High Risk Series

Student Financial Aid Gao ID: HR-95-10 February 1, 1995

In 1990, GAO began a special effort to identify federal programs at high risk of waste, fraud, abuse, and mismanagement. GAO issued a series of reports in December 1992 on the fundamental causes of the problems in the high-risk areas. This report on student financial aid is part of the second series that updates the status of this high-risk area. Readers have the following three options in ordering the high-risk series: (1) request any of the individual reports in the series, including the Overview (HR-95-1), the Guide (HR-95-2), or any of the 10 issue area reports; (2) request the Overview and the Guide as a package (HR-95-21SET); or (3) request the entire series as a package (HR-95-20SET).

GAO found that: (1) in 1992, the federal government paid $2.6 billion to support its guaranteed student loan program; (2) the reasons for the government's student loan liability include the complex loan structure, the lack of incentives to prevent loan defaults, financial risks for lenders and state agencies that make guaranteed loans, and inadequate management controls; (3) Education's long-standing management weaknesses could hamper its implementation of the newly authorized Federal Direct Student Loan Program (FDSLP); (4) between 1991 and 1994, loan defaults declined from $3.2 billion to about $2.3 billion; (5) higher education legislation has allowed Education to implement stronger enforcement tools; (6) the successful implementation of FDSLP will be critical to ensuring that eligible students continue to have access to guaranteed loans; (7) Education has reorganized its Office of Postsecondary Education, hired and trained staff to better oversee student aid programs, developed a National Student Loan Data System, and prepared departmentwide strategic and tactical information resource management plans; and (8) although the legislative and administrative changes made to the guaranteed loan process should reduce the risks in federal student aid programs, the implementation of FDSLP and significant growth in student loan demand could hinder Education's efforts to address problems in student aid programs.

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