Letter to Phillip Swagel, Director of the Congressional Budget Office - Davidson Addresses Unexpected Costs of Federal Student Loan Program


Dear Director Swagel:

In March 2010, President Obama signed the Health Care and Education Reconciliation Act into law. The Congressional Budget Office (CBO) estimated that these federal student lending programs would save taxpayers $40 to $62 billion from 2010 through 2020.

After almost a decade of stating the program would return a profit, CBO produced a new projection in May 2019 that showed the program would cost taxpayers $31.5 billion over the next decade. In 2020, the Department of Education conducted an internal analysis, which looked at $1.37 trillion in student loans held by the federal government. The study concluded that borrowers would only pay back $935 billion in principal and interest, meaning taxpayers would be left with the signification expense of $435 billion.

CBO miscalculated the cost of the Healthcare and Reconciliation Act by $503 billion, before factoring in President Biden's student loan bailouts. Congress may not have passed this bill had CBO appropriately scored it. Congress needs an updated, accurate, and transparent estimate from CBO so it can fix our student lending programs going forward. It is imperative that Members of Congress, and the public, have access to disclosures on the data, programs, models, assumptions, and other details that CBO uses to estimate the cost of legislation. This transparency is necessary to ensure accuracy and confidence in CBO's reports.

We respectfully ask CBO to answer the following questions:
1. Both formulas used by CBO in 2010 showed that the program would yield gross savings. The FCRA methodology did not include the cost of risk that loans impose on taxpayers, but the Fairvalue basis "explicitly" included the cost of risk. What process did CBO use to make assumptions on the number of borrowers that could potentially default on their loans?
2. In 2019, CBO used both formulas again to calculate the program's budgetary impact but came to a different conclusion − a $31.5 billion expense to taxpayers. Specifically, what caused this change in cost?
3. Please provide an updated projection on the cost of the Health Care and Education Reconciliation Act that includes the total projected cost of these student lending programs on taxpayers.

Thank you for your attention to this letter and for your prompt response.