President Joe Biden‘s new student loan forgiveness plan based on income-driven re-payments will cost taxpayers $475 billion over the next ten years, an economic model has predicted.
The Penn Wharton Budget Model lays out the sum of one of Biden’s new pushes to give millions of Americans debt relief – after the Supreme Court struck down his first plan two weeks ago.
A conservative estimate sees the program costing as little as $390.9 billion over a decade, while the maximum projection puts the bill at $558.8 billion.
The medium estimate was worked out at $474.9 billion – more than the projected cost of the original bailout.
It follows the announcement from the Biden administration on Friday that $39 billion would be forgiven for 804,000 Americans.
A parallel plan, Saving on a Valuable Education (SAVE), set to go into effect on July 1, 2024, would cut monthly income-based payments in half.
It would also get rid of monthly payments for minimum-wage earners and forgive all outstanding debt for Americans who have been paying for ten years and took less than $12,000.
The model found that this would also put a significant burden on taxpayers.
The results state that taxpayers will face $200 billion in cases because of payment reductions on the $1.64 trillion in loans outstanding in 2023.
The remainder, roughly $275 billion, comes from reduced payments for about $1.03 trillion in new loans that the model estimates will be spread over the next 10 years.
‘We estimate a take-up rate for future loans of 70 percent, implying that about $645 billion in future loans will be subsidized’, the economists stated in their conclusion.
‘About 6.57 percent of future borrowers (or 4.98 percent of total predicted loan volume) will never have to make any payments under SAVE.’