Federal Student-Loan Program Is Rapidly Losing Money, and Income-Based Repayment Is to Blame, Report Says

The Chronicle of Higher Education

Federal Student-Loan Program Is Rapidly Losing Money, and Income-Based Repayment Is to Blame, Report Says

FEBRUARY 02, 2018

The federal government is well on its way toward lending more money in student loans than it is repaid, according to a new report from the Department of Education’s Office of Inspector General.

The rising cost of the federal student-loan program, the report says, is due in large part to the growing number of borrowers who are enrolling in income-driven repayment programs, which allow them to repay their loans for a set period of time in correlation to how much money they make.

“Borrowers have been signing up for IDR plans, such as PAYE and REPAYE, at a substantial rate,” the report says. (The acronyms refer to the Pay as You Earn and Revised Pay as You Earn plans.) The office’s analysis found that the portion of direct loans being repaid through income-driven repayment plans has increased 625 percent from the students who borrowed in the 2011 fiscal year to those who borrowed in the 2015 fiscal year.

The inspector general recommended that the department improve its communication of cost information for the federal student-loan program and loan forgiveness.

“The department is committed to the transparent communication of the costs of the federal student-loan programs, including trends in repayment options that may impact future estimated costs,” said Joseph C. Conaty, a senior official at the department, in response to the inspector general’s report.

Corrective Action Required

The Office of Inspector General said that in considering the growing enrollment in income-driven repayment programs and its impact on costs, “it is imperative that the department publish additional information on both historical and future estimated costs and the associated assumptions, methodologies, and limitations of the information.” The department now has 30 days to develop a corrective action plan.

The department did not immediately respond to a request for comment from The Chronicle.

During the Obama administration, the department made publicizing income-driven repayment plans, and helping borrowers repay their debt, a major priority.Federal lawmakers are now in the process of revamping the federal law governing higher education, the Higher Education Act.

The U.S. House’s education committee passed a bill, along party lines, to reauthorize the law in December, and its counterpart in the Senate has held several hearings this year to discuss aspects of potential legislation. The inspector general’s report is sure to provide fodder for discussion on the costs of student-aid programs.