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The Federal Student Loan Program Was Supposed To Pay for Itself. Now, It'll Cost Taxpayers $197 Billion


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https://reason.com/2022/07/29/the-federal-student-loan-program-was-supposed-to-pay-for-itself-now-itll-cost-taxpayers-197-billion/

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The Federal Student Loan Program is often criticized as a source of revenue for the federal government. But a new report from the Government Accountability Office (GAO) shows that the present situation can't be further from the truth. 

When the Federal Direct Student Loan Program began in 1994, the Department of Education estimated that it would generate $114 billion in revenue for the federal government. Almost 30 years later, the program is estimated to cost the government $197 billion, a staggering difference of over $300 billion. The Federal Student Loan Program has failed, and the cost of its failures will be shouldered by the American public.     

The largest contributor to the increased cost of the Direct Loan Program is the ongoing pause on student loan payments initiated during the COVID-19 pandemic. According to GAO, previous forms of government spending only increased the cost of the program by around $14 billion. COVID-19 relief, on the other hand, cost the government almost $108 billion in revenue. Even more concerning, the cost of the COVID-19 student loan pause is likely even higher, as the GAO did not include 2022 data in its estimates.

The other sources of the massive cost of the program are more complicated. The GAO notes that the Direct Loan Program has undergone a series of programmatic changes over the years, most notably the creation of the Public Service Loan Forgiveness program and the Income-Based Repayment Plan. While these programs added billions to the cost of the Direct Loan program, 61 percent of the program's increased estimated cost has come from complicated changes in the economy and the behavior of borrowers.

Income-Driven Repayment plans, such as the 2007 Income-Based Repayment Plan and the 2015 Pay As You Earn Plan, were created to allow students with low-paying jobs to get an indefinite reduction on their student loans. These programs limit the monthly loan payment to an "affordable amount," which is 10 percent or 15 percent of the borrower's discretionary income, depending on the program enrollment date.

47 percent of all borrowers are enrolled in an Income-Driven Repayment plan, a percentage that has grown steadily over time. These borrowers tend to earn less and borrow more than other students, highlighting a fundamental failing of the Direct Loan Program: If student borrowers were receiving a valuable return on their investment when they took out student loans, so many of them would not be making so little money that they can only afford to pay small amounts each month.

This particular failing highlights how miserably the Direct Loan Program has failed to achieve its promise of accessible college education and the middle-class quality of life which comes with it. Instead of helping more students access a college education, the Direct Loan Program has incentivized schools to dramatically increase tuition prices, bringing the prospect of affordable education even further out of reach for American students.

Rather than providing students with the skills to obtain high-paying jobs—jobs that make it fairly painless to repay a modest student loan balance—students are increasingly borrowing staggering sums to obtain degrees that barely help them achieve gainful employment. The staggering cost of the Direct Loan Program is yet another reason to retire it. While the program's contribution to the dramatic increase in college tuition prices should be enough to raise concerns, the fact that the program is running hundreds of billions of dollars over budget is even more cause for alarm.

Yep, another failed government program.  Imagine that.

 

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41 minutes ago, Impartial_Observer said:

Has there ever been a federal government program that delivered as promised?

Tennessee Valley Authority

NASA

WPA

National Parks Service

USPS before 2006

etc.

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1 hour ago, DanteEstonia said:

Tennessee Valley Authority

https://www.cato.org/commentary/how-big-government-infrastructure-projects-go-wrong

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Given the size and scope of such interventions into the economy, it’s important to remember that big government programs often have results that are very different than what was intended. We can gain particular perspective by reflecting on the experience of President Franklin D. Roosevelt’s most ambitious infrastructure program, the Tennessee Valley Authority (TVA).

It was heralded as a program to build dams that would control floods, facilitate navigation, lift people out of poverty, and help America recover from the Great Depression. Yet the reality is that the TVA probably flooded more land than it protected; much of the navigation it has facilitated involves barges of coal for coal‐fired power plants; people receiving TVA‐subsidized electricity have increasingly lagged behind neighbors who did not; and the TVA’s impact on the Great Depression was negligible. The TVA morphed into America’s biggest monopoly, dominating an 80,000 square mile region with 8.8 million people—for all practical purposes, it is a bureaucratic kingdom subject to neither public nor private controls.

Back in 1933, David Lilienthal, one of the founding directors of the TVA, vowed, “The Tennessee Valley Authority power program is not a taxpayers’ subsidy. It is a business undertaking.” In fact, for more than 60 years, Congress appropriated funds to cover the TVA’s losses.

Although the TVA no longer receives congressional appropriations, it continues to receive large subsidies. The TVA pays none of the federal, state, and local taxes that private businesses pay. A 1993 study by Putnam, Hayes & Bartlett, a consulting firm retained by investor‐owned utilities, estimated that annual cost‐of‐capital subsidies exceeded $1.2 billion, including the taxes that the TVA avoided. As a government‐backed entity similar to Fannie Mae and Freddie Mac, the TVA can borrow money cheaper than private businesses. Currently, the TVA has about $26 billion of debt.

 

Moreover, the TVA doesn’t have to incur the costs of complying with myriad federal, state, and local laws. Energy consultant Dick Munson reported that the TVA is exempt from 137 federal laws, such as workplace safety and hydroelectric licensing. The TVA can set electricity rates without oversight by the Federal Energy Regulatory Commission, which has jurisdiction over private utilities. The Securities & Exchange Commission has only limited jurisdiction to oversee the TVA. On top of that, the TVA is exempt from federal antitrust laws and many federal environmental regulations. It’s also exempt from some 165 laws and regulations in Alabama and hundreds more laws and regulations in other states in which it operates. When the TVA wants to acquire more assets, it doesn’t have to haggle, because unlike private businesses, it has the power of eminent domain. More than 15,000 people were expelled from their property to make way for the TVA.

Established by President Roosevelt in May 1933 as part of his first 100 Days, the TVA’s roots actually go back to 1918 when President Woodrow Wilson decided that the federal government should get into the gunpowder business after German submarines sank several ships bringing nitrates from Chile. At the same time, E.I. du Pont de Nemours, the world’s most experienced gunpowder manufacturer, wanted to build a gunpowder manufacturing facility at Muscle Shoals, Alabama, on the banks of the Tennessee River, and his company proposed building a hydroelectric plant to provide the power that was needed.

“Progressive” politicians were wary that du Pont might make money on the deal, so the decision was to have two gunpowder manufacturing facilities: one built by du Pont and the other by the federal government. The du Pont facility was finished for $129.5 million and produced 35 million pounds of canon powder before the Armistice (November 1918), while the government’s facility produced nothing at all. Wilson’s Muscle Shoals project became the starting point for the TVA.

It’s run by three directors, each appointed by the president to staggered nine‐year terms. Although the directors are sure to be political supporters, the unusual length of their terms gives them considerable independence, and they’re not subject to constraints by investors, customers, or voters.

As a remedy for the Great Depression, the TVA didn’t work. It created no new wealth and, through taxation, transferred resources from the 98 percent of Americans who didn’t live in the Tennessee Valley to the two percent who did. Any spending that happened in the Tennessee Valley therefore was offset by the spending that didn’t happen elsewhere. Those taxes reduced net incomes.

Much like any other complex public works project, it took an inordinate amount of time to build the TVA. Only three TVA dams were completed during the 1930s. The dams themselves were small—with less than one‐twentieth the power‐generating capacity of big western dams like Grand Coulee. Although the building process provided work for engineers and skilled construction workers—who earned above‐average incomes—the dams simply came too late to have much impact on most people in the Tennessee Valley during the Great Depression.

To the degree that the TVA had any impact, it appears to be negative. The most important study of the effects of the TVA, conducted by energy economist William Chandler, estimated that in the half‐century after the TVA was launched, economic growth in the Tennessee Valley increasingly lagged behind non‐TVA southern markets. Chandler concluded, “Among the nine states of the southeastern U.S., there has been an inverse relationship between income per capita and the extent to which the state was served by the TVA…Watershed counties in the seven TVA states, moreover, are poorer than the non‐TVA counties in these states.”

In the non‐TVA southern markets, there was a greater exodus of people out of subsistence farming into manufacturing and services, which offered higher incomes. Ironically, electricity consumption has grown faster in the non‐TVA southern markets, because it tends to correlate with income. Subsistence farmers might be able to afford light bulbs, but they could not afford the electrical appliances that people in non‐TVA southern markets were buying. Furthermore, despite the vast sums spent building TVA dams, water usage grew faster in the non‐TVA southern markets.

In any case, it was a delusion to believe that there was one “key” (such as TVA‐subsidized electricity) to eradicating poverty. Subsistence farmers needed equipment such as tractors, trucks, and hay bailers (which are powered by diesel fuel, not electricity). They needed to develop more skills, more sophisticated farming practices, and so on.

Backed by the power of the federal government, the TVA promoted electricity for home heating–even when oil and natural gas were cheaper. To the extent the TVA’s home heating campaign was successful, it still squandered resources.

As for flood control, the TVA has flooded an estimated 730,000 acres—more land than the entire state of Rhode Island. Most directly affected by TVA flooding were the thousands of people forced out of their homes. And while farm owners received cash settlements for their condemned property, black tenant farmers received nothing.

As one might expect with a government monopoly that can ignore so many laws, there have been frequent reports of waste and possible corruption. According to TVA’s own inspector general, these include lucrative executive perks, cozy consulting contracts, costly building leases, and much more. The TVA spent $15 billion building nine nuclear power plants—and none of them worked. The TVA hired a former Navy admiral to fix them, but he was charged with cronyism and bad judgment. Congressional investigations followed.

Although the TVA was established to build dams, it has expanded relentlessly (as bureaucracies do) to include 11 coal‐fired power plants and three nuclear power plants as well as 49 dams—apparently with ambitions to expand the TVA’s power‐generating monopoly beyond the Tennessee Valley. Among other things, this has raised environmental concerns. Ralph Nader charged that the TVA “has the poorest safety record with [nuclear] reactors.” On December 22, 2008, at the TVA’s Kingston, Tennessee coal‐fired plant, the dike of a 40‐acre holding pond broke, spilling as much as a billion gallons of coal sludge with elevated levels of arsenic. The sludge covered some 300 acres up to six feet deep, damaging homes and wrecking a train. This spill reportedly was much bigger than the oil spill from the Exxon Valdez tanker that went aground in Alaska.

As the TVA’s long record illustrates, voters rarely receive what they signed‐off on when it comes to massive government programs. Despite all of the harm it has done, the TVA has grown into a powerful and politically unstoppable special interest that has done a grave disservice to the Tennessee Valley. Too bad today’s advocates of a new New Deal seem determined not to learn from their predecessors’ mistakes.

etc.

 

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10 hours ago, DanteEstonia said:

Yes it did. Tennessee and rural America got electricity. 

Something the free and open market could provide as well. Yet FDR and his socialist cronies realized they could enamor generations of Appalachian and southern region voters to their socialist cause if they gave them a virtually "free" electric infrastructure,  paid for by generations of other American citizens.  And still the TVA harbors tens of billions of dollars in debt.  A typical government boondoggle.

 

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