Debt Cancellation Plan Is Costly, Inflationary, and Cynical
Today President Biden announced his plan to cancel $10,000 per borrower of student debt by executive action for households who make less than $250,000 in income (and individuals who made less than $125,000) plus up to $20,000 for Pell Grant recipients while extending the current repayment pause until December 31st. The plan also creates a new Income-Driven Repayment plan that cuts in half the required payments for undergraduate student loans and significantly reduces payments for all borrowers by making changes to the formula that determines the amount owed per month. The new repayment plan will also forgive smaller debt levels after ten years of payments.
The changes proposed today will likely cost an astronomical $400-$600 billion. Prior to the announcement, the last two Administrations and Congresses had already spent roughly $300 billion to pause repayments for 29 months and enact a variety of other changes to the student loan system. Including today’s announcement, policymakers will have spent between $700-900 billion on student debt cancellation and relief since the start of the pandemic.
The following is a statement from Maya MacGuineas, president of the Committee for a Responsible Federal Budget:
This announcement is gallingly reckless – with the national debt approaching record levels and inflation surging, it will make both worse. Policymakers have already spent $300 billion on student debt relief—none of it paid for, and this would add another $400 to $600 billion, again, none of it paid for. This action by the White House is completely at odds with their talk of deficit reduction. It could add twice as much to the deficit as was just saved from the Inflation Reduction Act, completely eliminating any deficit reduction and then some. With the stroke of a pen, the President undid a year's worth of work on the fiscal front.
The cost of college is absolutely a huge problem in America that should be addressed. But forgiving $10,000 to $20,000 per person is costly and appears to be more of a political stunt than anything close to good policy. It would do nothing to actually make education more affordable, and if anything, this policy will drive up tuition costs while raising prices on a variety of other goods and services for ordinary Americans.
The President should be focusing on a serious and effective policy agenda that involves reducing deficits, fighting inflation, and making higher education more affordable. Debt cancellation and never-ending payment pauses do exactly the opposite.
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