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Letter from Douglas W. Elmendorf, Director CBO Re: Student Loan Programs and the Department of Education 1 (March 2010)

handle is hein.congrec/cbo10560 and id is 1 raw text is: CONGRESSIONAL BUDGET OFFICE Douglas W Elmendorf, Director U.S. Congress Washington, DC 20515 March 15, 2010 Honorable Judd Gregg Ranking Member Committee on the Budget United States Senate Washington, DC 20510 Dear Senator Gregg: As you requested, the Congressional Budget Office (CBO) has prepared two estimates of the budgetary impact of the President's proposal to eliminate the federal program that provides guarantees for student loans and to replace those loans with direct loans made by the Department of Education. One of CBO's estimates follows the method- ology delineated by the Federal Credit Reform Act (FCRA), which specifies how most credit programs are to be treated in the federal budget and which CBO is required to use in cost estimates for proposed changes to such programs. CBO's other estimate was done on a so-called fair-value basis that incorporates what a private entity would need to be paid to assume the costs and risks to the government from providing such loans or guarantees. The estimates in this letter were constructed relative to CBO's most recent set of baseline budget projections, which were issued on March 5, 2010. Using the methodology specified in FCRA, CBO estimates that the President's pro- posal would produce savings in mandatory costs of $68 billion over the 11 years from 2010 through 2020.1 Adjusting for the projected increase in annual discretionary administrative costs in the direct program, the net budgetary cost savings over that period is about $62 billion. Using an alternative methodology that evaluates the fair value of providing credit assistance to students and that includes the cost of market risk and the present value of future administrative costs, CBO estimates that the President's proposal would reduce the government's costs by about $40 billion over the same period. 1. The 2010-2020 period includes the current year plus the 10 years that begin with the budget year. www.cbo.gov

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