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From a $114 billion profit to a $197 billion deficit: The federal gov't might lose big on student loan debt

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Photo by Paul Morigi/Getty Images

The ongoing federal student loan forbearance that was initiated during the height of the COVID shutdowns might result in a $197 billion loss. According to the Government Accountability Office (GAO), a federal watchdog, this loss includes all loans issued in the last 25 years.

Student loan payments have not been required for borrowers for nearly two years. The relief program not only waived the monthly fees but enacted a 0% interest in the meantime.

The program was initiated by President Donald Trump and continues under President Joe Biden. There have been 26.78 million borrowers with loans in forbearance since March 2020. Presently, payments are scheduled to resume on August 31.

The GAO estimated that loans created between 1997 and 2021 would cost $9 for every $100 lent by the federal government. Expectations prior to the forbearance predicted the loans would profit $6 for every $100 distributed.

While two years of payment relief certainly did not help the situation, the federal student loan system was already facing problems prior to COVID. Student loan debt far surpasses credit card balances and auto loans.

In 2022, Americans are burdened with a cumulative total of $1.7 trillion in student loan debt. Today, the average loan balance at graduation is $30,000 – a significant spike from 1980 when the average loan balance was $12,000.

Mark Kantrowitz with the GAO noted, "There have been several changes to the federal student loan programs, including the payment pause and interest waiver, that have increased the cost of the program, swinging it from a profit to a loss."

In late May, President Joe Biden announced plans to forgive up to $10,000 per borrower in federal student loan debt. The program would apply to individuals making $150,000 per year or less and couples making $300,000 per year or less.

The exact details of the plan are still being discussed and are subject to change. However, realizing the financial burden debt relief would place on taxpayers, Democrats and Republicans are pushing back on the idea.

According to Forbes, the president has already canceled $25 billion in student loan debt.

White House spokesperson Vedant Patel stated, "No decisions have been made yet. But as a reminder, no one has been required to pay a single dime of student loans since the president took office."

Committee for a Responsible Federal Budget, a nonpartisan think tank, estimated that a relief program this size would cost at least $230 billion. In contrast, CNCB speculated that the forgiveness program could cost $321 billion, depending on the fine print. Regardless of the final number, the cost of student loan forgiveness would be on the backs of every taxpayer.

President Joe Biden is set to announce his decision regarding federal student loan debt relief within the coming weeks.

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