Federal Family Education Loan Program: Eliminating the Exceptional Performer Designation Would Result in Substantial Savings without Adversely Affecting the Loan Program

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A letter report issued by the Government Accountability Office with an abstract that begins "The federal government guarantees loans in the Federal Family Education Loan program (FFELP) so that private lenders that participate in the program will be reimbursed if a borrower defaults, and about $4.6 billion was spent in fiscal year 2006 to repay lenders for defaulted loans. To retain the guarantee on their loans, all FFELP lenders must comply with minimum due diligence requirements for servicing loans, including establishing a borrower's first repayment due date and making a certain number of attempts to contact delinquent borrowers. Lenders that ... continued below

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United States. Government Accountability Office. July 26, 2007.

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Description

A letter report issued by the Government Accountability Office with an abstract that begins "The federal government guarantees loans in the Federal Family Education Loan program (FFELP) so that private lenders that participate in the program will be reimbursed if a borrower defaults, and about $4.6 billion was spent in fiscal year 2006 to repay lenders for defaulted loans. To retain the guarantee on their loans, all FFELP lenders must comply with minimum due diligence requirements for servicing loans, including establishing a borrower's first repayment due date and making a certain number of attempts to contact delinquent borrowers. Lenders that adhere to these requirements are eligible to receive at least a standard reimbursement rate of 97 percent of the outstanding principal and accrued interest for defaults. However, pursuant to a provision of the Higher Education Amendments of 1992, the Secretary of Education has the authority to designate lenders and loan servicers as "exceptional performers" in servicing FFELP loans, and loans serviced by those with the exceptional performer designation qualify for a 99 percent reimbursement rate. The amendments also provided authority to the Secretary of Education to terminate the exceptional performer program following a GAO study, if such termination is in the fiscal interest of the United States. To obtain the exceptional performer designation, loan servicers have to obtain an initial audit, by independent auditors, demonstrating at least 97 percent compliance with due diligence requirements for a random sample of loans they service, and they must continue to demonstrate compliance through quarterly and annual audits to maintain the designation. The first exceptional performer designation that Education granted took effect in January 2004, and 18 organizations that service about 90 percent of all FFELP loans currently have the exceptional performer designation. Congress asked us to conduct a review of the exceptional performer program to answer the following questions: (1) To what extent is the exceptional performer program meeting its objectives of improving loan servicing and decreasing defaults? (2) What are the costs and benefits of the exceptional performer program?"

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Government Accountability Office Reports

The U.S. Government Accountability Office (GAO) is an independent, nonpartisan agency that works for the U.S. Congress investigating how the federal government spends taxpayers' money. Its goal is to increase accountability and improve the performance of the federal government. The Government Accountability Office Reports Collection consists of over 13,000 documents on a variety of topics ranging from fiscal issues to international affairs.

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  • July 26, 2007

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  • June 12, 2014, 7:50 p.m.

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United States. Government Accountability Office. Federal Family Education Loan Program: Eliminating the Exceptional Performer Designation Would Result in Substantial Savings without Adversely Affecting the Loan Program, report, July 26, 2007; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc299239/: accessed September 22, 2017), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.