New evidence indicates that Biden’s executive order to forgive up to $20,000 in student debt will cost the U.S. economy up to $1 trillion. The president’s executive order comes in the midst of the midterm elections.
The Penn-Wharton School of Business budget model at the University of Pennsylvania estimated the trillion-dollar price tag for student debt forgiveness by the Democratic administration; more moderate estimates place the actual cost of student debt forgiveness in the $500 billion range.
The White House has not announced any new tax increases to fund the new Democratic spending program, arguing that the deficit reduction from the previous two tax reforms will be enough to cover the student debt.
Biden’s executive order forgives up to $10,000 of student debt for all Americans with incomes less than $125,000 yearly. In some cases, the relief can be as high as $20,000.
In the U.S., about 45 million people owe up to $1.6 trillion in federal student loans. The average American their student debt is between $20,000 to $25,000.
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The White House has not yet released a final cost of student debt forgiveness. With no official estimates, the public is relying on private estimates to get an idea of the cost of Biden’s executive order.
According to White House figures released in August, the U.S. is projected to run a deficit of more than $1 trillion this fiscal year. The deficit has decreased by $1.7 trillion compared to the previous fiscal year, mainly because of the end of pandemic relief programs and the increased tax burden on the private sector. In 2019, before the pandemic’s start, the deficit was $984 billion.
The cost will depend on how well received the program is and how broad the eligibility criteria are as to who will receive the credit. Some people with relatively low incomes may qualify for up to $20,000 in student debt forgiveness.
The changes in repayment plans could increase the estimated costs of the Biden executive order, at least so estimates the U-Penn moderator, who reports that the additional costs of changing repayment plans could cost the budget anywhere from $70 billion over ten years to $450 billion over a longer period, depending on enrollment and whether colleges continue to raise tuition costs.
Another study, done by the Committee for a Responsible Federal Budget, estimates that student debt cancellation could cost as much as $360 billion, with an additional $120 billion cost from changes in income-based repayment programs.
Last month, the Government Accountability Office released a report estimating that the DOE will lose as much as $197 billion over the next 25 years because of declining payments in the wake of the pandemic, among other factors.
Although many former students celebrate the debt forgiveness, the cost of Biden’s subsidy to give his party an advantage in the mid-term elections is equivalent to twice the gross domestic product of Ukraine, a country whose economy is estimated to fall 45% this year due to Russia’s invasion.