This report discusses problems reported by lenders participating in the Federal Direct Loan Program (FDLP) and the Federal Family Education Loan Program (FFELP). The study examined the nature and the source of the problems experienced by the lenders, how they affected lenders, and what steps the Department of Education and Electronic Data Systems (EDS), the contractor, were taking to correct them. A total of 40 examples from four lenders were reviewed in detail. Lenders reported problems arising mainly at two stages in the consolidation process: verifying loan data provided by EDS, and receiving payments for the loans being consolidated. The report found that while the problems were specific to the lenders contacted, some appeared to be systemic. In addition, in transferring data from EDS to the FDLP servicing system, it was found that refunds on overpayments were not always credited properly to the new consolidation loan account. The report noted that while changes had been put into place by the Department of Education and EDS, improved outcomes were not yet assured because the changes were recent. Appended are sections on scope and methodology, details from the selected examples, and comments from the Department of Education . (BF)