Defaulted Student Loans:

Private Lender Collection Efforts Often Inadequate

HRD-87-48: Published: Aug 20, 1987. Publicly Released: Aug 20, 1987.

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GAO evaluated the Department of Education's and guaranty agencies' policies and procedures in paying default claims under the Guaranteed Student Loan Program to determine whether they adequately protected the federal government's financial interest and minimized unnecessary insurance costs.

GAO found that: (1) although most of the guaranty agencies developed standards for collecting loans and filing claims, Education never reviewed them; (2) agency standards were inadequate to ensure prompt collection of defaulted loans; (3) agencies poorly enforced claims paid by lenders without standards; (4) interest costs varied widely among the guaranty agencies, since the average time between delinquency and claim payment ranged from 148 to 455 days; and (5) an average delay of 30 days in processing claims would increase federal interest costs by $4.1 million.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: On March 11, 1988, Education provided written guidance to the guaranty agencies concerning its responsibility for enforcing its own collection standards, which must be approved by Education. No further action is necessary.

    Recommendation: The Secretary of Education should develop and implement a process to systematically review and approve guaranty agencies': (1) standards for collecting loans and filing claims; and (2) statements of internal controls and administrative procedures required to be developed and implemented under the new regulations. Such a system should include specific milestones and timetables for the Department of Education to use in approving the agencies' standards and statements.

    Agency Affected: Department of Education


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