Biden’s student bailout could cost taxpayers $475B: Penn University study.
The Cost of President Biden’s Student Loan Repayment Plan
A new income-based student loan repayment plan proposed by President Joe Biden could have a significant impact on college students and cost a staggering $475 billion over the next 10 years, according to the University of Pennsylvania.
The plan, known as “Saving on A Valuable Education” (SAVE), aims to reduce monthly payments on student loans based on income, eliminate payments for those earning minimum wage, and forgive all outstanding debt after 10 years of repayment, as long as the loan amount is $12,000 or less.
While the Department of Education estimates the cost of the SAVE plan to be $138 billion over a decade, the University of Pennsylvania’s Penn Wharton’s Budget Model predicts a much higher cost of $475 billion.
Of this cost, approximately $200 billion will come from reducing payments on existing student loans. Once the SAVE plan takes effect next year, the model predicts that over half of the current loan volume will switch to this new plan.
The remaining $275 billion will come from reduced payments on approximately $1 trillion in new loans that are expected to be extended over the next decade.
However, the Budget Model warns that the increased generosity of the proposed income-driven repayment plan may incentivize future student borrowers to take on more federal student loan debt, shifting the college financing pattern towards more borrowing instead of paying out-of-pocket.
The estimated cost of the SAVE plan ranges from $390.9 billion to a maximum of $558.8 billion.
The SAVE Plan
The SAVE plan was initially announced last year but was overshadowed by another plan from the Biden administration that aimed to forgive the debt of nearly 40 million student loan borrowers at a cost of $800 billion.
After the U.S. Supreme Court struck down the $800 billion plan, the White House refocused its attention on the SAVE plan. The Education Department is now promoting it as the “most affordable payment plan ever.”
Students protest the rising costs of student loans for higher education on Hollywood Boulevard in Los Angeles, Calif., on Sept. 22, 2012. (David McNew/Getty Images)
“The SAVE Plan calculates your monthly payment amount based on your income and family size. Starting this summer, if you’re making $32,800 a year or less (which is roughly $15 an hour), your monthly payment will be $0. If you’re making more than that, you will save at least $1,000 a year, compared to other IDR plans,” explains the plan.
Beginning next summer, borrowers on the SAVE plan with undergraduate loans may see their repayments reduced from 10 percent to 5 percent of their income.
Borrowers with both undergraduate and graduate loans will also benefit from the plan, but further details are yet to be announced.
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