Education

Federal Student Loans: From 'Profitable' to Indebted

Instead of $114 billion in revenue, the CBO now expects $31 billion in losses over 10 years.

Jordan Candler · May 10, 2019

The Congressional Budget Office recently revealed some startling new figures regarding student loans. But first, let’s rewind. In 2017, the CBO — clearly looking through rose-colored glasses — stated that the government-managed student-loan program would garner a respectable $114 billion in revenue over the ensuing 10 years. Then, in 2018, that revenue estimate nosedived to just $8.7 billion. In other words, the $11.4 billion in estimated annual profits cratered to less than $1 billion.

But even that estimate proved ridiculously sugarcoated.

Now, the CBO is calculating a $31 billion deficit over the next 10 years. A Bloomberg Government report parsed this development as “a shift from past CBO forecasts that the government would profit from the program.” That’s not merely a shift. That’s a deviation of epic proportions.

Bloomberg Government provides some key explanations for the seismic shift:

While some of the increase can be attributed to interest rates, the bulk of the change has come from the cost of the almost $1.5 trillion in federal loans students already have outstanding. More loans are in default, and less is being collected on outstanding loans, according to the the department’s budget request. In addition, more borrowers than anticipated are enrolling in income-driven repayment plans. These allow borrowers to pay a percentage of their income for a set number of years, after which the remainder of the loan is forgiven.

Of course, anybody who understands the inescapable realities that come with federal spending already knew that student loans would not be profitable. As we explained back in 2016, “Originally, the loan forgiveness program was meant to be available only for those students who applied for loans in 2014 and after, but then Barack Obama retroactively extended the benefit.” Predictably, that made a bad situation all the worse. As Bloomberg Government further notes, “About 30 percent of borrowers with direct federal loans, the most common type, were in income-driven repayment programs in fiscal 2018, a 29 percent increase from two years before, according to the Education Department.”

Now here’s the real kicker. Presidential candidates like Sen. Elizabeth Warren claim that universal “free” college is the way to ameliorate the problem. The cost of Warren’s proposal? At least $1.25 trillion. The definition of insanity is doing the same thing over and over again. In this case, the definition of insanity is letting politicians who created this mess throw taxpayers even further under the bus.

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