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Letter to the Joint Economic Committee

June 16, 2015

Dear Senator/Representative: 

On behalf of the three million members of the National Education Association and the students they serve, we would like to submit for the record our views on fair value accounting in connection with the June 17 hearing, “The Economic Exposure of Federal Credit Programs.”  

NEA opposes the use of fair value accounting in federal credit programs, especially student loan programs, because it would artificially raise their costs and make them appear to be more expensive to the federal government than they really are. That, in turn, would distort taxing and spending decisions, and could lead to cuts in those programs. Specifically, the Congressional Budget Office estimates that a significant portion of the additional annual cost would occur in discretionary programs. As a result, annual appropriations bills would be “scored” as multiple billions more costly than they really are, further squeezing the limited funds available for investments in education, our nation’s infrastructure, and high-value research and development.  

Incorporating a non-budgetary cost such as “market risk” into official cost estimates would also discourage students from pursuing public service careers like teaching. NEA member Latechia Mitchell, a second-grade teacher in Maryland, took out loans for $60,000 to get the master’s degree she needed to teach. “I am not sure if I had known how difficult it would be to pay back my loans on a public school teacher’s salary, I would have still chosen this career,” she said at a congressional forum on student loan debt earlier this year. 

NEA member Brittany Jones told the Senate Budget Committee that to fulfill her dream of becoming a teacher, she took out $70,000 in loans she will be repaying for the next 25 years. “I’ve seen my friends and classmates turn away from a career in teaching because they can’t afford the education they need,” she said. 

Current estimates of federal loans and loan guarantees already take into account the chance that a borrower will default, pay early or late, and that a dollar repaid tomorrow is not the same as a dollar repaid today. They also predict true fiscal effects with a high degree of accuracy. Since 1992, the initial cost estimates of all credit programs have differed from their actual cost by less than 1 percent of the face value of all loans and guarantees, according to the Office of Management and Budget. 

While market risk may capture certain costs not reflected in current estimates, those costs are fundamentally different from budget costs—and therefore should not be included. Many aspects of the federal budget are subject to market risk, including tax receipts and Social Security obligations. Applying fair value methods only to credit programs would make it impossible to compare different parts of the budget on an apples-to-apples basis.

We thank you for the opportunity to submit these comments.

Sincerely,

Mary Kusler
Director of Government Relations