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Student loan forgiveness could cost $2,500 per taxpayer, research finds


Student-loan debt activists rally outside the White House a day after President Biden announced a plan that would cancel $10,000 in student loan debt for those making less than $125,000 a year in Washington, D.C., on Aug. 25, 2022.

The Washington Post | The Washington Post | Getty Images

Federal student loan borrowers could get up to $10,000 in debt relief — or $20,000 if they have Pell Grants — under President Joe Biden’s new plan.

However, critics say taxpayers will ultimately pick up the tab, which estimates peg at hundreds of billions of dollars.

That could result in a $2,500 burden per taxpayer, according to calculations from the National Taxpayers Union, a fiscally conservative advocacy group.

“There’s a transfer of wealth from the society at large to people who borrowed to go to college right now,” said Andrew Lautz, director of federal policy at the National Taxpayers Union.

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“That has consequences for consumers,” Lautz said. “It has consequences for taxpayers.”

The average burden per U.S. taxpayer will be $2,503.22, according to new estimates from the National Taxpayers Union based on the specifics of Biden’s plan. The federal student loan debt forgiveness applies to individuals with less than $125,000 in incomes and couples with less than $250,000.

To be sure, this does not mean taxpayers will immediately face $2,500 in higher taxes.

But the $400 billion-plus cost of Biden’s student loan forgiveness plan will incur more debt for the government. The estimated cost per taxpayer is based on the assumption that policymakers would need to make up for the total tally of the forgiveness through tax increases, spending cuts, borrowing or a combination of those strategies.

The National Taxpayers Union’s calculation is based on a total cost of debt cancellation of more than $400 billion divided a total number of U.S. taxpayers, 158 million.

White House economist explains how student loan forgiveness will impact inflation

Notably, the costs would not be spread evenly across the income spectrum, according to the National Taxpayers Union’s estimates.

Low-income taxpayers, earning less than $50,000, would have an average additional cost per taxpayer of $190. That would increase to about $1,040 for those with adjusted gross incomes between $50,000 and $75,000; $1,774 for those between $75,000 and $100,000; and $3,791 for incomes of $100,000 to $200,000.

Taxpayers with the highest incomes, between $200,000 to $500,000, would have an average additional cost of $11,940.

‘Shifting one kind of borrowing to another’

Canceling student debt will boost near-term inflation more than the Inflation Reduction Act that was recently enacted would reduce it, the Committee for a Responsible Federal Budget found in a recent analysis. Moreover, it found that canceling student debt would also undermine the deficit reductions in that law recently passed by Democrats.

While the move will erase debt for millions of student loan borrowers, it also means the government will borrow on their behalf to pay for it.

The Committee for a Responsible Federal Budget estimates Biden’s broad debt cancellation will cost between $330 billion and $390 billion. The overall plan will cost between $440 billion and $600 billion over the next 10 years, according to the nonpartisan organization, with a central estimate of approximately $500 billion.

“This is not paid for,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “This is just shifting one kind of borrowing to another.”

The Penn Wharton Budget Model now estimates debt cancellation alone will cost up to $519 billion. Loan forbearance will cost another $16 billion, the research found, while the new income-driven repayment could cost $70 billion.

About 75% of the student loan debt cancellation will benefit households earning $88,000 or less per year, according to the Penn Wharton Budget Model.

The Congressional Budget Office has yet to evaluate the total cost of the policy.

Biden’s forgiveness plan fails to get at the root cause of why student borrowers wind up with such huge debt burdens in the first place, both Lautz and MacGuineas said.

“Higher education is one of the most difficult, thorny problems that you really need to get into how universities and graduate schools are financed and what kinds of changes would make it more affordable,” MacGuineas said. “This accomplishes none of that.”

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