7980 Student Aid Commission
Program Descriptions

50 - CALIFORNIA LOAN PROGRAM

The Federal Family Education Loan Program (FFELP) was created by the federal government in 1965 as a means of making loans available to students attending college. The United States Department of Education (USED) has administrative responsibility over the FFEL program and designates guaranty agencies to perform the daily operational and oversight functions. Chapter 961 of the Statutes of 1996 authorized the Commission to establish an auxiliary organization, EdFund, as a nonprofit public benefit corporation to provide operational and administrative services for the Commission's participation in the FFEL program, effective January 1, 1997. The Federal Student Loan Reserve Fund and Student Loan Operating Fund are continuously appropriated for this purpose.

The FFELP consists of Federal Subsidized Stafford loans, Federal Unsubsidized Stafford loans, Federal Parent Loans for Undergraduate Students (PLUS), Graduate and Professional PLUS, and the Federal Loan Consolidation Program. Loans are made available to students through private lenders, such as banks or credit unions, and the Commission guarantees the loan. If a student or parent defaults, the lender files a claim with the Commission, which pays the lender a portion of the outstanding balance. The USED reimburses the Commission for the default. The cost of default claims, collection expenses, and administration of FFELP are funded by: USED, a federal default fee, collections and fees from defaulted borrowers, and interest on investments.

Passage of the federal Health Care and Education Affordability Reconciliation Act of 2010 terminated the FFEL program in July 2010 in favor of the Direct Loan Program where all loans originate from the United States Treasury. Also, the USED terminated its designation of the Commission as the guaranty agency and transferred that designation to a private entity on November 1, 2010.