Tuesday, March 16, 2010

FFEL Savings Estimates Fall Again

by Todd Holbrook

The CBO released its latest savings estimates for the elimination of the FFEL program late yesterday. The estimated savings have dipped yet again, with the lowest coming in at a cool $40 billion, nearly $30 billion below the previous projection (and less than half of the one before that).

The report named credit assistance (present value of future administrative costs and market risk) as the basis for the alternative methodology used in obtaining the lower figure. Another estimate given was $62 billion, $6 billion below a previous estimate credited to a"projected increase in annual discretionary administrative costs in the direct program". The CBO used Federal Credit Reform Act (FCRA) methodology to obtain the $62 billion estimate, but this methodology was dropped for the $40 billion estimate. The reason: FCRA methodology does not account for market risk -seen here as default rates.

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