President Joe Biden has some good news if you’re burdened by student loan debt.
On Wednesday, Biden announced a major student loan forgiveness plan. For borrowers making less than $125,000 a year or families earning less than $250,000, his administration will cancel up to $10,000 of federal student loan debt per person.
For low-income students who borrowed money under the Pell Grant program, the Biden administration will forgive up to $20,000 of federal student loan debt per person.
“In keeping with my campaign promise, my administration is announcing a plan to give working and middle-class families a chance to breathe as they prepare to resume federal student loan payments in January 2023,” President Biden tweeted. on Wednesday.
Of course, you can’t just “magically” erase the debt.
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How much would it cost?
According to the University of Pennsylvania’s Wharton Budget Model, a one-time maximum debt forgiveness of $10,000 per borrower — for those earning $125,000 a year or less — would cost $329.1 billion over a 10-year budget window .
The study found that between 69% and 73% of debt relief in this model scenario would go to households in the top 60% of the U.S. income distribution
The National Taxpayers Union Foundation also did some numbers. Based on a total of just under 158 million U.S. taxpayers in 2019, the foundation says the plan would cost $2,085.59 per taxpayer.
“There’s a wealth transfer from society at large to people who borrowed to go to college right now,” said Andrew Lautz, director of federal policy at the National Taxpayers Union. “This has consequences for consumers. There are consequences for taxpayers.”
Note that these estimates are based on the $10,000 forgiveness model and do not include Biden’s $20,000 forgiveness for Pell Grant borrowers. If you consider the latter, the burden on taxpayers will increase further.
“This will increase the cost or budget impact of the policy as a whole,” says Lautz.
Concern for justice
The plan also raises questions about fairness: You have to attend college first to get a student loan, and not everyone is lucky enough to go to college.
Congressman Tim Ryan, the Democratic candidate for the US Senate in Ohio, is one of the critics.
“Debt waivers for those already on the path to financial security send the wrong message to the millions of Ohioans without a degree who work just as hard to make ends meet,” Ryan said in a statement.
“Instead of forgiving student loans for six-figure incomes, we should be working to level the playing field for all Americans.”
Debt is a big problem for Americans — and the Fed’s hawkish stance isn’t helping.
To tame skyrocketing inflation, the US central bank is aggressively raising interest rates. For borrowers, this means that payments increase.
While Biden’s student loan forgiveness may help ease the burden for some, it does come at a cost to taxpayers and won’t solve the debt problem for everyone.
The solution? Work as much as you can, save as much as you can, and be as frugal as possible. This is what helped people survive the 1980s — a decade marked by multiple recessions and double-digit interest rates.
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