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HRD-93-15R 1 (1993-02-08)

handle is hein.gao/gaobackfs0001 and id is 1 raw text is: UnitedStt (TA() General Accounting Office Washington, D.C. 20548 Human Resources Division B-249663 February 8,1993IIIlllll l The Honorable William D. Ford 148491 Chairman, Committee on Education and Labor House of Representatives Dear Mr. Chairman: In November 1992, we reported that the federal government could save about $4.7 billion in the first 5 years by replacing the Federal Family Education Loan Program with a direct loan program. I A December 1992 paper prepared by KMPG Peat Marwick for the National Council of Higher Education Loan Programs and the Consumer Bankers Association criticized our report. Peat Marwick claimed, among other things, that we understated or excluded costs that biased the report in favor of direct lending. Because of the major financial implications of this issue, your staff asked us to respond to Peat Marwick's criticisms. We believe that our report provided a sound, balanced assessment of the savings achievable through direct lending. As such, it contained numerous cautions about the consequences of several important variables--such as market interest rates, inflation, and loan origination costs--deviating from the values we assumed. We also constructed a range of plausible alternate values for critical variables and showed how substituting different values changed our results, as we reported in appendix II of our report. After carefully reviewing Peat Marwick's evaluation of our report, we have focused our response on the four key issues discussed. Peat Marwick claimed that we (1) neglected to include the costs associated with future guaranty agency insolvencies and increases in the federal government's overall cost of funds, (2) failed to adequately emphasize that savings from-direct lending are predicated on interest rate 1Student Loans: Direct Loans Could Save Billions in First 5 years With Proper Implementation (GAO/IHRD-93-27, Nov. 25, 1992). GAO/HRD-93-15R, Direct loan debate

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