Washington, D.C.—Kevin Bruns, Executive Director of America’s Student Loan Providers (ASLP), today issued the following statement in response to the newly released report by the U.S. Government Accountability Office (GAO), titled, “Federal Student Loans: Challenges in Estimating Federal Subsidy Costs”:
“The GAO’s report is ‘deja vu all over again.’ For the second time this year, and about the sixth time in ten years, independent experts conclude that federal budget rules are flawed: They do not accurately compare the real, long-term costs of the Federal Family Education Loan Program (FFELP) and the Federal Direct Student Loan Program.
“GAO accepts the position of PricewaterhouseCoopers (PWC), ASLP and others that the factors missing from the current government estimates are significant, and that including them would give a better estimate of the true program costs.
“In particular, GAO now accepts PWC’s and ASLP’s position that a true cost comparison would account for both tax revenues generated by FFELP loan providers and risks to direct loans from defaults, consolidations or interest rate fluctuations. The report’s final point bears repeating: ‘Consideration of all federal costs and revenues of the loan programs would be an important component of a broader assessment of the costs and benefits of the two programs.’
“Regrettably, GAO’s report may perpetuate the false notion that direct loans cost taxpayers less than guaranteed loans. It notes the flaws in the government’s estimates, yet never accounts for them while comparing the programs’ official subsidy rates. Its ‘on the one hand, on the other hand’ analysis is misleading and disappointing.
“Nor does the report provide any new data or make any policy recommendations. We share the requesters’ goal of getting better cost estimates, and indeed have done work to facilitate the improvement of the estimates.
“ASLP’s paper, The Federal Family Education Loan Program: A Better Deal For Students & Taxpayers (July 12, 2005), remains the only serious effort to put a dollar figure on the impact of flaws in federal budget rules. After correcting for the obvious errors in program cost estimates, we concluded that no significant difference exists between the FFELP’s costs to taxpayers and the direct loan program’s.
“ASLP found that the subsidy rate for the FFELP 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.”
America’s Student Loan Providers represents education and financial firms and organizations that provide federally guaranteed student loans through the 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 information is available at www.aslp.us.