Direct Student Loans Could Save Money and Simplify Program Administration

GAO discussed the: (1) potential federal savings associated with replacing Stafford Student loans with direct loans; and (2) how a direct loan program will affect the Department of Education and post-secondary educational institutions. GAO noted that: (1) in fiscal year (FY) 1992, a direct loan program operating in place of the Stafford program could save over $1 billion; (2) under a direct loan program, Education would have to ensure that loan papers were properly executed and documented and monitor the performance of its services to ensure that loan repayments were collected and credited promptly; (3) a direct loan program would allow educational institutions to engage in such different activities as forecasting loan volume, drawing down funds as student loans were made, and reconciling student loan accounts at designated intervals; (4) in the areas of loan disbursement, reporting, recordkeeping requirements, and cash management, a direct loan program could simplify schools' administrative functions; and (5) under a direct loan program, Education would be the sole lender with its uniform procedures and forms. GAO believes that because Education may encounter unforeseen additional costs in administering the direct loan program, estimated savings could be lower than anticipated.