The FFELP represents the largest federal source of financial aid for college
The FFELP is a public-private partnership created by Congress in 1965 to deliver and administer guaranteed education loans for students and their parents. The program has provided nearly $695 billion in low-cost loans to tens of millions of students and parents.

The FFELP provides the following types of loans for postsecondary education and training:

• Stafford loans. Stafford loans represent the largest component of the FFELP, supplying more than $54 billion in aid for college each year. Subsidized Stafford loans are available to students who demonstrate financial need. The federal government pays the interest on these loans while the student is in school, during a six-month grace period after the student leaves school, and during authorized periods of loan deferment. Unsubsidized Stafford loans are available to students regardless of their financial need; however, the student is responsible for all interest that accrues on the loan.
  
• PLUS loans. Parents can borrow up to the total cost of their children's undergraduate education, less financial aid from other sources. Graduate and professional students also may take out PLUS loans. The FFELP annually supplies $9.2 billion in PLUS loans to parents and to graduate and professional students.
  
• Federal Consolidation loans. Borrowers can consolidate their federal education loans into one loan with a single monthly payment and, depending on their outstanding loan balance, extend their repayment period. During fiscal 2008, borrowers combined more than $9 billion in existing education debt through Federal Consolidation loans.

How the FFELP works to deliver vital financial aid
The process begins when a student applies for financial aid by completing the Free Application for Federal Student Aid. Based on an analysis of the information provided on the FAFSA, the school that the student plans to attend assembles a financial aid package for the student. The financial aid package may include a combination of grants, scholarships, work-study and a recommended loan amount. The aid package is designed to cover students' "unmet need" — the difference between the amount that students and their families are expected to contribute toward their education and the cost of attending that school.

If the student accepts an award package that includes a FFELP loan, the student, with the help of the school's financial aid office, selects a lender. The lender is willing to make the loan, despite the student's lack of employment, credit history or collateral, because a guarantor stands behind the loan. Behind the scenes, the school, lender, guarantor and U.S. Department of Education work together to ensure that the student is eligible to borrow the amount requested. Thanks to advances in technology and streamlined processes, a FFELP loan can be approved in a matter of minutes.

The guarantor also may help the school and lender disburse the student's loan to campus. The school applies the proceeds to the student's tuition, fees and other expenses, and delivers the remaining balance to the student.

Specialized third-party loan servicers may assist guarantors and lenders with their responsibilities. For example, loan servicers work on behalf of the lender by issuing repayment booklets, collecting payments, tracking loan balances and keeping in touch with the borrower during the life of the loan. A FFELP loan eventually may be sold through a student loan secondary market. These secondary market activities replenish the supply of private funds available to support new education loans to other students and parents.

Six months after the student leaves school, repayment on the loan begins. FFELP borrowers can select from several flexible repayment options, including equal monthly installments, payments that gradually rise over the repayment term, payments linked to the borrower's current income, and extended repayment terms. Borrowers who face temporary financial problems may qualify to defer or reduce their loan payments for a designated period.

Most FFELP borrowers make their loan payments on time. If a borrower falls behind in payments, the lender or loan servicer will attempt to contact the borrower. If payments become two months or more past due, the lender contacts the guarantor, and together they begin a series of telephone calls and letters in an effort to prevent the borrower from defaulting on the loan.

Despite these intensive default prevention efforts, some borrowers default on their loans by failing to make a payment for nine months. Just 6.7 percent of all Stafford loan borrowers who entered repayment during fiscal 2007 were in default as of the end of fiscal 2008, the most recent period for which final figures are available. A loan is in default when the payment is 270 days or more past due. The lender presents to the guarantor a claim for partial payment on the defaulted loan. If the claim is in order, the guarantor purchases the loan from the lender. The guarantor then files for partial reimbursement from the U.S. Department of Education. After default, the guarantor continues attempts to collect from the borrower.