President Joe Biden’s plan to erase student debt and modify payments for millions of Americans could cost as much as $1 trillion, according to budget analysts.
The Wall Street Journal reported Monday that analysts’ forecasts for the student loan plan challenge the administration’s efforts to reduce the federal deficit.
Biden on Aug. 24 said the U.S. government will forgive $10,000 in student loans for many debt-saddled college graduates, a move that could boost support for his fellow Democrats in the November congressional elections but also might fuel inflation.
The Penn Wharton Budget Model, frequently cited by policy makers, said the price tag for the student loan program could reach $1 trillion. Other analysts say the bill could be nearly $500 billion.
The Wharton model says the debt-cancelation portion alone could cost more than $500 billion.
Despite the uncertainty and complexity of projecting the student-loan portfolio’s performance, analysts expect strong interest in debt cancelation and in programs that allow borrowers to pay less to keep up with their loans.
“The expected popularity of the policy could drive up costs and raise questions about whether the expense can be offset by other Biden administration policies, as the White House says,” WSJ reported.
The White House has said the debt-cancelation would reduce revenue the government receives from student-loan payments by about $240 billion over a decade.
The Biden administration, which hasn’t proposed to raise taxes to offset costs of the program, insists the debt-forgiveness portion is paid for through the reduction in the federal deficit that has occurred this fiscal year.
Some analysts disagree.
“This action by the president will make the deficit bigger than it would be otherwise,” Douglas Elmendorf, who served as director of the nonpartisan Congressional Budget Office during the Obama administration, told WSJ.
Budget analysts also say the administration might be underestimating how many borrowers will enroll in the program, and add that the White House projection of 75% enrollment is too low.
“There’s no downside — we expect compliance to be very high,” Kent Smetters, director of the Wharton model, told WSJ. “It really just depends how easy they make it to apply.”
Analysts also say the White House’s use of projected declines in the deficit as a means of justifying the costs of the debt-relief provisions in the program deviates from what it usually means for government spending to be “paid for,” WSJ reported.
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