Another Day, Another Estimate From CBO...And This One's $20 Billion Lower

Update:  Inside Higher Ed provides an excellent overview of where student aid reform sits today and provides a civic lesson in reconciliation.  IHE also indicates how the White House thinks about student aid reform relative to health care:

"Because health care reform is the administration's top priority, White House officials are likely to walk away from anything that stands between them and passage of the health bill. So if they were to decide that opposition to the student aid changes might prevent meaningful numbers of Congressional lawmakers from supporting the combined health care/student aid legislation in budget reconciliation, Congress watchers say, SAFRA could find itself put off once again."

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I was reading a WSJ editorial (their 3rd or 4th) on the topic of student loan reform when I came across this passage:

"The plan that passed the House includes $67 billion in "savings," according to a Friday estimate from the Congressional Budget Office."

Hmm...wasn't the savings figure $87 billion?  A quick search yielded this story from the Chronicle of HIgher Education which provided a detailed description on what has transpired:

"A new analysis by Congressional budget analysts shows that President Obama's proposal to end the bank-based system of distributing student loans would save $67-billion over 10 years, more than 20 percent less than the previous year's estimate.

The estimate by the nonpartisan Congressional Budget Office has both budgetary and political implications for Mr. Obama and Congressional Democrats who had hoped to use the earlier budget-office estimate of $87-billion in savings as the basis for an aggressive round of education spending increases."

As for the reasons for the change, the Chronicle had this to say:

"The letter did not identify any specific reasons for downgrading its previous year's estimate of the savings from the proposed student-loan changes. Obama administration officials, however, have been advising colleges to prepare for the 2010-11 academic year by switching now into the Education Department's direct-lending system. They acknowledge that such voluntary switches would naturally reduce the savings that would be credited to any legislation that later mandates the move."

The CBO letter also raised the cost of the Pell Grant proposal to $200 billion:

"The cost of Mr. Obama's plan to expand Pell—increasing its maximum per-student value each year by the rate of inflation plus one percentage point—would cost $200-billion over 10 years, far more than the amount obtained from the entire student-loan overhaul measure, the budget office said in its analysis."

• An SLA analysis of Dept. of Education has found that Pell Grant disbursements are up over 50% in each of the first two quarters of the 2009-10 academic year as compared to year ago periods.  

Of course, using accounting rules that would make Enron proud, the Congress can choose to ignore the latest projections and use the $87 billion figure:

"For now, Congress could adopt the $67-billion figure immediately as the bill's score, or continue to use the old $87-billion estimate, but it must use the new figure once it passes a budget outline for 2011, which is expected to occur in the next month or two."

The plot thickens....

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Here are the portions of the CBO letter that relate to the President's education proposals: 

"Most of the President’s proposals for education fall into two areas. The first would replace the existing discretionary funding for Pell grants with new mandatory spending, index the maximum award for inflation for future years beginning in 2011, and make changes to the formulas that determine eligibility for grants. Under current law, the program is funded with a combination of annual discretionary appropriations and mandatory funds. The proposed changes would boost mandatory spending by $374 billion over the 2011–2020 period, of which $177 billion would replace discretionary spending in CBO’s baseline; thus, the net effect of the proposal would be an increase of $197 billion in outlays over the next 10 years.

The second major proposal for education would eliminate the federal program providing guarantees for student loans, replacing guaranteed loans with direct loans made by the Department of Education. Under the Federal Credit Reform Act, the budgetary cost of guaranteed loans and direct loans is the estimated present value of the total cash flows over the life of each loan, with such cash flows discounted to the time of loan disbursement using the rates on U.S. Treasury securities of comparable maturity.  The direct loan program is estimated to have a lower cost per dollar loaned than the guaranteed loan program has. Therefore, replacing the guaranteed loan program by providing additional direct loans would, by CBO’s estimates, yield budgetary savings totaling $67 billion over the 2011–2020 period."