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A Miscalculation Cost The Government Nearly $200 Billion On Student Loans. Here’s How

  • The Department of Education (DOE) overestimated the revenue from the federal student loan program by almost $200 billion, according to a Government Accountability Office (GAO) report.
  • The suspension of student loan payments cost an additional $100 billion, according to the GAO.
  • With a combined $300 billion in unexpected costs, the GAO estimates that the DOE has lost almost $200 billion in the past 25 years. 

The Department of Education (DOE) severely miscalculated revenue from federal student loans, initially estimating a $110 billion profit, but the program has lost nearly $200 billion, according to a Government Accountability Office (GAO) report.

The loss of more than $310 billion in projected earnings can be attributed to both a dramatic overestimate of the program’s revenue at the outset, and changes to legislation governing the payment of student loans, according to the GAO.  Of these losses, $189 billion can be attributed to the DOE simply overestimating the success of the loan program, as the program’s data showed that assumptions regarding the popularity of payment plans, the expected income of debtors and the chance of debtors to default were flawed.

“These updates decreased borrowers’ projected future income in Education’s model to better match actual data, and lowered projected payments borrowers would make in [income-driven repayment] plans,” Melissa Emrey-Arras, Director of the GAO’s Education, Workforce and Income Security team, told the Daily Caller News Foundation.

Income-driven repayment plans typically require the borrower to pay some percentage of their discretionary income, which can be as low as $0 per month, according to the DOE.

“While the Department always strives for the best possible estimates, there is some inherent uncertainty in the Department’s cost estimates,” said United States Under Secretary of Education James Kvaal, in a letter attached and responding to the GAO report. “We also recognize the unique circumstances of the pandemic, which have left families across the country facing unprecedented financial and health concerns.”

The program’s deficit was approximately $21 billion in 2017 and 2018, before dropping to $16.1 billion in 2019, returning to $21.1 billion in 2020, according to the report. This indicates that record high deficits in the ballpark of $21 billion began almost two years before the pandemic.

The only year between 1997-2021 where the program made money was 2012, when it made approximately $600 million.

Of the remaining $122 billion in losses not accounted for by the Department of Education’s overestimate, only $20 billion can be attributed to usual legislative changes to loan payment plans, according to the report. The overwhelming driver of the remaining losses was the CARES Act, which suspended student loan payments responsible for the remaining $102 billion.

The Department of Energy estimates that the “average borrower” has saved approximately $4,400 as a result of this payment pause, according to Under Secretary Kvaal’s letter.

Republican Reps. Virginia Foxx and Greg Murphy of North Carolina and Republican Sens. Richard Burr of North Carolina and Mike Braun of Indiana spoke out as the top Republicans on the House and Senate education committees, according to the Washington Examiner.

“For decades, the Department of Education has significantly underestimated the true cost of the Direct Loan program. Today’s GAO report shows that the Department’s budget was off by more than $300 billion — all of which will be paid for by hardworking American taxpayers,” they said in a statement.

President Joe Biden is under mounting pressure from Democrats to extend the suspension before it is set to expire on Sept. 1, The Hill reported.

The Department of Education did not respond to a request for comment by the Daily Caller News Foundation.

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