Research organization predictions after President Joe Biden’s forgiveness announcement
Student loan changes could cost $1 trillion over 10 years.
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Following up on a campaign promise, President Joe Biden announced the cancellation of up to $10,000 in federal loan debt, on Wednesday. For borrowers who received federal Pell Grants, which generally go to those from low-income households, the cancellation can go up to $20,000.
According to Higher Ed Dive, although the higher education sector supported the changes, economists seem to be worried — especially about sending benefits to high earners who could afford to pay their debts and setting an expectation for future loan forgiveness that could drive up demand for higher education. Penn Wharton Budget Model, a research organization at the University of Pennsylvania, estimated the impacts of the measure through the years. See below, what would be the costs.
- The federal student loan debt will cost between $469 billion and $519 billion over 10 years;
- The extension of the pandemic pause on loan payment and interest through December will cost $16 billion;
- The new income-driven repayment program, which caps monthly undergraduate loan payments at 5% of discretionary income while preventing debt balances from growing for those making scheduled payments, will cost $70 billion;
- Three-quarters of the benefits of debt forgiveness will go to households earning $88,000 or less per year;
Researchers stated that, when adding up all the expenses of Biden’s plans, it carries a total price tag of $605 billion to $1 trillion over the next decade. This variance comes from uncertainty surrounding income-driven repayment plan changes — ranging between $70 billion to $450 billion, or more.
Because of the uncertainty surrounding the borrowers’ behavior, specialists say future analysis is needed.
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