oversight

Direct Student Loans: Analyses of Borrowers' Use of the Income Contingent Repayment Option

Published by the Government Accountability Office on 1997-08-21.

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

                  United States General Accounting Office

GAO               Report to the Chairman, Committee on
                  Education and the Workforce, House of
                  Representatives


August 1997
                  DIRECT STUDENT
                  LOANS
                  Analyses of Borrowers’
                  Use of the Income
                  Contingent Repayment
                  Option




GAO/HEHS-97-155
          United States
GAO       General Accounting Office
          Washington, D.C. 20548

          Health, Education, and
          Human Services Division

          B-277321

          August 21, 1997

          The Honorable William F. Goodling
          Chairman, Committee on Education
            and the Workforce
          House of Representatives

          Dear Mr. Chairman:

          The William D. Ford Federal Direct Loan Program (FDLP), established by
          the Student Loan Reform Act of 1993, contains a unique repayment option.
          Called the income contingent repayment (ICR) plan, it ties the borrowers’
          monthly payments to their income, family size, and student loan amount.
          Under ICR, borrowers with low incomes or high debt loads can fit their
          student loan payments into their budgets because the size of their
          payments can expand or contract with their ability to pay.

          Now, 3 years after FDLP began, a sizable number of borrowers have begun
          repaying their loans. You asked us to develop information that would help
          assess how borrowers have been using ICR. As agreed with your office, we
          focused our review on the following:

      •   To what extent are borrowers using ICR compared with other repayment
          plans available under FDLP?
      •   How do loan delinquencies and defaults under ICR compare with
          delinquencies and defaults under other FDLP repayment plans?1
      •   How do borrowers’ loan payments under ICR compare with payments
          under other FDLP repayment plans?
      •   How does the Department of Education, which administers the program,
          verify the accuracy of income reported by borrowers using ICR?

          We based our review on data supplied by the Department of Education as
          of March 31, 1997. We analyzed the usage of ICR and compared it with the
          usage of the three other repayment plans generally available to FDLP
          borrowers—standard repayment (10 years, fixed monthly payment),
          extended repayment (up to 30 years depending on amount borrowed, fixed
          monthly payment), and graduated repayment (up to 30 years depending on
          amount borrowed, with low initial monthly payments that increase


          1
           Borrowers are delinquent if they have not made a payment for 31 to 180 days and in default if they
          have not made a payment for more than 180 days. However, loans in default for more than 270 days
          were not part of the databases we analyzed. After 270 days, loan records are transferred from the
          FDLP loan service center to the Department of Education’s Debt Collection Service (DCS) unit.



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                   generally every 2 years). Appendix I describes our scope and methodology
                   in further detail.


                   As of March 31, 1997, about 663,000 borrowers owing about $5.3 billion in
Results in Brief   FDLP loans were repaying loans. About 9 percent, or 56,298, of these
                   borrowers were using ICR. As a group, they differed from most borrowers
                   in two key respects. First, they were much more likely to have direct
                   consolidation loans, which are multiple loans combined into a single loan
                   for repayment purposes and are generally much larger than other loans.
                   Second, about 40 percent, or 23,678, of the 56,298 ICR users had been
                   placed into this plan because they were in default on loans from the
                   Federal Family Education Loan Program (FFELP). We found little
                   relationship between the type of school attended by FDLP nonconsolidated
                   loan borrowers and their selection of ICR as a repayment plan. However,
                   nonconsolidated loan borrowers from 2-year public schools were
                   somewhat more inclined to select the ICR plan than were borrowers from
                   other kinds of schools.

                   We found that about 80 percent (44,379 of 56,298) of borrowers using ICR
                   either were current in their monthly payments or had their payments
                   suspended because they were in school or for other reasons. However,
                   borrowers using ICR tended to be delinquent or in default at higher
                   percentages than borrowers using other repayment plans. More
                   specifically, about 16 percent, or 9,807, of the 56,298 borrowers using ICR
                   were delinquent (made no payment for 31 to 180 days), and another
                   5 percent, or 2,832, were in default (made no payment for 181 to 270 days).2
                   Borrowers using the other plans were delinquent at rates ranging from
                   9.1 percent (1,838 of 20,139 extended plan users) to 14.8 percent (77,923 of
                   527,351 standard plan users) and in default at percentages ranging from
                   0.8 percent to 1.4 percent (158 and 7,534, respectively). Borrowers who
                   have been placed into the ICR plan because they have defaulted on an FFELP
                   loan are a major factor in the higher percentage of defaults for ICR users; of
                   the 2,832 borrowers using ICR and in default, 2,083, or 73.6 percent, had
                   defaulted on an FFELP loan.

                   Comparing estimated total loan payments for ICR users and borrowers who
                   use the three other repayment plans is complicated. Compared with

                   2
                    This contributes to understating the percentage of loans in default because default loans in arrears for
                   more than 270 days are excluded. The percentage of FDLP loans in default discussed in this report is
                   different from the default rates the Department of Education computes. For computing school default
                   rates, the Department includes borrowers who have not made a payment for 270 days or more. This is
                   called the “cohort default rate” as explained in app. I.



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             borrowers who use the standard repayment plan, ICR users and those using
             extended and graduated plans generally face higher total payments.
             Compared with borrowers who use the extended or graduated repayment
             plans, ICR users face comparatively higher total payments if their incomes
             are low but comparatively lower total payments if their incomes are high.
             However, ICR borrowers (and their spouses) with family incomes that
             remain low over a long period of time do not have to repay all their
             principal and interest if the maximum payback period of 25 years expires
             before the full amount is paid off. In contrast, ICR borrowers whose income
             increases substantially during the repayment period would make
             increasingly higher monthly payments, and this could result in repayment
             of the loan in full by the end of the 25-year repayment period.

             The Department of Education checks the reported income of borrowers
             using ICR in one of two ways. For borrowers who are in their first year of
             repayment or who may have recently lost their jobs, the Department relies
             primarily on documentation submitted by the borrower, such as pay stubs,
             dividend statements, or canceled checks. The Department does not verify
             the accuracy of this documentation when it is submitted; rather, it relies
             on a signed certification from the borrower that the information is
             complete and accurate. For borrowers who have been out of school for a
             year or more, the Department obtains income information directly from
             the Internal Revenue Service (IRS). The Department does not verify the
             accuracy of information borrowers provide IRS but relies on IRS’
             verification process. However, during the transition from using borrower
             documentation to using IRS information, the Department compares the
             income amounts from the two sources for discrepancies. If there are
             significant discrepancies or if borrowers do not cooperate in providing
             correct income information, they are removed from the ICR plan and
             placed into another repayment plan.


             In fiscal year 1996, students and their families used federal student loan
Background   programs to borrow approximately $30 billion to pay for postsecondary
             education. FDLP is one of two main approaches the federal government has
             taken to make loans available for college. Under this program, students or
             their parents borrow money directly from the government through the
             schools the students attend. The other major program, FFELP, provides
             loans through private lenders, and the federal government guarantees
             repayment if borrowers default. According to a Department official, FDLP
             accounted for about 32.1 percent of student loan volume in fiscal year
             1996.



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Most FDLP borrowers can select one of four repayment options, as
illustrated in figure 1.3 These four options differ by the amount of time
allowed to repay loans and the flexibility of the payment schedule. The ICR
option is the most flexible. It allows borrowers to pay relatively small or
no monthly payments when their incomes are low and to pay more when
their incomes rise. For example, a married borrower with a loan balance
of $20,000 and an annual family income of $15,000 would initially pay
about $77 a month. If the borrower’s annual income were $45,000, the
initial monthly payment would be about $225.




3
 Not all repayment options are available for each kind of FDLP loan. For example, the ICR plan is not
available for FDLP PLUS or PLUS consolidation loans, which are made to students’ parents.



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Figure 1: Basic Characteristics of FDLP Repayment Options


  Standard Repayment                              Income Contingent Repayment

  Monthly payment: fixed amount                   Monthly payment: variable amount based on initial debt,
                                                  annual income, and family size
  Minimum payment: $50
                                                  Minimum payment:
                                                   $0
  Repayment term: maximum of 10 years
                                                   if the minimum payment does not cover monthly interest, the
                                                   unpaid interest is added to the principal balance for later
                                                   repayment.

                                                  Repayment term:
                                                   maximum of 25 years
                                                   if the loan is not repaid after 25 years, the remaining balance
                                                   is canceled (the unpaid amount is considered income for tax
        Federal Direct Loan                        purposes)
        Program Repayment
              Plans




   Extended Repayment                             Graduated Repayment

   Monthly payment: fixed amount                  Monthly payment: variable
                                                  amount increasing about every 2
   Minimum payment: $50                           years

   Repayment term: varies with loan               Minimum payment: amount of
   size, as follows:                              monthly interest
     Less than $10,000: 12 years
     $10,000-$19,999: 15 years                    Repayment term: same as
                                                  extended repayment plan
     $20,000-$39,999: 20 years
     $40,000-$59,999: 25 years
     More than $60,000: 30 years




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    For our analysis,we classified FDLP loans into three main categories.

•   Direct nonconsolidated loans: These are the basic FDLP loans with which
    students or their parents can help finance postsecondary education. There
    are three kinds: subsidized and unsubsidized direct Stafford loans and
    direct PLUS loans. Direct subsidized Stafford loans, available only to
    students with a demonstrated financial need, are subsidized in that the
    federal government does not charge interest while the student is in school
    at least half-time, during a 6-month grace period after the student
    graduates or otherwise leaves school, and during periods in which loan
    repayment is deferred (such as when the borrower is seeking but unable
    to find full-time employment). In contrast, direct unsubsidized Stafford
    loans, which are available to all students regardless of financial need, do
    not include an interest subsidy. If the borrower does not make interest
    payments while in school, the interest is added to the principal balance to
    be repaid as part of the total loan amount. Direct PLUS loans are available
    to parents of dependent students to help pay for their children’s education;
    they are unsubsidized because parents are responsible for paying all
    interest charges.
•   Direct consolidation loans: During the course of their education, students
    can obtain loans from more than one program. By obtaining a direct
    consolidation loan, borrowers can combine their loans and make only one
    monthly payment. Borrowers can consolidate their loans while they are in
    school or afterward, and the interest on their consolidation loans can be
    subsidized or unsubsidized, depending on the kind of original loans they
    consolidated. Borrowers in default on a student loan who have made
    satisfactory arrangements to repay the defaulted loan, or who agree to
    repay under the ICR plan, can also obtain direct consolidation loans.
    Parents with multiple PLUS loans can combine them into a single direct
    PLUS consolidation loan.
•   Debt Collection Service (DCS) consolidation loans: These are direct
    consolidation loans to borrowers who previously defaulted on their FFELP
    loans and whose loans were assigned to the Department’s DCS for
    collection. In fiscal year 1995, the Department began to increase
    collections on defaulted FFELP loans by offering direct consolidation loans
    to these borrowers so they could make more affordable payments through
    the ICR plan.

    As shown in table 1, the vast majority (83.6 percent) of FDLP borrowers in
    repayment had nonconsolidated loans as of March 31, 1997. These
    borrowers represented about 69 percent of the total direct loan volume in
    repayment. However, borrowers with direct consolidation loans had



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                                         average loan amounts that were much higher than those of the two other
                                         kinds of borrowers—$21,807 compared with $6,611 and $5,453. Such
                                         borrowers had more than 26 percent of total loan volume, even though
                                         they were only about 10 percent of all borrowers.


Table 1: FDLP Loans in Repayment, as of March 31, 1997
                                                                       Borrower                     Original loan amount           Average
                                                                            Percentage of         Millions of   Percentage of         loan
Loan category                                                   Number              total             dollars           total      amount
Direct nonconsolidated                                          554,461                 83.6        $3,665.3             69.0        $6,611
Direct consolidation                                              64,430                    9.7      1,405.0             26.4        21,807
DCS consolidation                                                 44,407                    6.7        242.1               4.6         5,453
                                                                                                            a
Total                                                           663,298                100.0        $5,312.5            100.0
                                         a
                                             Numbers do not add to total due to rounding.




                                         As of March 31, 1997, slightly more than 56,000 borrowers in repayment
ICR Used by About 9                      were using ICR—about 9 percent of the total (see fig. 2). Collectively, these
Percent of FDLP                          borrowers accounted for about $831 million in outstanding loans, or about
Borrowers                                16 percent of the $5.3 billion of FDLP loans in repayment. Borrowers using
                                         the standard plan were the largest in number and loan volume among the
                                         four plans. However, the average size of their loans (about $6,530) was
                                         considerably smaller. By comparison, loans held by ICR users averaged
                                         about $14,770.4 Borrowers using the extended plan had the highest average
                                         balance (about $17,000).




                                         4
                                          For details on the distribution of borrowers and loan amounts among the various repayment plans,
                                         see app. II.



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Figure 2: Distribution of Borrowers and Loan Amounts for Each FDLP Repayment Option, as of March 31, 1997

     Number of Persons With                            Total Amount of                              Average Loan Balance
    Loans in Repayment Status                         Outstanding Loans




0   100   200    300   400   500   600     0   0.5   1    1.5     2   2.5   3   3.5   4     0        5        10    15       20
Thousands of Borrowers                      Billions of Dollars                              Thousands of Dollars



                Standard                 Income Contingent              Graduated                 Extended
                Repayment                Repayment                      Repayment                 Repayment




Many ICR Users Had                          Borrowers using ICR differed from most other FDLP loan borrowers in
Direct or DCS                               repayment in several important ways. More than half (51 percent) were
Consolidation Loans                         borrowers with direct consolidation loans (see fig. 3). In contrast, only
                                            about 8.5 percent of all borrowers in FDLP had such loans. Borrowers with
                                            direct consolidation loans held nearly 80 percent of total dollar volume of
                                            loans being repaid under ICR. Another large portion (about 42 percent) of
                                            borrowers using the ICR plan were those with DCS consolidation loans.
                                            However, these borrowers had relatively small average loan amounts
                                            ($6,100 compared with $23,000 for direct consolidation loans) and held
                                            only 17 percent of the total loan volume being repaid under ICR. Only about
                                            7 percent of borrowers using ICR held nonconsolidated loans.




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Figure 3: Distribution of Borrowers and Amounts in Repayment Under ICR, as of March 31, 1997
         Number of Borrowers Using Income
                                                        Dollar Amount of Their Loans
             Contingent Repayment


                 28,888                             $656.1
                                                    Million




 3,732
                                                                                       $144.9
                                                                                       Million
                                                                          $30.3
                          23,678                                          Million



                                   Consolidated Loans
                                   Nonconsolidated Loans
                                   Debt Collection Service Loans




Limited Data Suggest ICR                  Information on the kinds of schools that ICR users attended is limited to
Users Not Concentrated in                 borrowers who had nonconsolidated loans. According to a Department
Particular Types of Schools               official, the Department does not track repayment plan data by school for
                                          direct and DCS consolidation loans. Because students whose previous
                                          loans were combined into either a direct or DCS consolidation loan
                                          sometimes have attended more than one school, classifying loans by kind
                                          of school is difficult and not very meaningful.

                                          Data on FDLP borrowers with nonconsolidated loans show little
                                          relationship between the type of school attended and a borrower’s
                                          selection of ICR as a repayment plan. For the most part, there was little
                                          variation between the various repayment plans when compared by type of
                                          school, such as public and private or 2-year and 4-year. The data did show
                                          that borrowers from 2-year public schools were somewhat more inclined
                                          to select the ICR plan than were borrowers from other kinds of schools.
                                          However, since nonconsolidated loan recipients represented less than




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                                            10 percent of ICR users, it is unclear whether they represented ICR users as
                                            a whole.5


                                            Across all four types of repayment plans, 14.4 percent of FDLP borrowers
Delinquencies and                           were delinquent and 1.7 percent were in default, according to the
Defaults Under ICR                          Department data in our analysis. (See table 2.) About 70 percent of
Are Higher Than                             borrowers were current on their loan payments, and another 13.7 percent
                                            were currently not paying because their payments had been postponed
Under Other                                 through statutorily provided deferment or forbearance procedures. The
Repayment Plans                             data we analyzed generated an understated percentage of loans in default
                                            because only defaulted loans in arrears for 181 to 270 days are included.
                                            According to a Department official, loans in arrears for longer than 270
                                            days had been transferred to the Department’s DCS and, therefore, data on
                                            these loans were not contained in the database we used for our analysis.6
                                            This official said that, as of March 31, 1997, about $34.6 million in such
                                            defaulted loans had been transferred to DCS. Thus, when these defaulted
                                            loans are combined with the $71 million in loans that were in default for
                                            181 to 270 days, the total of defaulted direct loans is about $105.6 million.


Table 2: Status of FDLP Loans in Repayment, as of March 31, 1997
                                                                                 Borrower                      Original loan amount
                                                                                       Percentage of             Amount        Percentage of
Repayment status            Explanation                                   Number               total         (in millions)             total
Current                     Payment on time                                466,339                70.3            $3,735.1                    69.9
Default                     Payment not made for 181-270 days               11,026                 1.7                 71.0                    1.3
                                                                                   a                  a
                            Payment not made for over 270 days                                                         34.6                    0.6
Delinquent                  Payment not made for 31-180 days                95,328                14.4               660.4                    12.4
Deferment and forbearance Payment postponed because
                          borrower is in school or for other
                          reasons                                           90,605                13.7               846.0                    15.8
Total                                                                      663,298               100.0b           $5,347.1               100.0
                                            a
                                                Not available.
                                            b
                                                Percentages do not add to 100 due to rounding.




                                            5
                                             For details on how nonconsolidated loan borrowers in FDLP were distributed by repayment option by
                                            type of school, see app. III.
                                            6
                                             For information on the Department’s use of separate data systems, see Department of Education:
                                            Multiple, Nonintegrated Systems Hamper Management of Student Financial Aid Programs
                                            (GAO/T-HEHS/AIMD-97-132, May 15, 1997).



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It is important to note that the percentage of FDLP loans in default we
computed in our analysis is different from the default rate the Department
computes. There are two major differences. First, our computation of
loans in default reflects only borrowers who have not made a payment for
181 to 270 days, but the Department’s default rates include borrowers who
have not made a payment for more than 270 days. Second, the percentage
of borrowers in default that we computed for FDLP is a simple percentage
(number of borrowers in default divided by the total number of borrowers
in repayment at a single point in time). In contrast, the Department’s
default rates are computed for a cohort of borrowers over a period of
time. (This is explained in app. I.)

Compared with the three other payment plans, the overall percentage of
loans that were delinquent or in default under ICR were higher (see fig. 4).
The delinquency rate among ICR users was 16.1 percent, and the
percentage of loans in default was 5.0. By comparison, the next highest
delinquency rate was 14.8 percent (for borrowers using standard
repayment), and the next highest percentage of loans in default was 1.4
(also for borrowers using standard repayment).




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Figure 4: Comparison of the
Percentage of FDLP Loans That Were
Delinquent and in Default for Each
Repayment Plan                       Income Contingent
                                     Repayment

                                     Standard
                                     Repayment

                                     Extended
                                     Repayment

                                     Graduated
                                     Repayment


                                                         0              5               10               15          20

                                                         Percentage of Repayers Who Are Delinquent 31-179 Days




                                     Income Contingent
                                     Repayment

                                     Standard
                                     Repayment

                                     Extended
                                     Repayment

                                     Graduated
                                     Repayment


                                                         0              5               10               15          20

                                                         Percentage of Repayers Who Are in Default 180-270 Days




                                     There appear to be two possible explanations for why borrowers using ICR,
                                     as a group, have overall higher delinquencies and defaults than borrowers
                                     using the other repayment plans. First, a higher concentration of
                                     borrowers with DCS consolidation loans uses the ICR plan than the other
                                     repayment plans (53 percent, or 23,678, of 44,407 DCS consolidation loan
                                     borrowers are using ICR), and, as we discuss below, borrowers of these
                                     kinds of loans have the highest percentage of loans that are delinquent and




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                             in default. Second, the exclusion of PLUS loan borrowers, who according
                             to Department officials tend to have lower delinquency and default rates
                             than student borrowers, from the ICR plan could tend to make
                             delinquencies and defaults of the other plans lower relative to the rates of
                             the ICR plan.


Considerable Variances in    Among borrowers using ICR, there is considerable variance in delinquency
Delinquencies and Defaults   rates, depending on the type of loan (see fig. 5). Of the three categories of
by Type of ICR Loan          loans in repayment (nonconsolidated, direct consolidation, and DCS
                             consolidation), the highest delinquency rate was for borrowers with DCS
                             consolidation loans (about 19 percent). ICR users with direct consolidation
                             and nonconsolidated loans had significantly lower delinquency rates
                             (14.6 percent and 9.6 percent, respectively). Given that the majority
                             (53.3 percent) of borrowers with DCS consolidation loans are ICR users, the
                             overall higher delinquency rate for ICR compared with the other repayment
                             plans could be partly the result of considerably greater involvement of DCS
                             consolidation loan borrowers (borrowers who previously defaulted on
                             FFELP loans) in the ICR plan compared with the other repayment plans. (See
                             app. II.)




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Figure 5: Delinquency Rates of
Borrowers Using ICR, as of March 31,
1997




                                       Nonconsolidated
                                       Loans


                                           Consolidated
                                           Loans



                                           Debt Collection
                                           Service Loans




                                                                0                 5                10                 15                20

                                                                Percentage of ICR Repayers Who Are Delinquent




                                       A comparison of individual types of loans shows that ICR users do not have
                                       higher delinquency rates than users of all other repayment plans (see fig.
                                       6). For example, for nonconsolidated loans alone, the delinquency rate
                                       among ICR users was below that among users of the standard plan and
                                       about the same as that among users of extended and graduated plans.
                                       Even for DCS consolidation loans, ICR users had a lower delinquency rate
                                       compared with those in the three other plans. However, with over half of
                                       DCS consolidation loans under the ICR plan, the influence of these loans’
                                       high delinquency rate is felt primarily by ICR.7




                                       7
                                        For details on delinquency rates among ICR users and users of the other repayment plans, see app. IV.



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Figure 6: Comparison of Delinquency Rates Across Four Repayment Plans by Type of FDLP Loan




Nonconsolidated
Loans




Consolidated
Loans




Debt Collection
Service Loans




                   0          5          10        15          20      25    30
                   Percentage of Repayers Who Are Delinquent

                         Income Contingent                 Extended
                         Repayment                         Repayment

                        Standard                          Graduated
                        Repayment                         Repayment




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                                       FDLP loan default patterns are similar to those for delinquencies. Among
                                       borrowers using ICR, the percentage of loans in default is much higher for
                                       DCS consolidation loans than for nonconsolidated or direct consolidated
                                       loans (see fig. 7). ICR users who had DCS consolidation loans defaulted at a
                                       rate of 8.8 percent, compared with rates of 0.9 percent and 2.5 percent for
                                       ICR users with nonconsolidated and direct consolidation loans,
                                       respectively. Again, given the concentration of borrowers with DCS
                                       consolidation loans in the ICR plan, ICR’s overall high percentage of loans in
                                       default is strongly affected by this one type of loan.


Figure 7: Percent of Borrowers Using
ICR That Were in Default 181 to 270
Days, as of March 31, 1997




                                       Nonconsolidated
                                       Loans



                                           Consolidated
                                           Loans



                                           Debt Collection
                                           Service Loans




                                                                0              2             4              6             8           10

                                                                Percentage of ICR Repayers 180-270 Days Late




                                       As with delinquencies, a comparison of individual types of loans shows
                                       that ICR users did not have higher percentages of loans in default across
                                       the board than users of other repayment plans (see fig. 8). However, ICR
                                       users did have the highest percentage of loans in default for two of the
                                       three loan types.8

                                       8
                                        For details on defaults among ICR users and users of the other repayment plans, see app. V.



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Figure 8: Comparison of Percentage of Borrowers in Default 181 to 270 Days Across Four Repayment Plans by Type of
FDLP Loan




Nonconsolidated
Loans




Consolidated
Loans




Debt Collection
Service Loans




                    0             2            4             6           8     10
                    Percentage of Repayers 180-270 Days Late

                          Income Contingent                  Extended
                          Repayment                          Repayment

                         Standard                            Graduated
                         Repayment                           Repayment




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                                    There is no single answer to whether a borrower will pay more or less
Total Borrower                      under ICR compared with standard, extended, or graduated plans.
Payments Under ICR                  Borrowers for whom ICR was primarily designed (that is, borrowers with a
Are Higher in Some                  limited ability to pay) could face relatively higher total payments in the
                                    form of larger total interest costs and tax liability—on amounts they were
Circumstances, Lower                not able to repay within the 25-year loan repayment limit. In contrast, ICR
in Others                           may be less costly than the extended or graduated plans for borrowers
                                    with considerably greater ability to repay their loans.

                                    To provide some indication of how the type of repayment plan affects a
                                    borrower’s initial monthly payment amount and total loan payments, we
                                    compared the four plans with two different starting incomes—$15,000 and
                                    $45,000.9


Lower Income Scenario:              This scenario assumes that (1) the borrower and spouse have an initial
Starting Income of $15,000          annual combined income at the beginning of the repayment period of
                                    $15,000 and receive annual income increases of 5 percent over the
                                    repayment period, (2) the borrower is married throughout with no
                                    children, and (3) the loan interest rate is 8.25 percent. Table 3 shows how
                                    the size of a loan affects the initial monthly payment amounts under the
                                    ICR plan compared with the other repayment plans.


Table 3: Comparison of Monthly
Payment Amounts Under ICR and                                                           Monthly payment amount
Other Repayment Options: Starting   Original loan amount                   Standard         Extended          Graduateda           ICR
Income of $15,000
                                    $5,000                                       $61               $55                 $35         $34
                                    10,000                                       123                 97                  70         68
                                    20,000                                       245               170                 140          77
                                    40,000                                       491               315                 280          77
                                    75,000                                       920               563                 526          77
                                    100,000                                    1,227               751                 701          77
                                    a
                                        Initial monthly payment amounts.



                                    The initial monthly payments for a borrower using ICR are substantially
                                    less than the initial monthly payments for the other repayment plans for

                                    9
                                     We selected these income amounts because data on monthly payments and total loan payments for
                                    these income levels were readily available from the Department’s 1996 Repayment Book. The
                                    Repayment Book contains plan descriptions and worksheets with formulas that borrowers can use to
                                    estimate their monthly payment amounts under the various plans. It also shows examples of what the
                                    monthly payment amounts and total payments would be under the various plans for different loan
                                    amounts, including ICR for various hypothetical borrower income amounts.



                                    Page 18                                     GAO/HEHS-97-155 Direct Student Loan Repayment
                                        B-277321




                                        loans of $20,000 and higher. Although initial payment amounts under the
                                        other plans increase for larger loan amounts, the payments under ICR
                                        increase to a much lesser extent and stop increasing at loans above
                                        $20,000. Under ICR, borrowers’ payment amounts are capped at 20 percent
                                        of their discretionary income.10 Thus, a borrower with an income of
                                        $15,000 and $100,000 in loans would pay no more per month under ICR
                                        than a borrower with the same income and an initial loan amount of
                                        $20,000.

                                        The size of a borrower’s monthly payment has a direct effect on his or her
                                        total loan payments. Those payments include the amounts to repay
                                        principal and interest, and ICR users can also incur a cost for the potential
                                        tax liability on the loan balance that remains unpaid after 25 years. Unpaid
                                        loan balances are forgiven at the end of the 25-year period but must be
                                        treated as taxable income.11 Whether the lower income borrower under ICR
                                        actually pays more or less than borrowers using alternatives depends in
                                        part on the amount borrowed (see table 4).


Table 4: Comparison of Repayment Amounts Under ICR and Other Repayment Options: Starting Income of $15,000
                                                       Total repayment amount by repayment plan         ICR borrower’s
                                                                 (principal and interest)               unpaid balance
Original loan amount                                         Standard       Extended Graduated                    ICR         after 25 years
$5,000                                                          $7,359          $7,893         $8,655         $12,016                  $1,285
10,000                                                          14,718          17,463         19,085          23,965                    2,570
20,000                                                          29,437          40,899         44,115          44,235                  20,780
40,000                                                          58,873          94,614        100,567          64,918                  65,605
75,000                                                         110,387        202,842         212,324          67,638                 177,208
100,000                                                        147,183        270,456         283,098          67,638                 259,072

                                        A borrower with an initial income of $15,000 and loans ranging from
                                        $5,000 to $10,000 would pay more under ICR than under the other plans. In
                                        contrast, a borrower with $40,000 or more in loans would repay far less
                                        under ICR than under the extended and graduated alternatives because
                                        under these two plans the borrower pays off the total loan; the borrower
                                        using ICR would not. However, a borrower using ICR has to contend with
                                        having to declare the unpaid balance of the loans as income—and possibly

                                        10
                                          The Department defines discretionary income as the portion of adjusted gross income (AGI) that
                                        remains after deducting an allowance for basic living costs as specified in the Department of Health
                                        and Human Service’s Poverty Guidelines. In 1997, the allowance for a family of two in the 48
                                        contiguous states and Washington, D.C., was $10,610.
                                        11
                                         Legislation introduced in the 105th Congress, if enacted, would discharge a borrower’s unpaid
                                        balance at the end of the repayment period, excluding it from tax.



                                        Page 19                                       GAO/HEHS-97-155 Direct Student Loan Repayment
                                    B-277321




                                    incur a tax liability. As loan amounts increase, the potential tax liability
                                    rises substantially for borrowers at this income level.


Higher Income Scenario:             This scenario makes the same assumptions as the first, except that
Starting Income of $45,000          calculations are based on a starting income of $45,000. ICR does not
                                    provide the same lower monthly payment advantages over the other plans
                                    as it does for lower income borrowers. Initially, as table 5 illustrates, ICR
                                    has consistently lower monthly payments than the standard plan but
                                    higher monthly payments than the extended and graduated plans, except
                                    for loans at the $100,000 level.

Table 5: Comparison of Monthly
Payment Amounts Under ICR and                                                     Monthly payment amount
Other Repayment Options: Starting   Original loan amount               Standard     Extended       Graduateda      ICRa
Income of $45,000
                                    $5,000                                 $61            $55              $35      $56
                                    10,000                                 123             97               70      112
                                    20,000                                 245            170              140      225
                                    40,000                                 491            315              280      450
                                    75,000                                 920            563              526      577
                                    100,000                               1,227           751              701      577
                                    a
                                    Initial monthly payment amounts.



                                    Table 6 compares total loan payments that a borrower and spouse with a
                                    starting combined income of $45,000 would pay under each of the four
                                    repayment plans for loan amounts ranging from $5,000 to $100,000. As it
                                    shows, payments for principal and interest under ICR are always higher
                                    than under standard repayment but always lower than under the extended
                                    or graduated plans. Unlike the borrower who begins with a $15,000
                                    income, the borrower with an initial income of $45,000 has no unpaid
                                    balance after 25 years for any of the loan amounts illustrated.




                                    Page 20                                GAO/HEHS-97-155 Direct Student Loan Repayment
                                     B-277321




Table 6: Comparison of Repayment
Amounts Under ICR and Other                            Total repayment amount by repayment plan     ICR borrower’s
Repayment Options: Starting Income   Original loan               (principal and interest)           unpaid balance
of $45,000                           amount            Standard   Extended Graduated            ICR   after 25 years
                                     $5,000              $7,359      $7,893      $8,655      $7,559               0
                                     10,000              14,718      17,463      19,085      15,117               0
                                     20,000              29,437      40,899      44,115      30,235               0
                                     40,000              58,873      94,614    100,567       60,470               0
                                     75,000             110,387    202,842     212,324      133,081               0
                                     100,000            147,183    270,456     283,098      229,664               0



                                     Information on borrower income for computing monthly payment
Measures Taken to                    amounts for the ICR plan is obtained from either documentation provided
Obtain and Verify                    by the borrower or information from IRS on the borrower’s AGI as reported
Borrower Income                      on his or her federal income tax return.

Information                          The monthly payment amount for borrowers in their first year of
                                     repayment is based on documentation and other information submitted by
                                     borrowers to the Department’s direct loan servicing center. This
                                     documentation, referred to as “alternative documentation of income,” can
                                     be recent pay stubs, dividend statements, canceled checks, or a statement
                                     signed by the borrowers explaining their source of income.

                                     According to a Department official, the Department uses alternative
                                     documentation for borrowers in their first year of repayment because, in
                                     most cases, AGI information from IRS is zero or close to zero. AGI reflects
                                     prior-year income when borrowers were generally in school or not
                                     working full time and were reporting little or no taxable income. However,
                                     most borrowers have income, and the alternative documentation captures
                                     it. This kind of documentation is also used in other situations when
                                     borrowers’ AGI does not reflect their current income, such as when a
                                     borrower becomes unemployed.

                                     According to Department officials, service center personnel do not
                                     conduct credit checks or contact employers to verify the accuracy of
                                     borrowers’ information. However, when borrowers submit this
                                     documentation, they also certify that they are providing accurate and
                                     complete income information.

                                     After ICR users have been out of school for at least 1 year, their monthly
                                     payment amount is based on their AGI as reported on their federal income



                                     Page 21                           GAO/HEHS-97-155 Direct Student Loan Repayment
                  B-277321




                  tax returns. To obtain this information, the service center sends computer
                  tapes containing borrower identification information to IRS, which matches
                  this information against its records. IRS then sends computer tapes
                  containing borrower AGI information directly to the service center. After
                  receiving the IRS tapes, service center personnel run edit checks for quality
                  assurance.

                  According to Department officials, the Department does not verify the
                  accuracy of the information the borrowers provide IRS on their tax returns.
                  Rather, it relies on the IRS’ own audits, edits, and verifications to make sure
                  borrowers’ AGI is accurate. However, other measures are taken in certain
                  circumstances to ensure the accuracy and reasonableness of borrowers’
                  income information. For example, if a borrower is required to provide
                  alternative documentation of income because his or her AGI would reflect
                  an in-school period, the servicer still obtains AGI information from IRS to
                  see how accurately borrower-reported information from the previous year
                  reflected IRS-reported information for that year.

                  According to Department officials, borrowers falsifying their income to
                  reduce their monthly payments lengthen the time required to pay off their
                  loans, which ultimately costs them more money. The officials also said
                  that borrowers who do not cooperate in providing accurate income
                  information are automatically removed from the ICR plan and placed into
                  the standard repayment plan.


                  The Department of Education reviewed a draft of this report and had no
Agency Comments   written comments, although it provided technical suggestions that we
                  incorporated as appropriate.


                  Copies of this report are being sent to the Chairman of the Senate
                  Committee on Labor and Human Resources, the Secretary of Education,
                  appropriate congressional committees and Members, and others who are
                  interested.




                  Page 22                            GAO/HEHS-97-155 Direct Student Loan Repayment
B-277321




If you have any questions about this report, please call me or Joseph J.
Eglin, Jr., Assistant Director, at (202) 512-7014. Major contributors to this
report include Joan A. Denomme, Charles M. Novak, and Charles H.
Shervey.

Sincerely yours,




Carlotta C. Joyner
Director, Education and
  Employment Issues




Page 23                            GAO/HEHS-97-155 Direct Student Loan Repayment
Contents



Letter                                                                                            1


Appendix I                                                                                       28

Scope and
Methodology
Appendix II                                                                                      30

Data on FDLP Loans
in Repayment
Appendix III                                                                                     32

Kinds of Schools
Attended by
Nonconsolidated Loan
Borrowers
Appendix IV                                                                                      36

Delinquency Rates of
FDLP Borrowers
Appendix V                                                                                       37

Defaults of FDLP
Borrowers
Tables                 Table 1: FDLP Loans in Repayment, as of March 31, 1997                     7
                       Table 2: Status of FDLP Loans in Repayment, as of March 31,               10
                         1997
                       Table 3: Comparison of Monthly Payment Amounts Under ICR                  18
                         and Other Repayment Options: Starting Income of $15,000
                       Table 4: Comparison of Repayment Amounts Under ICR and                    19
                         Other Repayment Options: Starting Income of $15,000
                       Table 5: Comparison of Monthly Payment Amounts Under ICR                  20
                         and Other Repayment Options: Starting Income of $45,000
                       Table 6: Comparison of Repayment Amounts Under ICR and                    21
                         Other Repayment Options: Starting Income of $45,000




                       Page 24                         GAO/HEHS-97-155 Direct Student Loan Repayment
          Contents




          Table II.1: Repayment Plans Selected by Borrowers of All Kinds            30
            of FDLP Loans, as of March 31, 1997
          Table II.2: Repayment Plans Selected by Borrowers With                    30
            Nonconsolidated Loans, as of March 31, 1997
          Table II.3: Repayment Plans Selected by Borrowers With Direct             30
            Consolidation Loans, as of March 31, 1997
          Table II.4: Repayment Plans Selected by Borrowers With DCS                31
            Consolidation Loans, as of March 31, 1997
          Table III.1: Nonconsolidated Loan Borrowers in Repayment by               32
            Payment Plan and Kind of School, as of March 31, 1997
          Table III.2: Dollar Volume of Nonconsolidated Loans in                    34
            Repayment by Payment Plan and Kind of School, as of March 31,
            1997
          Table IV.1: Delinquency Rates of Borrowers Repaying Under                 36
            ICR, as of March 31, 1997
          Table IV.2: Delinquency Rates of Nonconsolidated Loan                     36
            Borrowers by Kind of Repayment Plan, as of March 31, 1997
          Table IV.3: Delinquency Rates of Direct Consolidation Loan                36
            Borrowers by Kind of Repayment Plan, as of March 31, 1997
          Table IV.4: Delinquency Rates of DCS Consolidation Loan                   36
            Borrowers by Kind of Repayment Plan, as of March 31, 1997
          Table V.1: Percentage of Loans in Default for Borrowers                   37
            Repaying Under ICR, as of March 31, 1997
          Table V.2: Percentage of Loans in Default for Direct                      37
            Nonconsolidated Loan Borrowers by Kind of Repayment Plan, as
            of March 31, 1997
          Table V.3: Percentage of Loans in Default for Direct                      37
            Consolidation Loan Borrowers by Kind of Repayment Plan, as of
            March 31, 1997
          Table V.4: Percentage of Loans in Default for DCS Consolidation           37
            Loan Borrowers by Kind of Repayment Plan, as of March 31, 1997

Figures   Figure 1: Basic Characteristics of FDLP Repayment Options                  5
          Figure 2: Distribution of Borrowers and Loan Amounts for Each              8
            FDLP Repayment Option, as of March 31, 1997
          Figure 3: Distribution of Borrowers and Amounts in Repayment               9
            Under ICR, as of March 31, 1997
          Figure 4: Comparison of the Percentage of FDLP Loans That                 12
            Were Delinquent and in Default for Each Repayment Plan
          Figure 5: Delinquency Rates of Borrowers Using ICR, as of                 14
            March 31, 1997




          Page 25                         GAO/HEHS-97-155 Direct Student Loan Repayment
Contents




Figure 6: Comparison of Delinquency Rates Across Four                     15
  Repayment Plans by Type of FDLP Loan
Figure 7: Percent of Borrowers Using ICR That Were in Default             16
  181 to 270 Days, as of March 31, 1997
Figure 8: Comparison of Percentage of Borrowers in Default 181            17
  to 270 Days Across Four Repayment Plans by Type of FDLP Loan




Abbreviations

AGI        adjusted gross income
DCS        Debt Collection Service
FDLP       William D. Ford Federal Direct Loan Program
FFELP      Federal Family Education Loan Program
ICR        income contingent repayment
IRS        Internal Revenue Service


Page 26                         GAO/HEHS-97-155 Direct Student Loan Repayment
Page 27   GAO/HEHS-97-155 Direct Student Loan Repayment
Appendix I

Scope and Methodology


             To determine the extent to which borrowers are using the income
             contingent repayment (ICR) plan compared with other repayment plans, we
             obtained and analyzed data from the Department of Education on Federal
             Direct Loan Programs (FDLP) loans being repaid as of March 31, 1997. To
             determine the extent to which borrowers at the various kinds of schools
             used the different types of repayment plans, we obtained and analyzed
             data on nonconsolidated loans. Data on consolidation and DCS
             consolidation loans categorized by kind of school were not available. A
             Department official said that such data are not captured in the Department
             databases we used for our analysis.

             To determine the extent to which loans being repaid under ICR and other
             repayment plans were delinquent or in default, we computed simple
             percentages that reflect the proportion of total borrowers or dollar
             amounts of loans in repayment classified as delinquent or in default on
             March 31, 1997.

             The percentages we computed are not comparable to the annual cohort
             default rates the Department computes in accordance with the Higher
             Education Act of 1965, as amended, and its Default Reduction Initiative.
             The cohort default rate is computed to determine whether to allow
             schools to participate in federal student loan programs—schools with
             cohort default rates above certain statutory thresholds can be dropped or
             prevented from participating in these programs. In general, cohort default
             rates reflect the percentage of a school’s borrowers who enter repayment
             in one fiscal year and default by the end of the next fiscal year.

             To compare borrowers’ total payments under ICR and other repayment
             plans, we used information from selected hypothetical examples
             contained in the Department’s 1996 Repayment Book. Data on unpaid loan
             balances remaining at the end of the repayment period for loans being
             repaid under the ICR plan—for the various hypothetical scenarios we
             used—were not contained in the Repayment Book. Therefore, we asked
             the Department to compute these figures, and we used them in our
             analyses.

             To determine the extent to which the Department or its FDLP service center
             verifies the accuracy of borrowers’ income information, we reviewed
             Department regulations and guidelines. We also interviewed Department
             officials to obtain additional information on these procedures.




             Page 28                          GAO/HEHS-97-155 Direct Student Loan Repayment
Appendix I
Scope and Methodology




Our work was conducted from February to June 1997 in accordance with
generally accepted government auditing standards.




Page 29                        GAO/HEHS-97-155 Direct Student Loan Repayment
Appendix II

Data on FDLP Loans in Repayment



Table II.1: Repayment Plans Selected by Borrowers of All Kinds of FDLP Loans, as of March 31, 1997
                                                      Borrower                 Original loan amount
                                                             Percentage of               Amount        Percentage of   Average loan
Repayment plan                                   Number              total           (in millions)             total       amounts
Standard                                         527,351                 79.5            $3,442.4               64.8         $6,528
Extended                                            20,139                3.0                  342.4             6.4         17,000
Graduated                                           59,510                9.0                  696.4            13.1         11,703
ICR                                                 56,298                8.5                  831.3            15.7         14,767
Total                                            663,298               100.0             $5,312.5              100.0         $8,009



Table II.2: Repayment Plans Selected by Borrowers With Nonconsolidated Loans, as of March 31, 1997
                                                     Borrower                 Original loan amount
                                                             Percentage of               Amount        Percentage of   Average loan
Repayment plan                                   Number              total           (in millions)             total       amounts
Standard                                         496,222                 89.5            $3,130.8               85.4         $6,309
Extended                                            11,859                2.1                  120.6             3.3         10,172
Graduated                                           42,648                7.7                  383.6            10.5          8,994
ICR                                                  3,732                0.7                   30.3             0.8          8,118
Total                                            554,461               100.0             $3,665.3              100.0         $6,611



Table II.3: Repayment Plans Selected by Borrowers With Direct Consolidation Loans, as of March 31, 1997
                                                     Borrower                  Original loan amount
                                                             Percentage of               Amount        Percentage of   Average loan
Repayment plan                                   Number              total           (in millions)             total       amounts
Standard                                            16,538               25.7              $250.1               17.8        $15,122
Extended                                             7,005               10.9                  212.9            15.2         30,388
Graduated                                           11,999               18.6                  286.0            20.4         23,833
ICR                                                 28,888               44.8                  656.1            46.7         22,712
Total                                               64,430             100.0             $1,405.0              100.0        $21,807
                                          Note: Numbers do not add to total due to rounding.




                                          Page 30                                     GAO/HEHS-97-155 Direct Student Loan Repayment
                                         Appendix II
                                         Data on FDLP Loans in Repayment




Table II.4: Repayment Plans Selected by Borrowers With DCS Consolidation Loans, as of March 31, 1997
                                                     Borrower                Original loan amount
                                                            Percentage of               Amount        Percentage of   Average loan
Repayment plan                                  Number              total           (in millions)             total       amounts
Standard                                           14,591               32.9                  $61.5            25.4         $4,212
Extended                                            1,275                2.9                    8.9             3.7          6,964
Graduated                                           4,863               11.0                   26.9            11.1          5,526
ICR                                                23,678               53.3                  144.9            59.9          6,121
Total                                              44,407             100.0               $242.1              100.0         $5,453
                                         Note: Numbers do not add to total due to rounding.




                                         Page 31                                     GAO/HEHS-97-155 Direct Student Loan Repayment
Appendix III

Kinds of Schools Attended by
Nonconsolidated Loan Borrowers

Table III.1: Nonconsolidated Loan
Borrowers in Repayment by Payment                                            Standard
Plan and Kind of School, as of                                                      Percentage of
March 31, 1997                      Kind of school                     Number         school total
                                    2-year private                       6,418              92.36
                                    2-year public                       25,402              92.88
                                    4-year private                      93,756              86.91
                                    4-year public                      319,370              89.62
                                    Proprietary                         51,276              91.68
                                    Total                              496,222              89.50




                                    Page 32          GAO/HEHS-97-155 Direct Student Loan Repayment
                                      Appendix III
                                      Kinds of Schools Attended by
                                      Nonconsolidated Loan Borrowers




      Extended                    Graduated                            ICR                              Total
           Percentage of                  Percentage of                  Percentage of                          Percentage of
Number       school total   Number          school total   Number          school total      Number               school total
   126              1.81       374                  5.38        31                 0.45         6,949                  100.00
   274              1.00      1,396                 5.10       276                 1.01        27,348                  100.00
  3,425             3.17      9,897                 9.17       797                 0.74       107,875                  100.00
  7,244             2.03     27,485                 7.71     2,261                 0.63       356,360                  100.00
   790              1.41      3,496                 6.25       367                 0.66        55,929                  100.00
 11,859             2.14     42,648                 7.69     3,732                 0.67       554,461                  100.00




                                      Page 33                                GAO/HEHS-97-155 Direct Student Loan Repayment
                                      Appendix III
                                      Kinds of Schools Attended by
                                      Nonconsolidated Loan Borrowers




Table III.2: Dollar Volume of
Nonconsolidated Loans in Repayment    Dollars in millions
by Payment Plan and Kind of School,                                                            Standard
as of March 31, 1997
                                                                                           Loan       Percentage of
                                      Kind of school                                     volume         school total
                                      2-year private                                       $28.4              88.92
                                      2-year public                                         81.3              91.38
                                      4-year private                                       734.6              81.60
                                      4-year public                                       2,059.4             86.23
                                      Proprietary                                          227.2              88.74
                                      Total                                             $3,130.8              85.42




                                      Page 34                          GAO/HEHS-97-155 Direct Student Loan Repayment
                                    Appendix III
                                    Kinds of Schools Attended by
                                    Nonconsolidated Loan Borrowers




     Extended                   Graduated                                ICR                               Total
  Loan    Percentage of      Loan        Percentage of         Loan          Percentage of         Loan            Percentage of
volume      school total   volume          school total      volume            school total      volume              school total
  $1.0             3.03      $2.5                   7.73         $0.1                    0.32      $31.9                  100.00
   1.2             1.34       5.5                   6.24            .9                   1.04       89.0                  100.00
  44.1             4.89     111.8                  12.43          9.7                    1.08      900.2                  100.00
  69.2             2.90     241.9                  10.13         17.8                    0.75    2,388.3                  100.00
   5.2             2.04      21.8                   8.51          1.8                    0.70      256.0                  100.00
$120.6             3.29    $383.6                  10.47        $30.3                    0.83   $3,665.3                  100.00
                                    Note: Numbers do not add to total due to rounding.




                                    Page 35                                     GAO/HEHS-97-155 Direct Student Loan Repayment
Appendix IV

Delinquency Rates of FDLP Borrowers


Table IV.1: Delinquency Rates of
Borrowers Repaying Under ICR, as of                                          Borrower               Percentage
March 31, 1997                            Loan category                 Delinquent        Total      delinquent
                                          Direct nonconsolidated               358        3,732              9.6
                                          Direct consolidation                4,230      28,888             14.6
                                          DCS consolidation                   4,499      23,678             19.0
                                          Total                               9,087      56,298             16.1

Table IV.2: Delinquency Rates of
Nonconsolidated Loan Borrowers by                                            Borrower               Percentage
Kind of Repayment Plan, as of             Repayment plan                Delinquent        Total      delinquent
March 31, 1997
                                          Standard                           72,424     496,222             14.6
                                          Extended                             984       11,859              8.3
                                          Graduated                           4,096      42,648              9.6
                                          ICR                                  358        3,732              9.6
                                          Total                              77,862     554,461             14.0

Table IV.3: Delinquency Rates of Direct
Consolidation Loan Borrowers by Kind                                         Borrower               Percentage
of Repayment Plan, as of March 31,        Repayment plan                Delinquent        Total      delinquent
1997
                                          Standard                            1,707      16,538             10.3
                                          Extended                             558        7,005              8.0
                                          Graduated                           1,316      11,999             11.0
                                          ICR                                 4,230      28,888             14.6
                                          Total                               7,811      64,430             12.1

Table IV.4: Delinquency Rates of DCS
Consolidation Loan Borrowers by Kind                                         Borrower               Percentage
of Repayment Plan, as of March 31,        Repayment plan                Delinquent        Total      delinquent
1997
                                          Standard                            3,792      14,591             26.0
                                          Extended                             296        1,275             23.2
                                          Graduated                           1,068       4,863             22.0
                                          ICR                                 4,499      23,678             19.0
                                          Total                               9,655      44,407             21.7




                                          Page 36                  GAO/HEHS-97-155 Direct Student Loan Repayment
Appendix V

Defaults of FDLP Borrowers


Table V.1: Percentage of Loans in
Default for Borrowers Repaying Under                                         Borrower            Percentage in
ICR, as of March 31, 1997               Loan category                   In default       Total         default
                                        Direct nonconsolidated                 34        3,732             0.9
                                        Direct consolidation                  715       28,888             2.5
                                        DCS consolidation                   2,083       23,678             8.8
                                        Total                               2,832       56,298             5.0

Table V.2: Percentage of Loans in
Default for Direct Nonconsolidated                                           Borrower            Percentage in
Loan Borrowers by Kind of Repayment     Repayment plan                  In default       Total         dafault
Plan, as of March 31, 1997
                                        Standard                            6,823     496,222              1.4
                                        Extended                               51       11,859             0.4
                                        Graduated                             233       42,648             0.6
                                        ICR                                     4        3,732             0.9
                                        Total                               7,141     554,461              1.3

Table V.3: Percentage of Loans in
Default for Direct Consolidation Loan                                        Borrower            Percentage in
Borrowers by Kind of Repayment Plan,    Repayment plan                  In default       Total         dafault
as of March 31, 1997
                                        Standard                              216       16,538             1.3
                                        Extended                               54        7,005             0.8
                                        Graduated                             123       11,999             1.0
                                        ICR                                   715       28,888             2.5
                                        Total                               1,108       64,430             1.7

Table V.4: Percentage of Loans in
Default for DCS Consolidation Loan                                           Borrower            Percentage in
Borrowers by Kind of Repayment Plan,    Repayment plan                  In default       Total         dafault
as of March 31, 1997
                                        Standard                              495       14,591             3.4
                                        Extended                               53        1,275             4.2
                                        Graduated                             146        4,863             3.0
                                        ICR                                 2,083       23,678             8.8
                                        Total                               2,777       44,407             6.3




(104878)                                Page 37                  GAO/HEHS-97-155 Direct Student Loan Repayment
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