Government Losses on Student Debt Climb Above $100 Billion Amid Pause on Payments | #Education

The pause in student-debt repayment has cost the federal government more than $100 billion since the start of the pandemic and could cost $4 billion to $5 billion a month until the moratorium is lifted at the beginning of May, according to government estimates.

With costs mounting, congressional Republicans, led by

  Rep. Virginia Foxx

  and Sen. Richard Burr, both of North Carolina, asked the Education Department on Wednesday to release documents related to how the government calculates projected losses from students defaulting on their loans.</p><div> <p>Among the documents requested is an internal report commissioned by

  Betsy DeVos,

  former education secretary under the Trump administration, that showed a far more dire picture of taxpayers’ exposure to student-loan defaults than the one presented by the government.

  Biden Education Department officials have disputed the findings of that report. In congressional testimony last October, Richard Cordray, the head of Federal Student Aid at the Education Department, said, “There’s some question whether the methodology used in that particular report…was the most accurate.” In November testimony, Under Secretary of Education James Kvaal told Ms. Foxx that the Department would send over requested documents within a month, but that hasn’t happened.

  “If you disagree with the reports, as Mr. Cordray seems to believe, then you should make the reports and contractors available to discuss that and examine the problems in their methodology,” the Republicans wrote in their letter to Education Secretary

  Miguel Cardona.

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  <figcaption class="wsj-article-caption article__inset__image__caption" itemprop="caption"><h4 class="wsj-article-caption-content">Richard Cordray is chief operating officer of Federal Student Aid at the Education Department.</h4>
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    John Minchillo/Associated Press
  “For months we have been asking the Department of Education to provide us with reports assessing the true cost of the federal student loan portfolio, but have been stonewalled by Secretary Cardona and those under him,” Ms. Foxx said in a statement.

  Ms. Foxx’s staff has had meetings with Education Department officials to discuss student-loan portfolio accounting, and the Department said Wednesday that it was providing lawmakers with accurate information about the loans.

  “For the last several months, department staff have sought to address members’ questions about the federal student loan portfolio and to clarify the methodology used to assess its size and value,” an Education Department representative said.

  When cash flows from student-loan programs don’t match expectations set in annual budgets, other government accounts fund the difference, outside of the congressional appropriations process. The amount set aside for that purpose in the direct loan program, which accounts for the vast majority of government-held student debt, has risen rapidly in recent years, especially during the Covid-19 pandemic.

  In fiscal year 2019, the Federal Student Aid office of the Education Department projected the need for a $124.5 billion infusion. In fiscal year 2021, that number had risen to $273.8 billion. Roughly two-thirds of that increase can be attributed to the current moratorium: The net cost of the pause came to $98.4 billion for the fiscal years of 2020 and 2021, according to the Education Department’s annual financial report.

  The study requested by congressional Republicans was conducted by a former JPMorgan Chase &amp; Co. executive in early 2020 and has been seen by The Wall Street Journal. It found that Congress, multiple presidential administrations and government watchdogs had systematically made the student-loan program look profitable when in fact defaults were becoming more likely.

  It used a different methodology for calculating borrowers’ ability to repay loans and concluded that they would pay back $935 billion in principal and interest. That would leave taxpayers on the hook for $435 billion. All of those estimates reflect pre-pandemic conditions.

  The losses projected in that report are far steeper than prior government projections, which typically measure how much the portfolio will cost the government in the next decade, not the entire life of the loans.

  In its 2022 budget, released last June, the Biden administration raised its estimate of losses on the federal government’s student-loan portfolio by $53 billion, reflecting lower repayment rates and pandemic-relief efforts. A year earlier, the federal budget projected an ultimate $15 billion loss on all outstanding student debt. The budget now projects long-term losses of $68 billion.

  The current pause on loan repayments and interest accrual has been extended multiple times, most recently in December when the administration pushed back a Jan. 31 resumption date to May 1 because of surging Covid-19 cases from the Omicron variant.

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