ERIC Number: ED363243
Record Type: Non-Journal
Publication Date: 1993
Reference Count: N/A
Cost-Benefit Analysis of Forbearances. Executive Summary.
USA Group, Inc., Indianapolis, IN.
This report presents findings and recommendations resulting from a study on the costs and benefits of a Department of Education policy of encouraging lenders of student loans to grant forbearances to borrowers who experience temporary financial hardship but do not satisfy the specific conditions required for government-prescribed deferments. The government pays lenders a special allowance, based on the loan balance, to supplement the borrower's interest payment if interest rates rise. The study attempted to replicate with a larger sample an earlier study by the Office of the Inspector General which had concluded that forbearances should be curtailed. The current study, examined 24,493 student loan accounts and looked at both the public cost of forbearances that result in default but also the public savings from forbearances that prevented default and eventually led to continued repayment. It concluded that the use of forbearances saves the public far more than the cost of granting them. It found that the break even point was achieved when only 3 percent of the delinquent accounts were saved from default though actually 66 percent of accounts were saved from default by the forbearances. The report recommends that the Department of Education continue its policy of encouraging the broad use of forbearances on the basis that it is sound on both economic and humanitarian grounds. (DB)
Publication Type: Reports - Evaluative
Education Level: N/A
Authoring Institution: USA Group, Inc., Indianapolis, IN.