The Daily OrangeFederal government underestimates college loan program costs
By Nicky Corbett
Posted: 3/7/05, 11:40 PM EST Section: News
A new study reveals flaws in the calculation of federal student loan programs' costs.
A Price Waterhouse Coopers study released last week revealed biases in the current cost-calculating system, leading federal budget scorekeepers to underestimate the costs of the Federal Direct Loan Program and overestimate the costs of the Federal Family Education Loan Program. This means direct loans appear cheaper to the federal government than they really are.
"The scores are not an accurate reflection of actual costs," said Peter Warren, director of government relations at the Education Finance Council, one of the three major student loan groups to sponsor the study.
The FFELP, established in 1965, provides federally guaranteed student loans from private lenders, such as banks. The direct loan program came on the scene in 1993, providing loans straight from the federal government.
As universities can only participate in one loan program or the other, SU only participates in the FFELP, said Christopher Walsh, dean of financial aid. About 6,000 SU students borrow money through FFELP.
When the direct loan program came out in 1993, about 25 to 30 percent of colleges and universities switched over from the FFELP, Walsh said.
Although some schools might have chosen the direct loan program because they think the government is a reliable source of money, Shelly Repp, general counsel for the National Council of Higher Education Loan Programs, one of the study's sponsors, said the FFELP has attracted schools by dramatically enhancing its services over the past 10 years.
"We know schools are generally happier with the services they get from private banks," Repp said.
SU chose to stay with the FFELP instead of switching because of problems with the direct loan program, Walsh said. Funding delays have caused some colleges to drop out of the direct loan program.
"Our main interest is that we provide the best program of value for our students," Walsh said.
A Price Waterhouse Coopers study released last week revealed biases in the current cost-calculating system, leading federal budget scorekeepers to underestimate the costs of the Federal Direct Loan Program and overestimate the costs of the Federal Family Education Loan Program. This means direct loans appear cheaper to the federal government than they really are.
"The scores are not an accurate reflection of actual costs," said Peter Warren, director of government relations at the Education Finance Council, one of the three major student loan groups to sponsor the study.
The FFELP, established in 1965, provides federally guaranteed student loans from private lenders, such as banks. The direct loan program came on the scene in 1993, providing loans straight from the federal government.
As universities can only participate in one loan program or the other, SU only participates in the FFELP, said Christopher Walsh, dean of financial aid. About 6,000 SU students borrow money through FFELP.
When the direct loan program came out in 1993, about 25 to 30 percent of colleges and universities switched over from the FFELP, Walsh said.
Although some schools might have chosen the direct loan program because they think the government is a reliable source of money, Shelly Repp, general counsel for the National Council of Higher Education Loan Programs, one of the study's sponsors, said the FFELP has attracted schools by dramatically enhancing its services over the past 10 years.
"We know schools are generally happier with the services they get from private banks," Repp said.
SU chose to stay with the FFELP instead of switching because of problems with the direct loan program, Walsh said. Funding delays have caused some colleges to drop out of the direct loan program.
"Our main interest is that we provide the best program of value for our students," Walsh said.
