Student Loan Blog : Congressional Budget Office

Overhaul of Student Loan System in the Works

Student Loan Girl — Mon, 22 Jun 2009 15:30:00 GMT

A bill to overhaul the student loan industry may reach Congress as early as next week; education-committee chairs are working behind the scenes on a piece of legislation that would eliminate the third-party student loan system called the Federal Family Education Loan Program, The Chronicle of Higher Education reports (“Behind the Scenes, a Student-Loan Overhaul Takes Shape,” June 16, 2009).

Although few details have been released about the proposed legislation, lenders and a large number of Congressmen are hoping the FFEL program won’t end up on the chopping block like President Obama has proposed. Already as many as 13 counterproposals to the elimination of FFELP have begun circulating Congress, including a detailed plan from lending giant Sallie Mae.

It’s not likely, however, that the FFEL program will survive this legislative session, some Congressmen say, considering taxpayers could see as much as $94 billion in savings over the next 10 years if FFELP were eliminated, according to estimates from the Congressional Budget Office.

Obama had originally suggested that these savings, which have been readjusted down to $87 billion, could be used to increase Pell Grants award amounts each year at a rate equal to the Consumer Price Index. It now looks like Congress will, instead, propose that the money be infused into the Pell Grant program to allow appropriators to “continue to set the maximum [Pell Grant] award” so as not to end up capping the maximum award amount.

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The Plot Thickens for the Future of Student Lending

Student Loan Girl — Tue, 14 Apr 2009 00:00:00 GMT

It’s “all hands on deck” for federal student loan lenders. The banks and third-party student loan providers that make up the Federal Family Education Loan Program have made it abundantly clear that they’re not going to roll over and accept the terms of the Obama administration’s proposal to axe their loan program in favor of the Education Department’s Direct Loan Program without a fight, The New York Times reports (“Plan to Change Student Lending Sets Up a Fight,” April 12, 2009)

“We can either meet or beat the budget savings that are in the president’s budget with the exact same system that we have got working now with maybe a few tweaks,” said Albert Lord, chief executive of Sallie Mae, the largest student loan provider participating in the FFEL program.

According to Congressional Budget Office calculations, establishing the Direct Loan Program as the sole provider of federal student loans is projected to save the government $94 billion over the next 10 years, savings that President Obama has said would be funneled directly into the federal Pell Grant Program for low-income students.

Lender-Proposed Alternatives Come Up Short

Lord and other FFELP lenders who oppose the administration’s plan are pushing for a compromise between the Obama plan and the current system that would allow them to continue offering students valuable lending services — quality customer relations, billing, and default prevention and collection — and still achieve Obama’s goal of saving taxpayers money.

FFELP lenders say such dually-beneficial partnerships are possible, which can be evidenced by a compromise that Congress approved last year that allows FFELP lenders to originate student loans using federal money and to resell the loans back to the government. FFELP lenders, which provide more than $56 billion of the nation’s federal student loans, were able to continue making loans to families and the government was able to ensure that families still had access to federal student loans.

But the savings Sallie Mae projects under its compromise plan still only add up to about 82 percent of the president’s savings goal over the next five years.

Supporters of the president’s plan say that this savings shortfall, as well as the fact that FFELP lenders are still relying on the government’s help to retain lending capital, raises the question, “why do we even need private lenders,” asked Representative Timothy Bishop, D–N.Y., a former provost of Southampton College.

Bishop argues that expanding the Direct Loan Program, which provides federal student loan funds directly to more than 1,500 schools is “obvious and long overdue,” being that over the last few decades private lenders have earned huge profits at relatively no risk because the government guarantees repayment up to 97 percent.

Factional In-Fighting Could Favor Lenders

In addition to battling lenders, lawmakers are also fighting an internal battle. Republicans say Obama’s plan is just another means to expand government control over the private sector, while Democrats are divided, with some legislators favoring the plan while others, who represent districts that rely heavily on student loan providers for employment, are siding with private lenders.

Allen Boyd, D–Fla., argues that the president’s proposal could jeopardize thousands of jobs across the country, including 650 in his own district, at a time when unemployment is already rampant. And the states that administer loans through state-based guarantee agencies, considered quasi-government entities that benefit the same as private lenders, are fighting to retain their lending business.

To help keep these quasi-government agencies afloat if they lose their FFELP business, the Obama administration has proposed spending $500 million a year on these agencies’ financial literacy programs and services.

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College Sports to Be Taxed?

Student Loan Girl — Thu, 05 Apr 2007 22:32:00 GMT

“An influential Republican senator has asked the Congressional Budget Office to investigate how tax exempt bonds are used by universities and to review the tax-exempt status of college sports,” according to an April 4, 2007 article by Paul Fain titled “Senator Wants Reviews of Tax Breaks for College-Issued Bonds and Sports” that appeared in The Chronicle of Higher Education.

The article stated, “The studies were requested by Sen. Charles E. Grassley of Iowa, the senior Republican on the Senate Finance Committee, in two letters sent on Tuesday. The letters, copies of which were obtained by The Chronicle, are the latest in a series of rumblings from Congressional Republicans who are threatening to tighten tax rules relating to universities.”

Grassley commented that the purpose of the proposed investigation is simply to review the process and not necessarily tighten higher education tax policies. The article quoted Grassley from one letter: “‘We would like to gain a better understanding of the economic benefits received from the tax-exempt status of college athletics,’ Mr. Grassley wrote.”

Specific Research Requested

As stated in the article, the senator specifically requested that the Congressional Budget Office research the following:

“The use of tax-exempt bonds to finance the construction and renovation of university athletics facilities.
Charitable status for booster programs, including those created to give boosters the right to purchase tickets
The distribution of tax benefits among the participants in college athletics, including colleges, administrators, coaches, athletes, alumni, donors, and spectators.
The economic effects of the tax treatment of college athletics.”

Tax Exempt Status to Be Scrutinized

Apparently last year Congress received many complaints regarding the “increasing commercialization of intercollegiate athletics,” the article stated. That may very likely be why Grassley formulated his inquiry.

The article briefly outlined the finer points regarding university athletics and the proposed research:

“Mr. Grassley’s letter asks the Congressional researchers to measure the scale of tax-exempt borrowing by universities, to show how universities use the proceeds from tax-exempt bonds, and to compare the value of tax breaks to the costs of raising capital through the market.

“The letter closed with a request for guidance on types of additional reporting to the IRS and the public that would ‘provide useful information with respect to the borrowing by colleges and universities of tax exempt financing while maintaining large untaxed portfolios of assets.’”

Tighter Tax Rules Would Result in Increased College Costs

The bottom line suggested by tighter tax rules if the IRS and government change their policy? Higher college costs. The article stated that “A broader definition of tax arbitrage could substantially increase costs for universities, said Kelly D. Farmer, director of the tax department at the University of Minnesota-Twin Cities.”

The article summarized, “‘It’s a whole new way of doing business,’ Mr. Farmer said.”

The student loan advisers at NextStudent are helpful and knowledgeable about student loans. They are a trusted source in getting you the appropriate information about your student loan consolidation, student loan options and helping students get the college financing they need. Go to www.nextstudent.com for more information.

Be sure to tune in next Thursday for my next blog on student loan advice.

Student Loan Girl

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