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      • Student Loans Cost US Govt $60...
      World

      Student Loans Cost US Govt $60 Billion Annually? Here's The Truth

      Experts say the loans cost the government billions in 2020 when payments were suspended in the pandemic, but that the program is usually close to breaking even.

      By - AFP |
      Published -  1 Nov 2021 8:13 AM IST
    • Boomlive
      Student Loans Cost US Govt $60 Billion Annually? Heres The Truth

      A tweet claims student loans annually cost the US government $60 billion to service and that canceling them would save at least that much money. This is false; experts say the loans did cost the government billions in 2020 when payments were suspended during the pandemic, but that the program is usually close to breaking even and canceling all debts would cost much more -- over $1 trillion.

      "Wait was nobody going to tell me that US student loans cost the government over $60B more to service than they bring in a year?" says an October 21, 2021 tweet that has been liked more than 18,000 times.

      "They could literally be cancelled this second and the gov would have *more* money," says the tweet, which was also shared thousands of time as a screenshot on Facebook.

      Screenshot of a tweet taken on October 27, 2021

      President Joe Biden's administration approved $9.5 billion of student loan relief after taking office, but progressive Democrats have called for significantly greater debt cancelation.

      However, the tweet is inaccurate.

      When asked by Twitter users about the claim, the account that made it pointed to page 169 of the 2020 Federal Student Aid (FSA) report by the US Department of Education as a source. But that page does not mention such a figure and it is unclear where the person obtained it.

      Jason Delisle, a fellow at Urban Institute, a think tank that specializes in higher education finance, told AFP that this data and FSA's annual report "are not considered to be cost estimates for the federal student loan program," although it bears some relation to it.

      This is partly because the report includes all spending on grant programs, including approximately $30 billion on Pell Grants, which are unrelated to student loans, he said.

      The reality, Delisle said, is that "the federal loan program tends to be close to break even on its costs."

      He said the most appropriate measure for the loan program's cost is the Congressional Budget Office's annual baseline estimates, which show administrative costs of $3 billion in 2020. This includes all aid programs at the Department of Education, such Pell Grants, work study, and more.

      Screenshot taken on October 27, 2021 shows the Congressional Budget Office's annual baseline estimates (page 3)

      The Department of Education reported that the administrative cost of servicing student loans represents 1.45 percent of the entire loan, which is a lifetime cost, not annual, he said.

      The person who posted the tweet may, Delisle suggested, have confused the figure for what student loans cost the government in 2020 with servicing costs.

      Due to the Covid-19 pandemic, policymakers suspended all payments and interest on federal student loans through the CARES Act. This measure raised total annual costs, not just servicing costs, to an unusually high $79.1 billion.

      "Not only is the fact you are checking wrong, it is also being interpreted incorrectly," said Adam Looney, executive director of the University of Utah's Marriner S. Eccles Institute for Economics and Quantitative Analysis.

      "Federal loans do cost taxpayers a lot of money," he said, "because a rising number of borrowers are enrolled in income-driven repayment plans, had their payments suspended and their interest rate set to zero during the pandemic, and more are applying to loan forgiveness... and the reduction in borrower payments is counted as a cost to the government."

      However, "if they canceled all student loans the cost doesn't go down, it would instead rise from the reported $60B up to something closer to $1 trillion," he said.

      That number, Looney said, is the total value of outstanding student loans -- around $1.8 trillion -- minus some of it "that has already been written down by the Department of Education as likely to be forgiven/unpaid under current policies."

      The Department of Education acknowledged an enquiry from AFP but did not provide any comment by the time of publication.

      (Except for the headline, this story has not been edited by BOOM staff and is published from a syndicated feed.)

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