Search

million members of the armed forces have been deployed in service to the United States. Congress enacted the Higher Education Relief Opportunities for Students (HEROES) Act to recognize the needs of those servicemembers who are deployed in the midst of pursuing postsecondary education or repaying student loans. GAO was asked to determine (1) how the Department of Education has implemented HEROES, (2) the policies and practices federal student loan lenders have in place to assist borrowers serving on active duty, and (3) the policies and practices postsecondary schools have to assist students who are serving on active duty. To address these objectives, GAO interviewed representatives from the nine largest Federal Family Education Loan program lenders, surveyed a random sample of postsecondary schools, and visited four colleges and universities. Education has issued waivers and modifications to certain federal student financial aid provisions to minimize the financial impact and administrative burden for servicemembers on active duty, for example, by making it easier to postpone or suspend loan payment. Students who leave school for active duty service are treated as still enrolled to ensure that they do not have to begin repaying their student loans. Borrowers already repaying their student loans no longer have to provide written documentation of active duty service to suspend repayment for up to 1 year. However, Education did not complete a study to assess the extent to which servicemembers are benefiting from these waivers and modifications by March 2005, as required by HEROES, and currently has no plans to do so. While HEROES does not specify how Education should go about assessing the impact of its waivers and modifications, Education officials said that such a study would require a rigorous experimental design that would be costly and cannot be supported with Education's data systems. However, Education has not explored the possibility of leveraging outside data sources to fulfill the requirement. Federal student loan lenders have implemented policies and practices, many of which are required under Education's waivers and modifications, to provide relief for borrowers serving on active duty. For example, lenders reported that they provide options that allow borrowers to suspend or postpone repayment of their student loans, often with one telephone call. Some lenders are providing additional benefits beyond those covered by HEROES. For example, one lender offered to forgive $2,500 in loans for servicemembers who have lived or attended college in Pennsylvania. Most colleges and universities have had students leave for active duty service prior to the end of an academic term, and have policies or practices to assist them both when they depart and when they return, such as providing tuition refunds and allowing them to withdraw from their classes. When students return, schools often guarantee their readmission and exempt them... [ABSTRACT FROM AUTHOR]

Alternative mortgage products (AMPs) can make homes more affordable by allowing borrowers to defer repayment of principal or part of the interest for the first few years of the mortgage. Recent growth in AMP lending has heightened the importance of borrowers' understanding and lenders' management of AMP risks. GAO's report discusses the (1) recent trends in the AMP market, (2) potential AMP risks for borrowers and lenders, (3) extent to which mortgage disclosures discuss AMP risks, and (4) federal and selected state regulatory response to AMP risks. GAO used regulatory and industry data to analyze changes in AMP monthly payments under various scenarios; reviewed available studies; and interviewed relevant federal and state regulators and mortgage industry groups, and consumer groups. From 2003 through 2005, AMP originations, comprising mostly interest-only and payment-option adjustable-rate mortgages, grew from less than 10 percent of residential mortgage originations to about 30 percent. They were highly concentrated on the East and West Coasts, especially in California. Federally and state-regulated banks and independent mortgage lenders and brokers market AMPs, which have been used for years as a financial management tool by wealthy and financially sophisticated borrowers. In recent years, however, AMPs have been marketed as an "affordability" product to allow borrowers to purchase homes they otherwise might not be able to afford with a conventional fixed-rate mortgage. Because AMP borrowers can defer repayment of principal, and sometimes part of the interest, for several years, some may eventually face payment increases large enough to be described as "payment shock." Mortgage statistics show that lenders offered AMPs to less creditworthy and less wealthy borrowers than in the past. Some of these recent borrowers may have more difficulty refinancing or selling their homes to avoid higher monthly payments, particularly in an interest-rate environment where interest rates have risen or if the equity in their homes fell because they were making only minimum monthly payments or home values did not increase. As a result, delinquencies and defaults could rise. Federal banking regulators stated that most banks appeared to be managing their credit risk well by diversifying their portfolios or through loan sales or securitizations. However, because the monthly payments for most AMPs originated between 2003 and 2005 have not reset to cover both interest and principal, it is too soon to tell to what extent payment shocks would result in increased delinquencies or foreclosures for borrowers and in losses for banks. Regulators and others are concerned that borrowers may not be well-informed about the risks of AMPs, due to their complexity and because promotional materials by some lenders and brokers do not provide balanced information on AMPs benefits and risks. Although lenders and certain brokers are required to provide borrowers with... [ABSTRACT FROM AUTHOR]

Under the Federal Family Education Loan Program (FFELP) and the Federal Direct Loan Program (FDLP), the government guarantees and makes consolidation loans to help borrowers manage their student loan debt. By combining loans into one and extending repayment, monthly repayments are reduced. Unlike other student loans, consolidation loans carry a fixed interest rate. Recently, trends in interest rates and consolidation loan volume have increased overall federal costs, leading Congress to consider cost reduction proposals. Under the Federal Credit Reform Act, the government calculates, for budgetary purposes, the net cost, or "subsidy cost," of extending or guaranteeing credit over the life of loans. Agencies generally reestimate, subsidy costs annually to include actual results and adjust future program estimates. GAO was asked to provide information on the budgetary effects of making consolidation loans exclusively through FDLP. We developed information to answer the following questions: (1) What would be the estimated budgetary effect of providing consolidation loans exclusively through FDLP in fiscal year 2006? (2) To what extent and for what reasons might this estimated budgetary effect change as subsidy costs are reestimated in future years? (3) How might FFELP lenders and borrowers be affected if consolidation loans were made exclusively through FDLP? Providing consolidation loans exclusively through FDLP in fiscal year 2006 could yield estimated budgetary cost savings of about $3.1 billion, based on subsidy cost estimates in the President's fiscal year 2006 budget, but actual savings would remain unknown until all loans made in fiscal year 2006 are repaid. In addition, federal administrative costs, which are not included in subsidy cost estimates, would likely increase and offset estimated subsidy cost savings by about $46 million over the life of the loans, based on Department of Education (Education) estimates, because FDLP administrative costs are higher than those of FFELP. Tax revenues, which could affect estimated savings, are also excluded from subsidy cost estimates. The $3.1 billion estimated savings result from avoiding an estimated subsidy cost of $2.5 billion for providing a projected volume of $25.5 billion in FFELP consolidation loans, and an estimated gain to the federal government of $620 million if the projected FFELP consolidation loan volume of $25.5 billion were made through FDLP rather than through FFELP... [ABSTRACT FROM AUTHOR]

As federal workers retire in greater numbers, agencies will need to recruit and retain a new wave of talented individuals. Agencies need to determine if the federal student loan repayment (SLR) program is one of the best ways to make maximum use of available funds to attract and keep this key talent. GAO was asked to identify (1) why agencies use or are not using the program; (2) how agencies are implementing the SLR program; and (3) what results and suggestions agency officials could provide about the program and how they view the Office of Personnel Management's (OPM) role in facilitating its use. Ten agencies were selected to provide illustrative examples of why and how agencies decided to use or chose not to use the program. The largest users among GAO's 10 selected executive branch agencies primarily employed their SLR programs as broad-based retention tools aimed at keeping more recently hired employees with the knowledge and skills critical to their agencies. Officials at these agencies said the program also has an indirect positive effect on their recruitment efforts because job candidates are aware of the benefit and find the incentive attractive. Other agencies used the program as a recruitment and retention tool on a case-by-case basis, offering repayments to highly qualified individuals in occupations where the labor market is competitive. Agencies not using the program reported no real need to do so at this time because they are not facing significant recruitment and retention challenges. Agencies have a large degree of discretion in structuring their SLR programs, and they were tailoring program aspects to meet their unique needs. Those using their programs as broad-based retention tools operated them centrally, while those making loan repayments on a case-by-case basis had decentralized programs operated by their component units. Agencies also varied in the size of their loan repayments depending on the results they were trying to achieve. Although agencies believe it is a useful tool, officials described the program as time consuming and cumbersome to operate. They suggested that more automation and consolidation of program activities would make the program more efficient and easier to operate. Officials also suggested ways to make the program more effective. Since the SLR program is relatively new, agencies did not yet have comprehensive data to assess the program's impact, although they will need to establish a baseline of measures now for future assessments of the program. Currently, anecdotal evidence indicates that employees value the program, and agency officials believe the incentive will become more attractive to agencies once administrative problems are reduced. OPM has taken a number of steps to provide agencies with information and guidance on implementing the program. Human capital officials recognized OPM's efforts, but felt they could use more assistance on the technical aspects of operating the program, more coordination in sharing lessons learned in implementing it, and help consolidating some of the program processes. OPM and the Chief Human Capital Officers (CHCO) Council have an important role in assisting agencies with implementing their SLR programs. They may also be able to help agencies assess their own program results as well as develop a common set of metrics to provide information to Congress on the impact of the SLR program governmentwide. [ABSTRACT FROM AUTHOR]

The number of borrowers consolidating their federal student loans has increased substantially in recent years, with the total amount of loans being consolidated rising from $13 billion in fiscal year 1999 to over $41 billion in fiscal year 2003. This increase in consolidation loan volume and recent interest rate trends have increased the overall estimated long-term cost to the federal government of providing consolidation loans under the Department of Education's (Education) two major student loan programs--the Federal Family Education Loan Program (FFELP) and the William D. Ford Federal Direct Loan Program (FDLP). GAO is providing information on (1) the differences that exist between FFELP and FDLP consolidation loans and borrowers, (2) the extent to which borrowers with student loans under one program obtain consolidation loans under the other, and (3) how FFELP and FDLP borrower and loan characteristics and the movement of loans between the two programs are incorporated into Education's budgetary cost estimates for consolidation loans. On average, during the 1995-to-2003 period, FFELP consolidation loan borrowers had higher levels of consolidation loan debt than FDLP consolidation loan borrowers. FFELP borrowers were also more likely than FDLP consolidation borrowers to have attended a 4-year school versus a 2-year or proprietary school. As a group, FFELP borrowers were less likely to default on a student loan prior to consolidation than FDLP borrowers. However, both FFELP and FDLP borrowers who had defaulted prior to consolidation were more likely to default on their consolidation loan than those who did not default prior to consolidation. Over the 1998-to-2002 period, an increasing share of both FFELP and FDLP underlying loan volume was consolidated into FFELP, while a decreasing share of underlying loan volume was consolidated into FDLP. Defaulted loans, however, whether from FFELP or FDLP, were much more likely to be consolidated into FDLP. In general, Education incorporates borrower and loan characteristics and movement of loans between programs into its budgetary cost estimates by (1) grouping loans with similar characteristics in risk categories, (2) forecasting loan volume for each risk category, and (3) applying various assumptions to each risk category based on historical and other economic data. Education incorporates the default history of borrowers into its cost estimates by grouping consolidation loans with underlying defaulted loans in a risk category and applying higher default rate assumptions to loans in this category. However, Education has not analyzed whether borrowers with an underlying defaulted loan will default on their consolidation loans at different rates based on the type of school attended. Education does incorporate assumptions based on variations in default rates by school type, but only for nonconsolidation loans. Our analysis demonstrates that the extent to which borrowers with an underlying defaulted loan default on their consolidation loan varies according to the type of school they attended. [ABSTRACT FROM AUTHOR]

Since 1999, the Department of Education (Education) has offered a 0.25 percent interest rate reduction to borrowers who agree to an electronic debit (EDA) program. Borrowers pay a lower interest rate, while the federal government receives fewer late payments. Any revenue loss to the federal government from a reduced interest rate would be more than offset by a gain in revenue because some EDA borrowers who had previously paid by check would stop making periodic payments in excess of their scheduled amount due. By ceasing to make these prepayments, these borrowers would not pay off their loans as soon as they would have without signing up for EDA and, therefore, incur additional interest costs over the life of their loans. Although actual EDA enrollments have exceeded original estimates, Education lacks data on prepayment patterns after borrowers enroll in the program. Education has not informed borrowers of the cost implications of EDA participation, nor has it systematically informed borrowers of their prepayment options. GAO estimates that Education saved $1.5 million in administrative costs in fiscal year 2001 because it did not have to mail bills to EDA borrowers. [ABSTRACT FROM AUTHOR]

The relationship between the Department of Education and state-designated guaranty agencies that run the largest federal student loan program is changing in order to achieve program and cost efficiencies and improve delivery of student financial aid. These state or private not-for-profit agencies guarantee payment if students fail to repay loans obtained through the Federal Family Education Loan programs. The 1998 Amendments to the Higher Education Act authorize the Secretary of Education to enter into "voluntary flexible agreements" (VFA) with individual guaranty agencies. These agreements allow a guaranty agency to waive or modify some of the federal requirements that apply to other guaranty agencies. GAO found that the process for developing the agreements did not fully meet the needs of the guaranty agencies and other program participants. The process frustrated guaranty agency officials GAO talked to, especially those who ultimately chose not to apply for a VFA and those who were not granted a VFA. Agency officials said that Education's communication about the VFA development process was poor and that Education was unable to meet its own timetable. The VFAs generally complied with most of the legislative requirements. However, one of the four agreements does not conform to the requirement that projected federal program costs not increase due to the agreements. The key changes implemented under the VFAs include incentive pay structures for guaranty agencies and waivers of certain statutory and regulatory requirements. Each VFA contains provisions for paying the guaranty agency incentive amounts on the basis of specific performance measures, such as default rates. Education is not prepared to assess the effects of VFAs because it lacks a way to adequately measure changes in guaranty agency performance. The lack of uniform measures makes it difficult to distinguish the results of the VFAs from the effects of other factors, such as the general condition of the economy. Although the Department is required to report on the status of the VFA by September 2001, no reports have been issued so far. [ABSTRACT FROM AUTHOR]

This report reflects the results of a collaborative effort between GAO and representatives of the Secretary of Education. As required by the Higher Education Amendments of 1998, GAO formed a study group to identify and evaluate a means of establishing a market mechanism for the delivery of student loans. This study group consisted of representatives of the Department of the Treasury, Office of Management and Budget, Congressional Budget Office, entities making Federal Family Education Loan Program (FFELP) loans and other entities in the financial services community, and other participants in the student loan market. The group met as a whole four times before the public release of a draft of this report, and various group members corresponded with GAO and Education between group meetings as well. The mandate called for the evaluation of at least three different market mechanisms relative to 13 criteria. In consultation with the study group, GAO selected five general models for further evaluation--adjustments to the current system and four additional market mechanism models. Adjustments to the current system, in which information would be collected from current market transactions for use in determining the appropriate level of lender yield and which Congress or some independent entity would still set through statute or regulation, would involve the least change from the current FFELP. The loan origination rights auction model would involve lenders bidding for the right to originate loans. In the loan sale model, the government or a government-designated entity would originate loans. Private lenders would then bid in an auction to purchase these loans after after they have been originated. The federal funding model affords lenders the opportunity to borrow funds from the federal government to make FFELP loans at a predetermined interest rate or at an interest rate determined by some type of bidding process. Lastly, the market-set rate model allows lenders and borrowers to negotiate their own interest rates and perhaps other loan terms. [ABSTRACT FROM AUTHOR]

This report discusses the Emergency Steel Loan Program, which provides loan guarantees to qualified steel producing companies. GAO found that there has been only one guaranteed loan disbursed by a private lender for $110 million. With an 85 percent guarantee, the federal government's potential loss is $93.5 million, assuming no repayments and no recovery from property pledged as collateral. The financial condition of program applicants is not strong, and repayments of loans depend upon many future factors. Economic analysis indicates a flat demand for steel, moderate prices, and static imports of foreign steel forecasted for 2002 and 2003. Because of the low loan amount, the program has had a minimal overall effect on the U.S. steel industry through March 2001. [ABSTRACT FROM AUTHOR]

The Department of Education runs two major federal student loan programs, the William D. Ford Federal Direct Loan Program (FDLP) and the Federal Family Education Loan Program (FFELP). Under FDLP, students or their parents borrow money directly from the federal government through the schools the students attend. Under FFELP, money is borrowed from private lenders, and the federal government guarantees repayment if the borrowers default. GAO investigated concerns about Education's reliance on estimates to project FDLP costs and a lack of historical information on which to base those estimates. GAO found that developing a reasonable estimate of subsidy cost for loan programs is complex. Many assumptions must be taken into account and projections must be made for the life of the loans. Because FDLP's subsidy costs are determined largely by interest rates and interest rate fluctuations cannot be predicted with any certainty, it is unclear whether the current trend in negative subsidy costs for FDLP will continue. In addition, other factors, such as origination fees paid by borrowers, defaults, subsequent collections on defaulted loans and timing of loan repayments, affect the subsidy cost of FDLP. Although Education is able to estimate origination fees close to the actual amounts in the financial system, other key cash flows varied significantly. Also, Education's current model for estimating FDLP subsidy costs does not directly take into account key factors, such as prepayments and consolidations. [ABSTRACT FROM AUTHOR]

This report focuses on the default rate for student loans. Two major federal student loan programs, the Federal Direct Loan Program (FDLP) and the Federal Family Education Loan Program (FFELP), together provided student borrowers with about 9 million loans totaling about $42.9 billion in fiscal year 1999. The most recent student loan default rate statistics for schools showed that, overall, the direct and guaranteed student loan programs had similar default rates: at 6.6 percent for FDLP and 6.7 percent for FFELP. The two programs had similar default rates when the comparisons focused on the type of school. FDLP has two types of loans, consolidated and nonconsolidated. Generally, borrowers with consolidated loans who used the standard payment plan had a lower default rate than did borrowers with nonconsolidated loans. However, when income contingent repayment plans were used, borrowers with consolidated loans had a higher default rate than did those with nonconsolidated loans. The Department of Education uses various procedures to ensure that loans are properly serviced and collected, including independent monitoring and external assessments of monitoring results. [ABSTRACT FROM AUTHOR]

The Rural Utilities Services (RUS) has exercised broad authority in restructuring the loans of two generation and transmission (G&T) borrowers, including acquisition of third-party non-RUS guaranteed debt, and providing significant concessions to the borrows, such as noninterest bearing notes, contingent payments, and forgiveness of federal government's losses. Although RUS generally followed its policies and procedures for restructuring loans of two financially troubled borrowers, GAO found one instance in which RUS' policies were not fully used and other instances in which procedures could be improved. RUS' procedures lack detailed written criteria for determining when a borrower should be added or removed from RUS' list of financially troubled borrowers. RUS estimated that it could lose approximately $185 million on loans restructured for the first borrower and between $110 and $120 million for the second borrower. The Rural Development Service (RD) did not include in the fiscal year 1999 financial reports the estimated loss of $185 million it anticipates will occur as a result of restructuring loans for one borrower, and included only $30 million of the estimated $110 to $120 million anticipated loss on the restructured loan for the other borrower. These errors occurred because the accounting department lacked documented procedures to ensure that debt forgiveness and losses resulting from restructuring loans were properly reported in the financial statements. [ABSTRACT FROM AUTHOR]

In fiscal year 1999, lenders participating in the Federal Family Education Loan Program (FFELP) loaned $20 billion to college students. Because some lenders do not qualify as eligible lenders under the Higher Education Act of 1965, they can only be an eligible lender under a trustee arrangement. The act was amended in 1998, and eligible lenders can now serve as a trustee, but they must meet statutory requirements. GAO studied the number and cost of trustee arrangements, the benefits and protections afforded the federal government through use of trustee arrangements, and the effect of trustee arrangements on market participation and the availability of student loans. The Department of Education reports that about 125 trustee arrangements exist between 16 eligible lender trustees and 31 ineligible lenders, amounting to $25.3 billion in outstanding loans. Trustee arrangements come with some protections to ensure the federal government's investment in FFELP is secure while allowing ineligible lenders to participate. Both eligible and ineligible lenders believe that market participation and availability are positively affected by trustee arrangements. GAO recommends that Education clarify its interpretation of the act's trustee provision. [ABSTRACT FROM AUTHOR]

This report reviews the ratesetting practices of the Department of Energy's (DOE) power marketing administrations (PMA) and compares them with those of other utilities. GAO focuses on PMA's ratesetting practices and assesses their impact on the PMA's future competitiveness. GAO determines (1) how the PMAs set their rates to recover costs, (2) how the PMA's ratesetting practices compare to those of investor-owned and publicly owned utilities, and (3) the impact of the PMA's ability to defer repayment of portions of their debt on their future competitiveness. [ABSTRACT FROM AUTHOR]

In 1994, the Department of Housing and Urban Development (HUD) began a program to liquidate its inventory of single-family loans. From June 1994 through September 1997, HUD sold 98,640 single-family loans in a series of six sales. The loan purchasers agreed to offer borrowers the same forbearance that HUD was required to offer before the loans were sold. These sales allowed HUD to make critically needed staff reductions and saved more than $830 million. GAO provides information on the current status of single-family loans sold and the ways in which HUD has ensured that the purchasers of these loans abide by the forbearance requirements contained in the loan sales agreements. [ABSTRACT FROM AUTHOR]

Pursuant to a congressional request, GAO reviewed reports of erroneous Department of Education payments to schools participating in the William D. Ford Federal Direct Loan Program (FDLP) during the conversion to a new computerized payment system, focusing on: (1) the transition from the old payment system to the new payment system; and (2) whether the Department erroneously disbursed $400 million to schools participating in the direct loan program during the conversion. GAO noted that: (1) the transition to the Education Central Automated Processing System/Grant Administration and Payment System (GAPS) took longer than the Department anticipated; (2) it was originally planned for a 2-week period in February 1998 but was delayed about 4 months to May 1998 because of difficulties the Department encountered in incorporating its data files into the new computer system; (3) schools were authorized to draw down within existing guidelines as many funds as they expected to disburse during the transition period; (4) the Department did not erroneously disburse $400 million to schools; (5) the $400 million was the approximate amount the FDLP schools drew down to meet their needs during the transition to GAPS; (6) however, overpayments of about $6 million to $10 million were made when the Department's contractor inadvertently processed a payment list that it had already processed for disbursement; (7) aware of these overpayments, the Department contacted all schools that may have received an overpayment and asked them to return it; and (8) the Department plans to identify and recover any remaining overpayments during its end of program year reconciliation process starting July 31, 1999. [ABSTRACT FROM AUTHOR]

Pursuant to a legislative requirement, GAO reviewed the Homeowners Protection Act of 1998, focusing on the: (1) act's cancellation and termination provisions for private mortgage insurance; (2) act's high-risk provisions; (3) effect high-risk provisions would have on mortgage lenders; and (4) number and characteristics of residential mortgage loans that are considered high risk and are therefore excluded from the routine cancellation and termination provisions. GAO noted that: (1) homeowners are generally required to obtain mortgage insurance when they make a low down payment on a mortgage loan; (2) under the act, if the borrower has a good payment history, the borrower may cancel his or her private mortgage insurance when the principal balance of the mortgage reaches 80 percent of the original value of the property securing the loan; (3) if the borrower does not cancel the insurance, the lender must do so when the mortgage balance reaches 78 percent of the original value of the property securing the loan provided the borrower is current on the mortgage payments; (4) however, these cancellation and termination provisions do not apply if the mortgage has high risks associated with it; (5) the act does not define this term but stipulates that conforming loans (limited to $240,000) may be designated as high risk in accordance with guidelines established by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac); (6) for mortgage loans of more than $240,000 (nonconforming loans), the lender can define what constitutes high risk; (7) Fannie Mae and Freddie Mac have not defined high risk; (8) instead, they have decided to treat all conforming mortgages the same way and not apply the act's high-risk provisions for cancelling or terminating private mortgage insurance to specific mortgages; (9) therefore, the act's exception for high-risk loans has had no effect; (10) GAO believes that a mortgage lender would gain little by invoking the high-risks provisions for a mortgage of more than $240,000 because these provisions do not explicitly stipulate that the borrower have a good payment history or be current on a loan; (11) as a result, GAO believes there is a disincentive for lenders to invoke the high-risk exception; and (12) GAO believes that attempting to determine the number and characteristics of high-risk mortgages would not produce information helpful to decisionmakers for two reasons: (a) Fannie Mae and Freddie Mac have decided to treat all mortgages the same way and not apply the act's high-risk provisions for cancellation; and (b) there is a disincentive in the act for lenders to define mortgage loans of more than $240,000 as high risk. [ABSTRACT FROM AUTHOR]

The marketing assistance loan program provides farmers who grow certain crops with financial assistance at harvest time, when prices are usually lower than at other times of the year. As of September 1999, $3.4 billion of the $3.7 billion in cash payments went to producers of the following four crops: corn, soybeans, wheat, and upland cotton. The top 10 states where producers received the assistance were Illinois, Indiana, Iowa, Kansas, Minnesota, Nebraska, North Dakota, Ohio, South Dakota, and Texas. This report discusses (1) which producers received cash payments through the program, (2) why some producers did not participate in the program, and (3) the concerns that have been raised about the program's effects on cash payments and potential forfeitures. [ABSTRACT FROM AUTHOR]

Greater competition arising from the restructuring of the electricity industry has caused wholesale electricity prices to fall in many parts of the country. This increased competition prompted management at the Tennessee Valley Authority (TVA) to develop a 10-year business plan to make TVA more competitive. Among other things, the plan seeks to reduce TVA's high debt-servicing and other fixed costs. Because of concerns about TVA's ability to meet the plan's objectives by 2007--when competitive pressures are likely to be greater and when many of TVA's long-term contracts could expire--GAO looked at whether TVA will be able to reduce debt as envisioned in the plan and whether its goals and assumptions about capital expenditures and revenues and expenses are achievable or reasonable. Drawing on the findings of an earlier report (GAO/AIMD-99-142, Apr. 1999), this testimony discusses (1) whether the plan's objectives address the key issues confronting TVA, (2) the major costs that were not included in the plan, (3) whether the goals and assumptions in the plan are achievable or reasonable, and (4) TVA's plans to formally update the plan for significant changes. [ABSTRACT FROM AUTHOR]

The Guaranteed Business and Industry Loan Program guarantees the repayment of bank loans for almost any business project that creates or retains jobs in a rural area. As of June 1999, the program had more than 1,980 borrowers and $2.6 billion in outstanding loan principal and 130 delinquent borrowers who owed $167 million. GAO examined the Service's experience with business and industry guaranteed loans made during fiscal years 1994 through 1998 on which the Service paid losses. GAO found that the level of losses associated with the loan program has been relatively low in recent years, compared with the size of the entire loan portfolio. [ABSTRACT FROM AUTHOR]

Pursuant to a congressional request, GAO provided information on the Rural Utilities Service's (RUS) generation and transmission (G&T) borrowers and assessed the likelihood of the federal government incurring losses in the future on loans to G&T borrowers. GAO noted that: (1) G&T loans declined from $22.5 billion as of September 30, 1996, to $20.1 billion as of September 30, 1998, while the number of G&T borrowers increased from 55 to 56; (2) the dollar amount of these G&T loans represents approximately 70 percent of the RUS' total loan portfolio as of both dates; (3) the number of financially stressed G&Ts has declined from 13 as of September 30, 1996, to 8 as of September 30, 1998, and their outstanding loan balances have declined from $10.5 billion to $6.3 billion in the same period; (4) this decline is due to RUS: (a) reclassifying as financially viable 4 borrowers with $2.4 billion in outstanding debt as of September 30, 1996; (b) reducing accrued interest on a loan to a borrower by $1.1 billion as a result of a bankruptcy proceeding; (c) providing $300 million of partial write-offs to two borrowers, one of which paid off the remaining loan balance of approximately $152 million and is no longer a RUS borrower; and (d) approximately $200 million of other payments net of interest accruals; (5) stressed G&T loans as of September 30, 1998, represented 31 percent of the total G&T electric loan portfolio; (6) most of the financially troubled borrowers' problems stem from their investment in nuclear-generating plants that were completed late and over budget or in coal-fired generating plants that were built to satisfy anticipated industrial growth that did not materialize; (7) according to RUS officials, the reasons the plant investments became uneconomical included rapidly increasing construction and material costs, changing Nuclear Regulatory Commission regulations, and soaring interest rates; (8) this resulted in the G&Ts incurring high levels of debt and debt-servicing requirements; (9) several states denied some of these borrowers' requests for rate increases to recover increasing costs; (10) several G&T borrowers have been unable to service their debt and have asked RUS to restructure their loans; (11) it is probable that the federal government will continue to incur losses from loan write-offs relating to RUS borrowers that are bankrupt or otherwise financially stressed; (12) the number of financially viable G&T borrowers has increased from 33 as of September 30, 1996, to 37 as of September 30, 1998, and their outstanding loan balances have increased from $11.7 billion to $13.0 billion in the same period; and (13) this increase can be primarily attributed to the reclassification of the four stressed G&T borrowers discussed above. [ABSTRACT FROM AUTHOR]

Two major federal student loan programs--the Federal Family Education Loan Program and the William D. Ford Federal Direct Loan Program--help students meet their expenses for postsecondary education. These programs have made nearly 8.4 loans, providing students with more than $30 billion. When borrowers default on their student loans, however, it is the government that ultimately pays. An accurate measure of student loan defaults at colleges, universities, and vocational schools is an important way to monitor the financial risk facing the Department of Education. The Department now excludes schools from the program if their default rate reaches 25 percent or more for three consecutive years. This report examines the way in which the Department calculates these default rates. GAO focuses on borrowers who have temporary approval through their lenders or loan services through "deferment" or "forbearance" not to make payments on their loans. In the Department's calculation of a school's default rate, these borrowers are not counted as defaulters, but they do count as part of the total number of borrowers. This report answers the following three questions: During the last several years, has there been any increase in the number of borrowers who entered repayment but later received deferments or forebearances? What would have been the effect of the most recent default rates if borrowers whose loans were in deferment or forbearance had been excluded from the default rate calculation? Under this alternative method of calculating the default rate, would any additional schools have exceeded the 25-percent default rate threshold? [ABSTRACT FROM AUTHOR]

The unpaid principal on the Farm Service Agency's active direct farm loan portfolio totaled about $9.7 billion at the end of fiscal year 1997. Delinquent borrowers held about $2.7 billion--or 28.2 percent--of this amount. The size of the agency's portfolio, as well as the percentage held by delinquent borrowers, has decreased since 1995, when the portfolio totaled $11.4 billion, of which 40.7 percent was held by delinquent borrowers. In fiscal years 1996 and 1997, the agency wrote off about $1.9 billion in principal and interest owed on farm loans. For fiscal years 1989 through 1997, the agency wrote off $15.2 billion in direct farm loans for nearly 80,000 borrowers. About $1.7 billion of the agency's losses resulted from reducing the debts of borrowers whose loans were restructured, and about $2.4 billion resulted from forgiving the debts of those who made buyout payments. Most of the write-off--about $11.1 billion--occurred through debt resettlement. Since the enactment of the 1996 farm bill through June 1998, the Farm Service Agency made or guaranteed $54.2 billion in new farm operating loans to 690 borrowers whose debts had been reduced when their earlier farm loans were restructured. Most of the 690 borrowers who received loans obtained direct farm operating loans, and about 23 percent obtained guaranteed farm operating loans. [ABSTRACT FROM AUTHOR]

Pursuant to a congressional request, GAO provided information on the William D. Ford Federal Direct Loan Program's (FDLP) and the Federal Family Education Loan Program's (FFELP) loan consolidation process, focusing on: (1) whether FFELP lenders believe that Electronic Data Systems' (EDS) consolidation processing has improved since the December 1, 1997, reopening of the FDLP consolidation system to new applications; (2) the extent to which problems in the data transmission between EDS and the FDLP servicing system have been resolved; and (3) how quickly EDS has been processing consolidation applications for borrowers who applied after December 1, 1997, and whether the Department of Education believes EDS could promptly process a substantially greater inflow of applications. GAO noted that: (1) the four lenders GAO spoke to said that they believe the consolidation process has improved; (2) they generally reported receiving fewer duplicate requests for information from EDS and fewer incorrect payments for their loans than before the shutdown, and the incorrect payments they did receive were for smaller amounts; (3) they also said that their communications with Education and EDS have improved; (4) Education and EDS have also made progress toward resolving problems in transmitting data to the FDLP servicing system; (5) according to EDS officials, more than 75 percent of transactions that had been rejected during their transmission between the EDS system and the FDLP servicing system as of June 1998-transactions had been successfully transmitted to the FDLP servicing system by September 1998; (6) further, GAO's review of servicing system accounts for the two sets of borrowers it examined showed that many corrections have been made, although not all transactions were being promptly transmitted; (7) for some borrowers in the first set, those included in GAO's April study, some transactions had still not been transmitted successfully to the servicing system; (8) the account of one of these borrowers showed a balance that, according to the servicing system, was $19,000 higher than it should have been, 15 months after EDS recorded the transaction that should have corrected this error; (9) most borrowers in the second set had refunds transmitted to their accounts in 2 to 6 weeks; (10) however, several of these borrowers--who applied for a consolidation loan after the December 1, 1997, reopening--had not had all their transactions successfully transmitted, even though some of these transactions took place more than 5 months ago; (11) Education's data show that the time needed to process consolidation applications has improved since the December 1, 1997, startup; (12) the average processing time fell from about 65 days to about 54 days between December 1997 and June 1998, and the percentage of applications that were pending for 60 or more days decreased from about 6 percent to just over 1 percent between June 1998 and September 1998; and (13) Education officials cited improved processes and increased staff hired by EDS in stating that they are confident that EDS could now handle a greater volume of applications. [ABSTRACT FROM AUTHOR]

Under its 7(a) loan program, the Small Business Administration guarantees to repay a participating lender a prespecified percentage of the amount of a 7(a) loan in the event a borrower defaults. Guaranteed and unguaranteed portions of 7(a) loans are sold in separate secondary markets. This testimony discusses (1) the benefits generally provided by secondary loan markets, (2) the characteristics of the secondary market for federal government guaranteed mortgage loans, and (3) the characteristics of the guaranteed 7(a) secondary market in relation to those of the secondary market for Ginnie Mae mortgage-backed securities. [ABSTRACT FROM AUTHOR]

This testimony discusses legislation pending before Congress that would authorize the Bureau of Reclamation as the designated source of funding for the Fort Peck Reservation Rural Water Project. In the past, legislation has tasked the Bureau with specific rural water projects. However, the Bureau's backlog of authorized but unbuilt projects, the significant constraints on available funding, and concerns that passage of such legislation would further erode the Bureau's basic responsibilities prompted a GAO review of selected rural water projects, including the Fort Peck Project. This testimony draws on the findings of a May 1998 GAO report (GAO/RCED-98-204R) on the characteristics of three proposed projects and the criteria that specific federal programs apply when considering applicants for assistance. [ABSTRACT FROM AUTHOR]

This testimony discusses legislation pending before Congress that would authorize the Bureau of Reclamation as the designated source of funding for the Lewis and Clark Rural Water Project. In the past, legislation has tasked the Bureau with specific rural water projects. However, the Bureau's backlog of authorized but unbuilt projects, the significant constraints on available funding, and concern that passage of such legislation would further erode the Bureau's basic responsibilities prompted a GAO review of selected rural water projects, including the Lewis and Clark Project. This testimony draws on the findings of a May 1998 GAO report (GAO/RCED-98-204R) on the characteristics of the projects and the criteria that selected federal programs apply when considering applications for assistance. [ABSTRACT FROM AUTHOR]

This report responds to a congressional request for an independent review of the events leading up to the 1992 closure of the Rushville National Bank by the Office of the Comptroller of the Currency (OCC). GAO discusses whether OCC followed its policies and procedures in its (1) net worth calculation and loan classifications, which led to Rushville's being declared insolvent; (2) decision to close the bank before implementation of the Federal Deposit Insurance Corporation Improvement Act; (3) contacts with the bank that recalled a loan to Rushville's holding company; (4) determination of civil money penalties assessed against the former Rushville chairman and directors; and (5) involvement with the proposed sale of Rushville holding company stock by Rushville's suspended chairman. [ABSTRACT FROM AUTHOR]

The Farm Service Agency provides financial assistance to farmers and ranchers who are unable to obtain commercial credit at reasonable rates. This report provides information on the Farm Service Agency's direct farm loan program. Specifically, GAO discusses the levels of outstanding principal on active direct farm loans at the end of fiscal years 1995 through 1997, including the amounts owed by delinquent borrowers and the amount of debt written off by the Farm Service Agency through the debt settlement process in each of these fiscal years. GAO also summarizes information on the Farm Service Agency's use of three statutory provisions enacted in the mid-1990s that authorize the Farm Service Agency to contract with (1) private attorneys for legal assistance in resolving delinquent farm loan accounts, (2) private lenders for assistance in servicing farm loan borrowers' accounts, and (3) private collection agencies for assistance in collecting delinquent farm loans. [ABSTRACT FROM AUTHOR]