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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& #39;s owed. It& #39;s not quite what it seems. 1/ https://www.wsj.com/articles/student-loan-losses-seen-costing-u-s-more-than-400-billion-11605963600">https://www.wsj.com/articles/...
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& #39;s borrowing costs. 3/
Current student loan interest rates are 2.75-5.3%, but but have been much higher in the past. Government& #39;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& #39;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">https://twitter.com/jakebrook...
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
