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Business and Policy Areas
Business and Policy Areas

New Studies Examine School-as-Lender Program

January 26, 2005

Over the past few years, interest among institutions in participating as a school lender in the Federal Family Education Loan (FFEL) program has grown, particularly for universities with strong first-professional graduate programs. According to a report released by the Government Accountability Office (GAO-05-184, Jan. 24, 2005), the volume of loans originated by institutions under the school-as-lender provisions increased from $535 million in 1999-2000 to more than $1.5 billion in 2003-04. The increase is largely due to an increase in the number of  participating institutions from 19 to 64 during the five-year period. Another 17 institutions were planning to begin originating loans in 2004-05.

The GAO report looks at the increased interest in the school-as-lender program, how lending programs are structured, and the regulatory safeguards in place to protect taxpayers' and students' interests. The GAO cites concerns about the propriety of institutions acting as lenders when they also determine student eligibility for loans and whether the Department of Education exercises sufficient oversight of the institutions.

Another report on the school-as-lender program was published by the Access Group, a nonprofit educational financing organization that specializes in graduate student loans. The study, based on a phone survey of school-as-lender institutions, addresses the institutions' objectives and the structure of their programs. Both studies conclude that the current economic climate and the desire to find alternative sources of revenue has largely fueled the dramatic rise in the number of institutions interested in acting as lenders for their graduate students.  Many institutions also find that they are able to provide better loan terms for their students than they would get from other lenders.