Date: 2012-02-07
Speaker: VAN HOLLEN (democrat)
Chamber: H

Madam Chair. I yield myself such time as I may consume. Look. if this legislation only dealt with Fannie and Freddie. thats something that I certainly would support. In fact. the Congressional Budget Office already puts Fannie and Freddie online. I know its an easy catch phrase. but the reality is. behind the discussion of Fannie and Freddie is a whole other discussion about whether we want to apply these rules to things like student loans. And the reality is that if you apply this methodology to student loans. you will systematically overestimate the cost in the budget in terms of outlays. I would just like. Madam Chair. to refer the body to a report that was written by two of the prime advocates for this. Its called "Reforming Credit Reform." Deborah Lucas was one of the coauthors. This was in "Public Budgeting & Finance." winter of 2008. Just let me read a portion because it says: Including a risk premium in subsidy cost produces a cost estimate that on average exceeds outlays for realized losses. That discrepancy between cash flows and subsidy costs must be reconciled in the budget so that over the life of a credit cohort. actual cash flows match budget costs in expectation. Now. as I said. this is a complicated issue. and that sounds like a lot of complicated budgety gobbledygook. Bottom line is. what this bill does is systematically overestimate the costs in the budget on a cashflow basis. And its important that everybody understand this. Right now. when the Federal Government budgets for credit risk. we take into account the default rate. In other words. whether its student loans. whether its clean energy loans. whether its Fannie and Freddie. people make an assessment about what the likely default rate is. That is taken into account and then discounted for present value when you put together your budget. Now. even the advocates of this legislation concede that. Thats not a question. we already do that. And even the advocates of this legislation concede that it will. again. systematically. in the budget. have a higher cost number associated with outlays than reality will dictate. What do I mean by that? It will say that student loans are actually more expensive on a cash basis than they really are. Let me repeat that. If you direct that the Congressional Budget Office move to this kind of accounting. the numbers that will appear in the budget on a cash basis will systematically exaggerate. inflate the costs of the credit program. What that means is if youre a Member of Congress and youre looking at a proposed student loan program and youre looking at the numbers that are forecast. youre going to think that its more expensive in cash terms to the taxpayer than it really is. on average. over time. Therefore. youre going to be less likely to make that investment. potentially. So I think its important as we look at this that we recognize that in place of something that. as I said. the former head of CBO. Bob Reischauer. has said provides an accurate picture of the costs on a cash basis to replace that with something that systematically gives us a different picture. and one that systematically exaggerates the costs would be a mistake. And again. I just end this portion here by saying we just dont think this is ready for prime time. We dont think that weve fully understood all the impacts. There are experts on both sides of this issue. but it seems to me the Budget Committee could at least devote one hearing to this general topic. Again. we had one hearing on applying this to FHA. If you want to apply it to Fannie Mae and Freddie Mac. CBO already does that. no problem. But this leaps from that to applying it throughout the budget. including student loan programs. and I dont think weve begun to understand what impact that would have on the affordability of going to college and the other impacts throughout the budget. I reserve the balance of my time.