The claim: The federal government would have more money if it canceled student loan debt
Since President Joe Biden took office, his administration has canceled billions of dollars in student loan debt. Most recently, in early October, the Education Department announced sweeping changes to its Public Service Loan Forgiveness program, immediately erasing the debt of 22,000 borrowers.
Now some social media users say it’s in the federal government’s best financial interest to go ahead and cancel all student loan debt.
“Wait was nobody going to tell me that US student loans cost the government over $60B more to service than they bring in a year???” reads text in an Oct. 25 Facebook post. “They could literally be cancelled this second and the gov would have *more* money.”
The post, shared more than 500 times within a few days, stems from an Oct. 21 tweet with more than 4,500 retweets. Similar claims have racked up thousands of interactions on Facebook, according to CrowdTangle, a social media insights tool.
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But experts say canceling student loan debt wouldn’t actually make money for the government. Quite the opposite.
“This idea is ridiculous,” Marc Goldwein, senior vice president and senior policy director for the Committee for a Responsible Federal Budget, told USA TODAY. “The federal government is owed more than $1.5 trillion.”
Government would lose money by canceling student loan debt
If the federal government canceled all student loans, it would lose an estimated $1.8 trillion in outstanding debt. Money saved from the administration of federal loan programs would not make up the difference.
As evidence, the Twitter user who originally shared the claim cited the financial section of the most recent annual report from the Education Department’s Federal Student Aid office.
According to the report, the net cost of the Direct Loan Program during the 2019 fiscal year was about $62.8 billion. For 2020, the net cost was $102.3 billion. Other higher education credit programs coordinated by the Education Department cost a net $13 billion and $3.5 billion in 2019 and 2020, respectively.
The Facebook page, Millenials for Guillotines, pointed to these figures in defending its post of the student loan claim. The Twitter user who originated the claim did not respond to a request for comment.
But those numbers don’t only reflect the cost of “servicing” federal student loan programs, as the Facebook post makes it seem. They reflect the cost of the loans themselves – which includes losses from defaulted loans, delayed payments, lower interest rates or other loan forgiveness.
“In other words, FSA expects borrowers to repay less of their loans, and the reduction in borrower payments is counted as a cost to the government,” Adam Looney, a finance professor at the University of Utah, said in an email. “So not only is the fact you are checking wrong, it is also being interpreted incorrectly.”
Looney said federal loans “do cost taxpayers a lot of money, particularly over the last few years.” But that’s because more borrowers are enrolled in income-driven repayment plans, have had their payments suspended and interest rates lowered, and are expected to participate in loan forgiveness programs.
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Estimates from the Congressional Budget Office give a better picture of the program’s cost, Alexander Holt, a policy analyst for the Committee for a Responsible Federal Budget, said in an email.
The agency estimates the administrative costs of the Federal Student Aid office will be a little more than $3 billion in 2021. Canceling all student loan debt wouldn’t yield any savings outside that $3 billion.
So canceling all student debt would cost the federal government roughly $1.8 trillion, the estimated value of outstanding loans.
“This cost of losses on the student loan portfolio held by the federal government would by definition rise a lot with full forgiveness,” Josh Bivens, director of research at the liberal Economic Policy Institute, said in an email.
Existing proposals to forgive student loan debt reflect that cost.
On the high end of the spectrum is a plan from Sen. Bernie Sanders, I-Vt., that would cancel all student debt. The Brookings Institution, a nonpartisan policy research group, estimated in February that the proposal would cost approximately $1.6 trillion.
A more modest plan from Sens. Elizabeth Warren, D-Mass., and Chuck Schumer, D-N.Y., to forgive student debt up to $50,000 per borrower would cost an estimated $1 trillion. On the campaign trail, Biden proposed forgiving debt up to $10,000 per person, which Brookings estimated would cost about $373 billion.
Some proponents of debt forgiveness say it would stimulate the economy. But money saved from the administration of federal loan programs would not make up the difference alone.
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“It is true that the government pays servicers to collect the loan payments, but in normal times they remit significantly more back to the government than they are paid,” Constantine Yannelis, an assistant professor of finance at the University of Chicago, said in an email. “The argument that this saves money is kind of like saying one would save money if their car is stolen, because the person would no longer need to pay for gas.”
USA TODAY reached out to the Education Department for comment.
Our rating: False
Based on our research, we rate FALSE the claim that the federal government would have more money if it canceled student loan debt. The government is owed an estimated $1.8 trillion from student loans. Meanwhile, the administrative cost of the Federal Student Aid office is estimated to be a little more than $3 billion in 2021. Experts say canceling all student loan debt would not yield any savings beyond that amount.
Our fact-check sources:
- USA TODAY, July 9, Biden administration cancels additional $55.6 million in student debt
- CrowdTangle, accessed Oct. 27
- USA TODAY, Oct. 6, Student loan forgiveness: Half a million people to benefit from overhaul, some immediately
- Marc Goldwein, Oct. 27, Phone interview with USA TODAY
- Josh Bivens, Oct. 27 and Oct. 28, Email exchange with USA TODAY
- Constantine Yannelis, Oct. 27 and Oct. 28, Email exchange with USA TODAY
- Department of Education, accessed Oct. 28, Fiscal Year 2020 Annual Report | Federal Student Aid
- Brookings Institution, Feb. 12, Putting student loan forgiveness in perspective: How costly is it and who benefits?
- BernieSanders.com, accessed Oct. 28, College for All and Cancel All Student Debt
- Slate, March 24, An Extremely Important Statistic About Student Debt That Has Never Been Published
- NPR, July 10, 2019, Student Debt Forgiveness Sounds Good. What Might Happen If The Government Did It?
- Sen. Elizabeth Warren, Sept. 17, 2020, Schumer, Warren: The Next President Can and Should Cancel Up To $50,000 In Student Loan Debt Immediately; Democrats Outline Plan for Immediate Action in 2021
- USA TODAY, July 15, Fact check: Biden still weighing options for forgiving student loan debt
- Adam Looney, Oct. 28, Email exchange with USA TODAY
- Bloomberg, May 7, 2019, Student-Loan Outlook Is Reversed, Showing $31 Billion U.S. Cost
- The Wall Street Journal, June 7, Federal Student-Loan Loss Forecast Rises by $53 Billion
- Forbes, Aug. 23, These Student Loans Are Excluded From Biden’s Loan Forgiveness And Relief Programs — Here’s Why
- Congressional Budget Office, April 21, The Cost of the Federal Student Loan Programs and Repayment Plans
- Alexander Holt, Oct. 29, Email exchange with USA TODAY
- Congressional Budget Office, July 2021, Baseline Projections: Federal Student Loan Programs
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