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Letter to the Honorable Judd Gregg 1 (July 2009)

handle is hein.congrec/cbo8349 and id is 1 raw text is: O CONGRESSIONAL BUDGET OFFICE Douglas W. Elmendorf, Director U.S. Congress Washington, DC 20515 July 27, 2009 Honorable Judd Gregg Ranking Member Committee on the Budget United States Senate Washington, DC 20510 Dear Senator: This letter responds to your request for an estimate of the change in federal costs, adjusted for the cost of market risk, that might result from enactment of the President's proposal to prohibit new federal guarantees of student loans and to replace those guarantees with direct loans made by the Department of Education.' The Federal Family Education Loan Program (FFELP) provides federal guarantees for loans made to students by private lenders and is the predominant source of loans for higher education; the Congressional Budget Office (CBO) projects that, under current law, guaranteed loans will account for 70 percent of all new direct and guaranteed student loans made over the next 10 years. Under the President's proposal, the Department of Education, through the William D. Ford Direct Loan Program, would provide federal support for student loans only by lending money directly to students. In its July 24, 2009, cost estimate for H.R. 3221 (the Student Aid and Fiscal Responsibility Act of 2009, as approved by the House Committee on Education and Labor), which would incorporate the President's proposal, CBO estimated that replacing new guarantees of student loans with direct lending would yield gross savings in federal direct (or mandatory) spending of about $87 billion over the 2010-2019 period.2 (Mandatory spending is governed by existing provisions of law and does not require future appropriations.) About $7 billion of those savings would represent a reduction in the administrative costs of the guaranteed loan program, which are recorded in the budget as mandatory spending. In contrast, most of the administrative costs for the direct loan program are funded in appropriation bills and recorded as discretionary spending. Thus, of the $87 billion reduction in direct spending, roughly $7 billion would be offset by an increase in future appropriations for administrative costs, for an estimated net 2GB~ cot esimae isavalabl atttp co Qov/tpclocs/I Axxcloc I (A 9/r322 p. - - [Z -- - - - - - - 4m;;l - - - [Z -- - - - - - -- - - - - - - - [Z -- - CBO's cost estimate is available at

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