WASHINGTON—The federal government is on track to forgive at least $108 billion in student debt in coming years, according to a report that for the first time projects the full cost of plans that tie borrowers’ payments to their earnings.
The Wall Street Journal said the report, released yesterday by the Government Accountability Office, shows the Obama administration’s main strategy for helping student-loan borrowers is “proving far more costly than previously thought. The report also presents a scathing review of the Education Department’s accounting methods, which have understated the costs of its various debt-relief plans by tens of billions of dollars.”
The report was ordered by Mike Enzi (R-WY), chairman of the Senate Budget Committee, who expressed concerns about the sharp increase in enrollment in income-driven repayment plans, which the Obama administration has heavily promoted to help borrowers avoid default, the Journal reported. “The most generous version caps a borrower’s monthly payment at 10% of discretionary income, which is defined as any earnings above 150% of the poverty level,” the Journal said in its reporting.
That formula typically reduces monthly payments of borrowers by hundreds of dollars. Any remaining balance is then forgiven after 10 or 20 years, depending on whether the borrower works in the public or private sector.
According to the Wall Street Journal, enrollment in the plans has more than tripled in the past three years to 5.3-million borrowers as of June, or 24% of all former students who borrowed directly from the government and are now required to be making payments. They collectively owe $355 billion, the Journal said.
In its report the GAO is projecting that $137 billion of that figure won’t be repaid. “Most of it—$108 billion—will be forgiven because of borrowers fulfilling their obligations under income-driven repayment plans,” the Journal said. “The $108 billion only covers loans made through the current school year, however. The overall sum could continue to grow alongside enrollment increase.”
The overall government loan program—currently totaling $1.26 trillion of debt outstanding, including privately issued loans backed by the government—continues to generate a profit, though these projected revenues are dwindling as more people go into income-based repayment, the Journal said. It added that the government has a separate program, not included in the $108-billion estimate, to forgive loans to students who prove their colleges lured them to enroll by deceptive practices.
The GAO report cited Education Department data showing that most borrowers with high debt balances have attended graduate school. Approximately eight-million borrowers are currently in default on their loans, most owe under $10,000, government data shows. But the GAO report also found the average balance of borrowers in income-driven repayment plans is nearly $67,000, the Wall Street Journal said.