Education Department’s Taxpayer-Funded Billion Dollar Black Hole: DeVos’ New Headache

REUTERS/Mike Segar

Michael McGrady Director of McGrady Policy Research
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There’s no doubt that the U.S. Department of Education is the country’s largest predatory lender. With billions of dollars in student loans awarded to desperate undergraduate and postgraduate students, millions of Americans “sign the dotted line” to be bound to owing thousands to the federal government after they complete their education.

Now, the Government Accountability Office (GAO) has charted the exact damage the federal student loan program now faces in a scathing report. GAO highlighted that the Education Department’s “income-driven repayment” (IDR) plans for several types of federal student loan programs will cost $74 billion in the coming fiscal year. In addition, a total of  is $108 billion needed to continue to subsidize loans. Ergo, the GAO reports IDR repayment plans with owed balances at all levels are expected to be forgiven in the coming years.

GAO also criticized the department for several obstinate accounting methods and practices and indicates the agency must improve its IDR programs. IDR programs are intended to be some of the most popular loan repayment plans. Such plans were created to assist with the easing of a student debt burden by setting up loan payments based on a percentage of borrower income. Several of these plans extend loan repayment time frame from 10 years to up to 25 years with a forgiveness of remaining balances owed at the end of the time frame.

However, just like any government program, the IDR plans are no exception to rising costs and financial mismanagement. The growth of costs pertaining to IDR plans has doubled, despite original budget projections. IDR will cost over twice as much as originally communicated to the American people, indicting not only the government but also the original intention of such repayment programs. Affordability is lost.

President-Elect Donald Trump advocated on the IDR program during his campaign, however what happens if the issue grows greater than it is? What happened to eliminating the entire agency?

One solution tossed in the air is proportioning IDR repayment to the amount of loans borrowed. Repayment should be relative.

As, the Manhattan Institute’s Preston Cooper points out, in a column for Forbes, “there is no reason a person who borrows $10,000 and one who borrows $100,000 should pay the same share of their income. Such a reform would defray the costs of loan forgiveness for borrowers who take out large loans, and also discourage borrowers from taking on more debt in the first place.”

Nevertheless, With the appointment of Betsy DeVos as the Trump Administration’s proposed secretary of Education, she inherits an agency with scandalous accounting practices and a legitimate black hole of over complication. Over the past decade, general appropriations to the agency are inconsistent but costly; however, in recent years, higher funding has allowed the Department of Education began building an expansive lending regime. Such a thing has stranglehold over millennials and older generations going for degrees to have some upward mobility in the current economic climate. Regardless, if the GAO report serves as a part of the testament to this, current federal student loan programs are preventing access to higher education.

Student loans also have driven the cost of tuition in higher education. It’s economics 101, people. Higher education institutions are predisposed to maintaining a business, in addition to educating students. These institutions are exposed to sporadic changes in subsidized loan programs and must increase tuition prices in a disproportionate manner to accommodate for policy changes. Simply put, the ever changing entity that is the subsidized federal student loan program effects tuition to increase upward of 65 percent, according to the Federal Reserve Bank of New York.

The American people cannot continue to deal with the failures of federal meandering in the economics of higher education. Private sector solutions are available and must be utilized. With that, Devos and President-Elect Trump has a duty to reduce such costs and bring back fiscal sanity to D.C.