Stafford Student Loan Program

Correspondence schools participating in the Stafford Student Loan Program are generally for-profit trade schools that offer postsecondary education through home study. GAO found that the average borrower default rate for students in correspondence schools was more than double the rate--42.2 percent versus 18.3 percent--for all schools participating in the Stafford program during fiscal years 1987-89. Thirty correspondence schools were eligible to participate during this period, and their students received about $743 million in student loans. However, 16 of these schools, accounting for more than 90 percent of the loan volume, no longer participate in the program. If these 16 schools are excluded, the average default rate for correspondence schools drops to 27.8 percent.

GAO found that: (1) between fiscal year (FY) 1987 and FY 1989, students at the 30 coorespondence schools eligible to participate in the Stafford Program received about $743 million in Stafford loans, Parent Loans for Undergraduate Students (PLUS), and Supplemental Loans for Students (SLS), representing 2 percent of the $34 billion in loans made to all borrowers during the same period; (2) 88 percent of the $743 million in loans were Stafford Loans, 10.9 percent were SLS loans, and 1.6 percent were PLUS loans; (3) the 14 schools that were still eligible as of September 1991 accounted for about $68 million of the $743 million in loans; (4) the 16 schools that no longer participated in the program accounted for about $675 million of the $743 million in loans; (5) the 16 schools no longer participating in the program either went out of business, lost their accreditation, or voluntarily withdrew from the program; (6) the average default rate for students attending correspondence schools was 42.2 percent, more than double the average rate of 18.3 percent for students from all participating schools between FY 1987 and FY 1989; (7) the 16 schools no longer participating had an average default rate of 43.8 percent; and (8) excluding the 16 nonparticipating schools, the average borrower default rate for correspondence schools is 27.8 percent.