Researchers at the University of Pennsylvania’s Wharton School of Business estimated the price tag of President Biden’s student debt plan could grow to more than $1 trillion over the next decade if certain conditions take hold.
The study found the plan would cost $605 billion over the next decade under strict assumptions, but the price tag in other conditions could grow to more than $1 trillion, a scenario the researchers said “requires further study.”
Biden on Wednesday announced the long-awaited plan, which cancels thousands of dollars in debt for many borrowers, extends a payment pause until the end of the year and caps monthly payments at a percentage of borrowers’ incomes.
The Biden administration had faced pressure from many Democrats to take executive action on student debt, but the announcement has also been met with criticism from Republicans and some moderate Democrats who expressed worry over the plan’s cost and its impact on already high inflation rates.
When asked at a press briefing on Thursday, White House officials declined to give a price tag for the decision, saying “it depends” on how many borrowers take up the offer.
The most prominent part of the plan cancels up to $10,000 in student debt for individuals making less than $125,000, while Pell Grant recipients under the same income cap are eligible for up to $20,000 in debt forgiveness. The income caps are doubled for families.
The Wharton researchers found that proposal will cost between $469 billion and $519 billion over the 10-year budget window, with the higher amount representing if the plan ultimately includes future students and students currently enrolled in college with loan deferral status.
Biden also announced plans to extend a pause on student loan payments put in place during the pandemic one final time. Payments were set to resume in September, but Biden extended the pause until the end of the year.
That plan will cost an additional $16 billion, according to the study.
Some economists argue any inflation increases driven by the debt cancellation will be offset by the payment resumption next year.
The third prong of Biden’s plan will cap monthly loan payments at 5 percent of undergraduate loan borrowers’ discretionary income and cover their unpaid monthly interest. For borrowers who originally took out loans of $12,000 or less, the plan reduces the number of years before the government forgives the balance from 20 years to 10 years.
Wharton researchers found that under strict assumptions about borrowing behavior, the proposal would cost $70 billion.
But the researchers noted that future details of the program and behavior changes among borrowers could increase the cost of the proposal to $450 billion or more, which would make the total plan cost over $1 trillion.