New Paper Shows No Difference in FFELP’s, Direct Lending’s Costs - Pres.’s ’06 Budget Understates FDLP’s Subsidy Rate, Overstates FFELP’s
America’s Student Loan Providers released a white paper that for the first time puts a dollar figure on the impact of flaws in federal budget rules on student loan program cost estimates, concluding that no significant difference exists between the Federal Family Education Loan (FFEL) Program’s costs to taxpayers and the Federal Direct Loan Program’s.
Washington, D.C. (PRWEB) July 15, 2005 -- America’s Student Loan Providers
released a white paper that for the first time puts a dollar figure on the
impact of flaws in federal budget rules on student loan program cost estimates,
concluding that no significant difference exists between the Federal Family
Education Loan (FFEL) Program’s costs to taxpayers and the Federal Direct Loan
Program’s.
Kevin Bruns, Executive Director of America’s Student Loan
Providers, stated, “This paper should give anyone pause before making dramatic
changes in the federal student loan programs. After correcting for obvious
problems in how the FFEL program and Direct Loan program are scored, there
really isn’t any difference in how much the two programs cost taxpayers. If
anything, the FFEL program has cost slightly less.”
“The Federal Family
Education Loan Program: A Better Deal for Students & Taxpayers” draws on
official government data found in the President’s FY 2006 budget proposal, as
well as reports by the U.S. Government Accountability Office, the Education
Department’s Inspector General, and PricewaterhouseCoopers. It shows that the FY
2006 budget’s comparison of program costs, which says the subsidy cost
differential between the two programs is 7.64 percent, is seriously flawed and
that it significantly understates the subsidy cost of the Direct Loan program
and overstates that of FFEL program.
Specifically, the cost estimates
found on page 371 of the budget proposal:
-Count FFEL program costs for 1992
and 1993, years in which the Direct Loan program did not exist – Eliminating
them makes cost estimates fairer and more meaningful.
-Effect on Subsidy
Rates: FFEL program, reduced to 9.10 percent; Direct Loan program, increased to
1.76 percent.
-Include cost estimates for 2002-2004, years whose loan
cohorts have yet to go into repayment – Eliminating them makes estimates more
reliable and fairer.
-Effect on Subsidy Rates: FFEL program, reduced to 8.66
percent; Direct Loan program, increased to 3.83 percent -- cost differential is
reduced to 4.83 percent.
-Do not include the Direct Loan program’s
administrative costs – Counting them makes estimates more accurate and
fairer.
-Effect on Subsidy Rates: FFEL program, increased to 9.52 percent;
Direct Loan program, increased to 6.23 percent -- cost differential is reduced
to 3.29 percent.
-Do not include tax revenues generated by FFEL program
loan providers – Including tax revenues makes estimates more accurate and
fairer.
-Effect on Subsidy Rates: FFEL program, decreased to 7.62 percent;
Direct Loan program, decreased to 6.17 percent -- cost differential is reduced
to 1.45 percent.
-Do not account for the risks to direct loans from
defaults, consolidations or interest rate fluctuations – Adding a risk premium
of 0.25 percent to the government’s discount rate makes estimates more accurate
and fairer.
-Effect on Subsidy Rates: FFEL program, remains at 7.62 percent;
Direct Loan program, increased to 7.67 percent -- cost differential is
eliminated.
“Just correcting for these flaws,” Bruns said, “brings the
debate back to earth. The reality is that the subsidy rate for the FFEL program
is 7.62 percent, not 9.40 percent, as stated in the FY 2006 budget. And the
Direct Loan program’s subsidy rate is 7.67 percent, not 1.76 percent.
“In
other words, it may actually cost taxpayers slightly less, per dollar loaned, to
provide guaranteed loans to students than it does to lend directly to students,”
Bruns said. “This paper should put an end to any serious talk of moving schools
into direct lending from the FFEL program to save money.”
The paper does
not attempt to correct for all the biases found in budget scorekeeping. Nor does
it account for the value to students, families and schools of the hundreds of
college awareness, debt management, borrower benefit, anti-default and
scholarship programs sponsored every year by private and nonprofit loan
providers.
“If we could fix everything and quantify the value of our
public service programs, “Bruns said, “there would be no doubt that the FFEL
program is a better deal for everyone – students, parents and
taxpayers.”
A copy of “The Federal Family Education Loan Program: A
Better Deal for Students & Taxpayers” is posted on ASLP’s web site: www.studentloanfacts.org.
America’s Student Loan
Providers represents more than 80 education and financial firms and
organizations that provide federally guaranteed student loans through the
Federal Family Education Loan Program (FFELP), a public-private partnership of
schools, students, loan providers, loan guarantors, and the federal government.
By leveraging private financial markets and competing for the right to lend to
students, the FFELP brings value to students, schools, and taxpayers. Students
benefit through lower interest rates, and simplified loan application and
approval processes. More than 500 schools have switched to the FFELP since 1998
because it allows them to choose the lender that best meets the financial needs
of their students. More information is available at www.studentloanfacts.org.
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Source : http://www.prweb.com/releases/2005/7/prweb261381.htm