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Pursuant to a congressional request, GAO provided information on student loan trustee arrangements, focusing on the: (1) number and cost of trustee arrangements and their shared characteristics; (2) benefits and protections afforded the federal government through use of trustee arrangements; and (3) effect of trustee arrangements on market participation and the availability of student loans.

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Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Education 1. To clarify eligible lenders' capacity to serve as trustees for ineligible lenders, the Secretary of Education should formally clarify Education's interpretation of how the Higher Education Act of 1965 provision prohibiting banks or their subsidiaries from holding FFELP loans that total more than one-half of their combined consumer credit loan portfolio applies to loans held by the trustee for an ineligible lender.
Closed - Implemented
The Department of Education issued a Final Rule in the Federal Register on November 1, 2002, clarifying its interpretation of the Higher Education Act provision known as the 50-percent rule. Specifically, the rule changed the definition of a lender and specified that loans held in trust by a trustee lender are not part of the trustee lender's consumer credit loan function. The change is proposed so that eligible lenders will not be discouraged from serving as trustees for other lenders. This action was taken to implement GAO's recommendation.

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