Feds predict greater than $108B in loan forgiveness to fall on taxpayers- advisers feel estimate is untrustworthy
The Obama administration presented itself as an ally to student loan borrowers and has worked to make loan forgiveness programs as beneficial as possible. They argue that these efforts will mean more than $108 Billion is forgiven in student loans however, a new report by the Government Accountability Office tells a different story.
The GAO has released a new report that details the plethora of ways the U.S. Department of Education has failed to produce credible estimates showing how much borrowers will benefit from these programs. The income-based programs cap a borrowers monthly payment as low as 10 percent of their monthly income for 120 to 240 months. After the program is complete, the borrower is then released of their obligation to pay the remaining balance.
Taxpayers will be the ones who shoulder the cost and they have been in the dark about the reality of loan forgiveness.
The Department of Education’s “numerous shortcomings,” auditors said in their report, “call into question the reliability of its budget estimates and affect the quality of information Congress has to make informed budget decisions.”
“They’re either being extremely deceitful or extremely incompetent,” states Alexander Holt, a policy analyst at Washington think tank New America.
The income-based repayment plans allow borrowers to make monthly payments ranging from 10 percent to 20 percent of their discretionary income. This decreases their monthly payments but hundreds of dollars in some cases and the remainder of the loans if forgiven by the government after the 10 or 20 year program ends.
The data shows that the average amount owed by a borrower is roughly $51,000 and they make about $34,000 a year paying $154 a month on the loans. Budget watchdogs show that taxpayers stand to lose and every dollar not collected is a dollar lost by the federal government.
Enrollments made directly by the government has skyrocketed over the past few years to $5.3 million borrowers who collectively owe $269 Billion. It’s estimated that taxpayers will lose around $73 billion as a result of the forgone monthly payments on the loans. However, the program’s overall profit will still be about $84 billion.
The department is likely underestimating the potential cost of generous repayment plans by failing to consider the possibility that more borrowers will switch out of standard repayment plans into income-based ones.
What the numbers aren’t showing is the number of borrower’s who don’t re-certify their income each year which is required under the income-based plans. Those who fail to do so are dropped from the program and placed into the standard 10-year repayment plan. Over the past year more borrowers fell out of the two most popular income plans than enrolled.
Additionally, the department doesn’t count for inflation which would reduce the estimated $73 billion by $17 billion.
President-elect Donald Trump called the Education Department a “disaster” and threatened to abolish it. Wednesday’s report could make this much easier for him.