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HRD-93-25R 1 (1993-07-15)

handle is hein.gao/gaobackjb0001 and id is 1 raw text is: United States GAO General Accounting Office Washington, D.C. 20548 Human Resources Division B-249663 July 15, 1993II1111111 The Honorable Paul Simon 149569 United States Senate Dear Senator Simon: In November 1992 we reported that the federal government could save $4.7 billion in the first 5 years by replacing the Federal Family Education Loan (FFEL) program with a direct student loan program.' A principal assumption in our analysis was that the government would finance direct loans with securities that had an average yield equal to the rate on 10-year Treasury notes, an assumption consistent with the Congressional Budget Office's (CBO) interpretation of the Federal Credit Reform Act of 1990 (P.L. 101-508). In a February 1993 letter to Chairman William Ford of the House Education and Labor Committee, we demonstrated what the estimated savings could be by assuming that the government would use Treasury bills (T- bills) to finance direct loans.2 Under this scenario, the possible savings increase from $4.7 billion to about $11 billion over 5 years. You requested that we update our analysis to reflect the more recent estimates for (1) inflation, which affects the costs of future loan servicing and origination; (2) interest rates, which affect borrowers' interest payments, the cost of federal borrowing, and the rate at which future costs and income are discounted to derive a present value estimate; and (3) future FFEL volumes for subsidized and unsubsidized Stafford loans, Supplemental Loans for Students (SLS), and Parent Loans for Undergraduate Students (PLUS). Unsubsidized Stafford loans, first authorized by the Higher Education Amendments of 1992 (P.L. 102-325), were not included in our prior analyses. 'Student Loans: Direct Loans Could Save Billions in First 5 Years With Proper Implementation (GAO/HRD-93-27, Nov. 25, 1992). 2Direct loan debate (GAO/HRD-93-15R, Feb. 8, 1993). GAO/HRD-93-25R, Direct Student Loan Savings '~76o/~

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