CRFB Reacts to President Biden’s Student Loan Plan

President Biden today announced a new student debt cancellation plan. Specifically, the plan would cancel up to $20,000 of accrued interest for certain borrowers whose balances have grown over time, cancel all debt for borrowers who have been paying for over 20 years (25 years for graduate debt), automatically cancel debt for those eligible for but not enrolled in various forgiveness programs, and offer additional targeted student debt relief. President Biden will introduce the plan as a proposed rule, which means it would be implemented without Congressional action but must first go through the full rulemaking process.

Although we have not estimated the cost of this new proposal, the Administration’s previous debt cancellation effort – which was ruled illegal by the courts – would have cost about $400 billion while also putting upward pressure on inflation and interest rates.

The following is a statement from Maya MacGuineas, president of the Committee for a Responsible Federal Budget:

You can’t solve a very real debt problem by issuing more debt. The President’s previous student loan cancellation plan was expensive, inflationary, poorly targeted, and would have boosted rather than reduced tuitions. This plan similarly misses the mark.

When the Supreme Court overturned the President’s previous attempt at unilateral debt cancellation, they made it clear that the law just doesn’t justify attempts to make this kind of massive policy change without Congressional input. Rather than going back to the drawing board and working with lawmakers to put in place reforms that reduce costs, improve quality, and increase accountability, the Administration is choosing an end run around the normal process once again.

This new plan will cost tens of billions of dollars at a time when we should be working to reduce the debt, and by worsening inflationary pressures it’s likely to lead the Fed to keep interest rates higher for longer.

The President has already spent about $600 billion on debt cancellation – which is as much as the federal government is slated to spend on K-12 education for the next decade and more than double the cost of his budget’s proposal to offer free community college, expand Pell Grants, and increase other higher education funding. The White House should turn its attention to working with Congress to actually pass structural reforms that get to the root of the problem and are fully paid for. 

This plan completely violates the administrative pay-as-you-go requirement put in place by last summer’s Fiscal Responsibility Act. That provision was put in place to require any significant regulations from adding to deficits, but the Administration has abused its ability to waive these requirements – which is intended only for regulations that are “necessary for the delivery of essential services” or “necessary for effective program delivery.”

The President and his Administration should abandon these efforts and instead work with Congress on reforms that actually fix the student loan program and address the high cost of higher education. 


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