	Introduction

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. Direct Loan program loans make up approximately $963.5 billion (74%) of ED's loan portfolio. 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. The Office of Federal Student Aid

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. The key parties involved in this phase of the process are the following:
FSA , which develops and maintains the FAFSA, contracts for the operation and maintenance of information technology systems, and provides oversight of Title IV participating IHEs and third-party servicers; IHEs , which verify student eligibility for loans, asses students' levels of need for financial assistance and package financial aid, disburse funds (received from FSA) to students and parent borrowers, provide loan counseling to students, and periodically report to the National Student Loan Data System (NSLDS) to confirm students' enrollment/aid eligibility status; and/or Third Party Servicers , which may perform any or all of the administrative duties of an IHE as a contractor for it. Loan Servicing

After a borrower's first Direct Loan is disbursed, it is assigned by FSA to a loan servicer, which performs a variety of Direct Loan program administrative functions as an FSA contractor. Loan Servicer Functions

After a Direct Loan is disbursed to a borrower, it is assigned to one of several federal student loan servicers with which FSA has contracted to perform myriad loan servicing functions. Although the precise method through which this is achieved may vary among servicers, in general, the following tasks are performed by all loan servicers for a large proportion of Direct Loan borrowers:
providing required disclosures to borrowers about various Direct Loan terms and conditions before a first payment on the loan is required and periodically during repayment; providing information to borrowers on the several repayment plan options, such as the Standard Repayment Plan and the various income-driven repayment plans, while the borrower is in school and during repayment; processing applications for enrollment in a borrower's selected repayment plan, calculating the amount of payments owed monthly by a borrower, and sending occasional communications to borrowers regarding their selected repayment plans; recertifying borrower eligibility for income-driven repayment plans and recalculating monthly payments based on borrower income and family size information provided during the annual recertification process; collecting and applying loan payments to outstanding balances; processing requests for loan deferment or loan forbearance; processing applications to consolidate federal student loans into a Direct Consolidation Loan; reporting loans and loan status to consumer reporting agencies and reporting loan status to NSLDS; providing information to borrowers about loan cancellation, discharge, and forgiveness benefits; reporting loan interest payments to the IRS and providing loan interest payment statements to borrowers; and providing delinquency and default prevention activities. Default and Debt Resolution

If a borrower defaults on his or her Direct Loan, a variety of actions may be taken by FSA and its contractors to attempt to reinstate it as a loan in active repayment and recover payment on it. Private Collection Agencies

In many instances, if a borrower becomes more than 360 days delinquent on his or her Direct Loan, the account is assigned to one of several PCAs with which FSA has contracted to perform myriad debt resolution functions. Depending on individual borrower circumstances, a PCA may also offer a compromise of loan payment or determine whether a borrower is eligible for administrative wage garnishment.
The William D. Ford Federal Direct Loan (Direct Loan) program, authorized under Title IV, Part D of the Higher Education Act of 1965 (HEA), 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. As of the end of FY2016, there was approximately $949.1 billion in outstanding Direct Loan program loans. Direct Loan program administrative expenses totaled approximately $771 million in FY2016.
Under the Direct Loan program, the federal government essentially serves as the banker by providing loans to students and their families using federal capital and assuming the risk of loss against borrower default. In addition, the federal government, via the U.S. Department of Education's Office of Federal Student Aid (FSA), manages the outstanding loan portfolio and is responsible for the program's administration. FSA is primarily responsible for developing the administrative functions and processes and performing oversight activities for the Direct Loan program to enable its day-to-day operation. Additional parties, including institutions of higher education (IHEs), contracted loan servicers, and contracted private collection agencies (PCAs), perform many of the routine administrative tasks for the program.
The first step in administering a Direct Loan is processing a student's Free Application for Federal Student Aid (FAFSA). After a student has completed his or her FAFSA, FSA's automated systems process the application and make an initial determination regarding a student's eligibility for federal student aid. IHEs then receive the processed information and take a variety of steps to award financial aid, including Direct Loans, to the student. Steps taken by the IHE at this point include packaging available aid for the student, originating and disbursing any Direct Loans the student is eligible for and has accepted, and managing Direct Loan program funds available to the institution.
After a borrower's Direct Loan is disbursed, the loan is then assigned to one of multiple loan servicers with which FSA has contracted. Functions performed by loan servicers vary depending on the loan's status (e.g., repayment, grace period) and individual borrower circumstances; however, there are several tasks loan servicers typically perform. These include providing information to borrowers on loan terms and conditions, collecting and applying loan payments to outstanding balances, processing requests for loan deferment or forbearance, processing applications to consolidate federal student loans into a Direct Consolidation Loan, and providing delinquency and default prevention activities.
If a borrower defaults after entering repayment on a Direct Loan, then a variety of actions may be taken to attempt to reinstate the loan into good standing and recover payment on it. Loan servicers provide initial outreach to defaulted borrowers and attempt to enter into repayment or rehabilitation agreements with them. If the loan servicer is unsuccessful, a borrower's defaulted loan is transferred to FSA and then may also be transferred to one of multiple PCAs with which FSA has contracted. FSA and PCAs will attempt to enter into voluntary repayment agreements with borrowers; however, a variety of other debt collection tools may also be used if these attempts are unsuccessful. For instance, a borrower may be determined eligible for administrative wage garnishment or income tax offset. If a borrower successfully brings his or her loan into good standing, the account is transferred back to a loan servicer, which will continue to service it.