Analysis Says Biden’s New Student Debt Plan Could Cost $475 Billion

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President Biden’s new repayment plan for federal student loans will cost the government $475 billion over the next decade, according to a new economic projection. The updated income-driven repayment plan would surpass the $400 billion cost of the debt forgiveness plan that the Supreme Court rejected last month. The new repayment plan, announced last year and completed this month by the Education Department, offers borrowers a new option that caps payments for undergraduate loans at no more than 5 percent of the borrower’s income. After a borrower makes payments for either 10 or 20 years (the term depends on the size of the loan), any remaining balance would be forgiven. The government — the largest lender to Americans who borrow to pay for college — already offers a variety of income-based repayment plans. But a new and revised plan, which the administration has named Saving on a Valuable Education, or SAVE, is vastly more generous. That means the government, not borrowers, will ultimately pay a bigger share of the recipients’ educational costs. Economists for the University of Pennsylvania’s Penn Wharton Budget Model, a nonpartisan research group, estimate that payment reductions in the $1.6 trillion in outstanding federal student loans will cost the government $200 billion. But the biggest chunk of the program’s cost — a projected $275 billion — will come from reduced payments on the $1 trillion in new loans that the researchers expect will be made over the next decade.