President Biden’s sweeping student debt cancellation plan will cost at least $605 billion and could cost more than $1 trillion, according to a Penn Wharton analysis.
The budget model showed that debt cancellation components of the plan would cost between $469 billion to $519 billion over a 10-year budget window, the actual figure depending on whether new or existing students are included.
Biden announced that those making up to $125,00 would have $10,000 of their federal student loans forgiven and Pell Grant recipients would be able to get $20,000 in debt wiped away.
Penn Wharton found that about three-fourths of debt cancellation would benefit those making under $88,000 per year.
Extending the payment moratorium until January 2023 would cost an additional $16 billion. The income-driven repayment (IDR) plan will cost an additional $70 billion, bringing the ‘static’ assessment of the plan to $605 billion.
The new IDR provisions include: capping repayment at 5 percent of monthly income (instead of the current 10 percent), covering borrowers’ unpaid monthly interest so that debt balances will not grow even when income-adjusted monthly payments are zero and forgiving loan balances of $12,000 or less after 10 years of payment, instead of 20.
Given that many details of the IDR program have yet to be explained and factoring in for behavior changes like more borrowing, the plan could cost up to $450 billion more, bringing the total over $1 trillion, according to the budget model.
The White House did not calculate the estimated cost of the plan before announcing it publicly. Two days later, they’ve yet to give a number, despite repeated requests.
White House domestic policy adviser said the cost will depend on how many of the 43 million borrowers with federal student debt take advantage of the plan.
‘Well, that that remains to be determined, and it will be a function of what percentage of eligible borrowers actually take up this opportunity,’ Rice told reporters Thursday.
‘I think it depends on the numbers. Like, you know, unfortunately — and we’re here to encourage as many people to take it up as possible — if 43 million borrowers take it up, that’ll be different than if 50 percent of those 43 million take it up,’ she added.
President Biden’s sweeping student debt cancellation plan will cost at least $605 billion and could cost more than $1 trillion, according to a Penn Wharton analysis
The budget model showed that debt cancellation components of the plan would cost between $469 billion to $519 billion over a 10-year budget window, the actual figure depending on whether new or existing students are included
Press secretary Karine Jean-Pierre suggested the White House would not have a ‘real sense’ of the program’s cost anytime soon.
‘All of this when it comes to cost will also depend on how many of the loans canceled were actually expected to be repaid. It will depend on how many borrowers actually take up this opportunity before we have a real sense,’ she said.
‘We do believe [the plan] will be fully paid for,’ because loan repayments will resume in January, Jean-Pierre claimed.