Testimony of Dr. Thomas S. Neubig
Ernst & Young LLP before the
House Committee on Education and the Workforce
“Fiscal Responsibility and Federal Consolidation Loans:
Examining Cost Implications for Taxpayers, Students, and Borrowers”
March 17, 2004
Mr. Chairman and Members of the Committee:
I am the National Director of Ernst & Young LLP’s Quantitative Economics and Statistics
practice. I was previously the Director and Chief Economist of the U.S. Treasury Department’s
Office of Tax Analysis.
I appreciate the invitation to testify before the Committee to discuss the results of two studies on
the costs and benefits of the Federal Family Education Loan (FFEL) consolidation student loan
program. The two reports, “The Net Incremental Cash Flow and Budget Effects of the FFEL
Consolidation Loan Program, FY2005-FY2010” and “The Effect on Student Borrowing Costs if
Consolidation Loans Were Variable Rate Loans Rather Than Fixed Rate Loans,” are also
submitted for the record. Both reports were prepared at the request of Collegiate Funding
Services LLC. My testimony summarizes the key findings from the reports, with estimates
updated for the most recent loan volume and interest rate projections.
Two Key Considerations
Two key considerations for policymakers considering the cost implications of consolidation
loans during the coming Higher Education Act reauthorization are:
1. Consolidation student loans are not all alike from a cost perspective. The cost of
future consolidation loans will be much less than the estimated cost of the current
3.5% loans.
Depending on the interest rate environment, a year’s issuance of consolidation loans could bring
in significant fee revenue to the U.S. government or could require significant expenditures.
Three groups of consolidation loans should be distinguished:
• Loans made before FY03 have already generated $1.7 billion of consolidation loan fees
from lenders to date with only $0.3 billion of government payments to lenders. The