The US government underestimated the cost of the multi-billion student loan program – WABE

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A new report from the US Government Accountability Office reveals that the US Department of Education miscalculated the cost of the federal student loan program.

From 1997 to 2021, the Department of Education estimated that payments from direct federal student loans would generate $114 billion for the government. But the GAO found that starting in 2021, the program actually Cost the government about $197 billion.

A percentage of that shortfall, $102 billion, stems from the unprecedented pause in federal student loan payments that began under the CARES Act in 2020. The pause was extended several times under the former president. Trump and President Biden. The most recent extension runs until August 31.

According to the report, a bigger reason for the $311 billion difference is that the original forecast did not take into account the high percentage of borrowers who ended up enrolling in income-contingent repayment (IDR) plans. .

About half of all direct loans are now paid through these plans, which are designed to help people who cannot afford large monthly payments and promise loan cancellation after 20 to 25 year. The GAO explains that “the monthly payment amount for borrowers in income-driven repayment plans may change depending on their economic circumstances.” This is one of the many reasons why government costs related to the program have been unpredictable.

The IDR has also failed to deliver on its promise to borrowers: a recent NPR investigation found that these plans were mishandled by loan officers and the Department of Education. As a result, relatively few borrowers have actually had their loans canceled through IDR.

Copyright 2022 NPR. To learn more, visit https://www.npr.org.

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