Huff Po Math

History was made this February when President Barack Obama chose to give The Huffington Post, a left-wing outlet, mainstream press credentials at White House press conferences, making it the first online-only news source given the opportunity to question the President. Then, later, controversy erupted over what appeared to be a pre-arranged question between HuffPo and President Obama.

But yesterday the Chronicle of Higher Education elevated the liberal site from a news outlet to a news source.

“Sallie Mae, the nation’s largest student-loan company, spent $2-million on lobbying in the first half of this year in an effort to persuade lawmakers to consider alternatives to President Obama’s plan to end bank-based lending to students and replace it with direct lending, according to an analysis by The Huffington Post,” wrote Kelly Field for the Chronicle.

In the “analysis” conducted by the Huffington Post Investigative Fund, author Danielle Knight writes that

“When Sallie Mae, the nation’s largest provider of student loans, saw the possibility of its own extinction in a plan advanced by the Obama administration, it did what just about any big corporation would do: It hired the best lobbyists money can buy.

“That was standard procedure for Sallie Mae, which for two decades has almost single-handedly stymied attempts to reduce or eliminate federal subsidies to the multibillion-dollar private student loan industry.”

Although Knight provides interesting factual information about Sallie Mae’s lobbying efforts later in the article, the writer’s attempts to divine the internal motivations of Sallie Mae defies journalistic standards. (The Chronicle did not republish this opinion content). Well then again, maybe not, if Politico writer Mike Allen’s story on David Keene is any indication.

Knight’s article, published July 29, also mistakenly uses the July 24 Congressional Budget Office (CBO) figures on the legislation’s projected “savings.”

“The plan would end lending by private firms by giving the Department of Education a monopoly over federally backed student loans,” wrote Knight. “That could save the government $87 billion in subsidies over ten years, according to the Congressional Budget Office-money that would be redirected to Pell Grants for low-income students. Sallie Mae and other lenders would be confined largely to servicing loans held by the government and collecting on defaulted loans.”

Actually, the bill would only save $47 billion; the CBO changed its original estimates because they did not account for the increased risk of student default rates. “The law specifies that the cost of federal loans and loan guarantees be estimated as the net present value of the federal government’s cash flows, using the Treasury’s borrowing rates to discount those flows; that calculation does not include administrative costs, which are recorded in the budget year by year on a cash basis (that is, undiscounted),” stated the CBO’s July 27 letter to Sen. Judd Gregg (R-NH). “The FCRA methodology, however, does not include the cost to the government stemming from the risk that the cash flows may be less than the amount projected (that is, that defaults could be higher than projected)” (emphasis added).

Thus, “CBO found that after accounting for the cost of such risk, as discussed below, the proposal to replace new guaranteed loans with direct loans would lead to estimated savings of about $47 billion over the 2010-2019 period-about $33 billion less than CBO’s estimate under the standard credit reform treatment” (emphasis added).

In other words, switching to direct loans from the government carries the risk of an additional $33 billion in loan defaults over the next ten years. Doesn’t this qualify as moral hazard?

Bethany Stotts is a staff writer at Accuracy in Academia.