of President Joe Biden student loan debt relief plan should primarily help working-class and middle-class borrowers, according to an updated report from an influential research group. That’s a change from his earlier projection that more high-income borrowers would get basic loan forgiveness.
About 75% of the profits will go to households earning $88,000 or less per year, Penn Wharton Budget Model Analysis released on Friday.
The three-part relief package could cost up to $605 billion over 10 years, although the price could exceed $1 trillion depending on how the proposed income-based reimbursement program is actually set up and how many people participate, found Penn Wharton. This is significantly higher than his original estimate of a less comprehensive debt relief plan.
The revised report takes into account the plan’s provision that would cancel up to $20,000 of debt held by those who qualify for Pell Grants as undergraduate students, as well as the measure to forgive up to $10,000 for those who did not receive such scholarships.
To be eligible, borrowers must earn less than $125,000 per year if single and less than $250,000 per year if married or heads of households.
The original Penn Wharton reportpublished before Biden’s package was released and only considered $10,000 in loan forgiveness for borrowers, found that 70% of the benefits would go to the top 60% earning households.
This equates to 55% of the benefits for households earning $88,000 or less.
Republicans had jumped on Penn Wharton’s analysis as proof that Biden’s plan would help many high earners.
However, the addition of the Pell Grant provision changed the direction of the aid.
“The Pell Grant adjustment is much more geared toward low-income student borrowers,” said Penn Wharton faculty director Kent Smetters.
The Pell Grants, which provide up to $6,895 in aid for the 2022-2023 academic year to those who qualify, are a critical way for the federal government to help students from low-income families go at University. As a general rule, grants do not have to be repaid. However, they only cover about a third of the cost of a college education, so many students also have to take out loans to graduate.
The Biden package also proposes making substantial changes to student loan income-based repayment programs, including capping monthly payments at 5% of discretionary income for undergraduate borrowers, up from 10% currently.
This proposal would likely target low-income households even more than the loan forgiveness program would, Penn Wharton found. However, it still needs to estimate earnings for specific income groups.
The three-part package is more expensive than simply forgiving $10,000 in student loan debt, which Penn Wharton says could cost $330 billion over 10 years.
The more comprehensive forgiveness program could cost between $469 billion and $519 billion over a decade, depending on whether existing and new students are included.
Biden also extended the pause on student loan repayments through Dec. 31. Loan forbearance for 2022 could add $16 billion to the cost, according to Penn Wharton analysis.
And the income-contingent reimbursement proposal could cost $70 billion, assuming the same uptake of current programs. But the proposal could add another $450 billion or more depending on how it is structured and how many borrowers participate.
This could bring the total price to over $1 trillion.
White House press secretary Karine Jean-Pierre told CNN’s Don Lemon on Thursday that the relief package could cost around $24 billion per yearassuming a 75% participation rate.
And the White House also pushed back on Penn Wharton’s estimate on Friday, calling it “somewhat speculative” and “clearly at the high end of the range.”
“I want to make it absolutely clear that we don’t think $1 trillion is within the range of what it’s going to cost,” National Economic Council Deputy Director Bharat Ramamurti told MJ CNN’s Lee at a press briefing.
Penn Wharton’s assessment did not take into account the income-based repayment program reforms and was based on 100% of borrowers taking advantage of them, he said. A similar loan forgiveness program saw 75% of eligible applicants apply, according to the White House. Also, it did not take into account borrowers already in default on their loans, among other factors, he said.
A budget watchdog has denounced the cost of the plan, noting it would undo the deficit reduction included in the recently enacted law budget reconciliation filethat Biden and congressional Democrats have touted.
“The only really significant step the White House has taken to reduce deficits, the Inflation Reduction Act, would see its reduction wiped out twice by the student debt policies just announced,” he said. said Maya MacGuineas, chair of the Committee for One Responsible. Federal Budget, which estimated student debt measures could cost up to $600 billion over a decade and could be one of the costliest executive measures in history.