Federal Student-Loan Program Cost Estimate Was Off By $311 Billion, Government Watchdog Says

GAO report finds loans made over past 25 years could lose $197 billion because of policy changes, revised repayment projections

By Melissa Korn of The WSJ. Excerpts:

"The Education Department will likely lose $197 billion on loans it made over the past 25 years, a massive swing from its predicted $114 billion in income, according to a federal watchdog.

The Government Accountability Office said in a report Friday that because of policy changes and updated estimates on how much borrowers will actually repay, the Direct Loan program, which had $1.4 trillion in debt outstanding at the end of the last fiscal year, will fall far short of its original plan to make money for the federal government. Instead, they said, it will run deep in the red.

The biggest contributor to the new calculation was the pandemic relief package enacted by former President Donald Trump in early 2020, and which President Joe Biden last extended in April, to run at least through the end of August."

"Suspending payments, freezing interest rates at 0% and stopping collections on defaulted loans added $102 billion in costs to the loan program, the GAO report found."

"it lost money on loans issued in all but one year over the past quarter-century. Originally, the Education Department estimated the loans would generate $6 in income per $100 lent out. The GAO analysis found the loans wouldn’t make money, but actually cost the government $8.88 per $100 in loans."

"When income from student loans doesn’t match projections set in annual budgets, other government accounts fund the difference. The amount set aside for that purpose has risen sharply in recent years, especially during the pandemic."