Wednesday, October 19, 2005

Stuffing The Numbers

Direct loans--student loans lent directly by the federal government--are more efficient and 12 times cheaper for taxpayers than the loans that Sallie Mae earns billions on. The banks' profits basically = federal subsidies. The government's own numbers, in a report released September 29, say so. And Congress is keeping that report secret until October 28--2 days after the HEA goes back to the House committee, quite possibly for more cuts to student loans. The whole story, plus an alert to write your Congressperson, is at Student Loan Watch.

Why wouldn't Congress want an estimated $17 to $60 billion in free money to apply toward more student aid? The same $reason$ Congress tends to pass laws that favor other highly profitable corporations. See this Chronicle of Higher Education investigation for details:

.... over the last year and a half, officials with the loan industry and proprietary institutions [for-profit colleges] have given, individually and through political-action committees, or PAC's, almost $1 million in campaign contributions to the 49 members of the House Committee on Education and the Workforce, according to Federal Election Commission records through the end of May. More than half of the money, about $540,000, has gone to the two Republican lawmakers in charge of drafting the higher-education legislation -- Reps. John A. Boehner of Ohio, who heads the full committee, and Howard P. (Buck) McKeon, who leads the panel's subcommittee on higher education.


Buckeye Beauford said...

Or you're completely missing the point. Direct Loans are in no way "cheaper" to taxpayers than loans delivered through private entities. Direct Loans don't magically transfer from the U.S. Treasury to a student's bank account; the process is encumbered by a massive bureaucracy at the Department of Education encompassing multiple agencies and hundreds of workers. Maintaining that bureaucracy eats up billions that would otherwise be going "directly" to private providers and students.

The name "Direct Loan" is misleading and a fantasy. The government spends a lot to do the most mundane tasks -- it can't even hand out money cheaply.

Anya said...

Sorry, I know everyone hates federal bureaucracy, but the government's own numbers say direct loans are cheaper. That's why the bill last year to support more use of direct loans had bipartisan support. Bureaucracy can sometimes be more efficient than fat corporate subsidies.
Here's the Congressional Budget Office estimate from last year:

Buckeye Beauford said...

The government says a lot of things. A study by the independent auditing firm PricewaterhouseCoopers (PwC) concluded the Direct Loan program costs taxpayers significantly more than federal budget estimates and studies show.

The PwC study showed how the CBO and budget estimates present a misleading picture of the program’s true cost to taxpayers. PwC found that the studies:

-Ignore the taxes generated and paid into the Treasury by private sector lenders.
-Exclude all administrative costs associated with Direct Lending, while including most administrative costs associated with private sector loans.
-And are biased by scorekeeping rules that underestimate the cost of the Direct Loan program.

If it were cheaper, I'd be all for Direct Loans. But they're not. We should be spending money on students, not bureaucracy.

Anya said...

That "independent" study was sponsored by three student loan groups. It brought in all kinds of external factors--like the taxes paid by banks--to skew the numbers.
If student loan companies are so efficient, let them go out on their own and make their profits without federal guarantees. The government can save the money they use to subsidize them and give it out as need-based aid.

Buckeye Beauford said...

Right -- I mentioned the taxes. Why shouldn't they be part of the equation?