Guaranty Agency Finances

GAO estimated the potential savings from eliminating either Department of Education administrative expense allowance (AEA) payments to guaranty agencies or AEA payments in conjunction with a reduction in the share of guaranty agencies' collections on defaulted student loans. GAO noted that: (1) eliminating Education's AEA payments to guaranty agencies could save about $1 billion over five years; (2) guaranty agencies have other sources of funds to pay for unnecessary administrative expenses; (3) eliminating AEA payments and reducing collection retention rates for agencies with excess reserves could save about $415 million to $519 million over five years; (4) making federal AEA payments to guaranty agencies contingent on cash reserve levels could provide incentives for guaranty agencies to spend down their reserves; and (5) its estimates of savings from reducing or eliminating AEA payments are sensitive to changes in its underlying assumptions.