Stafford Student Loans:

Prompt Payment of Origination Fees Could Reduce Costs

HRD-92-61: Published: Jul 24, 1992. Publicly Released: Jul 24, 1992.

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Pursuant to a congressional request, GAO reviewed the Department of Education's collection of origination fees paid on Stafford student loans, focusing on: (1) the extent of and reasons for the delayed receipt of origination fees; and (2) actions needed to facilitate the prompt receipt of the fees.

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.

Matters for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: Section 438(c) of the Higher Education Act of 1965 was amended effective October 1, 1992, to require lenders to pay origination fees directly to the Department of Education. Neither recently proposed legislation sponsored by the Department of Education nor recent technical amendments to the Higher Education Act of 1965, as amended, contained the provisions recommended. It does not appear likely that action will be taken on this recommendation any time soon, if ever.

    Matter: Congress should repeal the provision in section 438(c)(1) of the Higher Education Act, a amended, that requires the Department of Education to collect origination fees by offsetting interest subsidy payments to lenders.

  2. Status: Closed - Not Implemented

    Comments: Neither recently proposed legislation sponsored by the Department of Education nor technical amendments to the Higher Education Act of 1965, as amended, contained the provisions recommended. It does not appear likely that action will be taken on this recommendation any time soon, if ever.

    Matter: Congress should require lenders to pay the 5-percent loan origination fee, for every federally subsidized Stafford student loan disbursed, in a manner that will provide for the government's receipt of the fees within 15 days of loan disbursement.

  3. Status: Closed - Implemented

    Comments: No action on the recommendation has been taken by Congress, nor is there any indication that action is contemplated. The Department of Education is planning to propose regulations requiring lenders to report and remit loan origination fees to the Department quarterly. It is also looking at ways, including using the new student loan data system that it is implementing, to improve controls over the collection of loan origination fees.

    Matter: Congress should authorize the Secretary of Education to assess interest penalties on the late payment of origination fees.

  4. Status: Closed - Implemented

    Comments: No action on the recommendation has been taken by Congress, nor is there any indication that action is contemplated. The Department of Education is planning to propose regulations requiring lenders to report and remit loan origination fees to the Department quarterly. It is also looking at ways, including using the new student loan data system that it is implementing, to improve controls over the collection of loan origination fees.

    Matter: Congress should require the Secretary of Education, while the National Student Loan Data System is being developed, to work with the guaranty agencies to ensure the government's timely receipt of origination fees.

 

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