Biden Student Loan Transfer Estimated to Cost Around $500 Billion

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The price tag of President Joe Biden’s student loan program will be between $440 billion and $600 billion over the next ten years, the nonpartisan Center for a Responsible Federal Budget estimated on Thursday.

The group said the “central estimate” for the cost of the package of reforms announced by Biden Wednesday is roughly $500 billion.

That is a substantial increase from the $329 billion estimate of the Penn Wharton Budget Model issued prior to the release of the details of the plan.

The higher price tag follows from Biden announcing a bigger package of debt relief for student loan borrowers. In addition to the $10,000 of relief expected, Biden said his administration will forgive another $10,000 for borrowers who also received Pell grants to assist with college costs.

The Center for a Responsible Federal Budget (CRFB) estimates that the Biden scheme will cancel about $525 billion of student debt. The cost of this to taxpayers, however, is lower than the amount canceled because some of the debt would have been forgiven under other programs or not paid back because of borrower defaults.

The CRFB  estimates loan will cost between $330 billion and $390 billion, with a central estimate of $360 billion.

In addition to the loan forgiveness plan, the Biden administration also announced a new income-driven repayment plan. These plans link repayment to a share of a borrower’s income and forgive some balances after a set period of years.

Biden’s plan raises the amount of income excluded from calculations to 225 percent of the federal poverty line, up from 150 percent now. This lowers the payment amount for all borrowers in the repayment plans. Many low-income borrowers will have payments fall to zero.

The percentage of discretionary income for undergraduate loans that will be owed under the income-driven plan will fall to five percent, compared to 10 percent in current plans.

Importantly, unpaid interest would be forgiven for borrowers whose monthly payments are too small to cover interest payments. In pervious plans, unpaid interest was added to the borrower’s balance. In addition, the entire balance for those who borrowed $12,000 would be forgiven after ten years of repayment, half the period under current plans.

These changes to the income-driven repayment plans would cost between $90 billion and $190 billion, according to the CRFB. The central estimate is $120 billion, the group said.

The Biden Administration also announced an extension of the moratorium on student loan repayments through the end of this year, the seventh time the time-out on student loans has been extended. This will cost an additional $20 billion, the CRFB said.

Despite forgiving $550 billion of debt, it will not take long for debt to return to its current level. The CRFB projects the overall amount of outstanding federal student loan debt will return to $1.6 trillion within five years.

The group has not yet estimated the impact on inflation but says one will be coming soon. A previous estimate of the cost of continuing the moratorium for another year found that this would add 20 basis points to the Personal Consumption Expenditure price index. The program announced by Biden likely adds even more than than, the CRFB said.

Breitbart News estimated on Wednesday that the cost of the program would be $500 billion and would add 50 basis points to inflation.

“The changes announced today will likely cost more than double the amount saved through the recently passed Inflation Reduction Act, completely eliminating any disinflationary benefit from the bill,” the CRFB said.  “It is extremely troubling to see the Administration reverse the legislative progress made on deficit reduction. It is long past time that student debt repayments resume, and now it is even more important for policymakers to enact changes that reduce deficits through spending reductions and revenue increases in order to put the national debt on a downward sustainable path.”

The group points out that the proposed loan changes will not reduce the amount of borrowing moving forward, setting up a future administration to be called on to cancel debt again. Indeed, some estimates say the changes will increase borrowing because students and their families will anticipate future debt forgiveness, disincentivizing families from saving for college costs and making borrowers less wary of taking on debt.


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