A quick history on Federal Student Loans
In 1992, George H.W. Bush signed a reauthorization of the Higher Education Act of 1965 which established the Direct Loan Program. The program was intended to replace federally-backed private loans in order to lower costs, minimize confusion, ultimately make it easier to take out student loans.
Martin Olav Sabo (D-MN) introduced the Omnibus Budget Reconciliation Act of 1993 which set a phase-in of the direct loan program. The act was signed by Bill Clinton in 1993. The program was anticipated by congress to replace federally-backed student loans by 1998. In addition to the program phase-in, an interest rate change was scheduled for 1998.
However, by 1998, the Direct Loan Program didn't play as big of a role as congress had intended. As a result, lenders in the bank-based program – whom Congress assumed in 1993 wouldn’t be playing the major role in 1998 – expressed concerns that the interest rate change would increase their costs and reduce returns to such an extent that they would no longer be willing to make federally-backed student loans. Because of this, congress postponed the rate change until 2003.
In 2002, congress established a fixed 6.8% to take effect in 2006 instead of the scheduled 2003 rate change. However, by the time the law was established, the Federal reserve reduced the treasury rate from 6.1% down to 1% in response to a slight recession. This drastically reduced the cost of variable interest rate loans and consequently made the loans a really attractive option from 2002-2005.