Status of Special National Direct Student Loan Funds

HRD-80-125: Published: Sep 22, 1980. Publicly Released: Sep 22, 1980.

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The National Direct Student Loan (NDSL) program provides for establishing a revolving fund at postsecondary educational institutions from which long-term, low-interest loans are made to qualified students who need financial assistance. The institutions are responsible for making and collecting the loans. Under the NDSL program, the Federal contribution represents 90 percent of the loan funds, and the institution provides the other 10 percent. The Higher Education Act of 1965 allowed institutions to use up to 25 percent of the Educational Opportunity Grant funds paid to them before July 1, 1970, as an additional Federal contribution for their loan programs. Institutions established special NDSL funds with this additional Federal contribution. Unlike the Federal contribution to the regular NDSL program, institutions were not required to match the contribution to the special NDSL fund. GAO recently initiated a survey of the effectiveness of educational institutions' efforts to collect defaulted NDSL's. The survey included five institutions, each with an NDSL default rate of at least 25 percent, and defaults totaling $100,000 or more.

A special NDSL fund was established at 25 institutions. A special fund totaling $272,000 at the University of Illinois was one of the largest. Institutions were given an opportunity in 1972 to merge their special funds with their regular NDSL funds by providing institutional funds equal to one-ninth of the amount transferred to their regular funds. Fourteen schools elected to merge their funds, while the other 11 schools maintained their special funds. One of these 11 schools was the University of Illinois. Separate fiscal operations reports for the regular and special funds were maintained at the University. According to the fiscal operations report on the special fund, only one loan has been made from the special fund since fiscal year 1976, and on June 30, 1979, the cash balance in the fund was about $60,000. This balance, which was about $21,000 as of June 30, 1976, has increased as a result of repayments of principal and interest on outstanding loans. The University does not anticipate any further need for the special fund because sufficient funds exist in its regular NDSL fund. GAO also reviewed fiscal operations reports submitted by four other institutions that established special funds which initially totaled $547,000. These reports showed the status of each institution's NDSL fund as of June 30, 1979, but did not indicate which transactions, if any, applied to the institution's special NDSL funds. Accordingly, GAO was unable to determine from these reports the status of the special funds at these institutions.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: Inasmuch as the special fund at the University of Illinois has been inactive for several years, the Department of Education should ascertain from the University its plans for using the fund and, if there are no plans for further use of it, require the University to return to the Federal Government the unused balance of the funds along with subsequent loan collections. The Department should also review the status of special NDSL funds at the other 10 institutions and, where appropriate, similarly require that funds be returned to the Government.

    Agency Affected:


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