Student Debt

Office of Management and Budget: +$845 Billion in Direct Loans by 2028

Nearly every year in July the Office of Management and Budget (OMB) publishes its Mid-Session Review (MSR) of the federal budget, which includes the Federal Direct Loan Program, and projects its future. These direct loans consist primarily of federal student loans, but there are a few other programs in there as well. However, it does not include private student loans, but these are a small percentage of all student loans and smaller still of new student loans. Thus, the MSR measure is both over- and under-inclusive of all student loans, but it covers most of them.

The OMB classifies direct loan accounts as financial assets totaling $1.281 trillion in 2017, but careful readers of these reports will find that OMB has now combined direct loans with “Troubled Asset Relief (TARP) equity purchase accounts.” No reason is given, and these items don’t appear related. In prior years TARP amounts have been negligible, so I’ll continue this series, assuming these TARP accounts make no impact. According to the office’s projection, by 2028 this figure will grow to $2.126 trillion—66 percent growth.

(Source: OMB FY2018 Mid-Session Review (pdf))

As with previous years, the current (2017) direct loan balance is below the OMB’s past projections, but not by much. For example, in FY2012, it predicted the balance would be $1.593 trillion by 2017, $312 billion (24 percent) higher than what actually occurred. Here are the OMB’s direct loan projections going back to FY2010.

As with last year, the OMB projects less student lending than during most of the Obama presidency. At the time, I noted that the projection came in much lower, but now it’s trending back upward. By 2028, federal student loans will reach $2.126 trillion. Because the OMB expects GDP to grow as well over this time period (we’d have bigger problems than student loans if it didn’t), the ratio of direct loans to GDP will level off below 7 percent over the next decade.

The OMB’s measure of direct loans is the net amount owed to the government, and the annual changes to that amount are not the same as the amount lent out each year to students. The Department of Education tracks its lending, which I discuss on the Student Deb Data page.

———-

Past coverage of this data series:

Office of Management and Budget: +$725 Billion in Direct Loans by 2027

Every year in July the Office of Management and Budget (OMB) publishes its Mid-Session Review of the federal budget, which normally includes the Federal Direct Loan Program and projects its future. This year, the MSR (pdf) was only 22 pages because Director Mick Mulvaney said there were only “limited budget developments” since the administration released its misopauperous budget on May 23, 2016. So let’s take a look at that instead…

It’s titled, “A New Foundation for American Greatness.” My favorite part reading it thus far is the entry, “Invest in Cybersecurity,” which features an unspecified commitment.

Anyway, the budget has the Federal Direct Loan Program information we’re looking for, so back to that. The federal government’s direct loans consist primarily of student loans, but there are a few other programs in there as well. However, federal direct loans do not include private student loans, but these are a small percentage of all student loans. Thus, the OMB’s measure is both over- and under-inclusive of all student debt, but it covers most of it.

The OMB classifies direct loan accounts as financial assets net of liabilities totaling $1.227 trillion in 2016. According to the office’s projections, by 2027 this figure will grow to $1.952 trillion—59 percent.

(Source: Budget of the U.S. Government Fiscal Year 2018 (pdf))

As with previous years, the current (2016) direct loan balance is below the OMB’s past projections, but not by much. For example, in FY2012, it predicted the balance would be $1.486 trillion by 2016, $259 billion (21 percent) higher than what actually occurred. Here are the OMB’s direct loan projections going back to FY2010.

Indeed, the most notable difference between His Emolumence’s OMB and Barack Obama’s is that it is now predicting far less student lending going forward. Total direct loans won’t even exceed $2 trillion. This, I think, is a more realistic assessment of where federal student lending is going. Whether this has something to do with the new administration or is standard practice for the OMB is outside of my knowledge base.

The OMB’s measure of direct loans is the net amount owed to the government, and the annual changes to that amount are not the same as the amount lent out each year to students. The Department of Education tracks its lending, which I discuss on the Student Deb Data page.

Office of Management and Budget: +$1.1 Trillion in Direct Loans by 2026

…Which is down from $1.4 trillion by 2025 as predicted last year.

Every year in July the Office of Management and Budget (OMB) publishes its Mid-Session Review of the budget, which includes the Federal Direct Loan Program, and projects its future. The federal government’s direct loans consist primarily of student loans, but there are a few other programs in there. However, federal direct loans do not include private student loans, but these are a small percentage of all student loans. Thus, the OMB’s measure is both over- and under-inclusive of all student debt, but it covers most of it.

The OMB classifies direct loan accounts as financial assets totaling $1.144 trillion in 2015. According to the office’s projections, by 2026 this figure will grow to $2.213 trillion—93 percent.

Projected Direct Loan Balances (OMB, Billions Current $)

(Source: OMB FY2017 Mid-Session Review (pdf))

As with previous years, the current direct loan balance is below the OMB’s past projections. For FY2012, it predicted the balance would be $1.363 trillion by 2015, $219 billion (19 percent) higher than what actually occurred. Even last year, the OMB’s estimate for 2015 was still high by 4 percent. Here are the OMB’s direct loan projections going back to FY2010.

Direct Loan Balance Projections (OMB Billions Current $)

Because the OMB expects GDP to grow as well over this time period (we’d have bigger problems than student loans if it didn’t), the ratio of direct loans to GDP will level off below 8 percent over the next decade.

The OMB’s measure of direct loans is the net amount owed to the government, and the annual changes to that amount are not the same as the amount lent out each year to students. The Department of Education tracks its lending, and I last discussed it here. As of 2015, fewer students were borrowing from the federal government, so lending appears to be declining. The newly implemented gainful employment rule might further reduce student lending as well. These factors may explain why the OMB’s projections keep falling short. Consequently, I don’t believe student debt will exceed $2 trillion.

Speaking of Grad PLUS Loans…

This weekend, the Times both accepted the Bennett hypothesis and chose not to condescend to us about the “paradox” of how underemployed law grads can refuse to work for people who can’t afford to pay them. That’s really remarkable. What more can I say?

Okay, one point, an emphasis. When I wrote that applying the gainful employment rule to all law schools would cause fifty to close in short order, I was clearly being conservative. $50,000 in discretionary income is a lot of money, even for law school graduates.

And since we’re on the topic of student lending, the Department of Education updated its student loan data through the 2014-2015 academic year. I’ve updated the Student Debt Data page accordingly.

The big findings are that (a) people are borrowing less money from the federal government:

Amount of Federal Loans Disbursed

…But (b), Grad PLUS borrowing hasn’t changed much in the last year.

In the last two years though, the number of Grad PLUS borrowers has grown (+2,540) while the total amount borrowed has fallen (-$140 million). It only amounts to about $500 per borrower, but who knows, maybe it’s due to fewer law students? I wouldn’t be surprised.

Finally, in the same week that I bought my first car I realized after years of listening that Galaxie 500’s “Blue Thunder” is about a man’s love for his car, and the Route 128 reference indicates it’s an homage to the Modern Lovers’ “Roadrunner.” (I’m terrible at discerning lyrics; it’s usually not what I listen for in music.) I really dig how “Blue Thunder” denies the listener the chorus until the very end.

I prefer the album version, but how could I not post an ’80s video?

********************

Office of Management and Budget: +$1.4 Trillion in Direct Loans by 2025

Projected Direct Loan Balances (OMB, Billions Current $)

(Source: OMB FY2016 Mid-Session Review (pdf))

…But we all knew it was going to say that. Also, that number includes other loan programs that aren’t student loans, but those aren’t nearly as big.

The good news, though, is that the actual amount of direct loans keeps coming in below the projections. Here’re the estimates from the mid-session reviews since FY2010 against the actual.

Direct Loan Balance Projections (OMB Billions Current $)

The FY2010 estimate was $161 billion more for 2014 than turned out to be the case. This variance implies that the government is overestimating future direct lending. It isn’t much, but it’s something to keep track of.

I should add that in general the OMB predicts that direct loan debt will even out at about 9 percent of GDP.

Good News: Students Borrowing Less From Education Department

The bad news is that I just updated the LSTB’s student debt data page, but revising it again is my problem, not yours.

For those in the know, the Department of Education (ED) tracks the amount of debt the government lends out each quarter (and each academic year), going back to the late 1990s. Here’s total borrowing by loan program, which includes direct loans and guaranteed loans back when they were around.

Amount of Federal Loans Disbursed

Don’t let the 2012 data throw you. Because Congress stripped subsidized Stafford loans from graduate and professional students, the 2012 bars’ meanings completely changed from previous years. Now all subsidized Stafford loan borrowers are undergraduates only, and ED kindly separated graduate unsubsidized borrowers from undergraduates. Nevertheless, the total amount of Stafford borrowing is dropping. In the 2011-12 academic year it was $85 billion; in 2012-13 it fell to $78 billion.

The declining loan volumes imply that the Office of Management and Budget’s long-term direct loan projections, which are discussed in the aforementioned student debt page) are probably high.

Projected Direct Loan Balance (OMB)

Less money lent out means fewer dollars likely to be lost to the program, so I consider this good news. However, the amount of money lent in 2012-13 is still sky high compared to the middle of the decade, and we don’t know who’s not borrowing, why they’re not borrowing, or whether their parents are just taking out dubious 410(k) loans instead.

Parent PLUS loan borrowing is down as well (-170,000 recipients), but that’s probably due to ED tightening the eligibility requirements on those loans. Grad PLUS loans are down slightly too, with about 18,000 fewer recipients. At most 2,000 of these can be attributed to law school graduates who were not replaced in the 2012-2013 academic year.

Here’s a chart of the number of recipients by loan type:

No. Federal Loan Recipients Per Year

(Note: the data point for unsubsidized undergraduate Stafford borrowers overlaps with the point for all PLUS borrowers in 2012, 6.9 million (left) and 697,000 (right), respectively.)

…And here’s the amount disbursed per recipient:

Amount Disbursed Per Recipient

Splitting graduate unsubsidized Stafford borrowers from the undergrads reveals just how much more graduate and professional students borrow. If grads and professionals go add Grad PLUS loans to their unsubsidized Staffords, they’re taking on more than $37,000 in debt in one academic year. Since there were 335,000 Grad PLUS borrowers last year, we can expect that in the near future, the highest student debt brackets (e.g. >$100,000) that we’re told aren’t really a problem will increase more quickly than the lower brackets. This much is not good news.

I’d give an update on the freestanding private law schools, but for some reason Western State didn’t appear in the data and I’m waiting for an explanation from ED.