Federal student loans program is losing money fast and income-based repayment is to blame, report says
TFederal government on track to lend more money in student loans than it gets paid off, says a new report of the Office of the Inspector General of the Ministry of Education.
The growing cost of the federal student loan program, according to the report, is in large part due to the growing number of borrowers signing up for income-oriented repayment programs, which allow them to repay their loans for a set period of time. . correlation with how much money they earn.
“Borrowers have signed up for IDR plans, such as PAYE and REPAYE, at a substantial rate,” the report says. (The acronyms refer to the revised Pay as You Earn and Pay as You Earn plans.) The bureau’s analysis found that the share of direct loans repaid through income-based repayment plans increased by 625% per year. compared to students who borrowed in fiscal 2011 versus those who borrowed in fiscal 2015.
The Inspector General recommended that the department improve its reporting on the costs of the federal student loans and loan forgiveness program.
“The department is committed to transparently communicating the costs of federal student loan programs, including trends in repayment options that may affect estimated future costs,” said Joseph C. Conaty, top ministry official, in response to the Inspector General’s report.
Corrective action required
The Office of the Inspector General said that, given the growing number of participants in income-tested reimbursement programs and its impact on costs, “it is imperative that the department publish additional information on historical estimated costs. and future as well as the associated assumptions, methodologies and limits. informations. The ministry now has 30 days to develop a corrective action plan.
The ministry did not immediately respond to a request for comment from The Chronicle.
Under the Obama administration, the department advertised income-based repayment plans and helping borrowers pay off their debt a top priority.
Federal lawmakers are currently revamping the federal law governing higher education, the Higher Education Act.
The U.S. House Education Committee passed a bill, along party lines, to re-authorize the law in December, and its Senate counterpart held several hearings this year to discuss aspects of ‘potential legislation. The Inspector General’s report is sure to fuel the discussion on the costs of student aid programs.