Biden’s Student Loan Forgiveness Plan Could Add $1 Trillion to the Federal Deficit

Mandatory Credit: Photo by Evan Vucci/AP/Shutterstock (13360774ag)President Joe Biden listens during an event on the American Rescue Plan in the South Court Auditorium on the White House campus, in WashingtonBiden, Washington, United States - 02 Sep 2022.
Evan Vucci/AP/Shutterstock / Evan Vucci/AP/Shutterstock

President Joe Biden’s plan for student loan forgiveness announced on Aug. 24, could add $1 trillion to the federal deficit, according to some experts.

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Under the plan, there will be up to $10,000 in federal student debt relief for most borrowers, up to $20,000 for recipients of Pell Grants, as well as an extension of the payment pause “one final time” to Dec. 31., according to a White House fact sheet.

According to the Penn Wharton Budget Model, which The Wall Street Journal says is a “widely regarded analysis frequently cited by policy makers,” total plan costs for the plan’s three components could exceed $1 trillion.

The model estimates that debt cancellation could cost up to $519 billion, with about 75% of the benefit accruing to households making $88,000 or less. Loan forbearance would cost another $16 billion. In addition, the new income-driven repayment (IDR) program would cost another $70 billion, increasing the total plan cost to $605 billion under strict “static” assumptions.

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“However, depending on future IDR program details to be released and potential behavioral (i.e., “non-static”) changes, total plan costs could exceed $1 trillion,” according to the Penn Wharton Budget Model.

Other analyses estimate the cost to be lower. The Committee for a Responsible Federal Budget (CRFB) said in a blog post that it has a central estimate of roughly $500 billion, with debt cancellation costing $360 billion and IDR costing $120 billion.

The Wall Street Journal notes that the estimates’ range reflects the “uncertainty and complexity of projecting the student-loan portfolio’s performance.”

As for the White House, it put the price tag much lower — at $24 billion per year over the next 10 years, according to Deputy Director of the National Economic Council Bharat Ramamurti, who spoke at a press briefing on Aug. 26.

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Ramamurti added that the White House officials “consider it fully paid for,” according to the transcript of the briefing.

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“What I would say is that, yes, this is paid for; it is paid for and far more by the amount of deficit reduction that we’re already on track for this year,” Ramamurti said. “Like I said, we’re on track for $1.7 trillion in deficit reduction this year.  That means, practically speaking, compared to the previous year, 1.7 trillion more dollars are coming into the Treasury than are going out.  And we’re using a portion of that — a very small portion of it — to provide relief to middle-class families, consistent with the President’s plan.”

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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