Higher Education: Factors Lenders Consider in Making Lending Decisions for Private Education Loans

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Correspondence issued by the Government Accountability Office with an abstract that begins "Over the past few decades, the cost of tuition, room, and board for undergraduate students has increased, making it more difficult for some students and families to afford the cost of college. While students have historically relied on federal loans and grants and family contributions to pay for college, a growing number have turned to private education loans to help them cover the cost. In 2007-08, private loan volume, including private sector and state sponsored loans, totaled $19 billion, up from $3 billion in 1997-98, according to the ... continued below

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United States. Government Accountability Office. November 17, 2009.

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Correspondence issued by the Government Accountability Office with an abstract that begins "Over the past few decades, the cost of tuition, room, and board for undergraduate students has increased, making it more difficult for some students and families to afford the cost of college. While students have historically relied on federal loans and grants and family contributions to pay for college, a growing number have turned to private education loans to help them cover the cost. In 2007-08, private loan volume, including private sector and state sponsored loans, totaled $19 billion, up from $3 billion in 1997-98, according to the 2008 College Board report on student aid. Unlike federal loans, private education loans are not guaranteed by the federal government and are typically more costly for students than loans offered through federal programs. Despite their generally higher cost, about 26 percent of students who obtained private education loans in 2007-08 did not obtain Federal Stafford loans, and more than one-half of these students did not apply for Federal financial aid, according to the Institute for College Access and Success. In 2007-08, 14 percent of undergraduate students obtained private education loans, according to the Institute for College Access and Success, and the average private loan amount was $6,533. This letter discusses GAO's work under the mandated study in section 1122 of the Higher Education Opportunity Act of 2008 (HEOA) directs the Government Accountability Office (GAO) to assess the impact of private lenders' use of nonindividual factors--factors other than the borrower's own credit worthiness, such as the cohort default rate or graduation rate of the school the student attends-- in making loan decisions. To address the issues raised in the mandate, GAO framed its study around three key questions: (1) What are the key characteristics of private education loan borrowers and the types of schools they attend?; (2) How do lenders use nonindividual factors--including cohort default rate, graduation rate, and accreditation--in making lending decisions for private education loans?; and (3) What is the impact of using these factors on loan products and rates students pay and their access to loans, by gender, race, income, and institution type?"

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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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  • November 17, 2009

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  • June 12, 2014, 7:50 p.m.

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United States. Government Accountability Office. Higher Education: Factors Lenders Consider in Making Lending Decisions for Private Education Loans, text, November 17, 2009; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc301034/: accessed June 23, 2018), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.