An evaluative study was done of the Department of Education's system of internal accounting controls over the Federal Family Education Loan Program, known as the guaranteed student loan program. The study evaluated internal control systems, the structure of the program with respect to the role of guaranty agencies, and the Department's ability to oversee the program and implement corrective actions. The audit included reviewing procedures at 10 of the largest guaranty agencies, the procedures of 46 randomly selected lenders, the Department's accounting systems, examination of selected transactions, and review and documentation of the Department's policies and procedures. The study found that there are material weaknesses in the Department's ability to obtain accurate and reliable data on the loan program, that there is inadequate oversight of guaranty agencies and lenders, and that there are weaknesses in the Department's controls to ensure the accuracy of its financial and other program data. The audit also identified serious problems in the program's structure. Guaranty agencies assume little financial risk and are not compensated in a way that provides sufficient incentives to prevent defaults. It is noted that some corrective actions are under way. Appendixes contain details of study methodology, comments from the Department of Education, and information on major contributors to the report. (JB)