The federal government is on track to forgive at least
$108 billion in student debt in coming years, according to a report that for
the first time projects the full cost of plans that tie borrowers’ payments to
their earnings.
The report, to be released on Wednesday by the
Government Accountability Office, shows the Obama administration’s main
strategy for helping student-loan borrowers is proving far more costly than
previously thought. The report also presents a scathing review of the Education
Department’s accounting methods, which have understated the costs of its
various debt-relief plans by tens of billions of dollars.
Senate Budget Committee Chairman Mike
Enzi (R., Wyo.) ordered the report last year amid a sharp increase in
enrollment in income-driven repayment plans, which the Obama administration has
heavily promoted to help borrowers avoid default. The most generous version
caps a borrower’s monthly payment at 10 percent of discretionary income, which
is defined as any earnings above 150 percent of the poverty level.
That formula typically reduces monthly payments of
borrowers by hundreds of dollars. Any remaining balance is then forgiven after
10 or 20 years, depending on whether the borrower works in the public or private
sector.
Congress approved the plans in the 1990s and 2000s, and
President Barack Obama has used executive actions to extend the
most-generous terms to millions of borrowers.
Enrollment in the plans has more than tripled in the
past three years to 5.3 million borrowers as of June, or 24% of all former
students who borrowed directly from the government and are now required to be
making payments. They collectively owe $355 billion.
The GAO estimates that $137 billion of that figure won’t
be repaid. Most of it—$108 billion—will be forgiven because of borrowers
fulfilling their obligations under income-driven repayment plans. The $108
billion only covers loans made through the current school year, however. The
overall sum could continue to grow alongside enrollment increase.
The other $29 billion will be written off because of
disability or death, the GAO projects, the only other circumstances under which
the government takes a loan off its books. The government can garnish wages and
Social Security checks for those in default.
Supporters say the plans offer a lifeline to borrowers
who are unemployed or earning little, while the Obama administration has
credited the programs for leading to a reduction in the number of new graduates
defaulting on their loans. Supporters also point out that under current law,
any amount forgiven would be taxed as ordinary income for private-sector
workers, limiting the benefits for individuals. Public-sector workers aren’t
taxed on forgiveness.
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