New Paper Shows No Difference in FFELPs, Direct Lendings Costs - Pres.s 06 Budget Understates FDLPs Subsidy Rate, Overstates FFELPs

Americas 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) Programs costs to taxpayers and the Federal Direct Loan Programs.

Washington, D.C. (PRWEB) July 15, 2005 -- Americas 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) Programs costs to taxpayers and the Federal Direct Loan Programs.

Kevin Bruns, Executive Director of Americas 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 isnt 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 Presidents FY 2006 budget proposal, as well as reports by the U.S. Government Accountability Office, the Education Departments Inspector General, and PricewaterhouseCoopers. It shows that the FY 2006 budgets 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 programs 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 governments 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 programs 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 ASLPs web site: www.studentloanfacts.org.

Americas 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.

# # #