Alternative Price Tag for Obama Student Loan Plan

July 29, 2009

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.”

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