Student loan activists gather a day after President Biden announced a plan that would forgive $10,000 in student loan debt for those earning less than $125,000 a year on August 25, 2022 in Washington, DC.
The Washington Post | The Washington Post | Getty Images
Federal student loan borrowers could get up to $10,000 in debt relief under President Joe Biden’s new plan — or $20,000 if they have Pell Grants.
But critics say taxpayers will ultimately foot the bill, which is estimated at hundreds of billions of dollars.
That could result in an average tax of $2,500 per taxpayer, according to calculations by the National Taxpayers Union, a conservative tax advocacy group.
“There’s a transfer of wealth from society as a whole to people who just borrowed money to go to college,” said Andrew Lautz, director of federal policy at the National Taxpayers Union.
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“This has consequences for consumers,” said Lautz. “It has consequences for taxpayers.”
The average burden per US taxpayer will be $2,503.22, according to new estimates by the National Taxpayers Union based on the details of Biden’s plan. Federal student loan debt relief applies to individuals earning less than $125,000 and couples earning less than $250,000.
That doesn’t mean taxpayers will immediately face $2,500 in higher taxes.
But the over $400 billion cost of Biden’s student loan forgiveness plan will leave the government with more debt. The estimated cost per taxpayer is based on the assumption that policymakers would have to offset the total amount of the levy through tax increases, spending cuts, borrowing, or a combination of these strategies.
The National Taxpayers Union calculation is based on the total cost of debt relief of more than $400 billion divided by the total number of US taxpayers, 158 million.
In particular, the National Taxpayers Union estimates that the costs would not be spread evenly across the income spectrum.
Low-income taxpayers earning less than $50,000 would have an average incremental cost per taxpayer of $190. That would rise to about $1,040 for those with an adjusted gross income between $50,000 and $75,000; $1,774 for those between $75,000 and $100,000; and $3,791 for incomes from $100,000 to $200,000.
Taxpayers earning between $200,000 and $500,000 would have an average additional cost of $11,940.
“Shifting one type of borrowing to another”
Student debt relief will boost near-term inflation more than the recently passed anti-inflation law would reduce it, the Federal Budget Committee found in a recent analysis. In addition, it noted that student debt relief would also undermine the deficit reduction in this recent Democrat-passed law.
While the move will cancel the debt of millions of student loan borrowers, it also means the government will borrow on their behalf to pay them.
The Federal Budget Responsibility Committee estimates that Biden’s sweeping debt relief will cost between $330 billion and $390 billion. The overall plan will cost between $440 billion and $600 billion over the next 10 years, with a central estimate of about $500 billion, according to the nonpartisan organization.
“It doesn’t get paid for,” said Maya MacGuineas, president of the Federal Budget Committee. “This is just a shift from one type of borrowing to another.”
The Penn Wharton Budget Model now estimates that debt relief alone will cost up to $519 billion. Loan deferrals will cost an additional $16 billion, the research says, while the new earnings-related repayment could cost $70 billion.
About 75% of student loan debt relief benefits households earning $88,000 or less per year, according to the Penn Wharton Budget Model.
The Congressional Budget Office has yet to assess the overall cost of the policy.
Both Lautz and MacGuineas said Biden’s forgiveness plan doesn’t get to the root of why student borrowers end up with such enormous debt burdens in the first place.
“Higher education is one of the most difficult and thorny issues it really takes to get familiar with university and graduate school funding and what changes would make it more affordable,” MacGuineas said. “It accomplishes none of that.”
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