Department Study Finds Savings In Direct Loans
The federal government actually earns money by providing college loans directly to students rather paying out funds to subsidize loans by banks and other private lenders, according to a Department of Education study released last week.
The U.S. Treasury earns $4 from the William D. Ford Direct Student Loan Program on every $100 borrowed over the life of the loan, while it spends $14 on subsidies from banks and other private lenders for the same amount, the report says.
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|"Incorporating Federal Administrative Costs Into [Federal Family Education Loan] and Direct Lending Programs" is free from the Education Department by calling (202) 401-1576. Read a summary of the report from the Department of Education; or download the entire report (requires Adobe's Acrobat Reader).|
Moreover, administering the direct-loan program instead of dealing with other funders has saved the government $4 billion since the program's inception in 1994, the study conducted by the department's budget service office concludes.
During the 2000 fiscal year, the direct-loan program will grant more than $15 billion in loans to 2 million borrowers.
The program "is much less expensive for taxpayers because it does not require federal subsidies for lenders," acting Deputy Secretary of Education Marshall S. Smith said in a statement released with the report Nov. 30. "In addition, interest earned on direct loans accrues to the U.S. Treasury, not to private lenders."
But critics of the direct- loan program—one of the major education initiatives of President Clinton's first term—suspect the report was designed to boost the credibility of a program they see as floundering.
Fritz Elmendorf, a spokesman for the Consumer Bankers Association, an Arlington, Va.- based membership organization that works with a majority of student- loan lenders, called the report "contrived."
"Direct student loans have stagnated to one-third [of the market]," Mr. Elmendorf said.
The study looked at all costs involved in administering student loans over the past 50 years. Currently, about one-third of all the federally-backed loans issued to college students are part of the direct-loan program; the remainder of such loans are granted by other lenders. Some 1,200 colleges and universities participate in the direct-lending program.
Vol. 19, Issue 15, Page 19Published in Print: December 8, 1999, as Department Study Finds Savings In Direct Loans