Taxpayers will pay at least $74 billion for a federal program to reduce student loan repayments, more than twice the amount expected, a government watchdog said Wednesday.
The Government Accountability Office said the cost to the government for covering loans made between 2009 and 2016 was more than double the amount estimated by the Department of Education. The cost could still rise if more borrowers enroll.
The investigators found that the administration didn’t account for inflation in borrowers’ income for its initial estimates of the program costs. More than 5 million borrowers are enrolled in the income-based repayment loan program, about 25 percent of all students who receive direct loans from the federal government.
Senate Budget Chairman Michael B. Enzi, Wyoming Republican, blasted the administration for misleading taxpayers and avoiding congressional oversight with the loan program “at a time when our nation is facing mammoth national debt.”
“This administration has been manipulating the terms of the student loan program without the consent of Congress, while shirking its statutory duty to carefully assess the cost impact of those changes,” Mr. Enzi said. “It will be crucial to consider updates to the Federal Credit Reform Act because Congress is not receiving credible, transparent cost data under the existing statute, as this report suggests.”
The student loan program fixes monthly repayments at a percentage of the borrower’s income. After 25 years of repayments, the remainder of a loan is forgiven.
The GAO said that, of $352 billion in loans made from 1995 to 2017 that are either in income-based repayment plans or eligible for them, only $215 billion will likely be repaid by borrowers.
“Of the rest, $108 billion will be forgiven by the government and $29 billion will be discharged because of death or disability,” the GAO said.
White House press secretary Josh Earnest said he hadn’t seen the report, but said President Obama “has placed a priority on making sure that graduating students are treated fairly by the Department of Education and by lenders when it comes to their student loans.”
He said the administration has “pioneered” the notion of income-based repayment, which allows students or recent graduates to cap their monthly loan repayments at 10 percent of their income.
“This is a way that we can ensure that graduates are fulfilling their basic responsibility to repay the government for the money that they borrowed, but we want to make sure that when students graduate, that they’re not saddled with so much debt that they’re essentially penalized financially for pursuing college education opportunities,” he said.
The Education Department told the GAO that it’s “possible” for the government to receive income from the loans due to interest payments, even if outstanding loan balances are eventually forgiven. The GAO replied that forgiven balances are still a “foregone cash flow to the government.”
The report criticized the Education Department for not providing “sufficient information” about how it reached its own cost projections for its income-based repayment program.
The program is the largest federal direct loan program, with $912 billion in outstanding loans as of last June.
Education officials told GAO that the higher-than-expected loan volume is likely due to more generous terms made available since 2012, increased promotion of the loan program and increased college attendance after the recession of 2008-09, coinciding with the end of a guaranteed loan program through private lenders.
The GAO blamed administration policies such as making more generous benefits retroactively in the “Pay As You Earn” repayment plan
in fiscal year 2013, which extended the better benefits to borrowers dating back as far as 2008. The investigation also found that “officials responsible for budget estimates may not have adequately anticipated participation growth.”