Biden Launches New Student Loan Forgiveness Plan

Biden Launches New Student Loan Forgiveness Plan

The new plan comes after Biden's previous debt forgiveness was shot down by the Supreme Court.
By Yuval Rosenberg and Michael Rainey
Tuesday, August 22, 2023

Good Tuesday evening! Have you seen the rare baby giraffe born without spots? Here’s what else you should know about today.

Biden Administration Launches New Student Loan Forgiveness Plan

The Biden administration on Tuesday officially launched its new income-driven student loan repayment program designed to lower — and in some cases eliminate — monthly payments for more than 20 million borrowers.

Following a beta release three weeks ago, applications are now open for the Saving on a Valuable Education (SAVE) plan, available on the Federal Student Aid website. The plan is a replacement of sorts for a previous attempt by the Biden administration to eliminate as much as $20,000 in student loan debt for millions of borrowers — an effort that was shot down by the Supreme Court in June.

The launch comes just a few weeks before student loan repayments are set to begin again following a multi-year suspension during the Covid-19 pandemic.

Under the plan, borrowers who earn less than $15 an hour will not have to make any monthly payments, and the Department of Education estimates that 1 million borrowers could see their payments eliminated entirely. Millions of others will see savings of more than $1,000 a year compared to existing income-driven repayment programs.

“Monthly payments will be based on income, rather than their total student loan balance. In addition, as long as you make the monthly payments required under your plan, your loan balance will no longer grow because of unpaid interest – making sure that you make progress on paying down your debt,” Vice President Kamala Harris said in a statement.

Estimates of the cost of the plan vary widely. In March, the Congressional Budget Office said a similar plan would cost an estimated $230 billion over 10 years. The Committee for a Responsible Federal Budget estimates it will cost $276 billion, while the Penn Wharton Budget Model puts the cost at $475 billion over 10 years, though with room for considerable variation around that estimate.

In her statement, Harris noted that the Biden administration has already enacted more than $116 billion in debt cancellation, affecting 3.4 million Americans.

Nearly Half of Gen Z Adults Don’t Think They’ll Get Social Security: Survey

Forty-five percent of adults aged 18 to 26 said in a recent survey that they don’t think they’ll “get a dime of Social Security benefits,” according to a new report released by the Nationwide Retirement Institute.

Slightly older respondents in the millennial cohort were a bit more optimistic, with 39% saying they don’t expect to see any benefits. The number drops to 25% for Gen X and just 10% for baby boomers, many of whom are already receiving checks from the popular income support program.

Across the generations, a majority of respondents said they are worried about Social Security running out of funding during their lifetime.

Under the current system, the Social Security trust fund is expected to be depleted in 2033. At that point, payouts will be limited to what’s available from dedicated tax revenues. If Congress fails to act before then, payments would continue, but Social Security beneficiaries could see cuts of about 25%.

The 2023 Social Security survey of 1,806 adults was conducted by Harris Poll online between May 18 and June 13 on behalf of the financial services company Nationwide. The sample includes 300 Gen Z respondents, 500 millennials and 502 people aged 59 and older.

Government Shutdown Looks Likely, Goldman Sachs Says

The U.S. appears to be headed for a government shutdown this year, according to Goldman Sachs.

"The federal government looks more likely than not to temporarily shut down later this year," Goldman economist Alec Phillips wrote in a research note this past weekend. "This has looked fairly likely since the debt limit deal, in light of the thin House majority and a lack of consensus on spending levels."

The analyst notes that a shutdown is not guaranteed, and even if it does occur, it would be far less damaging than the default that was threatened earlier this year during the struggle over raising the debt ceiling.

Still, a shutdown — which may be more likely if lawmakers don’t think it will cause much damage — would not be without cost. “A government-wide shutdown would directly reduce growth by around 0.15pp [percentage points] for each week it lasted; including modest private sector effects, the hit to growth could be around 0.2pp per week,” Phillips wrote. “In the quarter following reopening, growth would rise by the same amount.”

Numbers of the Day

$1.4 billion: The Biden administration today announced $1.4 billion in funding for the development of the next generation of Covid-19 vaccines, a new monoclonal antibody and technologies to streamline development and manufacturing of vaccines and treatments. The awards are part of the administration’s Project NextGen, a $5 billion successor to Operation Warp Speed launched under the Trump administration. The new awards include $1 billion to support clinical trials by four companies. Another $326 million is going to biotech company Regeneron for work on a monoclonal antibody Covid treatment.

500,000: A preliminary annual revision of benchmark Bureau of Labor Statistics payroll data for the 12 months through March is expected to slice nearly half a million jobs from current levels, according to estimates from JPMorgan economist Danel Silver cited by Bloomberg’s Reade Pickert. “Even with a downward revision of that size, average job growth would still be strong at around 300,000 payrolls a month,” Pickert writes. “As a result, the revisions would likely not fundamentally alter economists’ views on the health of the labor market.” Still, even if the job market remains healthy, a large revision could reduce pressure on the Federal Reserve to raise interest rates further.

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