The U.S. Department of Education (DOE) has underestimated the cost of the federal student loan program over the course of decades to the tune of hundreds of billions of dollars that will be absorbed by American taxpayers.
The U.S. Government Accountability Office (GAO) issued a report on Friday that found the DOE had estimated the student loan program would generate income of around $114 billion between 1997 and 2021. In reality, the program is set to lose around $197 billion over that period.
Typical of virtually all government financial estimates, the department made faulty assumptions. It made incorrect forecasts about borrowers and repayments and developments that included revisions connecting repayment to borrower income and the COVID-19 pandemic.
The DOE’s estimates were therefore off by $311 billion.
A huge part of the program’s deficit is due to the federal moratorium on student loan payments that began at the dawn of the pandemic as part of a comprehensive relief package. The pause on payments has repeatedly been extended by the Biden administration.
Even though the shock of the pandemic is over, Joe Biden faces intense political pressure to extend the moratorium yet again when it expires in August. Democrats are looking for anything they can offer up to voters who are disillusioned and angry with the results of Biden’s policies.
The pandemic relief measures of suspending repayment, tolling interest at 0%, and enjoining collection efforts on defaulted loans were found to have added $102 billion in additional losses to the program.
While the program is swimming in red ink, progressive leftist politicians in Congress are pressuring Biden to cancel the $1.6 trillion dollars in student loan debt owed to the federal government by millions of American borrowers.
The GAO conducted the study at the request of a group of Republican lawmakers in the House and Senate. Sens. Richard Burr (R-NC) and Mike Braun (R-IN) said that the report stands as evidence that “taxpayers have lost hundreds of billions of dollars on this program.”
The GAO analysis found that in every year since 1997 but one the federal student loan program lost money on the loans it issued. DOE estimates had predicted that the government would make $6 in income from every $100 loaned to students.
In a letter accompanying the report, DOE Under Secretary James Kvaal wrote that while DOE does its best to strive for accurate estimates, “there is some inherent uncertainty” in the process.