Guaranteed Student Loans

Pursuant to a legislative requirement, GAO compared the practices of multistate and single-state guaranty agencies which insure lenders against defaulted loans under the Department of Education's Stafford Student Loan Program.

GAO found that: (1) guaranty agencies' loan volumes varied widely, with the largest agency insuring over $2 billion in new loans and paying over $200 million in default claims during fiscal year (FY) 1987; (2) although the 46 single-state agencies continued to guarantee most loans, their share of the total loan volume decreased from 93 percent in FY 1983 to 72 percent in FY 1987; (3) annual loan defaults increased from $445 million in FY 1983 to $1.35 billion in FY 1987; (4) collections on defaulted loans also increased from $77.8 million in FY 1983 to $415.8 million in FY 1987; (5) both types of agencies provided similar services to lenders, schools, and borrowers, to ensure that eligible borrowers obtained loans and to minimize defaults; (6) differences among agencies' default rates were strongly related to such borrower characteristics as family income, financial independence, and the length and type of educational program the borrowers attended; (7) there was no obvious relationship between default experience and the type of agency; (8) while one of the two multistate agencies had a default rate significantly higher than the national average, adjustments based on borrower profiles brought the rate much closer to the national average; and (9) citing a rising trend in loan defaults, one of the multistate agencies ceased insuring loans in 18 states, accounting for 41 percent of its 1987 loan volume.