President Biden’s new income-driven repayment plan for student loans will cost $475 billion over 10 years, according to the Penn Wharton Budget Model, tens of billions of dollars more than an earlier plan that the Supreme Court struck down last month.
The Penn model estimates taxpayers will face $200 billion in costs due to payment reductions in the president’s Saving on a Valuable Education (SAVE) plan, as a little more than half of the $1.64 trillion in outstanding loans will be covered.
Another $275 billion in taxpayer costs will be attributable to payment reductions under the plan for $1.03 trillion in new student loans into the next decade.
According to the model’s estimate range, the cost of the Income-Driven Repayment (IDR) plan could be as low as $390.9 billion or soar as high as $558.8 billion.
“Due to the increased generosity of the newly proposed IDR plan, future student borrowers have the incentive to increase their federal student loan borrowing,” Penn Wharton junior economist Penlei Chen wrote.
The president’s SAVE plan is expected to go into effect July 1, 2024, and would cut monthly income-based student loan payments in half, eliminate monthly payments for minimum-wage earners and forgive all outstanding debt after 10 years of payments for student borrowers who took $12,000 or less.
Most community college students would not have to pay back any debt under the plan, according to the Biden administration.
The nonpartisan Urban Institute also found less than a quarter of bachelor’s degree recipients would be forced to pay back their loans in full.
“Make no mistake, Biden’s newest student loan scheme only transfers the burden from those who willingly took out loans to Americans who never attended college or who already fulfilled their commitment to pay off their loans,” Sen. Bill Cassidy (R-La.), who chairs the Senate Health, Education, Labor and Pensions Committee, said in a statement, calling the income-driven repayment rule “irresponsible” and “unfair.”
The senator’s office noted that households making more than $250,000 per year could feasibly receive some federal assistance if filing taxes separately. They also pointed to a Congressional Budget Office estimate in March that lowballed Biden’s loan plan, pegging the taxpayer cost at $276 billion.
Education Secretary Miguel Cardona also announced Friday that his department would unilaterally cancel $39 billion in federal student loans for 804,000 student borrowers who had been paying loans for 20 or 25 years, depending on when they started the process.
The Supreme Court overturned Biden’s plan to forgive up to $430 billion in loans for as many as 43 million borrowers, ruling 6-3 on June 30 that it was unconstitutional to write off the debt without congressional approval.
That plan had relied on a 2003 law designed to forgive loans for veterans of the Iraq and Afghanistan wars, arguing that financial hardship caused by the COVID-19 pandemic constituted a similar national emergency.