How much would the latest student loan plan from Biden cost? New study offers answers

The fight for student loan relief continues, and the price could be hefty.

As President Joe Biden’s plan for debt forgiveness — which was originally announced in August — remains tangled in legal limbo, the Department of Education announced more details about another plan to save borrowers in January.

The proposed regulations would revise an existing income-driven repayment plan, determining monthly payments by a borrower’s income, the department said.

Now, a study from the University of Pennsylvania’s Wharton School says those revisions could cost the United States between $333 billion and $361 billion over the next 10 years — significantly higher than the administration’s $138 billion estimate.

The administration’s estimate applies under “strict ‘static’ assumptions,” failing to account for potential increases in the number of borrowers who choose income-driven repayment plans, according to the study. Instead, Wharton researchers argue that the new regulations would encourage more borrowers to join the plans.

Other experts have argued that the regulations might even encourage borrowers who would not otherwise take out loans to borrow because of the plan.

The department said its proposal is responsible and will benefit low- and middle-income borrowers, according to a statement sent to McClatchy News.

“The plan would cut monthly payments in half for undergraduate borrowers from low- and middle-income families all while the Biden-Harris Administration is reducing the deficit at record levels,” a spokesperson said in the statement.

New regulations could save borrowers thousands

The proposed regulations could save borrowers thousands in student loan payments, officials say.

Under the recently announced guidelines, single borrowers earning less than $30,600 per year and a borrower in a household of four with an annual income of less than $62,400 would have a $0 monthly payment on their student loans, according to the department.

All other borrowers who have undergraduate loans and enroll in the program would see their payments cut in half.

Under the existing plan, borrowers have the opportunity to follow monthly payments that are equal to 10% of their discretionary income divided by 12.

The new regulations would change the definition of discretionary income. Currently, discretionary income is considered any income “in excess of a protected amount set at 150 percent of the Federal poverty guidelines.”

The proposed regulations change this standard, instead considering protected income to be 225% of the federal poverty guidelines.

The plan also stops the accumulation of interest payments, preventing a borrower’s balance from growing as they make payments.