Biden’s student loan relief plan will primarily help working-class and middle-class borrowers, report says
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.
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.
Pell Grant Measure
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.
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 a trillion dollars is in the range of what it’s going to cost, » National Economic Council Deputy Director Bharat Ramamurti told MJ Lee of CNN during 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.
« 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 Responsible Government. 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.
CNN’s Nikki Carvajal contributed to this story.