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

04/21/2021 | 03:18pm

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.

1

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.

2

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

3

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

This is an excerpt of the original content. To continue reading it, access the original document here.

Disclaimer

CBO - Congressional Budget Office published this content on 21 April 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 21 April 2021 19:17:00 UTC.

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