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I want to add some important context to reports that the student loan program might end up not collecting as much as $400bn of what's owed. It's not quite what it seems. 1/ https://www.wsj.com/articles/student-loan-losses-seen-costing-u-s-more-than-400-billion-11605963600
First, assuming the estimate is correct (and the study is not public yet) this is measure of potential loan forgiveness, cancellation, or simply uncollectible amounts. It is *not* a measure of how much money is "lost." 2/
A lot--maybe all--of the uncollected amounts are interest, and as we all know, interest on student loans is much higher than the government's borrowing costs. 3/
Current student loan interest rates are 2.75-5.3%, but but have been much higher in the past. Government's long-term borrowing rate is more like 0.83%. 4/
Ed. Dept. currently estimates that they will collect more than they lend out for current loans, even for loans in IDR. Maybe the new estimate will change that, but we don't know yet. 5/
Second, that interest amt is pretty arbitrary. E.g., the govt sets a high statutory interest rate, but then subsidizes interest for low-income borrowers. Is that a forgiven debt? Just lower interest? What if they picked a different rate or subsidy? 6/ https://twitter.com/jakebrooksGULC/status/1329925779937955840?s=20
So while it is definitely useful and relevant to have estimates of how much of the loans will be repaid, we should be careful about calling a decision by Congress to forgo collecting some of this arbitrary interest as a "cost" to taxpayers. 7/7
