If you think the federal student-loan program looks like a bad deal for taxpayers, imagine how it would look with honest accounting. And now you don't need to imagine thanks to a new report that's receiving far too little attention. Turns out that the official "savings" for taxpayers of $184 billion over the next decade really add up to $95 billion in losses.
Here's the scam: Lawmakers peddle what is a massive subsidy for universities while claiming that student loans generate a windfall for the taxpayer. This phony windfall is conjured by creative accounting that politicians mandated via the Federal Credit Reform Act of 1990. Specifically, the law requires a deliberate under-counting of the cost of defaults.
This is partly how a Democratic Congress and President Obama managed to enact ObamaCare in 2010 while claiming that their big entitlement expansion would reduce costs. The health plan was paired with legislation that made the U.S. Department of Education the originator of roughly 90% of all student loans, which in turn generated billions in imaginary budget "savings."
To its credit, the Congressional Budget Office has noted on various occasions that while the law forces it to use this Beltway math, CBO knows it's not accurate under fair-value accounting. And in a new report on the costs of student loans made in the decade ending in 2023, CBO quantifies the size of this discrepancy at $279 billion. CBO adds with its typically wry understatement that Washington's mandated accounting method "does not consider some costs borne by the government."
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