Home Career Federal government could lose $197 billion in student loans: Observer

Federal government could lose $197 billion in student loans: Observer


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The U.S. Department of Education is expected to lose about $200 billion in federal student loan defaults over the past 25 years, in part because of pandemic relief that has suspended payments to borrowers.

The Department of Education initially estimated that these loans would generate about $114 billion in revenue; they will, however, actually cost the federal government $197 billion, according to Government Accountability, a federal watchdog.

A large part of the additional costs is related to the covid pandemicA moratorium on most federal student loans first enacted under the Trump administration and then extended by the president Joe Biden. As a result, most federal student loan borrowers defaulted on their debt for more than two years, with no interest accrued on their balances during that time.

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Given these policies, higher education expert Mark Kantrowitz said the GAO’s findings are not at all surprising.

“Several changes were made to the federal student loan programs, including the suspension of payments and the waiver of interest payments, which increased the cost of the program, changing it from a profit to a loss,” Kantrowitz said.

Other changes to the federal student loan system that are likely to increase costs include a fee freeze, another pandemic-related relief measure, and revised estimates of how much borrowers will pay off their debts.

A GAO analysis found that borrowing between 1997 and 2021 is expected to cost the government nearly $9 for every $100 paid out. That’s a big difference from the government’s expectation that the loans would generate $6 for every $100 borrowed.

The Ministry of Education did not respond to a request for comment.

The problems with the student loan system existed even before the pandemic

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Before the pandemic, when the US economy was enjoying one of its healthiest periods, problems still plagued the federal student loan system.

More than 40 million Americans had education debt, a combined $1.7 trillion in debt, far more than credit card or car debt. Average loan balances per graduation has tripled since 1980, from about $12,000 to more than $30,000 today.

A quarter of borrowers — or more than 10 million people — were delinquent or in default. These grim numbers have led to comparisons with the mortgage crisis of 2008.

The Biden administration is currently considering forgiving some student debt, and was most recently reported to be leaning toward $10,000 in relief for most borrowers. The cost of such a move will depend on the fine print, but could cost the government another 321 billion dollars.

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