President Biden’s new repayment plan for federal student loans will cost the government $475 billion over the next 10 years, it said. new economic forecast. The updated income-driven repayment plan would exceed the $400 billion cost of the debt forgiveness plan that the Supreme Court rejected last month.
A new repayment plan, announced last year and completed this month by the Department of Education, offers borrowers a new option to limit undergraduate loan payments to no more than 5% of a borrower’s income. After the borrower repays her 10 or 20 years (the term depends on the size of the loan), the remaining balance is forgiven.
The government, the biggest lender to Americans borrowing money for college, already offers a variety of repayment plans based on income. But the new revised plan, dubbed ‘Savings for Precious Education’ (SAVE) by the government, is far more generous. Ultimately, this means that the government, not the borrower, will pay a larger portion of the recipient’s education costs.
Economists in the Penn Wharton Budget Model, a nonpartisan research group at the University of Pennsylvania, estimate that cutting payments on the $1.6 trillion outstanding federal student loans would cost the government $200 billion. But the largest portion of the program’s costs (an estimated $275 billion) will come from the $1 trillion in new loan disbursements that the researchers expect to take place over the next decade.
Economists predicted that the majority of current and future borrowers would opt for the new SAVE payment plan. “This plan is going to have a huge impact,” said Kent Smetters, professor at Wharton University and dean of the Penn-Wharton Budget Model.
His team’s predictions are $156 billion The Ministry of Education estimates that the plan will take the next 10 years. Part of the gap, Mr. Smetters said, is that the Department of Education’s estimates factor in the impact of Biden’s debt forgiveness plan before the Supreme Court eliminates it. Penn Wharton’s model was not.
White House press secretary Carine Jean-Pierre defended the costs of the plan at a news conference Monday after the release of new economic forecasts. “We can afford to give middle-class Americans and middle-class families a little breathing room,” she says.
The 45 million student loan borrowers owe the government money, but virtually all have suspended payments due to the pandemic relief measures launched by the Trump administration in March 2020 and repeatedly extended by the Biden administration. there is After more than three years, the suspension is over and payments are due to resume in October.
The Biden administration is scrambling to implement as much of the new SAVE plan as possible before borrowers’ billing deadlines. But the process will be complicated and piecemeal. The centerpiece of the plan is to reduce undergraduate loan payments to 5% of a borrower’s income, down from 10% under previous income-focused schemes. Not effective until July 2024.
Conservative groups and Republican lawmakers strongly criticized the new plan. Rep. Virginia Fox, a North Carolina Republican who heads the House Education and Labor Committee, said it was “nothing more than a back door attempt by the statutory administration to provide free college.”
So far, however, there have been no legal issues. The basis for this plan is the Higher Education Act of 1965, which gives the Department of Education broad powers over loan repayment plans. In contrast, the Supreme Court’s voided debt forgiveness plan relied on the Heroes Act, which gives the secretary of education greater powers only in the event of a “national emergency” when the government declared a coronavirus pandemic.
More broadly, legal bodies wishing to challenge the plan have had trouble finding political parties with the legal standing to do so. The Pacific Law Foundation, which has backed several lawsuits against Mr. Biden’s student-debt plan, said it wants to sue the new plan but sees major obstacles.
“You’ll have to prove that you’ve been harmed by a grant or a more generous loan forgiveness program,” said Caleb Crackenberg, an attorney at the foundation. “It’s not enough to say that I’m concerned that the government is using my tax dollars this way. It’s a really small world.”
Bharat Ramamurti, Deputy Director General of the National Economic Council, said the Ministry of Education’s mandate to implement the SAVE plan was “quite clear”, adding: “If there were any legal challenge, frankly I would You will be surprised,” he added.
After the Supreme Court scrapped Mr. Biden’s debt cancellation plan, the administration said it would try again with some form of mass relief effort, this time using the Higher Education Act of 1965. This approach requires a lengthy rulemaking process. The Ministry of Education formally launched the process this month.
But Crackenberg sees the SAVE plan, which the administration laid the groundwork for last year, as a covert move toward similar ends.
“I think this is kind of Plan B for the administration,” he said. “They were using this process out of the idea that if canceling the loan didn’t work, if it really didn’t work out, they could use this as a backup and thereby achieve a lot, maybe all, of what they wanted. I think I started “it forever.” ”