CBO Congressional Budget Office : The Cost of the Federal Student Loan Programs and Repayment Plans

The Cost of the Federal

Student Loan Programs

and Repayment Plans

April 21, 2021

Presentation to the Postsecondary National Policy Institute

Justin Humphrey Budget Analysis Division

Estimated Costs of the Federal Student Loan Programs

The Federal Credit Reform Act of 1990 requires the costs of all federal direct and guaranteed loans to be recorded on an accrual, or credit-reform, basis rather than on a cash basis.

In accrual accounting, estimates of both costs and any resulting receipts-that is, the net cost-are recorded when the government makes a commitment rather than when actual payments are made or received.

• The estimated net cost of a loan to the federal government is shown in the year the loan is originated. That estimate may later be revised.
• To estimate that cost, the Congressional Budget Office projects all future cash flows for a cohort of loans originated in a specific year.
• In a process called discounting, CBO determines the value in today's dollars of those future cash flows using an interest rate (called the discount rate). Credit-reform rules require the use of the interest rate on Treasury securities that have the same terms of maturity as those of the loans.

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CBO's February 2021 Projections of Federal Spending on Student Loans (Credit-Reform Basis)

Millions of Dollars	2021	2022	2023	2024	2025	2026	2027	2028	2029	2030	2031	2021-
	2031
Direct Student Loans
Budget authority	-1,167	-4,606	-6,226	-5,848	-5,149	-4,496	-3,792	-3,291	-2,562	-2,220	-1,562	-40,920
Outlays	-1,295	-3,105	-5,310	-5,392	-4,874	-4,276	-3,678	-3,175	-2,615	-2,193	-1,710	-37,624
Guaranteed Student Loans
Budget authority	10	9	9	9	9	8	8	8	8	7	7	92
Outlays	-137	-107	-80	-60	-46	-38	-30	-28	-26	-25	-22	-599
Student Aid Administration (Discretionary)a
Budget authority	1,884	1,893	1,934	1,978	2,025	2,073	2,124	2,176	2,229	2,282	2,335	22,933
Outlays	1,827	1,877	1,916	1,951	1,997	2,043	2,092	2,143	2,195	2,248	2,301	22,590
Student Aid Administration (Mandatory)b
Budget authority	1,415	1,354	1,398	1,450	1,491	1,520	1,549	1,579	1,610	1,641	1,674	16,681
Outlays	1,323	1,388	1,412	1,445	1,490	1,513	1,541	1,572	1,602	1,634	1,666	16,586
Total Student Loans
Budget authority	2,141	-1,349-2,885-2,411-1,624	-894	-111	472	1,285	1,710	2,454	-1,214
Outlays	1,718	53	-2,062	-2,056	-1,433	-758	-75	512	1,156	1,664	2,235	953

The years shown are federal fiscal years. Numbers may not add up to totals because of rounding. February 2021 baseline totals have been updated to account for administrative actions.

1. Projections of discretionary spending for administering student aid are based on an inflation of the budget authority provided in the most recent appropriation act, rather than on an estimate of the future costs of administering the program. Budget authority is the authority provided by federal law to incur financial obligations that will result in immediate or future outlays of federal government funds.

b Projections of mandatory spending for administering student aid are based on estimated future costs of administering federal loan programs.

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Factors in CBO's Projections of the Cost of Student Loans

• CBO's economic projections
• • Discount rate
  • Borrowers' interest rates (which are based on the rate on a 10-year Treasury note)
• Timing and frequency of important events
• • Defaults and collections
  • Forgiveness and discharge
  • Deferment and forbearance
  • How long students are in school and how long until they begin repayment
• Borrowers' selection of repayment plans
• • Income-drivenrepayment plans
  • Fixed repayment plans

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CBO's Estimated Default and Collection Rates for Loans Originated in Fiscal Year 2021

Percent
Loan Type	Default Rate	Collection Rate
Subsidized Loans	23.6	96.9
Unsubsidized Loans (Undergraduate)	26.0	92.5
Unsubsidized Loans (Graduate)	10.7	91.9
GradPLUS (Graduate)	8.4	88.2
PLUS (Parent)	12.1	88.7

The default rate is the percentage of outstanding principal at the time of default. The collection rate is the percentage of defaulted principal and interest collected after a student
defaults. The totals are not discounted in the table, and the collection rate does not include administrative costs associated with collection activities.	4