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The First Marblehead Corporation Message Board

  • jenniferremington1990 jenniferremington1990 Jun 25, 2013 11:57 AM Flag

    Federal Student Loans Cost Taxpayers Money

    "FCRA accounting does not consider some costs borne by the government. In particular, it omits the risk taxpayers face because federal receipts from interest and principal payments on student loans tend to be low when economic and financial conditions are poor and resources therefore are more valuable. Fair-value accounting methods account for such risk and, as a result, the program’s savings are less (or its costs are greater) under fair-value accounting than they are under FCRA’s rules. On a fair-value basis, CBO projects that the student loan program will yield $6 billion in savings in 2013 and will have a cost of $95 billion for the 2013–2023 period as a whole, compared with projected savings of $37 billion this year and $184 billion for the entire period on a FCRA basis."

    Interesting article from TheHeritage.org. I don't think a lot of people take into account default risk on student loans issued by the government. They're running at around 14% default rates vs 4% or so on private loans.

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