Lawmakers criticized the Education Department's direct student loan program at a hearing Thursday and suggested that returning the loans to the private sector might save taxpayers money.
"This kind of poor management not only hurts the taxpayer, but ultimately takes away funding from other eligible students," Rep. John Mica, R-Fla., said.
The House Government Reform criminal justice subcommittee reviewed a study done by the Education Department's inspector general that concluded the government's cost is $17 per loan, compared with $13 for a loan made by the private sector.
Rep. Mica, the subcommittee's chairman, also questioned the government's track record of collecting student loans. Citing the report, he said that during 1996 and 1997 the government forgave nearly $77 million in loans to people who fraudulently claimed disability or death.
Education Department officials did not dispute the report's findings. They blamed the higher lending costs on a misallocation of overhead, saying the government's program is being charged for labor that benefits private- sector loans.
They also said the five-year-old program has captured a third of the student loan market and will continue to expand.
Assistant Inspector General Steven McNamara testified that the report did not conclude that one program is cheaper than the other or that eliminating the direct student lending would save money.