Funds Sought To Cover G.S.L.'s Shortfall

February 22, 1989 2 min read

Washington--The budget submitted this month by President Bush estimates that less money will be needed for the Stafford student-loan entitlement program in fiscal 1990 than was allocated for 1989.

But the Education Department has requested $330 million more for the fiscal 1989 budget year to cover 1988 shortfalls and will soon ask for an additional $562 million, according to Sally H. Christensen, director of the department’s budget service.

Although factors such as rising default rates are also involved, the main cause of shortfalls in the guaranteed-loan program was overly optimistic Administration predictions of falling interest rates, according to Congressional aides.

“Every point on the interest rate means $200 million in the gsl program,” one aide said.

Ms. Christensen said the Administration’s revised estimate of 1990 gsl costs would add $62 million to the amount requested by former President Reagan. That adds up to a total of about $3 billion, approximately $150 million less than was appropriated for 1989.

The Administration is counting on an unspecified amount of savings from changes it has proposed in the program, including reduced interest subsidies and default payments to lenders, and improved collection procedures. The changes, which were also proposed last year, would require new legislation.

The Bush Administration has revised its interest-rate calculations for fiscal 1989 to reflect actual rates in effect since the fiscal year started in October.

But it has retained the earlier projections for 1990, and its optimistic projection of 1990 rates is a major reason for its low gsl funding proposal. According to budget documents, “interest rates are assumed to come down gradually to the projected levels by the second quarter of 1990, one year from now.”

“We don’t usually worry about dollars in that program, because it’s an entitlement and Congress has to supply what’s needed,” said Charles Saunders, director of governmental relations for the8American Council on Education.

Higher gsl costs increase the federal deficit just as any other spending does, and thus theoretically decrease the amount of funds available for other programs. But the Congress can choose to ignore signs that the Administration’s 1990 estimate is too small--until next year.

‘A Cute Game’

“We play a game here in Congress that’s a cute game but a very dangerous one,” Representative William F. Goodling of Pennsylvania, ranking Republican on the Education and Labor Committee, said at a hearing last week.

Lawmakers will criticize the Administration’s economic estimates and “bash them all over the country,” but will adopt the estimates when drafting their own budget because they make it easier to meet deficit targets than more pessimistic projections by the Congressional Budget Office, Mr. Goodling said.

“I’ve taken the mask off it in case there’s anyone out there who doesn’t know that,” he said.--jm

A version of this article appeared in the February 22, 1989 edition of Education Week as Funds Sought To Cover G.S.L.'s Shortfall