Student Loans Will Cost Government $200 Billion Loss, Shocking Report Says

A shocking new report shows that the federal government will lose $200 billion on student loans.

Here’s what you need to know.

Student Loans

The U.S. Department of Education substantially underestimated the cost of the federal student loan program and will likely lose $197 billion on student loans issued over the past 25 years. According to the Government Accountability Office, the Education Department initially projected student loans from 1997 to 2021 to generate $114 billion. However, their projections were wrong by $311 billion.

Student loans: what happened

There are several reasons why the federal government will now lose money on student loans, including:

• new assumptions about student loan borrowers and student loan repayment;
• the student loan payment pause due to the Covid-19 pandemic; and
• income-driven repayment plans such as PAYE, REPAYE, IBR and ICR

Federal student loan payments have been paused since March 2020 when Congress passed the Cares Act, providing historic student loan relief. The Cares Act included a moratorium on federal student loan payments, 0% interest on student loans and halted collection of student loan payments. President Donald Trump extended this student loan relief twice, while Biden has extended the student loan payment pause four times. More student loan borrowers also are choosing to enroll in income-driven repayment plans, which base a borrower’s monthly student loan payment on their discretionary income. Republican members of Congress, including Rep. Virginia Foxx (R-NC), the leading Republican on the House Committee on Education and Labor, requested the report amid concerns of government spending. Foxx has criticized Biden for canceling $400 billion of student loans and said he should end the student loan payment pause.

Biden will decide whether to extend the student loan payment pause within weeks

While the student loan payment pause ends on August 31, Biden could extend this student loan relief for the fifth time. Education Secretary Miguel Cardona said Biden could extend the student loan payment pause. However, Biden hasn’t indicated whether student loan borrowers should expect the student loan moratorium to continue. Biden said he will decide whether to enact wide-scale student loan forgiveness before the student loan payment pause expires. Borrowers are anxiously awaiting Biden’s announcements, with leaked documents disclosing the potential plan for student loan forgiveness. If Biden extends the student loan payment pause, borrowers could get more student loan relief beyond August. However, if student loan payments restart, make sure you’re prepared. Here are some of the best ways to pay off student loans and save money:

• Student loan refinancing (lower interest rate + lower payment)
• Income-driven repayment (lower payment)
• Student loan forgiveness (federal student loans)

Student Loans: Related Reading

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Education Department cancels $6 billion of student loans