table 

shows the range of borrowing based on school sector.

Percentage of Undergraduates Receiving a Federal Student Loan by Type of Institution

Using 2012 NPSAS

Institution Percent

Public: Less than 2-year 20.1%

Public: 2-year (community college) 16.7%

Public: 4-year non-doctorate-granting 37.4%

Public: 4-year doctorate-granting 53.4%

Private nonprofit: Less than 4-year 46.6%

Private nonprofit: 4-year non-doctorate-granting 61.3%

Private nonprofit: 4-year doctorate-granting 57.8%

Private for-profit: Less than 2-year 74.5%

Private for-profit: 2-year 61.3%

Private for profit: 4-year 73.1%

Using undergraduate enrollment data from the Department’s Integrated Postsecondary 

Education Data System (IPEDS), the College Board’s 2016 “Trends in Student Aid” report

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

FFEL and Direct Loans

Q-22

institutions undergraduates choose to attend. For the latest enrollment data (Fall 2014), the 

2016 report estimates about 40 percent of all undergraduate students were enrolled at 4-year 

public institutions, while 18 percent were enrolled at 4-year private nonprofit institutions. Some 

32 percent of all undergraduates were enrolled at 2-year public colleges and 10 percent were 

enrolled at private for-profit schools.

2014 Fall Undergraduate Enrollment (Percent of FTE)

Public 4-Year

40%

Private Nonprofit 

4-Year

18%

For-Profit

10%

Public 2-Year

32%

Furthermore, according to the 2016 Trends Report, the Public 4-year sector, which accounted 

for 40 percent of FTE undergraduate enrollment, received approximately 31 percent of Pell 

Grant funds in 2014-15, 41 percent of Subsidized Stafford Loans, 39 percent of Unsubsidized 

Stafford Loans, and 48 percent of Parent PLUS loan funds. By comparison, the Private 

Nonprofit 4-year sector received about 15 percent of Pell Grant funds, 24 percent of Subsidized 

Stafford Loans, 35 percent of Unsubsidized Stafford Loans, and 43 percent of Parent PLUS 

loan funds. The table below shows a summary breakout percentage distribution of these 

specific financial aid sources by school sector. 

Percentage Distribution of Selected Federal Aid Funds by Sector, 2014-15

School 

Sector Pell Grant

Subsidized 

Stafford

Unsubsidized 

Stafford PLUS

Public 4-yr 31% 41% 39% 48%

Private 4-yr 15% 24% 35% 43%

Public 2-yr 35% 15% 7% 1%

For profit 18% 19% 19% 7%

NOTE: column percentages may not sum to 100 due to rounding; rows are not intended to sum to 100.
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-23

FFEL Liquidating Account

Per the Federal Credit Reform Act of 1990, the cost of FFEL student loan commitments made 

prior to fiscal year 1992 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. Based on the 2018

Budget, total net outlays are estimated to be -$243 million in fiscal year 2017 and -$215 million 

in fiscal year 2018, 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 Amendments to the Higher Education Act (HEA) of 1998 clarified that reserve money held 

by public and non-profit guaranty agencies participating in the FFEL program are Federal 

property when held in the Federal fund, as opposed to funds held in an Operating fund that 

guaranty agencies retain control over. These Federal 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 reimbursements for default claim payments are paid into these 

funds. The Consolidated Appropriations Act, 2016, increased the reimbursement percentage 

paid to guaranty agencies by the Department of Education from 95 percent to 100 percent.

The Reserve Fund began fiscal year 2016 with an adjusted unobligated balance of about 

$1.6 billion. The Fund’s major revenues are reinsurance payments from the Federal 

Government and its major expenses are insurance payments to lenders. These and other cash 

flows resulted in an ending balance in fiscal year 2016 of about $1.2 billion. Fiscal year 2017 is 

estimated to have an ending balance of $1.7 billion.
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-24

PROGRAM OUTPUT MEASURES

Direct Loans 2016 footnote

2017 Footnote2018

footnote

Direct Stafford Loans:

Direct Stafford: Loan volume ($ in millions)

1 $22,423 $22,565 $14,528

Direct Stafford Number of loans (in thousands) 6,894 6,934 4,081

Direct Stafford Average loan (whole $) $3,252 $3,254 $3,560

Direct Stafford Subsidy rate2 12.17% 8.76% 4.40%

Direct Unsubsidized Stafford Loans

(Undergraduate):

Direct U nsubsi dized:Loan volume ($ in millions)

1 $23,553 $24,007 $34,803

Direct U nsubsi dized:Number of loans (in thousands) 6,940 7,009 7,868

Direct U nsubsi dized:Average loan (whole $) $3,394 $3,425 $3,560

Direct U nsubsi dized:Subsidy rate2 1.70% -5.54% -8.58%

Direct Unsubsidized Stafford Loans

(Graduate):

Direct U nsubsi dized:Loan volume ($ in millions)

1 $27,090 $27,643 $29,637

Direct U nsubsi dized:Number of loans (in thousands) 1,918 1,945 2,031

Direct U nsubsi dized:Average loan (whole $) $14,121 $14,211 $14,591

Direct U nsubsi dized:Subsidy rate2 -5.53% -11.95% -17.78%

Direct PLUS Loans (Undergraduate):

Direct U nsubsi dized:Loan volume ($ in millions)

1 $12,934 $13,343 $14,308

Direct U nsubsi dized:Number of loans (in thousands) 1,005 1,020 1,070

Direct U nsubsi dized:Average loan (whole $) $12,865 $13,087 $13,366

Direct U nsubsi dized:Subsidy rate2 -23.00% -32.84% -31.49%

Direct PLUS Loans (Graduate): 

Direct PLU S: Loan volume ($ in millions)

1 $9,461 $9,891 $11,486

Direct PLU S: Number of loans (in thousands) 562 572 620

Direct PLU S: Average loan (whole $) $16,832 $17,285 $18,522

Direct PLU S: Subsidy rate2 -16.09% -15.69% -27.47%

Direct Consolidation Loans:

Direct C onsoli dati on:Loan volume ($ in millions)

1 $45,633 $46,927 $48,201

Direct C onsoli dati on:Number of loans (in thousands) 813 821 826

Direct C onsoli dati on:Average loan (whole $) $56,103 $57,141 $58,327

Direct C onsoli dati on:Subsidy rate2 3.01% 15.64% 12.86%

Total Direct Loans3:

Total Di: Loan volume ($ in millions)

1 $141,095 $144,376 $152,961

Total Dire ct Number of loans (in thousands) 18,134 18,302 16,497

Total Dir ectAverage loan (whole $) $7,781 $7,889 $8,048

Subsidy Cost:

Total DirectNew loan subsidy cost ($ in millions)

4 -$9,165 -$1,961 -$10,663

Total D irect Subsidy Net Reestimate ($ in millions)

4 7,693 28,430 0

Total Direct Net Modification ($ in millions)

4 0 364 0

 DL Total Net Subsidy ($ in millions) -1,472 26,833 -10,663

Total Direct Average Weighted Subsidy rate2 -0.95% -1.21% -6.39%
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-25

Direct Loans 2016 footnote

2017 Footnote2018

footnote

Outstanding Loan Volume ($ in billions):

 Total Direct Loans Outstanding5 $903 $990 $1,071

1 Net commitments (disbursements) that 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 

savings to the Federal Government. Subsidies are weighted on gross volumes.

3 Totals reflect DL program amounts only—no Perkins Loans.

4 Subsidy amounts of existing loans are estimated on a net present value basis. Negative subsidy results 

in a net savings to the Federal Government. Net reestimates and modifications may reflect both upward 

and downward amounts—consistent with data on page Q-1.

5 Reflects total Direct Loan principal (including Consolidations) as the end-of-year estimate.

FFEL Program Loans

There are no new FFEL loans. Information on the FFEL annual reestimates and subsidy 

modifications, as well as outstanding loan volume, are presented below.

FFEL Loans 2016 2017 2018

Subsidy Cost

Subsidy C ost: Net Reestimate ($ in millions)

1 -$1,226 $10,786 0

Subsidy C ost: Net Modification ($ in millions 152 0 -$443

Total FFEL Net Subsidy ($ in millions) -1,074 10,786 -443

Outstanding Loan Volume ($ in billions):

Outstanding: FFEL Loans $232 $207 $187

Outstanding: ECASLA Loans 70 62 52

Outstanding: Liquidating Account Loans 5 4 4

Total Combined Outstanding Loan Volume2 307 273 243

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

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

amounts—consistent with data on page Q-1. The Reestimate in FY 2017 is largely due to updated 

collection assumptions. ECASLA reestimates are also included, consistent with the Budget Appendix.

The proposed modification in FY 2018 is to eliminate Account Maintenance Fees to guaranty agencies.

2 Reflects total FFEL and Liquidating account loan principal (including Consolidations) as end-of-year 

estimate.
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-26

Median Federal Student Loan Debt

National Student Loan Data System (NSLDS) data reveal that the median level of outstanding 

Federal student loan balances owed (i.e., Subsidized Stafford and Unsubsidized Stafford 

Loans) per student for all undergraduate borrowers upon entering repayment has increased 

substantially over time, from $3,504 in 1990, to $8,730 in 2000, and to $17,492 for those who 

entered repayment in 2015. Graduate student loan debt has also increased substantially from 

$9,234 in 1990, to $23,146 in 2000 and $44,776 in 2015. Amounts are shown in current dollars. 

Graduate debt reflects borrowing at the graduate level only. 

Median Undergraduate Federal Student Loan Debt When Entering Repayment

Median Graduate Federal Student Loan Debt When Entering Repayment

0

5,000

10,000

15,000

20,000

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

Debt Level: Whole Dollars

Enter Repayment Fiscal Year 

0

10,000

20,000

30,000

40,000

50,000

90 92 94 96 98 00 02 04 06 08 10 12 14

Debt Level: Whole Dollars

Enter Repayment Fiscal Year
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-27

Undergraduate and Graduate Borrower Distribution by Family 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 (AY) 2015-2016. Graduate student data is also presented.

Approximately 56 percent of Subsidized Stafford Loan dependent borrowers come from families 

with under $60,000 in family income, while about 41 percent of the Unsubsidized Stafford Loan

dependent borrowers come from families with under $60,000 in family income. Notably, 

47 percent of all Unsubsidized Stafford Loan dollars go 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. Graduate student borrowers are also concentrated in the under-

$20,000 income category.

Percentage of Borrowers and Dollars of Aid by Income Category: AY 2015-16 (NSLDS)

Dependent Students (Income Categories = dollars in thousands)

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

Subsidized Stafford Borrowers 20.0% 19.7% 16.2% 14.4% 11.6% 18.1%

Subsidized Stafford Dollars 19.5% 19.9% 16.7% 14.7% 11.6% 17.7%

Unsub. Stafford Borrowers 14.3% 14.5% 12.6% 12.3% 11.9% 34.4%

Unsub. Stafford Dollars 11.5% 11.1% 9.4% 9.7% 11.1% 47.2%

Independent Students (Income Categories = dollars in thousands)

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

Subsidized Stafford Borrowers 55.3% 25.8% 9.7% 4.8% 2.5% 1.8%

Subsidized Stafford Dollars 54.3% 26.3% 10.0% 5.0% 2.6% 1.8%

Unsub. Stafford Borrowers 52.7% 25.0% 9.9% 5.5% 3.2% 3.8%

Unsub. Stafford Dollars 50.0% 24.9% 10.3% 6.0% 3.7% 5.1%

Graduate Students (Income Categories = dollars in thousands)

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

Unsub. Stafford Borrowers 43.8% 20.4% 13.3% 8.1% 5.7% 8.9%

Unsub. Stafford Dollars 50.8% 18.6% 11.5% 6.9% 4.7% 7.5%

PLUS Borrowers 61.8% 15.9% 9.1% 4.7% 3.1% 5.3%

PLUS Dollars 64.6% 14.9% 8.6% 4.2% 2.7% 4.9%

NOTE: Loan Type measures for Borrowers 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.
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-28

Undergraduate Students by Income Category

These tables, using NPSAS 2012 data from award year 2011-2012, 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 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 Unsubsidized Stafford Loans, and 83.2 percent reported receiving 

some type of Federal aid.

These tables show that Federal aid in general goes to lower- and middle-income groups, as 

intended. For instance, in the dependent students table, 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 Aid: 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 Aid % 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 Aid % Receiving 69.6% 54.9% 42.4% 31.7% 27.8% 20.8%

NOTES: In both tables above, 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.

“Federal Aid” reflects percentages of students receiving any form of Federal aid including student loans, 

grants, or work-study. 
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-29

Loan Volume by Institutional Sector

The following charts are based on NSLDS and related data.

Distribution of New Loan Volume Dollars by Institution

FY 2016 4-Yr. Public 4-Yr. Private 2-Yr. Public 2-Yr. Private Proprietary

Direct Loans 41.8% 37.0% 5.9% 0.3% 15.0%

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

and proprietary school sectors. (DL data are from program inception in fiscal year 1994.)

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

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

to almost $83 billion in fiscal year 2011, although recent total 4-year volume has remained 

relatively level since 2011. The loan volume at 4-year institutions accounts for about

79 percent of all gross commitment loan volume in fiscal year 2016. 

• Loan volume at proprietary institutions increased substantially between fiscal years 1999

and 2010. However, proprietary school loan volume continues to decline between fiscal 

years 2010 and 2016, from $29.4 billion to $15.4 billion. In fiscal year 2010, proprietary 

school loan volume was 26 percent of total volume, and in fiscal year 2016, 15 percent.

• Loan volume at 2-year institutions remained steady during the 1990s, rose to $2 billion in 

fiscal year 2001 and then increased to $10.2 billion in 2012. Levels have decreased 

annually for the past 4 years. Relative to the other sectors, student loan volume at 2-year 

schools is comparatively small, accounting for only 6.2 percent of all loan volume in 2016.

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 '15

Volume: $ Billions

Fiscal Years 1983 - 2016

4-year 2-year Proprietary
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-30

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. As of July 1, 2012, graduate and professional students are no longer 

eligible for Subsidized Stafford Loans, explaining the sharp decrease in the Subsidized Stafford 

Loan volume in that year. FY 2018 reflects the proposed policy to make all Stafford loans

unsubsidized for new borrowers, with an exception for borrowers continuing to borrow to 

complete their course of study.

Subsidized Stafford Loan and Unsubsidized Stafford Loan Volume

NOTE: Loan volume is estimated for fiscal years 2016-2018.

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 based, in part, on the 

cumulative effect of program resources available in previous years as well as in fiscal year 2018

and future years, and the resources and efforts invested by those served by this program. 

The student loan programs and other Federal 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 Financial Assistance account, and are not repeated here. 

However, in response to a GAO recommendation regarding the development of program 

performance measures for Teacher Loan Forgiveness, the Department has initiated a metric to 

track the number of borrowers who receive forgiveness. Since trends in loan forgiveness tend 

to follow trends in the Stafford loan program, this metric will track the number of Stafford 

0

10

20

30

40

50

60

70

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 18

Volume: $ Billions

Fiscal Year Subsidized Stafford

Unsubsidized Stafford
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-31

borrowers who receive forgiveness per year, including loans from both DL and FFEL programs. 

This number is estimated to increase in future years as the Department finds ways to better 

publicize and promote these programs as GAO recommended. Specifically the Department is 

working on ways to raise awareness more effectively among both current and incoming 

students and among potentially eligible borrowers who have already entered the workforce.

The following table reflects current baseline (2010 – 2016) and target (2017 – 2021) levels for 

the number of Stafford Loan borrowers receiving Teacher Loan Forgiveness.

Teacher Loan Forgiveness Performance Measure

Fiscal Year

Number of Borrowers

Receiving Forgiveness

2010—Baseline 21,564

2011 29,618

2012 28,472

2013 34,599

2014 38,502

2015 33,619

2016 36,602

2017—Target 37,000

2018 39,000

2019 41,000

2020 43,000

2021 45,000

Based on the 2008 NPSAS, 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 2012 NPSAS, 57.2 percent of 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 the 

2008 NPSAS, 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. Some of 

this trend was due to the change in graduate student eligibility for Subsidized Stafford and to the 

increasing use of PLUS, rather than private loans.

In fiscal year 2016, the Direct Loan program, excluding Consolidations, provided approximately 

$95 billion in new loan assistance to an estimated 8.7 million qualified borrowers. In doing so, 

the Federal student loan programs helped ensure access to postsecondary education by 
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-32

providing loans to students and their families at lower interest rates and with more favorable 

repayment terms than they would be able to obtain elsewhere. Without access to Federal 

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

lenders have underwriting standards that would restrict access to students with little or no work 

experience or credit history. In addition, private loans have few of the protections of Federal 

loans and often have higher interest rates.

National Student Loan Cohort Default Rate

Given the annual volume of Federal student loans, ensuring that those taxpayer-funded loans 

are repaid is critical to the long-term success of the student loan program. In addition, since the 

consequences of default on a Federal student loan are severe, the Administration is committed 

to ensuring that borrowers can easily select a repayment plan and have student loan payments 

that are manageable. The Administration’s proposed policy for creating a single income-driven 

repayment plan further enhances the prospects of student repayment success by simplifying 

and streamlining income-driven options into one uniform plan for new borrowers.

With the introduction of income-driven repayment plan options, the Department has significantly 

improved borrower opportunities to select repayment plans that can help make student loan 

debt more manageable.

For example, over the past 2 years, data from the Department’s FSA Data Center show that the 

number of Direct Loan borrowers enrolled in income-contingent, income-based, PAYE, and 

REPAYE repayment plans has more than doubled to almost 5.6 million borrowers as of 

September 30, 2016, compared to September 30, 2014.

The national student loan “cohort default rate” measures student loan borrower default behavior 

in the first 3 years of repayment, but excludes PLUS loan defaults. This measure was 

established by the Omnibus Budget Reconciliation Act of 1990 (OBRA), to exclude “highdefault” institutions from participation in the loan programs. The measure looks at the 

performance of an institution’s loans in the first 2 years of repayment. Under this law, schools

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 threshold to 

30 percent for fiscal years 2012 and beyond. HEOA also changed the window from 2 years to 3 

years, starting with the borrowers who would enter repayment in fiscal year 2009. Only the 3-

year cohort default rate is now published, starting with the 2012 cohort.

The first official 3-year cohort default rate issued for the 2009 cohort, published on September 

28, 2012, was 13.4 percent. The most recent 3-year cohort default rate for the 2013 cohort was 

11.3 percent. For the 2013 cohort, over 5.2 million borrowers from 6,155 postsecondary 

institutions entered repayment and approximately 593,000 of those borrowers defaulted within a 

3-year period.

The national cohort default rate also includes component data on cohort default rates by school 

sectors. The 2013 cohort default rates published showed public 2-year schools sector with 

18.5 percent, the proprietary school sector with 15 percent, and the private non-profit 2-year 
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-33

schools sector with 16.4 percent. The rates are lower for borrowers at 4-year public and private 

schools: 7.4 percent and 6.6 percent respectively.

2-Year and 3-Year National Cohort Default Rates

The national “cohort default rate” (as shown above) measures borrower default behavior in just 

the first 2 years or 3 years of repayment—any defaults outside this period are not incorporated

into the default rate. As a result, this rate does not reflect the “lifetime dollar default rates” used 

in budget formulation to project future default costs. The lifetime default rates account for 

defaults over the entire loan-life and are significantly higher than the 3-year cohort default rate. 

FY 2018 Cohort Lifetime Dollar Default and Recovery Rates

The following table shows the estimated dollar default and recovery rates for the 2018 cohort of 

new 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, it is the primary driver of the estimate of total 

collections. However, the Federal Government might only recover some or none of the dollars 

for a loan in default, particularly if a borrower enters an income-driven repayment plan after 

entering repayment

17.617.2

21.422.4

17.8

15

11.610.710.4 9.6 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

13.4

14.713.7

11.8

11.3

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 '12 13

Default Rate (%)

Fiscal Year (Repayment Cohort)

2-Year National 3-Year National
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-34

FY 2018 Cohort Lifetime Dollar Default and Recovery Rates

Direct Loans

Lifetime 

Default

Rate

Cash 

Recovery 

Rate

Cash 

Recovery Rate

(net of CCC)

NPV Recovery 

Rate (net of 

CCC)

Subsidized Stafford 19.73% 104.60% 92.08% 77.61%

Unsub Stafford (Undergrad) 28.93% 104.34% 91.70% 77.31%

Unsub Stafford (Graduate) 7.66% 96.17% 86.35% 75.72%

Unsub Stafford (Combined) 19.15% 102.83% 90.71% 77.03%

PLUS (Undergrad) 8.75% 107.68% 94.36% 77.11%

PLUS (Graduate) 8.31% 95.60% 85.30% 73.74%

PLUS (Combined) 8.55% 102.45% 90.44% 74.89%

Lifetime Default Rate: Default rates for the 2018 cohort of Direct Loans range from 

28.93 percent for Unsubsidized Stafford Loans (undergraduates) to 7.66 percent for 

Unsubsidized Stafford Loans (graduates). Lifetime dollar defaults as a percentage of 

disbursements, reflect 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.

Cash Recovery Rate: The Budget estimates that cash recovery rates exceeding 100 percent 

indicate 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 prior years where contract collection costs (CCC) are included in the gross 

recovery rate. This column 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. It includes collection costs that are assessed on the loans of defaulted borrowers and 

paid to collection agencies. However, these collection costs may not be assessed on those 

borrowers who meet certain conditions and enter back into a good standing on their loans.

Cash Recovery Rate (net of CCC): The cash recovery rates of less than 100 percent show 

recovery rates net of contract collection costs—where contract collection costs are not 

included—since the dollars do not return to the Federal Government but are used to pay private 

debt collection contractors. 

This column 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. It does not 

include collection costs. However, these collection costs may not be assessed on those 

borrowers who meet certain conditions and enter back into a good standing on their loans. 

These estimates also assume that borrowers who return to good standing repay their loans 

under the original loan terms. 

NPV Recovery Rate (net of CCC): 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 in recovering

defaulted Direct Loans. 
STUDENT LOANS OVERVIEW

FFEL and Direct Loans

Q-35

This column 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 2018 budget discount rates. It does not include collection costs. However, these 

collection costs may not be assessed on those borrowers who meet certain conditions and who 

return to repayment and good standing on their loans. These estimates also assume that 

borrowers who return to good standing repay their loans under the original loan terms.