President Obama’s student loan forgiveness program has overshot its initial cost projections by upwards of $22 billion so far, according to the president’s recent budget proposal.
As of last April, the same plan had reached $14 billion, an overreach of government expectations by 90%.
“The 2015 amount includes a net upward reestimate of $21.8 billion, primarily related to revised interest rates and increased participation in income-driven repayment plans,” writes the Department of Education in their summary.
Critics believe the additional costs stem from changes made to the program recently, including the PAYE, or Pay As You Earn, program which would offer students the ability to cap loan payments at 10% of their income. In addition, the law would provide loan forgiveness after 20 years of payments, or 10 years for those in “public service,” writes Jeffrey Dorfman for Forbes.
“They didn’t account for the market risk in making these loans,” said Romina Boccia, a budget fellow at the conservative Heritage Foundation.
The plan was designed to help borrowers from defaulting on their loans, a problem that around 20% of borrowers face when repaying college debt.
In 2013, 124,000 people enrolled for the PAYE program. Since that time, Obama asked the secretary of education to suggest regulations that would place a potential loan cap for an additional 5 million people. Those changes have added another $22 billion onto the cost.
However, the cost of the program is paltry in comparison to total student debt. According to data from the Federal Reserve Bank of New York, students across the country hold a total of $1.13 trillion in outstanding student loans.
According to an official for the White House Office of Management and Budget, “revisions are not uncommon.” He went on to say that claims suggesting there is a shortfall are false. In short, the program saw an expansion and the office needed to find a way to account for that increase over the life of the program.
The official continued to say the expansion will benefit taxpayers as well as students, who will avoid default and help to strengthen the economy, writes James Schneider for FOX News.
In addition, the OMB and nonpartisan Congressional Budget Office believe that the government will actually make money from the program because the government is able to borrow money at a cheaper rate than the interest it charges to borrowers of student loans. It is estimated that as borrowers repay their loans over the next decade, the government will yield $135 billion.
However, not everyone thinks the program will actually benefit taxpayers.
It’s “hard to see how this is going to come out as a net positive as the administration predicts,” said Steve Ellis, with Taxpayers for Common Sense.
The recent budget proposal released by the president includes a number of reforms for current repayment plans, including a limit on the number of graduate students who can participate, and removing the payment cap as people begin to earn more.
These changes could potentially save $14 billion over the next decade.