September 26, 2023


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Federal student loans program to cost taxpayers $197 billion, GAO says

Federal student loans program to cost taxpayers $197 billion, GAO says


It once held that the federal government was profiting off students who rely on loans to pay for college. And by the Education Department’s own estimates, the lending program was poised to generate $114 billion in income. But a Government Accountability Office report released Friday reveals it will cost $197 billion in lost revenue.

According to the government watchdog, the primary drivers of the $311 billion budget swing are the ongoing suspension of federal student loan payments and interest because of the pandemic and the expansion of a popular repayment plan tied to a borrower’s income.

The analysis arrives amid heated debates over whether President Biden should cancel some of the $1.6 trillion in federal student debt held by tens of millions of Americans.

While activists and liberal lawmakers say such a move would deliver much-needed relief and spur economic growth, opponents of cancellation deride it as a costly giveaway at taxpayers’ expense. And the new GAO report could fuel those concerns.

Student loan borrowers anxious as decision lingers on debt cancellation

“The GAO report is only the latest evidence that, at best, Biden’s Department of Education doesn’t have a clue about the real harm of its policies; at worst, the political appointees there simply don’t care and are unwilling to disclose the true costs to the American public,” said Rep. Virginia Foxx (N.C.), the top Republican on the House Education Committee, who requested the audit.

However, House Education Committee Chairman Robert C. “Bobby” Scott (D-Va.) considers the GAO report a clarion call to Congress to address the root causes of the ballooning costs of the federal lending program.

“Rather than cast blame on previous administrations — two of which were Republican and two of which were Democratic — we should focus on solutions,” Scott said. “The solution to this problem is not to eliminate the student loan program, but — rather — we should work together to address the rising cost of college, restore the value of the Pell Grant, and make meaningful reforms to the student loan program.”

The government watchdog reviewed budget documents and data covering Direct Loans made from fiscal years 1997 through 2021. The Education Department routinely adjusts its estimated costs based on assumptions about loan performance, such as how many borrowers will prepay their loans and how many will default.

Auditors at the GAO say predicting actual loan performance is difficult, because the terms and conditions of the program can change, as can borrower behavior. They found that about 61 percent of the increased cost is the result of how loans have performed, including the level of defaults and high enrollment in income-driven repayment plans that stretch out payments.

It’s going to cost taxpayers $108 billion to help student loan borrowers

Half of all Direct Loans are being repaid through income-driven plans, which cap monthly payments to a percentage of earnings and eventually forgive the balance. Updated income data from the Education Department has decreased borrowers’ projected future income and lowered projected payments made through the plans, according to the GAO.

The remaining 39 percent of the increased cost is tied to the ongoing payment pause. About 41 million borrowers are benefiting from the pause on paying off their federal student loans that began two years ago under the Trump administration.

The GAO analysis doesn’t take into account the cost of the current extension of the policy. The pause is expected to end Aug. 31, but on Thursday more than 100 Democratic lawmakers asked the Biden administration to extend it again. White House officials say no decision has been made on that front.

Biden administration gives more borrowers chance of debt cancellation

The government watchdog also does not account for the raft of short-term policies from the Biden administration to deliver debt forgiveness to more public servants and longtime borrowers, nor the recently proposed $85 billion plan to ease the path to cancellation — the cost of which Foxx finds alarming.

“President Biden is on track to make the most radical changes to postsecondary education at the expense of all taxpayers,” Foxx said.

A recent analysis by the Committee for Responsible Federal Budget found that increases in student debt relief have cost the federal government nearly $300 billion over the past 2½ years.

In a letter to the GAO, James Kvaal, undersecretary of education, said, “While the department always strives for the best possible estimates, there is some inherent uncertainty in the department’s estimates.”

He added: “Interest rates may change at levels not previously predicted. Additionally, as broader economic conditions change wages, the effects on borrowers may appear in unanticipated changes to payment amounts calculated through [income-driven repayment] plans.”

Kvaal stressed that the department wants borrowers to have access to “fair and affordable” repayment plans like those pegged to income, which have proved to reduce rates of delinquency and helped people avoid default.

He said the department is also keen on helping families facing health and financial challenges because of the pandemic, and the pause has done just that by allowing the average borrower to save an estimated $4,400 between January 2021 and August.