The Education Department vastly underestimated the cost of the federal student loan program and will likely lose $197 billion on loans it issued over the past 25 years, according to a Government Accountability Report released on Friday.
The federal watchdog said that from 1997 to 2021, the department estimated the student loan program would generate about $114 billion, when in fact it was actually losing billions because of revised assumptions about borrowers and repayments, pandemic-related policy changes that affected the program and the expansion of a popular plan that tied repayments to a borrower's income.
The department's calculations were off by roughly $311 billion.
One of the biggest contributors to the deficit is the federal moratorium on student loan payments that began under former President Donald Trump as part of a sweeping COVID-19 relief package. President Biden repeatedly extended the payment pause when he entered office and is facing growing pressure from progressive lawmakers to so again when the freeze expires in August.
Suspending payments, holding interest rates at 0% and stopping collections on defaulted loans added an extra $102 billion in costs to the Education Department program, according to the GAO report.
The analysis comes amid a raging debate in Washington over whether Biden should cancel any of the $1.6 trillion in federal student loan debt that is held by millions of Americans.
The GAO conducted the analysis at the request of several Republican lawmakers including Sens. Richard Burr of North Carolina and Mike Braun of Indiana as well as Reps. Virginia Foxx of North Carolina and Greg Murphy of North Carolina. They said the report is evidence that "taxpayers have lost hundreds of billions of dollars on this program."
"For decades, the Department of Education has significantly underestimated the true cost of the Direct Loan program," they said in a statement. "Today’s GAO report shows that the Department’s budget was off by more than $300 billion — all of which will be paid for by hardworking American taxpayers."
The report shows that since 1997, the federal program lost money on loans issued in every fiscal year except for one. The Department of Education had previously projected that it would generate about $6 in income per $100 loaned.
In total, the GAO said the report has cost taxpayers roughly $200 billion.
About half of the loans in the federal program are being paid through income-driven repayment plans.
"While the Department always strives for the best possible estimates, there is some inherent uncertainty in the Department’s cost estimates," Education Department Under Secretary James Kvaal wrote in a letter included in the GAO’s report.