Report: Obama Department Of Education Drastically Underestimated Student-Loan Debt

This commentary originally appeared in Forbes on January 31, 2017.

With the media’s focus on the Inauguration and the new president’s first week in office, a recent Wall Street Journal report has gone little noticed. According to the report, on January 13 (just one week before the outgoing administration up and went), the Obama Department of Education dropped a memorandum confessing that it had “overstated student loan repayment rates at most colleges and trade schools.” The “updated numbers” provided by the Department were analyzed by the Journal’s staff, who found that the new data “revealed that the Department previously had inflated the repayment rates for 99.8% of all colleges and trade schools in the country.”

This number (99.8 percent) is about as close as you can get to being completely wrong in measuring the extent of a crisis that higher education reformers have been warning us about for some time. In short, for the last eight years, the American people have not been told the whole story about just how bad the student-loan default crisis really is.

Of course, in government, and everywhere else, mistakes are going to be made. But, in this case, the mistakes seem to aid the side of the defenders of the failed higher education status quo—as in, “Student-loan crisis? What student-loan crisis?! Move along; there’s nothing to see here.”

But, apparently, there is much to be seen here. Much more, in fact, than the past administration publicized until the moving vans were already loading up in the White House lot. According to the Journal, “a spokeswoman for the Education Department said that the problem resulted from a technical programming error.” This may well be exactly what happened. But it would be easier to accept this explanation if any of the “updated numbers” turned out to be helpful to the past administration’s agenda. They were not. Quite the opposite. The new data show that “at more than 1,000 colleges and trade schools, or about a quarter of the total, at least half the students had defaulted or failed to pay down at least $1 on their debt within seven years.”

It gets worse. The Journal cites a November 2015 report by the U.S. Government Accountability Office (GAO), which slapped the Department of Education for its sloppy accounting methods, especially those meant to track the Obama-instituted “Income-Driven Repayment” plan (IDR). “IDR plans are designed to help ease student debt burden by setting loan payments as a percentage of borrower income, extending repayment periods from the standard 10 years to up to 25 years, and forgiving remaining balances at the end of that period.” As an earlier article explains, “The most generous version of income-driven repayments caps a borrower’s monthly payment at 10 percent of discretionary income, which is defined as adjusted gross income above 150 percent of the poverty level. That formula typically lowers monthly payments of borrowers by hundreds of dollars. Public-service workers—those employed by a government agency or at most nonprofits—have balances forgiven after 10 years, tax-free. Private-sector workers have balances forgiven in 20 or 25 years, with the forgiven amount taxed as ordinary income.”

Under Obama, IDRs have become, as former Vice President Biden might say, “A big deal.” How big a deal? According to the GAO report, “As of June 2016, 24 percent of Direct Loan borrowers repaying their loans (or 5.3 million borrowers) were doing so in IDR plans, compared to 10 percent in June 2013. [The Department of] Education expects these plans to have costs to the government.”

A note on translating federal bureaucratese is needed at this point: When the federal government says that one of its departments, in this case, the Department of Education, “expects these plans to have costs to the government,” this means it will have costs to the taxpayers. For how much are federal taxpayers going to be on the hook for student loans defaulted on and/or “forgiven”? Apparently, more and more each time the government “updates” its data. When the student-loan repayment rates were originally published in 2015, more than half of the students at 347 colleges and vocational schools were found to be in arrears in their payments. Then, in September of last year, the Department raised that number to 477. Now, the “update” shows the number grew to 1029 schools. “Worse, no college saw its repayment rate improve under the revision, and some schools saw their seven-year repayment rates fall by as much as 29 percent.”

In short, things are getting worse on the student loan front—and have been for some time; something we would and should have known earlier, had it not been for the federal government’s “technical programming error.”

For my part, I will not question the veracity of the prior administration’s claims. I will wait patiently for the Department of Education to heed the GAO’s admonition to clean up its books.

Others may not be so credulous. They may recall George Orwell’s dystopian novel, 1984. There, the doomed freedom-fighter, Winston Smith, notes with a mixture of concern and amusement the manner in which “official government numbers” are manipulated to put the best face on current policy. Smith works in the “Ministry of Truth,” where he serves as an “editor” of the news. In reality, he rewrites the news, along with history, to conform to the Party’s objectives. One day, he confronts a problem about what to do with the Party’s reduction of chocolate rations for the people of Oceania. “As short a time ago as February, the Ministry of Plenty had issued a promise (a ‘categorical pledge’ were the official words) that there would be no reduction of the chocolate ration during 1984. Actually, as Winston was aware, the chocolate ration was to be reduced from thirty grams to twenty at the end of the present week. All that was needed was to substitute for the original promise a warning that it would probably be necessary to reduce the ration at some time in April.”

Winston realizes that his revisions were “merely the substitution of one piece of nonsense for another. Most of the material that you were dealing with had no connection with anything in the real world, not even the kind of connection that is contained in a direct lie. Statistics were just as much a fantasy in their original version as in their rectified version. A great deal of the time you were expected to make them up out of your head.”

When federal agencies release midnight “updates” of their data—and when those updates flat-out contradict the rosy scenario they have been broadcasting—it is understandable why some question the government’s honesty.

For its part, the Department of Education has pledged to follow the GAO’s instructions. All of this is taking place during the transition from one president to the next. As a candidate, President Trump announced last year that he, too, favors the concept of student-loan forgiveness. One hopes that the incoming members of his Department of Education can rectify their predecessors’ accounting difficulties.