President Joe Biden has some good news if you’re under the weight of student loan debt.
On Wednesday, Biden announced a major student loan forgiveness plan. For borrowers making less than $125,000 a year or families making less than $250,000, his administration will cancel up to $10,000 of federal student loan debt per person.
For low-income students who borrowed money under the Pell Grant program, the Biden administration would forgive up to $20,000 of federal student loan debt per person.
“In keeping with my campaign promise, my administration is announcing a plan to give working and middle-class families breathing room as they prepare to resume federal student loan payments in January 2023,” President Biden tweeted Wednesday. .
Of course, you can’t just “magically” eliminate debt.
How much would it cost?
According to the University of Pennsylvania’s Wharton Budget Model, the one-time maximum debt forgiveness of $10,000 per borrower — for those earning $125,000 a year or less — would cost $329.1 billion over a 10-year budget period.
The study finds that between 69% and 73% of the debt written off in this model scenario would go to households in the top 60% of the US income distribution.
The National Taxpayers Association Foundation also crunched some numbers. Based on a total of just under 158 million U.S. taxpayers in 2019, the foundation says the plan would cost $2,085.59 per taxpayer.
“There’s a wealth transfer from society at large to people who borrowed to go to college right now,” says Andrew Lautz, director of federal policy at the National Taxpayers Association. “This has consequences for consumers. It has consequences for taxpayers.”
Note that these estimates are based on the $10,000 forgiveness model and do not include Biden’s $20,000 forgiveness for Pell Grant borrowers. If you take the latter into account, the burden on taxpayers would increase further.
“It will increase the cost or budget impact of the policy overall,” says Lautz.
Concerns about fairness
The plan also raises questions about fairness: You have to go to college to get a student loan in the first place, and not everyone is lucky enough to go to college.
Representative Tim Ryan, the Democratic candidate for the US Senate in Ohio, is one of the critics.
“Debt waivers for those already on a path to financial security send the wrong message to the millions of Ohioans without a degree to work just as hard to make ends meet,” Ryan said in a statement.
“Instead of forgiving student loans for six-figure earners, we should be working to level the playing field for all Americans.”
Debt is a big problem for Americans — and the Fed’s hawkish stance isn’t helping.
To tame explosive inflation, the US central bank is aggressively raising interest rates. For borrowers, that means payments go up.
While Biden’s student loan forgiveness may help ease the burden for some, it comes at a cost to taxpayers and won’t solve the debt problem for everyone.
The solution? Work as hard as you can, save as much as you can and be as frugal as you can. This is what helped people survive the 1980s – a decade marked by multiple recessions and double-digit interest rates.
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