Student Loans

A switch to direct student loans from guaranteed loans could save the federal government about $4.8 billion within the first five years. Adjusted to reflect loan repayments, direct loans could cost about $9.7 billion as opposed to $14.6 billion for guaranteed loans over this period. A direct loan program could achieve these savings by enabling the government to partially offset program costs with borrowers' interest payments, reducing the cost of the interest benefit, and eliminating special allowance payments. GAO did focus group interviews with financial aid administrators and school business officers from postsecondary educational institutions. These individuals had mixed views about their ability to run a direct loan program but were clearly negative about the Department of Education's ability to manage one.

GAO found that: (1) direct student loans could save the federal government about $4.8 billion for loans made in fiscal years 1994 through 1998; (2) the government could use interest earnings from direct student loans to curtail program costs; (3) lower program costs would lessen start-up and administrative costs, but not offset federal cost savings; (4) savings derived from Stafford loans could total $3.2 billion; and (5) there were concerns about whether the Department of Education could efficiently administer the program nationally.