2009 Budget Projects FFELP Costs Slightly Less Than Direct Loan Costs

The fiscal 2009 federal budget submitted by President Bush to Congress on Feb. 4 projects that the federal costs to subsidize Federal Family Education Loan Program loans will be slightly less than the costs for loans under the William D. Ford Direct Loan Program.

According to the president’s budget, overall federal subsidy costs for the FFELP are estimated at $2.58 for every $100 of loans. The subsidy costs for the direct loan program are estimated at $2.64 for every $100 of loans.

The cost estimates have changed from previous years due to the College Cost Reduction and Access Act of 2007, which, according to the administration’s budget “resulted in a net decrease in FFEL program costs and an increase in Direct Loan program costs.” The president’s budget also estimates that default rates on Stafford and PLUS loans issued under the FFELP will be slightly lower than the default rates for those direct loan types, and that direct loans will account for just 20 percent of total loan volume for 2008-2009.

Other federal student aid and access provisions in the proposed budget include the following items:

• A proposed $2.7 billion increase in annual appropriations for Pell Grants, when combined with mandatory spending on Pell Grants, would support a maximum Pell Grant of $4,800 in 2009.

• The budget provides no funding for Supplemental Educational Opportunity Grants and Leveraging Education Assistance Partnerships in 2009. The administration also again proposes elimination of the Perkins loan program and the recall of federal revolving funds held by postsecondary institutions to support Perkins loans.

• Funding for Federal Work-Study, TRIO and GEAR UP programs would be the same as for the current year.

The budget also proposes some modification in funding for two new initiatives that were part of the College Cost Reduction and Access Act. The spending plan restricts to loans originated on or after July 1, 2009, eligibility for loan forgiveness through the direct loan program for public service employees. The proposed budget also would eliminate funding to subsidize Stafford loan interest for up to three years for borrowers who qualify for a new income-based repayment option.

Congressional budget committees now will consider the administration’s proposal in setting overall spending and revenue levels to provide the framework for individual appropriations bills for the fiscal year that begins Oct. 1.