Education Department Likely Underestimated Loan Forgiveness Cost: Auditor
Credit: Image Credit: Sean Gallup / Getty Images News / Getty Images- The Department of Education estimated in September that its debt forgiveness program would cost $305 billion over the next 10 years.
- Other estimates have pegged the costs significantly higher.
- The analysis may all be made mute if the broad-based forgiveness program is struck down in the U.S. Supreme Court in February.
An independent auditor questioned the Department of Education’s (ED) method in determining the cost of its broad-based debt forgiveness program.
President Joe Biden and ED Secretary Miguel Cardona announced in August that the department will forgive up to $20,000 in federal student loans for the vast majority of borrowers. While that plan has stalled in courts, it promised to be a lifeline for many borrowers — albeit a costly lifeline for the federal government.
ED’s internal analysis in late September pegged the cost at $305 billion over the next 10 years.
Independent accounting firm KPMG issued a report this week that questioned the department’s process in reaching that figure. Mainly, the report highlights ED’s assumption that only 81% of eligible borrowers will participate in the debt forgiveness program.
KPMG’s report listed ED’s estimate as a “material weakness” in the audit. This led the accounting firm to decline to render an opinion on the department’s 2022 fiscal year. According to Politico, this is the first time in at least 20 years ED has not received a clean audit of its financial statements.
Other estimates of broad-based student debt relief differ widely from ED’s.
For example, the nonpartisan Congressional Budget Office (CBO) estimated in late September that the plan would cost approximately $400 billion over the next 30 years. The CBO projected that 90% of eligible borrowers would take advantage of the program.
ED’s projection acknowledges that the take-up rate is difficult to predict.
“This assumption is very uncertain, as other relief programs skew widely in terms of take-up rates,” the department said in a September statement.
The analysis may all be made mute if the broad-based forgiveness program is struck down in the U.S. Supreme Court next month.
The court last December said that the program will remain blocked until it hears arguments in a lawsuit brought by six Republican-led states. In that case, filed last September, Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina allege that Biden’s plan to wipe out wide swaths of student debt will cost them revenue from servicing loans and taxes. They also claim that the ED doesn’t have the authority to carry out the plan.
A district court judge almost immediately tossed that lawsuit, ruling that the six states didn’t have standing to sue. However, an appeals court last October sided with the plaintiffs, blocking Biden’s program and forcing ED to yank the online application for debt forgiveness.
Biden last November extended a pause on federal student loan payments to July 2023. At the time, he said the extension would allow the Supreme Court time to make a ruling in the case.
The Supreme Court’s decision is expected by June.