Federal student loan programs are usually criticize as a source of income for the federal government.but a new report Reports from the Government Accountability Office (GAO) suggest that the current situation is far from the truth.
When the Federal Direct Student Loan Program began in 1994, the Department of Education estimated It will bring in $114 billion for the federal government.Nearly 30 years later, the program is estimated It cost the government $197 billion, a difference of more than $300 billion. The federal student loan program has failed, and the cost of its failure will be borne by the American public.
The biggest reason for the increased cost of the direct loan program is the continued suspension of student loan payments initiated during the COVID-19 pandemic. according to For GAO, the previous form of government spending added only about $14 billion to the cost of the program. On the other hand, COVID-19 relief cost the government nearly $108 billion in lost revenue. More worryingly, the COVID-19 student loan moratorium could cost more because GAO doesn’t include data for 2022 in its estimates.
another source The huge cost of the scheme is more complicated. The GAO noted that the Direct Loan Program has undergone a series of program changes over the years, most notably the creation of the Public Service Loan Forgiveness Program and Income-Based Repayment Program. While these programs add billions of dollars to the cost of direct loan programs, 61% Part of the program’s increased estimated cost comes from complex changes in the economy and borrower behavior.
Income Driven Repayments plan, For example, the income-based repayment plan in 2007 and the income-based payment plan in 2015, Designed to allow students in low-paying jobs to reduce their student loans indefinitely. These plans limit monthly loan payments to an “affordable amount,” or 10% or 15% of the borrower’s discretionary income, depending on the plan enrollment date.
47% of all borrowers are registered with IncomElectronically driven repayment plans, with a steadily increasing percentage over time. These borrowers tend to earn less and borrow more than other students, underscoring a fundamental flaw in the direct loan program: If student borrowers earn a valuable return on their investment when they take out student loans, many of them Don’t do that they can only pay a small amount of money each month.
This particular failure highlights how tragically the direct loan program has failed to deliver on its promise of a college education and the quality of life of the middle class that comes with it.Instead of helping more students get a college education, the direct loan program motivating Schools have dramatically increased tuition prices, making the prospect of an education less affordable for American students.
Rather than equip students with the skills to get high-paying jobs that make paying off modest student loan balances fairly easy—students are increasingly borrowing huge sums of money to earn degrees that do little to help them gain gainful employment. The staggering cost of direct loan programs is another reason to retire. While the program’s contribution to the surge in college tuition should be cause for concern, the fact that the program is over budget by hundreds of billions is even more concerning.