Total outstanding student debt will return to current levels of $1.6 trillion within five years, according to a new analysis of President Biden’s student loan cancelation program.
The nonpartisan think tank Committee for a Responsible Federal Budget projected that the student loan bailout will eliminate $550 billion from the current outstanding debt balance of $1.6 trillion in the immediate term, but that the debt will return to current highs as college students continue to borrow.
Mr. Biden on Wednesday unveiled his long-awaited plan, which includes canceling $10,000 in student debt for borrowers who earn less than $125,000 per year and $20,000 in debt for those who received Pell Grants.
The president has also extended the pause on federal student loan payments through December, the White House announced.
Mr. Biden’s plan also calls for lowering monthly payments on outstanding undergraduate loans from 10% to 5% of discretionary income, and forgives loan balances after 10 years of payments instead of 20 years for original loan balances of $12,000 or less.
The proposed changes do not reduce the amount of borrowing going forward, which will place future administrations under pressure to cancel student loan debt again in a few short years.
And the plan comes at a significant cost to taxpayers, according to the analysis by the Committee for a Responsible Federal Budget.
Mr. Biden’s plan will cost taxpayers between $440 billion and $600 billion over the next decade, according to the analysis, completely eliminating any deflationary benefit derived from the Inflation Reduction Act.
Furthermore, that figure does not include the cost associated with the pause on student loan repayments since the start of the pandemic, which the think tank estimates to have cost roughly $800 billion.
“It is extremely troubling to see the Administration reverse the legislative progress made on deficit reduction,” the report reads. “It is long past time that student debt repayments resume, and now it is even more important for policymakers to enact changes that reduce deficits through spending reductions and revenue increases in order to put the national debt on a downward sustainable path.”
Mr. Biden has teased his plan to forgive student loan debt for months after promising it on the campaign trail. The announcement, which is certain to attract attention from young voters, comes as Democrats eye a challenging midterm election cycle.
Mr. Biden said the widespread relief will reverberate across the entire economy, and says resuming loan repayments in January will offset the cost of the cancelation.
But the move is turning out to be a no-win situation politically and is likely to face significant legal scrutiny.
“It is a truth universally acknowledged that if you rob Peter to pay Paul, you can count on Paul’s vote,” wrote University of Chicago Professor Charles Lipson in an op-ed for The Spectator on Thursday. “He needs Peter and Patricia’s votes, and he is bribing them with taxpayer money.”
“Taxpayers know it is not a costless gesture,” he added. “Their backlash is likely to overwhelm any potential gains.”
Mr. Biden has faced persistent pressure from progressives to cancel $50,000 of student debt or more per borrower.
The NAACP blasted Mr. Biden not canceling enough debt.
The plan got aggressive pushback from Republicans who criticized it as an extension of out-of-control spending by Mr. Biden and his Democrats in Congress. Opponents also fault the plan for discriminating againt those who have repaid their debt or who chose not to go to college.
Some Democrats joined Republicans in raising alarms about the inflationary impact.
“Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless,” tweeted Jason Furman, who served as an economic adviser to President Obama. “Doing it while going well beyond one campaign promise ($10K of student loan relief) and breaking another (all proposals paid for) is even worse.”
Mr. Biden responded to critics on Wednesday, saying his administration is “taking an economically responsible course.”
“I understand not everything I’m announcing today is going to make everybody happy,” Mr. Biden said during a White House address. “But I believe my plan is responsible and fair. It focuses the benefit on the middle class and working families. And it will fix a badly broken system.”
• Joseph Clark can be reached at jclark@washingtontimes.com.
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