The new Direct Loan Program is set in motion

The Health Care and Education Reconciliation Act, which eliminated new loan originations under the bank-run Federal Family Education Loan (FFEL), is putting its new Direct Loan Program into use.

Beginning July 1, all loans previously made under the FFEL program are being made under the Direct Loan Program in which students borrow directly from the Education Department instead of banks. This will save $68 billion over the next 11 years for the Federal Government, according to the Congressional Budget Office. These savings will be used to increase Pell Grants and other programs to make college more affordable and accessible for Americans. Pell Grants are a U.S. Department of Education post-secondary foundation and unlike loans, they don't have to be paid back.

"Student loan reform is a huge win for students, their families and taxpayers and will enable many more Americans to afford college and earn a degree," said Arne Duncan, U.S. Secretary of Education.

The Direct Loan Program operates as a public-private partnership, leveraging the federal government's lower cost of capital with the experience of a private sector. The Department of Education provides the capital for all new Direct Loans with private sector partners disbursing, servicing and collecting loans. The Federal Student Aid office runs the program as of now, but the Department is working on phasing in four new loan servicers to help with the growing need of loans. They will also soon contract not-for-profits to help service a portion of the loan portfolio.

"We have worked quickly since the passage of the legislation three months ago to put the mechanisms in place for timely release of this funding for fiscal year 2010," said Arne Duncan.