Stafford Student Loans

Borrowers paid an estimated $427 million in origination fees on Stafford loans they received in fiscal year 1990. These fees help offset the federal government's multibillion-dollar cost of subsidizing the Stafford Student Loan Program. GAO found that the government is incurring millions of dollars in unnecessary interest costs associated with the collection of origination fees because (1) it does not receive fees from some lenders, (2) it receives them from other lenders long after they are collected from students, and (3) the Department of Education's interest subsidy offset and other collection practices discourage prompt remittances. Rather than collecting most loan origination fees as offsets to quarterly interest subsidy billings, the Department could be given the authority to collect fees from lenders within 15 days of loan disbursement. The Department, in part because it relies on lenders to maintain records on individual loans, lacks enough data to determine when lenders disburse loans or the origination fees they owe. Until the Department is given authority to collect origination fees and has a new student-loan data system up and running, it should work with the guaranty agencies to ensure that lenders remit the fees they owe within 15 days and impose penalties on late remittances.

GAO found that: (1) Education is incurring unnecessary interest costs because it does not receive fees from some lenders, or receives some fees long after they are collected from students, and its interest subsidy offset and other collection practices discourage prompt remittances; (2) in fiscal year 1989, Education incurred additional interest costs of $10 million because it received origination fees an average of 131 days after lenders collected them from borrowers; (3) fees from other federally supported loans must be remitted within 15 days of their collection, or interest penalties are imposed; (4) if Stafford lenders were subject to a similar requirement, the government would save $10 million annually; (5) many lenders fail to promptly report the fees collected; (6) to minimize administrative costs and possible burdens on lenders of directly paying origination fees, lenders could be required to use a Treasury system for collections; (7) Education lacks sufficient data to determine when lenders disburse loans or the origination fees they owe; and (8) Education is planning a new student loan data system that, when implemented, should enable it to determine the amount of origination fees due.

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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