GAO: Income-Driven Repayment Plan Costs More Than Double Previous Estimates

By Allie Bidwell, Communications Staff

The federal government may be on the hook for billions more than anticipated for its income-driven student loan repayment plans, according to a new report from the Government Accountability Office (GAO).

In the new report, released Wednesday, the GAO found that subsidy cost estimates – the cost to the government over the life of the loan, excluding administrative costs – for its income-driven repayment (IDR) plans are more than double the Department of Education’s (ED) current estimates. The federal government is also expected to forgive at least $108 billion in student debt, thanks to forgiveness provisions built into the IDR plans, and another $29 billion to be discharged.

The GAO also chided ED for its estimation methodology, which it said could have contributed to over- and underestimates to the tune of billions of dollars. In total, the GAO found that Direct Loans in IDR plans will cost the government $74 billion over the life of the loans. Overall, about $355 billion will enter an IDR plan, and $281 billion will be paid by borrowers.

ED may have originally underestimated the volume of loans that would enter IDR plans, the report said, because it did not include Grad PLUS loans in its subsidy estimates until the fiscal year 2015 budget, IDR plans have become more generous and more widely available over time, it’s unclear how long borrowers will stay in IDR plans, and officials may not have “adequately anticipated” the growth in enrollment in IDR plans.

“Due to growing IDR plan popularity, improving Education’s estimation approach is especially important,” the report said. “Until that happens, IDR plan budget estimates will remain in question, and Congress’s ability to make informed decisions may be affected.”

The report was published in response to a request from Sen. Mike Enzi (R-WY), chairman of the Senate Budget Committee.

“At a time when our nation is facing a mammoth national debt, the Department of Education has expanded a student loan program that will cost twice as much as originally estimated,” Enzi said. “This extensive investigation by an independent government watchdog found that the Department of Education relied on flawed data and methods to estimate program costs. This Administration has been manipulating the terms of the student loan program without the consent of Congress, while shirking its statutory duty to carefully assess the cost impact of those changes.”

The GAO included six recommendations for ED to improve its IDR plan budget estimates:

  1. Assess and improve, as necessary, the quality of data and methods used to forecast borrower incomes, and revise the forecasting method to account for inflation in estimates.
  2. Obtain data needed to assess the impact of income recertification lapses on borrower payment amounts, and adjust estimated borrower repayment patterns as necessary.
  3. Complete efforts to incorporate repayment plan switching into the agency’s redesigned student loan model, and conduct testing to help ensure that the model produces estimates that reasonably reflect trends in Income-Driven Repayment plan participation.
  4. As a part of the agency’s ongoing student loan model redesign efforts, add the capability to produce separate cost estimates for each Income-Driven Repayment plan and more accurately reflect likely repayment patterns for each type of loan eligible for these plans.
  5. More thoroughly test the agency’s approach to estimating Income-Driven Repayment plan costs, including by conducting more comprehensive sensitivity analysis on key assumptions and adjusting those assumptions (such as the agency’s Public Service Loan Forgiveness participation assumption) to ensure reasonableness.
  6. Publish more detailed Income Driven Repayment plan cost information— beyond what is regularly provided through the President’s budget—including items such as total estimated costs, sensitivity analysis results, key limitations, and expected forgiveness amounts.

“Because Education administers the federal government’s largest direct loan program, it is especially important that the agency corrects its methodological weaknesses associated with estimating IDR plan costs,” the report said. “More specifically, until Education assesses and improves the quality of data and methods it uses to forecast borrowers’ future incomes and accounts for inflation in its estimates, its IDR plan budget estimates may be unreliable.”


Publication Date: 12/1/2016

David S | 12/1/2016 3:5:48 PM

What will keep me up at night about this is not the use of an imperfect methodology for projecting costs or the deficit in anticipated revenue that it will result in, it's that politically it could be used as ammunition by those who may want to do some drastic things that will diminish access to higher education by those unable to pay out of pocket. People a lot smarter than me have looked foolish trying to predict political events recently, so I'm leaving this wide open...just that we could be looking at some really disturbing things coming out of Congress in the coming year. I hope I am very wrong and that wiser heads prevail. Because one thing that's a lot more expensive than our current student loan system is not having a student loan system.

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