According to a report from the Government Accountability Office, there is a drastic difference between the amount of money the federal government said student loan programs would generate, and the amount of money it costs taxpayers.
Miscalculated Estimates
In the last 25 years, The Department of Education expected federal direct loans to generate billions of dollars for the federal government, according to past estimates made by the department. Now, after recent estimates, the programs are projected to cost U.S. taxpayers around $10 billion annually. The estimates also show the federal loan program has cost taxpayers roughly $197 billion in the last 25 years. According to the most recent estimates, there is a $311 billion discrepancy from the original estimates.
Government Accountability Office Report
A GAO report concluded that federal student loans were originally estimated to generate $6 in income per every $100 disbursed.” Instead, they’re “expected to cost the government almost $9 for every $100 disbursed.” This ultimately means that these programs that were projected to bring in roughly $100 billion in federal government revenue, cost taxpayers nearly $200 billion.
Payment & Accounting Procedure Issues
Another large chunk (39%) of this miscalculation was due to repayment issues, participation in Public Service Loan Forgiveness, interest waivers, and new income-driven repayment plans. To make matters worse, the Department of Education will continue to use these inaccurate accounting procedures for the next 3 years, until they can be changed in 2026. These metrics also don’t include the Biden Administration’s recent and future plans for student loan forgiveness, which could cost taxpayers even more.
Wrap Up
This massive error by the Department of Education has caused a headache for many. This goes to show, how important it is to implement the correct accounting procedures! The Department of Education may need to look into rethinking how they handle Federal Student Loans, with the potential for student loans to move back over to the private sector, where they used to be.