Student Consolidation Loans: Further Analysis Could Lead to Enhanced Default Assumptions for Budgetary Cost Estimates
Highlights
The number of borrowers consolidating their federal student loans has increased substantially in recent years, with the total amount of loans being consolidated rising from $13 billion in fiscal year 1999 to over $41 billion in fiscal year 2003. This increase in consolidation loan volume and recent interest rate trends have increased the overall estimated long-term cost to the federal government of providing consolidation loans under the Department of Education's (Education) two major student loan programs--the Federal Family Education Loan Program (FFELP) and the William D. Ford Federal Direct Loan Program (FDLP). GAO is providing information on (1) the differences that exist between FFELP and FDLP consolidation loans and borrowers, (2) the extent to which borrowers with student loans under one program obtain consolidation loans under the other, and (3) how FFELP and FDLP borrower and loan characteristics and the movement of loans between the two programs are incorporated into Education's budgetary cost estimates for consolidation loans.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Education | To better reflect the impact of consolidation loans on Education's budgetary cost estimates, the Secretary of Education should direct Education's Director, Budget Service, to consider the type of schools consolidation borrowers attended in developing the risk categories for the department's budgetary cost estimates. Education could use the credit reform working group as a vehicle to help the Director, Budget Service, monitor this effort and assess the impact of including the type of schools borrowers attended in the assumptions Education uses to develop its budgetary cost estimates. |
Closed – Implemented
The Department's Corrective Action Plan dated July 19, 2006, stated that the Department will analyze whether the assumptions used should be revised and share such analysis with appropriate Departmental management on consolidation loans along with a recommendation as to whether the assumptions used should be changed. If the assumptions are not revised, supplemental information, breaking out consolidation loans by type of school attended, will be shared in the supporting materials associated with the President's Budget. During an interview with an Education official in April 2005, he noted that the Department has commenced work on developing risk categories that would consider the type of school consolidation borrowers attended as GAO recommended. The new risk categories will most likely be included in the President's FY 2007 budget cost estimates.
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