New Study: Budget-Scoring Barriers to Efficient Student Loan Policy

Former CBO Director and economist Dr. Douglas Holtz-Eakin released a new study, "Budget-Scoring Barriers to Efficient Student Loan Policy",  that concludes the Federal Government has no inherent economic advantage in providing student loans through Direct Lending.

Excerpts from the new study:

"Today, two major federal student loan programs operate concurrently: a direct loan program (the William D. Ford Direct Loan Program, or FDLP) and a loan guarantee program (the Federal Family Education Loan Program, or FFELP). FDLP loans are funded by U.S. Treasury borrowing, while FFELP loans are originated with funds generated via private capital markets. While the FDLP and FFELP co-exist and compete with one another, they do not receive equal treatment under federal budget scoring rules. As a result, although the Government has no inherent economic advantage in the provision of student loans -- the opposite is more nearly the case -- the direct student loan program appears much less expensive in federal budget baseline presentations of loan program cost. This not only presents a false snapshot of the cost of federal student loans, it distorts the true cost of options going forward. For instance, legislation that increases the volume of FDLP loans relative to FFELP loans has intrinsic appeal because it appears to produce budgetary savings -- even if that savings is unlikely to materialize. In the broader student aid context, flawed loan scoring will also bias choices concerning the allocation of Federal resources among student loans and other forms of aid, such as grants and tax credits/deductions."

Since accurate cost-benefit comparisons of FLDP and FFELP are inherently difficult, the simplest way to clarify policy options in this area would be to eliminate the direct lending program. Short of that, some of the scoring shortcomings could be addressed by amending the Federal Credit Reform Act of 1990."

Dr. Holtz-Eakin most recently served as the Director of the Maurice R. Greenberg Center for Geoeconomic Studies and the Paul A. Volcker Chair in International Economics at the Council on Foreign Relations. Prior to that, Dr. Holtz-Eakin served as the sixth Director of the Congressional Budget Office, where he was appointed for a four-year term beginning February 4, 2003. Dr. Holtz-Eakin previously served for eighteen months as Chief Economist for the President's Council of Economic Advisers. Prior to that, Dr. Holtz-Eakin served as a Trustee Professor of Economics at the Maxwell School, Syracuse University. At the Maxwell School, he served as Chairman of the Department of Economics and Associate Director of the Center for Policy Research.

Budget-Scoring Barriers to Efficient Student Loan Policy
BY DOUGLAS HOLTZ-EAKIN