Oversight of Guaranty Agencies During the Phase-Out of the Federal Family Education Loan Program

We evaluated FSA’s process for ensuring the continued protection of Federal funds at Guaranty Agencies (GA), oversight of the GAs’ ability to perform their duties, and actions necessary for the GAs’ successful participation during the phase-out of the Federal Family Education Loan Program (FFELP). We found weaknesses that included (1) FSA’s methodology for calculating a GA’s Federal Fund reserve ratio did not comply with Federal requirements, which, as a result, inflated the GA’s reserve ratio and understated the level of financial stress a GA may be under; (2) Although FSA monitored the GAs’ ability to perform their duties, it did not establish criteria for GAs to use to develop required financial projections, and FSA did not document the procedures for actions it should have taken on information that identified GAs under possible financial stress; and (3) FSA’s initial methodology and then the modified methodology it used to select successor GAs for GAs ending participation in the FFELP contained deficiencies related to projected fund balances, relied on subjective factors, and did not provide a rationale for why the variables FSA selected to predict GA financial solvency were the most relevant variables.