Obama Administration Mistakes Threaten Student Loan Relief Programs
Critics of the administration's efforts to forgive student loans will capitalize on the revelation that the programs will cost tens of billions more than expected.
WASHINGTON — A string of failures by the Obama administration have jeopardized the future of its ambitious student loan forgiveness efforts, which government auditors revealed this week will likely cost taxpayers tens of billions of dollars more than initially expected.
The cost blowout, disclosed in a Government Accountability Office report this week, provides fodder to critics of Obama's loan forgiveness efforts, some of whom have also sought to dismantle parts of the Education Department.
The report found deep inaccuracies in the Education Department's estimates of how much student loan relief programs — like income-based repayment, graduate loans, and public-service loan forgiveness — would cost taxpayers. The programs will have a total price tag of $100 billion or more — tens of billions more than the Education Department once claimed. The difference is due to basic accounting errors and shortcomings by the Department, the GAO report said.
The news "puts the whole [loan forgiveness] program at risk," said Kevin Carey, director of education policy at the left-leaning New America Foundation, a think tank. "There are people in Congress that are antagonistic to the idea of loan forgiveness in general, and these numbers are a justification. They provide budgetary argument for saying, 'We can't afford this.'"
At greatest risk, experts say, are two popular programs that have expanded significantly under the Obama administration: the Grad PLUS loan program, which allows graduate students to borrow money with no limits, and the Public Service Loan Forgiveness program, or PSLF, which allows people working in public service industries to have their loans forgiven after just 10 years.
Both programs can potentially result in extremely large loan balances being forgiven, because graduate students tend to borrow much more money.
Donald Trump has said he would like to keep a basic income-based repayment plan — though with provisions slightly modified from the Obama administration's current version. And the basic idea of income-based repayment enjoys broad bipartisan support. But PSLF and Grad PLUS loans are likely on the chopping block with Trump and Republicans in control — and the huge costs suggested by the GAO report.
"The scale of this thing is staggering," said Daniel Pianko, a managing director at the higher education investing firm University Ventures, of the GAO report. "It's a real rebuke to the department. It would be remiss of the new administration not to take a holistic approach and rethink the entire program and how it gets managed."
The GAO found that the Obama administration was "missing key information" in its estimates, failing to account for the growth of the income-based repayment program — even as it was in the process of enrolling 2 million more borrowers into IBR — or of the large graduate student loan program.
In a statement, Education Department undersecretary Ted Mitchell said that the "The Department of Education has proposed several common sense reforms, that would reduce costs by about $49 billion over 10 years." Income-based repayment plans, Mitchell said, "help keep borrowers from financial strain and reduce default."
Of the Department's failure to accurately estimate the costs of its programs, Republican congresswoman Virginia Foxx, who will soon become the chair of the House's education workforce committee, said dryly, "Well, what's new?"
"This is the first time we've had real hard numbers behind loan forgiveness, and $108 billion is not a trivial sum," said Lindsey Burke, a fellow at the conservative Heritage Foundation, which has a number of staff on Trump administration's transition team on education. "It should add fuel to the appetite to re-examine policies" like student loan forgiveness and graduate-student lending, she said.
The evidence provided in the GAO report, Burke said, "should push policymakers to re-examine the most egregious drivers of the increase. The most egregious driver is graduate student loans."
The Grad PLUS loan program has long been unpopular among conservatives, but the Obama administration has also tried, unsuccessfully, to place a cap on the amount of graduate loan debt that can be forgiven. It's been kept around in large part due to the assertion, based on Education Department numbers, that it is actually profitable to run.
The GAO's report calls that assumption into question, said Alexander Holt, a policy analyst at New America. "If it actually saves money for the government to get rid of Grad PLUS that could be huge," he said. "It would be easy to potentially eliminate."
The ultimate conclusion of the GAO report was that much is uncertain: there are so many discrepancies in the Education Department's numbers that it is possible that the government has been overestimating the costs of loan forgiveness, rather than underestimating it, as the GAO had calculated.
But conservatives are likely to use the staggering $100 billion tab reached by the GAO report anyway — and not only as a way to pare back loan forgiveness programs. Some say the report could help the Trump administration trim back Education Department itself.
"Not only are the optics bad, but now there's a scandal — the Education Department has been massively underestimating the costs of their programs through sheer negligence," said Holt. "It's extremely important from a political calculus. Trump has been talking about getting rid of the department — now they can say, look, they can't even keep track of their biggest program costs."