FEDERAL STUDENT LOANS. Flexible Agreements with Guaranty Agencies Warrant Careful Evaluation
Abstract
The federal government supports two major loan programs for postsecondary students under Title IV of HEA: the Federal Family Education Loan Program (FFELP) and the William D. Ford Direct Loan Program (FDLP). In 2000, FFELP and FDLP provided approximately $23 billion and $10 billion, respectively, in loans and loan guarantees to postsecondary students and their parents. Both programs provide subsidized and unsubsidized Stafford loans, Parent Loans for Undergraduate Students and Consolidation loans. Under the FFELP, private lenders, such as banks, provide loan capital. The federal government guarantees the loans but uses 36 guaranty agencies to administer many aspects of the program. With federal funding, these guaranty agencies generally provide insurance to the lenders for 98 percent of the unpaid amount of defaulted loans. The guaranty agencies also work with lenders and borrowers to prevent loan defaults and collect on the loans after default. In contrast, under the FDLP the federal government provides the loan capital to borrowers. For over a decade, GAO has Included student aid programs on a list of "high-risk" federal programs. These programs are designated high-risk primarily because of deficiencies in Education's maintenance of the financial and management information required to administer the student aid programs and the internal controls needed to maintain the integrity of the programs. Over the years Education has addressed many of the high-risk issues identified by GAO; however, these long-standing conditions continue to plague the student aid programs. To achieve FFEL program and cost efficiencies, and to improve the availability and delivery of loans, the VFA legislation of 1998 authorized VFAs between Education and the state-designated guaranty agencies. The VFA legislation restricted Education to six VFAs through fiscal year 2001, and as of January 2002, Education had entered into agreements with four guaranty agencies.
Document Details
- Document Type
- Technical Report
- Publication Date
- Jan 01, 2002
- Accession Number
- ADA398577
Entities
Organizations
- United States Government Accountability Office