How much the government collects each year.
Here’s a question you think Google can easily answer: How much money does the federal government collect in student loan payments each year?
I wondered this several months ago. At the time, Joe Biden had just won the presidency, but it was not clear whether the Democrats would take the Senate. And so lawmakers and activists began batting the idea of mass loan cancellation as an important move, defining the legacy the administration could potentially pursue without Congress.
But how much money would borrowers as a whole actually save each year through a jubilee? No one seemed to know.
The issue had implications not only for the borrower’s portfolio, but for the economy as a whole. In response to the coronavirus crisis, the federal government suspended payments on student loans from its wallet (people can choose to continue paying them, but few are). When payments finally resume, it will act as a new tax on households, dampening consumer demand slightly.
But how big is a tax? Again, I had never seen a number.
Turns out there was a good reason, which I learned from emailing higher education buffs in Washington. The Education Department doesn’t actually release straightforward numbers of how much money it collects from borrowers each year. At least not useful. The data agency releases combines the regular collections of principal and interest annually with the massive number of loan consolidation payments borrowers make each year, which doesn’t really tell us how much of their own money Americans are paying for loans.
Eventually I got in touch with the Ministry of Education, and after going back and forth with them for a while, they offered to retrieve the data for me. The grand total: $ 70.3 billion.
To be precise, this is the amount the government collected on its loan portfolio in fiscal 2019, the last full year before payments were suspended due to the pandemic. It only covers payments on government-owned and managed loans, which currently total around $ 1.4 trillion, according to the Education Department. latest portfolio summary. It does not take into account repayments on the $ 160 billion in outstanding loans which are backed by the government but held by private lenders, which were made under the former federal student loan program which was halted. after 2010. It does not cover private debt either.
So what do we think of the $ 70.3 billion figure?
One striking thing I noticed is that about 32% of the total, or $ 22.4 billion, consisted of interest payments. At first glance, this seems high, and you can easily imagine it becoming a talking point for anyone looking to lower student loan interest rates.
Clare McCann, a federal student aid expert at the New America Foundation, said she can think of two explanations. *
The first is that more and more borrowers are managing their heavy debt loads by signing up for income-based repayment programs, which cap what they owe each month as a proportion of their income. Many who sign up end up paying only interest on their loans because their payments are kept so low (often they can’t even keep up with the interest, which then accumulates and results in their sales to grow).
The second problem is, frankly, a bit dull and technical, but perhaps more important. Student loans are structured to be amortized like a mortgage, with debtors paying mostly interest at the start and principal later. With a large number of young borrowers repaying each year, this could mechanically keep the share of all collections at a fairly high interest rate.
The share of collections that will be of interest “might reflect the fact that interest rates are a challenge for a lot of people,” she said. “It might also reflect the fact that a lot of people have only recently issued a refund.”
In short, it is not clear whether the amount of student debt repayments that are used for interest is really troubling. The greater significance of $ 70.3 billion, ultimately, is probably just that it gives us some idea of the overall household debt repayment burden. When people talk about the student loan crisis, they often cite the total amount of outstanding loans – which, again, is hovers around $ 1.7 trillion– although that doesn’t tell us much about what Americans pay or will ever pay, because much of the debt will likely be forgiven. Economically, it’s probably more useful to think of the impact of debt as an annual tax borne by about 45 million Americans. And the government take helps us say roughly how big it is, which is substantial, but not huge. For a comparison of size, $ 70.3 billion is just over a third of what the government took in in capital gains tax revenues in 2019 ($ 183 billion), slightly less than double what it brings in from the federal gasoline tax ($ 36 billion). That’s about 3.6% of the size of the Biden administration’s $ 1.9 trillion COVID-19 relief effort – likely not enough to calm the economy if payments start again next year.
Would it be too much to ask the government to publish this figure on its own?
Correction, March 24, 2021: This piece originally incorrectly identified Clare McCann as Clare McCann Miller.