The demand for student loans is expected to continue to grow. According to projections made by the U.S. Department of Education, federal student loan volume is expected to grow to nearly $64 billion in FY2009, with 71% of those dollars coming from FFELP. Increased demand for federal student loans is attributable to three major factors: increasing enrollment, the rising cost of postsecondary education, and the declining purchasing power of grants.

As more students graduate from high school and go on to pursue postsecondary education, demand for student loans will continue to increase. By 2012, the number of college-age young adults will increase 15 percent, or more than five million young adults, to 18 million young adults.

While the number of students enrolled in postsecondary education is growing, federal investments in financial aid have shifted dramatically over time. In 1980-81, grant aid accounted for 55 percent of all aid awarded and loans were only 41 percent. By 2002, these numbers were reversed: loan aid represented 54 percent of total aid awarded, while grant aid accounted for 39 percent.

At the same time, although federal investments in Pell Grants-designed to help students with the greatest need and the least resources to pay for their education-have increased, the purchasing power of these grants has declined as more students participate in the program. In 1986, the average Pell Grant covered 98% of average tuition at public four-year institutions, but by 1999, the average Pell Grant covered only 57% of average tuition at these institutions. The shift results in greater reliance on loans by students and parents in order to pay for postsecondary education.