The Biden administration’s new income-driven repayment plan for those with student loan debt will cost an estimated $475 billion over 10 years, according to a new analysis by the Penn Wharton Budget Model.
Unveiled after the Supreme Court nullified the administration’s previous plan to forgive more than $400 billion in student loan debt, the proposed Saving on a Valuable Education (SAVE) plan will significantly reduce monthly payments for millions of borrowers once it goes into effect in July 2024. The Department of Education estimates that under the plan, which reduces required payment amounts and offers more generous terms for loan forgiveness, individual borrowers will save more than $1,000 per year, while a family of four will save about $2,200.
Penn Wharton says that $200 billion of the projected cost will come from payment reductions on the $1.64 trillion in outstanding student loans currently on the books. In addition, the group expects borrowers to take out another $1 trillion in loans over the next decade, driven in part by the expectation that some portion of those loans will be forgiven, with the reduced payments on that new loan total coming to an estimated $275 billion.
The Penn Wharton analysis provides a range of cost estimates, with $475 billion over 10 years sitting in the middle of the range. On the high end, the plan could cost as much as $559 billion, while on the low end, it could cost $391 billion.
Whatever its cost, the plan could help the Biden administration achieve its goal of significantly reducing student loan debt now and in the future. According to Sen. Bill Cassidy, a Republican from Louisiana who opposes the plan, the SAVE program would apply to 91% of new student loans and result in only 50 cents of every dollar in student loans being repaid. The White House estimates that 85% of borrowers who attend community college will be debt-free within 10 years.
Given the size and scope of the plan, legal challenges are expected to emerge, so it’s not certain that it will ultimately take effect. In the meantime, Republicans are hammering away at the plan’s cost. “The administration’s Income-Driven Repayment rule is nothing more than a backdoor attempt to provide free college by executive fiat,” Rep. Virginia Foxx, who chairs the Education and the Workforce Committee, said after the Biden administration floated an earlier version of the payment plan.