- The Washington Times - Wednesday, May 12, 2004

Sallie Mae has become a casualty of a trigger-happy media dragnet of alleged corporate-welfare beneficiaries. A private company that provides funds primarily for government-backed student loans, Sallie Mae has saved taxpayers considerable sums of money by collecting loans more efficiently than the federal government. A number of publications, though, have widely and wrongly reported that incorporating Sallie Mae into the process adds extra costs.

The numbers indicate that Sallie Mae, which owns or manages nearly $72 billion in student loans, is part of a rare entitlement-program success story. According to the Treasury Department, the federal government’s direct student loans in 2002 cost taxpayers four times what the Federal Family Education Loan Program (FFEL), which guarantees some loans made by Sallie, costs. Default costs for the program have declined by almost half over 10 years, in real terms, while the volume of outstanding loans has nearly tripled. The cost of the program to taxpayers declined by 83 percent over 10 years, while the cost of other federal entitlements rose by 33 percent.

Readers of U.S. News & World Report, the New York Times and other publications would end up with a very different impression. Why? These publications reported the federal government’s projected cost of its direct student loans, rather than actual cost. As journalists who cover budgetary issues are quite aware, real costs often vary considerably from predictions.

According to the General Accounting Office, from 1995 to 2000, the government collected less than half of the amount of interest it forecasted in the previous year’s budget. In this year’s budget, the Department of Education had to allocate $4.6 billion in the direct-loan program to pay for prior year underestimates. Importantly, the budget also includes a $3 billion downward adjustment to account for the overestimate made in last year’s budget of the FFEL.

Yet, U.S. News said in an Oct. 27 issue, “Government figures show that direct loans typically bring in 22 cents for every $100 borrowed, after deducting for administrative expenses,” it failed to specify that those “figures” were predictions, not costs. That article also said, “Many education finance experts consider the Direct Loan Program more efficient than the FFEL.” A 1999 study by the Education Department inspector general rebuts those unnamed sources. While the federal government spends $17 servicing each loan, the private sector spends $13 per loan. The New York Times in a May 6 editorial made similar erroneous claims.

Meanwhile, the federal government’s direct student-loan program is in real trouble. According to the FY 2002 Accountability Report of the Department of Education, the program owed $89 billion to Treasury, while borrowers owe it $82.7 billion.

It is a shame that the media have failed to report the real costs. Taxpayers will ultimately pay the price.

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