The Biden administration’s latest plan to reform student loan repayments could cost $230 billion over a ten-year span, the Congressional Budget Office (CBO) estimated on Monday.
The new income-driven repayment (IDR) plan seeks to lower monthly payments for low- and middle-class borrowers by slashing in half the percentage borrowers pay per month based on their income, ensuring single borrowers making less than $15 per hour do not have to make a monthly repayment, waiving unpaid debt after 10 years and covering unpaid monthly interest, according to the Federal Student Aid office. The plan could increase the cost of outstanding student loans by $76 billion while the cost of new loans could increase by $154 billion during this time, the CBO estimated. (RELATED: Biden’s Latest Student Loan Gambit Will Cost More Than Twice The Amount His Admin Estimated, Study Finds)
The total predicted cost depends on the Supreme Court’s upcoming decision on whether the Biden administration’s plan to cancel up to $20,000 for Pell Grant recipients in student loan debt is constitutional, the letter reads. If the court rules against the administration, the total cost could amount to $276 billion as another $46 billion in outstanding loans would be added in 2023.
The findings were provided in a Monday letter to Republican North Carolina Rep. Virginia Foxx, who serves as chairwoman of the Committee on Education and the Workforce, and Republican Louisiana Sen. William Cassidy, who is the Committee on Health, Education, Labor, and Pensions ranking member. Foxx and Cassidy, alongside 67 other lawmakers, urged President Joe Biden to abandon the proposal in February, according to a press release.
“These student loan schemes do not cancel debt, they just transfer it from those who chose to take out loans to those who did not,” Cassidy said in a statement sent to the Daily Caller News Foundation. “President Biden’s IDR rule is not only irresponsible but deeply unfair to those who chose not to go to college or sacrificed to pay off their loans and will now have to foot the bill.”
The proposal “is a responsible change to support borrowers’ progress toward forgiveness and will grow our economy by giving them a better shot at buying a home, saving for retirement, or starting a business,” a DOE spokesperson told the DCNF.
“The proposed plan would cut monthly payments in half for undergraduate borrowers from low- and middle-income families all while the Biden-Harris Administration is reducing the deficit at record levels,” the spokesperson said. “The same can’t be said for Republican officials who racked up the deficit through a $2 trillion tax giveaway for the ultra-wealthy.”
CBO estimates that implementing the Administration’s proposed rule for a new income-driven repayment plan would increase the government’s costs for federal student loans originated through 2033 by $230 billion, on a net-present-value basis. https://t.co/tsjx2hxphQ
— U.S. CBO (@USCBO) March 14, 2023
The plan is “nothing more than a backdoor attempt to provide free college by executive fiat,” Foxx told the DCNF.
“Transferring $230 billion from borrowers who willingly took out debt to taxpayers who did not is fiscally irresponsible and morally reprehensible,” she said. “Make no mistake, I soundly reject this illegal abuse of power.”
The CBO estimated that the students would borrow more loans because of the plan’s “generous terms,” according to its letter.
“CBO estimates that under the proposed IDR plan, by fiscal year 2027 the total volume of student borrowing would rise by about 12 percent annually (or about $10 billion) above the amounts in the February 2023 baseline. That represents an increase of about 15 percent in undergraduate borrowing and about 10 percent in graduate borrowing,” it wrote.
The DOE estimated that the plan would cost nearly $138 billion between 2023 and 2032, according to the Federal Register. It estimated a $77 billion increase for outstanding loans and $61 billion for new loans during the time span.
The differences between the DOE and CBO estimates result from “the department’s assumptions that there would be no increase in enrollment in the proposed IDR plan among current or future borrowers and no increase in borrowing among eligible students in the future,” according to the letter. The CBO also established an 11-year baseline for its projections.
The CBO declined to comment.
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