Consolidated Student Loans

Borrowers Benefit but Costs to Them and the Government Grow Gao ID: HRD-90-8 June 15, 1990

Pursuant to a congressional request, GAO reviewed the impact of the student loan consolidation program under the Higher Education Amendments of 1986.

GAO found that: (1) annual student loan default costs increased from $235 million in fiscal year 1981 to nearly $1.4 billion in 1986; (2) the loan consolidation program provides assistance to borrowers needing help repaying their student loans; (3) longer repayment terms made it easier for borrowers to repay their student loans by reducing their monthly payments; and (4) graduated repayment plans reduced the borrower's monthly payments by allowing the borrower to make only interest payments. GAO also found that: (1) longer repayment terms made consolidated loans more expensive for the federal government to subsidize; (2) the consolidation of certain kinds of loans, normally unsubsidized during their repayment, increased the subsidized loan portfolio; and (3) graduated repayment plans generally added to the government's costs, since the loans' principal balances remained higher for longer periods.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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