The results of an evaluation study of selected educational institutions and students participating in direct school lending under the Federal Insured Student Loan Program (FISLP) is presented. Proprietary schools, which as a group have had a history of high default rates, and institutions of higher education, which are becoming the primary disbursers of direct school loans, are examined. The study includes four objectives: to assess the attitudes and characteristics of current student borrowers who have received FISLP loans; to review administration policies and practices in their role as lenders; to examine the relationship between default on FISLP loans and the characteristics of past student borrowers of these loans; and to develop observations and recommendations on the policies and procedures of the FISLP that can strengthen its effectiveness. On-site visits were made to all eight direct proprietary lenders in the FISLP and 15 of their 39 schools, along with 16 institutions of higher education. Those interviewed were typically such administrators as financial aid officers, bursars, treasurers, vice-presidents for administration and finance, and corporate comptrollers. Among the concluding observations are: (1) the predominant factor in the students' enrollment decision is either the prospect of obtaining related employment or the school's reputation in their area of interest; (2) about 40 percent of the students felt that the availability of direct FISLP loans was important in their decision to enroll at their school; (3) nearly 70 percent of the students were satisfied with the amount of their loans and loan information; and (4) direct school lending is an important source of financial aid to students. Appendices include the questionnaire used for current in-school borrowers of FISLP, an interview guide used for reviewing the administrative practices of the schools, and the regression model analysis relating borrower characteristics and repayment status. (LC)