Summary: Two major federal student loan programs--the Federal Family Education Loan Program and the William D. Ford Federal Direct Loan Program--help students meet their expenses for postsecondary education. These programs have made nearly 8.4 loans, providing students with more than $30 billion. When borrowers default on their student loans, however, it is the government that ultimately pays. An accurate measure of student loan defaults at colleges, universities, and vocational schools is an important way to monitor the financial risk facing the Department of Education. The Department now excludes schools from the program if their default rate reaches 25 percent or more for three consecutive years. This report examines the way in which the Department calculates these default rates. GAO focuses on borrowers who have temporary approval through their lenders or loan services through "deferment" or "forbearance" not to make payments on their loans. In the Department's calculation of a school's default rate, these borrowers are not counted as defaulters, but they do count as part of the total number of borrowers. This report answers the following three questions: During the last several years, has there been any increase in the number of borrowers who entered repayment but later received deferments or forebearances? What would have been the effect of the most recent default rates if borrowers whose loans were in deferment or forbearance had been excluded from the default rate calculation? Under this alternative method of calculating the default rate, would any additional schools have exceeded the 25-percent default rate threshold?
