The William D. Ford Direct Loan (Direct Loan) program is authorized under Title IV, Part D of the Higher Education Act of 1965 (HEA) and is the primary federal student loan program. It makes available loans to undergraduate and graduate students and the parents of dependent undergraduate students to help them finance postsecondary education expenses. Four types of loans are offered: Direct Subsidized Loans; Direct Unsubsidized Loans; Direct PLUS Loans; and Direct Consolidation Loans, through which borrowers may combine multiple loans into a single loan. The Office of Federal Student Aid (FSA), within the U.S. Department of Education (ED), administers the Direct Loan program. In total, ED manages an outstanding loan portfolio of approximately $1.3 trillion, making it one of the largest financial institutions in the nation. Direct Loan program loans make up approximately $963.5 billion (74%) of ED's loan portfolio. Prior to the establishment of the Direct Loan program, the primary federal student loan program was the Federal Family Education Loan (FFEL) program. Under the FFEL program, loan capital was provided to borrowers from private lenders and the federal government guaranteed lenders against loss through borrower default. FFEL program loans were originated by private lenders, and state and nonprofit guaranty agencies received federal funds to play the lead role in administering many aspects of the program, such as providing assistance in preventing delinquent borrowers from going into default. Authorization for the Direct Loan program was enacted under the Student Loan Reform Act of 1993, part of the Omnibus Reconciliation Act of 1993 ( P.L. 103-66 ). The program was established with the goal of streamlining the student loan delivery system. At that time, the FFEL program involved numerous parties from both the private and public sectors and concerns had arisen about the program structure being difficult to monitor and cumbersome to borrowers and schools. When enacted, the Direct Loan program was originally intended to gradually expand and replace the FFEL program; however, provisions calling for a full transition from the FFEL program to the Direct Loan program were repealed under the Higher Education Amendments of 1998 ( P.L. 105-244 ). For nearly two decades, both the FFEL and Direct Loan programs operated simultaneously and institutions of higher education (IHEs) were able to participate in the program of their choice. In 2010, the SAFRA Act, part of the Health Care and Education Reconciliation Act of 2010 ( P.L. 111-152 ), terminated the authority to make new FFEL program loans. Under the Direct Loan program, the federal government essentially serves as the banker by providing loans to students and their families using federal capital (i.e., funds from the U.S. Treasury). The federal government is also the owner of the loans and assumes the risk of loss through borrower default. Although the federal government is the lender and owner of Direct Loans, several parties perform key functions in administering the program: The Office of Federal Student Aid (FSA) —FSA is a performance-based organization within ED that is the primary entity responsible for developing the administrative and financial management policies and functions for the federal Title IV student financial aid programs. FSA responsibilities are set forth in Section 141 of the HEA and include contracting for systems to support the programs; providing customer service, training, and user support for the administration of the programs; and ensuring the integrity of the programs. Institutions of Higher Education —IHEs involved in administering the Direct Loans are those schools at which students are using the program's loans to help finance their cost of attendance. IHEs help verify borrower eligibility to borrow Direct Loans, perform need analysis calculations and package student aid for current and prospective students, originate and disburse loans, report student enrollment information to ED, and make loan refunds to students and/or ED in specified situations. Loan Servicers —Loan servicers are nonfederal entities that are hired as contractors to perform loan servicing, accounting, and delinquency processing work. Some of their key responsibilities include processing payments, communicating with borrowers about the status of their loans, and providing information about Direct Loan benefits and features (e.g., deferment and repayment plan options). Private Collection Agencies (PCAs ) —PCAs are nonfederal entities that are hired as contractors to perform loan collection activities when borrowers default on their federal student loans. Some of their key responsibilities include locating and contacting delinquent borrowers and attempting to collect payment on defaulted loans. This report discusses the major statutory and regulatory provisions and subregulatory guidance pertaining to the administration of the Direct Loan program. Although the administrative requirements for multiple Title IV student aid programs (e.g., Pell Grant) may be similar to or overlap with Direct Loan program requirements, unless otherwise noted this report will only discuss such requirements in the context of the Direct Loan program. The report begins by outlining FSA's broad role in developing administrative processes for the program. After that, it is organized in a manner that follows the "lifecycle" of a Direct Loan, highlighting key processes and parties involved in the various phases of the program's administration. These phases begin when a student's application for federal student aid is submitted and processed and continue through loan origination, disbursement, and repayment—and in some instances, default management. Processes, policies, and guidance related to the administration of the Direct Loan program are subject to regular change or adjustment; the descriptions herein are accurate as of the date of publication of this report. The U.S. Department of Education's Office of Federal Student Aid (FSA) is tasked with administering the Title IV federal student aid programs, including the Direct Loan program. Although FSA generally does not administer many of the day-to-day functions of the Direct Loan program (e.g., loan disbursement, loan servicing), it is responsible for implementing policies and procedures to enable them. This section of the report provides an overview of several duties FSA is responsible for carrying out to enable the operation of the Direct Loan program. FSA is specifically established as a performance-based organization (PBO) under Section 141 of the HEA. It was established in the Higher Education Amendments of 1998 ( P.L. 105-244 ) as the federal government's first PBO in response to the growing belief that ED needed restructuring to significantly improve the efficacy and efficiency of federal student aid delivery. PBOs are intended to be results-driven organizations that have clear objectives and measurable goals intended to improve an agency's performance and transparency. PBOs are led by chief executives who are personally accountable for meeting measurable goals within the organization. In exchange, PBOs are granted greater discretion to operate more like private-sector companies, with more control over budget, personnel decisions, and procurement. FSA operates as a discrete management unit within ED. It is responsible for the administrative and oversight functions supporting the HEA Title IV federal student aid programs, but the Secretary of Education (the Secretary) retains responsibility for the development and promulgation of policies and regulations relating to the Title IV programs. FSA is subject to the direction of the Secretary, but the Secretary is required to consult with FSA's Chief Operating Officer (COO) in the development of regulations and policies relating to the Title IV programs. Hereinafter, the terms FSA and ED will be used interchangeably, unless otherwise noted. HEA Section 141(b)(2) describes the types of administrative functions for which FSA is responsible. They include the following: 1. collecting, processing, and transmitting data to federal student aid stakeholders (e.g., students, IHEs); 2. defining technical specifications for software development and procurement, acquiring software and hardware, and contracting for all information technology and financial systems related to the administration of Title IV student aid; 3. providing all customer service, training, and user support related to the administration of Title IV student aid; and 4. ensuring the integrity of the Title IV student aid programs. The Secretary may also allocate additional functions to FSA as the Secretary and COO determine necessary and appropriate. Although FSA has many functions, this report will describe a few key ones as they relate to student aid delivery in general, and the Direct Loan program specifically. Specific functions to be discussed include FSA's procurement and operation of some of the various Title IV processing systems (e.g., the Central Processing System), FSA's contracting for student loan servicing, and FSA's Student Loan Ombudsman. Each function will be discussed in detail throughout the report when appropriate. HEA Section 141 directs FSA's COO to appoint a Student Loan Ombudsman (the Ombudsman) to provide timely assistance to borrowers of Title IV loans. In doing so, the Ombudsman is tasked with reviewing and attempting to resolve informally borrower disputes with, as appropriate, IHEs, loan servicers, and other participants in the Title IV loan programs. For instance, the Ombudsman can help resolve discrepancies related to loan balances and payments; identify options to resolve borrower issues related to consolidation, service quality, default status, bankruptcy, and income tax refund offsets; explain loan interest and collection charges; and clarify requirements for loan deferment or forbearance and loan cancellation or discharge. The Ombudsman cannot, however, make binding decisions or overturn the decisions of other entities; accept complaints about grants, such as Pell Grants; or replace formal channels of dispute resolution within ED. This section of the report discusses key aspects of Direct Loan program administration from the time students complete and submit the Free Application for Federal Student Aid (FAFSA) through the time that Direct Loans are disbursed to borrowers.