GSL Agencies Consider Legal Action to Free ED's Hold on Cost Allowances - Higher Education Daily

Sep 28, 2026

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GSL agencies are weighing drastic legal steps to compel the Education Department (ED) to release fiscal 1985 administrative cost allowance funds that have been delayed. Texas Guaranteed Student Loan Program executive director Joe McCormick says a lawsuit is under study to force payment. ED’s Gary Bauer argues the supplemental appropriation only covers mandatory default and interest subsidies, while administrative allowances are discretionary. Follow-up statements from ED officials and a House reconciliation scheduling to consider language to require ED payment are also covered.

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GSL Agencies Consider Legal Action to Free ED's Hold on Cost Allowances

Other Agencies Involved

Not Enough Funds

Congress and ED’s Position

Further Congressional Consideration

ED Publishes Directory of NDSL Cancellation Schools

Teacher Cancellation Benefits

Source References and Contact Information

TV Campaign to Defend Local, State Tax Deduction

Media Blitz and Coalition Messaging

HIGHER EDUCATION DAILY The Independent daily news service foradministrators in postsecondaryeducation. Vo1。13,No。183 Thursday,September 19,1985 # GSL AGENCIES CONSIDER LEGAL ACTION TO FREE ED'S HOLD ON COST ALLOWANCES As the wait for administrative cost allowance payments from the EducationDepartment drags on,state loan guarantee agencies are considering drasticmeasures. Joe McCormick,executive director of the Texas Guaranteed Student Loan Program,says he is studying the possibility of filing a lawsuit against ED in an at-tempt to force the release of fiscal 1985 cost allowance funds. "I'm dead serious about it,"McCormick said Tuesday,"The administrative costallowances mean a great deal to our agency and other state agencies." Other Agencies InvolvedMcCormick,current president of the NationalCouncil of Higher Education Loan Programs(NCHELP),says he has been in contactwith several other state agencies that may join in the suit against ED. To assist state agencies in covering the administrative expenses associatedwith the Guaranteed Student Loan(GSL)program,ED has paid cost allowances toagencies in an amount equal to 1 percent of their new loan volume。Stateagency officials say the funds help their default avoidance efforts. This year,however,ED has stopped making the payments,claiming there is notenough funds available in the GSL budget and that cost allowance payments arediscretionary(HED,Sept.3). Not Enough FundsCongress included language in its $55 million fiscal1985 supplemental appropriations law directing that a portion of the funds beused for cost allowances,but ED has said the supplemental will cover onlydefault and interest subsidy payments. In letters sent to members of congressional appropriations committees lastweek,ED Undersecretary Gary Bauer said that,because of increases in thedefault rate and loan volume,"it is not possible"either to pay cost allow-ances or to make advances available to state agencies. "We are now in a situation …where loan defaults by student borrowers haveincreased to the extent that the 1985 costs to the taxpayer are projected torise by 45 percent,or $336 million,over the 1984 level,"Bauer wrote。 "Because interest subsidy and default payments are legally mandatory,we willnot be able to make payments for administrative cost allowances or advances,which are discretionary activities and subject to funding availability,as weindicated in our supplemental justification to Congress,"Bauer added. (more) September 19,1985 Nothing has changed since Bauer sent his letter,said Bruce Carnes,specialassistant to Education Secretary William Bennett."We meant what we said,"Carnes said yesterday. Bauer's letter is consistent with ED's previous position on the matter,accord-ing to Jean Frohlicher,NCHELP staff director."It really doesn't surpriseme,"she said. The House Education and Labor Committee today is scheduled to consider a budgetreconciliation measure that state agency officials hope will free cost allow-ance funds. As part of its GSL reconciliation plan,the House is considering adding a sec-tion that would require ED to pay the administrative cost allowances as provid-ed for in the Higher Education Act. The Senate Labor and Human Resources Committee is expected to consider addingsimilar language when it discusses its reconciliation bill next week.--Bill Reinhard # ED PUBLISHES DIRECTORY OF NDSL CANCELLATION SCHOOLS The Education Department has published its annual list of schools in low-incomeareas that qualify for teacher cancellation benefits in the National Defenseand National Direct Student Loan(NDSL)programs. Under the cancellation program,National Defense Student Loan borrowers maycancel 15 percent of their loans plus interest for each year of teaching disad-vantaged students at an eligible school. Teachers with outstanding NDSLs can cancel 15 percent of their loans plusinterest for each of the first two years of teaching,20 per

FAQs

Why are state loan guarantee agencies considering legal action?

They are frustrated by ED’s delay in releasing fiscal 1985 administrative cost allowance payments for the Guaranteed Student Loan program.

What reason does ED give for stopping the cost allowance payments?

ED says there are not enough funds in the GSL budget and that cost allowance payments are discretionary rather than mandatory.

What congressional action is discussed as a potential solution?

The House Education and Labor Committee is scheduled to consider a budget reconciliation measure that could require ED to pay administrative cost allowances as provided in the Higher Education Act.

Sep 28, 2026

Uploaded by Stanford