A federal program that provides debt relief to millions of financially strapped student borrowers will cost taxpayers twice what officials originally estimated.
In a report released today, the Government Accountability Office says that the Department of Education’s “income-driven repayment” plans for federal student loans will rack up “government costs of $74 billion” in the upcoming fiscal year.
That’s “more than double what was originally expected,” according to the report.
The GAO faulted the department for “weaknesses” in its financial projections about the debt relief program.
The Wall Street Journal, which first reported the story, said that the total additional cost to taxpayers for subsidizing student loans will top $108 billion.
At issue are repayment plans that offer the chief hope of debt relief for millions of people who took out federal loans to pay for college and now find themselves struggling with loan payments.
THE TRUTH WILL NOT REVEAL ITSELF
Today, 42 million Americans owe about $1.3 trillion on their student loans. Federal loans make up about $900 billion of the total. In 2015, more than 20 percent of borrowers were late on their loan payments, and more than a million defaulted outright on their loans, the report says.
Starting in 2009, the Department of Education sought to ease the burden of student debt by offering plans that tie monthly loan payments to a percentage of a borrower’s income and forgive all debt after 25 years, no matter the outstanding balance. The repayment plans are available only for federal loans, not private student loans.
The plans have proved hugely popular, with 5.3 million borrowers enrolled and millions more expected to sign up. But according to the GAO, the Department of Education has simply failed make proper estimates of the program’s costs.
That’s important, because student loans are a huge moneymaker for the financially strapped federal government.
As Reveal from The Center for Investigative Reporting has reported, in some years the federal government makes a profit of 20 percent on each student loan.
In the coming decade, the government’s earnings from student loans are expected to top $8 billion per year, according to the Congressional Budget Office.
For lawmakers concerned about the huge federal budget deficit, the costs of the loan repayment programs are of increasing concern. As it stands now, the government is paying out $21 in subsidies for every $100 loaned to borrowers who have enrolled in the repayment plans, the GAO says.
According to the report, the Department of Education “generally agreed” with the GAO’s findings, saying it is working to do a better job of forecasting program costs.