The Congressional Budget Office (CBO) has dramatically revised its projections for the federal student loan program, transforming what was once expected to be a profitable government investment into a significant fiscal liability. This report examines the details of these projection changes and analyzes the operational costs of the Federal Student Aid (FSA) program.
The CBO's updated budget projections released in 2024 reveal a stark shift in the expected financial performance of the federal student loan program. These projections represent a significant revision from earlier expectations and highlight growing concerns about the sustainability of current student lending policies.
According to the Committee for a Responsible Federal Budget (CRFB), the estimated federal cost of student loans issued between 2015 and 2024 has increased by $340 billion – transforming from a projected gain of $135 billion in the 2014 baseline to an expected loss of $205 billion in the 2024 baseline15. This represents a complete reversal in the financial outlook for the program over the past decade.
This dramatic shift is particularly evident when examining the changing projections for specific loan cohorts. In 2014, the CBO projected that taxpayers would generate an 11-cent profit for every dollar of student loans issued by the federal government in fiscal year 2024. However, the most recent projections indicate that taxpayers will instead incur a 20-cent loss per dollar of loans issued this fiscal year6.
Looking ahead, the situation appears even more concerning. Over the 2024-2034 budget window, the CBO expects federal student loans to cost taxpayers $393 billion1. This amount exceeds the $355 billion CBO expects to be spent on Pell Grants, the flagship college aid program for low-income students, over the same time period1.
The projected $393 billion cost includes several components:
- $221 billion in losses on the $1.1 trillion in student loans the federal government will issue during this period
- $140 billion in re-estimates of the losses taxpayers will bear on outstanding loans
- $34 billion toward administering the student loan programs6
One particularly concerning aspect of the CBO projections is the growing cost of graduate student loans. These loans are expected to make up around half of new student loans originated in the current fiscal year11. The CBO projects that taxpayers will lose $102 billion on lending to graduate students over the coming decade11. According to the CRFB, graduate school loans are now nearly as subsidized as undergraduate loans and make up half of the cost of newly issued student loans15.
The dramatic increase in projected costs has several primary causes, as identified in the CBO reports and analyses by financial experts.
The primary catalyst for the growing losses is the expansion and increased utilization of income-driven repayment (IDR) plans6. While a borrower repaying loans under a traditional fixed-term repayment plan typically repays more than the initial amount borrowed, a typical borrower using an IDR plan will repay significantly less than the original loan amount6.
The CBO projects that taxpayers will lose between 30 and 48 cents for every dollar in federal student loans issued in fiscal year 2024 and repaid on an IDR plan1. Preston Cooper notes in his LinkedIn post that "the role of IDR plans in driving these costs can't be overstated. CBO generally expects taxpayers to profit on loans repaid through traditional fixed-term repayment plans. But loans repaid on IDR plans will incur losses ranging from 30 to 48 cents on the dollar"1.
The Biden administration's student loan forgiveness initiatives are cited as significant contributors to the growing cost of the program. The House Budget Committee press release states that "$140 billion or over a third of this cost directly stems from President Biden's student loan forgiveness schemes"7. These initiatives include changes to income-driven repayment plans to make them more generous1.
Beyond the projected losses on the loans themselves, the Federal Student Aid (FSA) program incurs significant operational costs to administer federal student aid programs.
According to FSA's 2024 annual report, the agency operated on an annual administrative budget of approximately $2.1 billion during FY 20244. As of September 30, 2024, FSA was staffed by 1,444 full-time employees who are primarily based in FSA's headquarters in Washington, DC, with additional staff in 10 regional offices throughout the country4.
The Department of Education's Salaries and Expenses Overview provides additional insight into how these administrative funds are allocated. The Student Aid Administration account consists of two primary components:
- Salaries and Expenses
- Servicing Activities
In the fiscal year 2020 budget request, for example, the Student Aid Administration account totaled $1,812,000,000, with $1,281,281,000 allocated for Salaries and Expenses and $530,719,000 for Servicing Activities5.
The latest CBO projections highlight a dramatic shift in the financial outlook for the federal student loan program. What was once projected to be a profitable government investment has transformed into a significant fiscal liability, with taxpayers expected to lose hundreds of billions of dollars over the next decade.
This transformation raises important questions about the sustainability of current policies and the potential need for reforms to address growing costs. The substantial operational budget of FSA ($2.1 billion annually) adds to the overall fiscal impact of federal student aid programs.
As policymakers consider the future of federal student aid, they will need to grapple with balancing access to higher education with fiscal responsibility and ensuring that federal resources are allocated efficiently and effectively.
Citations:
- https://www.linkedin.com/
posts/preston-cooper-479331a4_ the-congressional-budget- office-cbo-released-activity- 7209166019871809536-8vM2 - https://www.farmers.gov/sites/
default/files/2021-10/usda- farmloans-factsheet-10-20- 2021.pdf - https://www.cbo.gov/
publication/59499 - https://studentaid.gov/sites/
default/files/fy2024-fsa- annual-report.pdf - https://www.ed.gov/media/
document/w-seoverviewpdf- 39165.pdf - https://www.forbes.com/sites/
prestoncooper2/2024/06/19/cbo- cost-of-federal-student-loans- nears-400-billion/ - https://budget.house.gov/
press-release/via-forbes-cbo- cost-of-federal-student-loans- nears-400-billion - https://www.fsa.usda.gov/
resources/programs/farm- operating-loans - https://www.opm.gov/
healthcare-insurance/flexible- spending-accounts/ - https://crsreports.congress.
gov/product/pdf/R/R46143 - https://edworkforce.house.gov/
uploadedfiles/2.5.25_cooper_ testimony_house_ed_and_ workforce_final.pdf - https://studentaid.gov/data-
center/student/portfolio - https://www.agcredit.net/
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student-loans-cost-340- billion-more-expected - https://farmdoc.illinois.edu/
wp-content/uploads/2022/09/ USDA-FSA-Your-Guide-to-Farm- Loans.pdf - https://www.cbo.gov/
publication/59946 - https://gaswcc.georgia.gov/
document/document/microloans- fact-sheet-aug-2019/download - https://www.cbo.gov/
publication/60682 - https://www.farmraise.com/
blog/fsa-loan-types - https://www.cbo.gov/
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paper/ending-federal-student- loans - https://fsapartners.ed.gov/
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sustainableagriculture.net/ publications/grassrootsguide/ credit-crop-insurance/direct- and-guaranteed-farm-loans/ - https://www.ed.gov/sites/ed/
files/about/overview/budget/ budget24/summary/24summary.pdf - https://studentaid.gov/sites/
default/files/fy2023-fsa- annual-report.pdf - https://bipartisanpolicy.org/
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organization/functional- statements/fsa-functional- statements/finance - https://www.pgpf.org/our-
national-debt/ - https://www.cbo.gov/
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analysis-cbos-march-2024-long- term-budget-outlook
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