Student loans have been subject to immense swings on the political pendulum in the last few decades. This is most evident by comparing the cost of student loans to taxpayers. The Congressional Budget Office (CBO) periodically estimates the cost of student loans, accounting for both the initial outlays and the future repayments, which are discounted to present value and compared to the initial outlays. The result is the subsidy rate, the amount of money the taxpayer loses on a loan. For example, a subsidy rate of 10 percent means that taxpayers lose 10 cents for every dollar loaned.

Looking at the CBO’s subsidy rate estimates over the past 20 years leaves me with several takeaways, but here are just five:

The One Big Beautiful Bill Act dramatically reduced the subsidy rate.

When the first Trump administration left office in 2021, the student loan subsidy rate was 0.6. The Biden administration’s many student loan forgiveness plans converted this small loss into a massive loss. The subsidy rate was 18.2 when the Biden administration left office in 2025. This was largely due to the SAVE student loan repayment plan, which converted large portions of the student loan portfolio from loans into delayed grants. The One Big Beautiful Bill Act eliminated many of the changes to student loans made by the Obama and Biden administrations, including the SAVE plan, and reduced the estimated subsidy rate to 3.9.

Taxpayers are still losing money on student loans.

While the subsidy rate is much lower now, a subsidy rate of 3.9 still means that taxpayers are losing 3.9 cents for every dollar lent. Given projected student lending volume, this translates into a loss of $3.3 billion for loans made this year.

Student loans are still historically heavily subsidized. 

As recently as 2013, the subsidy rate was -36.48, meaning that the government made a profit of 36.48 cents for every dollar lent. Indeed, over the past two decades, the subsidy rate has indicated a profit for the government in 14 years. Only four out of the last 20 years have seen a more generous subsidy rate than the current 3.9, and three of them were due to the Biden administration’s loan forgiveness moves. Indeed, the student loan borrowers are more heavily subsidized under the second Trump administration’s new law than they were under any year of the Obama administration.  

Subsidy rates are likely to be adjusted upwards.

The government has a history of underestimating subsidy rates. A 2022 Government Accountability Office report found that, for the past 25 years, the government has underestimated the subsidy rate each and every year. For example, in 2013, the government estimated a subsidy rate of -27.3, meaning a profit of 27.3 cents for every dollar lent. But the actual subsidy rate turned out to be 10.5, meaning a loss of 10.5 cents for every dollar lent. In other words, the government underestimated the cost of student loans that year by 37.8 cents for every dollar lent. Over the 25-year period, the government initially estimated a profit of $114 billion but ended up taking a $197 billion loss, making student lending $311 billion more expensive than initially anticipated.

The official subsidy rate underestimates the true cost to taxpayers.

Lurking in the background of all of this is another problem: Congress has mandated that the CBO use an inappropriate discount rate when calculating the subsidy rate. In particular, the Federal Credit Reform Act (FCRA) requires that future loan payments be converted into their present value using the interest rate on Treasury bills. But Treasury bills represent the risk-free rate, which is emphatically not the right rate to use for an unsecured loan to a young adult with little work history, no assets, and little or no credit history. Using a more appropriate discount rate yields the Fair Value subsidy rate, which has historically been 20 or more points higher than FCRA subsidy rates but is more recently in the vicinity of seven points higher. In other words, the FCRA subsidy rate for loans in 2026 is 3.9, implying a loss of 3.9 cents for every dollar lent, but the Fair Value subsidy rate is likely around 10.9, implying a loss of 10.9 cents for every dollar lent.

The recent reforms to student loans have markedly improved policy. But there is still room for improvement.

Follow Andrew Gillen on X.