WASHINGTON — The White House said Friday that President Joe Biden’s move to cancel student loan debt for millions of borrowers will cost the federal government $240 billion over the next decade, after declining to provide a cost estimate earlier in the week.
But other outside analysts said the price tag is much higher — especially when factoring in a new income-based loan repayment model outlined by the president.
The Biden administration projects that the move to cancel up to $20,000 of student loan debt for Pell Grant recipients and $10,000 for other borrowers will reduce loan payments collected by the government by an average of $24 billion annually over 10 years, he said Bharat Ramamurti, Deputy. director of the National Economic Council.
The estimate, which the White House declined to make immediately after Biden’s announcement Wednesday on student loans, comes as Republicans attacked the actions as an unfunded “bailout” of wealthy students at the expense of Americans without college degrees.
More: ‘Debt and no degree’: Biden cancels up to $20K in student loan debt: Recap
The White House forecast is based on the assumption that 75% of eligible Americans with federal student loan debt participate, which matches the ratio of similar federal programs. Borrowers will need to submit forms proving their eligibility for debt cancellation.
Ramamurti said the $24 billion a year represents just 1.5 percent of the government’s projected $1.7 trillion deficit reduction for the current fiscal year. As a result, he said the White House considers the plan “fully paid for.”
“It’s paid off and far more than the amount of deficit reduction we’re already on track for this year,” Ramamurti said. “We’re using a portion of that — a very small portion of it — to provide relief to middle-class families.”
An official budget “score” – or projection – is expected from the Department of Education and the Office of Budget Management in the coming weeks.
The Wharton School of the University of Pennsylvania published an analysis that had very different findings. Biden’s debt write-off alone would cost as much as $519 billion over 10 years, the study found, and the total cost could rise to more than $1 trillion when you factor in other Biden items, such as new loan payments based on income.
Ramamurti rejected those findings, noting that Penn Wharton’s analysis assumes 100 percent participation and does not account for millions of borrowers in default who have not paid the government. He said the $450 billion plus additional costs associated in the study with new income-based repayments, such as capping payments at 5 percent of a borrower’s income, were “speculative.”
The nonprofit Committee for a Responsible Federal Budget estimated a total cost of $500 billion that includes $360 billion for debt relief, $120 billion for income-based loan repayments and $20 billion for extending the pandemic moratorium on payments until December 31.
The White House has argued that resuming student loan payments after the moratorium ends would offset the risk of worsening 40-year high inflation. Ramamootri said ending the moratorium would increase loan repayments to the government by about $48 billion a year. Monthly loan repayments to the government fell from $6 billion to $2 billion during the two-year payment freeze
More than 43 million Americans have federal student loan debt. To get relief under Biden’s action, borrowers must earn less than $125,000 a year and live in households earning less than $250,000. The majority of eligible borrowers are recipients of Pell grants, which are aimed at low-income students.
More: Biden’s student debt relief is a potential midterm boon for Democrats — and a big gamble
About 90 percent of borrowers who would receive student loan debt relief under Biden’s plan earn less than $75,000, according to White House projections. The Penn Wharton Budget Model found that a smaller percentage, 75 percent, of the benefit would go to borrowers earning $88,000 or less.
Part of the challenge in estimating the cost of the relief program comes from the fact that it is not clear how many people will apply for relief.
The White House estimate of 75 percent seemed accurate to Charlie Eaton, a sociology professor who studies higher education and who recently analyzed who might benefit from the program with the Student Borrower Protection Center, a borrower advocacy group. Income-based repayment plans, Eaton said, are a close analogue of the administration’s approach to extended student loan debt relief, and about 60 percent of eligible borrowers enroll in these programs.
“As a rule of thumb, it makes sense for the uptake to be higher than that because this is higher profile,” he said. “The department said it would be simpler, but it won’t be universal.”
Some borrowers may also have their debt completely eliminated with different relief programs, such as the Public Service Loan Forgiveness Program. The Department of Education has waived some of the program’s requirements through Oct. 31 and is encouraging eligible borrowers to apply.
More: Am I eligible for student loan forgiveness? What you need to know about Biden’s debt plan.
And the federal government’s estimate of how much money student loans make or lose can change over time. A July report from the Government Accountability Office found that the Department of Education is expected to lose about $200 billion in government-issued student loans over the past 25 years.
The Education Department previously estimated it would have $115 billion for the loans, but the accountability office said changes to the program, including a freeze on student loan payments, increased costs. It also said changes in borrowers’ income could affect the amount the government receives.
Chris Quintana contributed to this story.
Reach Joey Garrison on Twitter @joeygarrison.
This article originally appeared on USA TODAY: Student Loan Debt Cancellation: White House Plans $240 Billion Cost