President Joe Biden’s plan to cancel student debt for millions of Americans could cost as much as $1 trillion, the Wall Street Journal reports.
Biden last month announced a plan to forgive up to $10,000 in student debt for people earning up to $125,000 and up to $20,000 for Pell Grant recipients, as well as changes to income-based repayment plans.
The White House has not released a full estimate of the cost of the plan but it estimated that the debt forgiveness could cost up to $240 billion over the next decade.
The administration has not proposed revenue increases to pay for the cost but argues that the reduction of the federal deficit will cover the cost.
Some economists estimate that the actual cost of the plan may be closer to $500 billion.
The Penn Wharton Budget Model estimates the debt forgiveness alone could cost $500 billion and the total cost of the plan could hit $1 trillion.
The White House estimates that about 75% of federal loan recipients will enroll but analysts expect the number to be higher.
“There’s no downside—we expect compliance to be very high,” Kent Smetters, director of the Wharton model, told the Journal. “It really just depends how easy they make it to apply.”
Questions about deficit:
The White House has argued that reductions in the deficit would “pay for” the cost of the plan, a departure from the traditional method of backing spending increases with tax hikes or reductions elsewhere.
“This action by the president will make the deficit bigger than it would be otherwise,” Douglas Elmendorf, the former head of the Congressional Budget Office. “That argument is a misuse of the term ‘pay for’.”