On the recordMarch 25, 2010
the reconciliation bill on the floor today realizes a dream of my friend and mentor, former Senator Paul Simon-- consolidation of the Federal student loan program entirely into direct loans. The very first Federal student loans were direct loans provided under the National Defense Education Act of 1958--directly from the Federal Government to students. In 1965, the Federal Government began guaranteeing student loans provided by banks and nonprofit lenders through the Federal Family Education Loan, FFEL, Program. Through this program, the Federal Government would pay banks a certain rate of return on student loans and guarantee those loans against default. By the early 1990s, it was clear to Paul Simon that incentivizing banks through subsidies no longer made sense. The Federal Government could make loans more cheaply and more simply directly to students. As he said: "Are we in the business of helping banks and guarantee agencies, or are we in the business of helping students?" Paul Simon became the leading Senate champion of a new direct college loan program, enacted in 1992 as a small pilot program.
