The True Cost of Federal Student Loans

Inside Higher Ed

Meghan Brink

July 29, 2022

The Education Department projected that student loans would generate $114 billion in income over the last 25 years. However, a new report shows that federal student loans have actually cost the government $197 billion, a $311 billion difference.

The findings come from a Government Accountability Office report released today that undermines a narrative from the department that the federal student loan program is generating income. The study, analyzing data on student loans between 1994 and 2021, found that the Education Department greatly underestimated how changes to loan programs and borrower behavior have impacted the federal student loan balance.

Recent changes to the loan program since the start of 2022 that were not included in the study, like the Public Service Loan Forgiveness (PSLF) waiver and multiple group discharges of federal student loan debt, will drive the cost higher. Additionally, if President Biden moves to cancel some outstanding student debt, the cost would rise as well.

The shift, according to the report, is driven by changes to the federal student loan program, as well as flawed assumptions about borrowers’ income, repayment rates and default.

Although the GAO did not offer recommendations for the department to improve its budgeting method, the report highlights key factors for review that are contributing to massive differences in how much the student loan program is actually costing taxpayers.

In a letter to the GAO in response to the report, Under Secretary of Education James Kvaal said, “In some cases, estimates are revised because of changes in both the data available to the department and the department’s methodology for estimating costs.” He continued, “While the department always strives for the best possible estimates, there is some inherent uncertainty in the department’s cost estimates, which the department publicly discloses in its Agency Financial Report and the President’s Budget.”

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