First published at EconomicMemos. (I will revamp Economic Memos soon.)
I have not seen a formal analysis of the cost of student loan forgiveness programs by the CBO but public statements indicate that the budget office believes these costs are high.
In a 2009 report, the CBO writes that:
“although forbearance and deferment policies avoid some defaults, they also entail significant costs for the government because they lengthen the average repayment period of a loan at below-market interest rates.”
The CBO provides no estimates of the number of defaults avoided or their average size.
I read an article today stating the government garnishes student Social Security payment to collect on past due student loans. Chronic defaults and underpayments can also extend repayment periods. This possibility is not considered by the CBO.
The CBO further writes that:
“the recovery rate on defaulted loans – the present value of the cash flow recovered for each dollar of loans in default (net of the cost of collection) also affects the cost to the government from borrowers defaults. The Department of Education has strong collection mechanisms available that bolster its recoveries. The inability of borrowers to have their student loans discharged in bankruptcy proceedings extends the period over which delinquent defaults can be collected to the entire lifetime of the borrower.”
It would be useful if the CBO provided some statistics measuring the effectiveness of student loan repayment efforts on different populations based on their income and age. Similarly, how much is collected from borrowers who emerge from bankruptcy with a substantial amount of student loan debt.
Could the lack of a possibility of loan forgiveness actually decrease collections if borrowers who realize that they will never be out of debt take more aggressive evasive actions?
Student loans do not currently have priority over credit card debt in bankruptcy. How much would the taxpayer benefit if student loans were granted priority in bankruptcy proceedings?
Would a properly targeted student loan forgiveness program reduce the number of people in poverty or near poverty?