Is the U.S. Student Loan Program Facing a $500 Billion Hole?
The federal budget assumes the government will recover 96 cents of every dollar borrowers default on. That sounded high to Mr. Courtney because in the private sector 20 cents would be more appropriate for defaulted consumer loans that aren’t backed by an asset.
He asked Education Department budget officials how they calculated that number. They told him that when borrowers default, the government often puts them into new loans.
These pay off the old loans, and this is considered a recovery, even though in many cases the borrowers haven’t repaid anything and default on the new loans as well.
WSJ 29 april 2021
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