Student Loan Programs: As Federal Costs of Loan Consolidation	 
Rise, Other Options Should Be Examined (31-OCT-03, GAO-04-101).  
                                                                 
The federal government makes consolidation loans available to	 
help borrowers manage their student loan debt. By combining loans
into one and extending the repayment period, a consolidation loan
reduces monthly repayments, which may lower default risk and,	 
thereby, reduce federal costs of loan defaults. Consolidation	 
loans also allow borrowers to lock in a fixed interest rate--an  
option not available for other student loans--and are available  
to borrowers regardless of financial need. GAO was asked to	 
examine (1) how consolidation borrowers differ from		 
nonconsolidation borrowers; (2) how federal costs have been	 
affected by recent interest rate and loan volume changes; and (3)
the extent to which repayment options--other than		 
consolidation--are available to help simplify and reduce loan	 
repayments.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-101 					        
    ACCNO:   A08822						        
  TITLE:     Student Loan Programs: As Federal Costs of Loan	      
Consolidation Rise, Other Options Should Be Examined		 
     DATE:   10/31/2003 
  SUBJECT:   Financial analysis 				 
	     Loans						 
	     Student financial aid				 
	     Student loans					 
	     Comparative analysis				 
	     Loan interest rates				 
	     Dept. of Education Federal Family			 
	     Education Loan Program				 
                                                                 
	     Dept. of Education William D. Ford Loan		 
	     Program						 
                                                                 

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GAO-04-101

United States General Accounting Office

GAO

                       Report to Congressional Requesters

October 2003

STUDENT LOAN PROGRAMS

 As Federal Costs of Loan Consolidation Rise, Other Options Should Be Examined

GAO-04-101

Highlights of GAO-04-101, a report to congressional requesters

The federal government makes consolidation loans available to help
borrowers manage their student loan debt. By combining loans into one and
extending the repayment period, a consolidation loan reduces monthly
repayments, which may lower default risk and, thereby, reduce federal
costs of loan defaults. Consolidation loans also allow borrowers to lock
in a fixed interest rate-an option not available for other student loans-
and are available to borrowers regardless of financial need.

GAO was asked to examine (1) how consolidation borrowers differ from
nonconsolidation borrowers; (2) how federal costs have been affected by
recent interest rate and loan volume changes; and (3) the extent to which
repayment options-other than consolidation-are available to help simplify
and reduce loan repayments.

GAO recommends that the Secretary of Education assess the advantages of
consolidation loans for borrowers and the government in light of program
costs and identify options for reducing federal costs. Options could
include targeting the program to borrowers at risk of default and
extending existing consolidation alternatives to more borrowers. Education
should also consider how best to distribute program costs among borrowers,
lenders and the taxpayers. Education agreed with our recommendation.

www.gao.gov/cgi-bin/getrpt?GAO-04-101.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Cornelia Ashby at (202)
512-8403 or [email protected].

October 2004

STUDENT LOAN PROGRAMS

As Federal Costs of Loan Consolidation Rise, Other Options Should Be Examined

On average, consolidation loan borrowers, over the 1987 to 2002 period,
had higher levels of student loan debt, higher incomes, and larger loan
repayments than did nonconsolidation borrowers. For example, the average
student loan debt among consolidation borrowers prior to consolidating
their loans was about $22,000 versus about $10,000 for nonconsolidation
borrowers. As a group, they defaulted less often on their consolidation
loans than borrowers who did not consolidate their loans.

Recent trends in interest rates and consolidation loan volumes have
affected consolidations in the Department of Education's (Education) two
major student loan programs-the Federal Family Education Loan Program
(FFELP) and the William D. Ford Federal Direct Loan Program (FDLP)-in
different ways, but in the aggregate, estimated subsidy and administration
costs have increased. Subsidy costs for FFELP consolidation loans grew
from $1.3 billion for loans made in fiscal year 2002 to nearly $3 billion
for loans made in fiscal year 2003. Lower interest rates available to
borrowers in fiscal year 2003 increased these costs because FFELP
consolidation loans carry a government-guaranteed rate of return to
lenders that is projected to be higher than the fixed interest rate
consolidation loan borrowers pay. Higher loan volumes also added to the
estimated subsidy costs. Interest rates and loan volume also affected
costs for FDLP consolidation loans, but in a different way. Because the
interest rate the government charges borrowers has been somewhat greater
than the interest rate that Education pays to finance its lending,
consolidation loans have generated a net gain for the government in recent
years. Lower rates paid by borrowers and reduced loan volume from recent
record highs, however, reduced the net gain to $286 million for loans made
in fiscal year 2003, down from $460 million the year before. While
administration costs are not specifically tracked for either loan program,
available evidence indicates that these costs have also risen.

Alternatives to consolidation, such as the ability to make a single
repayment to cover multiple loans and obtain extended repayment terms, now
give some borrowers opportunities to simplify and reduce loan repayments,
but not all borrowers can use them. As a result, consolidation loans may
be the only option for some borrowers to simplify and reduce repayments.
Borrowers' repayment choices-whether to obtain a consolidation loan or use
other alternatives-have consequences for federal costs. While
consolidation loans may remain an important tool to help borrowers,
overall federal costs in providing for consolidation loans may exceed
federal savings from reduced defaults. An assessment of the advantages of
consolidation loans for borrowers and the government, taking into account
program costs and how costs could be distributed among borrowers, lenders,
and the taxpayers, would be useful for decisionmakers.

Contents

Letter

Results in Brief
Background
Consolidation Borrowers Had More Debt, Higher Incomes, and

Differed in Other Ways When Compared with Nonconsolidation Borrowers
Interest Rates and Increased Loan Volumes Have Increased Federal Costs

Repayment Options Other Than Consolidation Loans That Allow Borrowers to
Simplify Loan Repayments and Reduce Repayment Amounts Exist, but
Borrowers' Use of These Options Is Limited by Several Factors

Conclusion
Recommendation for Executive Action
Agency Comments

                                       1

                                      4 6

                                       9

16

28 35 36 36

Appendix I Comments from the Department of Education

Appendix II GAO Contacts and Staff Acknowledgments 39

GAO Contacts 39 Staff Acknowledgments 39

Tables

Table 1: Annual Income and Annual Student Loan Repayment of Consolidation
Borrowers Compared with Nonconsolidation Borrowers Entering Repayment in
1999 11

Table 2: Number of Lenders of Consolidation Borrowers Compared to
Nonconsolidation Borrowers Originating Loans, January 1987 to November
2002 15

Table 3: Interest Rate Spread for FDLP Consolidation Loans

Originated in Fiscal Years 2002 and 2003 23 Table 4: Description of
Borrower Repayment Plans 29 Table 5: Comparison of Repayment Periods for
FFELP

Consolidation and Nonconsolidation Loans, by Repayment Plan 30 Table 6:
Repayment Periods for FDLP Consolidation and Nonconsolidation Loans, by
Repayment Plan 31

Table 7: Comparison of Borrowers' Options under Consolidation and
Nonconsolidation Loans 32

Figures

Figure 1: Average Student Loan Debt of Consolidation Loan Borrowers Prior
to Consolidation Compared with Nonconsolidation Borrowers Originating
Loans January 1987 to November 2002

Figure 2: Repayment Periods of Consolidation Loans Compared with
Nonconsolidation Loans Originating from January 1987 to November 2002

Figure 3: Type of School Attended by Consolidation Loan Borrowers Compared
with Nonconsolidation Borrowers Originating Loans, January 1987 to
November 2002

Figure 4: Percentage of Consolidation Loan Borrowers Who Borrowed for
Graduate/Professional School Compared with Nonconsolidation Borrowers
Originating Loans, January 1987 to November 2002

Figure 5: Average Number of Loans of Consolidation Loan Borrowers Compared
with Nonconsolidation Borrowers Originating Loans, January 1987 to
November 2002

Figure 6: Percentage of Consolidation Borrowers Who Defaulted on
Consolidation Loans Compared with Nonconsolidation Borrowers Who Defaulted
on Loans, January 1987 to November 2002

Figure 7: Consolidation loan volume increased as borrower interest rates
fell Figure 8: Illustration of Estimated SAP Paid to Holders of FFELP
Consolidation Loans Originated in Fiscal Year 2003

Figure 9: Illustration of Net Subsidy Costs to the Federal Government for
Consolidation Loans Made in Fiscal Year 2002 Using Three Different Sets of
Interest Rate Assumptions

10 12 13

14 15

16 18 20

26

Abbreviations

FCRA Federal Credit Reform Act
FDLP William D. Ford Direct Loan Program
FFELP Federal Family Education Loan Program
HEA Higher Education Act
HEAL Health Educational Assistance Loans
IRS Internal Revenue Service
NSLDS National Student Loan Data System
SAP special allowance payment

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United States General Accounting Office Washington, DC 20548

October 31, 2003

The Honorable John A. Boehner
Chairman
Committee on Education and the Workforce
House of Representatives

The Honorable Howard P. "Buck" McKeon
Chairman
Subcommittee on 21st Century Competitiveness
Committee on Education and the Workforce
House of Representatives

For over 2 decades, the federal government has made consolidation loans
available to help borrowers cope with large amounts of federal student
loan debt. Consolidation loans are designed to help borrowers stay current
on loan payments, thereby reducing the government's costs of paying for
defaults. Instead of making concurrent repayments on several loans over a
period usually limited to 10 years, consolidation loan borrowers can
combine their loans and extend their repayment periods beyond 10 years,
thereby reducing monthly repayments. Consolidation loans also allow
borrowers to lock in a fixed interest rate, unlike most other federal
student loans, which carry an interest rate that varies from year to year.
Between fiscal year 2000 and 2002, the number of borrowers consolidating
their federal student loans nearly doubled to almost 1 million, and the
total
amount-or volume-of loans being consolidated rose even more sharply,
from $12 billion to over $31 billion. Consolidation loans are available
under both of the Department of Education's (Education) two major
student loan program-the Federal Family Education Loan Program
(FFELP) and the William D. Ford Direct Loan Program (FDLP)1-and, in
fiscal year 2002, accounted for about 44 percent of these programs' total
loan volume.

1Under FFELP, private lenders make consolidation loans to borrowers, with
Education guaranteeing lenders loan repayment and a rate of return that is
equal to the average 3-month commercial paper rate plus 2.64 percent. As
of June 30, 2003, that rate of return was 3.81 percent for consolidation
loans made on or after January 1, 2000. Under FDLP, Education uses federal
funds to make direct student loans.

The increase in consolidation borrowers and loans has raised congressional
interest in the cost of the program for the federal government. Two main
types of federal costs are involved. One is "subsidy"-the net present
value of cash flows to and from the government that result from providing
these loans to borrowers.2 For FFELP consolidation loans, cash flows
include, for example, fees paid by lenders to the government and a special
allowance payment by the government to lenders to provide them a
guaranteed rate of return on the student loans they make. For FDLP
consolidation loans, cash flows include borrowers' repayment of loan
principal and payments of interest to Education, and loan disbursements by
the government to borrowers. The subsidy costs of FDLP consolidation loans
are also affected by the interest Education must pay to the Department of
Treasury (Treasury) to finance its lending activities. The second type of
cost is administration, which includes such items as expenses related to
originating and servicing direct loans.3

For years, consolidation loans were basically the only alternative
available to borrowers seeking to reduce the size of their loan
repayments. In recent years, however, some repayment options, such as
graduated, extended, and income-based repayment plans, have been added to
FFELP and FDLP. This change has raised congressional interest in the
degree to which these options extend payment relief to borrowers without
requiring them to consolidate their loans, and in the potential advantages
and disadvantages of the various approaches, both for borrowers and the
federal government. In light of the upcoming reauthorization of the Higher
Education Act (HEA) (which authorizes the consolidation programs), you
asked us to examine several issues concerning consolidation loans. As
agreed with your office, we focused our work on answering the following
key questions:

2The Federal Credit Reform Act of 1990 requires Education to estimate
these subsidy costs, using the net present value of cash flows to do so.
Present value is the value today of the future stream of benefits and
costs, discounted using an appropriate interest rate (generally the
average annual interest rate for marketable zero-coupon U.S. Treasury
securities with the same maturity from the date of disbursement as the
cash flow being discounted). The background section of the report will
describe credit reform in more detail.

3Under FFELP, a large portion of the administration cost is borne by the
private lender. The federal government pays many of these costs in its
subsidy payment to lenders-more specifically, in the 2.64 percent add on
paid over and above the 3-month rate on commercial paper.

o  	How do consolidation loan borrowers differ from nonconsolidation loan
borrowers?

o  	How are federal subsidy and administration costs for consolidation
loan programs affected by recent interest rate and loan volume changes?

o  	To what extent do repayment options other than consolidation loans
allow borrowers to simplify loan repayment and reduce repayment amounts?

Our work to answer these questions involved a variety of information
sources, including officials from Education's Office of Federal Student
Aid and Budget Service, as well as representatives of FFELP lenders. To
develop information about student borrowers, we analyzed a sample of
student loan data from Education's National Student Loan Data System
(NSLDS)-a comprehensive national database of student loans, borrowers, and
other information. The sample was a randomly drawn, representative sample
that contained records on approximately 4.4 million loans held by 1.4
million students or their parents. The sample constituted 4 percent of the
overall NSLDS population of approximately 32 million students.4 To assess
the reliability of the NSLDS data, we reviewed existing information about
the sample and interviewed Education officials in Washington, D.C.,
responsible for performing data accuracy, validity, and integrity tests of
NSLDS data. In addition, we performed electronic testing of key variables
in our sample for obvious problems in accuracy and completeness. We
determined that the NSLDS data were sufficiently reliable for this report.
Our analysis on borrower characteristics focused on borrowers in the
sample who originated loans from 1987 (the year consolidation loans were
made available under the program as it is currently structured5) to
November 2002. To develop information about the family income of borrowers
and their repayment amounts, we analyzed data provided by the Internal
Revenue Service (IRS) on family income and Education on loan repayments
for a sample of borrowers who

4Because we used a sample, there is a sampling error associated with
estimates obtained from them. For a 95 percent confidence interval, all
percentage estimates reported have sampling errors of plus or minus 1
percentage point or less. All reported estimates other than percentages
have sampling errors not exceeding plus or minus 5 percent of the value of
those estimates.

5The current loan consolidation provisions were enacted by the
Consolidated Omnibus Budget Reconciliation Act of 1985 (Pub. L . No.
99-272) and later revised by the Higher Education Amendments of 1986 (Pub.
L. No. 99-498). The Student Loan Marketing Association (Sallie Mae) had
previously been authorized to make consolidation loans.

Results in Brief

entered repayment in 1999. Our analysis of federal costs of consolidation
loans is also based in part on interviews with Education officials in
Washington, D.C., and a review of relevant analyses prepared by Education.
We reviewed the HEA and related Education regulations and other published
information to identify the repayment options available to student loan
borrowers. We conducted our work from July 2002 through August 2003 in
accordance with generally accepted government auditing standards.

On average, consolidation loan borrowers, during the 1987 to 2002 time
period, had higher levels of student loan debt, higher incomes, and larger
loan repayments than did nonconsolidation loan borrowers. The average
level of student loan debt among consolidation loan borrowers, prior to
consolidating their loans, was about $22,000 versus about $10,000 for
borrowers who did not consolidate their loans. Consolidation loan
borrowers were less likely than nonconsolidation loan borrowers to have
attended a proprietary (for profit) school and were more likely to have
borrowed while attending graduate/professional school. Most consolidation
loans had repayment periods that were longer than 10 years. In addition,
consolidation loan borrowers, on average, had twice as many student loans
as did nonconsolidation borrowers, and two-thirds of consolidation loan
borrowers had loans from more than one lender, compared with about
one-third of nonconsolidation loan borrowers. Overall, once they had
consolidated their loans, borrowers with consolidation loans defaulted
less often than borrowers who did not consolidate their loans.

Recent trends in interest rates and consolidation loan volumes have
affected the FFELP and FDLP consolidation loan programs in different ways,
but in the aggregate, estimated subsidy and administration costs have
increased. For FFELP consolidation loans, subsidy costs grew from $1.3
billion for loans made in fiscal year 2002 to nearly $3 billion for loans
made in fiscal year 2003. Lower interest rates available to borrowers in
fiscal year 2003 increased these costs because FFELP consolidation loans
carry a government-guaranteed rate of return to lenders, that is projected
to be higher than the fixed interest rate paid by consolidation loan
borrowers. When the interest rate paid by borrowers does not provide the
full guaranteed rate to lenders, the federal government must pay lenders
the difference. Higher loan volumes in the FFELP program also added to the
estimated subsidy costs. FDLP consolidation loans are made by the
government and thus carry no interest rate guarantee to lenders, but
changing interest rates and loan volumes affected costs in this program as

well. In both fiscal years 2002 and 2003, there was no net subsidy cost to
the government because the interest rate paid by borrowers who
consolidated their loans was greater than the interest rate Education must
pay to Treasury to finance its lending. However, the drop in interest
rates that occurred in fiscal year 2003, among other things, reduced the
government's estimated net gain to $286 million for loans made in fiscal
year 2003, down from $460 million for loans made the year before. A
decrease in loan volume from recent record highs also contributed to the
reduced gain. Administration costs are not specifically tracked for either
consolidation loan program, but available evidence indicates that these
costs have risen, primarily reflecting increased loan volumes.

Repayment options, other than consolidation loans, that allow borrowers to
simplify loan repayment and reduce repayment amounts-such as the ability
to make a single repayment to cover multiple loans and obtain extended
repayment terms-are now available to some borrowers under both FFELP and
FDLP, but these alternatives are not available to all borrowers. If
borrowers have multiple loans from a single lender, they can make one
monthly payment to cover all their loans. Many borrowers can also adjust
the amount of their monthly payments so that they make smaller monthly
payments at the start of repayment and larger monthly payments during
later repayment periods for each of their individual loans. Moreover,
borrowers with relatively large loan balances can extend their repayment
periods beyond a 10-year term, which results in smaller monthly payments.
While these alternatives to consolidation have been added, borrowers must
meet certain criteria to be able to use them. For example, the ability to
make a single payment is limited to borrowers whose loans are currently
with a single lender, and the ability to extend repayment periods is, in
some cases, limited to borrowers whose total loan balances are above
certain limits. For borrowers who cannot use these options, consolidation
loans remain the only vehicle under FFELP and FDLP by which they may
combine multiple repayments into one and reduce the amount of their
monthly repayments. Consolidation loans also allow borrowers to lock in a
fixed interest rate for the life of the loan-an option not available to
nonconsolidation loan borrowers in either program. The ability to lock in
a low interest rate for the life of the loan is one factor that could
motivate some borrowers to choose consolidation over other options.
Borrowers' repayment choices, including whether to obtain a consolidation
loan or use other repayment alternatives, have consequences for federal
costs. While consolidation loans may remain an important tool to help
borrowers, overall federal costs in providing for consolidation loans may
exceed federal savings from reduced defaults.

In this report, we recommend that the Secretary of Education assess the
advantages of consolidation loans for borrowers and the government in
light of program costs and identify options for reducing federal costs.

We provided Education with a copy of our draft report for review and
comment. In written comments on our draft report, Education agreed with
our reported findings and recommendations. Education's written comments
appear in appendix I. Education also provided technical comments, which we
incorporated where appropriate.

Background 	Congress created consolidation loans under Title IV of the HEA
to help borrowers combine and reduce monthly repayments so as to help
decrease federal loan default costs. Consolidation loans are available
under Education's two major student loan programs-the FFELP and FDLP.
Under FFELP, private lenders make loans to students with Education
guaranteeing the lenders loan repayment and a rate of return on the loans
they make. Under FDLP, the federal government makes loans to students
using federal funds.

                  FFELP and FDLP Offer Several Types of Loans

In addition to consolidation loans, a number of other types of loans are
available under FFELP and FDLP, including subsidized Stafford,
unsubsidized Stafford, and PLUS loans. Both subsidized and unsubsidized
Stafford loans are variable rate loans that are available to undergraduate
and graduate students. The interest rates borrowers pay on these loans
adjust annually, based on a statutorily established market-indexed rate
setting formula, and may not exceed 8.25 percent. To qualify for a
subsidized Stafford loan, a student must establish financial need.
Students can qualify for unsubsidized Stafford loans regardless of
financial need. The federal government pays the interest on behalf of
subsidized loan borrowers while the student is in school. Unsubsidized
loan borrowers are responsible for all interest costs. PLUS loans are
variable rate loans that are available to parents of dependent
undergraduate students. The interest rates on these loans adjust annually,
based on a statutorily established market-indexed rate setting formula,
and may not exceed 9 percent. Parents can qualify for PLUS loans
regardless of financial need.

Consolidation loans differ from Stafford and PLUS loans in that they
enable borrowers who have multiple loans-possibly from different

lenders, different guarantors,6 and even from different loan programs-to
combine their loans into a single loan and make one monthly payment.
Consolidation loans are new originations that, in general, do not
contribute to increases in outstanding loan balances because they
refinance already existing loans.7 By obtaining a consolidation loan,
borrowers can lower their monthly payments by extending the repayment
period longer than the maximum 10 years generally available on Stafford
and PLUS loans. Consolidation loans also provide borrowers with the
opportunity to lock in a fixed interest rate on their student loans, based
on the weighted average of the interest rates in effect on the loans being
consolidated rounded up to the nearest one-eighth of 1 percent, capped at
8.25 percent. Borrowers can qualify for consolidation loans regardless of
financial need.

Loans eligible for inclusion in a consolidation loan must be comprised of
at least one eligible FFELP or FDLP loan (subsidized and unsubsidized
Stafford loans, PLUS loans, and, in some instances, consolidation loans).
Other types of federal student loans made outside of FFELP and FDLP, which
may carry a variable or fixed borrower interest rate, are also eligible
for inclusion in a consolidation loan, including Perkins loans, Health
Professions Student loans, Nursing Student Loans, and Health Education
Assistance loans8 (HEAL).

Consolidation loans under FFELP and FDLP accounted for about 44 percent of
the $71.8 billion in total new student loan dollars that originated during
fiscal year 2002. FFELP consolidation loans comprised about 72 percent of
the fiscal year 2002 consolidation loan volume, while FDLP consolidation
loans accounted for the remaining 28 percent.

6State and nonprofit guaranty agencies receive federal funds to play the
lead role in administering many aspects of the FFELP program, including
reimbursing lenders when loans are placed in default and initiating
collection work.

7In some cases, according to Education, borrowers' outstanding loan
balances may increase if collections costs assessed borrowers are included
in the amounts being consolidated.

8Perkins Loans are fixed rate loans for both undergraduate and graduate
students with exceptional financial need. Perkins loans are made directly
by schools using funds contributed by the federal government and schools;
borrowers must repay these loans to their school. The Health Professions
Student Loans and Nursing Student Loans are fixed rate loans for borrowers
who pursue a course of study in specified health professions. The HEAL
program provided loans to eligible graduate students in specified health
professions. HEAL was discontinued on September 30, 1998.

Federal Credit Reform Act of 1990 Helps Define Federal Costs Associated
with Consolidation Loans

Subsidy Costs

The Federal Credit Reform Act (FCRA) of 1990 was enacted to require
agencies to more accurately measure the government's cost of federal loan
programs and to permit better cost comparisons among and between credit
programs, such as FDLP and FFELP. Prior to implementing FCRA, the
budgetary cost of a new direct loan or loan guarantee was reported on a
cash basis. Thus, loan guarantees appeared to be free in the budget year,
while direct loans appeared to be as expensive as grants. As a result,
costs were distorted and credit programs could not be compared
meaningfully with other programs and with each other. FCRA and the related
accounting standards and budgetary guidance, together known as credit
reform, were established to more accurately measure the government's costs
of federal credit programs.

As part of implementing credit reform, agencies are required to estimate
the long-term cost to the government of a direct loan or a loan guarantee,
generally referred to as the subsidy cost, based on the present value of
estimated net cash flows, excluding administration costs.

For FFELP loans, the subsidy cost of a loan guarantee is the net present
value, when a guaranteed loan is disbursed, of estimated cash flows such
as:

o  	Payments by the government to lenders to cover loan defaults and
interest subsidies. (Interest subsidies include payments to lenders that
provide them a guaranteed rate of return on the loans they make as well as
payments of interest on behalf of subsidized Stafford loan borrowers who
are in periods of deferment).9

o  	Payments by lenders to the government, including origination and other
fees, penalties assessed borrowers, and recoveries on defaulted loans.
(For consolidation loans, FFELP loan holders must pay, on a monthly basis,
a fee calculated on an annual basis equal to 1.05 percent of the unpaid
principal and accrued interest of the loans in their portfolio.)

For FDLP loans, the subsidy cost of a direct loan is the net present
value, at the time when the direct loan is disbursed, of estimated cash
flows such as

o  loan disbursements by the government to borrowers and

9Deferment equals a period of time during repayment in which the borrower,
upon meeting certain conditions, is not required to make payments of loan
principal.

o  	principal repayments and payments of interest by borrowers to the
government.

The subsidy costs of FDLP loans are also affected by the interest
Education must pay to Treasury to finance its lending activities.

Administration Costs 	Administration costs include all costs directly
related to FDLP program operations, including loan servicing, loan system
development and maintenance, including computer costs, and the costs of
collecting on delinquent loans. For FFELP loans, lenders incur a
substantial portion of administration costs. The federal government
initially pays many of these costs by paying an allowance to the lenders.
These allowances are part of the subsidy cost under credit reform. For
FDLP loans, the federal government pays for administration costs directly.

Consolidation Consolidation loan borrowers differed from nonconsolidation
loan

borrowers in a variety of ways. On average, consolidation loan borrowers
Borrowers Had More had higher student loan debt, higher incomes, larger
annual loan Debt, Higher Incomes, repayments, and longer repayment
periods. They were also less likely to

have attended a proprietary (or, for-profit) school and were more likely
to and Differed in Other have borrowed while attending
graduate/professional school. In addition, Ways When they averaged more
student loans from more lenders. Overall,

consolidation loan borrowers defaulted less often than borrowers who
hadCompared with not consolidated their loans.

Nonconsolidation

Borrowers

Consolidation Borrowers Had Higher Student Loan Debt and Incomes, Larger
Loan Repayments, and Longer Repayment Periods

Borrowers with consolidation loans had a higher average amount of student
loan debt than nonconsolidation loan borrowers. Prior to consolidation,
the average student loan debt for our sample of consolidation loan
borrowers from January 1987 through November 2002 was $21,735, more than
twice the average of $9,587 for nonconsolidation borrowers (see fig. 1).
While average student loan debt was higher for consolidation loan
borrowers, the average student loan debt for both types of borrowers
increased over time. Between 1992 and 2002, the average student loan debt
increased from $17,420 to $35,339 for consolidation loan borrowers, and
from $7,267 to $15,720 for nonconsolidation borrowers.

Figure 1: Average Student Loan Debt of Consolidation Loan Borrowers Prior
to Consolidation Compared with Nonconsolidation Borrowers Originating
Loans January 1987 to November 2002

Average student loan debt

$25,000

21,735

$20,000

$15,000

$10,000

$5,000

$0 Consolidation Nonconsolidation loan borrowers loan borrowers

Source: GAO analysis of NSLDS data.

Note: Amounts analyzed and reported are in nominal dollars.

Borrowers with consolidation loans had higher average incomes and higher
average annual repayments on their student loans than nonconsolidation
loan borrowers. In addition, loan repayments comprised a slightly higher
percentage of the incomes of consolidation borrowers, with an annual
student loan repayment-to-income ratio of 9.4 percent for consolidation
loan borrowers and 8.4 percent for nonconsolidation borrowers (see table
1). Not only did consolidation loan borrowers have higher average incomes
than nonconsolidation loan borrowers, 39 percent of them had family
incomes greater than $50,000, compared with 23 percent of nonconsolidation
borrowers with family incomes greater than $50,000.

Table 1: Annual Income and Annual Student Loan Repayment of Consolidation
Borrowers Compared with Nonconsolidation Borrowers Entering Repayment in
1999

Consolidation borrowers Nonconsolidation borrowers

                             Average income     $47,150               $32,591 
                             Average annual                  
                                  repayment      $3,355                $2,126 
                       Average student loan                  
                  repayment-to-income ratio       9.4%                   8.4% 

Source: GAO analysis of IRS and Education data.

Note: The annual student loan repayment-to-income ratio was calculated as
the average debt burden across five income categories weighted by the
number of borrowers in each category.

For the FDLP loans in our sample,10 consolidation loans tended to have
longer repayment periods than nonconsolidation loans. Over 62 percent of
consolidation loans had repayment terms of 12 years or more, compared with
26 percent for nonconsolidation loans. The smaller loan balances often
carried by nonconsolidation loan borrowers could help explain why a
smaller portion of nonconsolidation loans had repayment periods of more
than 10 years. For example, under FDLP, many of the repayment plans that
allow the extension of repayment periods require a minimum loan balance of
$10,000. The repayment periods for loan balances over $10,000 usually vary
depending on the amount of the loan, with 30 years being the maximum
repayment period for loan balances of $60,000 or more. Since our analysis
indicates that nonconsolidation loan borrowers had an average loan debt of
$9,587, these borrowers would not qualify for extended repayment periods.
However, even when consolidation loan borrowers had the option to extend
their repayment term, nearly 4-in10 (37 percent) of the consolidation
loans in our sample had a standard 10-year repayment period (see fig. 2).

10NSLDS does not contain information about repayment terms for FFELP
loans.

Figure 2: Repayment Periods of Consolidation Loans Compared with
Nonconsolidation Loans Originating from January 1987 to November 2002

Percent of borrowers

                                       80

                                       74

                                       60

                                       40

                                      20 0

Consolidation loan borrowers were less likely than nonconsolidation loan
borrowers to have attended a proprietary (or, for-profit) school.
Additionally, borrowers with consolidation loans were somewhat more likely
to have attended public or private/nonprofit schools than were
nonconsolidation borrowers. Overall, 80 percent of consolidation borrowers
attended public or private/nonprofit schools and 74 percent of
nonconsolidation borrowers attended a public or private/nonprofit school
(see fig. 3).

Consolidation loans

Nonconsolidation loans

10 years 12+ years

                      Source: GAO analysis of NSLDS data.

Consolidation Borrowers Were Less Likely to Attend Proprietary Schools and
More Likely to Have Borrowed While Attending Graduate/Professional School

Figure 3: Type of School Attended by Consolidation Loan Borrowers Compared
with Nonconsolidation Borrowers Originating Loans, January 1987 to
November 2002

Percent of borrowers

60

49 48

40

20

0 Consolidation Nonconsolidation loan borrowers loan borrowers

Public school

Private/nonprofit school

Proprietary school

Source: GAO analysis of NSLDS data.

Although both consolidation and nonconsolidation loan borrowers tended to
borrow prior to graduate/professional school, our analysis indicates that
consolidation loan borrowers were more likely than nonconsolidation
borrowers to have taken out a student loan while attending
graduate/professional school. About 28 percent of consolidation loan
borrowers borrowed while they were in graduate/professional school
compared with 12 percent of nonconsolidation loan borrowers (see fig. 4).

Figure 4: Percentage of Consolidation Loan Borrowers Who Borrowed for
Graduate/Professional School Compared with Nonconsolidation Borrowers
Originating Loans, January 1987 to November 2002

                           Percent of borrowers 30 28

Prior to consolidating their loans, consolidation loan borrowers averaged
more loans from more lenders than nonconsolidation loan borrowers.
Consolidation loan borrowers had taken out an average of about six loans
each, nearly twice the average number for nonconsolidation borrowers (see
fig. 5). Furthermore, consolidation loan borrowers were more likely to
have borrowed from more than one lender. Prior to consolidation, 28
percent of consolidation loan borrowers had loans from three or more
lenders compared with 9 percent for nonconsolidation borrowers (see table
2).

                                       20

                                      10 0

                          Consolidation loan borrowers

Nonconsolidation loan borrowers

                      Source: GAO analysis of NSLDS data.

Consolidation Borrowers Had More Loans and Borrowed from More Lenders

Figure 5: Average Number of Loans of Consolidation Loan Borrowers Compared
with Nonconsolidation Borrowers Originating Loans, January 1987 to
November 2002

Average number of loans

                                       8

                                      6.25

                                       6

                                       4

                                       2

                         0 Consolidation loan borrowers

Nonconsolidation loan borrowers

                      Source: GAO analysis of NSLDS data.

Table 2: Number of Lenders of Consolidation Borrowers Compared to
Nonconsolidation Borrowers Originating Loans, January 1987 to November
2002

Number of lenders Consolidation borrowers Nonconsolidation borrowers

                                  1         37%                           69% 
                                  2         35%                           22% 
                          3 or more         28%                            9% 
                              Total         100%                         100% 

                      Source: GAO analysis of NSLDS data.

Consolidation Borrowers Fewer consolidation loan borrowers in our sample
had defaulted on their

Defaulted Less Often 	consolidation loans than nonconsolidation borrowers
had defaulted on their loans. The overall default rate for consolidation
loan borrowers who had defaulted on their consolidation loans was about 8
percent compared with the overall default rate of 23 percent for
nonconsolidation borrowers (see fig. 6).

Figure 6: Percentage of Consolidation Borrowers Who Defaulted on
Consolidation Loans Compared with Nonconsolidation Borrowers Who Defaulted
on Loans, January 1987 to November 2002

Percent of borrowers

30

                                       23

20

10

0 Consolidation Nonconsolidation loan borrowers loan borrowers

Source: GAO analysis of NSLDS data.

Some consolidation loan borrowers had defaulted on a student loan prior to
obtaining their consolidation loan and then subsequently defaulted on
their consolidation loan as well. About one-fifth (19 percent) of
consolidation loan borrowers had, in fact, defaulted on a loan before they
obtained a consolidation loan; of these borrowers, about 23 percent
subsequently defaulted on their consolidation loans. Of the approximately
four-fifths (81 percent) of consolidation loan borrowers that had never
defaulted on a student loan prior to obtaining a consolidation loan, about
5 percent defaulted on their consolidation loan.

Although recent trends in interest rates and consolidation loan volumes
have affected the FFELP and FDLP consolidation programs in somewhat
different ways, the net effect has been an increase in estimated subsidy
and administration costs for loans made in fiscal year 2003 as compared
with loans made in fiscal year 2002. In FFELP, estimated subsidy costs
rose from $1.3 billion for loans made in fiscal year 2002 to nearly $3
billion for loans made in fiscal year 2003. These estimated subsidy costs
are affected by the amount the federal government must pay to lenders to
guarantee them a statutorily established rate of return, which fluctuates
over time as interest rates rise and fall. Increased FFELP consolidation
loan volume in 2003 also raised costs. For FDLP consolidation loans, the
margin of difference narrowed between the interest rate that Education

Interest Rates and Increased Loan Volumes Have Increased Federal Costs

earned from borrowers and the rate that Education paid to the Treasury to
finance direct loans. As a result of this smaller difference, as well as
an expected decrease in demand for FDLP consolidation loans compared to
prior years, the estimated net interest gain to the government dropped
from $460 million in fiscal year 2002 to $286 million in fiscal year 2003.
The movement of subsidy costs for loans made in future years will depend
heavily on what happens to interest rates and loan volumes. Administration
costs are not specifically tracked for either loan program, but available
evidence indicates that these costs have also risen.

Borrowers' Rates Have Dropped and Loan Volumes Have Risen

Recent years have seen dramatic growth in loan volume for both
consolidation loan programs, along with an overall drop in interest rates
for borrowers that correspond to the overall decline in interest rates.
From fiscal year 1998 through fiscal year 2002, the volume of
consolidation loans made (or "originated") rose from $5.8 billion to over
$31 billion. Of the over $31 billion in consolidation loan volume for
fiscal year 2002, $22.7 billion was in the FFELP and $8.8 billion was in
the FDLP. While FDLP consolidation loan volume for fiscal year 2003 is
expected to decrease, FFELP loan volume is expected to increase, resulting
in a total consolidation loan volume of over $36 billion for the year. The
dramatic growth in consolidation loan volume in recent years is due in
part to declining interest rates that have made it attractive for many
borrowers to consolidate their variable rate student loans at a low, fixed
rate. From July 2000 to June 2003, the minimum fixed interest rate for
consolidation loans dropped 4 percentage points, with consolidation loan
borrowers currently obtaining rates as low as 3.50 percent in the year
beginning July 1, 2003. Figure 7 shows the relationship between these two
factors. Under these conditions, some borrowers may find it in their
economic self-interest to consolidate their loans so that they can lock in
a low fixed interest rate for the life of the loan, as opposed to paying
variable rates on their existing loans, regardless of whether they need a
consolidation loan to avoid difficulty in making loan repayments.

 Figure 7: Consolidation loan volume increased as borrower interest rates fell

       Loan volume in billions Borrower interest rate (percent) 40 10 30

                                       20

                                     10 0 8

                                       6

                                       4

                                       2

                  0 1998 1999 2000 2001 2002 2003 Fiscal year

                           Loan volume Borrower rate

            Source: GAO analysis of Education's Budget Service data.

Underscoring the potential attractiveness of these loans to potential
borrowers, many lenders, including newer loan companies that are
specializing in consolidation loans, are aggressively marketing
consolidation loans to compete for consolidation loan business as well as
to retain the loans of their current customers. Their marketing techniques
have included mass mailings, telemarketing, and Internet pop-ups to
encourage borrowers to consolidate their loans. This increased marketing
effort has likely contributed to the record level of consolidation loan
volume.

Effect on Subsidy Costs Overall estimated subsidy costs for consolidation
loans made in fiscal year

Varies between Programs 	2003 were greater than for consolidation loans
made in fiscal year 2002. In light of the differences between how the
FFELP and FDLP operate, however, the costs of these two programs were
affected in very different ways. For FFELP, the result was a substantial
increase in estimated subsidy costs. For FDLP, the result was a narrowing
of the net difference between the estimated interest payments paid by
consolidated loan

Increased Special Allowance Payments to Lenders and Increased Loan Volume
Caused FFELP Subsidy Costs to Rise

borrowers to Education and the costs paid by Education to Treasury to
finance direct loans.

Estimated subsidy costs for FFELP consolidation loans are expected to
increase from $1.3 billion for loans made in fiscal year 2002 to almost $3
billion for loans made in fiscal year 2003. While part of the increase is
the result of greater loan volume, the increase is primarily due to the
higher interest subsidies the government is expected to pay to lenders to
ensure they receive a guaranteed rate of return on student loans.

The interest subsidy, which is called a special allowance payment (SAP),
is based on a formula specified in law and paid by Education to lenders on
a quarterly basis when the "guaranteed lender yield" exceeds the borrower
rate. This guaranteed lender yield is currently based on the average
3-month commercial paper11 interest rate plus an additional 2.64 percent.
The amount of the quarterly SAP paid to loan holders equals the difference
between the guaranteed lender yield and the borrower rate divided by four
and multiplied by the average unpaid principal balance of all loans the
lender holds. If the borrower's interest rate exceeds the guaranteed
lender yield, Education does not pay a SAP, and the lender receives the
borrower rate.

Education's estimate of nearly $3 billion in subsidy costs for FFELP
consolidation loans made in fiscal year 2003 is based on the assumption
that the guaranteed lender yield will rise over the next several years,
reflecting Education's assumption that market interest rates are likely to
rise from the historically low levels experienced in fiscal year 2003. In
figure 8, the bottom line shows the fixed borrower rate for a FFELP
consolidation loan made in the first 9 months of fiscal year 2003, while
the top line shows Education's estimated values for the guaranteed lender
yield over time. In fiscal year 2003, market interest rates were such that
the guaranteed lender yield established under the SAP formula was actually
below the borrower rate. Lenders would therefore receive only the rate
paid by borrowers; no SAP would be paid. However, in future years, when
the guaranteed lender yield is expected to increase and be above the
borrower rate, Education would have to make up the difference in the form
of a SAP. As the figure shows, Education's assumptions would

11Commercial paper is short-term, unsecured debt with maturities up to 270
days. It is issued in the form of promissory notes, primarily by
corporations. Many companies use commercial paper to raise cash for
current transactions, and many find it to be a lower-cost alternative to
bank loans.

call for lenders to receive a SAP over most of the life of the
consolidation loans made in fiscal year 2003.

 Figure 8: Illustration of Estimated SAP Paid to Holders of FFELP Consolidation
                      Loans Originated in Fiscal Year 2003

                            Interest rate (percent)

4 Borrower rateb

3

2

1

0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Fiscal year

Source: GAO analysis of Education's Budget Service data.

aThe estimated lender yield, which is based on the average 3-month
commercial paper rates, as provided by the Office and Management and
Budget (OMB), does not vary much after fiscal year 2007 since the
projected commercial paper rates do not vary much after fiscal year 2007.
The actual lender yield could vary from these projections depending on
future interest rates.

bThis borrower rate is for a consolidation loan originated from October to
June of fiscal year 2003 and whose underlying loans are Stafford loans
disbursed after July1,1998, and in repayment at time of consolidation.

In point of fact, Education is required to revise these estimates
periodically to adjust for changing assumptions about interest rates and
loan performance. Subsidy costs estimates for FFELP consolidation loans
can vary substantially, depending on how much the guaranteed lender yield
rises above the fixed rate paid by borrowers. Education is required to
account for such changes in subsidy cost estimates by annually updating,
or "reestimating," loan program costs, in accordance with OMB budget

guidance.12 Any increase or decrease in the subsidy cost estimates
resulting from reestimates is reflected in future program budget estimates
as appropriate and Education's end of the fiscal year financial statements
whenever the reestimated amount is significant. Thus, Education's
estimates for both fiscal year 2002 loans and fiscal year 2003 loans are
subject to change in the future.

An increase in loan volume also played a role in the subsidy cost increase
from fiscal years 2002 to 2003, but to a lesser degree than the higher
interest subsidies the government is expected to pay to lenders. On their
own, loan volumes can increase subsidy amounts. To illustrate, estimated
subsidy costs can be converted into subsidy rates, reflecting the
estimated unit cost per loan dollar to the federal government. For
example, a $1,000 loan with a federal subsidy cost of $100 would have a
subsidy rate of 10 percent. The subsidy rate for FFELP consolidation loans
made in fiscal year 2002 was approximately 5.9 percent. Given a fiscal
year 2002 FFELP consolidation loan volume of about $22.7 billion, and a
subsidy rate of 5.9 percent, federal subsidy costs can be determined by
multiplying the loan volume by the subsidy rate ($22.7 billion X 0.059 =
$1.3 billion). Viewed in this way, it is clear that even if the subsidy
rate remained the same from fiscal year 2002 to 2003, the larger expected
FFELP consolidation loan volume of $30.5 billion in fiscal year 2003 would
have increased total subsidy costs to $1.8 billion (i.e., $30.5 billion X
0.059 = $1.8 billion), an increase of $0.5 billion from fiscal year 2002.
However, the higher interest subsidies the government is expected to pay
to lenders, as previously discussed, also increased the subsidy rate for
FFELP consolidation loans made in fiscal year 2003. This rate-9.8 percent-
coupled with the estimated loan volume of $30.5 billion, resulted in the
total FFELP consolidation loan subsidy costs of about $3 billion ($30.5
billion X 0.098).

12To estimate the cost of loan programs, Education first estimates the
future performance of direct and guaranteed loans when preparing their
annual budgets. These first estimates establish the subsidy estimates for
the current-year originated loans. The data used for the first estimates
are reestimated later to reflect any changes in loan performance and
expected changes in future economic performance. Reestimates are necessary
because projections about interest and default rates and other variables
that affect loan program costs change over time. Any increase or decrease
in the estimated subsidy cost results in a corresponding increase or
decrease in the estimated cost of the loan program for both budgetary and
financial statement purposes.

Changing Interest Rates Also Affected FDLP Consolidation Loans

Subsidy costs can occur within FDLP as well, but in a different way. The
FDLP consolidation program is a direct loan program and therefore involves
no guaranteed yields to private lenders. Still, the program has potential
subsidy costs determined in part by the relationship between interest
rates Education earns from borrowers-the borrower rate and the rate
Education pays Treasury to finance its lending. The government's cost of
capital is determined by the interest rate Education pays Treasury to
finance direct student loans, which is equivalent to the discount rate.13
The difference between borrowers' rates and the discount rate-called the
interest rate spread-is a key driver of subsidy estimates for FDLP loans.
When the borrower rate is greater than the discount rate, Education will
receive more interest from borrowers than it will pay in interest to
Treasury to finance its loans, resulting in a positive interest rate
spread- or a gain (excluding administrative costs) to the government.
Conversely, when the borrower rate is less than the discount rate,
Education will pay more in interest to Treasury than it will receive from
borrowers, which will result in a negative interest rate spread-or a cost
to the government.

For FDLP consolidation loans made in fiscal years 2002 and 2003, no such
negative interest rate spreads were incurred in either year, based on the
methodology Education uses to determine these costs. In both years,
borrower interest rates for FDLP consolidation loans were somewhat higher
than the discount rate, resulting in a net gain to the government.
However, while Education continued to benefit from lending at interest
rates higher than its cost of borrowing for FDLP consolidation loans made
in fiscal year 2003, the size of this benefit is expected to decline from
$460 million in fiscal year 2002 to $286 million in fiscal year 2003.14

13While the discount rate is the interest rate used to calculate the
present value of the estimated future cash flows to determine subsidy cost
estimates, it is also generally the same rate at which interest is paid by
Education on the amounts borrowed from Treasury to finance the direct loan
program.

14The subsidy estimates for consolidation loans made in fiscal year 2003
were developed by Education in August 2003. To account for recent changes
in interest rates, we asked Education to update its estimates as of August
18, 2003, using a discount rate that we calculated based on the average of
daily Treasury rates for various short- and long-term maturities during
fiscal year 2003. Because our calculation was as of August 18, 2003, we
approximated the Treasury rates through the remainder of the fiscal year
based on the August 18, 2003, rates. At the end of fiscal year 2003, when
OMB determines the actual discount rates for fiscal year 2003, estimated
subsidy costs of the fiscal year 2003 FFELP and FDLP consolidation loans
will likely change.

The smaller net gain that is expected to occur in fiscal year 2003
reflects a narrowed difference between the discount rate and the borrower
rate. In fiscal year 2003, this difference narrowed in part because
borrower rates dropped more than the discount rate. The borrower rates for
FDLP consolidation loans dropped 2 percentage points, from 6 percent in
fiscal year 2002 to 4 percent in fiscal year 2003. The discount rate, on
the other hand, dropped by only 0.95 percentage points. The resulting
interest rate spread decreased from 1.1 percent to 0.05 percent (see table
3). In other words, each $100 of consolidated FDLP loans made in fiscal
year 2002, will result in $1.10 more in interest received by Education
than it will pay out in interest to the Treasury. A similar loan
originated in fiscal year 2003, however, will generate only $0.05 more in
interest for the government.

Table 3: Interest Rate Spread for FDLP Consolidation Loans Originated in
Fiscal Years 2002 and 2003

Fiscal Borrower Discount Interest rate Estimated interest payments year
rate rate spread for each $100 of loans

                    2002 6.0% 4.90% 1.1% 1.1% x $100 = $1.10

                   2003 4.0% 3.95% 0.05% 0.05% x $100 = $0.05

Source: GAO analysis of Education's Budget Service data.

Note: The discount rate of 3.95 percent is an estimated discount rate on
August 18, 2003. The actual discount rate for fiscal year 2003 may be
higher or lower, which would reduce or increase the interest rate spread
for fiscal year 2003.

While Education revises estimates periodically to adjust for changing
assumptions about future interest rates for FFELP consolidation loans, the
borrower rate and the discount rate used to derive the subsidy cost for
FDLP consolidation loans made in fiscal year 2003 are generally fixed for
the life of the loans. As a result, the subsidy cost of FDLP consolidation
loans made in any given fiscal year do not vary in the way that subsidy
costs for FFELP consolidation loans do.15

15Subsidy cost estimates for consolidation loans made in fiscal year 2003
will be updated when the actual discount rate for the loans made in fiscal
year 2003 is known at the close of fiscal year 2003. Reestimates for
interest rates for FDLP consolidation loans would generally not occur due
to the fixed discount and borrower rates used for calculating subsidy cost
estimates. However, technical reestimates which are made after the close
of each fiscal year to adjust for changes in assumptions other than
interest rates (e.g., defaults, recoveries, prepayments, and fees), may
still occur and could result in changes to the subsidy cost estimates.

Loan volume also played a role in the smaller net gain that occurred in
fiscal year 2003. While FDLP consolidation loan volume increased from
about $5.4 billion in fiscal year 2000 to about $8.8 billion in fiscal
year 2002, Education estimated a decrease in demand for FDLP consolidation
loans for 2003, expecting volume to be about $6 billion.16 The unit cost
per loan dollar, or subsidy rate, for FDLP consolidation loans made in
fiscal year 2002 was a negative 5.2 percent, which resulted in a negative
subsidy17-that is, a "gain"-to the government of $0.052 for each dollar
lent (excluding administrative costs). As previously discussed, the
difference between the discount rate and the borrower rate narrowed from
fiscal year 2002 to fiscal year 2003, which contributed to the increased
subsidy rate from a negative 5.2 percent to a negative 4.8 percent,
resulting in a smaller gain, per loan dollar, to the government. Had the
subsidy rate remained the same from fiscal year 2002 to fiscal year 2003,
the decrease in FDLP consolidation loan volume would have resulted in a
reduced gain to the government of about $147 million. The subsidy rate
increase from fiscal year 2002 to fiscal year 2003, however, coupled with
reduced loan volume, resulted in a reduced gain of $174 million.

Subsidy Costs Are Sensitive to Interest Rate Changes

As the discussion of both FFELP and FDLP loans shows, interest rates have
a strong effect on whether subsidy costs occur and how large they are. As
a measure of how great an effect different interest rate assumptions can
have, we asked Education to conduct two additional sets of calculations
for fiscal year 2002 FFELP and FDLP consolidation loans. Using the same
loan volume and other assumptions of the fiscal year 2002 estimates,
Education applied the interest rate assumptions that were used to develop
the estimates for the fiscal year 2001 and 2003 consolidation loans. These
assumptions differed from those in place in fiscal year 2002, as well as
from each other. In general, the interest rate assumptions for fiscal year
2001 were higher than the assumptions used in fiscal year 2002, and future
interest rates were expected to decrease. The interest rate assumptions
for fiscal year 2003, on the other hand, were generally lower

16Education's $6 billion estimate was calculated as part of the 2003
Mid-Session Review and based on actual consolidation loan volume for the
first two quarters of fiscal year 2003. Actual volume may differ. Further,
in July 2003, borrower interest rates decreased from the prior year, which
may increase demand for FDLP consolidation loans during the remainder of
fiscal year 2003.

17Negative subsidies mean subsidy costs that are less than zero. They
occur if the present value of cash inflows to the government exceeds the
present value of cash outflows.

than the assumptions used in fiscal year 2002, and future interest rates
were expected to increase.

Calculating subsidy estimates under these three different sets of interest
rate assumptions produced substantially different results. As figure 9
shows, the results of this analysis indicated that for FFELP consolidation
loans, the fiscal year 2001 interest rate assumptions would result in
estimated subsidy costs totaling $129 million, or about $1 billion less
than the estimated subsidy costs under the actual fiscal year 2002
estimates. In contrast, the fiscal year 2003 interest rate assumptions
resulted in estimated subsidy costs totaling $2.4 billion, an increase of
more than $1.2 billion in subsidy costs, even though the estimate was
calculated across the same volume of loans. For FDLP consolidation loans,
the analysis indicated that a greater interest rate spread between the
discount rate and the borrower rate for the fiscal year 2001 interest rate
assumptions, resulted in a net gain to the government totaling about $645
million or about $264 million more than the gain under the actual fiscal
year 2002 estimates. In contrast, the fiscal year 2003 interest rate
assumptions resulted in an estimated subsidy cost to the government
totaling about $370 million, a change of about $751 million. This increase
is primarily due to the negative interest rate spread in which the
borrower rate used in fiscal year 2003 was less than the discount rate
used in the fiscal year 2003 interest rate assumptions.

Figure 9: Illustration of Net Subsidy Costs to the Federal Government for
Consolidation Loans Made in Fiscal Year 2002 Using Three Different Sets of
Interest Rate Assumptions

                                 Results using
                              FY 2001 assumptions

                                 Results using
                              FY 2002 assumptions

                                 Results using
                              FY 2003 assumptions

                                    Billions

                                      $2.5

                                      2.41

                                      $2.0

                                      $1.5

                                      $1.0

                                      $0.5

                                      $0.0

                                     -$0.5

                                     -0.649

-$1.0 FY 2001 assumptions

Discount rate (FDLP) 5.31%

                              FY 2002 assumptions

                           Discount rate (FDLP) 4.90%

                              FY 2003 assumptions

                           Discount rate (FDLP) 5.47%

Lender yield (FFELP)
-- In FY 2001 7.53%
-- In 10 years 7.36%

Lender yield (FFELP)
-- In FY 2002 4.52%
-- In 10 years 7.36%

Lender yield (FFELP)
-- In FY 2003 4.02%
-- In 10 years 7.36%

          Borrower rate 7.75% Borrower rate 5.63% Borrower rate 4.13%

Subsidy costs for FFELP loans Subsidy costs for FDLP loans Source: GAO
analysis of Education's Budget Service data.

Note: Results were obtained by applying Education's interest rate
assumptions for fiscal years 2001, 2002, and 2003 to the 2002
consolidation loans. Negative subsidy costs for FDLP using fiscal years
2001 and 2002 rates represent a net gain for the federal government.

Administration Costs Also Loan volume affects administrative costs, in
that cost is in part a function Increase, but Mainly of the number of
loans originated and serviced during the year. As a result, Because of
Loan Volume when loan volume increases, administration costs also
increase.

Education's current cost accounting system does not specifically track
administration costs incurred by each of the student loan programs.
Consequently, we were unable to determine the total administration costs

incurred by consolidation loan programs or any off-setting administrative
cost reductions associated with the prepayment of loans underlying
consolidation loans. However, based on available Education data, we were
able to determine some of the direct costs associated with the
origination, servicing and collection of FDLP consolidation loans. For
fiscal year 2002, these costs totaled roughly $52.3 million. This total
includes approximately $31 million for loan origination, $19 million for
loan servicing, and $3 million for loan collection. The $52.3 million does
not include overhead costs, which include such expenses as personnel,
rent, travel, training, and other activities related to maintaining
program operations. For fiscal year 2003, the estimated costs for the
origination, servicing, and collection of FDLP consolidation loans is
projected to increase by about $7 million to $59.5 million.

While we similarly were unable to determine Education's administration
costs directly related to FFELP consolidation loans, they are likely to be
smaller than for FDLP consolidation loans. This is because under FFELP, a
large portion of administration cost is borne directly by lenders, who
make and service the loans. The special allowance payments to lenders,
which rise and fall as interest rates change are designed to ensure that
lenders are compensated for administration and other costs, and provided
with a reasonable return on their investment so that they will continue to
participate in the program.

Repayment Options Other Than Consolidation Loans That Allow Borrowers to
Simplify Loan Repayments and Reduce Repayment Amounts Exist, but
Borrowers' Use of These Options Is Limited by Several Factors

Repayment options, other than consolidation loans, that allow borrowers to
simplify loan repayment and reduce repayment amounts are now available to
some borrowers under both FFELP and FDLP, but these alternatives are not
available to all borrowers. Since consolidation loans were first offered
to borrowers, Congress has changed student loan programs in ways that
provide borrowers with these loan repayment options. These options include
provisions for combining multiple loan payments into one and for
restructuring the repayment terms or lengthening the repayment period in
order to lower monthly repayment amounts. However, these options are
limited, in some cases, to borrowers who have loans with one lender, or
whose loan balances meet certain criteria. These options also differ from
the consolidation loan program in that they carry a variable borrower
interest rate, while consolidation loans allow borrowers to lock in a
fixed interest rate. In today's environment, with current low interest
rates that are expected to rise over time, the ability to lock in a low
fixed rate may affect many borrowers' decisions about which approach to
take. Borrowers' choices of whether to use consolidation loans or these
other options have a budgetary effect for the federal government. Proposed
legislation has been introduced in the 108th Congress that, among other
things, would replace the fixed borrower interest rate for consolidation
loans with a variable interest rate.

Flexible Repayment Options Similar to Consolidation Are Available to Some
Borrowers

Other options, outside of consolidation, now exist for some borrowers to
make single payments on multiple loans and reduce their payment
amounts-options that were unavailable when Congress first introduced
consolidation loans under the FFELP. For example, when Congress created
the FDLP in 1993, Education provided FDLP borrowers with the ability to
combine payments on multiple FDLP loans into a single payment. Similarly,
in 1999, Education promulgated regulations requiring FFELP lenders to
combine all of a borrower's FFELP loans into a single account to be repaid
under a single repayment schedule. Furthermore, Congress has provided
borrowers with a number of repayment plans that give certain FFELP and
FDLP borrowers who do not consolidate their loans flexibility to reduce
monthly payment amounts in a variety of ways. For example, "graduated" and
"income-sensitive" repayment plans introduced in 1992, allow borrowers to
make smaller payments early in a repayment period, followed by larger
payments in future years. (These plans assume that a borrower's income
will increase over the repayment period.) While borrowers who use the
FFELP graduated and incomesensitive repayment plans must generally repay
their loans over a 10-year period, another repayment
plan-"extended"-allows certain FFELP borrowers to lengthen their repayment
terms up to 25 years, thus

reducing monthly repayment amounts. Under FDLP, borrowers have similar
repayment options, plus additional flexibility to repay loans over longer
periods, outside of consolidation. Table 4 summarizes the repayment plans
available to borrowers under FFELP and FDLP.

  Table 4: Description of Borrower Repayment Plans FFELP repayment plans FDLP
                                repayment plans

Standard Borrowers make fixed monthly payments of at least Standard
Borrowers make fixed monthly payments of at $50 for up to 10 years.a least
$50 for up to 10 years.a

Graduated Borrowers make smaller payments early in a Graduated Borrowers
make fixed monthly repayments at two repayment period, and larger payments
later, within certain limits (no repayment can be more than three times
greater than any other). Repayment must occur within 10 years. or more
levels (usually a lower amount for the early years of repayment and a
larger amount in the later years) over a period of time that varies with
the size of the loan and is the same as for the FDLP extended repayment
plan (see below). Borrowers' payments may not be less than the interest
due or less than 50 percent, or more than 150 percent, of the monthly
repayment required under the standard plan.

Extended Borrowers make fixed or graduated monthly repayments of at least
$50 for a period of time that varies depending on the amount of the loan.
Repayment must occur within 25 years. Extended repayment is limited to new
borrowers on or after October 7, 1998, who accumulate (after such date)
outstanding loans totaling more than $30,000.

Extended Borrowers make fixed monthly repayments of at least $50 for a
period of time that varies depending on the amount of the loan:

Amount:

Less than $10,000.....................

$10,000 to $19,999.........

$20,000 to $39,999..........

$40,000 to $59,999..........

$60,000 or more..............

Maximum term:

12 years

15 years

20 years

25 years 30 years

    Income-  Borrowers' payment amounts   Income-      Borrowers' payment     
                   may be adjusted                  amounts are based on the  
             annually to reflect changes            total amount of the       
sensitive   in a borrower's income.   contingent borrower's loan, income,  
                                                    and                       
              Repayment plan is limited             family size for a period  
                  in the amount of                  up to 25 years. Under     
                                                    this                      
             adjustment that can be made            repayment plan, borrowers 
                    by statutory                        repay based on annual 
             requirements that the loan             income for up to 25 years 
              be repaid within the 10-                 with any remaining     
             year maximum and that                                            
             monthly repayments are, at             amount owed on the loan   
             a                                      discharged at that time.
               minimum, sufficient to               
                  cover interest.b                  

          Sources: HEA, Congressional Research Service, and Education.

aBecause of the variable interest rate for nonconsolidation loans, the
loan holder may adjust either the size of the monthly repayment or the
length of the repayment period annually. If the change in interest rates
would result in a borrower being unable to complete repayment within the
10-year maximum, the loan holder may provide administrative forbearance
for a maximum of 3 years (effectively extending the repayment period).

bFFELP regulations allow lenders some flexibility to extend repayment up
to 15 years through "administrative forbearance" to accommodate the
variable interest rates and sensitivity to very low incomes under this
repayment plan.

Consolidation loan borrowers, like other FFELP and FDLP borrowers, may
choose among the four repayment plans offered under the programs.
Borrowers who consolidate under FFELP may-in addition to flexibility
offered by the repayment plans-extend their repayment periods up to 30
years by choosing a standard, graduated, or income-sensitive repayment
plan. Extending repayment periods, in general, will lower borrowers'
monthly repayment amount. Table 5 compares the repayment periods allowed
by FFELP under consolidation with those allowed under nonconsolidation.

Table 5: Comparison of Repayment Periods for FFELP Consolidation and
Nonconsolidation Loans, by Repayment Plan

Maximum repayment period for nonconsolidation loans Maximum repayment
period for consolidation loans

Standard Up to 10 years10-30 years depending on outstanding balance of
loans:

Amount

Maximum period

Less than $7,500...

$7,500 to $9,999......

$10,000 to $$19,999...

$20,000 to $39,999.....

$40,000 to $59,999.....

$60,000 or more........

10 years 12 years 15 years 20 years 25 years 30 years

Graduated Up to 10 years   10-30 years depending on outstanding balance of 
                                                                        loans 
                                               (see above)                    
    Income-                   10-30 years depending on outstanding balance of 
             Up to 10 years                                             loans 
sensitive                                   (see above)                    
Extendeda Up to 25 years                  Up to 25 years                   

Sources: HEA, Congressional Research Service, and Education.

aLimited to borrowers who accumulate after October 7, 1998, outstanding
loans totaling more than $30,000.

Compared with FFELP borrowers, FDLP borrowers have more flexibility to
extend the repayment periods for FDLP loans without obtaining a
consolidation loan. Under the graduated and extended repayment plans, for
example, FDLP borrowers may obtain a repayment period of up to 30 years,
regardless of whether they choose a consolidation loan or nonconsolidation
option. Table 6 shows the repayment periods available for FDLP borrowers.

Table 6: Repayment Periods for FDLP Consolidation and Nonconsolidation Loans, by
                    Repayment Plan Maximum repayment period

Standard Up to 10 years

Graduated12-30 years depending on loan amount:

Amount

Maximum period

Less than $10,000.....

$10,000 to $19,999......

$20,000 to $39,999......

$40,000 to $59,999......

$60,000 or more..........

12 years 15 years 20 years 25 years 30 years

           Extended 12-30 years depending on loan amount (see above)

Income-contingent Up to 25 years

Sources: HEA, Congressional Research Service, and Education.

While the options, outside of consolidation, allow some borrowers to make
single repayments on multiple loans and reduce their monthly repayment
amounts-thus achieving ends similar to consolidation loans- not all
borrowers can take advantage of these flexibilities. First, borrowers who
obtained FFELP loans from multiple lenders are still faced with making
multiple loan payments because lenders are only required to combine
borrowers' repayments on the loans they make. Second, borrowers may be
required to meet certain eligibility criteria-such as accumulating loans
exceeding specified thresholds-to qualify for extended repayment periods.
Finally, borrowers who obtained loans under multiple programs-FFELP, FDLP,
or other programs-are also faced with multiple payments and may or may not
be able to obtain lower monthly repayment amounts. Table 7 compares the
extent to which borrowers can combine multiple loan payments into one,
lower monthly

repayment amounts, and extend repayment periods under consolidation and
nonconsolidation options.

Table 7: Comparison of Borrowers' Options under Consolidation and
Nonconsolidation Loans

Able to adjust monthly payments through Able to reduce to single graduated
or income-based Able to extend the Composition of borrower's loans
payment? approaches? repayment period?

                   Consolidation loans Nonconsolidation loans

                FFELP               Yes   Yes     Yes for all borrowers, with 
                                                length of period dependent on 
                                                       loan balance.          
                FDLP                Yes   Yes     Yes for all borrowers, with 
                                                length of period dependent on 
                                                       loan balance.          
    Combination of FFELP and FDLP   Yes   Yes     Yes for all borrowers, with 
        and/or other loans a                    length of period dependent on 
                                                       loan balance.          

    FFELP loans from a single   Yes        Yes        Yes, but only for       
              lender                                  borrowers               
                                                          with loans totaling 
                                                                    more than 
                                                             $30,000.         
    FFELP loans from multiple   No         Yes        Yes, but only for       
             lenders                                  borrowers               
                                                          with loans totaling 
                                                                    more than 
                                                             $30,000.         
            FDLP loans          Yes        Yes        Yes for all borrowers,  
                                                               with           
                                                             length of period 
                                                                 dependent on 
                                                           loan balance.      
     Combination of FFELP and   No  Varies by type of                         
               FDLP                              loan Varies by type of loan.
       and/or other loansa                            

Source: GAO analysis.

aOther federal student loans eligible for inclusion in a consolidation
loan include Perkins loans, Health Professions Student loans, HEA loans,
and Public Health Service Act Nursing Student Loans.

Available Options Involve Variable Interest Rates, While Consolidation
Offers Currently Attractive Fixed Rate

Another key difference between consolidation loans and other repayment
options for nonconsolidation loans is that these other options carry a
variable interest rate, while consolidation loans carry a fixed interest
rate for the life of the loan. Depending on prevailing interest rates and
borrowers' expectations about future interest rates, this difference may
affect the decisions that borrowers make regarding whether to obtain a
consolidation loan or use other options to combine payments, lower
payments, and extend repayment periods. When interest rates are low, as
they are now, and are expected to increase in the future, a consolidation

loan that carries a low fixed interest rate may be more attractive to
borrowers because a variable rate may exceed the fixed rate during most or
all of the remaining repayment period, which could be up to 30 years.
However, if rates are expected to decrease in the future, repayment
options that carry a variable rate may be more attractive, and borrowers
may choose other options over consolidation, hoping to take advantage of
lower rates in the future. Since it is difficult to predict interest rates
over a lengthy period, borrowers need to be aware of all the risks
involved before they make their final decision. Once student loans are
consolidated, the interest rate is fixed for the life of the loan and,
under current law, borrowers generally cannot reconsolidate their existing
consolidation loans to take advantage of lower interest rates.
Consequently, borrowers who chose to consolidate their student loans
several years ago-and locked in what are now high rates relative to what
borrowers can now obtain-are unable to take advantage of the current rate.
For example, borrowers who consolidated between February and June 1999,
have a locked rate of 8.25 percent.18 Borrowers who elected to consolidate
between July 2002 and June 2003 received a rate of 4 percent, and for
2004, the rate is expected to be about 3.5 percent.

Borrowers' Choices between Fixed or Variable Rate Alternatives Affect
Federal Costs

The choices that borrowers ultimately make will have consequences for
federal costs. As previously discussed, federal costs for FFELP
consolidation loans have recently increased because of the greater
difference between borrowers' fixed low interest rate and the variable
rate guaranteed to lenders, which is expected to increase in the future.
In this situation, were borrowers to choose an alternative option, costs
to the federal government would likely be less because a variable borrower
rate would increase along with the variable rate guaranteed to lenders and
the difference between the two rates would be less. This decreased
difference would result in decreased FFELP federal subsidy costs. If
circumstances were different, however, federal subsidy costs could
increase. For example, if borrowers obtained a consolidation loan with a
fixed interest rate at a time when rates were expected to decrease in the
future, federal subsidy costs would be lower, than is currently the case,
because the borrower rate would likely exceed the rate guaranteed to
lenders, and the federal government would not be required to pay a SAP. In
such situations, if borrowers were to choose an alternative option with
variable borrower

18This assumes that the underlying loans being consolidated were Stafford
loans disbursed between July 1995 and July 1998 and were in repayment at
the time of consolidation.

rates, federal subsidy costs could increase because the borrower rate
would decline along with the variable rate guaranteed to lenders. In this
case, the decreased difference could result in increased FFELP federal
subsidy costs, if SAP payments became necessary.

Borrowers' choices between fixed and variable rate loans and among
repayment periods also affect costs to the federal government associated
with FDLP loans. A significant driver of FDLP costs, as previously
discussed, is the difference between the discount rate and the borrower
rate. In general, higher borrower rates will result in Education receiving
larger interest payments from borrowers, thus decreasing federal costs.
Allowing borrowers to lock in a low fixed rate might result in decreased
federal revenues if the variable interest rates on those loans borrowers
converted to a consolidation loan would have otherwise increased in the
future. For both programs, federal costs are also affected by the
repayment period chosen by borrowers. For example, longer FFELP repayment
periods can result in the federal government making special allowance
payments to lenders over a longer period of time. For FDLP, longer
repayment periods can increase the amount of interest borrowers pay to
Education on their loans and increase the amount of interest paid by
Education on the amounts borrowed from Treasury.

Proposed Legislation Concerning Consolidation Loans Could Affect Federal
Costs

Proposed legislation has been introduced in the 108th Congress that, among
other things, would replace the fixed borrower interest rate for
consolidation loans with a variable interest rate, which will affect
federal costs associated with consolidation loans. In particular, the
Student Loan Fairness Consolidation Act of 2003 (H.R. 2504) would
eliminate provisions that prevent borrowers who previously obtained a
consolidation loan from obtaining a new consolidation loan and replace the
current fixed borrower rate with a variable borrower rate for borrowers
who refinance their existing consolidation loans as well as for new
consolidation loan borrowers. 19 For example, borrowers who obtained a
consolidation loan in the past and are paying higher rates of interest
would be provided the

19Other proposed legislation includes the Consolidation Student Loan
Flexibility Act of 2003 (H. R. 942) and the College Loan Assistance Act of
2003 (H.R. 2505). H.R. 942 would, among other things, eliminate a
requirement that borrowers certify to having sought and been unable to
obtain a consolidation loan from any holders of the outstanding loans the
borrower has selected for consolidation. Like H.R. 2504, H.R. 2505 would,
among other things, eliminate provisions that prevent borrowers who
previously obtained a consolidation loan from obtaining a new
consolidation loan.

Conclusion

opportunity to obtain a new consolidation loan at current (lower) borrower
interest rates. In addition, in "re-consolidating" their loans, the
proposed legislation would replace the current fixed borrower rate with a
variable borrower rate. If enacted, the proposed legislation would affect
federal costs due to the refinancing of previous consolidation loans and
the change from fixed to variable borrower interest rates.

Although additional options to consolidation are now available that give
some FFELP and FDLP borrowers opportunities to simplify loan repayment and
reduce repayments to more manageable levels, not all borrowers qualify. As
a result, many borrowers may find that consolidation loans remain the only
option for combining loans and lowering their monthly repayments. While
consolidation loans may thus remain an important tool to help borrowers
manage their educational debt and thus reduce the cost of student loan
defaults, the surge in the number of borrowers consolidating their loans
suggests that many borrowers who face little risk of default are choosing
consolidation as a way of obtaining low fixed interest rates-an
economically rational choice on the part of borrowers. If borrowers
continue to consolidate their loans in the current low interest rate
environment, and interest rates rise, the government assumes the cost of
larger interest subsidies for FFELP consolidation loans. Providing for
these larger interest subsidies on behalf of a broad spectrum of
borrowers, however, may outweigh any government savings associated with
the reduced costs of loan defaults for the smaller number of borrowers who
might default in the absence of the repayment flexibility offered by
consolidation loans. For FDLP consolidation loans, allowing borrowers to
lock in a low fixed rate might result in decreased federal revenues if the
variable interest rates on those loans borrowers converted to a
consolidation loan would have otherwise increased in the future. The exact
effects of FDLP consolidation loans, however, depend on a number of
factors, including the length of loan repayment periods, borrower interest
rates, and discount rates. Restructuring the consolidation loan program to
specifically target borrowers who are experiencing difficulty in managing
their student loan debt and at risk of default, and/or who are unable to
simplify and reduce repayment amounts by using existing alternatives,
might reduce overall federal costs by reducing the volume of consolidation
loans made. In addition, making the other nonconsolidation options more
readily available to borrowers might be a more cost-effective way for the
federal government to provide borrowers with repayment flexibility while
reducing federal costs. An assessment of the advantages of consolidation
loans for borrowers and the government, taking into account program costs
and the availability of, and potential changes to,

Recommendation for Executive Action

Agency Comments

existing alternatives to consolidation, and how consolidation loan costs
could be distributed among borrowers, lenders, and the taxpayers, would be
useful in making decisions about how best to manage the consolidation loan
program and whether any changes are warranted.

We recommend that the Secretary of Education assess the advantages of
consolidation loans for borrowers and the government in light of program
costs and identify options for reducing federal costs. Options could
include targeting the program to borrowers at risk of default, extending
existing consolidation alternatives to more borrowers, and changing from a
fixed to a variable rate the interest charged to borrowers on
consolidation loans. In conducting such an assessment, Education should
also consider how best to distribute program costs among borrowers,
lenders, and the taxpayers and any tradeoffs involved in the distribution
of these costs. If Education determines that statutory changes are needed
to implement more cost-effective repayment options, it should seek such
changes from Congress.

We provided a draft of this report to Education for review and comment. In
commenting on the draft, Education agreed with our reported findings and
recommendation, noting that our work will contribute to the policy
discussions related to the reauthorization of the HEA. In addition,
Education noted that it was pleased with our conclusion that consolidation
loans have advantages for borrowers and may help them avoid default and
that improving flexible repayment options for borrowers would provide
several benefits. Education also provided technical comments, which we
incorporated where appropriate. Education's written comments appear in
appendix I.

As agreed with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days from
its issue date. At that time we will send copies to the Secretary of
Education and other interested parties. We will also make copies available
to others upon request. In addition, the report will be available at no
charge on GAO's Web site at http://www.gao.gov

If you or your staff have any questions or wish to discuss this material
further, please call me at (202) 512-8403, or Jeff Appel at (202)
512-9915. Other contacts and staff acknowledgments are listed in appendix
II.

Cornelia M. Ashby Director, Education, Workforce, and Income Security
Issues

Page 38 GAO-04-101 Student Loan Programs

Appendix II: GAO Contacts and Staff Acknowledgments

GAO Contacts

Staff Acknowledgments

(130269)

Jeff Appel (202) 512-9915 Susan Chin (206) 287-4827

In addition to those named above, Cindy Decker, Ben Jordan, Heather
Macleod, Corinna Nicolaou, Stan Stenersen, Vanessa Taylor, and Marcia
Carlsen made important contributions to this report.

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