Guaranteed Student Loans:

Potential Default and Cost Reduction Options

HRD-88-52BR: Published: Jan 7, 1988. Publicly Released: Jan 7, 1988.

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In response to a congressional request, GAO provided information on options for reducing guaranteed student loan defaults and related federal costs for higher education.

GAO found that options: (1) requiring borrowers to pay a loan origination fee, eliminating the grace period before beginning repayment, and charging market interest rates for borrowers who default would specifically impact students; (2) affecting schools included standardizing refund policies for students who do not complete their studies, counseling borrowers on their responsibilities, and delaying loans to students attending schools with high default rates; (3) requiring lenders to assume risks through reduced repayment guarantees could give lenders a strong incentive to control costs; and (4) placing stricter requirements on guaranty agencies' collection procedures would include using Department of Education standards, increasing student insurance premiums, and assuming a greater share of default risks. GAO believes that Education's cooperation would be necessary to implement options to encourage stronger requirements enforcement and improve oversight of schools, lenders, and agencies. GAO also believes that Education should have extended authority to use the federal income tax refund offset.

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