CBO Issues Fresh Evidence That Student Loan Defaults Cost Taxpayers

Higher Ed Watch‘s sister blog Ed Money Watch has run a number of posts over the past two years debunking the myth that the federal government profits when borrowers default on their student loans (see here and here). This well-worn myth holds that the penalties, fees, and interest the government charges defaulters, coupled with its extraordinary collection powers (tax refund offset, wage garnishment, etc.) means the government stands to collect more on a student loan when a borrower defaults than if he had paid it off in full and on time. This simply isn’t true – and new evidence that it is not was just released.

Back in February, the U.S. Department of Education buried a table in hundreds of pages of budget documents that illustrating that after netting out what the government spends to collect on a defaulted student loan, and adjusting for the risk-free time-value off money, the government ultimately collects 80 cents on the dollar on a loan that defaults. Now comes more evidence from the Congressional Budget Office that defaults are costly for taxpayers.

To read the full post, visit Ed Money Watch.