Due in part to relief provided to borrowers during the epidemic era when debts were put on hold, the U.S. Department of Education is anticipated to lose approximately to $200 billion from federal student loans made during the previous 25 years.
Initially, the Education Department projected that these loans would bring in around $114 billion in revenue; however, the Government Accountability Office, a federal watchdog, estimates that they will actually cost the federal government $197 billion.
The Covid pandemic-era halt on the majority of federal student loan payments was initially implemented under the Trump administration and then maintained by President Joe Biden, and it accounts for a sizable portion of the additional expenditures. Because of this, interest has not accumulated on the balances of the majority of borrowers of federal student loans throughout the past two years.
According to Mark Kantrowitz, an expert on higher education, the GAO's results were not at all unexpected given that strategy.
The federal student loan programs have undergone a number of adjustments, such as the interest waiver and payment suspension, which have raised program costs and turned the program's profitability into a loss, according to Kantrowitz.
Another pandemic-related relief provision, the suspension of collection efforts, and updated projections of how much borrowers will pay down their debts are the further federal student loan system modifications that are projected to raise prices.
According to the GAO report, for every $100 released in loans issued between 1997 and 2021, the government can expect to pay about $9 in interest. The government had anticipated that the loans would return $6 for every $100 lent, which is a significant difference.
An inquiry for comments was not immediately answered by the Education Department.
The federal student loan system was still plagued by issues prior to the epidemic, when the American economy was going through one of its strongest times.
More than 40 million Americans had student loan debt, totaling $1.7 trillion, considerably exceeding their balances on credit cards or auto loans. Since 1980, the average debt balance upon graduation has increased by almost thrice, rising from around $12,000 to more than $30,000 today.
More than 10 million borrowers, or 25% of all borrowers, were delinquent or in default. These depressing numbers have prompted analogies to the mortgage crisis of 2008.
The Biden administration is reportedly edging toward $10,000 in relief for most debtors as it considers canceling a part of student loans. Depending on the small print, such a move might cost the government an additional $321 billion.
This article was contributed on Aug 02 2022