Obama justified his government takeover of student loans saying it would help pay for the health care bill. Now the CBO says this will ADD $52 billion to the deficit. It appears Obama just invents justification for enlarging government control and figures the "commoners" are too apathetic or stupid or entranced by his magnetism to check the facts. So far he's right. If the American people don't awaken from their stupor then perhaps it is time for intelligent citizens to leave the country. Then who will big government feed upon? With the producers gone, only the entitlement loafers will be remain. The question is what will happen then? Will they topple the government to take Obama's amassed personal wealth? Doubtful, he'll be long gone along with his stuffed bank accounts. And he will sit smugly living in luxury saying, I got back at them, Reverend Wright.
CNSNews.com
Obama’s Student Loan Takeover Adds $52 Billion to Deficit According to 'Fair Value' Accounting, Says CBO
Wednesday, March 31, 2010
By Edwin Mora
President Barack Obama (AP Photo)
(CNSNews.com) -- The student loan overhaul legislation signed into law by President Barack Obama on Tuesday could add $52 billion to the deficit between 2010 and 2020 when the cost of the market risks and administrative expenses of the loans are taken into consideration, the non-partisan Congressional Budget Office (CBO) reported.
“CBO recently estimated that whereas loans issued in the direct loan program between 2010 and 2020 would reduce the deficit by a total of $68 billion under FCRA accounting, those loans would increase the deficit by $52 billion on a fair value basis,” reads the March 2010 CBO study, Policy Options for Federal Student Loan Programs.( See p. IX of the Summary.)
The CBO report further notes that it explained its calculations about the budgetary impact of the administration's plan to change the federal student loan programs and the $52-billion addition to the deficit in a March 15 letter sent to Sen. Judd Gregg (R-N.H.), the ranking member of the Senate Budget Committee.
In the study, the CBO explains how the accounting mandated through the Federal Credit Reform Act (FCRA) is the standard procedure used to record the budgetary costs of the government’s direct and guaranteed loan programs.
However, the CBO notes that FCRA cost estimates exclude the value of “market risks” and the loan programs’ “administrative expenses” while the CBO’s “fair value” estimates takes them into account.
This discrepancy between the two estimates results in the FCRA figure being a less “comprehensive” appraisal of the true cost to taxpayers of the federal government’s direct student loan program, according to the CBO report.
“Fair-value subsidy estimates, which include the cost of risk and administrative costs, provide a more comprehensive measure that allows the costs of the two programs to be compared on a level playing field,” states the study.
It further reports, “The FCRA methodology does not include the costs to taxpayers that stem from certain risks involved in lending -- risks that private investors would require compensation to bear.”
“In particular, although the FCRA methodology accounts for average losses from defaults, it does not recognize a cost for the risk that losses from defaults will be higher during periods of market stress, when resources are scarce and hence most valuable,” reads the report. “Such ‘market risk’ is excluded from FCRA estimates because that methodology discounts expected future cash flows at Treasury borrowing rates rather than at higher interest rates that incorporate the price of risk.”
Furthermore, according to the study, the “FCRA estimates do not include administrative expenses, which are recorded separately in the budget each year on a cash basis (that is, undiscounted). That treatment mixes together current year administrative costs for outstanding loans and for newly originated loans.”
Education Secretary Arne Duncan. (AP Photo/J. Scott Applewhite)
The federal government operates two student loan programs. One is the Federal Family Education Loan program (FFEL), which refers to the government loan guarantees to private lenders that offer student loans. The other is the William D. Ford Federal Direct Loan Program (FDLP), in which the Department of Education issues direct loans to borrowers.
On Tuesday, Mar. 30, President Obama signed into law his proposed changes to the student loan program as part of the Health Care and Education Reconciliation Act of 2010 that passed the Senate last Thursday by a 56 to 43 vote, with Republicans unanimously voting against it.
Despite the CBO highlighting that under “fair-value” estimates the direct loan program would increase the deficit between 2010 and 2020, the student loan overhaul calls for eliminating the federal government’s loan guarantees -- which subsidize private banks and other financial institutions for making loans -- and replacing them with direct loans made by the Department of Education. The new law apparently will place more strain on the direct loan program.
As of July 1, all new government-backed student loans will come directly from the federal government. The Department of Education will hire private companies, under performance-based contracts, to disburse and collect the new loans.
Nevertheless, after signing the student loan overhaul bill at the Northern Virginia Community College in Alexandria, Va., the president said: "By cutting out the middleman, we'll save the American taxpayers $68 billion in the coming years. That's real money."
During a telephone conference on Tuesday, former Virginia Gov. Tim Kaine, now the chairman of the Democratic National Committee (DNC), said the new student loan law would reduce the deficit as well as spending.
“What we’re doing is we’re taking a program and we’re going to save $68 billion dollars in subsidies that were being paid by the federal government to financial insitutitions,” said Kaine.
“We’re taking that $68 billion over the next 10 years out of the system, we’re going to use $10 billion of it to pay down the deficit,” he said, “and we’re going to use north of $50 billion of it to expand college access to more students and make the Pell Grant amount higher. … So this is a net benefit in terms of reducing the deficit and reducing spending.”
Savings for taxpayers stemming from the new student loan law are about $22 million lower under the “fair-value” assessment than they are under the FCRA estimate.
According to the CBO study, “The savings from implementing the President’s proposal to replace FFEL loans with direct loans decline from a total of $62 billion over the 2010–2020 period under FCRA accounting to $40 billion on a fair-value (accounting).”
“The savings are smaller on a fair-value basis because that measure, which takes into account the risk associated with those payments, assigns them a lower cost to the government and thus finds a smaller benefit from eliminating them,” said the CBO.
Furthermore, the CBO study revealed that under the “fair-value” estimates, the overall student loan program, including both direct and loan guarantees, would add to the deficit.
“CBO’s calculations indicate that if subsidies were computed on a fair-value basis, student loans made in both the direct and guaranteed loan programs would impose costs on the federal government, and those costs would represent a significant share of the principal value of the loans issued,” stated the study.
While a direct loan program may have “a negative subsidy rate of 9 percent under FCRA (meaning that it reduces the deficit), the same loan has a positive subsidy rate of 12 percent on a fair-value basis,” said the CBO.
Nevertheless, the study indicated that under the “fair-value” and FCRA assessments, the government guaranteed loan program ends up being more expensive.
The study also noted, “CBO’s fair-value subsidy estimates are highly sensitive to assumptions about a variety of uncertain factors, such as the effect of risk on discount rates and the allocation of federal administrative costs between programs.”
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Ozark_Sunshine (19 hours ago) Thanks blackhattt.
Swish (19 hours ago) The agenda of socialism is more than a little scary when viewed from afar. When you are getting to live with it... Be honest now... none of us are actually leaving the country, but how many of you have done the internet search to see if there are other nations in the world with a similar system of government where we could move...
rank (1 day ago) Remember.... Figures don't lie.... BUT LIARS FIGURE! This is bad enough, however,wait until you see just how dramatic the Medicaid adjustments impact your state taxes, as the result of Obamacare. Then wait until the smaller compamies have a chance to analyze the impact that Obamacare will have on their bottom lines. We are in for one heck of a wild ride, and I hope we survive it!
rank (1 day ago) Remember.... Figures don't lie.... BUT LIARS FIGURE! This is bad enough, however,wait until you see just how dramatic the Medicaid adjustments impact your state taxes, as the result of Obamacare. Then wait until the smaller compamies have a chance to analyze the impact that Obamacare will have on their bottom lines. We are in for one heck of a wild ride, and I hope we survive it!
rowley (1 day ago) It's just another way for the politically appointed bureaucrat to control citizens and buy votes for the party in power. They will be paying for these voters by choosing who will and who won't be given loans. The money the Fed. is lending does not exist and must be freshly printed. It must be paid back by the children and grandchildren of the loan's recipient. Is this a good deal or is this an April Fool's Joke?
Jack Kinch(1uncle) (1 day ago) More socialism. States pass amendment- Congress shall add no amendments to bills before congress. Each subject shall be taken up and voted on separately.Example: No student loans on health bill.
bargal (1 day ago) All the lawmakers we have are on the take and I hope some hurries and takes them as soon as possible. TERM LIMITS AND NO CHANCE OF GETTING BACK IN AFTER X AMOUNT OF TIME PASSES. TERM LIMITS AND THEN THEY ARE OUT OF THE GOVERNMENT FOREVER, and then maybe we can get some that deserve it, put behind bars where they belong
What a mess (1 day ago) Seriously, CBO to little too late. Back peddling now only makes you look even more ridiculous. How do you have jobs? Were you paid off to stay quiet until the law was signed? One only has to wonder. Enjoy the mess you were part of creating.
blackhattt (1 day ago) USSANEWS.com - enough said
moriarity (1 day ago) If you listen closely you can hear the moronic masses chanting......Yes we can, Yes we can! This Country undoubtedly harbors the most ignorant electorate on the face of the globe. They even vote to willfully surrender their liberty....with great relish!
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