Federal Student Loan Programs Come With Unintended Financial Consequences For Government

By Rebecca Stokem, National News Writer

A recent report from the Department of Education’s Office of Inspector General states that the gap between the federal government’s student loan outflows for higher education versus inflows from student loan repayments is widening, losing the government a significant amount of money. This report shows that the government is lending more money in student loans than is repaid, which is due to greater amounts of students enrolling in Income-Driven Repayment (IDR) plans, among them PAYE and REPAYE (Pay as You Earn and Revised Pay as You Earn, respectively). These payment plans set monthly payments as a percentage of the student’s income, and usually balances between 10 to 25 years.

The updated report entitled, “The Department’s Communication Regarding the Costs of Income-Driven Repayment Plans and Loan Forgiveness Programs,” mainly discusses a need for further transparency with the rest of the federal government on its financial issues and statistics regarding federal student loans. The report states, “Based on our review and assessment of certain Department publications, the Department should have enhanced its communications regarding cost information related to the Federal student loan programs’ IDR plans and loan-forgiveness programs to make it more informative and easier to understand.” The report continues with statistics from the past few years: “We calculated that the portion of total Direct Loan volume being repaid through IDR plans has increased 625 percent from the 2011 fiscal-year loan cohort ($7.1 billion) to the fiscal-year 2015 loan cohort ($51.5 billion).” The report then admits that future increases in students using IDR plans could result in the government and taxpayers lending more money than is being borrowed overall.

The policies that first led to these lending disparities began during the Obama administration, when the amount of students defaulting on their loans was on the rise following the recession. The Obama administration had promoted these plans to try to combat the rate of new defaults. Some Republicans have been concerned about these repayment plans, claiming that they are being more widely used than originally intended. Tennessee Senator Lamar Alexander, head of the committee overseeing education, said in a hearing this week, “What was designed as a temporary safety net has become the standard where students expect their debt to be forgiven after a certain amount of time … We will not know the impact of so many borrowers being in this program for another decade, when the first set of borrowers begin to have their debt forgiven.”

U.S. lawmakers are now working on revising and improving the Higher Education Act in order to try to rectify some of these loan issues. The House passed a bill this past December to reauthorize the bill. The Senate has had multiple hearings so far this year to discuss aspects of further legislation.

 

A version of this article appeared in the Tuesday, February 13th print edition.

Contact Rebecca at

rebecca.stokem@student.shu.edu

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