Despite Scoring Flaws, FFEL Least Expensive Federal Student Loan Program
Student loan observers were looking to the President’s budget to provide the first official numbers on the comparative costs of the two student loan programs, FFEL and Direct Loans (DL), since cuts to FFELP lenders and guaranty agencies passed last year. For the first time, the President’s Budget indicates that FFEL is cheaper to taxpayers than DL. FFEL is a public-private partnership between the government and private industry and DL is a program administered solely by the federal government.
For 2009, the government costs for FFEL are projected to be 2.58 cents per dollar loaned, while the DL rate is 2.64 cents per dollar loaned. In some ways, this was expected. Congress has passed massive cuts to the FFEL program in the past two years, hurting the program that provides loans to roughly 80 percent of America’s college students.
For years, supporters of the government administered program have pointed to the comparative costs for the two programs as a reason to provide all federal student loans through DL. This column, authored by Daniel Fisher and appearing in Forbes, captures many of the arguments of FFEL supporters.
In addition to noting that several college officials believe private industry does a “better job than the government at processing loan applications and handling collections” than the government bureaucracy, it also mentions the increased costs that many schools may face should they switch to DL. Additionally, the column points out the flaws in the budget forecasting that has resulted in the increased legislative risk for the FFEL program, stating that the accounting that produces favorable numbers for DL “would make an Enron executive blush.”