Government losing, not making money off student loans

WASHINGTON — 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 actually 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 Joe 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.

“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 of North Carolina, 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 due to how loans have performed, including the level of defaults and high enrollment in incomedriven repayment plans that stretch out payments.

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.