Legal Seminar, Denver, CO

Student Loan Servicing: Federal Student Loan Programs

• Under the Direct Loan Program, ED is the direct lender to the student borrower, the owner of the loans, and assumes the risk of loss through borrower default.

• Under the FFEL Program, student loans are originated by private lenders and ED guarantees lenders against loss through borrower default.

• As of 2017:Q4, there were $1.05 trillion in Direct Loans outstanding and $305 billion in FFELP Loans outstanding.

For Discussion Purposes Only

Student Loan Servicing: Federal Student Loan Servicing • Per the HEA, ED contracts with loan servicers to collect payments, respond to customer service inquiries, and perform other administrative tasks associated with Direct Loans as well as those FFELP Loans owned by ED.

• For outstanding FFELP Loans not owned by ED, the private lender contracts with servicers to arrange for servicing.

• The HEA directs ED to award servicing contracts only to entities “which the Secretary determines are qualified to provide such services” and “that have extensive and relevant experience and demonstrated effectiveness.” • As of 2017:Q3, 93 percent of all Direct Loans and ED-owned FFELP Loans were serviced by four student loan servicers under contracts with ED with the remaining portion serviced by a handful of smaller servicers.

For Discussion Purposes Only