How Education Incorporates Characteristics and Loan Movement into Cost Estimates

In general, Education incorporates characteristics and loan movement into
cost estimates by:

grouping loans that share similar characteristics into risk categories:

- consolidation loans with an underlying defaulted loan;

- consolidation loans without an underlying defaulted loan.

forecasting loan volume for each risk category, taking into account the
movement of loans between the FFELP and FDLP programs.

applying various assumptions to the categories, such as rates of
interest and rates of default. Consolidation loans that include an
underlying defaulted loan, for example, are assumed to default at a
higher rate.