This report presents the testimony of the Associate Director of Education and Employment Issues of the Health, Education, and Human Services Division of the General Accounting Office (GAO) concerning the participation of postsecondary institutions in the Federal Family Education Loan Program (FFELP), which makes direct student loans to students. It reports on a study of 102 institutions that are participating in the FFELP during its first year of operation, which began July 1, 1994. Representatives of 38 schools that were contacted reported that they were generally very satisfied with the implementation of the direct loan program. They observed that students were able to get their loan proceeds more quickly, the loan process was less complex for parents and students, and the schools had more control over the loan process than under the previous system. A total of 1,420 schools were selected to participate in the second year of the FFELP implementation process. It is estimated that direct loans may make up less than 40 percent of the loan volume at participating schools in 1995, falling short of FFELP goals. Guidelines for school participation in the program, such as loan default rates, are included. (MDM)