The Strange Cost of Fed Student Loans

Preparing yourself, because starting July 1 2013, federal student loan rates of interest are will adjust to rise from 3.4 percent to 6.8 percent. United States Congress considers to preventing the interest rate on federal student loans from rising, the price to taxpayers should be a fundamental issue.

However, in a recent Issue Brief, Heritage analyst Jason Richwine points out that the federal authority's current accounting practices mislead taxpayers about the cost of loans. Factual costs are often higher than reported, but it's unreadable just how high they are.

How is this possible? In budgeting as student loans, U.S. Congress faces the take a risk that many students who receiving loans won't repay as the government expected. The government tries to calculate how much student, who will receive in loan repayments, but there's a high risk that those repayments will be lower than anticipated. Substantial risk occurs at a cost to taxpayers, but recent accounting methods neglect it.

The Congressional Budget authority recognizes this problem and has repeatedly conclude for “fair value accounting,” which would represent the full cost of student loans and another federal credit plans. Under the principles of natural value accounting, the cost of market risk is added into cost estimations. It gives U.S. Congress—and taxpayers—a more accurate characterization of the actual costs of student loan subsidies. This clarity would give benefit to taxpayers and allow U.S. Congress to make a wise decision on the subsidy expansion.

It's inadvisable for US Congress to expand the student loan program without a full agreement of the cost affected.