Washington, D.C. — In coming years the federal government will forgive at least $108 billion in student loan debt, according to a U.S. Government Accountability Office (GAO) report released on November 30, 2016.
The report was ordered by Mike Enzi, chairman of the Senate Budget Committee. Enzi wanted accurate information about the cost of President Barack Obama’s current programs to prevent defaults on student loans. The report detailed the costs of student debt forgiveness in exact figures, confirming that the program is more expensive than everyone believed.
Here are 5 Fast Facts you should know about student loan forgiveness:
1The Student Loan Forgiveness Program Isn’t New
The student loan forgiveness program was created by Congress in the 1990s and made more inclusive in 2010 by President Obama. What’s new are the numbers. It was previously unknown how much federal student debt would be forgiven.
The report by the Government Accountability Office specifies dollar amounts for the first time. The report is also extremely critical of the US Department of Education — specifically of its accounting methods. According to the GAO, the Department grossly understated, by tens of billions of dollars, the cost of forgiveness programs for student loans.
2$108 Billion or More in Student Loans Will Be Forgiven
During the next 10 to 20 years, $108 billion or more in federal student loans will be forgiven. That’s about one-third of the estimated $352 billion total student loans in the U.S. between 1995 to 2017.
Supporters of the forgiveness plan say it provides new hope for unemployed or underemployed borrowers. Opponents argue that debt forgiveness is too costly. This is because higher-education enrollment numbers are climbing, meaning more debt and more debt to be forgiven. The dollar amount of debt forgiveness could grow exponentially as more and more student loan debtors enroll in the program.
3The Forgiveness Plan Was Enhanced by Obama
The current plan is part of a strategic program by the Obama administration to help federal student loan debtors. An earlier program approved by Congress in the 1990s and 2000s aimed to relieve student loan debt burdens by lowering monthly payments for federal loans and by eventually forgiving unpaid loans.
In 2010, President Barack Obama, via executive action, extended Congress’s program to favor millions of federal student loan borrowers. Enrollment in the forgiveness plans has tripled since 2013, to more than 5 million borrowers as of June 2016. This represents nearly one-fourth of all student loan debtors who are now paying off loans. The Obama administration says the program results in a reduced number of graduates defaulting on student loans.
4The Plan Could Be Undone by the New Congress or the New Administration
The fact that Congress now has a Republican majority, and the incoming administration of Donald Trump, together mean that the student loan forgiveness program could be changed. Parts of of the program could even be eliminated.
For example, the new administration might end existing regulations that make it easier for some debtors to have their loans forgiven. However, most experts say major changes to the program are unlikely.
5Here’s a Quick Summary on How the Plan Works
The most liberal version of the student loan forgiveness plan limits a student loan debtor’s monthly payment to no more than 10 percent of his or her “discretionary income.”
“Discretionary income” in this instance is defined as any earnings above 150 percent of the poverty level. This formula typically reduces a student debtor’s payments by hundreds of dollars per month. If the student loan borrower still has a balance after 10 or 20 years (depending on whether the debtor is employed in the public sector or the private sector), that remaining debt will be forgiven.
The forgiven debt is taxed as ordinary income for private-sector workers, reducing the benefits for those debtors. Public-sector employees aren’t taxed on the debt forgiveness. The GAO estimates that $137 billion will never be repaid, and most of the $108 billion will be forgiven.
However, that $108 billion covers only loans made between 1995 and 2017, or the end of the current school year. The total sum could be much more as college enrollment figures increase. About $29 billion will be written off due to disability or death on the part of student debtors.