CONTACT:

Dr. Watson Scott Swail, wswail@educationalpolicy.org; 540.288.2322
Dr. Fred Galloway, galloway@sandiego.edu; (619) 260-7435

WASHINGTON, DC, July 18, 2005 — A report released today by the Educational Policy Institute suggests that the competition between the two federal student loan programs, the Federal Family Educational Loan (FFEL) Program and the Direct Student Loan (DSL) Program, saves federal taxpayer millions of dollars each year.

Written by University of San Diego professor Fred Galloway and Macro International researcher Hoke Wilson, the report provides a history of the federal loan system and an analysis of the financial impact of the FFEL and DSL programs. According to the report, the competition between the loan programs has saved taxpayers more than $600 million each year. “After listening for years to the claims put forward by supporters of both sides about how their loan program was the cheapest and should be retained at the expense of the other, we felt that the policy debate needed to move away from the current ‘winner take all’ mentality to the very real benefits that taxpayers were enjoying as a result of the direct competition between the two programs,” says co-author Galloway. “The benefits of competition are well known to economists, and although this competition is unusual in that it takes place largely in the governmental arena, the fact that both sides have continued to innovate in the quest for market share suggests that this competition should not only be retained, but encouraged.”

The report also provides a chronology of the federal student loan programs, describing the mismanagement of the FFEL program by the U.S. Department of Education in the 60s and 70s, the financial largesse of guaranty agencies and banking industry in the 1980s, and the evolution of the Direct Student Loan program in the 1990s. “This report isn’t going to make a lot of people on either side of the political fence very happy,” adds co-author Wilson. “And for that we apologize. However, readers need to understand that really no one was acting in an irresponsible way; they were merely following paths laid out by the incentives and institutional structures that existed at the time.” According to Wilson, as a result of an unusual political environment, those incentives and structures have changed to the benefit of the U.S. taxpayer since 1994. “While this system is far from perfect, the system is better as a result of competing forces.”

David Breneman, an economist and Dean of the Curry School of Education at the University of Virginia, is hopeful that the report will engage policymakers in Washington. “The combination of historical perspective coupled with a unique way of looking at the two loan programs, emphasizing the value of competition rather than the search for ‘one best program,’ will hopefully alter the nature of the debate.” Breneman adds that instead of focusing on an “either/or” approach, the EPI report emphasizes the more productive focus on a “both/and” resolution.

Watson Scott Swail, President of the Educational Policy Institute, hopes that this report will shed new light on the student loan debate. “It’s an interesting political story, because the Direct Program is largely seen as Clinton’s policy, when in fact the dialogue really began in earnest with the first President Bush’s administration. Once Clinton took hold of the student loan issue, the tables reversed and have largely become a partisan issue. I’m hopeful that we can move forward from partisanship and think in terms of what’s best for students, families, and taxpayers.”

The report is available for free download by clicking here.

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The Educational Policy Institute (EPI), a non-partisan research organization with offices in Toronto, Washington, and Melbourne, is dedicated to policy-based research on educational opportunity for all students. The mission of EPI is to expand educational opportunity for low-income and other historically-underrepresented students through high-level research and analysis.