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Department of Education's Federal Direct Loan Program: Status of Recommendations to Improve Cost Estimates and Presentation of Updated Cash Flow Information

GAO-04-567R Published: Mar 29, 2004. Publicly Released: Mar 29, 2004.
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Highlights

Under the Department of Education's Federal Direct Loan Program (FDLP), students or their parents borrow money directly from the federal government through the vocational, undergraduate, or graduate schools that students attend. FDLP offers four loan types, including consolidation loans, which allow borrowers to combine multiple loans, possibly from different federal student loan programs, into a single loan with one monthly payment and a fixed borrower interest rate. The other three FDLP loan types provide variable borrower interest rates. The reported outstanding gross balance of FDLP loans to borrowers was $84.5 billion as of September 30, 2003, and the related allowance for subsidy--or the cost Education expected to incur on the outstanding loans--was $657 million. The key driver of the FDLP cost to the government is the difference between the borrower interest rate and Education's financing cost or borrowing rate from Treasury. Because of concerns about Education's reliance on estimates to project FDLP costs and a lack of historical information on which to base those estimates, the House Committee on the Budget previously asked us to review key aspects of Education's cost estimates for FDLP. Our January 2001 report identified the need for Education to improve its cost estimation process to provide more meaningful information. Recently, at the request of the Committee's Chairman, we assessed Education's progress in addressing our January 2001 recommendations and we updated certain cash flow information related to FDLP. This letter summarizes the information provided during our briefing on February 18, 2004.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Office of the Chief Financial and Chief Information Officer To provide more meaningful cost estimate information that can be effectively used by Congress and program decision makers to make timely and well-informed judgments about FDLP, the Department of Education's Chief Financial Officer should provide additional financial statement disclosures that explain the significant factors, including the effect of changes in borrower interest rates, contributing to reestimates of FDLP, as required by established accounting guidance.
Closed – Implemented
The Department of Education provided additional disclosures explaining the significant factors contributing to the reestimates of its direct loan program, including the effect of changes in borrower interest rates, as required by established accounting guidance in its fiscal year 2004 financial statements.

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Topics

Cost analysisDirect loansFinancial statementsLoan interest ratesProjectionsStudent loansSubsidiesAid for educationCost estimatesInterest rates