- The federal government is expected to lose just 4 cents for every dollar it lends to students in 2026, down from 18 cents in 2025.
- This decline is largely due to the replacement of previous income-based repayment plans (including the Biden-era Savings Plan) with the new repayment assistance plan under the Big Beautiful Bill.
- Even with lower expected losses, federal student loans still carry a subsidy of about 18 cents on the dollar when measured using fair value accounting, which includes market risk.
Student loans are often described as either a burden on taxpayers or a profit center for the federal government. Many Americans believe that student loans can be profitable, because the government collects the interest on student loans. The truth is far from that.
For many years, official projections suggested that federal student lending would generate savings. This assumption collapsed as repayment plans became more generous, payment pauses extended during the pandemic, and forgiveness programs expanded. By 2024, new federal loans were expected to lose 28 cents on every dollar lent over their life.
now, New estimates from the Congressional Budget Office (CBO) It suggests that 2026 could represent the “best year” in the history of the direct loan program, although the government will still lose money overall.
Under recently passed reforms in the Big Beautiful Bill, the expected subsidy rate (the government’s expected loss for every dollar it lends) will fall to 4% for loans issued in 2026. This means that taxpayers are expected to lose 4 cents on every dollar disbursed, measured on a present value basis.
Although it’s not a profit, it represents a turnaround from recent years and one of the lowest projected costs since the direct loan program began.
The federal student loan program has never been profitable
The federal government has issued nearly $1.6 trillion in loans, with an expected lifetime cost of more than $330 billion.
Early on, the program was expected to show some gains… but those gains never materialized.
By 2024, the same loans were expected to lose $205 billion – that’s $340 billion.
The primary driver has been the expansion of income-based repayment (IDR) programs, culminating in the Biden administration’s Savings Plan (SAVE). It limited savings to payments to at least 5% of income above the protected limit and eliminated unpaid interest growth for many borrowers. Payments can be $0 for low-income families.
The coronavirus-era payment halt has eliminated years of required payments. This has increased costs in the long run.
By 2024, the support rate on new loans will reach 28%. Some IDR-registered graduate loans carry subsidy rates exceeding 30%.
What does “support rate” really mean?
The 4% rate is calculated using accounting rules established under the Federal Credit Reform Act (FCRA) of 1990. This method discounts future loan payments using interest rates on Treasury securities and an estimate of the government’s fiscal costs.
Under the measure, 2026 loans would cost taxpayers about 4 cents for every dollar lent, far less than the projected 2025 loss of 18 cents.
But budget analysts often look to a second measure: fair value accounting.
Fair value accounting includes market risk – the possibility that borrowers will not repay as expected under weak economic conditions. Under this approach, student loans issued in 2026 are expected to carry a subsidy of 18 cents for every dollar lent.
Some experts argue the difference reflects a point of view: The FCRA measures the budgetary impact of the federal government, while the fair value more closely approximates the economic benefit to borrowers than it does for private student loans.
Why does 2026 look different?
The transformation begins with OBBBA’s comprehensive overhaul of graduate repayment and borrowing rules.
The Payment Assistance Plan replaces SAVE and other IDR plans
For new borrowers, OBBBA replaces income-based repayment plans with a new Repayment Assistance Plan (RAP).
Under previous IDR structures, borrowers paid 5% to 15% of income above the poverty threshold, with forgiveness after 20 to 25 years. SAVE also waived unpaid interest monthly, preventing balances from growing.
RAP changes several key elements:
- The $10 minimum monthly payment replaces the $0 payments.
- Payments are calculated at up to 10% of adjusted gross income.
- Forgiveness occurs after 30 years instead of 20 or 25 years.
- Borrowers receive a monthly reduction of $50 per child.
- Interest subsidies remain in place, and new subsidies have been introduced to lower interest rates.
The new formula requires higher payments from those with higher incomes, especially families with incomes exceeding $100,000. Extending the forgiveness period from 20 to 25 to 30 years also increases repayment totals.
The result is a sharp decline in expected support rates. For unsubsidized Stafford loans for undergraduate students, the subsidy rate under previous plans was about 37%. Within the framework of the resettlement plan, the Central Bank of Oman estimates it at less than 10%.
A ceiling is set for graduate borrowing
Graduate Plus loans (long criticized for allowing unlimited borrowing) carried particularly high expected losses. In 2025, loans expected to be denominated in Indonesian rupiah are expected to lose 33 cents on the dollar. Within the framework of the resettlement programme, this percentage drops to 27%.
OBBBA is phasing out the Graduate PLUS program and replacing it with new graduate lending. It remains unclear how support rates will evolve once the new caps are fully in place, but limiting borrowing reduces taxpayers’ exposure to large balances that are unlikely to be repaid in full.
What this means for student loan borrowers
In short – these updated numbers mean that the US government expects more borrowers to pay off their student loans this year.
Lower subsidy rates don’t mean getting student loans is any less difficult. It means that payment expectations change.
And the government still hasn’t made a profit.
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