Education Dept. Student Loan Projections Off By $311B

student loan projection wrong
Tulane Public Relations, CC BY 2.0 <>, via Wikimedia Commons

By Adam Andrzejewski for RealClearWire

Bad assumptions on the part of the Department of Education led to federal student loans costing the government $197 billion since 1997 — instead of making $114 billion.

That’s according to a new report from the U.S. Government Accountability Office, which found that the $311 billion difference was due to “faulty assumptions.”

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Federal student loans were “originally estimated to generate $6 in income per every $100 disbursed” but they’re actually “expected to cost the government almost $9 for every $100 disbursed.”

That’s quite a miscalculation.

The GAO found by looking through the Department of Education’s budgets over the years that about 61 percent of the bad accounting was due to these faulty assumptions, like incorrect estimates on the economic standing of borrowers, underestimating the likelihood of borrower default, and underestimating the percentage of borrowers who would enter income-driven repayment plans.

The Direct Student loan program, which is the largest federal student loan program, accounts for about $1.4 trillion of the $1.7 trillion in outstanding student loans, The Daily Signal reported.

About half of all loans issued in that program are being repaid through IDR plans, which cap monthly loan payments based on income.

The Congressional Budget Office reported in February 2020, “borrowers who enroll in IDR plans tend to borrow more and earn less than borrowers in fixed-payment plans.”

That means the student loan program is not only making less money than estimated, but also losing money.

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The GAO found the other 39 percent of the miscalculation is due to “programmatic changes such as ongoing repayment pauses, participation in Public Service Loan Forgiveness, interest waivers, and new income-driven repayment plans,” the Signal reported.

And this isn’t about to be corrected anytime soon. The DOE will continue to use these inaccurate accounting metrics for the next three years, making the budget incorrect until at least 2026.

And none of the bad accounting includes the recent announcement from President Joe Biden that forgives $10,000 in students loans per person, costing an estimated $300 billion.

Syndicated with permission from Real Clear Wire.

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