[Congressional Record (Bound Edition), Volume 154 (2008), Part 5]
[Extensions of Remarks]
[Pages 6094-6095]
[From the U.S. Government Publishing Office, www.gpo.gov]




   CBO COST ESTIMATE FOR H.R. 5715, THE ENSURING CONTINUED ACCESS TO 
                       STUDENT LOANS ACT OF 2008

                                 ______
                                 

                           HON. GEORGE MILLER

                             of california

                    in the house of representatives

                        Tuesday, April 15, 2008

  Mr. GEORGE MILLER of California. Madam Speaker, with respect to the 
requirements of clause 3(c)(2) of rule XIII of the House of 
Representatives and section 308(a) of the Congressional Budget Act of 
1974 and with respect to requirements of 3(c)(3) of rule XIII of the 
House of Representatives and section 402 of the Congressional Budget 
Act of 1974, the Committee on Education and Labor received, subsequent 
to the filing of the Committee report, the following estimate for H.R. 
5715 from the Director of the Congressional Budget Office:

                                                    U.S. Congress,


                                  Congressional Budget Office,

                                   Washington, DC, April 15, 2008.
     Hon. George Miller,
     Chairman, Committee on Education and Labor,
     House of Representatives, Washington, DC.
       Dear Mr. Chairman: The Congressional Budget Office has 
     prepared the enclosed cost estimate for H.R. 5715, the 
     Ensuring Continued Access to Student Loans Act of 2008.
       If you wish further details on this estimate, we will be 
     pleased to provide them. The CBO staff contact is Deborah 
     Kalcevic.
           Sincerely,
                                               Robert A. Sunshine,
                                  (For Peter R. Orszag, Director).
       Enclosure.
     H.R. 5715--Ensuring Continued Access to Student Loans Act of 
         2008
       Summary: H.R. 5715 would:
       Alter repayment and eligibility terms on parent Loans for 
     Undergraduate Students (PLUS),
       Increase the annual and aggregate borrowing limits on 
     unsubsidized loans,
       Give the Department of Education temporary authority to 
     purchase guaranteed loans from private lenders, and
       Clarify provisions relating to the lender-of-last-resort 
     program.
       On balance, CBO estimates that enacting the bill would 
     increase direct spending by $320 million over the 2008-2013 
     period and by $390 million over the 2008-2018 period. The 
     bill would have no impact on revenues. CBO has not yet 
     completed an estimate of the impact of H.R. 5715 on 
     discretionary spending: implementing the bill would probably 
     increase costs for administering the federal student loan 
     programs.
       H.R. 5715 contains no intergovernmental or private-sector 
     mandates as defined in the Unfunded Mandates Reform Act 
     (UMRA) and would impose no costs on state, local, or tribal 
     governments.
       Estimated cost to the Federal Government: The estimated 
     budgetary impact of H.R. 5715 is shown in the following 
     table. The costs of this legislation fall within budget 
     function 500 (education, training, employment, and social 
     services).

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           By fiscal year, in millions of dollars--
                                                             -----------------------------------------------------------------------------------------------------------------------------------
                                                                2008      2009      2010      2011      2012      2013      2014      2015      2016      2017      2018    2008-2013  2008-2018
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                   CHANGES IN DIRECT SPENDING
 
Changes to PLUS Program:
    Estimated Budget Authority..............................       -35       -75       -75       -80       -85       -95      -100      -110      -115      -125      -135       -445     -1,030
    Estimated Outlays.......................................       -20       -55       -65       -70       -75       -85       -90       -95      -105      -110      -115       -370       -885
Raise Limits on Unsubsidized Loans:
    Estimated Budget Authority..............................       -90      -180         5       105       115       105       115       125       135       145       155         60        735
    Estimated Outlays.......................................       -50      -135       -45        65       100       100       100       110       115       125       135         35        620

[[Page 6095]]

 
Purchase of Guaranteed Loans:
    Estimated Budget Authority..............................         0       655         0         0         0         0         0         0         0         0         0        655        655
    Estimated Outlays.......................................         0       655         0         0         0         0         0         0         0         0         0        655        655
Lender of Last Resort:
    Estimated Budget Authority..............................         *         *         *         *         *         *         *         *         *         *         *          *          *
    Estimated Outlays.......................................         *         *         *         *         *         *         *         *         *         *         *          *          *
Total Changes:
    Estimated Budget Authority:.............................      -125       400       -70        25        30        10        15        15        20        20        20        270        360
    Estimated Outlays.......................................       -70       465      -100        -5        25        15        10        15        10        15        20        320        390
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Note: PLUS = Parent Loans for Undergraduate Students, * = less than $500,000.

       Basis of estimate: For this estimate, CBO assumes that H.R. 
     5715 will be enacted before July 1, 2008. As required under 
     the Federal Credit Reform Act of 1990, the costs of student 
     loans are estimated on a net-present-value basis.
     Changes to PLUS program
       The bill would make two changes to the PLUS program. First, 
     it would allow parents to defer payment on their PLUS loans 
     until six months after the dependent borrower leaves school. 
     Under current law, parents must begin repaying the loan 60 
     days after disbursement. CBO projects that approximately 10 
     percent of parent borrowers would take advantage of this 
     determent before repaying their loans. Interest rates on 
     parent loans range between 7.9 percent and 8.5 percent. 
     Because interest on these loans would accrue during 
     deferment, CB0 estimates this provision would decrease direct 
     spending by $370 million over the 2008-2013 period and by 
     $885 million over the 2008-2018 period.
       In addition. H.R. 5715 would allow a lender to determine 
     that a potential PLUS borrower who is delinquent on a home 
     mortgage payment for fewer than 181 days (and might otherwise 
     be deemed not creditworthy) to quality for the PLUS program 
     due to extenuating circumstances. Based on information from 
     lenders and other groups, C130 estimates this provision would 
     have a negligible impact on direct spending.
     Raise limits on unsubsidized loans
       H.R. 5715 would increase the borrowing limits on 
     unsubsidized loans for all students by $2,000 per year and 
     raise aggregate borrowing limits to accommodate those 
     increases.
       Based on data from the National Student Loan Data System 
     and the National Postsecondary Student Aid Study (NPSAS) and 
     about applicants for federal financial assistance. CBO 
     estimates these changes would increase the volume of 
     unsubsidized loans by more than $1 billion in fiscal year 
     2008; that increase would grow to more than $8 billion in 
     fiscal year 2018. CBO expects that the volume of loans made 
     to parents and graduate students in the PLUS program would 
     decrease, as these students and parents would shift some of 
     their borrowing to the unsubsidized loan program, which has a 
     lower interest rate. CBO estimates these changes would 
     increase direct spending by $35 million over the 2008-2013 
     period and by $620 million over the 2008-2018 period.
     Purchase of guaranteed loans
       The bill would grant the Department of Education the 
     authority to purchase guaranteed loans originated on or alter 
     October 1. 2003. from lenders in the Federal Family Education 
     Loan (FFEL,) program, if the Secretary determines that there 
     is insufficient capital available to meet the demand for 
     guaranteed loans. The Secretary would have full discretion 
     over the purchase price of the loans and the decision to buy. 
     This authority would expire on July 1, 2009.
       Under the hill, the Secretary could purchase guaranteed 
     loans only after determining that such a purchase is in the 
     best interests of the United States and does not have a cost 
     to the government. C130 believes that the likelihood of 
     increased costs is greater than the likelihood of increased 
     savings if the Secretary purchases guaranteed loans for the 
     following reasons:
       CBO expects that the volume of loans purchased by the 
     department would yard directly with the offer price. In 
     considering possible outcomes, higher prices would result in 
     higher volumes, and hence relatively large costs; outcomes 
     assuming lower prices would probably involve a lower volume 
     of loans purchased, and any savings under such scenarios 
     would he relatively small. Thus, the expected value of the 
     range of possible results would be a cost.
       C130 expects that lenders would have better information 
     about the future profitability of each loan than the 
     Secretary and might he able to sell loans that are more 
     likely to enter default. and thus generate costs to the 
     government. Lenders would have an incentive to sell the loans 
     that are most likely to result in costs to the government,
       Finally, CBO is unsure how the Secretary would balance the 
     need to be budget-neutral with a competing need to ensure 
     that the loan guarantee industry has sufficient capital to 
     make student loans for the upcoming school year.
       For those reasons, we expect that allowing the Department 
     of Education to purchase guaranteed loans would likely 
     increase costs to the federal government. Based on 
     preliminary information from FEEL lenders, guaranty agencies, 
     and the Department of Education, CBO estimates this provision 
     could increase direct spending by $655 million in 2009. Those 
     costs could be higher or lower depending on what price the 
     Secretary sets for guarantee purchases.
     Lender of last resort
       H.R. 5715 also would clarity two provisions of the lender-
     of-last-resort program, which provides loans to students who 
     otherwise are unable to obtain a loan under the regular loan 
     application process. First, it would specify that guaranty 
     agencies may carry out the functions of the lender-of-last-
     resort program on a school-wide basis rather than an 
     individual borrower basis. CBO estimates that this provision 
     would have a negligible impact on direct spending.
       Second. it would clarify that the Secretary of Education 
     has the authority to advance federal funds to guaranty 
     agencies serving as lenders of last resort who do not have 
     sufficient capital to originate guaranteed loans. CBO 
     estimates this provision would have no impact on direct 
     spending because the U.S. Department of Education has this 
     authority under current law and has published regulations 
     governing the lender-of-last-resort authority.
       Intergovernmental and private-sector impact: H.R. 5715 
     contains no intergovernmental or private-sector mandates as 
     defined in UMRA and would impose no costs on state, local, or 
     tribal governments.
       Estimate prepared by: Federal costs: Deborah Kalcevic and 
     Justin Humphrey; Impact on state, local, and tribal 
     governments: Burke Doherty; Impact on the private sector: 
     Nabeel Alsalam.
       Estimate approved by: Peter H. Fontaine, Assistant Director 
     for Budget Analysis.