Braking Down The News

Federal Student-Loan Loss Forecast Rises by $53 Billion

The new estimate reflects pandemic-relief efforts for borrowers and low repayment rates on the government’s $1.6 trillion portfolio

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WASHINGTON—The Biden administration has raised an estimate of losses on the federal government’s student loan portfolio by $53 billion, reflecting lower repayment rates and pandemic-relief efforts.

The new estimate—contained in the administration’s proposed budget for the fiscal year that begins in October—is based on updated data on how much money the nation’s 43 million student loan borrowers have sent to the government in recent years to repay their loans.

A year ago, the federal budget projected that taxpayers would ultimately lose $15 billion on all outstanding student debt, which currently comes to $1.6 trillion. The administration’s proposed $6 trillion budget now projects long-term losses will reach $68 billion.

Those estimates are still far smaller than losses projected in an internal analysis led by officials appointed by Betsy DeVos, who was education secretary under President Donald Trump, which showed that taxpayers ultimately would be on the hook for roughly two-thirds of the $1.6 trillion student debt portfolio.

That analysis was based on different assumptions on how quickly borrowers’ incomes would rise, how many would default on their loans and how much debt would ultimately be forgiven through income-based repayment plans, which set monthly payments at a percentage of a borrower’s income and forgive balances after 20 to 25 years of payments.

 

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