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December 2 2016

Taxpayers Will Forgive Billions More in Student Loan Debt

Patrice L. Onwuka

Taxpayers are on track to wipe out $108 billion in student debt in coming years thanks to a significant increase in the number of borrowers getting repayment help and debt forgiveness under the outgoing Obama Administration.

At the request of Congress, the federal watchdog Government Accountability Office (GAO) released a report about debt repayment and forgiveness programs, and it was scathing. Currently, about 5.3 million people are enrolled in income-driven repayment plans, which cap a borrower’s monthly payment as a way to provide relief and may forgive the loan balances after years of steady payments, making up 24 percent of student loans compared to just 10 percent of loans in 2013.

Borrowers on these plans have $353 billion in outstanding loans. The GAO estimates that about two-thirds ($215 billion) of the debt will be paid in full, but the other third will either be forgiven ($108 billion) or discharged ($29 billion) because of death or disability. However, these estimates only apply to loans made from 1995 to 2017 and these are more than double what was originally expected for loans made during this time period.

As the programs continue to attract new borrowers, those numbers will only increase and they are gaining popularity among those least in need of the help. Students with graduate degrees and high-earning professions are willing to trade a few years of work in government or non-profit jobs to have their debt forgiven after one to two decades. For example, as we’ve reported debt forgiveness is growing in popularity among doctors.

According to the report, both the expansion of these programs and the faulty accounting methods in tracking the $1.2 trillion student-loan portfolio by the Department of Education (DOE) that are costing to be over-stated or understated by billions of dollars. The report notes:

Some uncertainty is unavoidable when anticipating long-term loan costs, but we found numerous shortcomings in Education’s estimation approach and quality control practices that call into question the reliability of its budget estimates and affect the quality of information Congress has to make informed budget decisions.

That the DOE is not accurately tracking student loan repayment estimates doesn’t inspire trust that they are stewarding our public resources.

The programs were created under President George W. Bush, but expanded significantly by President Obama especially during the economic recovery that maintained double-digit youth unemployment despite falling unemployment overall. Many conservatives want to dial back these programs because they promote irresponsible borrowing and increased national debt:

Meanwhile, Senate Budget Committee Chairman Mike Enzi (R., Wyo.), who ordered the GAO study, has criticized the Obama administration’s use of executive authority to sweeten terms of the repayment plans, which he said would add to the national debt.

“This Administration has been manipulating the terms of the student loan program without the consent of Congress, while shirking its statutory duty to carefully assess the cost impact of those changes,” Mr. Enzi said in a statement, adding that he was considering legislation to force changes in the government’s accounting methods.

Meanwhile, the White House is defending the cost over-run:

“This is a way that we can ensure that graduates are fulfilling their basic responsibility to repay the government for the money that they borrowed,” White House press secretary Josh Earnest told reporters Wednesday. “But we want to make sure that when students graduate, that they’re not saddled with so much debt that they’re essentially penalized financially for pursuing college education opportunities.”

Student loan debt in this country is saddling Millennials and younger generations, however, expanding these programs is not the solution. Loan repayment aid and debt forgiveness –though well-intentioned- are Band-Aid solutions that may provide some relief to borrowers but does nothing to address the actual cost of college.

Student debt is rising because the price tag for college continues to rise. The more federal funding we pour into higher education is the more tuition rises. Colleges and universities don’t have an incentive to rein in the costs, and  they can charge students more knowing that the Department of Education will cut whatever check is needed to help that student go to college.

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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