New Analysis: Biden’s Newest Student Loan Scheme to Cost Taxpayers $559 Billion
WASHINGTON – Today, U.S. Senator Bill Cassidy, M.D. (R-LA), ranking member of the Senate Health, Education, Labor, and Pensions (HELP) Committee, released a statement following a report from the nonpartisan Penn Wharton Budget Model (PWBM) that President Biden’s reckless income-driven repayment (IDR) rule will cost American taxpayers as much as $558.8 billion over the next ten years. Additionally, the report found that the IDR rule will incentivize community college students to collectively begin borrowing billions of dollars per year due to the expectation that they will not have to pay back their debt.
Under the IDR rule, a majority of bachelor’s degree student loan borrowers will not have to pay back even the principal on their loans. This latest figure is more than double the previous estimate from the Congressional Budget Office (CBO), which reported the proposed IDR rule would cost taxpayers $276 billion.
“Make no mistake, Biden’s newest student loan scheme only transfers the burden from those who willingly took out loans to Americans who never attended college or who already fulfilled their commitment to pay off their loans,” said Dr. Cassidy. “This IDR rule is as irresponsible as it is unfair.”
On June 30th, President Biden announced the final IDR rule following the U.S. Supreme Court ruling to block President Biden’s illegal student debt scheme that attempted to shift hundreds of billions of dollars in student loan debt onto taxpayers.
The IDR rule:
- Reduces payments to 5%, from 10%, of borrowers’ discretionary income monthly on undergraduate loans [(Total Income)-(Expenses)=(Discretionary Income)].
- Raises the assumed amount of expenses to 225% of the Federal Poverty Line from 150%, increasing likelihood that a borrower would have no discretionary income and an expected loan payment of zero.
- An individual would need an income above $32,805 before being expected to pay anything.
- A family of four would need to have total income over $67,500 in 2023 (roughly equal to the median income of all households in the US) before being expected to pay anything.
- Covers unpaid monthly interest for loan payments less than the full amount, including zero payments, preventing the loan balance from growing.?
- Forgives loan balances after 10 years of payments, instead of 20 years, for borrowers with loan balances of $12,000 or less. Adds one year for every additional $1,000, capping at 20 years for undergrad, 25 years for graduate loans.
- Lacks any guardrails to prevent households making over $250,000 a year from collecting taxpayer-funded assistance if they file taxes separately.
Impacts incentivizing debt:
- Under this change to an originally targeted program, 91% of new student debt would be eligible for reduced payments and eventual transfer to taxpayers.
- On average, only $0.50 on every $1 borrowed will be repaid to taxpayers.
- This rule will turn the federal student loan financing system into a poorly targeted taxpayer-funded grant program.
- Even those who can fully afford their education would be leaving money on the table by not taking out loans they could expect to eventually be paid off by taxpayers.
- The Penn Wharton Budget Model found that the IDR rule will incentivize community college students to collectively borrow billions more dollars per year due to the expectation that they will not have to pay the debt.
Last month, Cassidy and U.S. Senators Chuck Grassley (R-IA), John Cornyn (R-TX), Tommy Tuberville (R-AL), and Tim Scott (R-SC) unveiled their groundbreaking Lowering Education Costs and Debt Act, a package of five bills aimed at directly addressing the issues driving the skyrocketing cost of higher education and the increasing amounts of debt students take on to attend school. Later that day, the senators held a press conference to discuss the legislation.
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