Federal Student Loans : Challenges in Estimating Federal Subsidy Costs

In FY 2004, the fed. gov't. made or guaranteed $84 billion in loans for post-secondary ed. through 2 loan programs -- the Fed. Family Ed. Loan Program (FFELP) & the Fed. Direct Loan Program (FDLP). Under FFELP, private lenders fund the loans & the gov't. guarantees them a minimum yield & repayment if borrowers default. When the interest rate paid by borrowers is lower than the guaranteed minimum yield, the gov't. pays lenders special allowance payments (SAP). Under FDLP, the U.S. Treasury funds the loans that are originated through participating schools. Under the Fed. Credit Reform Act (FCRA) of 1990 the gov't. calculates the net cost of extending or guaranteeing credit over the life of a loan, called a subsidy cost. Agencies generally update, or re-estimate, subsidy costs annually to include actual program results & adjust future program estimates. This report examined: (1) whether re-estimated subsidy costs have differed from original estimates for FFELP & FDLP loans disbursed in FY 1994 through 2004; (2) what factors explain changes between re-estimated & original subsidy rates -- that is subsidy cost estimates per $100 disbursed; & (3) which fed. costs & revenues associated with the student loan programs are not included in subsidy cost estimates. Charts & tables.Ashby, Cornelia M. is the author of 'Federal Student Loans : Challenges in Estimating Federal Subsidy Costs', published 2006 under ISBN 9781422304457 and ISBN 1422304450.