Student Loan Repayment Programs Will Eventually Forgive $108B In Debt

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While several recent reports have suggested that many student loan borrowers face needless hurdles when trying to reduce their monthly payments through the Department of Education’s income-driven repayment plans, a new study has found the programs are working and will eventually forgive $108 billion in outstanding student debt. 

The Wall Street Journal reports that a soon-to-be released Government Accountability Office report estimates that $137 billion of student loan debt currently enrolled in the Dept. of Education’s income-driven repayment plan will never be repaid.

While $108 billion is a huge amount of money, it’s just a sliver of the $1.26 trillion — yes, with a “T” — in outstanding student loan debt currently held by the government.

Still, according to the report, students enrolled in the plans — which cap a borrower’s student loan payment at a percentage of their monthly income — owe some $355 billion. Of that figure, $137 billion won’t be repaid, including $108 billion that will be forgiven after 10 or 20 years, per the terms of the plan.

The remaining $29 billion will be written off by the Department because a borrower has been disabled or has died.

The income-driven repayment plans are designed to prevent borrowers from defaulting on their loans.

Borrowers of federal student loans are eligible to enroll in income-driven repayment programs that cap a borrower’s student loan payment at a percentage of their monthly income. Additionally, borrowers who make payments under income-driven plans can have their debts forgiven after a minimum of 20 years of payments.

According to the GAO report, the $108 billion in forgiven student loan debt doesn’t include any funds the Dept. writes off as part of the “Borrower Defense” program. Under that program, student loans are forgiven if a student can prove their college lured them to enroll with deceptive practices.

The tab for that particular program will likely see a significant increase in coming years following the demise of several for-profit college chains, including ITT Technical Institute and Corinthian College Inc’s Everest University, Heald College, and WyoTech brands.

While the GAO report notes that it will likely take 40 years before the entire cost of the programs is known, past budget proposals have shed a bit of light on the increasing costs.

In 2015, the Washington Post reported that the President’s 2016 budget proposal contained a revised estimate of the costs of the repayment plans, totaling $22 billion more than previously expected.

For a little perspective, in April 2014 the estimated cost of the same program was expected to reach $14 billion, exceeding government expectations by 90%.

U.S. to Forgive at Least $108 Billion in Student Debt in Coming Years [Wall Street Journal]


Source: Consumer Reviews