GAO: Cost Estimates of Student-Loan Programs Omit Key Items

The U.S. Government Accountability Office has confirmed that estimates of the federal budget costs of the Federal Family Education Loan Program and William D. Ford Direct Loan Program fail to include key factors. In a report, “Challenges in Estimating Federal Subsidy Costs,” the GAO notes that the following factors are excluded from the budget estimates of loan-program costs:

• Federal administrative expenses.
• Some costs of the risks associated with lending money over time.
• Federal tax revenues generated by both loan programs.

The GAO also reports that, while some original estimates predicted net gains to the government from direct loans, subsequent re-estimates project a net cost instead.

The GAO report cautions policy-makers that “decisions made in the short term on the basis of these estimates can have long-term repercussions for the fiscal condition of the nation.”

The GAO also notes that assessing the total costs and benefits of the two loan programs would require consideration of factors in addition to federal budget costs, including:

• Costs incurred by schools in operating the loan programs.
• Quality of services provided to schools and borrowers.
• Benefits to society and individuals from postsecondary education.