By ALICE B. LLOYD, Weekly Standard
The Obama administration’s income-driven repayment program will cost more than twice as much as the Department of Education initially thought it would, according to a new report from the Government Accountability Office.
From its rollout in 2009, during the depths of the recession, the optional income-driven repayment (IDR) program intended to help federal student loan borrowers avoid default. IDR allows borrowers to pay back their loans only once they can afford to, at which time they will have fewer years to complete repayment.
Unsurprisingly the option to put off repayment until you hit it big has been a popular program among low-earning college grads hobbled by debt. In three years, IDR grew from 10 to 24% of all borrowers’ preferred payment program. The department’s annual estimated cost for IDR has more than doubled “from $25 to $53 billion for loans made in recent fiscal years,” the report reads. 137 of the 355 billion borrowers currently owe will not be repaid, and 108 billion will be forgiven, according to GAO’s estimate.
The Department of Education’s cost estimate failed to account for IDR’s inevitably catching on, and failed to factor in the cost of borrowers’ switching into and out of IDR according to the ebb and flow of their income stream. The original estimate also failed to factor in income inflation, GAO pointed out. The Department of Education should have come up with these considerations on their own, GAO scolded. Per the official report, “Predicting plan switching would be advisable per federal guidance on estimating loan costs.”
