Guaranteed Student Loans: Better Criteria Needed for Financing Guarantee Agencies
HRD-86-57
Published: Jul 02, 1986. Publicly Released: Jul 02, 1986.
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Highlights
GAO reported on the financing of guarantee agencies under the Department of Education's Guaranteed Student Loan Program, specifically whether reserves exceed the risks guarantee agencies are asked to assume, at the expense of the federal government and student borrowers.
Recommendations
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| Congress should amend the Higher Education Act of 1965 to require the Secretary of Education to: (1) establish, in consultation with the guarantee agencies, criteria for the appropriate levels of reserves guarantee agencies should retain, based on the financial risks they face; and (2) recall federal advances from the guarantee agencies beyond the amounts needed to maintain reserves at the established levels. |
Closed – Implemented
|
The Higher Education Amendments were signed into law on October 17, 1986. These amendments, in conjunction with April 1986 amendments to the Higher Education Act, require guarantee agencies to return $110 million in federal advances by 1989. |
| Congress should amend the Higher Education Act of 1965 to restrict the growth of future agency reserves beyond the established levels. In this regard, Congress should consider adjustments to one or more of the financing provisions for guarantee agencies. Options for consideration include: (1) reducing administrative cost allowance reimbursements, reinsurance, or the percentage of collections guarantee agencies may retain, if the preference is to reduce federal expenditures; (2) reducing insurance premiums charged by agencies if the preference is to reduce student costs; or (3) some combination of these. |
Closed – Implemented
|
The 1987 Omnibus Budget Reconciliation Act signed into law on December 22, 1987, requires guaranty agencies to reduce excess reserves by $250 million using the guidelines developed by GAO. |
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Education | The Secretary of Education should finalize the Department's proposed regulations to require that all funds received as a result of the guarantee agencies' loan insurance program be used only in support of the program. |
Closed – Implemented
The regulations, 34 C.F.R. 682, were issued on November 10, 1986, and took effect in early 1987. An accomplishment report is to be prepared.
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Full Report
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Topics
Collection proceduresDebt collectionFunds managementGovernment guaranteed loansHigher educationLoan defaultsStudent loansBudget reconciliationStudent financial assistanceHuman capital management