Stafford Student Loans:

Lower Subsidy Payments Could Achieve Savings Without Affecting Access

HRD-92-7: Published: Jan 6, 1992. Publicly Released: Jan 6, 1992.

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Linda G. Morra
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GAO reviewed the Stafford Student Loan Program, focusing on the potential effect of lower federal subsidy rates on the volume of Stafford loans supplied by commercial lenders.

GAO found that: (1) moderate reductions to the special allowance could generate substantial program savings without jeopardizing the program's reliance on private loan capital; (2) a special allowance factor of 3 percent could generate cumulative savings of about $421 million between fiscal years 1992 and 1996; (3) guaranty agencies would continue to offset the difference between student loan demand and loan capital supplied by commercial lenders; (4) the guaranty agency lending necessary to offset the drop in commercial loans caused by a moderate reduction in the special allowance factor is well within their demonstrated lending capacity; (5) since high-volume lenders rarely leave the program or curtail participation levels, a drop in future commercial loan supply caused by lower special allowances is likely to result from a few small-volume lenders leaving the program; and (6) to capitalize on economies of scale, high-volume lenders may absorb some of the student loan market abandoned by small lenders.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: Section 438(b)(6) of the Higher Education Act of 1965 was amended effective October 1, 1992, Public Law No. 102-325, to lower the special allowance factor to 3.1 percent.

    Matter: Congress should lower the special allowance factor to 3 percent.


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