Washington, D.C. March 14 – America’s Student Loan Providers today asked Congress to correct problems in budget scorekeeping rules that prevent federal budget estimators from providing a fair comparison of the true costs of the privately run guaranteed student-loan program and the Education Department’s direct loan program. In letters to chairs and ranking members of the House and Senate budget, education and government operations committees, ASLP said Congress should declare a moratorium on any measures designed to increase participation in the Federal Direct Student Loan Program.
“The time has finally come for Congress to fix the budget scorekeeping rules for federal student loan programs,” ASLP members wrote. “Until then, there should be a moratorium on any program changes that have major budget implications. In particular, Congress shouldn’t be looking at making changes in the Federal Direct Student Loan Program that are based on the projected budget savings, because in the end the savings won’t be there.”
The text of the letters, which are identical, follows:
Dear Chair:
America’s Student Loan Providers represents education and financial firms and organizations that provide federally guaranteed student loans to more than five million students nationwide. We are writing today to urge Congress to make long-overdue changes in federal budget scorekeeping rules as they apply to the student loan programs. These rules, used by both the Congressional Budget Office (CBO) and the Office of Management and Budget (OMB), currently do not provide a fair comparison of the true costs of the guaranteed student loan program and the direct federal program. Until these changes are made, Congress should declare a moratorium on any measures designed to increase participation in the Federal Direct Student Loan Program.
Last week, an important analysis of budget accounting for student loans under the Credit Reform Act was released. The study, authored by PricewaterhouseCooper (PWC), demonstrates that budget scorekeeping rules seriously understate the true costs of the Direct Loan program. Why? Because CBO and OMB do not include administrative costs or tax revenue loss to the Treasury when estimating the total cost of the Direct Loan program, and interest rate assumptions create a bias in favor of the Direct Loan program.
PWC’s analysis – and before it, separate analyses by GAO, CBO, former CBO Director Dr. Rudy Penner, the Department of Education Inspector General, the Congressional Research Service and KPMG Consulting Barents Group – calls into serious question the wisdom of using CBO and OMB projections of “savings” as the reason for promoting the expansion of the Direct Loan program. The consequences of doing so extend far beyond the arcane world of federal budget scorekeeping.
Colleges and universities moving from one program to another often incur significant systems and training costs. Encouraging them to make a change on the potential for additional need-based aid based on an assumption of federal savings that will never materialize is, to say the least, not good public policy.
We also point out that providing additional need-based aid to students who attend schools that participate in the Direct Loan program would, for the first time in the history of the Higher Education Act, treat low-income students at one college better than those at another for reasons unrelated to financial need. Such a departure would do an enormous disservice to needy students across the country that have understandably made their choice of postsecondary institution based on how that institution meets their educational objectives – not based on the loan program in which the school participates. More broadly, proposals that seek to enhance the appeal of the Direct Loan program over the private sector Federal Family Education Loan Program on the basis of illusory savings would unnecessarily reduce the competition and choice that currently benefit colleges and students.
Failing to update the budget scorekeeping rules to assure more accurate and complete budget scoring for the federal student loan programs could lead Congress to adopt policies that are not good for anybody – not for students, colleges or taxpayers. The time has come for Congress to fix the budget scorekeeping rules as they apply to the student loan programs. Until then, there should be a moratorium on changes in the Direct Loan program that are based on the projected budget savings, because in the end the savings won’t be there.
Thank you for considering our views on this important matter. Please contact us if we can answer questions you may have on this issue.
Sincerely,
America’s Student Loan Providers
Consumer Bankers Association
Education Finance Council
EdSouth
National Council of Higher Education Loan Programs, Inc.
Nelnet
Sallie Mae
USA Funds
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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.