WASHINGTON – The Biden administration has raised an estimated loss to the federal government’s student loan portfolio by $ 53 billion, reflecting lower repayment rates and pandemic relief efforts.
The new estimate, contained in the administration’s proposed budget for the fiscal year that begins in October, is based on updated data on the amount of money the nation’s 43 million student loan borrowers have sent to the government in the past. years to pay off your loans.
A year ago, the federal budget projected that taxpayers would eventually lose $ 15 billion on all outstanding student debt, which currently stands at $ 1.6 trillion. The administration’s proposed $ 6 trillion budget now projects long-term losses to reach $ 68 billion.
Those estimates are still much smaller than projected losses in an internal analysis led by officials appointed by Betsy DeVos, who was secretary of education during Donald Trump’s presidency, which showed that taxpayers would ultimately be on the hook for about two. thirds of the $ 1.6 billion students. debt portfolio.
That analysis was based on different assumptions about how quickly borrowers’ incomes would increase, how many would default on their loans, and how much debt would eventually be forgiven through income-based repayment plans, which set monthly payments at a percentage of Borrower’s income and Forgive balances after 20 to 25 years of payments.
Regardless of how they are calculated, the losses are mounting and would increase further if the Biden administration takes steps to forgive the student debt of some borrowers, as has been urged by Democratic leaders in Congress.
Biden has said he would support the forgiveness of $ 10,000 in student debt for each borrower with a federal loan, which would eliminate about $ 377 billion in debt, according to the Brookings Institution, a Washington-based think tank. He has urged Congress to pass a law to do so.
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The White House has also asked the administration’s attorneys to study the legality of using executive action to carry out its debt forgiveness plan, though Biden has said he prefers to go through Congress.
The federal loan program has been plagued with problems for years. Millions of borrowers defaulted on their loans during and after the 2007-2009 recession, many of whom dropped out of college and struggled to find decent-paying jobs. Others borrowed a lot of money to cover steep tuition increases and then enrolled in federal programs that link their payments to their income. Lower payments are generally not enough to cover interest, and borrower balances are increasing.
The broader losses last year are due in part to federal efforts to help borrowers weather the economic fallout of the coronavirus pandemic.
A series of executive actions by the Trump administration and a law passed by Congress in the spring of 2020 allowed most student loan borrowers to suspend monthly payments until January 2021. President Biden extended the tolerance until January 30. September. The government stopped charging interest during that period.
Those measures have freed up cash (hundreds of dollars a month for typical borrowers) for households during the coronavirus-induced recession. They have also reduced by tens of billions of dollars the amount of interest payments the government expected to collect, the latest budget documents show.
Also contributing to the broader loss estimate is the likelihood that more borrowers will enroll in federal repayment plans that will ultimately forgive their balances after several years of payments.
The Biden administration now faces a logistical and political challenge: By September 30, most borrowers will have gone 18 months without making a payment. Republicans in Congress are pressing the administration to outline a plan for borrowers to resume payments after the forbearance period ends. They urge the administration not to extend the leniency period beyond September. The administration has not said whether it is in favor of such a move.
An extension “would be unnecessary and actively work against the interests of students and taxpayers,” said Rep. Virginia Foxx and Senator Richard Burr, the top Republicans on the House and Senate panels overseeing education policy. , in a letter last week to the Secretary of Education. Miguel Cardona.
The White House did not respond to a request for comment. A spokeswoman for the Department of Education said, “We continue to closely review the data related to the return for reimbursement,” and eventually we would communicate with legislators about their concerns.
Write to Josh Mitchell at [email protected]
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