College Loan Conundrum
Imagine if an investigation revealed that hospitals were purposely choosing the most expensive drugs, paid for by taxpayers, in order to get kickbacks from pharmaceutical companies. There would be bipartisan outrage in Congress, with calls for reform and even criminal charges. In "Big Money on Campus" [October 27], U.S. News uncovered an equally scandalous scheme: student loan companies bilking taxpayers of hundreds of millions of dollars, siphoning a portion to some colleges to buy their cooperation. On the surface, it sounds reasonable to allow colleges to choose between two systems of student loans. But the price tag is simply too big. Congress should insist that colleges use the system that is least costly to taxpayers. If some college wants to use a more expensive way, let it pay the difference.
PAUL SIMON
Former U.S. Senator Director,
Public Policy Institute
Southern Illinois University
Carbondale, Ill.
What Is The Point Of Your Story? Sallie Mae is unethical? The direct-loan program is being treated unfairly because its market share is flat? Your assertion that direct loans generate revenue (22 cents for every $100 borrowed) vs. losses of $12.80 for the Federal Family Education Loan Program for every $100 borrowed is unsubstantiated. How likely is it that you forgot to deduct the impact of defaults from the direct loans? If a good use of government oversight leads to loan revenues of less than 0.0022 percent, it appears likely that more changes are needed.
TIM J. MULLEN
Rockford, Ill.
Democratic presidential candidate John Edwards's plan for streamlining student loans is right on target. The president and Congress should be worried about providing students with loans in the most efficient way possible, and they should not be concerned with lining the pockets of CEOs.
COBY RUDOLPH
Santa Cruz, Calif.
"BIG MONEY ON CAMPUS" ARGUES that the Education Department's Federal Direct Student Loan Program should be expanded because it saves taxpayer dollars. Such savings have yet to appear, however. In every year since its inception a decade ago, the FDSLP has borrowed far more funds from the U.S. Treasury than it has repaid, contributing annually to the national debt. That this cash-flow pattern will reverse itself is largely an article of faith. It is only the result of revised budget rules enacted in 1990 that the FDSLP can make any pretense to cost-savings. Thus, the nonpartisan Congressional Research Service reported in 1995 that "Claims of savings from one form of loan over another (direct vs. guaranteed) are purely artifacts of budget score keeping." More recently, the General Accounting Office determined that even under the newer rules, any cost savings from FDSLP is contingent upon projected interest rate scenarios that may or may not come to pass. The volatility of these projections is apparent in the most recently published annual re-estimates of loan program costs in which the cumulative projected cost of the outstanding FDSLP portfolio rose by $4.6 billion while guaranteed student lending costs dropped by $3 billion. To assess the potential for future dramatic and costly re-estimates, the House Budget Committee recently asked the General Accounting Office to determine the ability of the Department of Education to accurately predict the cash-flows and performance of the FDSLP portfolio. Meanwhile, the jury remains out.
REP. JIM NUSSLE (R-IOWA)
Chairman, House Budget Committee
REP. JOHN BOEHNER (R-OHIO)
Chairman, House Education
and Workforce Committee
REP. TOM DAVIS (R-VA.)
Chairman, House Government Reform Committee
Washington, D.C.
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