The committee examined the special allowance made to lenders in the Guaranteed Student Loan Program to assure that it continues to be an effective incentive. The allowance was examined in its relation to: (1) administrative costs incurred by lenders, including those attributable to federal regulations; and (2) appropriate money-market indices. A cost audit of lenders was undertaken as part of the study. The results confirm in a detailed way the general concensus that the special allowance, as restructured by the Educational Amendments of 1976, is working to the benefit of the loan program and does provide lenders with a more accurate method of assessing current and prospective allowance payments. Among the committee's specific recommendations are that more consideration be given to relative administrative costs and money-market conditions in setting the allowance rate, and that an intensive cost-benefit analysis of proposed loan program regulations be undertaken before implementation of those regulations. (MSE)