WASHINGTON, March 15 /PRNewswire/ -- The Council for Citizens Against
Government Waste (CCAGW) today criticized Senators Ted Kennedy (D-Mass.) and
Gordon Smith (R-Ore.) and Representatives Thomas Petri (R-Wis.) and George
Miller (D-Calif.) for reintroducing the Student Aid Reward Act, which will use
taxpayer dollars to stimulate the growth of the money-leaking Federal Direct
Loan Program (FDLP). A March 2004 report from the Government Accountability
Office (GAO) raised questions on whether FDLP was saving money. The report
found that in fiscal years 1995-2003, total cash outflows for FDLP exceeded
total cash inflows by $10.7 billion.
"With a straight face, these members of Congress tell us that we should
use tax dollars to bribe colleges and universities away from more efficient
private source loans to the failing direct loan program, all in the name of
'saving money,'" CCAGW President Tom Schatz said.
According to a GAO report released in November 2003, the FDLP share of
total new loan volume steadily decreased from its peak of 34 percent to 28
percent. Many colleges and students flocked to the privately-run Federal
Family Education Loan Program (FFELP) for its more attractive terms to
borrowers.
The direct loan program, first implemented in 1993 with the promise to
save tax dollars by cutting out the "middle man" of commercial banks, is
similar to the private FFELP, but differs in a fundamental way. FFELP uses
private sources such as banks or other lenders to provide federally guaranteed
student loans. Private lenders issue, service, and are paid back the loans.
In contrast, FDLP loans are taken directly from the U.S. Treasury, and
recipients pay the money back to the federal government. FDLP is losing money
because origination fees and receipts from borrowers are less than the amount
of interest the Department of Education (DoED) pays on the money it borrows
from the Treasury.
In 1999, the DoED inspector general estimated it cost the government $17
per loan to manage the FDLP while it would have cost private lenders $13 per
loan to manage the same program. In fiscal 2005, the DoED will provide nearly
$84 billion in student aid grants and loans to 10 million students and
parents. Considering the large percentage of loans still outstanding, the
FDLP is digging itself into a deeper financial hole. Senator Kennedy claims
that the savings in his legislation will be used to increase Pell Grants,
costing taxpayers nothing.
"We have heard this siren song before," Schatz concluded. "Whenever
Senator Kennedy talks about a government program that will save tax dollars,
taxpayers should hang onto their wallets. Congress needs to wake up to the
real costs of direct lending instead of expanding a program that continues to
waste tax dollars it was purportedly designed to save."
CAGW will issue a report this spring on why the direct loan program has
not delivered on its promised savings.
The Council for Citizens Against Government Waste is the lobbying arm of
Citizens Against Government Waste, the nation's largest nonpartisan, nonprofit
organization dedicated to eliminating waste, fraud, abuse, and mismanagement
in government.
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SOURCE Council for Citizens Against Government Waste
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Related links:
http://www.cagw.org
CONTACT:
Tom Finnigan or Lauren Cook of the Council
for Citizens Against Government Waste, +1-202-467-5300
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