The government is losing money on federal student loans, not profiting like it predicted, a watchdog finds

The government is losing money on federal student loans, not profiting like it predicted, a watchdog finds
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  • A GAO report found government estimates of federal student loans were off by $311 billion.
  • Instead of generating a predicted $114 billion profit, the government is actually losing $197 billion.

Republicans on the House education committee asked an independent government watchdog to calculate how much federal student loans are costing the country. It found the loans might not be as profitable as the Education Department thought.

At the end of the July, the Government Accountability Office (GAO) released a report that found that as of fiscal year 2021, federal direct loans are projected to cost the government $197 billion in income, contrasting the department's initial estimate of a $114 billion in profit. The report said that this $311 billion budget change was due to policy changes implemented over the past years, like the student-loan payment pause during the pandemic, along with reestimates of borrowers in income-driven repayment plans, in which borrowers monthly payments were likely going down due to inflation, increasing the plans' costs to the government.

Republican Reps. Virginia Foxx and Greg Murphy, and Sen. Mike Braun said in a statement that the findings in the report show that "the Department's budget was off by more than $300 billion—all of which will be paid for by hardworking American taxpayers."

"President Biden is on track to make the most radical changes to postsecondary education at the expense of all taxpayers," they added. "The GAO report is only the latest evidence that, at best, Biden's Department of Education doesn't have a clue about the real harm of its policies; at worst, the political appointees there simply don't care and are unwilling to disclose the true costs to the American public."

The GAO noted that the updated $197 billion cost of student loans to the government is based on the approximately $1.8 trillion in student loans disbursed from 1997 to 2021, and the department estimated a profit because loans from 2009 to 2019 charged higher interest rates than it cost the federal government to borrow that money during that time period.


Under Secretary of Education James Kvaal responded to the report, saying that "while the Department always strives for the best possible estimates, there is some inherent uncertainty in the Department's costs estimates, which the Department publicly discloses in its Agency Financial Report and the President's Budget."

"For example, interest rates may change at levels not previously predicated," he added. "Additionally, as broader economic conditions change wages, the effects on borrowers may appear in unanticipated changes to payment amounts calculated through IDR plans."

Republican lawmakers have consistently slammed the student-loan relief Biden has already implemented — such as the payment pause and targeted loan forgiveness, due to its costs to taxpayers that fund federal student aid programs. Their opinions don't change when it comes to broad relief that's likely on the horizon. Biden is reportedly considering $10,000 in student-loan forgiveness for borrowers making under $150,000 a year, and he's likely to announce that relief in August, before payments are set to resume after August 31.

With that date less than a month away, lawmakers on both sides of the aisle have asked the department for certainty on what they plan to implement so borrowers have time to financially prepare. Student-loan companies have asked for guidance, as well, following the department instructing them to halt messaging to borrowers surrounding the payment restart.

While Republicans want Biden to resume student-loan payments as they were pre-pandemic, Democratic Rep. Bobby Scott — chair of the House education committee — said in a statement the GAO report shows the need to tackle high college costs after "decades of state disinvestment in higher education."


"Rather than cast blame on previous Administrations—two of which were Republican and two of which were Democratic—we should focus on solutions," Scott said. "The solution to this problem is not to eliminate the student loan program, but—rather—we should work together to address the rising cost of college, restore the value of the Pell Grant, and make meaningful reforms to the student loan program."