FDLP has two types of loans and offers multiple repayment options. FDLP and FFELP Loan Programs Have Similar Default Rates

The most recent available default rate data—Education’s data for the 1998 cohort—showed little difference between the overall default rates for FDLP and FFELP student loan borrowers. The overall default rate was 6.6 percent for FDLP and 6.7 percent for FFELP. Most had nonconsolidated loans, and most were using the standard repayment plan. On average, borrowers who had consolidation loans had larger loan balances than borrowers with nonconsolidated loans ($19,167 versus $9,395). Default Rates for Standard and Income Contingent Repayment Borrowers Varied Substantially

Among borrowers using the standard repayment plan, those with consolidation loans had a much lower default rate than those with nonconsolidated loans: 5.1 percent versus 9.6 percent. Education Uses Several Means to Ensure Proper FDLP Loan Servicing and Collection

The Department’s procedures for ensuring that FDLP loans are properly serviced and collected involve several outside contractors. Scope and Methodology

To compare the default rate experience under the Federal Direct Loan Program (FDLP) and the Federal Family Education Loan Program (FFELP) for our first objective, we obtained school cohort default rate data from the Department of Education's National Student Loan Data System through the Default Management Division.
Why GAO Did This Study

This report focuses on the default rate for student loans.

What GAO Found

Two major federal student loan programs, the Federal Direct Loan Program (FDLP) and the Federal Family Education Loan Program (FFELP), together provided student borrowers with about 9 million loans totaling about $42.9 billion in fiscal year 1999. The most recent student loan default rate statistics for schools showed that, overall, the direct and guaranteed student loan programs had similar default rates: at 6.6 percent for FDLP and 6.7 percent for FFELP. The two programs had similar default rates when the comparisons focused on the type of school. FDLP has two types of loans, consolidated and nonconsolidated. Generally, borrowers with consolidated loans who used the standard payment plan had a lower default rate than did borrowers with nonconsolidated loans. However, when income contingent repayment plans were used, borrowers with consolidated loans had a higher default rate than did those with nonconsolidated loans. The Department of Education uses various procedures to ensure that loans are properly serviced and collected, including independent monitoring and external assessments of monitoring results.