Changes President Obama has made to federal student loan programs have created a $21 billion shortfall absorbed directly by taxpayers, Politico reported on Thursday.
The shortfall is driven by federal policy revisions designed to reduce the burden of their student loans. Last summer, for instance, Obama used an executive order to expand the scope of the Pay As You Earn Program, which caps participants’ student loan payments at 10 percent of their post-tax income. (RELATED: Obama Throws A Bone To Americans Crushed With Student Loans)
These policy shifts have allowed America’s 40 million student borrowers to make smaller payments on their loans, which in turn necessitated a “re-estimate” which shows the federal student loan portfolio running a $21.8 billion deficit. It’s the biggest such revision in American history, and abruptly increases America’s deficit for the 2015 fiscal year by about 5 percent. The hole, Politico observes, is big enough to cover NASA’s entire budget.
Americans currently have over a trillion dollars in student loans, and over $740 billion of that is controlled by the federal government. While loans are supposed to be paid back and thus theoretically allow the government to turn a profit on them, the high debt loads and weak job prospects of young Americans have allowed theory to diverge from reality. Currently, 17 percent of federal student loans are in default, and many more are being only partially paid back.
The federal government claims this re-estimate is a one-time event, and even argues that student loans will make a profit for taxpayers over the course of the decade. On the other hand, Barclays Capital has released reports in the past warning that the cost of federal student loans could balloon past $200 billion as more students take part in income-based repayment plans.
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