Here’s who will pay for Biden’s student loan cancellations


President Biden is trying again to cancel student loan debt for up to 25 million borrowers after the Supreme Court killed his first effort to do so last year. The new plan draws on a different legal justification, which Biden officials hope will be better able to survive inevitable court challenges.

If the plan holds, the government will write down the student loan balances for the majority of Americans who hold them by $5,000 to $20,000. For some, that will entail the full amount of their loans. Economists expect the lower debt load on millions of consumers to boost spending and economic growth (and, possibly, inflation).

But the money isn’t free. Sure, it’s government money, which doesn’t seem completely real, but by canceling debt payments the government forgoes future revenue, which adds to annual deficits and the total national debt. Future taxpayers will essentially pay the bill.

The Biden administration didn’t put a price tag on the latest plan, which is a collection of different loan-forgiveness programs mostly targeting people who have been paying their loans for 20 years or more. If all the new programs hold up and forgiveness averages $5,000 per borrower, the forgone revenue would total about $125 billion over several years. It would total $500 billion if the average were $20,000 per borrower.

That’s in line with the cost of the earlier Biden plan the Supreme Court struck down. In 2022, the Congressional Budget Office (CBO) estimated that Biden’s first student loan forgiveness program would cost the government $400 billion in lost revenue over 30 years. The new plan could involve less money because it affects fewer people, but the lost revenue could also accrue over a shorter period of time because many of the loans that qualify under the new program are closer to being paid off.

In federal budget terms, $400 billion is both a pittance and a huge pot of money. As a portion of the total national debt, it’s just 1.2%. Nothingburger. But if Congress tried to pass a $400 billion package of benefit enhancements or tax breaks, there would be a huge fight and pronouncements from one side or the other that it’s completely unaffordable. Packages of that size only get passed when there’s an emergency such as COVID, or one party controls all the branches of government and has the power to ignore the other party.

As a point of comparison, the 2022 Inflation Reduction Act included measures that would reduce annual deficits by about $275 billion over a decade. Biden bragged about that at the time. But student debt cancellation of the magnitude Biden is pushing now would essentially wipe out those savings.

President Joe Biden departs after delivering remarks on student loan debt at Madison College, Monday, April 8, 2024, in Madison, Wis. (AP Photo/Evan Vucci)

President Joe Biden departs after delivering remarks on student loan debt at Madison College, Monday, April 8, 2024, in Madison, Wis. (Evan Vucci/AP Photo) (ASSOCIATED PRESS)

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There’s an important reason Biden is trying to cut student debt by regulatory and executive action: Congress won’t do it through legislation. Even when Biden’s Democrats controlled both houses of Congress during his first two years in office, there wasn’t a serious effort to pass legislation canceling student debt. The votes just weren’t there. Republicans will never get behind the idea, and even many Democrats acknowledge there are better uses of taxpayer dollars than student debt relief.

In federal aid programs, the best bang for the buck typically comes from programs that target those who need it most, such as young children in low-income families, working parents, or older workers struggling with healthcare costs. Student debt relief, by contrast, tends to benefit people with a college degree or some college education, who are typically in the top 60% of the national income distribution. There’s no corresponding aid for high school grads who chose not to go to college or for students who worked their way through college instead of taking on debt.

Another problem: With no corresponding reforms to the sprawling student debt program, loan cancellation will basically serve as a one-time windfall for a cohort lucky enough to fall inside the qualification parameters. It won’t apply to future debt or to debt previous borrowers already paid off. In an analysis of Biden’s first debt-relief program, the Committee for a Responsible Federal Budget estimated that after a one-time cancellation of about $500 billion of debt, the total amount of outstanding student debt would return to the prior level of $1.6 trillion within five years. What then? More debt relief, on a rolling basis?

Still, Biden pledged he would give student debt cancellation a shot when he was campaigning in 2020, and now that he’s running for reelection, he needs something to show for it. Republicans will attack Biden for the giveaway, with the fusty Wall Street Journal editorial page describing Biden’s plan as a “lawless” effort “essentially turning college into an open-ended, taxpayer-financed entitlement.”

Republicans, for their part, are no stewards of fiscal probity, either. They’re hoping that if Donald Trump wins the presidency, he’ll cut business taxes and extend individual tax cuts that expire at the end of 2025 and mostly benefit the wealthy. Everybody cares about the mushrooming national debt, except when it interferes with what they need to do to get elected.

Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman.

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