oversight

Student Loan Lenders: Information on the Activities of the First Independent Trust Company

Published by the Government Accountability Office on 1990-09-25.

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

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                                  ,1.1-------   linittxi   Stal.es General   Accountittg   Off’ict~       -_
                                                Fact Sheet for the Chairman,
                                                Permanent Subcommittee on
                                                Investigations, Committee on
                                                Governmental Affairs, U.S. Senate

S~~pt.twltwr 1990
                                                STUDENT LOAN
                                                LENDERS
                                                Information on the
                                                Activities of the First
                                                Independent Trust
                                                Company

                                                                                                             Fd
                                                                                                      I IllIll
                                                                                                       142452
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             United States
GAO          General Accounting Office
             Washington, D.C. 20648

             Human Resources Division

             B-241263

             September 25,199O

             The Honorable Sam Nunn
             Chairman, Permanent Subcommittee
               on Investigations
             Committee on Governmental Affairs
             United States Senate

             Dear Mr. Chairman:

             This report responds to your request for information on activities of the
             First Independent Trust Company (FITCO)of Carmichael, California.
             FITCO made loans to students participating in the Stafford Student Loan
             Program until California’s State Banking Department closed it in May
             1989. Specifically, you requested information describing the chronology
             of events from when FITW began and ceased operations and afterwards.
             In addition, you asked that we (1) analyze FITCQ's loan portfolio, (2)
             determine whether it owed monies to the Department of Education, and
             (3) summarize the audits and reviews of FITCOconducted by various
             organizations.

             On September 19,1990, we discussed the results of our work with your
             office. This fact sheet summarizes the information provided at that
             meeting.


             The Stafford Student Loan Program, formerly called the Guaranteed
Background   Student Loan Program, consists of three types of loans: Stafford loans,
             Parent Loans for Undergraduate Students (PLUS), and Supplemental
             Loans for Students (SIS). These types of loans differ somewhat in their
             terms and conditions (see app. I), but each is guaranteed by state or pri-
             vate nonprofit guaranty agencies against borrowers’ death, disability,
             bankruptcy, and default. Banks, credit unions, and savings and loan
             associations are the primary providers of student loans. The federal
             government reinsures the guaranty agencies against death, disability,
             bankruptcy, and default.

             Lenders participating in this program generate revenue by earning
             interest and receiving from the Department of Education a special
             allowance payment-to      assure that student loans provide close to
             market rates of return. For Stafford loans (but usually not SLSand PLUS
             loans) federal interest payments are generally made while the student




             Page 1                                   GAO/HlUMO-1S3FY3   Student   Loan Lenders
                                                                                                           c




              remains in school and afterwards for a grace period,’ and then the bor-
              rower becomes responsible for principal and interest payments. In con-
              trast, the special allowance payment is paid to the lender throughout the
              life of the loan. Lenders can file quarterly for their interest subsidy
              payments.

              From Stafford loan borrowers, lenders collect a 5-percent origination
              fee, which is deducted from each loan disbursement made to the bor-
              rowers. SLSand PLUS loans are not subject to these fees. The fee is
              remitted to the Department to help offset the government’s cost of sub-
              sidizing these loans. In addition, lenders can collect an insurance pre-
              mium of up to 3 percent from each loan disbursement, regardless of the
              type of loan. The premium is remitted to the guaranty agencies to help
              offset their administrative costs.

              FITCO has made all three types of student loans. Its primary practice was
              to sell the loans it originated to a secondary market quickly,2 often
              within a few days of their origination. FITCOcould then use these loan
              proceeds to make new loans.


              As agreed with your office, we obtained the requested information pri-
Scopeand      marily by interviewing and reviewing records provided by officials of
Methodology   the (1) California State Banking Department, (2) Department of Educa-
              tion headquarters and its San Francisco regional office (region IX), (3)
              California Student Aid Commission (CNC), and (4) Higher Education
              Assistance Foundation (HEAF). We also spoke with and obtained docu-
              ments from several other organizations that serviced or otherwise were
              involved in handling FITCOloans.

              cxc and HEAF guaranteed almost all the loans FITCO made and gave us a
              statistical analysis of the loans FITCOdisbursed by fiscal year, type of
              loan, and kind of school borrowers attended. We analyzed loan informa-
              tion by grouping the schools in two categories-proprietary     and nonpro-
              prietarye3 We did not independently verify the information CMC and
              HEAF provided.

              ‘Generally between 6 and 12 months after a student leaves school.
              2A lending institution that purchases guaranteed student loans from originating lenders to provide
              them funds to make new loans.
              3CSACprovided us with information for its loans disbursed by nine types of schools. We used its
              category “vocational profit-making” to show proprietary schools, and combined the remaining eight
              types of schools to compute nonproprietary school information.



              Page 2                                                  GAO/HRD-9@lS2Fs       Student Loan Lenders
                                        B-241253




                                        Our work was conducted between May and September 1990 in accor-
                                        dance with generally accepted government auditing standards.


                                        Appendix II presents information on selected milestones in FITCO'S activ-
Chronology of Events                    ities, beginning with its start-up in September 1976, covering events
                                        leading to its closing in May 1989, and ending with a lawsuit the Cali-
                                        fornia Banking Department filed against FITCO'S former officers in June
                                        1990. Appendix II also includes the dates when CSACand HEAF began
                                        guaranteeing FITCO'S loans, 1979 and 1986, respectively, and highlights
                                        when FITCO was notified of possible problems concerning its operations.


                                        During the 11 years FITGO was in the Stafford program, it made over
Portfolio Analysis                      $1 billion in loans that were guaranteed by CSACand HEAF. Table 1 shows
                                        the amount of loan disbursements that were guaranteed by CSACand
                                        HEAF, most of which were for Stafford loans.

Table 1: Net Disbursements by Type of
Loan lor CSAC and HEAF                  Dollars in millions
                                                                                                Guaranty agency
                                        Type of loan                                   CSAC                         HEAF
                                                                                                                  -____-
                                        Stafford                                       $383.6                     $379.0
                                        PLUS                                             17.7                       10.7
                                        SLS                                             118.1                      179.0
                                        Total                                         $519.4                      $566.7


                                        Most of FITCO'S loans were made to students attending proprietary
                                        schools. Table 2 shows that $366.2 million (68 percent) of the $519.4
                                        million in loans guaranteed by c&c and $547.1 million (96 percent) of
                                        the $568.7 million in loans guaranteed by HEXF were made to students
                                        attending such schools.

Table 2: Net Dlrbursements by Type ot
School Ilor CSAC and HEAF               Dollars in millions
                                                                                                Guaranty agency
                                        Type of school                                 CSAC                        HEAF
                                        Proprietary                                    $355.2                     $547.1
                                        Nonproprietary                                  164.2                       21.6
                                        Total                                         $519.4                      $566.7




                                        Page 3                                   GAO/HRD-90-183Fs Student Loan Lenders
                       B-241263




                       When a lender files its quarterly bill with the Department for interest
Possible Monies Owed   and special allowance subsidy payments, the Department offsets any
to the Department of   origination fees it is due. For example, if a lender is due $1 million in
Education              interest and special allowance and owes the Department $400,000 in
                       origination fees, the Department would pay the lender $600,000. Con-
                       versely, if a lender owes more origination fees than interest and special
                       allowance, it should send the Department a check for the difference.

                       Because FITCO sold its loans to secondary market lenders soon after it
                       made them, it usually owed the Department loan origination fees. At one
                       point, FITCO owed the Department over $13 million in fees from loans
                       originated in 1987. These fees were not paid until April 1988.

                       Appendix III contains a detailed analysis of the problems FITCO had in
                       keeping current its origination fee payments to the Department. For
                       example, FITCO owed the Department about $5.5 million after it ceased
                       operations in May 1989; however, in March 1990, the Department
                       agreed with the State Banking Department (as the liquidator of FITCO) to
                       settle this debt for $4.4 million. We confirmed through our analysis of
                       the Department’s records that FITCO actually owed the Department $5.5
                       million.

                       The Department said that it agreed to the $4.4 million amount after con-
                       sidering the litigation risk of pursuing the $6.5 million underpayment
                       (i.e., the probability of prevailing), the resource drain on the federal
                       government needed to pursue the litigation, and the time it would take
                       to receive the $6.6 million. In addition, the Department indicated that
                       the deadline for amending its $4.4 million claim with the State Banking
                       Department had expired.


                       We identified 21 audits and reviews of FITCO activities conducted during
Summary of Reviews     the 14-year period by such organizations as the State Banking Depart-
Conducted at FITCO     ment, the Department of Education, CSAC,and HEAF-. (See app. IV.)

                       Each of the audits and reviews found minor or major deficiencies in
                       FIT&S    operations. An example of a minor deficiency was that FITCO
                       failed to use new student addresses, which it knew, to mail delinquency
                       letters. A major deficiency was that FITCO did not timely file its interest
                       billings and owed the Department origination fees, such as the $13 mil-
                       lion discussed earlier. In addition, State Banking Department audit
                       reports cited problems in FITCO'S financial operations as early as



                       Page 4                                    GAO/HRD-QO-133FS Student Loan Lenders
B-241263




December 1975 and found generally unsatisfactory conditions as early
as November 1976.

As the result of BAC’S and HEAF'S last reviews of FITCO in spring 1989,
the two guaranty agencies began to terminate their relationship with
FITCO. The two agencies found significant problems with FITCO'S opera-
tions, including not paying the insurance premiums on loans it had
made.


As agreed with your office, we did not obtain written comments on this
fact sheet. We did, however, discuss its contents with Department of
Education program officials and incorporated their comments where
appropriate.

We are sending copies of this fact sheet to other congressional commit-
tees, the Department of Education, and other interested parties. Should
you wish to discuss its contents, please call me on (202) 275-1793. Other
major contributors are listed in appendix V.

Sincerely yours,




Franklin Frazier
Director, Education
  and Employment Issues




Page 6                                   GAO/HUD-90488FS Student Loan Lenders
                                                                                               ,
Contents


Letter
Appendix I                                                                                         8
Description of the
Differences Between
the Loan Types Made
Under the Stafford
Student Loan Program
Appendix II
SelectedMilestones
Detailing FITCO’s
Activities
Appendix III
Additional Analysis of
FITCO’s Remittance of
Loan Origination Fees
Appendix IV
Chronology of Audits
and Reviews
Performed at FITCO
Appendix V                                                                                      16
Major Contributors to
This Fact Sheet
Related GAO Products                                                                            20

Tables     *             Table 1: Net Disbursements by Type of Loan for CSAC                       3
                             and HEAF




                         Page 6                               GAO/HRDM-183FS   Student Loan Lenders
Content43




Table 2: Net Disbursements by Type of School for CSAC                        3
    and HEAF
Table II. 1: Timeframe of Selected Events Concerning                         9
    FITCO
Table III. 1: FITCO’s Interest Subsidy Billings With                       12
    Origination Fees for Loans It Originated (Lender
    Number 828374)
Table 111.2:FITCO’s Interest Subsidy Billings for Loans                    13
    Processed by UES for FITCO (Lender Number
    829977)




Abbreviations

CSAC        California Student Aid Commission
FITCO       First Independent Trust Company
GAO         General Accounting Office
HEAF        Higher Education Assistance Foundation
PLUS        Parent Loans for Undergraduate Students
SBD         California State Banking Department
SIS         Supplemental Loans for Students
UEZ.3       United Education and Software


Page 7                                  GAO/HRLMO-183FS   Student Loan Lenders
Appendix I

Description of the Differences Between the
Loan Types Made Under the Stafford Student
Loan PI-OgI-ZtIll
                     The Stafford Student Loan Program consists of three types of loans.
                     These loans differ somewhat in their terms and conditions.


                     Stafford loans, formerly called guaranteed student loans, have the
Stafford Loans       largest volume of the three loan types (almost $10 billion in fiscal year
                     1989) and have been available since the program was created as part of
                     the Higher Education Act of 1965. The loans are based on the student
                     borrower’s financial needs. However, borrowers do not have to demon-
                     strate their credit worthiness. Other key facts are:

                 . Interest rates for new borrowers are currently 8 percent for the first 4
                   years of repayment and 10 percent after that.
                 l Maximum loan limits are $17,250 for undergraduates and $54,760 for
                   graduate students.
                 l Borrowers generally have a 6-month grace period after leaving school
                   before repayment begins.


                     These loans enable parents to borrow funds for each dependent student
PLUS Loans           (those who are not generally responsible for their own financial sup-
                     port) enrolled at a school. These loans started in 1981 and are not needs-
                     based. Other key facts are:

                 l   Interest rates are variable and are determined once a year with a ceiling
                     of 12 percent (11.49 percent is the rate now).
                 l   Maximum loan limits for each dependent are $4,000 per year to a total
                     of $20,000.
                 l   Normally no grace period and payment of principal and interest gener-
                     ally must begin within 60 days after the loan is dispersed.


                     These loans are available to undergraduates who are generally respon-
SLS Loans            sible for their own financial support, and graduate students. These loans
                     started in 1982 and, like PLUS loans, are not needs-based.’ Also, like PLUS
                     loans, SW loans usually have the same interest rate and borrowing
                     limits, and have no grace period. However, legislation passed in
                     December 1989 restricted the availability of SIS loans for such factors as
                     the school’s borrower-default rate and the borrower’s lack of a high-
                     school diploma or a general equivalency degree.

                     ‘SIS loans were part of the Auxiliary Loans to Assist Students program before 1986, and had terms
                     and conditions similar to SIS; both are reported by the Department as SE3 loans.



                     Page 8                                                GAO/IiRDSO-183Fs      Student   Loan Lenders
Appendix II

SelectedMilestones DetaZng FTlXO’s Activities


Table 11.1:Timeframe of Selected Event8
Concerning FITCO                          Date                  Event
                                          Sept. 2,1975          FITCO began  -   operations.
                                          19f9a                 CSAC started guaranteeing FITCO loans.
                                          Aug. 1986             HEAF started guaranteeing FITCO loans.
                                          Dec. 1986-Mar. 1987   FITCO set up computer services in 600 schools in 43 states
                                                                to facilitate processing of loan applications.
                                          Jan. 15, 1987         Memo from Department of Education headquarters to region
                                                                IX concerning FITCO’s late processing of refunds and
                                                                returned checks and its possible unreasonable time for
                                                                processing the checks.
                                          Jan. 26,1987          Region IX recommended a monitoring system to ensure
                                                                FITCO promptly submitted interest billings and paid
                                                                origination fees.
                                          Feb. 9, 1987          Region IX notified Department headquarters of its concern
                                                                about FITCO’s practice of supplying schools with personal
                                                                computers and problems with FITCO’s interest and special
                                                                allowance pavments, and oriaination-fee billinas practices.
                                          Mar. 23, 1987         Department notified FITCO to cease providing schools with
                                                                computers and software to process loans because these
                                                                actions constituted an improper inducement.
                                          Aug. 5,1987           The Department notified FITCO that charging schools a
                                                                computer rental fee of $18.75 per month resolved its
                                                                concern with this issue.
                                          Apr. 14, 1988         FITCO paid the Department $13,328,471 for its 1987 loan
                                                                origination fees.
                                          Mar. 3, 1989          FITCO had not been timely in paying insurance premiums to
                                                                HEAF on thousands of loans. HEAF stated it was willing to
                                                                allow FITCO a reasonable time to pay insurance premiums in
                                                                order to reinstate loan guarantees that had been canceled.
                                          Mar. 6, 1989          HEAF notified the California Student Loan Finance
                                                                Corporation (secondary market) that it may have purchased
                                                                loans from FITCO that were not guaranteed because FITCO
                                                                had not paid the insurance premiums.
                                          Apr. 21, 1989         CSAC notified FITCO that it planned to discontinue
                                                                guaranteeing its loans.
                                          May 1989              The Department notified FITCO that, based on an audit, it
                                                                owed about $1 .l million for the overpayment of interest and
                                                                special allowance subsidy payments and an additional $4.4
                                                                million in loan oriqination fees.
                                          May I,1989            FITCO stopped making student loans.
                                          May 1,1989            HEAF notified FITCO that it would no longer guarantee its
                                                                Stafford, SLS. or PLUS loans.
                                          May 51989             The California State Banking Department (SBD) notified
                                                                FITCO that more capital would be needed to continue
                                                                ooeratina.
                                          May lo,1989            A HEAF official stated that FITCO was inappropriately
                                                                commingling school tuition refunds with monies used to
                                                                make new loans or pav insurance premiums to HEAF.
                    Y

                                                                                                                   (continued)




                                          Page 9                                   GAO/IUUHl@183Fs Student Loan Lenders
                                                                                           c




                                                                                                  ,
Appendix II
Selected MIlestones Detailing
FlTCD’s Activities




Date                               Event
May 11,1989                        HEAF canceled conditional uarantees it previously issued
                                   on FITCO loans because of F ITCO’s nonpayment of
                                   insurance premiums.
May 12,1989                        HEAF filed suit against FITCO for failure to forward refunds
                                   to subsequent holders (secondary market lenders) of loans.
May 19,1989                        The Department notified HEAF that reinsurance coverage
                                   would be maintained for FITCO-originated loans, if FITCO or
                                   current holders of the loans would pay origination fees due.
May 19,1989                        SBD closed FITCO.
May 31,1989                        HEAF notified SBD that it intended to terminate its
                                   relationship with FITCO by not guaranteeing more loans.
June 9, 1989                       SBD, as liquidator of FITCO, wanted to settle the
                                   nonpayment of insurance premiums with HEAF.
June 20,1989                       HEAF rejected SBD’s offer to pay FITCO’s insurance
                                   premiums due to HEAF.
Oct. 19, 1989                      The Department filed its claim and supporting
                                   documentation with SBD.
Jan. 12,199O                       The Department accepted SBD’s offer of $4.4 million in full
                                   satisfaction of all of FITCO’s unpaid origination fees.
Jan. 16,199O                       The Department’s Office of Inspector General informed the
                                   Department that a consultant for SBD indicated that the
                                   claim against FITCO for unpaid origination fees needed to
                                   be changed if possible. It reported that FITCO owed
                                   origination fees of $5.5 million.
Jan. 19, 1990                      Department agreed to settle its claim against FITCO for the
                                   nonpayment of origination fees for $4.4 million.
Mar. 20, 1990                      Final agreement between the Department and SBD citing
                                   payment of $4.4 million to satisfy all of FITCO’s obligations.
June 19, 1990                      SBD filed civil lawsuit against former officers of FITCO.
‘A CSAC official could not provide GAO with the date that CSAC started guaranteeing   student loans




Page 10                                                 GAO/HRD9@183PS Student Loan Lenders
Appendix III

Additional Analysis of FTlEO’s F&mittance of
km Origination Fees

               When FITCO’S loan volume increased substantially in late 1986, the
               Department became concerned that FITCO’Scash flow problems might
               affect its timely payment of loan origination fees because the fees could
               amount to several million dollars each quarter. In January 1987, a
               region IX official recommended to Department headquarters that a mon-
               itoring system be established to assure that interest billings are sub-
               mitted promptly and origination fees paid.

               Department headquarters replied by suggesting that the regional official
               monitor FITCO’S filings by having FITCBsend him a copy of each form 799
               when filed.1 This official could also confirm that the form 799 was even-
               tually processed by requesting copies from Department headquarters.

               In late 1987, CSACreviewers asked for the Department’s assistance in
               reviewing FITCO’S interest billing forms. In January 1988, two region IX
               reviewers went to FITCO, including the official who suggested setting up
               a monitoring system. They found that FITGO had not remitted to the
               Department its loan origination fees for any loans originated in 1987.
               The forms for the first three quarters of 1987 were filed in December
               1987, but the Department returned them to FITCO because they were
               incomplete.

               Tables III. 1 and III.2 detail the form 799 history for loan origination fees
               for FITCO'S student loans. Table III.1 shows those origination fees for
               loans FITCO originated itself and covers the period June 1984 through
               March 1989.




               ‘FITCO filed two form 7998,one for loansit originated directly and anotherfor loansthat were
               originated on behalf of FITCOby United Educationand software.



               Page 11                                               GAO/HlUM&183Fs       Student Loan Lenders
                                          Appendix  III
                                          Additional  Analysie of =0’s      Remittance   of
                                          Loan Origination Fees




Table 111.1:FITCO’s Interest Subrldy
Bllllngs With OtiginaUon Fees for Loans                          Date the                                 Cumulative               Date
It Orlglnated (Lender Number 828374)      Form 799           Department                                  balance until      Department
                                          for quarter         processed           Fees reported           Department          received
                                          ending                form 799          and not offset             was paid         payment
                                          06184                  10/28/84              $38,595.99           $38,595.99
                                          09184                  11/28/84              133.433.05           172.029.04           2/20/85
                                          12184                  02/24/85              223,259.43           223,259.43
                                          03185                  04;28;85              3359336.77           558,596.20
                                          06185                  08/01/85              354,850.18           913,446.38          10/01/85
                                          09185                  02/23/86              520,108.94           520.108.94           3/19/86
                                          12185                  03/09/86              679,600.ll           679,600.11
                                          03186                  08/20/86              286,665.79           966,265.90
                                          06186                  12/31/86              233.479.52         1.199.745.42
                                          09186                  02/11/87              543,655.24         1,743,400.66
                                          12186                  07126187            1,547,042.48         3,290,443.14           l/17/88
                                          03187                  02/14/88            2,259,380.13         2,259,380.13
                                          06187                  02/14/88            3,413,841.54         5,673,221.67
                                          09;87                  02;14;88            4;860,694.25        10;533,915.92
                                          12187                  02/28/88            2,794,555.30        13,328,471.22           4/14/88
                                          03188                  11/27/88            2.252.481.82         2.252.481.82
                                          06188                  10/06/88              765,$61.46         3,018.443.28
                                          09188                  06/l 4189             799,181.13         3,817,624.41                -
                                          12188                  08/02/89              413,512.90         4,231,137.31
                                          03189                  07/10/89               (92,015.64)       4,139,121.67


                                          In addition to originating loans itself, FITCO had an arrangement with a
                                          third party-United      Education and Software (UES)~-to process loans
                                          on its behalf. The interest subsidy billings for these loans also were not
                                          filed on time. Table III.2 shows the billing history for FITCO loans
                                          processed by LIES,including their payment and nonpayment of origina-
                                          tion fees.




                                          2UESis a private organizationthat operateda data systemthat handledloan servicing and that owns
                                          and operatesa group of private schools.



                                          Page 12                                                GAO/HRD-QO-lS3FS   Student Loan Lenders
                                          Mditlonal  Analyd~ of FITCO’e Remittance        of
                                          Iann wtion        Fees




Tablo 111.2:FITCOQ Interert Subrldy
Bllllnga for Loanr Procesred by UES for                           Date the                                     Cumulative                  Date
PITCO (Lender Number 829977)              Form 799            Department                                      balance until         Department
                                          for quarter          processed            Fees reported              Department             received
                                          ending                 form 799           and not offset                was paid            payment
                                          09104                   12/17/86             $137.782.50             $137.782.50
                                          12104                   12/17/M               214,207.65               352,070.15
                                          03105                   12/17/86              237,807.65               589,877.80
                                          06/05                   12/17/06              218,790.ll               808,667.91
                                          09ft35                  12/17/06                81,325.80              889,993.71
                                          12105                   12/17/86              197,748.26             1,087,741.97
                                          03106                   12/17/06              218v443.54             1,306,185.51
                                          06186      -            12/17/06              251,206.74             1,557,392.25              0/13/06
                                          09186                   12/17/06              134,364.98               1343364.98              4/30/s?
                                          12186                   05/10/07              196,988.93               196,988.93
                                          03187                   05/03/07              496.130.25               693.119.18              7/23/87
                                          06187                   05/19/00              545,145.70               545,145.70
                                          09/07                   05/19/08              718,551.51               545,145.70              7/18/00~
                                          12187                   05/19/88              617,719.84             1,162,865.54
                                          03h3a                   06/05/08              242.335.69             1.405.201.23
                                          06/00                   01/05/09               ($1,134.76)           1,404,066.47
                                          ‘FITCO only paid $718,551.51 on the July 18, 1988, payment instead of the full cumulative balance.


                                          FIT0 paid its origination fees in 1988, after the Department advised it to
                                          file subsequent reports on time and noted that its compliance would be
                                          closely monitored. However, a CSACreview in early 1989 revealed that
                                          FITCO had not filed its forms 799 for 1988 and estimated that FITCO owed
                                          the Department about $6.6 million in origination fees for loans
                                          originated in 1988.

                                          FITCH filed its forms 799 for loans originated in 1988 and 1989 but did
                                          not pay origination fees due. FITCO reported it owed $6.5 million in such
                                          fees-$4.1 million for loans it processed and $1.4 million for loans
                                          originated by the UES.

                                          The Department settled with SBD (as liquidator of FITCO)in March 1990
                                          for $4.4 million on the outstanding origination fees. The agreement
                                          stated that the Department knew that FITCO owed origination fees that
                                          may have exceeded $6.5 million.

                                          The Department said that it agreed to the $4.4 million amount after con-
                                          sidering the litigation risk of pursuing the $6.5 million underpayment
                                          (i.e., the probability of prevailing), the resource drain on the federal



                                          Page 13                                                  GAO/HRD+O-lS3FY4       Student Loan Lenders
Appendix III
Additional  Analysis of PITCO’s Remittance   of
Loan Origination    Fees




government needed to pursue the litigation, and how long it would take
to receive the $6.6 million. In addition, the Department indicated that it
had already filed its claim with SBD for $4.4 million, and that the dead-
line for amending that claim had expired.




Page 14                                           GAO/H&D9O-183Fs   Student Loan Lenders
       I




Appelidix IV

Chronology of Audits md Reviews Performed
at lTlK0

                   Review
                   number    Review date(s)            Who conducted the review
                    1        Dec. 16,1975              State Banking Department                      -
                   2         Nov. 5,1976               State Banking Department
                   3         Dec. 9,1977               State Banking Department
                   4         May 31,1978               State Banking Department
                   5         Nov. 30,1979              State Banking Department
                   6         Aug. 29,198O              State Banking Department
                   7         Feb. 27,198l              Department of Education                   -
                   8         Mar. 31, 1981             State Banking Department
                   9         Feb. 24-26, 1982          Department of Education
                   70        Mar. 31, 1983             State Banking Department
                   -11       June 27-29,1984           California Student Aid Commission
                    12       July 27, 1984             Department of Education
                    13       Aug. 31, 1985             State Banking Department
                    14       Mar. 3-7, 1986            California Student Aid Commission
                    15       Nov. 17,1986              State Banking Department
                    16       Nov. 19, 1987-            California Student Aid Commission
                             Jan. 21,1988
                   17        Jan. 27,1988              Department of Education/ California Student
                                                       Aid Commission
                   18        Mar.   1987-May 1988      Department of Education
                   19        Mar.   31, 1988           State Banking Department
                   20        Feb.   27-Mar. 24, 1989   California Student Aid Commission
                   21        Apr.   10-20, 1989        Higher Education Assistance Foundation




               Y




                   Page 15                                GAO/HUD-W183FS     Student   Loan Lenders
Appendix V

Major Contributors to This Fact Sheet                                                            *


                       Joseph J. Eglin, Assistant Director, (202) 401-8623
Human Resources        Christopher C. Crissman, Evaluator-in-Charge
Division,
Washington, D.C.

                       Revae E. Steinman, Regional Assignment Manager
Los Angeles Regional   Cheryl L. Gordon, Site Senior
Office                 Carla D. Brown, Evaluator




                       Page 18                                 GAO/HRlMWl83F8   Student   Loan Lendem
Page 17   GA0/HRD904&3FS   Student   Loan Lenders
Page 18   GAO/IUfD9O-1S3FS   Student   Loan Lenders
Page 19   GAO/IZRLM94!33FS   Student   Loan Lenders
Related GAO Products


              Supplemental Student Loans: Legislative Changes Have Sharply
              Reduced Loan Volume (GAOIHRD-90-149FS,Aug. 3, 1990)

              Financial Problems in the Stafford Student Loan Program (GAO/T-
              HRD-90-62,July 27, 1990)

              Guaranteed Student Loans: Credit Bureau Reporting Practices by Guar-
                                                                                -
              anty Agencies and Lenders (GAO~HRD-SO-71~~,Apr. 9, 1990)

              Supplemental Student Loans: Who Are the Largest Lenders? (GAO/
              HRD-90-72~8,Feb. 21, 1990)

              GAO Views on the Stafford Student Loan Program (GAO/T-HRD-90-13, Feb.
              20,199O)

              Supplemental Student Loans: Who Borrows and Who Defaults (GAO/
              HRD90-33FS, Oct. 17, 1989)

              Guaranteed Student Loans: Analysis of Student Default Rates at 7,800
              Postsecondary Schools (GAO/HRD-89-63BR, July 5, 1989)

              Defaulted Student Loans: Preliminary Analysis of Student Loan Bor-
              rowers and Defaulters (GAO~HRD-8%112BR,June 14, 1988)

              GAO'S Views on the Default Task Force’s Recommendations for Reducing
              Default Costs in the Guaranteed Student Loan Program (GAO/T-HRD-88-7,
              Feb. 2, 1988)

              Guaranteed Student Loans: Potential Default and Cost Reduction
              Options (GAO/HRD-~~-~~BR,Jan. 7, 1988)

              Guaranteed Student Loans: Analysis of Insurance Premiums Charged by
              Guaranty Agencies (GAO/HRD-88-16BR, Oct. 7, 1987)

              Guaranteed Student Loans: Legislative and Regulatory Changes Needed
              to Reduce Default Costs (GAO/HRD-87-76, Sept. 30, 1987)

              Defaulted Student Loans: Private Lender Collection Efforts Often Inade-
              quate (GAOIHRD-87-48, Aug. 20, 1987)

              Defaulted Student Loans: Guaranty Agencies’ Collection Practices and
              Procedures (GAO/HRD-~~-~~~BR,July 17, 1986)



(104660)      Page20                                 GAO/HRD90-183Fs   Student   Loan Lenders
Ordering   Information

The first, five copies of each GAO report are free. Addit.ional copies
are $2 each. Orders should be sent to the following address, accom-
pitnithd by a check or money order made out to the Superint~~l<It~nt,
of Documents, whtw     necessary. Orders for 100 or more copies to be
mailed to a single address are discounted 25 percent..

IIS. General Accounting Office
PA). Box 6018
<;aith(~rsburg, MD 20877

Orders may also be placed by calling   (202) 275-6241.
                     1   Permit, No. (;lOO   1
Ol‘l‘i(3al hsitwss