Guaranty Agency Solvency:

Can the Government Recover HEAF's First-Year Liquidation Cost of $212 Million?

HRD-93-12BR: Published: Nov 13, 1992. Publicly Released: Nov 13, 1992.

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Pursuant to a congressional request, GAO provided information on 1991 federal costs incurred due to the Department of Education's agreement to liquidate the Higher Education Assistance Foundation (HEAF).

GAO found that: (1) prior to 1992, Education was not obligated to pay lenders' default claims if a guaranty agency became insolvent or failed to meet its obligations; (2) Education may provide federal advances to agencies needing immediate funds to continue uninterrupted payment of lenders' claims and has legal powers to preserve lenders' participation and student access to the Stafford Student Loan Program; (3) 1991 HEAF liquidation costs totalled $212.4 million, including 138.8 million in reinsurance default payments, $78.2 million in HEAF 1991 loan collection retentions, and $35.4 million in 1990 loan collection retentions, less $40 million in deductible HEAF assets; (4) the increase in reinsurance default payments was due to the liquidation agreement requiring Education to pay 100 percent reinsurance rather than limiting payments to 80 percent or 90 percent; and (5) net federal cost for liquidation will be lower in fiscal years 1992 and 1993, and loan collections will eventually exceed the government's cost for liquidating HEAF.

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