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Direct Student Loan Program: Management Actions Could Enhance Customer Service

GAO-04-107 Published: Nov 20, 2003. Publicly Released: Nov 20, 2003.
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Highlights

In 1993, Congress authorized the William D. Ford Federal Direct Loan Program as an alternative to the Federal Family Education Loan Program (FFELP). While the Direct Loan Program was originally mandated to replace FFELP, Congress revised the law allowing both loan programs to continue. Since that time, competition between the programs has been credited with improving borrower benefits and service for schools. The Department of Education's (Education) Office of Federal Student Aid (FSA) and its contractors administer the Direct Loan Program, and one of its goals is to improve customer service. In light of the upcoming reauthorization of the Higher Education Act (HEA), which authorizes the loan programs, this report examines the extent to which schools participate in the Direct Loan Program, factors that influenced schools' decision to begin--and for some schools end--participation, and steps that FSA has taken to increase the userfriendliness of the program.

Recommendations

Matter for Congressional Consideration

Matter Status Comments
In light of questions about provisions in the HEA concerning Direct Loan Program origination fees, Congress may wish to consider clarifying the extent to which Education may regulate the loan origination fees charged to borrowers during its reauthorization of the HEA.
Closed – Implemented
The Deficit Reduction Act made statutory changes to the origination fees paid by borrowers under the Direct Loan Program that made it more clear what borrower origination fees should be. Under the Act, Direct Loan origination fees would gradually decrease from 4 to 1 percent between now and July 1, 2010.

Recommendations for Executive Action

Agency Affected Recommendation Status
Office of Federal Student Aid To improve knowledge of its Direct Loan customers and meet its goal of increasing customer satisfaction, FSA's Chief Operating Officer should develop a process for collecting information from schools that decide to stop participating in the Direct Loan Program about the factors that influenced this decision and use this information to make improvements to the program.
Closed – Implemented
FSA Direct Loan Operations and Customer Service have developed a Direct Loan School Withdrawal--an Exit Interview Summary Sheet that is used when schools complete final data reconciliation steps after withdrawing from the program. The interviewer asks four questions about the school's reasons for withdrawing from the Direct Loan Program, anything that could have been done to prevent withdrawal, and aspects of the Direct Loan Program liked most and least. FSA reported that this process has been in place since early June 2004, but no schools have notified FSA that they are withdrawing since that time.

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Topics

Aid for educationColleges and universitiesCompetitionCustomer serviceData collectionHigher educationInternetProgram evaluationStudent financial aidStudent loansWebsites