Congressional concern about the FDLP inefficiency led to a General Accounting Office (GAO) investigation which noted that since FDLP borrowers were allowed to defer payment of their loans until out of school, a negative cash flow would result until more borrowers begin repayment. However, the GAO could not determine when or whether positive cash flow would occur.
Fifteen years after this study, FDLP is still losing money. It has actually paid more in interest to the Treasury than the amount of interest it has received from borrowers. By contrast, the opposite has occurred with FFELP where the rates of borrowers and payments to the lenders are connected by statute and market rates. There is little question where and under what circumstances the taxpayers’ investment is protected.
To state the obvious, when a private company makes a bad decision, those who suffer the consequences are members of the company and stockholders. When government makes a mistake, the taxpayers pay the price.
The FDLP, based on all reports, is not living up to expectations and it is costing the taxpayer billions. Simply put, there is an alternative in the private sector that is far more efficient than its government operated counterpart. It can provide the same loans and can do so without burdening the American taxpayer. Congress should take a long, hard look at the FDLP. If it can put aside its natural bias for a moment, it would realize America’s tax dollars are better spent elsewhere. Congress, are you listening?
Herb London
Herbert London is president of Hudson Institute and professor emeritus of New York University. He is the author of Decade of Denial (Lanham, Maryland: Lexington Books, 2001).
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