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September 15, 2009 11:45 AM CBO Smackdown: SAFRA Saves $17 Billion More than Sallie Mae’s Plan

By Jesse Singal

[Editor’s note: This blog post was originally published on Students Over Banks.]

Last Friday the non-partisan Congressional Budget Office (CBO) released a new estimate comparing the Student Aid and Fiscal Responsibility Act (SAFRA), which is based on the President’s proposal to reform the financial aid system, and the industry counterproposal (PDF) put forward by Sallie Mae. It shouldn’t be too shocking that, despite claims by Sallie Mae that itsplan would provide “similar budget savings” to the President’s plan, the counterproposal would save $17 billion* less than SAFRA. This is largely a result of fees paid to lenders, according to the CBO (PDF):

Student Loan Community Proposal (as drafted)—CBO estimates that eliminating new guarantees of federal loans under the Community Proposal also would reduce direct spending by about $87 billion and that payments to federally designated private loan originators and outlays for loan administrative costs would increase discretionary spending by about $20 billion over the 2010-2019 period. As a result, CBO estimates the net federal savings would be about $67 billion over the 2010-2019 period. That estimate assumes that sufficient appropriations are provided in advance to ensure lenders’ participation.

As Higher Ed Watch pointed out some time ago, the counterproposal was a self-serving attempt to keep Sallie Mae’s hand in the federal honey pot at the expense of students and taxpayers. I hope that the new estimates put to rest any remaining support for this proposal.

I also wanted to point out that, as Sallie Mae released its plan, it estimated a very similar ($17 billion**) difference between their plan and the President’s proposal. Its higher-ups then distanced themselves themselves from that estimate, saying only that the plan would achieve “similar” budget savings.

* Many sources are reporting that the plan would save $13 billion less than SAFRA, but, according to Bloomberg: “It would also incur about $4 billion more than Obama’s plan in costs not directly related ‘to the proposed shift away’ from federally guaranteed loans.”

** This figure would be $10-15.7 billion, depending on whether you look at the percentage or raw dollar difference between the plans, after the more recent CBO scoring (PDF) of the plan.

Jesse Singal is a former opinion writer for The Boston Globe and former web editor of the Washington Monthly. He is currently a master's student at Princeton's Woodrow Wilson School of Public and International Policy. Follow him on Twitter at @jessesingal.

Comments

  • Brad on September 16, 2009 8:07 PM:

    I think the president should eliminate student loan dbt to stimulate the economy back to where people are using the money they owed for student loans to buying stuff such as new house, car, clothes, luxury etc....

  • Dana on September 18, 2009 11:27 AM:

    I agree with Brad. Forgiving student loan debt will help our nation tremendously. The current situation does nothing to incentivize students to pursue higher education, unless their parents foot the bill. Not only will elimination of student loan debt stimulate the economy, it will lead to a more highly educated and more competent workforce at all levels of employment.