Quick Takes

July 29, 2009

Alternative Price Tag for Obama Student Loan Plan

Responding to a request by lawmakers supportive of the guaranteed student loan program, the Congressional Budget Office has released a letter arguing that President Obama's plan to make all loans out of the government's direct loan program would save the Treasury less money than the administration suggests. The letter, requested by Sen. Judd Gregg (R-N.H.), uses an alternative method of calculating the cost of the Obama plan that takes into account the "riskiness" of the loans that students would borrow (and on which some of them would default), especially if changes in the financial markets result in a longer-term downturn. Using this alternative method, the budget office asserts, the Obama proposal (which House Democrats have largely embraced) would save the government $47 billion over 10 years, far less than the $87 billion Education Department officials have said. Student loan groups and some Republican lawmakers seized on the CBO letter to restate their opposition to the administration's plan. "CBO’s conclusion that a downturn could cause a $33 billion swing in projected cost savings is reason enough for Congress not to rush consideration of the administration’s proposal and to consider alternative reform proposals that pose less risks and costs to students and schools," said Kevin Bruns of America's Student Loan Providers. But House Democrats accused the GOP of trying to "cook the books" and an Education Department spokesman said: "While the 'market cost' analysis provides a useful perspective -- and confirms that the administration’s approach saves tens of billions of dollars -- the cost estimate using the official methodology is a more accurate depiction of the policy’s impact on federal deficits and debt.”

Illinois Trustee Quits, Calls for Others to Leave

Lawrence Eppley, a University of Illinois trustee who is among those found to have urged the admission of politically connected applicants, is resigning from the board and urging others to do the same, the Chicago Tribune reported. "The public's confidence in the university must be restored, and one way to begin to restore that confidence is to make a clean start," he wrote in his resignation letter. The letter also strongly suggested that administrators -- many of whom have blamed the scandal on trustees -- need to share in the responsibility. "While the trustees are, in the end, responsible for the overall governance of the university, it is also important that the public has confidence and trust in the campus administrators who bear responsibility for the day-to-day decisions that have impacted the U of I in these circumstances. It is my hope that these administrators will also put the university first and assume responsibility for their roles in this matter," the letter said.

Virginia Tech Victims' Families Seek Reopening of Inquiry

Sixty-five survivors and family members of victims in the 2007 Virginia Tech killings on Tuesday called for the state's investigation into the tragedy to be reopened, The Washington Post reported. The statement was prompted in part by the revelation last week that mental health records about the killer -- previously stated to have been lost -- turned up in the home of the former director of the campus counseling center. "While we appreciate the hard work of the Virginia Tech Review Panel, the report issued by the panel contains grave errors, misinformation, and glaring omissions," said the statement. "We cannot accept that the Commonwealth allows it to stand with errors of any kind." Gov. Timothy M. Kaine indicated that he was open to the idea of revising the state's report based on new information.

Obama Nominates Archivist

President Obama on Tuesday nominated David S. Ferriero to become the next archivist of the United States. Groups of historians and archivists have been urging the president to pick someone with substantial experience in managing large library collections and Ferriero has such a background. He is currently the Andrew W. Mellon Director of the New York Public Library, and he previously led its research libraries division. Prior to that he held senior library positions at Duke University and the Massachusetts Institute of Technology.

University Replaces Instructor Accused in Fatal 1980 Bombing

Carleton University, in Ottawa, announced Tuesday that it has replaced a professor teaching an introductory sociology course who is facing extradition to France, where authorities have accused him of a role in a deadly 1980 bombing of a synagogue, The Canadian Press reported. News that Hassan Diab -- who maintains his innocence -- was teaching at Carleton became public Monday, leading to criticism of the university. A Carleton statement said that Diab was replaced immediately “in the interest of providing its students with a stable, productive academic environment that is conducive to learning."

Sonoma State Foundation's Strategy Questioned

Sonoma State University's foundation used an unusual investment strategy -- making seven-figure loans to local landowners -- and is now facing criticism for the approach, The Press Democrat reported. In one case, a former board member of the foundation received a loan he can not currently repay, and the land he turned over to the foundation instead of the loan repayment is no longer worth the value of the loan. While some university officials said that the approach provided for steady growth for many years, some donors and faculty members say that the loans were problematic from the start and never should have been made.

U. of Minnesota Surgeon Didn't Disclose Corporate Ties

Sen. Charles Grassley of Iowa, who is leading a campaign against conflict of interest in federally supported research, has a new target at the University of Minnesota. The Wall Street Journal reported that Grassley wants to know why David Polly, a Minnesota surgeon, testified to a Senate committee in 2006 on the need to fund research on limb and spine injuries, and said he was appearing on behalf of medical groups, when he was also receiving payments from Medtronic Inc., a company that has products used to treat such injuries. A lawyer for Polly said that he "works very hard to ensure that he properly tracks and allocates the time spent among these roles and will review any concerns in this area. In every instance, he has conducted himself honorably in advocating for injured veterans."

College Art Association Seeks to Block Law on Depictions of Animal Cruelty

The College Art Association has filed a brief -- prepared by the National Coalition Against Censorship -- with the U.S. Supreme Court, urging the justices to back a lower court's ruling finding unconstitutional a federal law barring depictions of certain kinds of animal cruelty. The association argues that artists and professors who create or use artistic materials could be charged with breaking the law. The brief notes that the association is not defending actual cruelty to animals -- which is barred under other statutes -- but regulation of artistic depictions.

Lab Worker Accused of Destroying Research to Fight 'Bad Karma'

Silvya Oommachen, a former lab worker, has been arrested and charged with taking and destroying 42 cassettes, each holding 96 protein crystal samples, from three cryogenic containers at the Stanford University Synchrotron Radiation Lightsource, a federal facility managed by the university, The Palo Alto Daily News reported. The research objects cost about $500,000 to produce, the newspaper said. Oommachen has not entered a plea in the case. But a Federal Bureau of Investigation statement said she admitted to the acts, and blamed a "very bad relationship with her supervisor," giving her the belief that she could "reverse some of the bad karma she was experiencing" by destroying the samples.

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Comments on Quick Takes

  • CBO Letter
  • Posted by Friend of Students and Taxpayers on July 29, 2009 at 10:00am EDT
  • The Education Department's statement about the CBO letter is exactly right.  Moreover, if risks decline because of successful efforts to lower defaults -- something the Education Department could influence by requiring greater transparency and consumer protections -- there could be MORE than $80-some billion in savings in SAFRA.  Cost-of-risk scoring cuts both ways.  In fact, if Congress were to add some of these measures themselves to SAFRA and adopt cost-of-risk scoring, more borrowers would be benefited and even more savings could be returned to students and taxpayers. 

  • Animal cruelty
  • Posted by Michael Simpson on July 29, 2009 at 10:45am EDT
  • The reason Congress passed law prohibiting depiction of animal cruelty was to protect the mega agricultural corprations that control your health and food. See Food, Inc; The Future of Food. Wake up and get control of your food supply.

  • New CBO estimate
  • Posted by Alex Hamilton on July 29, 2009 at 2:30pm EDT
  • The first commenter puts the wish in wishful thinking. The Direct Loan program since it was created has never done better than OMB or CBO projected it would. It has done considerably worse. $12 billion worse. I direct readers to the annual reestimates found in the President's Budget credit supplement for every year since 1994.

    Moreover, he or she has no idea what CBO's new estimate really means or how it differs from the methodology required by the Credit Reform Act. The new estimate reflects the whole range of market risks that could affect whether a borrower pays back a loan and when. Not just defaults.

    So flawed is the methodology used to score bills that go to the floor that OMB doesn't use it to estimate the value of its TARP assets.

  • Then Forget the CBO Letter
  • Posted by Friend of Students and Taxpayers on July 29, 2009 at 4:30pm EDT
  • If Alex Hamilton wants to forgo market risk scoring because OMB doesn't use it to score TARP, or because CBO itself doesn't really know what it means ("similar assets may trade at widely divergent values for reasons that are difficult to establish"), that would be fine with me.  He has my permission to ask Senator Judd Gregg to forget the letter.  

     

     

    But it is nice to see Alex Hamilton concede that default rates are at least part of the cost-of-risk calculation, and by implication admit that lowering them could add to scored savings under market risk scoring.  Live by the sword, die by the sword.

  • Stress test
  • Posted by Craigie on July 31, 2009 at 7:45am EDT
  • What if a "Senator Pro-DL" (none apparently exists) asked CBO to perform a similar tolerance analysis for FFELP? Then the savings for switching to 100% DL could be $200 billion. The "market risks" in FFELP are far more significant than in DL, and FFELP still represents the majority of new loans.

    Thus an apples-to-apples Gregg request would have included a far-end FFELP market risk comparison while noting that legislative changes over the past 15 years have quietly shifted large parts of the market risk from lenders to taxpayers, none of which has CBO ever agreed to estimate. Index risk is only one example.