By Natalie DeCoste
The Biden administration reported that the estimate of losses on the federal government’s student loan portfolio had increased significantly.
The administration reported in its proposed budget for the next fiscal year that losses on the federal government’s student loan portfolio would increase by $53 billion. The new number reflects lower repayment rates and pandemic-relief efforts.
The increase is based on updated data on how much money America’s 43 million student loan borrowers have repaid to the government in recent years. The analysis includes assumptions on how quickly borrowers’ incomes would rise, how many borrowers would default on their loans, and how much debt would ultimately be forgiven through income-based repayment plans.
Since last year, the total amount of outstanding student debt has reached $1.6 trillion. The newly proposed $6 trillion budget now estimates long-term losses of $68 billion.
The increase to the estimated losses absorbed by the federal government is minimal compared to what it could be if President Biden’s student loan forgiveness plans come to fruition.
While campaigning, President Biden showed his support for $10,000 of undergraduate or graduate student debt relief for every year of national or community service, up to five years and $50,000. During his first 100 days in office, President Biden supported up to $10,000 of debt forgiveness and asserted that he would prefer Congress craft the legislation.
However, President Biden’s student debt forgiveness plans were left out of the White House budget for this year, and the administration is reportedly reviewing federal student loan relief programs separately.
“President Biden is still waiting for the U.S. Department of Justice and the U.S. Department of Education to report on their review of his legal authority to forgive student loan debt through executive order. Only after he receives that report, which I expect will find that he does not have the legal authority, will the ball be in Congress’ court,” said higher education expert Mark Kantrowitz.
According to the Brookings Institution, Biden’s $10,000 forgiveness plan would have wiped out roughly $377 billion in debt.
“Forgiving all student debt would be a transfer larger than the amounts the nation has spent over the past 20 years on unemployment insurance, larger than the amount it has spent on the Earned Income Tax Credit, and larger than the amount it has spent on food stamps,” explained Adam Looney in the Brookings report.
The federal student loan program has been plagued with problems for over a decade. Millions of borrowers defaulted on loans during and after the 2007-2009 recession. Others borrowed heavily to cover steep tuition increases and then enrolled in federal programs that tie their payments to their income, which were often not enough to cover the interest on the loans.
Newer debt problems are arising out of the actions taken by the federal government to help borrowers weather the economic fallout from the coronavirus pandemic. President Biden extended the loan forbearance started by the Trump administration and stopped charging interest on debts through Sep. 30
