Secondary Market Activities of the Student Loan Marketing Association

In response to a congressional request, GAO reviewed the legislative development and financial activities of the Student Loan Marketing Association and compared its profitability to that of commercial banks and other Government-sponsored lending institutions.

GAO found that legislative changes have not significantly altered the Association's original purpose to act as a secondary market by purchasing student loans from, and making secured loans to, banks and other private lenders. Since its inception, the Association has purchased student loans totaling $5.5 billion and made secured loans to lenders of $4.5 billion. About 15 percent of these activities resulted from legislative authorities granted after 1972. In 1983, the Association also exercised new financing authority by raising $104.4 million through its first public issue of common stock. Annual net profits earned by the Association have increased each year, and its activities in support of student loan programs has also increased. GAO found that: (1) the Association's return on assets has been lower than that experienced by most commercial banks and Government-sponsored enterprises; (2) its return on equity has been higher than that of other organizations; (3) interest margins have been lower than those of commercial banks and within the range experienced by other Government-sponsored enterprises; and (4) it has invested most of its profits in student loan programs and distributed relatively little as dividends to stockholders. According to bank officials, the interest paid by the Association over Treasury borrowing rates covers the cost of administering the Association's debt. Furthermore, interest rates paid by the Association on its private borrowings are lower than the average rates paid by high-quality borrowers in the private sector.