Created under the Student Loan Reform Act of 1993, the first direct loans were issued in July 1994. Direct loans now represent nearly one third of federal loan volume. Historically Black Colleges and Universities, tribally controlled schools and Navajo community colleges are exempt from sanctions until July 1998. In addition, under department regulations, schools with a one year default rate over 40 percent may have their eligibility for all federal student aid programs restricted or terminated. The total number of schools affected by one or both sanctions is 269.
None are first year direct loan schools.
Riley also cited the role of improved department data systems in reducing defaults, including the National Student Loan Data System that collects data on some 35 million students and is used by 6,200 schools. The department's more rigorous screening process for schools seeking to participate or remain eligible for federal student aid programs has also had a positive effect. Borrowers who default on federal loans face serious repercussions, such as the withholding of federal income tax refunds, wage garnishment, adverse reports to credit bureaus, denial of further federal student aid, and litigation. Borrowers who believe they may be in default on a federal student loan should contact the holder of the loan for more information about available repayment options.