The Stafford Loan program is the largest source of federal financial aid  available to postsecondary students. Any Impact of Increases in Loan Limits on Rising College Prices Is Difficult to Discern

For more than a decade, college prices have been rising consistently  across most types of institutions of higher education and continued to rise  after the Stafford loan limits increased, but it is difficult to establish if a  direct relationship exists. Although college prices went up, we were unable to determine whether or  not these increases resulted from the loan limit increases because of the  interference of various economic factors occurring around the same time  these loan limit increases went into effect. Specifically, when the loan limit  increases went into effect, the nation was in a recession which created  one of the most tumultuous and complex economic environments in  recent history, affecting families’ employment, income, and net worth (see  fig. As shown earlier, the availability and types of federal and  institutional financial aid available to students increased around the time  the new loan limits went into effect (see table 1), also making it difficult to  discern any effect those loan limits may have had. Finally, Stafford student loan borrowing that occurred after  the loan limit increases presented a mixed picture. The proportion of  students taking out the maximum in Stafford student loans continued to  decline between academic years 2007-08 and 2011-12 for unsubsidized  (24 to 20 percent) and combined loans (61 to 58 percent) but not for  subsidized loans, which increased from 54 to 57 percent in the number of  students borrowing the maximum loan amount (see figure 5). Private Student Loan Borrowing Declined After the Loan Limits Increased

The landscape of private education borrowing has changed since the loan  limit increases took effect. 8). At for-profit 2- and 4- year institutions, there was about an 11 percent decrease in the average  amount of private student loans borrowed and a 22 percent increase in  the amount of federal student loans. Lenders responded to the crisis by  tightening their lending criteria, making it more difficult for some  students to obtain these loans, according to a study by the CFPB  which was echoed by lenders and subject matter specialists we  interviewed. Enacted in 2008, the  Higher Education Opportunity Act (HEOA) amended the Truth in  Lending Act (TILA) and the Higher Education Act of 1965 to add new  disclosure requirements related to private student loan rates, terms,  and the availability of federal student loans. The  Department of Education and the Consumer Financial Protection Bureau  had no comments. GAO staff who made key contributions to  this report are listed in appendix V.

Appendix I: Objectives, Scope, and Methodology

This appendix discusses our methodology for the study, which was  framed around two objectives: (1) the extent, if any, that Stafford loan limit  increases affected tuition, fees, and room and board prices at institutions  of higher education; and (2) the trends in private student loan borrowing  since the loan limits took effect. 3. To determine the extent to which students borrowed Stafford loans at  their maximum levels in academic year 2011-12, we used NPSAS data. Interviews with College Officials, Private Student Lenders and Other Experts

To provide the schools’ perspectives about the role of loan limit increases  on college prices and federal and private borrowing trends, we  supplemented our data analysis with interviews with college officials at  eight institutions. We also asked them a series of questions about private student  loans, including trends in private student borrowing among their students  and the type of information they provide students to help inform their  decision about whether to borrow private student loans. For  example, the college may be located in an expensive region of the  country. This implies  that the model specification could be different for different sectors. As shown in table 7,  for example, for private, nonprofit 4-year colleges (B1 = – $698, B4 =  $661, and B5 = $683), the average academic year change in college  prices for years prior to the academic year 2007-08 loan limit increase is  $661, the average change in college prices in the 2007-08 academic year  compared to the prior year is $646, the average academic year change in  college prices in years following the academic year 2007-08 loan limit  increase is $683, and the average academic year change in college  prices related to the loan limit increase is -$15 in the 2007-08 academic  year. Our results suggest that average academic year college prices generally  increased across all types of colleges prior to the increases in the Stafford  loan limits in academic years 2007-08 and 2008-09, and after the loan  limit increases. Second, we consulted academic literature on student  financial aid and tuition.
Why GAO Did This Study

A college education can increase the choices and opportunities available to individuals, but high college tuition rates have prompted concerns that a college education may be an unattainable goal for some. To help students finance their education, Congress passed a law that raised the ceiling on the amount students can borrow under the federal Stafford Loan Program (referred to in the law as "loan limits"). The Ensuring Continued Access to Student Loans Act of 2008 mandated a series of GAO reports over a 5 year period assessing the impact of these increases in the loan limits on tuition and other expenses and on private student loan borrowing.
For this final report, GAO examined: (1) the extent to which, if any, the Stafford loan limit increases affected tuition, fees and room and board prices at institutions of higher education; and (2) the trends in private student loan borrowing since the loan limits took effect. GAO developed a statistical model to explore whether the loan limit increases in academic years 2007-08 and 2008-09 had an impact on college prices in subsequent years. GAO analyzed data from the Department of Education (Education) and the Consumer Financial Protection Bureau (CFPB), and interviewed officials from eight higher education institutions that represented a mix of college sectors in different regions of the country, three of the largest private student lenders, federal officials, and subject matter specialists.

What GAO Found

For more than a decade, college prices have been rising consistently and have continued to rise at a gradual pace after the Stafford loan limit increases were enacted in 2008 and 2009. However, it is difficult to determine if a direct relationship exists between increases in college prices and the Stafford loan limit increases because of the confluence of many other factors that occurred around the time the loan limit increases took effect. Specifically, when the loan limit increases took effect, the nation was in a recession, which created one of the most tumultuous and complex economic environments in recent history. GAO's analysis found that the economic effects of the recession, which affected families' employment, income, and net worth make it difficult to isolate the impact the recession had on students' decisions to borrow money to finance college expenses versus the impact of the loan limit increases. Further, federal, state, and institutional aid available to students also increased significantly around the same time the loan limit increases went into effect. It is difficult to determine the extent to which the increased availability of this financial aid influenced the decisions of students on whether and how much money they should borrow versus the availability of increased loan limits. Conversely, GAO's analysis shows that even though college prices continued to increase at a gradual pace over the last decade as well as after the loan limits increased, enrollment, which can be sensitive to price increases, also generally continued to grow across both public and private institutions and in all regions of the country.
Around the time that the loan limit increases took effect, the number of students taking out private education loans decreased across all types of institutions; lenders were making fewer loans and students borrowed less. Specifically, before the loan limit increases, the number of students borrowing private loans for academic year 2007-08 was about 2.8 million; after the limits went into effect the number dropped by over 50 percent to about 1.3 million for academic year 2011-12. Similarly, the average amount of money that students borrowed from private student loans decreased by about 17 percent after the loan limits went into effect. For example, for academic year 2007-08 students' private student loans averaged about $7,048 and for academic year 2011-12 this had dropped to about $5,870. According to the federal and institutional officials as well as financial lending experts that GAO spoke with, many factors may explain the changed private loan landscape. For example, these officials and experts noted that:
lenders tightened lending criteria—such as requiring higher credit scores and co-signers—making it more difficult to obtain these loans;
Congress enacted new protections to raise students' awareness about private loans, including disclosures of loan rates and terms; and
colleges took steps to help students find alternatives to private borrowing and reduce reliance on private loans, such as increasing institutional aid and providing financial literacy counseling to help inform students about their federal assistance options.

What GAO Recommends

GAO makes no recommendations in this report. Education and CFPB had no comments.