Biden’s Student Loan Plan Could Cost Twice as Much as Projected
Regardless of how the U.S. Supreme Court rules on President Joe Biden’s plan to forgive up to $20,000 in student loan debt for some federal borrowers, the White House is also pushing ahead with a new repayment plan that will lower what many student borrowers end up owing.
It’s going to be significantly costlier than the Department of Education originally projected.
A new analysis from the Congressional Budget Office (CBO) shows that Biden’s so-called income-driven repayment plan will cost at least $230 billion over 10 years—with an additional $45 billion in costs likely coming if the Supreme Court invalidates the White House’s student loan forgiveness scheme. That means the final tab could be more than twice the $138 billion price tag attached to the proposal by the Department of Education, which is overseeing the program’s rollout.
Under current law, federal student loan payments are capped at 10 percent of an individual’s “discretionary income,” which the Department of Education defines as income that exceeds 150 percent of the federal poverty guidelines. In practice, that means a single borrower with no children starts making payments on income that exceeds $20,400.
Biden wants to lower that threshold to 5 percent for undergraduate loans and impose a new limit of 10 percent for loans put toward a graduate degree. Biden’s plan would also wipe away outstanding student debt after 10 years of payments for those who borrowed $12,000 or less—and a maximum payment period of 20 years no matter how much was borrowed.
But if you cap monthly payments at a lower level and also shorten the allowable repayment time, there will be a lot of loans that never get paid back in full. That cost ultimately falls on the taxpayers, and that’s what the dueling estimates from the CBO and the Department of Education are all about.
The gap between the two estimates is a telling one.
The CBO points out that the Department of Education did not account for the “behavioral e
Article from Reason.com