GAO Report: Federal Direct Loans Cost Federal Government $197 Billion
By Maria Carrasco, NASFAA Staff Reporter
While the Department of Education (ED) initially estimated that the Direct Loan program would generate billions in income for the federal government, a new report released Friday by the Government Accountability Office (GAO) estimates that the student loan program has cost the government $197 billion.
ED originally estimated the program would generate $114 billion in revenue for the federal government, but according to GAO’s report, which included data from 1997 through 2021, Direct Loans made in the last 25 years have come at a significant cost. The primary drivers of the $311 billion budget swing stem from reestimates based on updated data from income-driven repayment (IDR) plans and the Coronavirus Aid, Recovery, and Economic Security (CARES) Act, which provided relief to borrowers during the pandemic.
Rep. Virginia Foxx (R-N.C.) and Sen. Richard Burr (R-N.C.), ranking members of the House and Senate education committees, along with Rep. Greg Murphy (R-N.C.) and Sen. Mike Braun (R-Ind.), requested the report from GAO. The GOP lawmakers responded Friday by stating the 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.”
“On top of that, GAO’s analysis doesn’t include the cost of Biden’s recent actions — such as the most recent $85 billion in new higher education regulations or his $145 billion Public Service Loan Forgiveness waiver,” the GOP lawmakers said in a statement. “Nor do the costs include the rumored $10,000 loan forgiveness proposal, which would cost an estimated additional $250 billion. Any way you look at it, the claim that the federal government ‘profits’ off student loan borrowers is FALSE. Taxpayers have lost hundreds of billions of dollars on this program.”
According to the report, a $102 billion increase in cost can be attributed to the CARES Act, which suspended student loan payments, accrual of interest, and involuntary collections on defaulted loans. About $189 billion, the majority of the $311 billion swing, is due to reestimates based on actual data on how loans have performed, including updated income data for borrowers in IDR plans.
The report also found that while the size of the Direct Loan program has also grown substantially over the last decade — about $1.124 trillion — about half of the loan volume is now being repaid through IDR plans.
GAO writes in the report that estimating the cost of Direct Loans is difficult due to the lack of historical data when programs change and borrower behavior. For example, the monthly payment amount for borrowers in IDR plans can change based on income growth and inflation, which are difficult to predict.
Rep. Bobby Scott (D-Va.), chairman of the House Committee on Education and Labor, responded to the report by stating that the soaring cost of college is caused by “decades of state disinvestment in higher education and the declining value of the Pell Grant,” which has “forced students to borrow more money for a degree.”
“Every American deserves access to an affordable, high-quality college degree,” Scott said in a statement. “Rather than cast blame on previous Administrations — two of which were Republican and two of which were Democratic — we should focus on solutions. 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, restore the value of the Pell Grant, and make meaningful reforms to the student loan program.”
In response to the GAO report, Under Secretary James Kvaal said that while ED “always strives for the best possible estimates, there is some inherent uncertainty in the department’s estimates.”
“Interest rates may change at levels not previously predicted,” Kvaal wrote. “Additionally, as broader economic conditions change wages, the effects on borrowers may appear in unanticipated changes to payment amounts calculated through IDR plans.”
GAO writes that a forthcoming report will examine government and private sector estimation methods and ED’s approach to estimating Direct Loan costs.
Publication Date: 8/1/2022
Paul F | 8/1/2022 3:7:53 PM
I think it's interesting that the rate of "loss" accelerates dramatically right about the time the private servicing of Federal loans expanded over 2011-2013. Somehow that's not a factor mentioned by the GAO at all, though...
Nedi G | 8/1/2022 2:33:54 PM
Banks made a killing for decades. Figured our gov't can do the same and plow the profits into funding Pell Grant increases. It's embarrasing that my dentist with 3 offices and a staff of 12 FTEs received an interest payment subsidy on his student loans today on August 1st 2022.
Nedi G | 8/1/2022 2:20:57 PM
PLUS loans (Grad and Parent) were included. Its a multivariate analysis. Just provide a table with a line item and a dollar amount. This is not a sixth grade math class. We don't need to see all the work or read their arbitrary explations, - just give us the correct answer. It is what it is. This just forces us to read the entire report instead of the execitive summary.
Eva D | 8/1/2022 11:32:20 AM
I'm also curious about PLUS's impact, especially since their interest rates are fairly high
David S | 8/1/2022 11:19:04 AM
This was 100% inevitable given the repayment pause/interest rate reset that's been in place now for nearly two and a half years. And Congresswoman Foxx knows that, but she won't pass up the opportunity to make believe it's all the Democrats' fault. And I'm still waiting for Republicans to offer their solution. Is it to completely privatize the student loan market?
Michelle C | 8/1/2022 11:15:00 AM
Perhaps our esteemed elected federal representatives in toto should be reminded there's this thing called the Reauthorization of the Higher Education Act of 1965 as amended, that hasn't been revised since 2008. They have no one but themselves to blame for whatever we have to deal with right now and blaming borrowers or Federal Student Aid is a cop out-plain and simple.
Robert F | 8/1/2022 10:29:42 AM
I am waiting for the revised report that adjusts for all of the bad actors (schools and servicers), largely supported by the legislators mentioned above for whom the Dept had to write off and forgive loans that were made fraudulently and in bad faith. I see no mention of those adjustments to the total most of which occurred when the "Foxx" was guarding the hen house.
James C | 8/1/2022 8:33:51 AM
I skimmed the report and there is no mention of the Parent PLUS program yet they mention parent borrowers. Was PLUS (grad and parent) included in this study?
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