The U.S. Government Accountability Office released on Friday a new report on the cost of federal student loans, complicating the debate over student loan interest rates, Inside Higher Ed reported.
The study, required by the Bipartisan Student Loan Certainty Act of 2013, looks at how the Direct Loan program’s administrative costs and estimated subsidy costs have varied in recent years. It also examines how changes in different variables influence the overall cost of the program and the borrower interest rate needed to cover those costs.
The report posits that it is impossible to set borrower interest rates on student loans in advance so that the government breaks even on the program. The GAO estimates that the government expects to generate nearly $66 billion in income from loans paid out from 2007 to 2012. Yet, because it is difficult to accurately predict how much the loans will cost at any given point in time, the agency could not determine if that income will generate a profit or cost the government money in the long run.
“Fluctuations in the actual and expected costs of the student loan program over time make it challenging to target a particular borrower interest rate that would consistently break even,” the report said. “Making frequent changes to the borrower interest rate could help program costs more closely match revenues in the short term, but it could confuse potential borrowers and complicate efforts to make the program transparent to students.”
The actual cost to the government of the loans it makes in a single year will not be known for as many as 40 years later, according to the report. In the meantime, though, policymakers have to rely on estimates of program’s cost. Those estimates, the report finds, can fluctuate widely each year since they are a function of, among other things, how much the government can recoup from borrowers and the government’s own cost of borrowing.
Related Links
U.S. Government Accountability Office Report
https://www.gao.gov/assets/670/660548.pdf
Inside Higher Ed
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