$36B shortfall projected for federal student loan program

While U.S. officials have long maintained the federal government would make a profit on its $1.4 trillion student loan portfolio—or at least break even—The Wall Street Journal reports two recent reports suggest just the opposite will be the case.

The reports on government lending to college and graduate students suggest that the federal student loan program is on the cusp of a $36 billion shortfall.

The profitability of the U.S. federal student lending program is being squeezed because millions of Americans who borrowed heavily in recent years are enrolled in “income-driven repayment” plans, according to an Education Department inspector general report released last week.

The plans are based on a borrower’s income and forgive any remaining balance after 10, 20 or 25 years, depending on the borrower’s work status and loan size. Borrowers are expected to pay back $11.5 billion less than they took to pay for tuition and other schooling costs.

The losses from those not repaying are projected to mount and could eat up all of the gains the federal government receives from interest on the loans.

A footnote in the Education Department’s annual financial report released in November says that money coming in for government student loan and guarantee programs will be $36 billion short of what’s needed to cover outstanding debt and accrued interest.

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