Obama Student Loan Foregiveness Plan To Cost Taxpayers $137 Billion, GAO Finds
– ZeroHedge | Tyler Durden
“To our complete shock, the Government Accountability Office has released a report blasting the Education Department’s understanding of basic mathematics and accounting concepts after finding the department drastically underestimated the costs of Obama’s student loan forgiveness programs. The 100-page report entitled “Federal Student Loans: Education Needs to Improve Its Income Driven Repayment Plan Budget Estimates” found that taxpayers could be on the hook for $137BN of student loans to be forgiven over the coming years as a result of Obama’s executive actions on “income-driven repayment” (IDR) plans.
For the fiscal year 2017 budget, the U.S. Department of Education (Education) estimates that all federally issued Direct Loans in Income-Driven Repayment (IDR) plans will have government costs of $74 billion, higher than previous budget estimates.
IDR plans are designed to help ease student debt burden by setting loan payments as a percentage of borrower income, extending repayment periods from the standard 10 years to up to 25 years, andforgiving remaining balances at the end of that period. While actual costs cannot be known until borrowers repay their loans, GAO found that current IDR plan budget estimates are more than double what was originally expected for loans made in fiscal years 2009 through 2016 (the only years for which original estimates are available). This growth is largely due to the rising volume of loans in IDR plans.
Education’s approach to estimating IDR plan costs and quality control practices do not ensure reliable budget estimates. Weaknesses in this approach may cause costs to be over- or understated by billions of dollars.
As the Wall Street Journal points out, the so-called IDR plans set caps on borrowers’ monthly student loan payments at 10% of discretionary income, which is defined as earnings above 150% of the poverty level. Then, whatever principal balance is left over on the loans at their maturity date is simply forgiven. ”
….Continue reading @ ZeroHedge
U.S. to Forgive at Least $108 Billion in Student Debt in Coming Years
– Wall Street Journal
GAO report offers first full cost estimate of debt-relief programs, berates Education Department over accounting methods
“GAO report offers first full cost estimate of debt-relief programs, berates Education Department over accounting methods
The Government Accountability Office disclosed the sum Wednesday in a report to Congress which for the first time projected the full costs of programs that set borrowers’ monthly payments as a share of their earnings and eventually forgive portions of their debt.
The GAO report also sharply criticized the government’s accounting methods for its $1.26 trillion student-loan portfolio, pointing to flaws that have led it to alter projected revenues significantly over the years. The government says it still expects the program to generate a profit over the long term, but it has repeatedly trimmed expectations for revenues.
Ted Mitchell,undersecretary at the Education Department, said such programs “are helping millions of borrowers successfully manage loan repayment, particularly those for whom standard repayment may prove challenging.
The most generous version of income-driven repayments caps a borrower’s monthly payment at 10% of discretionary income, which is defined as adjusted gross income above 150% of the poverty level.
That formula typically lowers monthly payments of borrowers by hundreds of dollars. Public-service workers—those employed by a government agency or at most nonprofits—have balances forgiven after 10 years, tax-free. Private-sector workers have balances forgiven in 20 or 25 years, with the forgiven amount taxed as ordinary income.”
….Continue reading @ Wall Street Journal
Question: Why should public-sector employees be given preference over any other? /CJ