State student loan program to cost taxpayers $197 billion, says GAO – The Washington Post | Vette Leader

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It was once said that the federal government benefits from students who depend on loans to pay for college. And by the Department of Education’s own estimates, the loan program was poised to generate $114 billion in revenue. But a Government Accountability Office report released on Friday shows it will cost $197 billion in lost revenue.

According to the government watchdog, the main drivers behind the $311 billion budget surge are the continued suspension of government student loans Payments and interest because of the pandemic and the expansion of a popular repayment schedule tied to a borrower’s income.

The analysis comes amid heated debates over whether President Biden should forgive some of the $1.6 trillion federal student debt Ten million Americans.

While activists and liberal lawmakers say such a move would bring much-needed relief and boost economic growth, opponents of the cancellation are deride it as a costly giveaway at taxpayers’ expense. And the new GAO report could fuel those concerns.

Student loan borrowers are concerned as the debt relief decision awaits

“The GAO report is just the latest evidence that Biden’s Department of Education is at best clueless as to the real harm his policies are doing; at worst, their politicians don’t care and are unwilling to reveal the true cost to the American public,” said Rep. Virginia Foxx (NC), the top Republican on the House Education Committee who requested the test.

However, House Education Committee Chairman Robert C. “Bobby” Scott (D-Va.) sees the GAO report as a clear call for Congress to address the causes of rising federal costs credit program.

“Rather than blaming previous administrations — two of which were Republican and two of them Democratic — let’s focus on solutions,” Scott said. “The solution to this problem is not to abolish the student loan program, but rather we should work together to address the rising costs of college, restore the value of Pell Grant, and meaningfully reform the student loan program.”

The state regulator reviewed budget documents and direct-credit data for fiscal years 1997 through 2021. The Department of Education routinely adjusts its estimated costs based on assumptions about credit performance, e.g. B. how many borrowers will prepay their loans and how many will default.

GAO auditors say it’s difficult to predict actual loan performance because program terms and borrower behavior are subject to change. They found that about 61 percent of the increased costs is the result of the development of credit, including the level of defaults and high participation in income-based repayment plans that prolong payments.

It will cost taxpayers $108 billion to help student loan borrowers

Half of all direct loans are repaid through income-based plans, which cap monthly payments to a percentage of income and eventually waive the balance. Updated Department of Education earnings data has lowered borrowers’ projected future earnings and projected payments from the plans, according to the GAO.

The remaining 39 percent of the increased costs are tied to the ongoing payment pause. About 41 million borrowers are benefiting from the pause that has begun in repaying their federal student loans two years ago under the Trump administration.

The GAO analysis does not include the cost of the current policy renewal. The hiatus is expected to end Aug. 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 front.

The Biden administration is giving more borrowers a chance for debt relief

The state supervisory authority does not count either Set of short-term guidelines from the Biden administration to provide debt relief to more government officials and long-term borrowers, nor the recently proposed $85 billion plan to ease the path to cancellation — costs Foxx finds alarming.

“President Biden is on course to make the most radical changes to post-secondary education at the expense of all taxpayers,” Foxx said.

A recent analysis by the Federal Budget Committee found that increases in student debt relief have cost the federal government nearly $300 billion over the past two and a half years.

In a letter to GAO, James Kvaal, Secretary of State for Education, said, “While the department always strives for the best possible estimates, there is some uncertainty in the department’s estimates.”

He added: “Interest rates may change to previously unpredicted levels. In addition, the impact on borrowers may manifest itself in the form of unexpected changes in the calculated payment amounts when general economic conditions change wages [income-driven repayment] Plans.”

Kvaal stressed that the department wants borrowers to have access to “fair and affordable” repayment plans, like income-linked ones that have been shown to reduce default rates and help people avoid defaults.

He said the department is also keen to help families facing health and financial challenges due to the pandemic and the pause has done just that, allowing the average borrower to borrow an estimated 4,400 between January 2021 and August save dollars.

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