oversight

Direct Student Loan Program: Management Actions Could Enhance Customer Service

Published by the Government Accountability Office on 2003-11-20.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                United States General Accounting Office

GAO             Report to the Ranking Minority
                Member, Committee on Health,
                Education, Labor, and Pensions,
                U.S. Senate

November 2003
                DIRECT STUDENT
                LOAN PROGRAM
                Management Actions
                Could Enhance
                Customer Service




GAO-04-107
                                                November 2003


                                                DIRECT STUDENT LOAN PROGRAM

                                                Management Actions Could Enhance
Highlights of GAO-04-107, a report to the       Customer Service
Ranking Minority Member, Committee on
Health, Education, Labor, and Pensions,
U.S. Senate




In 1993, Congress authorized the                Of schools that provided federal loans in every year since 1994-95,
William D. Ford Federal Direct                  approximately 1,200 postsecondary schools—or 29 percent—have provided
Loan Program as an alternative to               loans through the Direct Loan Program, and most continued to participate in
the Federal Family Education Loan               school year 2001-02. The Direct Loan Program’s share of total new loan volume
Program (FFELP). While the Direct               has steadily decreased from its peak of 34 percent in 1998-99 to 28 percent in
Loan Program was originally                     2001-02, and the number of schools that have joined the program is much
mandated to replace FFELP,                      smaller than the number of school that have stopped participating.
Congress revised the law allowing
both loan programs to continue.                 Four factors—(1) streamlined loan delivery, (2) greater control over loan
Since that time, competition
                                                processes, (3) timely delivery of money to students, and (4) ease of tracking
between the programs has been
credited with improving borrower                loans over time—were extremely or very important in influencing schools’
benefits and service for schools.               decision to participate in the Direct Loan Program. Schools that joined and
The Department of Education’s                   subsequently left the Direct Loan Program reported a number of factors that
(Education) Office of Federal                   influenced their decision, including difficulties fulfilling certain program
Student Aid (FSA) and its                       requirements and reduced or no loan origination fees offered by FFELP lenders.
contractors administer the Direct               Education has reduced origination fees for Direct Loan borrowers, but its
Loan Program, and one of its goals              regulatory authority to do so has been challenged. FSA does not systematically
is to improve customer service. In              collect information from schools about the reasons why they stop participating
light of the upcoming                           in the Direct Loan Program, although this information could be used to identify
reauthorization of the Higher                   needed program improvements.
Education Act (HEA), which
authorizes the loan programs, this              FSA has taken a number of steps to increase the user-friendliness of the
report examines the extent to
                                                program, such as using Web sites to disseminate and collect information and
which schools participate in the
                                                forms. Many Direct Loan schools reported that FSA’s Web sites are effective in
Direct Loan Program, factors that
                                                helping them administer the program and have simplified the process for Direct
influenced schools’ decision to
begin—and for some schools end—                 Loan borrowers, but it is challenging to navigate among multiple Web sites. FSA
participation, and steps that FSA               officials are aware of schools’ concerns and are developing a plan to redesign its
has taken to increase the user-                 Web sites. FSA has also implemented a new information system that originates
friendliness of the program.                    and disburses Direct Loans to students faster, and 72 percent of Direct Loan
                                                schools were generally or very satisfied with this system.

                                                Schools Join the Direct Loan Program for its Streamlined Process
Congress should consider
clarifying whether Education may
regulate the fees charged to
borrowers under the Direct Loan
Program.

We are also recommending that
FSA collect information from
schools that could be used to make
improvements to the Direct Loan
Program. Education agreed with
our recommendation.
www.gao.gov/cgi-bin/getrpt?GAO-04-107.

To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Cornelia Ashby
(202) 512-8403.
Contents


Letter                                                                                    1
               Results in Brief                                                           3
               Background                                                                 5
               About One-Third of Postsecondary Schools That Provided Federal
                 Loans since 1994-95 Have Participated in the Direct Loan
                 Program                                                                  8
               Similar Factors Influenced a Majority of Schools’ Decision to
                 Participate in the Program but the Factors That Influenced
                 Schools’ Decision to End Participation Varied                          11
               Direct Loan Schools Are Satisfied with Steps Taken by FSA to
                 Make the Program User-Friendly but Identified Opportunities for
                 FSA to Improve These Services                                          18
               Conclusions                                                              26
               Matters for Congressional Consideration                                  26
               Recommendation for Executive Action                                      26
               Agency Comments                                                          27

Appendix I     Scope and Methodology                                                     28
               Analyzing Loan Volume and Identifying Schools That Participated
                  in the Direct Loan Program and FFELP                                  28
               Survey of Schools That Have Participated in the Direct Loan
                  Program                                                               29
               Analysis of Benefits Offered by FFELP Lenders                            32
               Site Visits                                                              32
               Telephone Interviews                                                     33

Appendix II    Comments from the Department of Education                                 34



Appendix III   GAO Contacts and Staff Acknowledgments                                    36
               GAO Contacts                                                             36
               Staff Acknowledgments                                                    36


Tables
               Table 1: Comparison of Responsibilities for Schools That
                        Participate in the Direct Loan Program and FFELP                  8




               Page i                                GAO-04-107 Direct Student Loan Program
          Table 2: Fees and Repayment Incentives Available to Borrowers in
                   the Direct Loan Program and Selected FFELP Lenders in
                   2003                                                                             15
          Table 3: Estimated Percentages of Direct Loan Schools’ Opinions
                   about FSA Web Sites for Schools                                                  20
          Table 4: Response Rates of Schools That Participated in the Direct
                   Loan Program in 2001-02                                                          30
          Table 5: Characteristics of Schools Selected for Site Visits and
                   Interviews                                                                       33


Figures
          Figure 1: Number of Direct Loan Schools and Direct Loan Volume
                   (in billions of dollars) in School Year 2001-02, by School
                   Type                                                                              9
          Figure 2: Number of Schools Beginning and Ending Participation in
                   Each School Year between 1996-97 and 2001-02                                     10
          Figure 3: Factors That Were Extremely or Very Important in
                   Schools’ Decision to Join the Direct Loan Program                                11
          Figure 4: Estimated Percentages of Schools for Which the
                   Availability of Lenders Willing to Lend to Their Students
                   Was an Extremely or Very Important Factor in Influencing
                   Schools’ decision to Join Direct Loan Program, by School
                   Type                                                                             13
          Figure 5: Estimated Percentages of Direct Loan Schools’ Usage of
                   Certain FSA Web Sites                                                            19
          Figure 6: Estimated Percentages of Direct Loan Schools That Refer
                   Their Students to Certain FSA Web Sites                                          22




          This is a work of the U.S. government and is not subject to copyright protection in the
          United States. It may be reproduced and distributed in its entirety without further
          permission from GAO. However, because this work may contain copyrighted images or
          other material, permission from the copyright holder may be necessary if you wish to
          reproduce this material separately.




          Page ii                                        GAO-04-107 Direct Student Loan Program
United States General Accounting Office
Washington, DC 20548




                                   November 20, 2003

                                   The Honorable Edward M. Kennedy
                                   Ranking Minority Member
                                   Committee on Health, Education, Labor, and Pensions
                                   United States Senate

                                   Dear Senator Kennedy:

                                   In 1993, Congress authorized the William D. Ford Federal Direct Loan
                                   Program (Direct Loan Program) as an alternative to the Federal Family
                                   Education Loan Program (FFELP). The original legislation authorizing the
                                   Direct Loan Program specified that it would gradually expand and replace
                                   FFELP, but in 1998 Congress removed those provisions. In the ensuing
                                   years, competition between the two loan programs has been credited with
                                   improving service for schools and benefits for borrowers. Postsecondary
                                   schools may participate in one or both loan programs. Regardless of which
                                   program schools use, students and families are eligible for the same types
                                   of loans. In school year 2002-03, students and their families borrowed an
                                   estimated $12 billion in new loans through the Direct Loan Program and
                                   $30 billion through FFELP.

                                   The federal government’s role in financing and administering these two
                                   loan programs differs significantly. Under FFELP, private lenders, such as
                                   banks, provide loan capital and the federal government guarantees FFELP
                                   lenders a minimum rate of return on the loans they make and repayment if
                                   borrowers default.1 Additionally, state-designated guaranty agencies
                                   perform a variety of administrative functions in FFELP. Under the Direct
                                   Loan Program, federal funds are used as loan capital and are provided
                                   through participating schools. The Department of Education’s Office of
                                   Federal Student Aid (FSA) and its private-sector contractors jointly
                                   administer the program. FSA is responsible for delivering funds to schools
                                   that provide Direct Loans, monitoring its contracts, and facilitating
                                   interactions between schools providing Direct Loans and the contractors.
                                   In 1998, Congress established FSA as a performance-based organization


                                   1
                                    For loans disbursed on or after October 1, 1998, the government pays 95 percent of the
                                   default costs plus certain administrative costs. The percentage of default costs paid by the
                                   federal government decreases if the guarantor’s default claims are high compared with the
                                   amount of loans in repayment.



                                   Page 1                                           GAO-04-107 Direct Student Loan Program
with specific purposes, including improving customer service and the
information systems FSA uses to administer student loan and other
financial aid programs.

As part of the upcoming reauthorization of the Higher Education Act
(HEA), you asked us to review the status of the Direct Loan Program by
answering the following questions: (1) To what extent have schools
participated in the Direct Loan Program? (2) What factors influenced
schools’ decision to participate in the Direct Loan Program, and if
applicable, what factors influenced schools’ decision to stop participating?
(3) What steps has FSA taken to increase the user-friendliness of the
Direct Loan Program for schools and students?

To address the first question, we analyzed data from three Education
databases and identified schools that provided loans through either the
Direct Loan Program or FFELP in each school year from 1994-95 to
2001-02. To address the second question, we surveyed financial aid
officials at schools that participated in the Direct Loan Program in
2001-02, of whom 57 percent responded to our survey. 2 We also surveyed
schools that had participated in the program for at least one school year
from 1994-95 to 2000-01 but did not participate in 2001-02. Twenty-three
percent of these schools responded to our survey, and because of their
low response rate we do not provide estimates for this group. We
conducted site visits and telephone interviews with 20 Direct Loan public
and private, 4-year, 2-year, and less-than-2-year schools located in the
Boston, New York, San Francisco, and Washington, D.C., metropolitan
areas. These schools were selected on the basis of school type and loan
volume. We also interviewed financial aid officials at three schools that
had once participated in the Direct Loan Program but were no longer
doing so. To learn about benefits available to borrowers, we reviewed the
terms of loans provided through the Direct Loan Program as well as the
terms of loans provided through selected FFELP lenders. To address the
third question, we gathered information about schools’ experiences
through our survey and site visits at Direct Loan schools. In addition, we


2
 Because of the large proportion of the total population of schools that responded to our
survey and the result of our comparison of respondent- and nonrespondent-based
estimates, we chose to include the survey results in our report and to project sample-based
estimates for the total population of schools in our study population. Percentage estimates
for Direct Loan schools are based on the “sample” and are subject to sampling error.
Unless otherwise noted, we are 95 percent confident that the results we obtained are
within +/- 6 percentage points of what we would have obtained if we had received
responses from the entire population. See appendix I for more details.




Page 2                                          GAO-04-107 Direct Student Loan Program
                   interviewed FSA staff at headquarters and three regional offices. We also
                   reviewed the Higher Education Act of 1965, as amended, and related
                   regulations; contracts for FSA’s information systems; FSA planning
                   documents; and FSA Web sites. We conducted our work from February
                   through October 2003 in accordance with generally accepted government
                   auditing standards.


                   Of the schools that provided federal student loans in each year since
Results in Brief   1994-95, approximately 1,200—or 29 percent—provided loans through the
                   Direct Loan Program, and most of those schools continued to participate
                   in the Direct Loan Program in school year 2001-02. In 2001-02, public
                   4-year schools provided the largest share of Direct Loan volume, about
                   $6.9 billion, or 67 percent, although roughly equal numbers of public
                   4-year, private 4-year, 2-year, and less-than-2-year schools participated.
                   The Direct Loan Program’s share of total new loan volume has steadily
                   decreased from its peak of 34 percent in 1998-99 to 28 percent in
                   2001-02. During this period, only 34 schools began participating in the
                   program, while 166 schools have stopped.

                   Similar factors influenced a large majority of schools’ decision to
                   participate in the Direct Loan Program, whereas the factors that led
                   schools to leave the program varied. Four factors—(1) streamlined loan
                   delivery, (2) greater control over loan processes, (3) timely delivery of
                   money to students, and (4) ease of tracking loans over time—were
                   extremely or very important in influencing 70 percent of Direct Loan
                   schools’ decision to participate in the program. While recognizing that
                   improvements have since occurred in FFELP, financial aid officials at
                   Direct Loan schools we visited explained that prior to joining the Direct
                   Loan Program, they had to follow separate and distinct loan processes for
                   each of the many FFELP lenders and guaranty agencies used by their
                   students. In contrast, Direct Loan schools have only one lender—the
                   federal government—and one process to follow. The factors that led many
                   schools to end their participation in the Direct Loan Program varied. For
                   example, some experienced difficulties meeting the Direct Loan Program
                   requirement that they match the school’s loan records with the loan
                   origination and disbursement contractor’s records and resolve any
                   discrepancies. Other schools stopped participating because some FFELP
                   lenders offered better loan terms for borrowers. For example, some
                   FFELP lenders did not charge borrowers loan origination fees and offered




                   Page 3                                 GAO-04-107 Direct Student Loan Program
interest rate reductions that were unavailable to the schools’ students
under the Direct Loan Program.3 Education has reduced the origination
fees for Direct Loan borrowers, but a coalition of FFELP lenders has
challenged its regulatory authority to do so and the case is still pending in
court. Financial aid officials at Direct Loan schools we visited expressed
concern about the continued viability of the Direct Loan Program in light
of FFELP lenders’ ability to offer more attractive terms to borrowers. The
extent to which FFELP lenders will continue to offer such benefits is
unknown. FSA does not systematically collect information from schools
about the reasons why they stop participating in the Direct Loan Program,
although this information could be used to identify needed program
improvements.

FSA has made the Direct Loan Program more user-friendly for schools and
students by (1) using Web sites to disseminate and collect information and
forms, (2) implementing a new information system that originates and
disburses Direct Loans to students faster, and (3) providing staff in
regional offices to assist Direct Loan schools. Direct Loan schools
indicated that FSA’s Web sites are effective in helping them administer the
program and have simplified the process for Direct Loan borrowers. For
example, Direct Loan borrowers are able to complete and sign their loan
applications online and view information about their loans when they
enter repayment. Despite schools’ satisfaction with FSA’s Web sites, they
reported that it is challenging to navigate among multiple Web sites. FSA
officials stated that they are aware of the challenges facing schools and are
in the early stages of redesigning their Web sites. Seventy-two percent of
Direct Loan schools were generally or very satisfied with FSA’s new
information system, which originates and disburses loans faster. However,
many schools commented that customer service representatives—
contractors hired to provide technical assistance to schools—do not know
all of the Direct Loan Program’s requirements and thus are typically
unable to answer their questions. FSA officials reported that they are
taking steps to address this issue, such as temporarily reassigning FSA
staff to answer telephone inquiries. More than three-quarters of Direct
Loan schools were very or generally satisfied with the quality of service
provided by the regional office staff. Direct Loan schools commented that
training provided by the regional office staff helped them administer the
program.



3
 Although FFELP lenders did not charge fees to borrowers, they still paid the loan
origination fees to the federal government.




Page 4                                          GAO-04-107 Direct Student Loan Program
                      In this report we are suggesting that Congress consider clarifying whether
                      Education may regulate loan origination fees charged to borrowers under
                      the Direct Loan Program. In addition, we are recommending that FSA’s
                      Chief Operating Officer take actions to collect information from schools
                      that have left the Direct Loan Program about the factors that influenced
                      this decision, information that could be used to make improvements to the
                      Direct Loan Program, thereby helping FSA meet its goal of improving
                      customer service.

                      We provided Education with a copy of our draft report for review and
                      comment. In written comments on our draft report, Education generally
                      agreed with our reported findings and recommendation. Education’s
                      written comments appear in appendix II. Education also provided
                      technical clarification, which we incorporated where appropriate.


                      Title IV of HEA authorizes federal student aid programs, including the
Background            Direct Loan Program and FFELP. FFELP originated in the HEA of 1965,
                      while the Direct Loan Program was created in 1993. Originally, the Direct
                      Loan Program was expected to replace FFELP over a 5-year period with
                      the amount of loans provided through the Direct Loan Program rising from
                      5 percent in 1994-95 to 60 percent in 1998-99. In reauthorizing HEA in
                      1998, Congress removed the provisions that called for the phase-in of the
                      program, thus keeping two federal loan programs. In the ensuing years,
                      competition between the two loan programs has been credited with
                      improving service to schools and benefits for borrowers.

                      Under the Direct Loan Program, students and families borrow through one
                      lender—the federal government—which also provides repayment services
                      to borrowers. In contrast, students and families can borrow through
                      thousands of FFELP lenders, who may or may not continue to provide
                      repayment services to students and families. FFELP lenders may receive a
                      subsidy, called a special allowance payment, from the federal government
                      to ensure that they receive a guaranteed rate of return on the student loans
                      they make. Additionally, under FFELP, state-designated guaranty agencies
                      perform a variety of administrative functions and guarantee payment to
                      lenders if borrowers fail to repay their loans; the federal government
                      subsequently reimburses guaranty agencies for these payments to lenders.


Borrower and School   Both the Direct Loan Program and FFELP offer the same loans to students
Benefits              and their families: unsubsidized and subsidized Stafford and PLUS loans,
                      but the loan origination fees and repayment options can differ under each


                      Page 5                                  GAO-04-107 Direct Student Loan Program
    program.4 HEA specifies loan origination fees of 4 percent in the Direct
    Loan Program and up to 3 percent under FFELP. Prior to 1998, FFELP
    lenders had the flexibility to reduce origination fees for subsidized loan
    borrowers; in 1998, Congress expanded this flexibility to unsubsidized
    loan borrowers. Although lenders may reduce the fees they charge
    borrowers, they must still pay the full amount of the fee to the federal
    government. Under HEA, guaranty agencies also have the option of
    waiving a 1 percent loan insurance fee charged to borrowers that is used
    to compensate guaranty agencies for default costs and other claims.
    Borrowers in the Direct Loan Program and FFELP can choose from three
    similar repayment plans, including:

•   Standard repayment—borrowers pay a fixed monthly amount of at least
    $50 up to 10 years;

•   Graduated repayment—borrowers pay smaller monthly amounts initially
    and in later years the monthly amount is larger;

•   Extended repayment—borrowers pay a fixed monthly amount that can be
    repaid over a time period as long as 25 years under FFEL and 30 years
    under the Direct Loan Program.5

    Last, borrowers in both loan programs have the option of choosing a
    repayment plan that is adjusted according to the borrower’s income, but
    under the Direct Loan Program borrowers have a longer period of time to
    repay, and after 25 years of repayment, any remaining amount owed on the
    loan is discharged.

    Another difference between FFELP and the Direct Loan Program is that
    HEA includes a provision that allows a school to become a FFELP lender




    4
     Subsidized Stafford loans are made to students who are enrolled at least half-time and
    have demonstrated financial need, while unsubsidized Stafford loans are made to any
    student enrolled at least half-time, and PLUS loans are made to parents of undergraduate
    students. Unsubsidized and PLUS loan borrowers must pay all loan interest costs, whereas
    the federal government pays the interest cost of subsidized loans while the student is in
    school.
    5
     The monthly amount paid under the graduated plan and the criteria for who qualifies
    under the extended plan vary between the Direct Loan Program and FFELP.




    Page 6                                         GAO-04-107 Direct Student Loan Program
                          to its graduate students.6 A school may use its own funds to lend to
                          students or, according to one FFELP guaranty agency, the school may
                          receive a line of credit from another FFELP lender and pay interest on the
                          funds as they are used. Under the law, proceeds earned from the special
                          allowance payment and interest payments associated with these loans can
                          be used for need-based grants or administrative expenses. Schools also
                          sell their loans to secondary markets.7


Schools’ Administrative   Schools choose which federal loan program they will offer to their
Responsibilities          students and can participate in both. Although a school may provide loans
                          through both the Direct Loan Program and FFELP, the administrative
                          processes are different under each program, with Direct Loan schools
                          assuming additional responsibilities. Under both processes, schools
                          collect and provide data on whether borrowers are eligible to receive
                          loans. Also, schools in both loan programs must counsel students on the
                          responsibilities of borrowing and can use either written materials, an
                          audiovisual presentation, or a Web site.

                          In the Direct Loan Program, schools are responsible for completing all
                          tasks to originate and disburse loans to students.8 Furthermore, schools
                          that originate loans in the Direct Loan Program are responsible for
                          completing a monthly loan reconciliation by comparing their internal
                          Direct Loan records with the cash balance reported by FSA’s loan
                          origination and disbursement contractor and resolving all differences
                          between the contractor’s report and the school’s internal records. Schools
                          must also reconcile on a yearly basis. In comparison, as shown in table
                          1, schools that participate in FFELP share some administrative tasks with
                          lenders and are not required to perform reconciliation.




                          6
                           Schools can act as lenders generally to graduate students and with some limitations to
                          undergraduate students. HEA specifies that a school can act as lender to its
                          undergraduates as long as it does not lend to more than 50 percent of its undergraduates
                          and that it extends loans to students who have previously received a loan from the school
                          or have been rejected by other lenders.
                          7
                            Secondary market lenders include Sallie Mae, banks, and nonprofit state agencies that
                          purchase loans from originating lenders in order to provide additional capital that
                          originating lenders can then use to make new loans.
                          8
                           With the Secretary of Education’s approval, schools may choose to use a third-party
                          servicer to administer the Direct Loan Program on behalf of the school.




                          Page 7                                          GAO-04-107 Direct Student Loan Program
                             Table 1: Comparison of Responsibilities for Schools That Participate in the Direct
                             Loan Program and FFELP

                                                                                                          Who’s responsible in
                                                                                                 Direct Loan
                              Administrative task                                                Program               FFELP
                              Determine students’ eligibility for federal loan                   School                School
                              Obtain completed promissory note from                              School                Lender
                              borrower
                              Provide entrance and exit counseling to                            School                School
                              borrowers
                              Disburse money to students                                         School                Lender and
                                                                                                                       school
                              Perform monthly loan reconciliation                                School                Not required
                             Source: GAO analysis of FSA and Congressional Research Service documents.



                             Of the schools that provided federal student loans in each year since
About One-Third of           1994-95, approximately 1,200—or 29 percent—provided loans through the
Postsecondary                Direct Loan Program, and most of those schools continued to participate
                             in the Direct Loan Program in school year 2001-02. Since 1998-99, the
Schools That                 Direct Loan Program’s share of total new loan volume has steadily
Provided Federal             decreased from its peak of 34 percent to 28 percent in 2001-02. During this
                             same time period, the number of schools that began to participate in the
Loans since 1994-95          program was smaller than the number of schools that stopped
Have Participated in         participating.
the Direct Loan
Program
Among Schools That           Of the 941 schools that were still participating in the Direct Loan Program
Participated in the Direct   in school year 2001-02, public 4-year schools provided most of the
Loan Program during          program’s loan volume. About an equal number of public and private
                             4-year, 2-year, and less-than-2-year schools participated in the Direct Loan
School Year 2001-02,         Program in 2001-02, with many schools beginning participation in the early
Public 4-Year Schools        years of the Direct Loan Program. Public 4-year schools provided the
Provided Most of the         largest share of Direct Loan volume, about $6.9 billion, or 67 percent of
Program’s Loan Volume        total 2001-02 Direct Loan volume (see figure 1).




                             Page 8                                                           GAO-04-107 Direct Student Loan Program
Figure 1: Number of Direct Loan Schools and Direct Loan Volume (in billions of dollars) in School Year 2001-02, by School
Type

                                                                                                              0.1
                                                                                                              Less than 2-year
                                                  2-year                                                      0.6
                                                                                                              2-year
                                                                                      •
                                                                                          •
              ••                     210 •        Public 4-year                                           •
             272
                                                                                               2.7 •          Private 4-year



                                          219 •   Less than 2-year
                                                                                6.9
                                                                                 •
                 240
                  •


                                                  Private 4-year                                              Public 4-year
Source: GAO analysis of Education data.




Since 1998-99, More                                Since 1998-99, the number of schools that stopped participating in the
Schools Have Stopped                               Direct Loan Program is greater than the number that have joined. During
Participating in the Direct                        this same time, the program’s share of total new loan volume has
                                                   decreased, despite annual increases in total Direct Loan volume. As shown
Loan Program than Have                             in figure 2, 166 schools have stopped participating in the program since
Joined                                             1998-99, while only 34 began participating.




                                                   Page 9                                 GAO-04-107 Direct Student Loan Program
Figure 2: Number of Schools Beginning and Ending Participation in Each School
Year between 1996-97 and 2001-02


Number of schools
160


140


120


100


 80


 60


 40


 20


  0
  1996-97               1997-98            1998-99    1999-2000      2000-01        2001-02
      School year

                Schools beginning participation
                Schools ending participation
Source: GAO analysis of Education data.



The small number of schools entering the program after 1998 coincided
with a number of changes that occurred at FSA and in FFELP. FSA
officials reported that in 1998 they instituted a policy of not marketing the
Direct Loan Program and ended activities they designed to promote the
Direct Loan Program, such as holding sessions at conferences or visiting
financial aid officials to discuss the benefits of the Direct Loan Program.
FSA officials reported that at a Direct Loan school’s request, they send
information detailing how the Direct Loan Program benefits the school’s
students, and they visit campuses considering leaving the Direct Loan
Program to make presentations about the program’s benefits. FFELP
lenders have continued to market their services to Direct Loan schools.
Their efforts include sending mailings to students and inviting financial aid
staff to attend information sessions to learn more about switching from
the Direct Loan Program to FFELP.




Page 10                                              GAO-04-107 Direct Student Loan Program
                             Similar factors influenced a large majority of schools’ decision to
Similar Factors              participate in the Direct Loan Program, whereas the factors that led
Influenced a Majority        schools to leave the program varied. Four factors—(1) streamlined loan
                             delivery, (2) greater control over loan processes, (3) timely delivery of
of Schools’ Decision         money to students, and (4) ease of tracking loans over time—were
to Participate in the        extremely or very important in influencing 70 percent of Direct Loan
                             schools’ decision to participate in the Direct Loan Program. The factors
Program but the              that led many schools to end their participation in the Direct Loan
Factors That                 Program varied and included, for example, difficulties meeting program
Influenced Schools’          requirements, the availability of lower loan origination fees under FFELP,
                             and repayment incentives offered by FFELP lenders, which were
Decision to End              unavailable to Direct Loan Program borrowers. FSA does not collect
Participation Varied         information on reasons why schools stop participating in the Direct Loan
                             Program; thus it may be unaware of improvements that could be made to
                             better serve schools and borrowers.


Four Factors Were Very       A substantial majority of schools reported that four factors were
Important in Influencing     extremely or very important in influencing their decision to participate in
Schools’ Decision to         the Direct Loan Program. Figure 3 shows, for each of these factors, the
                             percentage of schools that reported them as very or extremely important.
Participate in the Program

                             Figure 3: Factors That Were Extremely or Very Important in Schools’ Decision to
                             Join the Direct Loan Program


                                          Streamlined loan delivery                                                                 90



                             Timely delivery of money to students                                                                   90



                              Greater control over loan processes                                                                   89



                                  Ease of tracking loans over time                                                            82

                                                                         0     10     20    30    40     50    60   70   80        90    100
                                                                          Estimated percentage of schools
                             Source: GAO Survey of Postsecondary School Experiences with the Direct Loan Program.



                             Although financial aid officials at Direct Loan schools we visited
                             acknowledged improvements in FFELP, they commented that prior to
                             joining the Direct Loan Program, they had to learn and follow separate and



                             Page 11                                                             GAO-04-107 Direct Student Loan Program
distinct loan processes for each lender and guaranty agency that was used
by their students and their parents. In contrast, the loan delivery process
under the Direct Loan Program is streamlined: there is only one lender—
the federal government—and a uniform process. Financial aid officials
also noted that under FFELP, students often did not receive their loans in
a timely matter, in some cases waiting 6 weeks after school began to
receive funds. Under the Direct Loan Program, they said, students
received their loans quickly. Once again, financial aid officials noted that
FFELP lenders have improved in this area as well. Financial aid officials at
Direct Loan schools also told us that a third factor—greater control over
loan processes—was important because in the Direct Loan Program
schools were directly responsible for ensuring that an eligible student
received a loan, whereas in FFELP, schools were dependent on lenders or
guaranty agencies to approve a student’s loan before a student could
receive the money. Moreover, school financial aid officials said that under
the Direct Loan Program they were also able to easily change the amount
of a loan if needed. For example, schools can adjust the amount of a
Direct Loan to reflect changes in students’ courseload or increases in grant
and scholarship aid—events that could affect the loan amount available to
borrowers. The fourth factor—ease of tracking student loans over time—
was important because the Direct Loan Program improved the loan
process for students. Under the Direct Loan Program, for example, student
borrowers could easily track their loans because the same lender held the
loans through repayment, which was often not the case under FFELP.
Financial aid officials at a few schools associated students’ ease of
tracking loans with reductions in default rates on their campuses.

While another factor—the availability of lenders willing to lend to a
school’s students—was reported by about 36 percent of Direct Loan
schools as extremely or very important, responses varied by school type.
In particular, as shown in figure 4, for a higher percentage of 2-year and
less-than-2-year schools the factor was extremely or very important.




Page 12                                 GAO-04-107 Direct Student Loan Program
Figure 4: Estimated Percentages of Schools for Which the Availability of Lenders
Willing to Lend to Their Students Was an Extremely or Very Important Factor in
Influencing Schools’ decision to Join Direct Loan Program, by School Type


Less-than-2-year                                                                62



            2-year                                                    52



   4-year private                          22



    4-year public            7
                     0
                             10       20        30      40       50        60        70
                     Estimated percentage of schools
Source: GAO Survey of Postsecondary School Experiences with the Direct Loan Program.

Note: The 95-percent confidence interval for the estimated percentage of less-than-2-year schools is
from 56 to 69 percent.


According to financial aid officials at 2-year and less-than-2-year schools
we visited, prior to the Direct Loan Program, some FFELP lenders refused
to lend to students at their schools because some of their graduates did
not repay their loans on time. In contrast, financial aid officials at public
and private 4-year schools we visited said that they did not have any
problems finding lenders to serve their students, and FFELP lenders
actively marketed their products to them and their students.

Thirty-nine percent of schools that participated in the Direct Loan
Program in 2001-02 also participated in FFELP and provided a number of
reasons for doing so. Some schools participated in FFELP, in addition to
the Direct Loan Program, to provide PLUS loans to parents. Some financial
aid officials reported that parents receive better terms for PLUS loans
through FFELP. For 57 percent of schools that participated in both loan
programs, maintaining relationships with lenders was an extremely or very
important factor in influencing this decision. Through our site visits we
learned that some schools do this to establish relationships with lenders in
order to allow students access to alternative loans and make the transition
to FFELP smoother in case the Direct Loan Program is eliminated. Finally,
some schools provided most of their loans through FFELP but wanted to
allow students that transferred to their school with a Direct Loan the
option of continuing to borrow through the Direct Loan Program.




Page 13                                                           GAO-04-107 Direct Student Loan Program
A Variety of Factors          A number of schools that joined the Direct Loan Program but subsequently
Influenced Schools’           stopped participating reported that different factors influenced their
Decision to End               decision to do so. Some of these factors were related to schools’
                              experiences meeting Direct Loan Program reconciliation requirements or
Participation in the Direct   having staff with technical expertise to administer the program. For
Loan Program                  example, over half of the 61 former Direct Loan schools that responded to
                              our survey reported that the amount of time spent on loan reconciliation, a
                              requirement only schools participating in the Direct Loan Program must
                              meet, was extremely or very important in influencing their decision to
                              leave the program. Schools reported that complying with the requirement
                              to reconcile schools’ records with contractors’ records was challenging
                              because sometimes the contractor had incorrect information and resolving
                              those differences was time-consuming and frustrating. Although many
                              schools reported that the loan reconciliation process was challenging, we
                              learned during our site visits and from FSA officials that schools that
                              established internal “checks and balances” and meticulously organized
                              their loan information could more easily complete the loan reconciliation
                              process.

                              Another important factor for leaving the program reported by former
                              Direct Loan schools responding to our survey and through our interviews
                              was that some FFELP lenders offered better loan terms for their students
                              and parents in 2003 than those offered by the Direct Loan Program. For
                              example, many FFELP lenders offered loans with reduced or no
                              origination fees and the potential for interest rate reductions that were
                              unavailable to the schools’ students under the Direct Loan Program. For
                              both loan programs, borrower interest rates are variable and change
                              annually based on prevailing market rates, in accordance with the law.9
                              Lenders have the flexibility, however, to offer borrowers lower rates.
                              Moreover, all but two guaranty agencies did not charge student borrowers
                              the loan insurance fee, thus lowering costs for almost all borrowers in
                              FFELP. As shown in table 2, financial benefits available to borrowers may
                              vary by program and lender.




                              9
                               Under the law, the maximum borrower rate for Stafford loans is based on the 91-day
                              Treasury-bill rate plus 1.7 percent while students are in school or plus 2.3 percent if a
                              student’s loan is in repayment, capped at 8.25 percent.




                              Page 14                                           GAO-04-107 Direct Student Loan Program
Table 2: Fees and Repayment Incentives Available to Borrowers in the Direct Loan
Program and Selected FFELP Lenders in 2003

                               Origination            Repayment incentives
    Lender                             fee
    Department of                           3%        •   0.25% interest rate reduction for repaying
    Education                                             electronically
                                    (Stafford
    (Direct Loan                        loan)         •   1.5% rebate of loan amount borrowed applied at
    Program)                                              the time loan is disbursed. Borrowers must
                                            4%            make 12 consecutive on-time payments or
                               (PLUS loan)                amount will be added back to borrower’s
                                                          account.
    FFELP lender A                          0%        •   0.25% interest rate reduction for repaying
                                                          electronically
                                    (Stafford
                                        loan)         •   PLUS loans interest-free for the first year
                                            3%        •   portion of loan debt cancelled when student
                                                          graduates with degree; amount varies by degree
                                       (PLUS              type
                                              a
                                        loan)
                                                      •   2% rate reduction for 48 consecutive on-time
                                                          monthly payments
    FFELP lender B                          0%        •   0.25 % interest rate reduction for repaying
                                                          electronically
                                    (Stafford
                                        loan)         •   interest rate reduced to 0% after 36 monthly on-
                                                          time payment for Stafford or PLUS loans
                                            3%
                                       (PLUS
                                        loan)a
    FFELP lender C                 Up to 3%           •   0.25% interest rate reduction on PLUS loans for
                                                          repaying electronically if serviced by a specific
                                   (Stafford
                                                          servicer
                                  and PLUS
                                      loans)          •   3.3% credit or cash rebate on principal balance
                                                          of Stafford loans if loans are serviced by a
                                                          specified servicer, borrower agrees to have
                                                          account information available at a valid e-mail
                                                          account, and initial 33 payments are made on
                                                          time
    FFELP lender D                          3%        •   0.25 % interest rate reduction for repaying
                                                          electronically
                                   (Stafford
                                  and PLUS            •   credit on origination fees if Stafford loans are
                                      loans)              owned and serviced by lender minus $250 after
                                                          the first 24 consecutive payments
                                                      •   2% interest rate savings after first 48 months of
                                                          on-time payments if loan is owned and serviced
                                                          by lender
Source: GAO analysis of borrower benefits under the Direct Loan Program and selected FFELP lenders.
a
    PLUS loan origination fees are credited back to the borrower’s account.

Note: FFELP lenders include banks and guaranty agencies that also serve as lenders.




Page 15                                                             GAO-04-107 Direct Student Loan Program
Although FFELP lenders can offer reduced fees and other benefits to
borrowers, they are not obligated to do so every year. FFELP lenders’
decision to offer such benefits to borrowers may depend on a variety of
factors, such as lenders’ cost for each loan dollar and lenders’ ability to
link the benefits to borrower behavior. For example, lenders with
relatively low costs for each loan dollar might decide to pass these savings
on to borrowers. FFELP lenders might also choose to offer such benefits
only to select borrowers that exhibit certain repayment behavior, such as
those who make consecutive on-time repayments. According to some
lenders, the number of borrowers who receive benefits because they
satisfy such repayment requirements may be low.

In order to compete with FFELP lenders, Education reduced its
origination fees in 1999 for Direct Loan borrowers and, as a repayment
incentive, offered an interest rate reduction for borrowers who repay
electronically, but its authority to lower origination fees has been
challenged. When taking these actions, Education cited an HEA provision
that states Direct Loan Program borrowers are to receive the same terms
and conditions as FFELP borrowers. A coalition of FFELP lenders filed a
lawsuit challenging Education’s regulatory authority to reduce origination
fees because HEA also includes a provision that sets the Direct Loan
Program origination fee at 4 percent.10 At this time, the case is still
pending. Given the differences in fees and other benefits offered to
students through FFELP, financial aid officials at Direct Loan schools we
visited expressed concern about the continued viability of the Direct Loan
Program in light of FFELP lenders’ ability to offer more attractive loan
terms to borrowers. Some financial aid officials we interviewed suggested
that Education further reduce or eliminate loan origination fees for Direct
Loan borrowers. Because loan origination fees offset federal loan program
costs, any changes to the amount of origination fees charged to borrowers
may affect federal costs.11



10
 Student Loan Finance et al. v Riley, Civ. A. No. 2660 (D.D.C. 2000). In response to a
congressional request before the litigation was filed, GAO issued an opinion finding that
Education lacked authority to reduce the 4 percent loan origination fee B-238717, Sept. 29,
1999.
11
   When Education lowered fees in 1999, Education officials reported in its report Cost of
the 1999 Reduction in Direct Loan Fees that the fee reduction would increase the cost of
the Direct Loan Program. However they believed that the increase would be offset by the
ability to attract new borrowers to the Direct Loan Program who might otherwise obtain
loans from the more costly FFELP, whose lenders were offering fee discounts to attract
borrowers.




Page 16                                         GAO-04-107 Direct Student Loan Program
                             In addition, more recently some schools have switched from the Direct
                             Loan Program to FFELP in order to become lenders to the schools’
                             graduate students—an option not available under the Direct Loan
                             Program. A large public 4-year Direct Loan school in the Midwest recently
                             entered into such an agreement with a coalition of FFELP lenders for
                             school year 2003-04 in which it would end its participation in the Direct
                             Loan Program and the school would serve as a lender to its graduate
                             students. Under the agreement, the school agreed that the lender coalition
                             would be the preferred lender for its undergraduates.12 In return, students
                             pay no origination fees and receive other repayment incentives. Financial
                             aid officials at several Direct Loan schools with graduate students
                             reported that FFELP lenders have contacted them and their schools’
                             executive officers about the financial benefits available to a school that
                             becomes a lender to its graduate students. Although these schools have
                             not switched from the Direct Loan Program to FFELP, they reported that
                             they are considering the opportunity to earn money as school lenders.


FSA Does Not Collect         FSA does not systematically collect information about the factors that
Information on the Factors   influence schools’ decision to stop participating in the Direct Loan
Influencing Schools’         Program, although this information could be used to identify needed
                             program improvements. Current regulations require schools to notify the
Decision to Stop             Secretary of Education of their intent to leave the Direct Loan Program,
Participating                and after 60 days, or at an earlier time if the Secretary agrees, they can
                             stop participating. However, FSA officials reported that they typically
                             learn schools have stopped participating when schools stop disbursing
                             funds through the Direct Loan Program. Although schools may send letters
                             detailing why they have stopped participating, such letters may not always
                             be sent to the same office within FSA. FSA may also learn about factors
                             that influence some schools’ decision to stop participating in the Direct
                             Loan Program from schools that provide such feedback via regularly
                             scheduled conferences and focus groups convened by FSA, which, among
                             other things, provide forums for schools to provide suggestions for
                             improving the program. However, FSA officials reported that they neither
                             routinely nor systematically collect information on the specific reasons
                             why schools decide to stop participating in the program. As a result, FSA
                             may not be aware of improvements that could be made to the program,




                             12
                               Schools that participate in FFELP may designate one or more lenders as a preferred
                             lender from which students can borrow.




                             Page 17                                        GAO-04-107 Direct Student Loan Program
                          which, in turn, might help FSA achieve its goal of improving customer
                          service.


                          FSA has made the Direct Loan Program more user-friendly for schools and
Direct Loan Schools       students by (1) using Web sites to disseminate and collect information and
Are Satisfied with        forms, (2) implementing a new information system to originate and
                          disburse Direct Loans, and (3) designating regional staff to assist Direct
Steps Taken by FSA        Loan schools. Direct Loan schools indicated that FSA’s Web sites are
to Make the Program       effective in helping them administer the program, but that navigating
                          among the numerous Web sites can be difficult. FSA officials stated that
User-Friendly but         they are aware of schools’ concerns and are developing a strategy to
Identified                redesign its Web sites. Direct Loan schools were also generally satisfied
Opportunities for FSA     with FSA’s information system for originating and disbursing loans, but
                          they have encountered difficulties with customer service representatives
to Improve These          who are unable to help them resolve their problems. Finally, FSA regional
Services                  staff have provided training and technical assistance to Direct Loan
                          schools, and about three-quarters of Direct Loan schools were very or
                          generally satisfied with the quality of service provided by the regional
                          staff.


Direct Loan Schools       Many Direct Loan schools reported on our survey that FSA’s Web sites
Reported That FSA’s Web   helped them administer the Direct Loan Program but that navigating
Sites Have Helped Them    among FSA’s Web sites was challenging. Schools reported that the Web
                          sites were effective in that they helped them perform various
Administer the Program,   administrative functions, such as determining student eligibility for Direct
but Navigating among      Loans. Figure 5 provides information about key Web sites FSA developed
Multiple Sites Can Be     for schools, the purpose of the Web sites, and the extent to which Direct
Challenging               Loan schools reported using the Web sites very often or often.




                          Page 18                                 GAO-04-107 Direct Student Loan Program
Figure 5: Estimated Percentages of Direct Loan Schools’ Usage of Certain FSA Web Sites


FSA school Web sites                                                               Purpose                                      Survey results
                                                                                   NSLDS                     ‘                  Estimated percentage of Direct Loan schools that
                                                                                   Schools verify students                      reported using Web sites very often or often
                                                                                   eligibility to receive loans
                                                                                   and view loan history.
                                                                                                                                                                                                   97
                                                                                                                                                                                         83
                                                                                                                                                                                              89
                                                                                                                                                                                    77


                                                                                                                                                                                              87


https://www.nsldsfap.ed.gov/secure/logon.asp



                                                                                   Common Origination and                                                                                84
                                                                                   Disbursement
                                                                                   Schools can view and                                                                       68
                                                                                   process data for Direct Loan                                                     51
                                                                                   and other student aid
                                                                                                                                                  26
                                                                                   programs and obtain
                                                                                   technical assistance.
                                                                                                                                                                         57




https://cod.ed.gov/cod/LoginPage




                                                                                   Direct Loan home page
                                                                                                                                                                         58
                                                                                   Schools can review
                                                                                   information and guidance                                                        48
                                                                                   specific to the Direct Loan                                                42
                                                                                   program.
                                                                                                                                             19


                                                                                                                                                              42

                                                                                                                               0     10     20      30   40        50    60   70    80       90    100
                                                                                                                               Types of schools

                                                                                                                                           4-year public                           Less-than-2-year

                                                                                                                                           4-year private                          Overall

http://www.ed.gov/DirectLoan
                                                                                                                                           2-year

Sources: GAO Survey of Postsecondary School Experiences with the Direct Loan Program and U.S. Department of Education, Office of Federal Student Aid, Washington, D.C.

                                                                 Note: During FSA’s transition to a new loan origination and disbursement system, there were two
                                                                 Web sites that schools could use to process and view loan information; these results are related to
                                                                 the Web site for FSA’s newly implemented system—the Common Origination and Disbursement
                                                                 (COD).




                                                                 Page 19                                                              GAO-04-107 Direct Student Loan Program
                                                               The various school types reported Web site usage that differed. For
                                                               example, a larger percentage of 4-year public and private schools reported
                                                               that they used the NSLDS Web site very often or often than did less-than-
                                                               2-year schools. At a large public 4-year school with a number of satellite
                                                               campuses worldwide, financial aid officials stated that the ability to use
                                                               FSA’s Web sites to verify that students have met certain program
                                                               requirements has been useful because many of its students are unable to
                                                               visit the financial aid office in person. Almost 64 percent of less-than-
                                                               2-year schools13 reported that a corporate office or a third party servicer14
                                                               handled the administrative processes for the Direct Loan Program, thus
                                                               they did not need to use the Web sites. Furthermore, some schools were
                                                               not aware of all the FSA Web sites that provided information about the
                                                               Direct Loan Program.

                                                               Additionally, Direct Loan schools reported that FSA Web sites provided
                                                               relevant and timely information, answered their questions, and were easy
                                                               to understand. For example, as shown in table 3, 91 percent of Direct Loan
                                                               schools reported that the NSLDS Web site provided relevant information.

Table 3: Estimated Percentages of Direct Loan Schools’ Opinions about FSA Web Sites for Schools

                                                                             Estimated percentage of Direct Loan schools that reported Web sites were
                                                                                                       excellent or good in
                                                                                                                                              Using language
                                                                              Providing relevant       Providing timely        Answering       that is easy to
 FSA Web sites for schools                                                          information            information          questions         understand
 NSLDS                                                                                         91                     81                70                   86
 https://www.nsldsfap.ed.gov/secure/logon.asp
 Common Origination and Disbursement                                                           73                     69                63                   72
 |https://cod.ed.gov/cod/LoginPage
 Direct Loan Servicing Online
 https://schools.dssonline.com/index.asp
 Direct Loan home page                                                                         80                     78                68                   84
 http://www.ed.gov/DirectLoan
Source: GAO Survey of Postsecondary School Experiences with the Direct Loan Program.

                                                               Note: We asked schools to evaluate the COD and Direct Loan Servicing Online Web sites together.




                                                               13
                                                                    The 95-percent confidence interval for this estimate is from 56 to 72 percent.
                                                               14
                                                                A third party servicer is an individual, a state, or a private—for-profit or nonprofit—
                                                               organization that enters into a contract with Title IV-eligible institutions to administer the
                                                               school’s Title IV program.




                                                               Page 20                                              GAO-04-107 Direct Student Loan Program
Despite overall satisfaction with FSA’s Web sites, many Direct Loan
schools reported during our site visits and through our survey that it is
challenging to navigate among multiple Web sites because many of the
sites require separate passwords. Almost 90 percent of Direct Loan
schools believe developing a single password to access all FSA Web sites
would have a generally or very positive effect on the Direct Loan Program.
Some schools we visited stated that in order to keep track of the many
passwords and different expiration dates associated with the passwords,
they have stored passwords on personal electronic devices or created
easily retrievable documents that list all passwords—actions that could
compromise the security of financial information. FSA officials told us that
they are aware of the challenges facing schools and are in the early stages
of redesigning how they use Web sites to present information and services.
This strategy will attempt to address schools’ concerns about multiple
passwords as well as enhance security by increasing FSA’s ability to verify
schools’ access to and use of data. Further, FSA officials reported that
they will continue to collect feedback from schools that submit comments
at its Web sites as well as those that attend sessions at FSA-sponsored
conferences and focus groups held to discuss their strategy. FSA expects
to implement its new Web site strategy by 2006. During the course of our
review, FSA developed interim measures linking two of its Web sites—
Direct Loan Servicing’s Online School site and the Common Origination
and Disbursement (COD) site—with one password in an effort to improve
customer service.

In addition to developing Web sites geared to financial aid administrators,
FSA has also developed Web sites that students can use to apply for
financial aid, fulfill requirements for receiving a Direct Loan, and monitor
their loans from disbursement through repayment. For example, students
can access a Web site that allows them to electronically sign a master
promissory note, a legally binding agreement between students and
Education that outlines the terms and conditions of a Direct Loan. As
shown in figure 6, almost half of Direct Loan schools referred their
students often or very often to the Direct Loan Servicing Online Web site.




Page 21                                 GAO-04-107 Direct Student Loan Program
Figure 6: Estimated Percentages of Direct Loan Schools That Refer Their Students to Certain FSA Web Sites


FSA student Web sites                                                              Purpose                                      Survey results
                                                                                   Online Direct Loan servicing                 Estimated percentage of Direct Loan schools that
                                                                                   Students can fulfill requirements            report referring students to Web sites very often or often
                                                                                   that they understand the
                                                                                   responsibilities of borrowing.
                                                                                                                                                                                              64
                                                                                   Students can also access this
                                                                                   site to obtain information about                                                            49
                                                                                   repayment options and                                                    30
                                                                                   electronically repay their loans.
                                                                                                                                                 19


                                                                                                                                                                          41

http://www.dlssonline.com/index.asp




                                                                                   Electronic promissory note                                                                                      68
                                                                                   Students or parents can
                                                                                   electronically sign master                                                         41
                                                                                   promissory note.                                                        28
                                                                                                                                       7


                                                                                                                                                                 36




https://lo-online.ed.gov/empn/unsecure/




                                                                                   NSLDS
                                                                                                                                                                                    53
                                                                                   Students can review information
                                                                                   regarding their loan and financial                                       30
                                                                                   aid history.                                                       24
                                                                                                                                                       27


                                                                                                                                                                33

                                                                                                                                0      10       20         30        40        50        60        70   80
                                                                                                                                Types of schools


                                                                                                                                            4-year public                                Less-than-2-year
http://www.nslds.ed.gov
                                                                                                                                            4-year private                               Overall

                                                                                                                                            2-year

Sources: GAO Survey of Postsecondary School Experiences with the Direct Loan Program and U.S. Department of Education, Office of Federal Student Aid, Washington, D.C.




                                                                Page 22                                                               GAO-04-107 Direct Student Loan Program
                           Schools that prefer to have their students complete many tasks with paper
                           materials reported a number of reasons for doing so. Financial aid officials
                           at two Direct Loan schools we visited told us that they use paper master
                           promissory notes because they believed it is important for students to sign
                           an actual piece of paper to emphasize the responsibility associated with
                           borrowing. Another school said that their students did not have access to
                           computers at home and the school had a limited number of computers on
                           campus, making it necessary for students to complete paper forms to meet
                           program requirements.

                           Despite the fact that some schools still rely on paper records, some Direct
                           Loan Program materials were sometimes unavailable. Additionally, some
                           financial aid officials told us that many Direct Loan-specific publications,
                           such as brochures used to describe the program to students, have either
                           been discontinued, or are available only online, or have not been updated
                           in several years. Moreover, several Direct Loan schools reported that
                           critical documents, such as the master promissory note, were not available
                           in time for the 2002-03 school year. FSA officials reported that there were
                           delays in distributing paper master promissory notes to schools because
                           the process needed to obtain departmental approval is lengthy. These
                           materials were ready for the 2003-04 school year.


Direct Loan Schools Were   Seventy-four percent of Direct Loan schools were generally or very
Generally Satisfied with   satisfied with FSA’s newly implemented information system, known as
FSA’s New Information      COD, which delivers loan funds quicker to students.15 FSA officials
                           indicated that COD is able to process loans quicker than the former loan
System, which Delivers     origination system, with loans made available to schools and borrowers
Loans Faster to Students   the same day. During our site visits, some Direct Loan schools agreed that
                           they received loan funds faster under the COD system and liked COD
                           features that allowed them to make changes to student loan amounts
                           instantaneously. For example, a 4-year public school in California
                           commented that, due to the state’s budget crisis, tuition and fees charged
                           to students will increase in school year 2003-04 and with COD they will be
                           able to make changes to students’ loan amounts that will allow students to
                           pay their tuition bills on time.



                           15
                             As part of its goal to integrate its systems, FSA has implemented COD to combine two
                           different information systems previously used to originate and disburse Direct Loans and
                           Pell Grants—federal grants awarded based on students’ financial need. All schools must be
                           full participants in COD by 2005-06.




                           Page 23                                        GAO-04-107 Direct Student Loan Program
Although schools are satisfied with COD, many reported that customer
service representatives designated to handle their questions are typically
unable to resolve their problems. FSA has contracted with a private sector
organization—Affiliated Computer Systems, Inc.—to hire and manage
customer service representatives.16 This is the third time that FSA has
changed contractors to operate the customer service centers. Several
Direct Loan schools reported that the customer service representatives are
friendly and responsive but typically lack the knowledge of Direct Loan
Program requirements needed to resolve schools’ issues. For instance,
financial aid officials reported difficulties in trying to resolve differences
between school records and COD data on whether students had
completed the master promissory note. In addition, several Direct Loan
schools reported particular problems performing monthly reconciliation of
their Direct Loan accounts. For example, one school mistakenly disbursed
loan funds for the same student twice, and the customer service
representatives were unable to help them correct this mistake. A previous
study of the Direct Loan Program in 1998 also highlighted schools’
frustration with customer service representatives during past transitions
between contractors.17

FSA officials acknowledged that they may have to rethink their approach
to providing customer service for their loan origination and disbursement
systems in order to minimize problems schools encounter when switching
contractors. Moreover, FSA officials also acknowledged that they may
have underestimated the skills needed by representatives hired to answer
questions about COD. FSA officials have taken additional steps to address
schools’ concerns about the customer service representatives, including
temporarily reassigning FSA regional staff to answer telephone inquiries
and providing additional training to COD customer service
representatives. As outlined in its COD contract, FSA has surveyed schools
to gather information about their experiences with COD and will take
further action once it has analyzed data obtained in its survey.




16
     Another contractor, TSYS, is responsible for designing and operating the COD system.
17
 Macro International, Inc., Direct Loan Program Administration: 1993-1998,
(Washington, D.C. 1998).




Page 24                                           GAO-04-107 Direct Student Loan Program
FSA’s Regional Offices      FSA staff in regional Direct Loan School Relations Offices (DLSRO) have
Offer Direct Loan Schools   provided training, technical assistance and software support, and
Training, Technical         answered queries. For about 43 percent of Direct Loan schools, the major
                            reason they contacted FSA regional office staff in school year 2001-02
Assistance, and Other       was to receive technical assistance specific to Direct Loans. Further,
Services                    82 percent of Direct Loan schools were very or generally satisfied with
                            DLSRO, and about three-quarters were very or generally satisfied with the
                            quality of service provided by the DLSRO staff. For example, several
                            financial aid officials at schools we visited reported that the training
                            offered by DLSRO staff is helpful and assists them in administering the
                            program.

                            According to DLSRO officials, the level of assistance that they provide to
                            schools can vary. A DLSRO official reported that over time, as some
                            schools have become more familiar with administering the Direct Loan
                            Program, they have tended to need less intensive services. Other DLSRO
                            officials stated that some schools require intensive assistance to establish
                            processes and systems so that they can meet Direct Loan reconciliation
                            requirements. Some DLSRO staff told us that in recent years budget
                            constraints have limited their ability to conduct on-site visits with Direct
                            Loan schools. To provide services to schools, DLSRO staff organized
                            training sessions at a location convenient for several schools to attend,
                            thus maximizing the efficiency of the training. Although some schools
                            have reported that they are more comfortable administering the program,
                            they continue to use DLSRO staff for services, such as training and help
                            reconciling their accounts. A few Direct Loan schools that we visited
                            reported that they often attend training held at the regional office because
                            they are unable to attend FSA’s national conferences. Moreover, one
                            school told us that during the transition to COD, DLSRO staff have been
                            able to address many questions related to the program that the contractor
                            was not equipped to handle because the contractor was unfamiliar with
                            the issues involved.

                            In July 2003, FSA reorganized its staff in headquarters and in the regional
                            offices to improve its program delivery and customer service. Under the
                            reorganization, DLSRO has been renamed the School Relations Office, and
                            its mission has been broadened from assisting Direct Loan schools to
                            assisting all schools participating in Title IV programs. FSA officials
                            reported that this change was made because the number of schools
                            participating in the Direct Loan Program has decreased and they believed
                            that schools in the Direct Loan Program no longer need individual
                            attention. To address agency needs, several former DLSRO staff have been
                            temporarily reassigned to other offices, where they perform such tasks as


                            Page 25                                 GAO-04-107 Direct Student Loan Program
                     providing training to COD contractor staff, developing FSA program
                     software, or working in FSA headquarters operations. FSA officials
                     reported that changes under the reorganization would not adversely affect
                     customer service provided to Direct Loan schools.


                     The creation of the Direct Loan Program as an alternative to FFELP has
Conclusions          provided schools with a choice of programs to provide federal loans to
                     their students. Many financial aid officials believe that competition
                     between the two loan programs has improved service for schools and
                     borrowers. While some schools have recently begun to participate in the
                     Direct Loan Program, others that began participating several years ago
                     have recently stopped. Some schools have stopped participating because
                     some FFELP lenders offered better loan terms—including reduced
                     origination fees and the potential for reduced interest rates—to their
                     students. Not all FFELP lenders offer these better terms nor are they
                     obligated to do so. Further, lenders’ willingness and ability to offer these
                     better terms can be contingent on a number of economic factors, including
                     lender costs and the extent of competition in the marketplace. Whether
                     some lenders will continue to provide better loan terms for students in the
                     future is unknown. Nonetheless, schools that remain in the Direct Loan
                     Program have expressed concerns about the continued viability of the
                     program in light of the better benefits offered by some FFELP lenders and
                     the lack of clarity over whether Education may offer similar benefits. In
                     addition to the availability of better loan terms for students under FFELP,
                     schools have also stopped participating in the Direct Loan Program for
                     other reasons. Because FSA does not routinely collect information about
                     why schools stop participating in the program, it is missing an important
                     opportunity to learn whether it could make changes or improvements to
                     the Direct Loan Program that would better serve its customers.


                     In light of questions about provisions in the HEA concerning Direct Loan
Matters for          Program origination fees, Congress should consider clarifying the extent
Congressional        to which Education may regulate the loan origination fees charged to
                     borrowers during its reauthorization of the HEA.
Consideration
                     To improve knowledge of its Direct Loan customers and meet its goal of
Recommendation for   increasing customer satisfaction, we recommend that FSA’s Chief
Executive Action     Operating Officer develop a process for collecting information from
                     schools that decide to stop participating in the Direct Loan Program about



                     Page 26                                 GAO-04-107 Direct Student Loan Program
                  the factors that influenced this decision and use this information to make
                  improvements to the program.

                  We provided a draft of this report to Education for review and comment.
Agency Comments   In written comments on our draft report, Education generally agreed with
                  our reported findings and recommendation. Regarding our finding that
                  Education does not collect information from schools that have stopped
                  participating in the program, Education agreed but suggested we
                  acknowledge that Education does provide forums for schools to provide
                  suggestions for improving the Direct Loan Program. In response, we noted
                  on page 17 that conferences and focus groups convened by FSA provide
                  such forums. In response to our recommendation, Education stated that in
                  the future, it would conduct exit interviews of schools leaving the Direct
                  Loan Program and use the information as appropriate. Education also
                  provided technical clarification, which we incorporated where
                  appropriate. Education’s written comments appear in appendix II.


                  We are sending copies of this report to the Secretary of Education,
                  appropriate congressional committees, and other interested parties. In
                  addition, the report will be available at no charge on GAO’s Web site at
                  http://www.gao.gov.

                  If you or your staff have any questions about this report, please call me on
                  (202) 512-8403 or Jeff Appel on (202) 512-9915. Other contacts and staff
                  acknowledgments are listed in appendix III.

                  Sincerely yours,




                  Cornelia M. Ashby
                  Director, Education, Workforce,
                   and Income Security Issues




                  Page 27                                 GAO-04-107 Direct Student Loan Program
                           Appendix I: Scope and Methodology

Appendix I: Scope and Methodology


                           To address our research objectives, we analyzed loan volume data and
                           identified schools that participate in the Direct Loan Program or Federal
                           Family Education Loan Program (FFELP), surveyed financial aid directors
                           at schools that have participated in the Direct Loan Program, analyzed
                           information on financial benefits provided by lenders, conducted site visits
                           to Direct Loan schools that were selected based on a variety of criteria,
                           and interviewed by telephone financial aid officials at schools that either
                           were participating in or had participated in the Direct Loan Program.


                           To identify loan volume and schools that have provided loans through the
Analyzing Loan             Direct Loan Program or FFELP, we analyzed institutional-level data on
Volume and                 loans in three Department of Education databases—(1) the Committed
                           Loan Volume Report, which includes loan data reported by schools and
Identifying Schools        contractors; (2) the National Student Loan Data System (NSLDS), a
That Participated in       national repository of information about federal loans and grants awarded
                           to students; and (3) the Integrated Postsecondary Education Data System
the Direct Loan            (IPEDS), a collection of information obtained from surveys of all
Program and FFELP          institutions whose primary purpose is to provide postsecondary education
                           and provides institutional-level data for a variety of characteristics. The
                           Committed Loan Volume Report was used to determine the loan volume
                           and schools in the Direct Loan Program for school years 1994-95 to 2001-
                           02. NSLDS was used to determine the loan volume and schools in FFELP.
                           IPEDS was used to identify school characteristics. To assess the reliability
                           of the Committed Loan Volume Report, NSLDS, and IPEDS, we reviewed
                           existing information about the data, including documentation produced by
                           officials at Education. Education officials also reported performing data
                           accuracy, validity, and integrity tests to ensure data are reliable. We
                           performed validity tests of key variables. We determined that the Direct
                           Loan, NSLDS, and IPEDS data were sufficiently reliable for our purposes.

                           We used Education’s Office of Postsecondary Education’s identification
                           number (OPEID) to match data in each database and excluded all foreign
                           schools. We also excluded schools that did not provide loans through
                           either program in any year between school years 1994-95 and 2001-02.
                           After applying our criteria, we identified 4,155 schools that provided
                           subsidized Stafford, unsubsidized Stafford, or PLUS loans through the
                           Direct Loan Program or FFELP from school years 1994-95 through
                           2001-02. We classified schools into three categories:

                       •   FFELP school—2,935 schools provided loans through FFELP and never
                           participated in the Direct Loan Program.




                           Page 28                                 GAO-04-107 Direct Student Loan Program
                          Appendix I: Scope and Methodology




                      •   Direct Loan school—941 schools participated in the Direct Loan Program
                          in school year 2001-02. Of schools in this category, 366 also provided loans
                          through FFELP in 2001-02.

                      •   Former Direct Loan school—279 schools participated in the Direct Loan
                          Program for at least one school year from 1994-95 to 2000-01 but not in
                          school year 2001-02. These schools provided loans through FFELP in
                          2001-02.

                          We administered a Web survey to financial aid officials at schools we
Survey of Schools         identified as participating in the Direct Loan Program from the 1994-95 to
That Have                 2001-02 school years. These schools consisted of four school types: 4-year
                          public, 4-year private, 2-year, and less-than-2-year schools. We excluded a
Participated in the       small number of schools from the population, and e-mailed the survey to
Direct Loan Program       all remaining 1,196 schools in our study population.1 We conducted the
                          survey between June and August of 2003.

                          Because most of our survey questions asked schools about their
                          experiences in the Direct Loan Program in 2001-02, we divided the study
                          population into two groups—Direct Loan and former Direct Loan schools.
                          We obtained responses from 57 percent of Direct Loan schools and
                          23 percent of the former Direct Loan schools. Because of the low response
                          rate of former Direct Loan schools, we do not produce estimates for this
                          group of schools in this report.2

                          Table 4 summarizes the population size of and responses received from
                          Direct Loan schools, by school type.




                          1
                           We did not include 24 schools in our survey because we could not locate correct email
                          addresses. Eighteen of the 24 schools no longer participated in the program in 2001-02. The
                          other 6 schools participated in the program in 2001-02 but their omission does not affect
                          our findings.
                          2
                           In some instances we report the number of former Direct Loan schools responding to a
                          question, but this should not be interpreted as an estimate of the broader population.




                          Page 29                                         GAO-04-107 Direct Student Loan Program
             Appendix I: Scope and Methodology




             Table 4: Response Rates of Schools That Participated in the Direct Loan Program in
             2001-02

                                                              Direct                  Number of Direct    Percentage
                                                        Loan school                  Loan schools that     of schools
              School type                                population               responded to survey     responding
              4-year public                                          210                           141            67.1
              4-year private                                         240                           133            55.4
              2-year                                                 268                           153            57.1
              Less-than-2-year                                       217                           110            50.7
              Total                                                  935                           537            57.4
             Source: GAO Survey of Postsecondary School Experiences with the Direct Loan Program



Estimation   We compared key characteristics of nonrespondents and respondents. We
             performed an analysis to determine whether there were significant
             differences between respondents and nonrespondents on several key
             characteristics. Separately for respondents and nonrespondents, we
             estimated the percentage of schools that participated in both the Direct
             Loan Program and FFELP and the proportion of schools participating in
             the Direct Loan Program for 6, 7, or 8 years. We performed this analysis
             for all Direct Loan schools, and also separately for each of our strata
             (school type). For most of the comparisons, these characteristics were not
             significantly different between the respondents and the nonrespondents.
             Additionally, we estimated average loan volume and average enrollment
             for the respondents and the nonrespondents. Although the results of this
             estimate indicate that respondents have larger loan volume and
             enrollments for some strata, survey estimates related to loan volume or
             enrollment are not contained in this report.

             Because our sample contained a large proportion of the total population of
             schools, and because of the result of our comparison of respondent and
             nonrespondent-based estimates, we chose to include the survey results in
             our report and to project sample-based estimates for the total population
             of schools in our study population.

             All population estimates based on this survey are for the target population
             defined as Direct Loan schools. Estimates of this target population were
             computed using methods that are appropriate for a stratified probability
             sample. Within each stratum, we formed estimates by weighting the survey
             data by the ratio of the population size to the sample size. This method of
             estimation assumes that the response for this survey was equivalent to
             probability sampling within each stratum.



             Page 30                                                           GAO-04-107 Direct Student Loan Program
                    Appendix I: Scope and Methodology




Sampling and        As with all sample surveys, this survey is subject to both sampling and
Nonsampling Error   nonsampling errors. The effects of sampling errors, due to the selection of
                    a sample from a larger population, can be expressed as confidence
                    intervals based on statistical theory. Sampling errors occur because we
                    use a sample to draw conclusions about a larger population. As a result,
                    the sample was only one of a large number of samples of schools that
                    might have been obtained from the population of all Direct Loan schools.
                    If a different sample had been taken, the results might have been different.
                    To recognize the possibility that other samples might have yielded other
                    results, we express our confidence in the precision of our particular
                    sample’s results as a 95-percent confidence interval. The 95-percent
                    confidence interval is expected to include the actual results for 95 percent
                    of samples of this type. For percentage estimates in this report, we are
                    95 percent confident that when sampling error is considered, the results
                    we obtained are within +/- 6 percentage points of what we would have
                    obtained if we had surveyed the entire study population, unless otherwise
                    noted. For example, we estimate that 90 percent of the schools reported
                    that streamlined loan process was an extremely or very important factor in
                    influencing the decision to join the Direct Loan Program. The 95-percent
                    confidence interval for this estimate would be no wider than +/-6
                    percentage points, or from 84 to 96 percent.

                    In addition to the reported sampling errors, the practical difficulties of
                    conducting any survey introduce other types of errors, commonly referred
                    to as nonsampling errors. For example, questions may be misinterpreted,
                    some people may be less likely than others to respond to the survey, errors
                    could be made in recording the questionnaire responses, or the
                    respondents’ opinions may differ from those of financial aid officials at
                    schools that did not respond to our survey. We took several steps to
                    reduce these errors. Prior to fielding the questionnaire, we pretested the
                    data collection instrument with six schools to ensure that respondents
                    would understand the questions and that answers could be provided.
                    Because this was a Web survey, the responses were directly entered by
                    respondents and were not subject to other data entry errors. Data edits
                    and estimation programs were independently verified to ensure that
                    programming errors did not affect our estimates. To reduce nonresponse,
                    we sent two follow-up emails to all schools that had not responded to the
                    survey by our deadline. Additionally, we conducted an intensive follow-up
                    with a randomly selected group of 100 nonrespondents that had
                    participated in the Direct Loan Program in 2001-02 and received responses
                    from an additional 35 schools that were included in our final survey
                    results.



                    Page 31                                 GAO-04-107 Direct Student Loan Program
                       Appendix I: Scope and Methodology




                       In order to examine financial benefits available from different FFELP
Analysis of Benefits   lenders, we obtained information through the Web sites of the eight FFEL
Offered by FFELP       lenders with the highest amount of loan originations in fiscal year 2002—
                       each made federal loans of more than a billion dollars—and all
Lenders                36 guaranty agencies. We also interviewed two FFELP lenders and an
                       organization that represents FFELP lenders.


                       We conducted interviews with financial aid officials at 20 current Direct
Site Visits            Loan schools of various types that were located in the Boston, New York
                       City, San Francisco, and Washington, D.C., metropolitan areas. We
                       selected schools based on school type and loan volume. These schools
                       included 6 public 4-year schools, 6 private 4-year schools, 4 2-year schools,
                       3 less-than-2-year schools, and 1 public university system that includes
                       12 4-year and 5 2-year schools.3 At the time of our visits, 13 of these
                       schools participated only in the Direct Loan Program and 7 participated in
                       both the Direct Loan Program and FFELP. See table 5.




                       3
                       We visited a university official at the City University of New York, because Direct Loan
                       Program operations are centralized for its campuses.




                       Page 32                                         GAO-04-107 Direct Student Loan Program
                                              Appendix I: Scope and Methodology




Table 5: Characteristics of Schools Selected for Site Visits and Interviews

                                                                                      Student         Direct Loan          FFELP
                                                                                  enrollment,             volume,         volume,
 Name of school                                         School type                  fall 1998            2001-02         2001-02
 Boston area, located in FSA Region I
 Suffolk University                                     4-year private                  6,445        $15,791,907      $27,789,571
 Benjamin Franklin Institute of Technology              4-year public                     279          $1,166,773              $0
 Harvard University                                     4-year private                 24,373        $77,643,462               $0
 New England College of Optometry                       4-year private                    422          $9,535,668              $0
 Porter and Chester Institute                           Less-than-2-year                1,072         $5, 421,063              $0
 New York City, located in FSA Region II
 City College of New York                               4-year and 2-year             194,746        $87,598,773
                                                        public                     (total at 17        (total at 17
                                                                                   campuses)          campuses)                $0
 Cornell University Medical College                     4-year private                    692          $6,966,706        $200,931
 Technical Career Institute                             2-year private                  3,545           $538,731       $6,744,374
 New York International Beauty School                   Less-than-2-year                  168           $528,310          $25,282
 DC Metro area, located in FSA Region III
 Bowie State University                                 4-year public                   5,024        $14,789,515               $0
 University of Maryland, University College             4-year public                  14,142        $44,038,905               $0
 Johns Hopkins University                               4-year private                 17,111        $37,382,682       $4,702,746
 Northern Virginia Community College                    2-year public                  36,216          $1,766,193              $0
 RETS Technical Training Center                         2-year private                    476           $391,581       $2,227,900
 Sanz School                                            Less-than-2-year                  611          $1,895,126              $0
 San Francisco area, located in FSA Region IX
 San Francisco State University                         4-year public                  27,446        $57,413,020       $3,817,165
 Sonoma State University                                4-year public                   7,003        $19,346,287               $0
 University of California, Berkeley                     4-year public                  31,011        $92,029,808               $0
 University of San Francisco                            4-year private                  7,990        $46,255,625               $0
 Napa Valley College                                    2-year public                   5,646           $348,260               $0
Source: GAO Analysis of Education data.



                                              We also conducted telephone interviews with financial aid officials at two
Telephone Interviews                          Direct Loan schools—the University of Nebraska and the University of
                                              Idaho—and financial aid officials at three former Direct Loan schools—the
                                              University of Vermont, Michigan State University, and Indiana University.




                                              Page 33                                      GAO-04-107 Direct Student Loan Program
             Appendix II: Comments from the Department

Appendix II: Comments from the Department
             of Education



of Education




             Page 34                                     GAO-04-107 Direct Student Loan Program
Appendix II: Comments from the Department
of Education




Page 35                                     GAO-04-107 Direct Student Loan Program
                  Appendix III: GAO Contacts and Staff

Appendix III: GAO Contacts and Staff
                  Acknowledgments



Acknowledgments

                  Jeff Appel, Assistant Director (202) 512-9915
GAO Contacts      Andrea Romich Sykes, Analyst-in-Charge (202) 512-9660


                  In addition to those named above, the following people made significant
Staff             contributions to this report: Carla Craddock, Kathleen White, Margaret
Acknowledgments   Armen, Cynthia Decker, Luann Moy, Mimi Nguyen, Mark Ramage, Bonita
                  Vines, and Weili Shaw.




(130225)
                               Page 36                             GAO-04-107 Direct Student Loan Progr
                         The General Accounting Office, the audit, evaluation and investigative arm of
GAO’s Mission            Congress, exists to support Congress in meeting its constitutional responsibilities
                         and to help improve the performance and accountability of the federal
                         government for the American people. GAO examines the use of public funds;
                         evaluates federal programs and policies; and provides analyses,
                         recommendations, and other assistance to help Congress make informed
                         oversight, policy, and funding decisions. GAO’s commitment to good government
                         is reflected in its core values of accountability, integrity, and reliability.


                         The fastest and easiest way to obtain copies of GAO documents at no cost is
Obtaining Copies of      through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and full-
GAO Reports and          text files of current reports and testimony and an expanding archive of older
                         products. The Web site features a search engine to help you locate documents
Testimony                using key words and phrases. You can print these documents in their entirety,
                         including charts and other graphics.
                         Each day, GAO issues a list of newly released reports, testimony, and
                         correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site
                         daily. The list contains links to the full-text document files. To have GAO e-mail
                         this list to you every afternoon, go to www.gao.gov and select “Subscribe to e-mail
                         alerts” under the “Order GAO Products” heading.


Order by Mail or Phone   The first copy of each printed report is free. Additional copies are $2 each. A
                         check or money order should be made out to the Superintendent of Documents.
                         GAO also accepts VISA and Mastercard. Orders for 100 or more copies mailed to a
                         single address are discounted 25 percent. Orders should be sent to:
                         U.S. General Accounting Office
                         441 G Street NW, Room LM
                         Washington, D.C. 20548
                         To order by Phone:     Voice:    (202) 512-6000
                                                TDD:      (202) 512-2537
                                                Fax:      (202) 512-6061


                         Contact:
To Report Fraud,
                         Web site: www.gao.gov/fraudnet/fraudnet.htm
Waste, and Abuse in      E-mail: fraudnet@gao.gov
Federal Programs         Automated answering system: (800) 424-5454 or (202) 512-7470


                         Jeff Nelligan, Managing Director, NelliganJ@gao.gov (202) 512-4800
Public Affairs           U.S. General Accounting Office, 441 G Street NW, Room 7149
                         Washington, D.C. 20548