President Biden’s new repayment plan for federal student loans would cost the government $475 billion over the next decade. a new economic launch, The updated income-driven repayment plan would exceed the $400 billion cost of the debt forgiveness plan that the Supreme Court rejected last month.
The new repayment plan, announced last year by the Department of Education and completed this month, gives borrowers a new option that limits payments for graduate loans to no more than 5 percent of a borrower’s income. After a borrower has made payments for 10 or 20 years (the term depends on the size of the loan), any remaining balance will be forgiven.
The government — the largest lender to Americans who borrow to pay for college — already offers a variety of income-based repayment plans. But a new and revised plan, which the administration has called Savings on a Valuable Education, or SAVE, is much more generous. This means that the government, not the borrower, will ultimately pay a large portion of the recipients’ educational costs.
Economists at the University of Pennsylvania’s Penn Wharton Budget Model, a nonpartisan research group, estimate that cutting payments on $1.6 trillion in outstanding federal student loans would cost the government $200 billion. But the largest portion of the program’s cost — an estimated $275 billion — will come from lower payments on the $1 trillion in new loans the researchers expect to be made over the next decade.
Economists predict that most current and future borrowers will opt for the new SAVE payment plan. “This plan does a lot,” said Kent Smeters, a Wharton professor and faculty director of the Penn Wharton Budget Model.
receives the launch of his team $156 billion The Department of Education estimates that its plan will be completed in the next decade. Part of the difference, Mr. Smeets said, is that the Education Department’s estimate was based on the effects of the Biden loan forgiveness plan before the Supreme Court struck it down. The Penn Wharton model did not do this.
White House press secretary Karin Jean-Pierre defended the cost of the plan at a press conference on Monday after the new economic projections were released. “We can afford to give some relief to middle-class Americans, middle-class families,” he said.
Forty-five million student loan borrowers are owed government money, but virtually all have put their payments on hold through a pandemic relief measure that was introduced in March 2020 by the Trump administration and repeatedly extended by the Biden administration. After more than three years, that pause is about to end, with payments set to resume in October.
The Biden administration is scrambling to get as much of the new SAVE plan as possible before borrowers’ bills are due. But this process will be complex and piecemeal. The centerpiece of the plan is to reduce payments on graduate loans to 5 percent of a borrower’s income, down from the 10 percent imposed under previous income-driven plans. Will not be effective till July 2024,
Conservative groups and Republican lawmakers have strongly condemned the new plan. Representative Virginia Fox, the North Carolina Republican who leads the House Committee on Education and the Workforce, called it “nothing more than a backdoor attempt to provide free college by executive order.”
But no legal challenge has come to the fore so far. The foundation of the scheme is the Higher Education Act of 1965, which gives the Department of Education broad authority over loan repayment schemes. In contrast, the loan waiver scheme that the Supreme Court struck down relied on the Heroes Act, which gave the education secretary more powers only in times of “national emergency” – as the government declared amid the coronavirus pandemic.
More broadly, legal groups seeking to challenge the plan are struggling to find a party with the legal standing to do so. The Pacific Legal Foundation, which backed several lawsuits against Mr. Biden’s student loan cancellation plan, said it would like to prosecute the new plan but sees major hurdles.
“You have to demonstrate that you are hurt by the free money or a more generous loan forgiveness program,” said Caleb Krukenberg, a lawyer for the foundation. “It is not enough to say that I am concerned about the government spending my tax dollars in this way. It’s a really narrow universe.”
Bharat Ramamurthy, deputy director of the National Economic Council, called the Department of Education’s authority to implement the SAVE scheme “absolutely clear”, adding, “I would be surprised, frankly, if there would be a legal challenge.”
After the Supreme Court struck down Mr Biden’s debt cancellation plan, the administration said it would try again for some sort of massive relief effort, this time using the Higher Education Act of 1965 – an approach that requires a lengthy rule-making process. The education department has formally started this process this month.
But Mr. Krukenberg sees the SAVE plan, for which the administration laid the groundwork last year, as a stealthy step toward similar goals.
“I think of it as the administration’s plan B,” he said. “I think they started this process with the idea that if canceling the debt didn’t work, which it didn’t, they could use it as a backup, and it could accomplish what they wanted — maybe all of it — permanently.”
