An outgrowth of the Higher Education Act of 1965, the FFEL program has become the primary source of financial aid for students attending both traditional universities and career-oriented colleges and trade schools. The FFEL program design is supposed to be simple.
College students apply for loans through their financial aid office.
The amount of loan subsidy depends on the student's personal and family income. Private banks and other financial institutions provide the loan capital, which is guaranteed against default, death, or permanent disability by various guarantee agencies. The federal government provides reinsurance funds to the direct guarantors. A combination of subsidies is designed to encourage lenders and guarantors to participate in the program, from paying a student's interest while the student is in school to providing guarantors with reinsurance funds and administrative cost allowances. Over the years, these subsidies have created a giant student loan bureaucracy.