Report Assesses Cost of Direct Loans.

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Author: Field, Kelly

Direct lending to college students has cost taxpayers more than originally forecast, but it still costs five times less per loan than guaranteed lending, according to a Government Accountability Office report released belatedly last week by the Republican chairman of the House of Representatives' education committee.

The report, which was commissioned by the panel's chairman, Rep. John A. Boehner, a year ago, was completed on September 29 but kept under wraps until the day before his committee was scheduled to take up a bill that would wring billions in savings from the competing loan programs. Students have received $150-billion in direct loans and $396-billion in guaranteed loans over the last 10 years.

Under the direct-loan program, the Education Department provides loans directly to students through their colleges, bypassing the banks and student-loan-guarantee agencies that make up the rival guaranteed-loan program.

According to the report, direct loans issued between 1994 and 2004 will cost the government $2.5billion, $4.6-billion more than the $2.1-billion they were expected to save, while guaranteed loans will cost the government $36.6-billion, $1.4-billion more than anticipated.

The report attributed the disparities in both of the programs to lower-than-expected market interest rates, greater-than-anticipated volume in loan-consolidation, and new data on student loan borrowers.

However, the report acknowledged that it was difficult to assess the true cost of the programs because estimates did not take into account federal administrative expenses, some costs of the risks associated with lending money over time, and federal tax revenues generated by both programs.

The report estimated that if administrative expenses were taken into account, the cost of direct lending would increase by $1.45 per $100 in loans, to $3.15 per every $100, and the cost of guaranteed lending would increase by 69 cents, to $9.89 per $100 in loans.

The report also cautioned that cost estimates would continue to change as loans are paid off, and it warned policy makers against making decisions on the basis of the estimates. Republicans have tended to promote the guaranteed-loan program, while Democrats tend to support direct lending.

Republicans in both the House and the Senate dismissed the report in a statement, saying that it failed to provide recommendations on how to better assess the costs of the programs.

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By Kelly Field