Remember when President Obama’s Department of Education reported that its income-driven repayment program (IDR) to help federal student loan borrowers avoid default would cost $25 billion?
That estimate has more than doubled, with a new estimate of $53 billion, according to a new report from the Government Accountability Office.
When it was introduced in 2009, the IDR was designed to permit borrowers to pay back their loans only when they could afford it, with fewer years to complete repayment. But estimates of how much it would cost did not take into account the fact that once the idea was introduced, news would spread like wildfire, the fact that borrowers would choose to use the program depending on whether they were flush with cash or not, and income inflation, as The Weekly Standard pointed out.
As the GAO wrote:
As of June 2016, 24 percent of Direct Loan borrowers repaying their loans (or 5.3 million borrowers) were doing so in IDR plans, compared to 10 percent in June 2013. Education expects these plans to have costs to the government. GAO was asked to review Education’s IDR plan budget estimates and estimation methodology … For the fiscal year 2017 budget, the U.S. Department of Education (Education) estimates that all federally issued Direct Loans in Income-Driven Repayment (IDR) plans will have government costs of $74 billion, higher than previous budget estimates … While actual costs cannot be known until borrowers repay their loans, GAO found that current IDR plan budget estimates are more than double what was originally expected for loans made in fiscal years 2009 through 2016 (the only years for which original estimates are available). This growth is largely due to the rising volume of loans in IDR plans.
The GAO figures that $137 billion of the $355 billion borrowers currently owe will not be repaid; 108 billion will be forgiven, according to GAO’s estimate.
Wyoming senator Mike Enzi, who commissioned the report, slammed the DOE, snapping, “At a time when our nation is facing a mammoth national debt, the Department of Education has expanded a student loan program that will cost twice as much as originally estimated. This Administration has been manipulating the terms of the student loan program without the consent of Congress, while shirking its statutory duty to carefully assess the cost impact of those changes.”