The $311 Billion Problem
WASHINGTON, D.C., August 24, 2022
For anyone who forgot, the Department of Education (ED) radically underestimated the true cost of the federal student loan program. Although the federal government originally expected to generate revenue off student loans, the Government Accountability Office (GAO) recently found that the Education Department’s budget erred by $311 billion.
For decades, economists warned that ED’s budget was wrong—instead of addressing those concerns, ED buried its head in the sand. ED’s miscalculation was driven by erroneous assumptions about four primary factors: the number of future enrollees in income-driven repayment (IDR) plans, income growth for borrowers, the probability that borrowers would default on loans, and the effects of loan programs enacted by ED and Congress.
Americans across the country are now feeling the pain of ED’s bad budgeting. Changes to IDR, for example, were enormously expensive and cost taxpayers billions of dollars a year—but ED did nothing to reform those programs.
The effects of such poor policymaking are widespread. Colleges were allowed to charge exorbitant tuition rates, and borrowers could withdraw whatever they needed to cover the cost of degrees with little practical value. Moreover, taxpayers were promised that their dollars would be returned; the GAO report shattered that promise and showed that ED lost more than $200 billion on loan programs.
ED must reevaluate the kinds of student loan policies it enacts—but it shows no intention of doing so. $112 billion in student loans will be disbursed this year to a new generation of student borrowers, but ED has made no changes to its budgeting method or how it administers student loans.
Student borrowers and taxpayers are now in a precarious situation. Many Americans will continue to take out loans to pursue a college education; yet how can ED continue to use methods which it knows are faulty? Additionally, how can President Biden extend the repayment pause which will further burden taxpayers? Furthermore, how can taxpayers or Congress know what Biden’s unilateral actions will truly cost when ED is off budget by BILLIONS EVERY YEAR and makes unrealistic assumptions about borrowing?
Americans need practical and commonsense student loan reforms. Apparently, Democrats are incapable of delivering such reform.