The main drivers of the $311 billion budget swing are the ongoing suspension of the federal student loan, according to the government watchdog. payments and interest due to the pandemic and the expansion of a popular repayment plan tied to a borrower’s income.
The analysis comes amid heated debates over whether President Biden should cancel some of the $1.6 trillion in federal student debt held by tens of millions of Americans.
While Liberal activists and lawmakers say such a move would bring much-needed relief and spur economic growth, opponents of the cancellation make it an expensive gift at taxpayers’ expense. And the new GAO report could fuel those concerns.
Student borrowers worried as decision on debt cancellation pending
“The GAO report is just the latest evidence that, at best, Biden’s Department of Education has no idea of the real harm of its policies; at worst, the political appointees there just don’t care and don’t want to disclose the true costs to the American public,” said Rep. Virginia Foxx (NC), the House Education Committee’s lead Republican, who asked auditing.
However, House Education Committee Chairman Robert C. “Bobby” Scott (D-Va.) sees the GAO report as a call for Congress to address the root causes of soaring costs. of the federal government. loan program.
“Rather than blaming previous administrations — two of which were Republicans and two Democrats — we should be focusing 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 education, restore the value of the Pell Scholarship and bring about reforms significant to the student loan program.”
The government watchdog reviewed budget documents and data covering direct loans made from fiscal years 1997 to 2021. The Ministry of Education regularly adjusts its estimated costs based on assumptions about loan performance, such as the number of borrowers who will prepay their loans and how many will default.
GAO auditors say it’s difficult to predict actual loan performance because program terms and conditions can change, as can borrower behavior. They found that about 61% of the cost increase is the result of loan performance, including the level of defaults and the high number of enrollments in income-driven repayment plans that lengthen payments.
It will cost taxpayers $108 billion to help student borrowers
Half of all direct loans are repaid through income-based plans, which cap monthly payments at a percentage of income and eventually write off the balance. According to the GAO, updated income data from the Department of Education has reduced projected future income for borrowers and reduced projected payments made under plans.
The remaining 39% of the cost increase is related to the ongoing payment pause. About 41 million borrowers are taking advantage of the pause in federal student loan repayments that began two years ago under the Trump administration.
The GAO’s analysis does not take into account the cost of the current policy expansion. The break is scheduled to end on August 31, but on Thursday more than 100 Democratic lawmakers called on the Biden administration to extend it again. White House officials say no decision has been made on that.
Biden administration gives more borrowers the chance to cancel their debt
The government watchdog also ignores the series of short-term policies of the Biden administration to offer debt forgiveness to more government officials and long-time borrowers, nor the recently proposed $85 billion plan to ease the path to cancellation — the cost of which Foxx finds alarming.
“President Biden is on track to make the most sweeping changes to post-secondary education at the expense of all taxpayers,” Foxx said.
A recent analysis by the Committee for a Responsible Federal Budget found that rising student debt relief has cost the federal government nearly $300 billion over the past two and a half years.
In a letter to the GAO, James Kvaal, undersecretary for education, said, “While the department always strives to obtain the best estimates possible, there is some inherent uncertainty in the department’s estimates.”
He added: “Interest rates may change to levels not previously expected. Additionally, as general economic conditions change wages, the effects on borrowers may result in unforeseen changes in payment amounts calculated by [income-driven repayment] plans.”
Kvaal stressed that the department wants borrowers to have access to “fair and affordable” repayment plans like those geared to income, which have been shown to reduce delinquency rates and have helped people avoid defaults.
He said the department is also keen to help families facing health and financial challenges due to the pandemic, and the break did just that by saving the average borrower around $4,400 between January 2021. and August.