Chapter

Guaranteed versus Direct Lending

Deborah Lucas and Damien Moore

in Measuring and Managing Federal Financial Risk

Published by University of Chicago Press

Published in print April 2010 | ISBN: 9780226496580
Published online February 2013 | e-ISBN: 9780226496597 | DOI: http://dx.doi.org/10.7208/chicago/9780226496597.003.0008
Guaranteed versus Direct Lending

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The existence of two competing government programs—the Federal Family Educational Loan Program (guaranteed program) and the Federal Direct Loan Program (direct program)—provides a unique opportunity to compare the cost to the government of direct federal lending versus loan guarantees. Both the direct and guaranteed student loan programs offer their borrowers very similar loan products and terms, but they differ significantly from the perspective of other key stakeholders, including educational institutions, commercial lenders, and state guarantee agencies. This chapter proposes a methodology to provide a comprehensive cost estimate for the two programs in market value terms, and analyzes the sources of the differential. There are several reasons for emphasizing market values. Arguably, they are the best estimate of the cost of federal obligations from the perspective of taxpayers.

Keywords: direct lending; student loans; Educational Loan Program; Direct Loan Program; loan guarantees; federal lending

Chapter.  18908 words.  Illustrated.

Subjects: Econometrics and Mathematical Economics

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