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GAO-10-86R 1 (2009-11-17)

handle is hein.gao/gaobaanqh0001 and id is 1 raw text is: ~GA 0 . A~xcountabiity Integrity * Reliability United States Government Accountability Office Washington, DC 20548 November 17, 2009 Congressional Committees Subject: Higher Education: Factors Lenders Consider in Making Lending Decisions for Private Education Loans Over the past few decades, the cost of tuition, room, and board for undergraduate students has increased, making it more difficult for some students and families to afford the cost of college. While students have historically relied on federal loans and grants and family contributions to pay for college, a growing number have turned to private education loans to help them cover the cost. In 2007-08, private loan volume, including private sector and state sponsored loans, totaled $19 billion, up from $3 billion in 1997-98, according to the 2008 College Board report on student aid.' Unlike federal loans, private education loans are not guaranteed by the federal government and are typically more costly for students than loans offered through federal programs.2 Despite their generally higher cost, about 26 percent of students who obtained private education loans in 2007-08 did not obtain Federal Stafford loans, and more than one-half of these students did not apply for Federal financial aid, according to the Institute for College Access and Success. In 2007-08, 14 percent of undergraduate students obtained private education loans, according to the Institute for College Access and Success, and the average private loan amount was $6,533.3 This letter summarizes our briefings with your staff during which we discussed our work under the mandated study in section 1122 of the Higher Education Opportunity 1In 2007-08, the federal government provided $66.8 billion in federal loans for postsecondary students. In the past several years, Congress raised limits on federal student aid, including loans. In general, the aggregate loan limits for an entire undergraduate education are $31,000 for dependent students and $57,500 for independent students. A student is classified as either financially dependent on his or her parents or independent when applying for financial aid. This classification is important because it affects the factors used to determine a student's financial aid eligibility. 2The Department of Education (Education) administers the Federal Family Education Loan (FFEL) Program and the William D. Ford Federal Direct Loan (Direct Loan) Program, both of which consist of what are generally known as Stafford Loans and Parent Loans for Undergraduate Students. Under the Direct Loan Program, loan funds come directly from the federal government. For the FFEL Program, loans funds come from participating private financial institutions and are guaranteed by the federal goverment. 3This estimate, based on the 2007-08 National Postsecondary Student Aid Study, has a margin of error of plus or minus $173 at the 95 percent confidence level. GAO-10-86R Higher Education Loans Page I

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