Financial Problems in the Stafford Student Loan Program

Gao ID: T-HRD-90-52 July 27, 1990

GAO discussed the financial problems of the Stafford Student Loan Program and the growth in loans guaranteed and defaulted. GAO found that: (1) the Stafford Student Loan Program represented 61 percent of federal student aid for fiscal year 1990; (2) between fiscal years 1983 and 1989, the number of guaranteed loans increased from about $3 million to almost $4.7 million, and the number of defaulted loans increased 352 percent; and (3) interest subsidies, which were 60 percent of the program's costs in 1989, decreased as a portion of total program costs. GAO also found that: (1) the largest guarantor of student loans was also the biggest payer of default claims to lenders; (2) the guarantor's share of default claims paid to lenders increased as its loan volume remained steady and subsequently decreased; (3) in July 1988, the guarantor stopped guaranteeing loans because the majority of its loans were for students attending proprietary schools, and it had $8.8 billion in outstanding guaranteed loans; and (4) the Department of Education reinsured guaranty agencies for 80 to 100 percent of loans, depending on their default rates.

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