To be eligible, borrowers must make less than $125,000 a year if single and less than $250,000 a year if married or head of household. The original Penn Wharton report, which was released before Biden’s package was made public and looked at only $10,000 in loan forgiveness for borrowers, found that 70% of the benefits would go to households in the top 60% of incomes. That equates to 55% of the benefit going to households with $88,000 or less. Republicans had jumped on the Penn Wharton analysis as evidence that Biden’s plan would help many top earners.
Pell Grant Measure
However, the addition of the Pell grant changed the direction of aid. “The Pell Grant adjustment is much more geared toward lower-income borrowers,” said Kent Smetters, dean of Penn Wharton’s faculty. Pell Grants, which provide up to $6,895 in aid for the 2022-23 academic year for those who qualify, are a key way the federal government helps students from lower-income families go to college. Grants usually do not have to be repaid. However, they only cover about a third of the cost of college, so many students also have to take out loans to earn their degrees. The Biden package also proposes making substantial changes to student loan repayment schedules, including capping monthly payments at 5 percent of discretionary income for undergraduate student loan borrowers, up from the current 10 percent. That proposal would likely target lower-income households even more than the loan forgiveness program, Penn Wharton found. However, it has yet to estimate gains in specific income groups.
Higher cost
The three-part package is more costly than simply forgiving $10,000 in student loans, which Penn Wharton estimated 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 moratorium on student loan repayments until Dec. 31. Loan forbearance for 2022 could add $16 billion to costs, according to the Penn Wharton analysis. And the income-driven repayment proposal could cost $70 billion, assuming the same participation rate as current programs. But the proposal could add another $450 billion or more depending on how it’s structured and how many borrowers participate. That could bring the total price to more than $1 trillion. White House press secretary Karine Jean-Pierre told CNN’s Don Lemon on Thursday that the aid package could cost about $24 billion a year, assuming a 75 percent absorption rate. And the White House also pushed back on Penn Wharton’s estimate on Friday, calling it “somewhat speculative” and “clearly at the top of the range.” “I want to make it absolutely clear that we don’t think a trillion dollars is anywhere near what it will cost,” National Economic Council deputy director Bharat Ramamurti told CNN’s MJ Lee at a news conference. The Penn Wharton assessment did not take into account reforms to the income-based repayment program and was based on 100 percent of borrowers taking advantage of it, he said. A similar loan forgiveness program saw 75 percent of eligible applicants apply, according to the White House. It also didn’t take into account borrowers who had already defaulted on their loans, among other factors, he said. A budget watchdog decried the cost of the plan, noting that it would wipe out the deficit reduction included in the recently enacted fiscal reconciliation package, which Biden and congressional Democrats endorsed. “The one truly meaningful action the White House has taken to reduce deficits, the Inflation Reduction Act, will eliminate its reduction twice over from the student debt policies just announced,” said Maya MacGuineas, chairman of the Committee on Responsibility. The federal budget, which estimated student debt measures could cost as much as $600 billion over a decade, could be one of the costliest executive actions in history. CNN’s Nikki Carvajal contributed to this story.
