- President Joe Biden’s plan to cancel chunks of federal student loan debt will cost between $469 billion and $519 billion over 10 years, according to estimates released Friday by the Penn Wharton Budget Model, a research organization at the University of Pennsylvania.
- Three-quarters of the benefits of debt forgiveness will go to households earning $88,000 or less per year, the estimates found.
- Other changes Biden announced Wednesday add to the price tag. An extension of a pandemic pause on loan payment and interest through December will cost $16 billion. And a 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 — although it could cost far more.
Biden said he is canceling up to $10,000 for most borrowers, or up to $20,000 for borrowers who received federal Pell Grants, which generally go to those from low- and moderate-income households. His plan includes an income cap, meaning it is not available to individuals earning over $125,000 a year or families filing joint tax returns who make more than $250,000 annually.
Those plans drew support from the higher education sector but sparked criticism from some economists. Worries include that it sends benefits to high earners who could afford to pay their debts and sets an expectation for future loan forgiveness that could artificially drive up demand for higher education.
Shortly before Biden announced the plans, the Penn Wharton Budget Model estimated federal student loan forgiveness would cost between $300 billion and $980 billion over 10 years, depending on specifics to be determined. Friday’s estimates update those figures based on new details from the Biden administration.
Including the federal loan cancellation, the extended repayment pause and income-driven repayment changes, Biden’s plans carry a total price tag of $605 billion to $1 trillion over the next decade, researchers found.
Much of the variance comes from uncertainty surrounding income-driven repayment plan changes. The price tag for those changes could swell from $70 billion to $450 billion or more, researchers estimated.
The changes to income-driven repayment could draw more people to those repayment plans, for example.
“Even many borrowers who anticipate not being qualified in future years would typically be better off enrolling in the intermediate years in which they are qualified,” they wrote. “There would also be financial incentives for future borrowers to shift education financing toward more borrowing to take advantage of the 5% repayment threshold.”
They called for future analysis because borrower behavior is uncertain.