BASIS OF ESTIMATE
As required under the Federal Credit Reform Act of 1990 (FCRA), most of the costs of the federal student loan programs are estimated on a net-present-value basis. Under creditreform, the present value of all loan-related cash flows is calculated by discounting thoseexpected cash flows to the year of disbursement, using the rates for comparablematurities on U.S. Treasury borrowing. (For example, the cash flow for a one-year loan isdiscounted using the Treasury rate for a one-year zero-coupon note.) The costs for thefederal administration of student loans are estimated on a cash basis. For this estimate,CBO assumes the bill will be enacted by October 1, 2009, and that the necessary fundswill be appropriated for all discretionary programs.
H.R. 3221 would amend the federal student loan programs (including the Federal PerkinsLoan Program) and the Federal Pell Grant Program and would amend or create severalother programs. Those changes would decrease net direct spending by $13.3 billion overthe 2009-2014 period and $7.8 billion over the 2009-2019 period.
Federal Student Loan Programs
. H.R. 3221 would make several changes to the federalstudent loan programs, including the Federal Perkins Loan Program. As shown inTable 2, CBO estimates that, on net, those changes would reduce federal costs by$40.7 billion over five years and $74.8 billion over 10 years. The major changes thataffect direct spending include:
Eliminating new guaranteed student loans under the FFEL program and thusshifting those loans to the William D. Ford Federal Direct Student Loanprogram—saving an estimated $86.8 billion over the 2010-2019 period;
Reducing interest rates on subsidized student loans to undergraduate borrowers—at a cost of $3.2 billion over the 2012-2019 period;
Interactions between the FFEL and direct loan program and various other programchanges—resulting in a net cost of $7.5 billion over the 2009-2019 period; and
Speeding up the phase-out of the current Perkins loan program and establishing anew Perkins loan program in its place—for a net cost of $1.3 billion over the2010-2019 period.