- President Joe Biden’s income driven repayment plan could cost twice as much as their original estimate, according to a new report from the Committee for a Responsible Federal Budget (CRFB).
- The Penn Wharton Budget Model estimates the plan could cost up to $361 billion over ten years, while Student Loan Planner estimates that the cost could exceed $1 trillion.
- “More people are going to borrow, and they’re going to borrow more and probably tuitions are going to go up, as well,” Marc Goldwein, CRFB senior VP and senior policy director, told the Daily Caller News Foundation.
President Joe Biden’s plan to expand income driven repayments (IDR) for student loans will cost more than twice as much as their original estimate, according to a Monday report published by the Committee for a Responsible Federal Budget (CRFB).
The Biden administration proposed its IDR plan in January which would permit borrowers who make less than $30,600 per year and borrowers with a family of four who make less than $62,400 to opt into a $0 per month repayment plan, as well as cut repayments in half for borrowers who do not qualify for the plan. The administration estimated the plan would cost $138 billion, however estimates highlighted by CRFB show that the actual cost could be double than what was originally predicted. (RELATED: The Biden Admin’s Student Loan Repayment Pause Could Cost Almost $300 Billion, Experts Say)
A Penn Wharton Budget Model predicts the IDR plan could cost between $333 billion to $361 billion over ten years before considering the impact on increased tuition. Student Loan Planner estimates that the cost could exceed $1 trillion.
“Whether the cost is $140 billion as the Administration claims or $1 trillion larger as Hornsby does, the Administration should not be unilaterally spending scarce taxpayer dollars without offsets,” the report reads. “Their new Income-Driven Repayment plan in particular is likely to increase borrowing, inflate tuition, encourage the creation of more low-quality programs, and distribute arbitrary windfall gains to doctors, lawyers, and other Americans with high earnings potential.”
The White House says their IDR student debt plan will cost $138 billion.
In reality, it will probably cost at least 2-3 times as much!
— Marc Goldwein (@MarcGoldwein) February 6, 2023
IDR plans cap borrower’s annual payments relative to their reported income, the report explains. Payments are generally limited to 10% of discretionary income for 20 to 25 years, however the Biden administration’s plan, which is currently undergoing public comments, would reduce the cap to 5%.
It would also raise the definition of discretionary spending from 150% to 225% above the poverty line, forgive unpaid interest and cut the 20-year forgiveness period in half for borrowers who received less than $12,000.
The CRFB argued that the administration “significantly understates the actual cost” in their breakdown, which alleges that 46% of the cost would come from increasing the discretionary spending threshold, 37% from reducing the payment cap, 9% from unpaid interest and 7% from other measures. The cost may be impacted based on the fate of Biden’s student loan forgiveness plan, which will be argued before the Supreme Court, as well as by borrower’s behaviors and by the amount of people eligible for the program.
“For starters, it assumes $430 billion of existing student debt is first cancelled under their costly, regressive, and inflationary direct debt cancellation proposal that was struck down in court and is now being reviewed by the Supreme Court,” the report reads. “The cost of the IDR plan would be higher if this debt is not cancelled as they hope.”
The administration also did not consider “behavioral effects” including “increased enrollment in IDR plans, increased enrollment in low-quality and low-value degree programs, increased borrowing, increased tuition inflation, and greater potential for abuse,” which could increase costs “tremendously,” according to the report.
“The new IDR also has more ways to auto-enroll people in,” Marc Goldwein, CRFB senior VP and senior policy director, told the Daily Caller News Foundation. “But they essentially assume that enrollment stays flat at about a third of all students, that’s just not realistic. Enrollment’s going to go way up.”
The Penn Wharton model predicts the actual rate of students enrolled in the program could be between 70 to 75%, the report reads. Goldwein said this estimate is “plausible.”
“More people are going to borrow, and they’re going to borrow more and probably tuitions are going to go up, as well,” Goldwein said. “The borrowing is going to go up. The amount of people that enrolled in IDR is going to go up and the amount of debt it applies to is probably higher. So for all those reasons, the administration is probably way, way off.”
The White House and the Department of Education did not immediately respond to the DCNF’s request for comment. The Wharton School referred the DCNF to the analysis. Student Loan Planner declined to comment.
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