How Much Will Student Loan Forgiveness Cost?

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AUGUST 26: President Joe Biden speaks during a meeting with state and local elected officials on Women’s Equality Day at the Roosevelt Room of the White House August 26, 2022 in Washington, DC. President Biden joined the meeting to discuss actions to protect access to reproductive health care.

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The Balance is here to help you navigate your financial life. To that end, we track the most searched money-related questions on Google so we know what’s on your mind. Here is the answer to one of your most recent inquiries.

How Much Will Student Loan Forgiveness Cost?

Estimates for the cost of Biden’s student loan forgiveness program announced last week range from $240 billion to $1 trillion over the next 10 years depending on how it’s calculated.

Biden’s action will wipe $10,000 off the balance of every federal student loan borrower who earns less than $125,000 a year, and forgive double that amount for those who received Pell grants for families that demonstrated financial need. Not only that, but Biden proposed the creation of a new income-driven repayment plan that would require borrowers to repay at most 5% of their monthly income for their undergraduate loans—half the payment required by current plans.  According to the statement released by the White House, this plan would lower the average annual student loan payment by over $1,000 for current and future borrowers.

Millions of student loan borrowers will benefit, including more than 20 million who will see their debts cleared completely. But it will come at a cost to the government by adding to the national debt. Adding to the national debt could ultimately affect your pocketbook by increasing interest rates, reducing the country’s economic growth, and worsening inflation in the future.

Biden administration officials estimate the forgiveness will cost $24 billion per year, or $240 billion over 10 years. However, other groups say the cost would be much higher. The Committee for a Responsible Federal Budget, a nonpartisan, nonprofit organization that analyzes government spending, pegs the cost at $440 billion to $600 billion over 10 years. An estimate from researchers at the Wharton School of Business is even more pessimistic, figuring as much as a $1 trillion price tag over 10 years. Wharton’s higher-end number assumes more people will enroll in the new income-driven repayment plan, take on more debt, and that colleges will raise tuition in response.

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  1. The White House. “FACT SHEET: President Biden Announces Student Loan Relief for Borrowers Who Need It Most.”

  2. Federal Reserve Bank of St. Louis. “Does Rising National Debt Portend Rising Inflation?” 

  3. The White House. “Press Briefing by Press Secretary Karine Jean-Pierre and Deputy Director of the National Economic Council Bharat Ramamurti, August 26, 2022.”

  4. Committee for a Responsible Federal Budget. “New Student Debt Changes Will Cost Half a Trillion Dollars.”

  5. Penn Wharton. “The Biden Student Loan Forgiveness Plan: Budgetary Costs and Distributional Impact.”

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