When searching for student loan news, the average reader will soon find out that the majority of news outlets have developed a keen interest in the Income-Driven Repayment (IDR) program of the Federal government, or Department of Education (DE).
A quick glance at the headlines reveals the punchline in seconds. In short, the Department of Education is under fire after a report was released by the Government Accountability Office (GAO). This report revealed flaws in the Department of Education’s budget estimation for the IDR program, and it will cost the government $74 billion.
The headlines mentioned earlier reference the main takeaway of the report: that $74 billion figure as a misstep of the Department of Education. Interestingly enough, the main feature of the IDR program is being criticized which is student loan forgiveness after a set number of successful payments.
The tone overall is not positive which may seem confusing to many readers. After all, the forgiveness aspect of the IDR program has been praised by many for offering college graduates a viable way to pay for student loans while receiving a nice benefit for consistently making payments. With that being said, there is definitely another take on the subject.
Statements from U.S. House Representative Suzanne Bonamici shed some insight on the story, and it alludes to other possible intentions of the GAO. The government representative claimed concern over critics being “narrowly focused on the cost of the estimated loan principal” from IDR forgiveness.
At any rate, most headlines offer criticism of the forgiveness expenses which alludes to Bonamici’s narrow focus complaint. Another factor that escapes consideration is the outcome of different payment plans in this period. The GAO reports $281 billion paid by these IDR participants with a $74 billion remainder as a loss. What would be the outcome for these borrowers under other plans? Where would they sit financially in terms of net worth? What would government losses be? All of these are questions that shed insight on the value of the Income-Driven Repayment program.
Bonamici implores others to view the program in a more encompassing way by considering the net cost of the program (not just the losses). For instance, while cost estimates range from $70 to $100 billion, income estimates start at $80 billion. The argument is a break even or at least a minimal loss scenario.
Another aspect of the IDR program that most people are ignoring is the “safety net these plans provide to people” who would otherwise be slammed with higher monthly student loan payments. Any economic neophyte can see the benefit of increasing discretionary income of a large demographic; for instance, the additional income can be devoted elsewhere towards other industries which helps boost the economy overall. Hopefully the economic benefit outweighs the tax burden of these forgiven loans.
While the Department of Education did underestimate budget costs, most headlines are more worried about the expense of loan forgiveness. In actuality, the true criticism from the GAO report pertains to the budget estimation process.
Don’t get the wrong idea. Standing alone, this development is still a significant issue.
The Department of Education is at the head of dealing with over a trillion in student loan debt, the second leading form of debt behind mortgages. Debt payment and relief programs with a scope of over ten years have significant and lasting effects on the government budget, economy, and tax payers.
To say the least, it is an absolute necessity to, in layman’s terms, get the math right.