Monday, August 08, 2022

Federal Student-Loan Program Cost Estimate Was Off By $311 Billion, Government Watchdog Says

GAO report finds loans made over past 25 years could lose $197 billion because of policy changes, revised repayment projections

By Melissa Korn of The WSJ. Excerpts:

"The Education Department will likely lose $197 billion on loans it made over the past 25 years, a massive swing from its predicted $114 billion in income, according to a federal watchdog.

The Government Accountability Office said in a report Friday that because of policy changes and updated estimates on how much borrowers will actually repay, the Direct Loan program, which had $1.4 trillion in debt outstanding at the end of the last fiscal year, will fall far short of its original plan to make money for the federal government. Instead, they said, it will run deep in the red.

The biggest contributor to the new calculation was the pandemic relief package enacted by former President Donald Trump in early 2020, and which President Joe Biden last extended in April, to run at least through the end of August."

"Suspending payments, freezing interest rates at 0% and stopping collections on defaulted loans added $102 billion in costs to the loan program, the GAO report found."

"it lost money on loans issued in all but one year over the past quarter-century. Originally, the Education Department estimated the loans would generate $6 in income per $100 lent out. The GAO analysis found the loans wouldn’t make money, but actually cost the government $8.88 per $100 in loans."

"When income from student loans doesn’t match projections set in annual budgets, other government accounts fund the difference. The amount set aside for that purpose has risen sharply in recent years, especially during the pandemic."

Here are some earlier posts on related topics:


Many college dropouts are worse off economically than if they hadn’t started college (2019)

More employers offer workers help paying off student loans (2019)

Student-Debt Forgiveness Is a Wonderful Boon, Until the IRS Comes Calling: Education analysts, student advocates warn of impending crisis from one-time tax bills individuals may not be prepared to pay off (2018)

The Diminishing Returns of a College Degree (2017)

The Diminishing Returns of a College Degree: In the mid-1970s, far less than 1% of taxi drivers were graduates. By 2010 more than 15% were (2017)

Who Is Most Likely To Default On Their Student Loans? (2016)

Student loan delinquency is higher than for other borrowing (2015)

For Some Grads, College Isn't Worth Debt (2014)

Is College Still A Good Investment? (2012)

Is It Getting Too Expensive To Go College? (2011)

Maybe That College Degree Is Not As Valuable As You Thought (2010)

As college costs rise, sticker shock eased by student aid (2010)

Does It Pay To Go To College? (2009)


Willy said...

$100 costs the government $8.88 but it still makes loans? It sounds like many take loans but the vast majority do not pay back or perhaps the debt is forgiven which makes up the loss?

Anonymous said...

"The GAO analysis found the loans wouldn’t make money, but actually cost the government $8.88 per $100 in loans."

This extrapolation says the government is willingly taking a loss on loans that people aren't going to pay back en masse?

Cyril Morong said...

Yes, I think that is what it means. Thanks for reading and commenting

Cyril Morong said...

Willy, I don't know what percentage don't pay back their loans. But it is enough that the Feds are losing money. I recall seeing numbers on how many are in default. Maybe one of my other posts has info like that. See the links at the end