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A new report The U.S. Government Accountability Office believes the U.S. Department of Education miscalculated the cost of the federal student loan program.
From 1997 to 2021, the Department of Education estimates that federal Direct Student Loan repayments will generate $114 billion for the government. But the GAO found that as of 2021, the program was actually working cost government, an estimated $197 billion.
A percentage of that shortfall, $102 billion, is due to the unprecedented federal student loan freeze that began under the CARES Act in 2020. The pause was extended several times under former Presidents Trump and Presidents Biden. The latest expansion valid until August 31.
The most important reason for the $311 billion difference, the report said, is that the original projections did not account for the high percentage of borrowers who ended up participating in income-driven repayment (IDR) plans. About half of all direct loans are now paid out through these plans, which are designed to help people who can’t afford large monthly payments and promise to eliminate the loan in 20 to 25 years. The GAO explains, “the monthly payment amount for borrowers in income-driven repayment plans may vary depending on their economic situation.” This is one of the many reasons why government spending on the program has been unpredictable.
IDR also failed to deliver on its promise to borrowers: A recent NPR investigation it turned out that the loan services and the Ministry of Education mismanaged these plans. As a result, relatively few borrowers have been able to cancel their loans through IDR.