According to a budget model developed by the University of Pennsylvania, President Joe Biden’s new student loan forgiveness plan will cost tens of billions of dollars to implement, in addition to the hundreds of billions already planned to handle millions of Americans’ student debts.
On Monday, Biden announced his newest student loan forgiveness initiative, which aims to wipe all the loans of more than four million Americans and erase at least $5,000 for more than ten million. According to the Penn Wharton Budget Model, the plan will cost taxpayers around $84 billion in addition to the $475 billion that the administration is slated to spend over the next 10 years on previously announced student loan forgiveness programs.
The model estimates that the suspension of accrued and capitalized interest for millions of borrowers accounts for approximately $58 billion of the estimated cost. Another $19 billion will be used to eliminate student debt for Americans who have been in repayment for 20 years or longer, while another $7 billion would be spent to assist borrowers who have had difficulty repaying their loans.
The model estimates that the average household income for borrowers who will have their interest waived is $82,019.96 per year. The average annual family income of those who will have their school debt paid off after 20 years or more of repayment is $312,976.57.
The model predicts that about 17.2 million people will obtain debt relief under the new plan, which is lower than the Biden administration’s estimate of 25 to 30 million due to many people already benefiting from pre-existing student loan forgiveness programs.
The Supreme Court ruled in June 2023 that Biden’s earlier attempt to eliminate student loans was unconstitutional, concluding that the president has the authority to cancel student debt.
After failing to pass the president’s original plan, the Biden administration stated that it would use the Higher Education Act and an extension of income-based repayment schemes to eliminate many Americans’ student debt. Since then, the Biden administration has launched many new attempts to eliminate student debt, circumventing the Supreme Court’s decision.
Following Monday’s announcement, seven Republican attorneys general filed a lawsuit against the new plan, claiming that the president has the right to unilaterally eliminate student loan debt.
The federal government has roughly $34.6 trillion in debt as of Tuesday, according to the Treasury.