Friday, December 04, 2009

The Student Loan Battle Continues, Part 1

by Andrew Gillen

In response to the CBO analysis showing the alternative to SAFRA would save $75 billion, Chairman George Miller (D) attacked the scoring, stating that
“You can dress this up 100 different ways and put a Santa Hat on it, but this is still the same budget gimmick.”
Ranking Republican John Kline retorted that
“It’s clear that Democrats didn’t like the truth… so they shamelessly decided to have a little fun with the numbers.”
Oh, whoops, that wasn’t Kline on criticism of the CBO scoring of the alternative bill, it was Chairman Miller on criticism of the CBO scoring of SAFRA (just replace “Democrats” with “Republicans”).

One of the budget gimmicks that Miller correctly notes is that
Most of the savings the Sallie Mae plan generates are achieved through the gimmick of sunsetting the proposal after five years.
This is certainly very gimmicky. Unfortunately, people don’t seem to mind gimmicks when they work in their favor. Consider a sunsetting of a provision of the College Cost Reduction Act that influences SAFRA’s score. Currently, the interest rate on subsidized loans for undergraduates is scheduled to increase from 3.4% to 6.8% in 2012-2013. Are we really to believe that Congress is going to let the interest rate double in three years time? The chances of that happening are slim to none, but that’s what the current law says, so that’s what the CBO scores it as. This is a source of significant revenue for SAFRA that will not materialize, so this certainly qualifies as a gimmick on par with the lenders sunsetting provisions.

Moreover, recall the Democratic response to a gimmick concerning administrative costs:
they were replying to a letter that very explicitly noted that the 86.8 figure included 7b in savings from eliminating FFEL administrative costs, but not the 7.2b in additional administrative costs for DL. That they are aware of this and still insist on using the 90b figure is Enronesque.
Sadly, these are just more examples of the inappropriate use of CBO’s analysis. As Free Exchange noted
Ideally, the parties would approach each piece of analysis produced by the CBO as being informative but recognizing potential shortcomings. Instead, the side helped by a release trumpets it as unassailable and the side harmed by it says that this time the CBO blew it. So instead of having profitable debates about an agreed upon set of imperfect figures, we get unhelpful chaos.

1 comment:

aileen said...

I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.