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.
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