Fair-Value Accounting Shows Switch to Guaranteed Student Loans Costs $102 Billion

article | March 26, 2012

Last week the Republican majority on the House Budget Committee released a fiscal year 2013 budget resolution. For the second year in a row, the document includes a so-called “fair value” rule that applies to cost estimates for federal loan programs – including student loans. While the rule went largely unnoticed last year (except by us here at Ed Money Watch), this year it has attracted a bit more attention. And with any budget rule, added attention begets added confusion.

Many have mischaracterized fair-value accounting as a Republican gambit to reinstate some version of a guaranteed student loan program and replace the 100 percent direct lending model in place since 2010. If that is in fact the intent, Republican lawmakers are terribly confused, because reinstating the guaranteed loan program in place of direct lending would cost $102 billion over a ten-year budget window according to fair-value estimates.

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