There’s a big, obscure fight in Congress about how to figure out what it costs for the government to make student loans or guarantee mortgages. The current Congressional Budget Office system adds up the amount of money the government has lent and estimates the amount that will be paid back, which makes the lending programs look fairly profitable — Republicans, and the CBO itself, want to move to a different system that would make those problems look more costly.
Elizabeth Warren explains the accounting change that could make student loans cost more
Libby Nelson was Vox’s editorial director, politics and policy, leading coverage of how government action and inaction shape American life. Libby has more than a decade of policy journalism experience, including at Inside Higher Ed and Politico. She joined Vox in 2014.
Sen. Elizabeth Warren weighed in on The Daily Show on Thursday, arguing it doesn't make sense for the government to keep its books like a business because it isn't one.
“The government is not a private company,” she said. “Private companies — if you’re not a big bank — can actually go out of business. So there’s a risk factor in accounting for private companies that’s not there for the government.”
Critics, including congressional Republicans, argue that’s the wrong way to do it, because it hides the fact that borrowers are getting a subsidy — they wouldn’t be able to get those rates on the private market.
This accounting debate is particularly significant for student loans. Under current accounting rules, the student loan system makes a profit, although those profits are coming from graduate students’ loans, not undergraduate debt. Warren wants to lower the interest rate for students because the program appears profitable now. That’s a harder case to make under fair-value accounting.
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