An Extremely Important Statistic About Student Debt That Has Never Been Published

Here’s a question that you might think would have an easy-to-Google answer: How much money does the federal government collect in student loan payments each year?

I found myself wondering this several months ago. At the time, Joe Biden had just won the presidency, but it wasn’t clear whether Democrats would take the Senate. And so lawmakers and activists had begun batting around the idea of mass loan forgiveness as a big, legacy-defining gesture that the administration could potentially pursue without Congress.

But how much money would borrowers as a whole actually save each year thanks to a jubilee? Nobody seemed to know.

The question had implications not just for borrowers’ pocketbooks, but for the economy at large. In response to the coronavirus crisis, the federal government has paused payments on the student loans in its portfolio (people can choose to keep paying them but not many are). When payments finally resume, it will act like a new tax on households, putting a slight damper on consumer demand.

But how big a tax? Again, I’d never seen a number.

It turns out there was a good reason, which I learned as I emailed higher education wonks around Washington. The Department of Education does not actually publish straightforward figures tracking how much money it collects from borrowers each year. At least, not useful ones. The data the agency releases annually combines the regular principal and interest collections 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 toward loans.

Eventually I got in touch with the Department of Education, and after going back and forth with them for a while, they offered to pull the data for me. The grand total: $70.3 billion.

To be specific, that’s how much the government collected on its loan portfolio in financial year 2019, the last full year before payments were paused due to the pandemic. It covers only payments on loans that are owned and managed by the government, which currently total about $1.4 trillion, according to the Department of Education’s latest portfolio summary. It doesn’t count payments on the $160 billion worth of outstanding loans that are government backed but owned by private lenders, which were made under the old federal student loan program that was discontinued after 2010. Nor does it cover private debt.

So, what do we make of the $70.3 billion figure?

One striking thing I noticed is that about 32 percent of the total, or $22.4 billion, consisted of interest payments. At first glance, that seems high, and you can pretty easily imagine it becoming a talking point for anyone who’d like to cut student loan interest rates.

Clare McCann, an expert on federal student aid at the New America Foundation, said she could think of two explanations.*

One is that more and more borrowers are managing their large debt loads by signing up for income-based repayment programs, which cap what they owe each month as a share of their earnings. Many of those who enroll 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 accrues and leads their balances to grow).

The second issue is, frankly, a little dull and technical, but maybe more important. Student loans are structured to amortize like a mortgage, with debtors mostly paying interest early on and principal later. With lots of young borrowers entering repayment each year, that might mechanically keep the portion of all collections going to interest fairly high.

The share of collections going to interest “might be reflecting that interest rates are a challenge for a lot of people,” she said. “It might also be reflecting that a lot of people are only recently entering repayment.”

In short, it’s unclear whether the amount of student debt payments that are going toward interest is really troubling. The bigger significance of $70.3 billion, in the end, is probably just that it gives us a sense of the overall burden of debt payments on households. When people talk about the student loan crisis, they often cite the total amount of outstanding loans—which, again, is hovering around $1.7 trillion—even though it doesn’t tell us much about how much Americans are paying, or will ever pay, since a large chunk of the debt will likely be forgiven. Economically, it’s probably more useful to think of the impact of the debt as an annual tax carried by around 45 million Americans. And the government’s take helps us say roughly how big it is—which is to say, substantial, but not enormous. For a size comparison, $70.3 billion is a little more than one-third what the government took in from capital gains tax receipts in 2019 ($183 billion), or a little less than double what it makes from the federal gas tax ($36 billion). It’s about 3.6 percent the size of the Biden administration’s $1.9 trillion COVID-19 relief effort—probably not enough to take much heat off the economy if payments restart next year.

Now, would it be too much to ask for the government to just publish this number on its own?