Report: Loan-Program-Cost Comparisons Are Flawed

A national accounting firm has concluded that cost comparisons between the Federal Family Education Loan Program and Federal Direct Loan Program are flawed because of biases in federal budget-scoring rules that favor the direct-loan program. In the report PricewaterhouseCoopers identifies at least three biases in the budget scoring of the two student-loan programs:

Interest-rate bias. The report notes that the interest-rate assumptions used in scoring the costs of the program are not consistent with historical experience. This difference reduces the estimated costs of the direct-loan program in relation to the FFELP.

Tax-revenue bias. According to the report, federal budget scoring fails to account for an estimated $651 million in tax revenue generated by FFELP lenders, thereby overstating the costs of the FFELP.

Administrative-cost bias. The report points out that the exclusion of administrative costs in government accounting for the direct-loan program makes it appear to be less expensive than the FFELP, for which most of the administrative costs are included in budget scoring.

According to the report, although net gains consistently have been forecast for the direct-loan program in recent years, those estimates later have been revised to net costs, based on re-estimates published the U.S. Department of Education and the Office of Management and Budget.

The report was prepared for the Consumer Bankers Association, Education Finance Council and National Council of Higher Education Loan Programs.