The pause disproportionately benefits borrowers in higher-paid professions because people in those professions tend to borrow more and pay higher interest rates. The administration planned to forgive up to $10,000 of . We estimate this will cost between $330 billion and $390 billion, with a central estimate of $360 billion. Student Loan Pause Could Cost $275 Billion, Committee for a Responsible Federal Budget, Interest Costs Will Grow the Fastest Over the Next 30 Years, IRA Energy Provisions Could Cost Two-Thirds More Than Originally Estimated, CBO: Social Security is Ten Years from Insolvency, CRFB Reaction to Supreme Court Student Debt Cancellation Ruling, Maya MacGuineas on Bloomberg's "Balance of Power", student-loan-pause-could-cost-275-billion. Note: (11/22/2022): The Department of Educationannounced it would extend the pause to the sooner of 60 days after resolution of the student debt cancellation litigation or 60 days after June 30, 2023 (which would be the end of August, based on our understanding). So, if you have a student loan, youre probably wondering what all of this means for you. This shows that debt cancellation disproportionately benefits white, wealthier households because those are the people most likely to owe and be paying down their debt. Extending the repayment pause further will cost an additional $50 billion per year, and policymakers should reject calls to do so. Thats clearly wrong, yet advocates for debt forgiveness make the same mistake, arguing that recent college graduates with student debt have negative wealth and are thus worse off than otherwise similar Americans who have not gone to college. The first is that student debt is highly concentrated among high lifetime wealth White non-Hispanic households. For example, doubling the Pell Grant and/or forgiving debt based on someones Pell status while in school is significantly more progressive and does more to help reduce the racial wealth gap. Who owes all that student debt, and whod benefit if it were forgiven? By Kelley R. Taylor More fundamentally, the claim that the changes will be disinflationary relies on a baseline trick and an invalid comparison. What Does Student Debt Cancellation Mean for Federal Finances? Overall, we estimate the equivalent of $5,500 per borrower will have been cancelled by the scheduled end of the student loan payment pause on May 1, at a cost of more than $100 billion. Last updated 29 March 23. Putting student loan forgiveness in perspective: How costly is it and who benefits? Memo to Senator Warren on Legal Authority of Debt Cancellation Through Executive Action, New Study Finds Student Loan Pause is Regressive. This will lower the amount owed per month for all borrowers in IDRand reduce many lower-income borrowers payments to $0. Committee for a Responsible Federal Budget, Biden IDR Plan Will Cost More than Advertised, Student Loan Pause Could Cost $275 Billion, Student Debt Cancellation Is Not Financially Justified, Ending the Student Debt Pause in January is a Cost, Not an Offset, Student Debt Changes Would Boost Inflation, New Student Debt Changes Will Cost Half a Trillion Dollars, Latest Student Debt Payment Pause Brings Total Cost to $155 Billion, Cancelling Student Debt Would Undermine Inflation Reduction Act, Extending the Student Loan Payment Pause is Bad Policy, Rumored Student Loan Cancellation Would Cost $230 Billion, How Much Student Debt Has Already Been Cancelled, Cancelling Student Debt Would Add to Inflation. The Biden Administrations failure to release their own cost estimate should have been a red flag. The Biden Administration also announced an extension of the moratorium on student loan repayments for an additional four months, through the end of December. A typical medical student leaves school with $265,000 of debt, compared to $31,000 for someone with a bachelors degree and $13,000 for someone who left school without completing a degree.2 That higher debt, of course, comes with higher earning potential. According to the Congressional Budget Offices (CBO) long-term baseline, federal spending as a percentage of Gross Domestic Product (GDP) will grow to 29.1 percent over the next three decades. We are currently in the process of estimating the inflationary effect of the announced Biden cancellation plan. Means-Testing Student Debt Cancellation is Still Costly and Regressive We believe the Supreme Court got it completely wrong. Borrowers were also told at that time that they could opt out of student loan forgiveness if they wanted to. Within 45 days, we're going to have guidance for college presidents. By Erin Bendig Right now, the economy is operating above potential, with demand far outstripping supply and increasing inflation. That means for every dollar spent on cancellation, it would put eight to 23 cents back into the economy, which is a very low amount compared to other stimulus policies. Only households earning less than $250,000 per year (or $125,000 for an individual) will be eligible. Profit and prosper with the best of expert advice - straight to your e-mail. Is Biden's Student Debt Cancellation Plan Still Regressive. They also argued that student loan forgiveness would create an unfair benefit and harm some states, and a major student loan servicer. We're going to do a national convening, a national summit on education opportunity at the Department of Education, and then we're going to publish best practices so that college presidents and board of trustees can learn from one another on how to maintain a diverse student body. The estimated costs of the three major federal student debt cancellation proposals are: The estimated costs of cancelling $10,000 and $50,000 of debt are lower than the total amount of debt being cancelled. The Biden Administration says this is the final time the pause will be extended. The debt cancellation and pause alone will cost$420 billion a bit more than we previously thoughtand costs could reach $510 to $610 billion with their IDR changes. How to Qualify for Public Student Loan Forgiveness. Recently, Adam Looney, Executive Director of the Marriner S. Eccles Institute at the University of Utah and a Nonresident Senior Fellow in Economic Studies at the Brookings Institution, published areportandfollow-up FAQshowing that student loan cancellation is regressive even if measured by wealth and that debt cancellation is not an effective policy for reducing the racial wealth gap. Under CBO's 2023 Committee for a Responsible Federal Budget, All rights reserved. To the extent that some borrowers are still struggling to afford loan repayment, there are a multitude of income-based repayment options available to help. But . Under CBO's 2023 Committee for a Responsible Federal Budget, All rights reserved. Extrapolating from CRFB data, an average 2019 medical school and law school diplomate on the 25-year plan will receive $80,000 and $47,000 respectively in effective debt forgiveness compared with . As Looney argues: Excluding the value of education from a calculation of net worth while including debt used to finance that education is like measuring a homeowners wealth by subtracting their mortgage but ignoring the value of the home itself. 3 The disparity in benefits from the repayment pause would likely be even greater than this suggests, since borrowers with larger levels of debt tend to pay off their debts over longer periods of time. While that plan is gone now, its important to know that some reductions in student payments could still come as a result of changes the Biden administration is making to income-driven repayment plans for example. Then, due to a debt limit agreement in Congress in June, payments are now required to resume. New Student Debt Changes Will Cost Half a Trillion Dollars So, it doesn't touch the intent. The student debt cancellation proposals that have previously been analyzed are regressive because they provide a disproportionate benefit to higher income and wealthier households. Today, the Congressional Budget Office (CBO) estimated that the Administrations proposal to cancel up to $10,000 or $20,000 of debt per student loan borrower and extend the current pause would cost$420 billion slightly higher thanour preliminary combined estimatesof $350 to $410 billion. Student debt cancellation has gained attention in recent years as a policy proposal to address rising student debt levels in the United States. The Congressional Budget Office (CBO) recently published detailed long-term projections for Social Security that project the financial outlook for the program over the next 75 years. Some of the more than 40 million student loan borrowers were excited to learn last year of President Biden's student loan forgiveness plan. Note (9/26/2022): The Congressional Budget Office (CBO) has released an estimate that debt cancellation will cost $400 billion. But the direction is indisputable the plan will add to overall inflationary pressures and thus make the Fed's job of wringing out inflation without causing recession even more challenging. Thats because the federal government already expects some of that debt to be forgiven, and so it doesnt count it as a cost to cancel the debt. The people with the highest levels of debt and the highest monthly loan payments tend to be those with the highest earning potential. The Department's on-ramp to repayment will span Oct. 1, 2023 to Sept. 30, 2024, when "financially vulnerable" borrowers who miss payments will not be reported to credit bureaus or have their loans . For $50,000 in cancellation, our central estimate was 0.10x, and for $10,000 in cancellation, our central estimate was 0.13x. Published 16 March 23. The Supreme Court made the 6-3 decision . Committee for a Responsible Federal Budget, CRFB Reaction to Supreme Court Student Debt Cancellation Ruling, Senators Introduce Thoughtful Higher Education Package, Student Debt Cancellation Should Be Repealed, Goldwein Testimony Highlights $970 Billion in Student Loan Cancellation, Marc Goldwein's House Testimony on Biden's Student Loan Policies, Watch: Committee Senior Vice President Testifies to House Higher Education Subcommittee, New CBO Estimate Should Send IDR Plan Back to Drawing Board, Biden IDR Plan Will Cost More than Advertised, New Study Finds Student Loan Pause is Regressive, Student Loan Pause Could Cost $275 Billion, Student Debt Cancellation is Not Financially Justified. Published 6 July 23. Under CBO's 2023 Committee for a Responsible Federal Budget, All rights reserved. As CBOs estimates help confirm, the Presidents student debt plan would wipe out the ten-year savings from the Inflation Reduction Act twice over, worsen inflationary pressures, and deliver benefits to millions of Americans with advanced degrees in upper-income households. When measured by income, the previously debated debt cancellation proposals gave a much higher proportion of its benefit to top earners. A year-long extension of the pause would add 15 to 20 basis points to the inflation rate. This four-month payment pause extension will add $20 billion to the deficit. Higher interest rates, however, have significant economic consequences. President Joe Biden's student loans forgiveness plan promises relief to tens of millions of borrowers saddled with education debt. For example, if a borrower was beginning their ninth year of repayment when the pause started and thus is in their ninth year in their field, they could easily be earning $80,000 per year, which means they would have owed $6,000 per year. We released an updated version of this analysis,available here, which updates the estimated cost of the pause and distributional effects through December 2022, in light of the Biden Administration's latest extension of the pause. Supreme Court Rejects Biden's Student Loan Forgiveness Plan At least some versions includebothstudent loans issued by the federal government and loans issued privately by banks. Cancelling $50,000 of debt per borrower would wipe out $1 trillion worth of debt. The original plan was to provide debt relief to millions of borrowers by forgiving up to $10,000 of student loan debt for eligible borrowers, and up to $20,000 in student loan debt for Pell Grant recipients. The Congressional Budget Office (CBO) recently published detailed long-term projections for Social Security that project the financial outlook for the program over the next 75 years. Cancelling student debt is a very ineffective way to stimulate the economy. Supreme Court blocks Biden's student loan forgiveness program Cancelling all federal student loan debt would wipe out all $1.6 trillion of student debt for the 43 million borrowers that have it. A one-time adjustment currently allows borrowers who consolidate their loans before the end of 2023 to receive credit toward IDR or Public Service Loan Forgiveness if they're on either track. Under CBO's 2023 Committee for a Responsible Federal Budget, All rights reserved. However, the Supreme Court ruled on June 30, that the Biden administration didn't have the authority, without Congressional approval, to enact sweeping federal student loan forgiveness. According to the Congressional Budget Offices (CBO) long-term baseline, federal spending as a percentage of Gross Domestic Product (GDP) will grow to 29.1 percent over the next three decades. In fact, a recent Brookings paper on the topic shows that the top 20 percent of white non-Hispanic households by lifetime wealth hold 25 percent of all student debt and hold more student debt than all Black/African American households combined. Using new information from CBO and the Biden Administration, we now estimate the total cost of President Biden's announced changes will cost between $500 billion and $650 billion. This interview has been lightly edited for clarity. Ultimately, continuing the pause would be expensive, regressive, inflationary, and unjustified. And the team that's trying to block them have received millions in debt forgiveness themselves. What about private student loans? The Congressional Budget Office (CBO) recently published detailed long-term projections for Social Security that project the financial outlook for the program over the next 75 years. In a stinging defeat for President Joe Biden, the Supreme Court blocked the administration's student loan forgiveness plan Friday, rejecting a program aimed at delivering up to $20,000 of relief . We previously estimated that cancelling the entire portfolio would increase Personal Consumption Expenditure (PCE) inflation somewhere between 10 to 50 basis points -- likely closer to 50. Restricted stock units, not to be confused with stock options, have become a popular way for companies to incentivize top talent to stick around. The Congressional Budget Office (CBO) recently published detailed long-term projections for Social Security that project the financial outlook for the program over the next 75 years. The Supreme Court said it is unconstitutional for elite universities to use race as a factor in choosing which students to admit. So it was a tool, meaning using race when all things are equal. Different analysts may disagree on the magnitude of the inflationary effect of the President's debt cancellation proposal. It's Time to Wind Down the Student Loan Moratorium Although cancellation is limited to those with family incomes making less than $250,000 (or $125,000 for individuals), it is based on 2020 or 2021 income and few new doctors and lawyers made about this amount when in school, residency, or early in their careers. It will cancel about $525 billion of student debt. Looney also shows that loan forgiveness would basically leave the racial wealth gap unchanged, and notes two particularly interesting issues.