Federal Student Loss Forecast Increases $ 53 Billion



WASHINGTON. The Biden administration raised its estimate of losses on the federal government’s student loan portfolio by $ 53 billion, reflecting lower repayment rates and efforts to combat the pandemic.

New Assessment – Contained in proposed administration budget for the fiscal year that begins in October, based on an update on how much money the country’s 43 million student loan borrowers have sent to the government in recent years to pay off their loans.

A year ago, the federal budget projected that taxpayers would end up losing $ 15 billion in all outstanding student debt, which is currently $ 1.6 trillion. In the administration’s proposed $ 6 trillion budget, long-term losses are now projected to reach $ 68 billion.

These estimates are still far less than the losses predicted in an internal analysis conducted by officials appointed by Betsy DeVos, who was Secretary of Education under President Donald Trump, which showed that taxpayers would end up on the hook for about two-thirds of students with 1 , 6 trillion dollars. debt portfolio.

This analysis was based on various assumptions about how quickly the income of borrowers would rise, how many of them would give up their loans, and how much debt would eventually be written off with income-based repayment plans that set monthly payments as a percentage of the borrower’s income and forgive balances after 20-25 years of payments.

Regardless of how they are calculated, losses grow and will grow if the Biden administration trying to forgive some borrowers’ student debt just like the Democratic leaders in Congress called for it to do.

Mr Biden said he would support writing off $ 10,000 of student debt for every borrower with a federal loan, resulting in about $ 377 billion in lost debt, according to the Brookings Institution, a Washington-based think tank. He called on Congress to pass legislation.


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The White House also asked administration lawyers to examine the legality of using executive measures to fulfill its debt relief plan, although Biden said he prefers to act through Congress.

The federal loan program has suffered from problems for years. Millions of borrowers defaulted on loans during and after the 2007-2009 recession, many of whom dropped out of school and struggled to find decent paying jobs. Others took large loans to cover the steep rise in tuition fees and then participated in federal programs that linked their payments to their income. Lower payments are usually not enough to cover interest and borrower balances rise.

Larger losses over the past year are partly due to efforts by the federal government to help borrowers cope with the economic fallout from the coronavirus pandemic.

A series of executive actions by the Trump administration and legislation passed by Congress in the spring of 2020 allowed most student loan borrowers to suspend monthly payments until January 2021. President Biden extended the grace period until September 30. The government stopped charging interest during that period.

The moves have freed up cash – hundreds of dollars a month for typical borrowers – for households during the coronavirus-driven downturn. They also cut tens of billions of dollars in interest payments the government hoped to raise, according to the latest budget documents.

Since 1990, tuition fees at public universities in America have nearly tripled. With President Biden seeking to ease the burden on some students, experts explain how federal bailout programs can actually drive up costs. Photo: Storyblocks

Also contributing to a broader loss estimate is the likelihood that more borrowers will participate in federal repayment plans that will eventually forgive their balances after several years of payments.

The Biden administration is now facing a logistical and political challenge: by September 30, most borrowers will not make payments for 18 months. Congressional Republicans Call for Administration to Develop a Plan force borrowers to resume payments at the end of the period of abstinence. They urge the administration not to extend the abstinence period beyond September. The administration did not say whether it supports such a move.

The enlargement “would be unnecessary and would actively work against the interests of students and taxpayers,” MP Virginia Fox and Senator Richard Burr, chief Republicans in the Chambers and Senate commissions that oversee education policy, said in a letter last week to the Secretary of Education. … Miguel Cardona.

The White House did not respond to a request for comment. A spokeswoman for the Ministry of Education said, “We are continuing to scrutinize the return-to-benefit data,” and will eventually reach out to lawmakers about their concerns.

Write to Josh Mitchell in joshua.mitchell@wsj.com

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