In the federal budget, just how big a hole would $22 billion be? As Michael Grunwald points out at Politico, that’s “larger than the annual budget for NASA, or that of the Interior Department and EPA combined[.]” And the shortfall is entirely due to the changes Barack Obama has made to student-loan programs — and could grow to ten times that amount over the next decade:
In obscure data tables buried deep in its 2016 budget proposal, the Obama administration revealed this week that its student loan program had a $21.8 billion shortfall last year, apparently the largest ever recorded for any government credit program.
The main cause of the shortfall was President Barack Obama’s recent efforts to provide relief for borrowers drowning in student debt, reforms that have already begun to reduce loan payments to the government. For more than two decades, budget analysts have recalculated the projected costs of about 120 credit programs every year, but they have never lowered their expectations of repayments this dramatically. …
That’s a big quasi-bailout, increasing the deficit nearly 5 percent. The White House budget office was unaware of any larger re-estimates since the current scoring rules for credit programs went into effect in 1992. As a January Politico Magazine feature on the government’s unusual credit portfolio reported, the Federal Housing Administration has stuck more than $75 billion worth of similar re-estimates onto Uncle Sam’s tab over the last two decades, most of them after the recent housing bust led to a cascade of FHA-backed mortgage defaults. But it’s never had a one-year shortfall quite as drastic as this.
It’s not yet clear whether this will be a hefty one-time revision, or a harbinger of oceans of red ink as millions more borrowers get relief on their payments to the government. Several reports by Barclays Capital have warned that Obama’s generosity to borrowers could leave the student loan program as much as $250 billion in the hole over the next decade. And behind closed doors, officials in the White House budget office and the Treasury Department have criticized the Education Department’s loan models as overly optimistic, with some officials pushing internally for third-party audits.
Wait, what? You can’t get something for nothing? Color me shocked, shocked to find out that having the government take over student loans and then increase their lending by 44% in the past two years produced a flood of red ink.
Recall that Obama insisted on a government takeover of the student-loan industry because banks weren’t lending generously enough for Obama’s tastes and were profiting too much off of government guarantees. In FY2008, the budget for the Direct Loan program was $500 million. Now that the DLP is the only game in town, the annual shortfall in DLP is 430 times the annual budget in FY2008. Think about that for a moment. This is why lending programs work best when the stakeholders can’t just print their own money.
This comes up at a very bad time for the next Obama giveaway, “free” community college education. The White House tried to claim that the program would “only” cost $60 billion over the next decade, while serving 9 million students. However, the average tuition for 9 million students would put the actual cost at $34 billion each year, and that’s assuming that the flood of government subsidies doesn’t push demand and price up significantly, just as the student-loan takeover did.
Oh, and that $22 billion will go directly against the deficit, and Congress can’t do anything about it, as it’s structured as an entitlement. What they can do is take money out of Obama’s other programs to cover the gap, and that’s exactly what they should do — while explaining very loudly why it’s necessary, and why we need to end this “quasi-bailout” of the university system forthwith.