Proposed Student Loan Rule Is Costly and Flawed

Today, the Department of Education released a proposed rule to create a new and highly problematic income-driven repayment (IDR) plan for federal student loans. The Administration estimated their IDR plan will cost $138 billion; we believe it could cost much more if behavioral effects are more fully incorporated. Assuming the courts find the debt cancellation proposal to be legal, this means the President’s student debt proposals and actions since August 2022 would increase deficits by at least $600 billion over a decade.

The IDR plan would also drive-up tuition costs, expand student debt borrowing, encourage enrollment in low-value degrees, help many financially stable households avoid paying back their debt, and provide huge windfalls to doctors, lawyers, and other borrowers with large balances and high expected lifetime income.

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

Between the IDR changes, the extended pause and blanket cancellation, it now looks like the Biden Administration’s student debt proposals could cost $600 billion, or perhaps even more. This is not what the economy or the budget needs right now.

In addition to worsening deficits, the Administration’s student debt plan will stoke more inflation, increase recession risk, raise the cost of college, and deliver costly benefits to highly educated households who will be – or already are – near the top of the income spectrum.

Today’s IDR rule risks transforming the student loan system into an arbitrary grant program that creates more confusion than cohesion and establishes a series of perverse incentives that lead students to take out large sums of debt and colleges to charge increasingly exorbitant tuitions. Doctors, lawyers, and other high-income professionals will benefit by much of their interest payments being cancelled early in their career.

The idea of strengthening and reforming the IDR program is a good one, but the specifics of this proposal are a costly mess.

The Administration should abandon their unilateral effort to remake higher education financing, and instead work with Congress on a thoughtful package of reforms that truly address college costs and value.  At minimum, they should dramatically scale back and improve their new proposal, for example by limiting all changes to undergraduates and re-thinking interest cancellation rules. They should also ensure the rule as a whole is fully paid for, so as not to worsen the national debt.

With inflation at a 40-year high and debt approaching record levels, it is governing malpractice to continue adding to deficits – especially by executive fiat.


For more information, please contact Kim McIntyre, Director of Media Relations, at