The FFEL was initiated by the Higher Education Act of 1965 and was funded through a public/private partnership administered at the state and local level.
Commercial lenders (e.g. Sallie Mae; now Navient) would use their private capital to finance loans under the FFELP but received subsidies from the federal government.
[1] These subsidies were used to maintain interest rates at the federally mandated levels, pay down fees associated with the loans and cover expenses associated with collection and defaults.
"[8] A Congressional Budget Office review in July 2009 showed that if the government did the direct lending itself, rather than use private sector lenders via FFEL, it would save $80 billion over ten years.
[10] America's Student Loan Providers, an industry lobbying group representing private lenders, issued a prepared statement on April 6, 2009 stating "a growing consensus" among legislators "that large scale changes in the financial aid delivery system should be carefully considered.