Submitted by Anonymous7 (not verified) on October 3, 2008 - 12:25am.
In what construct would FFEL be considered "private sector" operations or free market capitalist? In the same construct that direct loan or military helicopter construction would be considered "private sector"? (After all, they are private contractor operations with a tiny group (some say too tiny) of government overseers.)
Accrual accounting is the way that the world works. It is not obscure or narrow. Those who are against the way guaranteed and direct loans are estimated would have to say that every time a bank makes a loan it is a revenue loss. That is simply not the case. The bank figures out what the future revenues and costs from that asset are going to be. Just like the government is supposed to do for its own credit programs.
The interest rate environment changes frequently which causes more changes in federal credit estimates than otherwise would be the case. Much of this volatility results from the wide variety of financial instruments involved in an unnecessarily complex program. One solution to eliminate some, if not most, of this estimation risk has been rejected by student lenders: Use the same financial instrument as the basis for setting the interest rate students are charged, the interest rate the loan holder is paid, and the discount rate. This would be some type of treasury bond, such as the 10-year bond. Although student loans in all senses of the world are long-term instruments, student lenders have argued that they finance their operations with short-term capital sources. That is their choice, but it should not necessarily wag the dog.
Wag the dog
In what construct would FFEL be considered "private sector" operations or free market capitalist? In the same construct that direct loan or military helicopter construction would be considered "private sector"? (After all, they are private contractor operations with a tiny group (some say too tiny) of government overseers.)
Accrual accounting is the way that the world works. It is not obscure or narrow. Those who are against the way guaranteed and direct loans are estimated would have to say that every time a bank makes a loan it is a revenue loss. That is simply not the case. The bank figures out what the future revenues and costs from that asset are going to be. Just like the government is supposed to do for its own credit programs.
The interest rate environment changes frequently which causes more changes in federal credit estimates than otherwise would be the case. Much of this volatility results from the wide variety of financial instruments involved in an unnecessarily complex program. One solution to eliminate some, if not most, of this estimation risk has been rejected by student lenders: Use the same financial instrument as the basis for setting the interest rate students are charged, the interest rate the loan holder is paid, and the discount rate. This would be some type of treasury bond, such as the 10-year bond. Although student loans in all senses of the world are long-term instruments, student lenders have argued that they finance their operations with short-term capital sources. That is their choice, but it should not necessarily wag the dog.