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This report reviews auctions used by various federal agencies to examine the feasibility of using similar auctions to determine interest rates for student borrowing through the Federal Family Education Loan Program (FFELP) and the William D. Ford Federal Direct Loan Program. The review identified 31 different auctions, divided into two major categories, used by federal agencies to sell assets. In the first category are 12 auctions classified as auctions of specialized items (such as rights or financial assets); the 19 other auctions are classified as auctions of assets of interest to the general public (such as real estate or consumer goods). Background discussion focuses on interest rates and government costs in FFELP and the general characteristics of these auctions. A table summarizes features of the federal auctions for rights or financial assets conducted by 12 different agencies, and a second table summarizes features of the 19 federal auctions for real estate or consumer goods. An enclosure describes individually the 12 federal auctions for rights or financial assets. (DB)

This study examined the availability of federally subsidized Stafford student loans for postsecondary education in light of recent legislated changes, specifically the Higher Education Amendments of 1992 and the Student Loan Reform Act of 1993, which authorized the Federal Direct Student Loan Program, brought changes to the Federal Family Education Loan Program, and decreased interest rates lenders may charge for Stafford loans and the rate at which lenders receive reimbursement if borrowers fail to repay the loans. A survey of 43 guaranty agencies was conducted, guaranty agency documents were reviewed, and officials of government agencies and interest groups were interviewed. The study found that many lenders and guaranty agencies expect some eligible students to have difficulty obtaining subsidized Stafford loans over the next few years, as some lenders become selective in making Stafford loans or stop participating in the program. Lender refusals to make loans were not expected to be widespread. If a guaranty agency is unable to provide loans to a student, the U.S. Department of Education has arrangements with the Student Loan Marketing Association to make loans and has arrangements with an agency to serve as a guarantor of last resort. The questionnaire and summary results are appended. (JDD)

This newsletter discusses factors that shape federal education funding policies. It examines the size of the federal deficit and its progress, as well as the factors affecting the resources available for education. The 1993 interest on the federal debt is projected to be $314 billion and payments such as these have held down funding for student aid, as well as funding for other domestic social programs. In addition, the burden of the federal budget has been used in the process of reauthorizing the student aid program to preclude consideration of transforming Pell grants into entitlements. For students, this means still heavier reliance on loans to finance their college education. For institutions, it means still more self-funded student grants and higher tuition to cover the costs, or changes in education missions and in the types of students served. Students and educators need to confront not only student aid issues, but also to play a much greater role in public debate about larger federal budget issues. (GLR)

A review was done of information on data and issues surrounding a possible tax allowance for interest payments on educational loans. The tax reform of 1986 eliminated the itemized deduction of interest paid on educational loans, effective in 1991. However, rising educational costs and continued reliance on borrowing for education has led Congress to consider proposals for tax relief in this area. An estimate of interest on the average amount of educational debt suggests that for an 8 percent 10-year loan of $7,500 the interest paid would be $582 annually. One argument in favor of favorable tax treatment of educational loan interest payments is that current law allows taxpayers who take home equity loans for consumer purposes to deduct those interest payments. In addition, if education is viewed as an investment in human capital, an educational loan interest payment should perhaps be deductible since the cost of investments in physical capital are deductible or depreciable. Another argument suggests that direct spending programs might be expanded for what a tax allowance for educational loan interest payments would cost. Finally, examination suggests that a deduction for educational loan interest payments would benefit only taxpayers who itemize rather than use the standard deduction. An annotated bibliography lists 10 suggestions for further reading. (JB)

This report provides results of a study that measured lender profitability in the Guaranteed Student Loan (GSL) program and compares these results with the profitability of other types of lending. Data analysis reveals credit card lending to be the highest average level of profitability over the 5-year period considered. Other lending types, in order of profitability, are commercial and industrial loans, student loans, automobile loans, mortgage-backed securities, adjustable-rate mortgages, fixed-rate mortgages, and U.S. Treasury securities. The relative high level of student loan profitability is due to their guaranteed yield, as well as their low level of credit and liquidity risk. The profitability of student lending is also found to have less variability when compared to other types of bank lending. The study is divided into five sections: the first briefly presents the theoretical basis for the measurement of risk-adjusted returns used in the study; section 2 discusses the data used to measure risk-adjusted returns; section 3 presents the estimates of lender profitability for each asset class, as well as future trends; section 4 outlines several limitations to the analysis; and section 5 outlines a methodology for estimating scale economies in the commercial banking sector and applies it to student lending. (GLR)

This report was prepared to determine lenders' rates of return or profitability on Stafford loans in their portfolios, reasons for varying levels of profitability among institutions that hold such loans, and the effect of 1986 subsidy reductions on these lenders' profitability. The study focused on the activities of lenders that purchase Stafford loans in the secondary market. Ten major loan holders in the three main kinds of secondary markets for student loans were studied: (1) commercial banks (Chase Manhattan Bank and Wachovia Bank and Trust Company); (2) the federally chartered secondary market (the Student Loan Marketing Association); and (3) state-level agencies or institutions in California, Colorado, Indiana, Nebraska, Pennsylvania, and Virginia as well as the New England Education Loan Marketing Corporation which serves four states. The study found that annual after-tax rates of return varied considerably during fiscal year 1985-88 among and within the institutions. The Student Loan Marketing Association, the two commercial banks, and the Indiana agency were profitable during each of the 4 years. Profit variations were due primarily to differences in the lenders' financing, servicing, operating, and other costs. The 1986 subsidy reductions had little effect on lenders' revenues. Appendices describe the study methodology, display data supporting the report's figures, and present comments from the financial institutions examined. (JDD)

The report provides information on the possible impact of revised eligibility requirements on the volume of supplemental loans for students (SLS). These are market-rate loans made to postsecondary students in addition to or in lieu of other financial aid, such as Stafford loans (formerly called guaranteed student loans) and Pell grants. The data presented compares SLS volume during the first 4 months of calendar years 1989 and 1990 from each of the nine guaranty agencies and from the New York State Higher Education Services Corporation. Specifically, the agencies provided information on loans guaranteed during this period. The 10 agencies are listed in Appendix I. The agencies also provided data on their monthly SLS volume to student borrowers attending proprietary (trade) schools and nonproprietary education institutions. (GLR)

In response to the requirements of the Higher Education Amendments of 1986, this report addresses the impact of the two-year-old Student Loan Consolidation Program. Principle findings of the investigation concern the higher interst costs to the borrower that are brought about by longer payment plans and the fact that the government's subsidy costs will increase because of loan consolidation. Several options are presented for the Congress to consider for changing the program in order to reduce the government's costs. The Department of Education and four of the five lenders providing data for review also provided written comments on a draft of the report; the lenders also provided technical comments. Appendices include a description of the methodology used to eliminate consolidated loan costs as well as default statistics, a list of lenders, and information related to reducing the subsidy costs. (GLR)

This report provides data about the sale of bonds for financing the construction of public elementary and secondary school facilities during the fiscal year 1973. Data were compiled on the number of bond sales, the average net interest cost, the issuing agency, and the term of maturity. The report also provides summary information regarding bond elections held, the number approved or defeated, and the par value of the issues voted on. The U. S. Office of Education issues this report annually for the benefit of school administrators, school board members, and others who require up-to-date knowledge of school construction financing. The publication indicates that in fiscal year 1973, 1,273 school bond elections were reported proposing the issuance of a total of $4.0 billion in public school bonds. Bond issues were approved in 719 of these elections for a total of $2.3 billion. The number of issues approved represented an increase of 32.7 percent over fiscal year 1972. The percent of elections approved in fiscal year 1973, 56.5 percent, is a sizable increase from the 47.0 percent approved in fiscal year 1972. Numerous charts and tables are included. (Author/DN)

In 1971, a U.S. Census of Housing surveyed the financing of homeowners and rental properties, including characteristics of mortgages, properties, and homeowners. Data were obtained on places located outside Standard Metropolitan Statistical Areas (SMSA) and in places of less than 10,000 population, and on rural areas located outside SMSA's. These area classifications were considered as being close approximations to the "rural area" defined in the 1949 Housing Act. Areas classified as SMSA's were considered proxies for urban areas. To determine rural-urban differences, a comparative analysis was made of data contained in the survey on credit terms and usage in SMSA's, in non-SMSA's, and in places of less than 10,000 population and rural areas located within the non-SMSA counties. Analysis showed home buyers in rural areas paid higher interest rates on conventional mortgages, had shorter repayment periods, and had fewer choices of lenders. Yet, credit conditions did improve during the 1960's in rural areas. Savings and loan associations, the major home mortgage lenders, became more active in rural areas. They held 35 percent of the first mortgages in 1971 as compared with 23 percent in 1960. Expansion of activities by Federal agencies in rural areas tended to narrow the gap between the percentage of loans guaranteed and insured in rural areas as compared to metro areas. (Author/NQ)

This paper discusses a model to optimize cash management in school districts. A brief discussion of the cash flow pattern of school districts is followed by an analysis of the constraints faced by the school districts in their investment planning process. A linear programming model used to optimize net interest earnings on investments is developed and discussed. The paper concludes that the use of this cash management technique can result in millions of additional revenue dollars for school districts every year. (Author/LD)

This report provides data on 1976 bond elections and bond sales for financing public elementary and secondary school facilities and equipment. The annual report is intended for educators, school boards, legislators, and educational researchers who require up-to-date knowledge of school bond sales for planning future school bond programs. Data, summarized by state, are presented in tables and charts containing information on the number and dollar value of bond issues voted on and passed and the number, dollar value, and net interest of bonds sold. The study revealed several general findings about bond sales nationally. Bond elections reached new lows in fiscal year 1976; only 770 issues were voted on and only 391 were approved. The dollar value ($970) of bond issues approved was the lowest recorded since the study began in 1958. Bond sales for fiscal year 1976 increased slightly over fiscal year 1975. The average net interest cost for fiscal year 1976 was 6.25 percent, down slightly from the previous year. The monthly average net interest cost reached a new high of 7.1 percent for September 1975. (Author/JM)

The Office of Education has allowed schools participating in the National Direct Student Loan Program to hold more than an annual average of $63 million in federal funds in excess of their 30-day needs. The General Accounting Office estimates that if the Treasury had this money it could save the government interest costs of as much as $4 million, and suggests that the lack of sound cash management practices is the primary cause of the increase in excess funds. It is recommended that new legislation be passed for better cash management by the government and for the return of excess funds. Interim measures for better cash management by the schools themselves are also suggested, including deposit of excess funds in interest-bearing accounts pending their return to the Treasury. (ME)

Public officials in small towns who participate infrequently in the bond market need information about bond financing. This publication, one in a series of booklets published by the Western Rural Development Center using research gathered between 1967-77, discusses factors influencing the marketability and cost of bond financing for towns and cities in Washington, Colorado, Montana, and Wyoming, and identifies opportunities for towns and cities to trim their costs of financing bonds. Sections include: a definition of bond costs, factors affecting bond interest costs, national capital market conditions, characteristics of the issue, reducing flotation costs, a summary, and a glossary of terms. Appended is a summary of data on which the research was based. (AH)

Information about the effect of changes in interest rates and the length of repayment on mortgages is available through the use of this loan and mortgage spreadsheet program designed for use on Apple computers. It is especially designed to help people evaluate the relative advantages of a variable rate mortgage with a low initial rate of interest against mortgages with a higher but fixed rate of interest. The program allows the user to determine monthly payments for both types of mortgages and to calculate total interest payments. The program has two major options, one for fixed rate mortgages and one for variable rate mortgages. For fixed rate mortgages up to ten different interest rates can be specified. For adjustable rate mortgages the program allows the user to experiment with different rates of increase and decrease. Procedures for operating the program are detailed and the program is provided. (IS)

This volume consists of a report of the President concerning the state of small businesses as well as the U.S. Small Business Administration annual report on small business and competition. Addressed in the President's report are the following issues: the role of small business in the economy; the foundations of small business policy; and problems and policies of particular interest to small business (including cyclical sensitivity, inflation, interest rates, access to capital, tax incentives, regulation, antitrust, federal procurement, export, and a small business data base). The U.S. Small Business Administration annual report consists of four chapters and seven appendixes dealing with various topics, including small business in the U.S. economy, current and historical trends in the small business sector, financial developments in the small business sector, the effect of federal policy on small business, the Small Business Data Base, as well as other sources of business information, minority-owned and female-owned businesses, small business provisions of the securities laws, analysis of the Economic Tax Recovery Act of 1981, federal procurement for small businesses, and federal agency small business offices. (MN)

The differential interest costs to rural governments associated with borrowing in the tax-exempt bond market is a function of the advantageous position of several large partially rural counties and the dominance of school district borrowing in rural communities, rather than a disadvantage of predominantly rural governments. This conclusion is the result of a number of regression equations estimated from a unique 1982 data set that combines socioeconomic, financial, and governmental information. Of primary importance to rural development policymakers and practitioners is that highly rural governments paid rates roughly equivalent to the most urban borrowers on publicly offered debt issued during 1982. Suburban governments benefitted from lower interest rates than others on general obligation (GO) bonds sold by nonschool governments, but they had no comparative advantage in issuing revenue bonds or school bonds. Nonschool governments located outside metropolitan areas, as a group, paid lower rates than did their metropolitan counterparts on GO bond issues. Like suburban issuers, nonmetropolitan issuers did not enjoy the same savings on their revenue and school bond sales. Rural governments were as successful in selling long-term municipal bonds as were urban governments during the volatile market of 1982. Rural interest rates were comparable to rates paid by urban issuers. (JHZ)

Lenders' billings for interest subsidy payments under the Department of Education's Guaranteed Student Loan Program (GSLP) are discussed. In fiscal year 1986, the Department of Education paid lenders $2.4 billion in interest subsidies on $39 billion of outstanding Guaranteed Student Loans. The General Accounting Office (GAO) reviewed the accounts of large lenders to determine (1) the extent of errors lenders make in their billing statements, (2) the cost of these errors in federal overpayments to lenders, and (3) the adequacy of the Department's procedures and internal controls for payment to lenders. All 16 lenders studied made errors in their September 30, 1985, billings on which the Department based payments of $69.4 million. Many errors appear small when viewed individually but are significant when projected to the lenders' total portfolio of Guaranteed Student Loans. It is found that the Department's oversight of billing is inadequate, and lenders lack sufficient incentives to maintain accurate loan accounts. Recommendations are that Congress amend the Higher Education Act to authorize the Secretary of Education to assess lenders' interest on overpayment of interest subsidies due to erroneous billings from the dates of the overpayments and, also to require lenders to have their independent auditors verify loan accounts and interest billings as part of their periodic audits. Five appendices are: loans outstanding for lenders included in GAO's review; interest and special subsidy allowance billed by lenders included in GAO's review, accounts in which lenders miscalculated loan balances or interest due; comments from the Department of Education; and comments from the Consumer Banking Association. Tables and figures are included. (SM)