	Background

Title IV of HEA authorizes federal student aid programs, including the  Direct Loan Program and FFELP. In the ensuing years,  competition between the two loan programs has been credited with  improving service to schools and benefits for borrowers. About One-Third of Postsecondary Schools That Provided Federal Loans since 1994-95 Have Participated in the Direct Loan Program

Of the schools that provided federal student loans in each year since   1994-95, approximately 1,200—or 29 percent—provided loans through the  Direct Loan Program, and most of those schools continued to participate  in the Direct Loan Program in school year 2001-02. Since 1998-99, the  Direct Loan Program’s share of total new loan volume has steadily  decreased from its peak of 34 percent to 28 percent in 2001-02. During this  same time period, the number of schools that began to participate in the  program was smaller than the number of schools that stopped  participating. Four factors—(1) streamlined loan  delivery, (2) greater control over loan processes, (3) timely delivery of  money to students, and (4) ease of tracking loans over time—were  extremely or very important in influencing 70 percent of Direct Loan  schools’ decision to participate in the Direct Loan Program. A Variety of Factors Influenced Schools’ Decision to End Participation in the Direct Loan Program

A number of schools that joined the Direct Loan Program but subsequently  stopped participating reported that different factors influenced their  decision to do so. FSA Does Not Collect Information on the Factors Influencing Schools’ Decision to Stop Participating

FSA does not systematically collect information about the factors that  influence schools’ decision to stop participating in the Direct Loan  Program, although this information could be used to identify needed  program improvements. Direct Loan Schools Are Satisfied with Steps Taken by FSA to Make the Program User-Friendly but Identified Opportunities for FSA to Improve These Services

FSA has made the Direct Loan Program more user-friendly for schools and  students by (1) using Web sites to disseminate and collect information and  forms, (2) implementing a new information system to originate and  disburse Direct Loans, and (3) designating regional staff to assist Direct  Loan schools. FSA officials stated that  they are aware of schools’ concerns and are developing a strategy to  redesign its Web sites. Direct Loan Schools Reported That FSA’s Web Sites Have Helped Them Administer the Program, but Navigating among Multiple Sites Can Be Challenging

Many Direct Loan schools reported on our survey that FSA’s Web sites  helped them administer the Direct Loan Program but that navigating  among FSA’s Web sites was challenging. Matters for Congressional Consideration

In light of questions about provisions in the HEA concerning Direct Loan  Program origination fees, Congress should consider clarifying the extent  to which Education may regulate the loan origination fees charged to  borrowers during its reauthorization of the HEA.
Why GAO Did This Study

In 1993, Congress authorized the William D. Ford Federal Direct Loan Program as an alternative to the Federal Family Education Loan Program (FFELP). While the Direct Loan Program was originally mandated to replace FFELP, Congress revised the law allowing both loan programs to continue. Since that time, competition between the programs has been credited with improving borrower benefits and service for schools. The Department of Education's (Education) Office of Federal Student Aid (FSA) and its contractors administer the Direct Loan Program, and one of its goals is to improve customer service. In light of the upcoming reauthorization of the Higher Education Act (HEA), which authorizes the loan programs, this report examines the extent to which schools participate in the Direct Loan Program, factors that influenced schools' decision to begin--and for some schools end--participation, and steps that FSA has taken to increase the userfriendliness of the program.

What GAO Found

Of schools that provided federal loans in every year since 1994-95, approximately 1,200 postsecondary schools--or 29 percent--have provided loans through the Direct Loan Program, and most continued to participate in school year 2001-02. The Direct Loan Program's share of total new loan volume has steadily decreased from its peak of 34 percent in 1998-99 to 28 percent in 2001-02, and the number of schools that have joined the program is much smaller than the number of school that have stopped participating. Four factors--(1) streamlined loan delivery, (2) greater control over loan processes, (3) timely delivery of money to students, and (4) ease of tracking loans over time--were extremely or very important in influencing schools' decision to participate in the Direct Loan Program. Schools that joined and subsequently left the Direct Loan Program reported a number of factors that influenced their decision, including difficulties fulfilling certain program requirements and reduced or no loan origination fees offered by FFELP lenders. Education has reduced origination fees for Direct Loan borrowers, but its regulatory authority to do so has been challenged. FSA does not systematically collect information from schools about the reasons why they stop participating in the Direct Loan Program, although this information could be used to identify needed program improvements. FSA has taken a number of steps to increase the user-friendliness of the program, such as using Web sites to disseminate and collect information and forms. Many Direct Loan schools reported that FSA's Web sites are effective in helping them administer the program and have simplified the process for Direct Loan borrowers, but it is challenging to navigate among multiple Web sites. FSA officials are aware of schools' concerns and are developing a plan to redesign its Web sites. FSA has also implemented a new information system that originates and disburses Direct Loans to students faster, and 72 percent of Direct Loan schools were generally or very satisfied with this system.