Thomas Gallatin / August 2, 2022

Federal Student Loan Boondoggle

Student loan waste was “unexpectedly” high — to the tune of $311 billion.

“Free college” was the mantra espoused by radical leftist candidates including Bernie Sanders in his ultimately failed presidential bid. Sanders’s proposal included “forgiving” $1.6 trillion in student loan debt, as he called the cost of higher education a “national disgrace.” The only national disgrace is how Democrats have fleeced taxpayers and blown up the cost of education with their “free” giveaways.

During his campaign, Joe Biden distanced himself from Sanders’s radical student loan forgiveness agenda, only to later buy in. This month, Biden is expected to sign off on a massive cancellation of student loan debt — a minimum of $10,000 per borrower for those making less than $125,000 annually.

Democrats see this as a winning issue ahead of the midterms, pointing to polling that indicates some 55% of Americans back the plan. Evidently, a majority of Americans have trouble understanding basic economics. There is no such thing as free money, as the current sky-high inflation fully and painfully reveals. But politics more often plays to feelings than facts.

The Government Accountability Office recently released a fiscal report on the federal student loan program spanning the years from 1997 to 2021, and that report underscores why so many people simply don’t trust the government.

According to the report, the Department of Education’s student loan program, which was promised to generate $114 billion in revenue for the American taxpayer, not only failed to produce any revenue but ended up costing an additional $197 billion over 25 years. That equates to a net swing of $311 billion. Put another way, the GAO found that federal student loans were “originally estimated to generate $6 in income per every $100 disbursed.” In reality, those loans are “expected to cost the government almost $9 for every $100 disbursed.”

So, not only have taxpayers not seen a return on their “investment” into the DOE’s student loan program, they have been getting hosed to the tune of billions annually. Every year except for two, the program has lost billions. That was especially so in 2020 following Donald Trump’s “pause” put on student loan repayments — a pause that Biden has continued indefinitely as he sets up his plan to “forgive” billions more in student loan debt.

Several Republican lawmakers responded to the report by observing: “For decades, the Department of Education has significantly underestimated the true cost of the Direct Loan program. Today’s GAO report shows that the Department’s budget was off by more than $300 billion — all of which will be paid for by hardworking American taxpayers.” They continued: “President Biden is on track to make the most radical changes to postsecondary education at the expense of all taxpayers. The GAO report is only the latest evidence that, at best, Biden’s Department of Education doesn’t have a clue about the real harm of its policies; at worst, the political appointees there simply don’t care and are unwilling to disclose the true costs to the American public.”

The fact is, students who clearly should never have been considered for these loans in the first place have been taking advantage of taxpayer dollars. They have effectively already had billions in loans “forgiven” or at least ignored. The GAO report notes that an estimated $189 billion of the loss was due to bad assumptions regarding student borrowers. That’s because politicians placed feelings above facts and projected an idealized narrative of “hardworking” but “poor” college students who just needed a helping hand from Uncle Sam in order to finally realize their potential. Well, that helping hand turned out to be a helping handout, and not so much to students as it was to those schools of higher education that eagerly took the money and quickly jacked up tuition costs.

We mentioned inflation above, and if you think the 9.1% headline inflation rate is bad, try the rate for higher education. Back in March, Forbes reported, “Between 1980 and 2020, the average price of tuition, fees, and room and board for an undergraduate degree increased 169%, according to a recent report from the Georgetown University Center on Education and the Workforce.”

While schools may have taken advantage of the federal student loan program, the real villain in this story is the Department of Education. And now Biden plans to send more money its way as he plans to “cancel” billions more in student loan debt. Furthermore, the victim in this story is not the student but the American taxpayer — especially those who paid off their student loans or never took out loans in the first place.

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