Biden’s Proposed Student Loan Rule Would Cost Taxpayers Billions: Study

President Joe Biden delivers the commencement address during the 2023 Howard University Spring graduation ceremony at Capitol One Arena in Washington, on May 13, 2023. (Mandel Ngan/AFP via Getty Images)

A new report (pdf) released by the Foundation for Government Accountability (FGA) on June 27 outlines President Joe Biden’s proposed changes to the income-driven repayment program (IDR) and its potential cost to taxpayers.

The study came in advance of expected rulings by the Supreme Court this week on wider issues related to student loan forgiveness.

The FGA’s research highlights key findings regarding the proposed rule changes to IDR, stating that the updated regulations would allow some individuals earning more than double the federal poverty level to avoid making any loan payments.

This change could come at an estimated cost of more than $471 billion over a 10-year period. The report also warns that the changes to the rule fail to address the issue of rising tuition costs and would leave borrowers with unrealistic expectations about managing their debt.

The proposed rule changes aim to alter the IDR plans, which have become increasingly popular over the past decade. These plans were designed to assist borrowers in repaying loans early in their careers, when debt-to-income ratio is usually high. According to the study, more than 8.5 million borrowers are currently enrolled in an IDR plan, owing a total of $538 billion in student loan debt.

“Team Biden is desperate to attract younger voters, and with the Supreme Court about to throw cold water on their student loan bailout, they’re supercharging Income-Driven Repayment plans, using taxpayer funds to achieve the same political result permanently,” said Michael Greibrok, a senior research fellow at the FGA.

Suggested Solutions

To prevent such costly changes from being implemented without congressional approval, the FGA proposed that federal lawmakers pass the Regulations from the Executive in Need of Scrutiny (REINS) Act.

This REINS Act would require costly rules, such as the executive action used to make changes to student loan programs, to undergo congressional scrutiny before being put into action. Currently, the REINS Act has passed the House, but not the Senate.

In its report, the FGA argues that the Biden administration’s proposed changes would impose a significant financial burden on taxpayers, who would end up paying for the college tuition of millions of Americans. The study emphasizes the need for Congress to pass the REINS Act as a safeguard against such expensive rules and changes.

The proposed change would raise the income threshold at which borrowers are exempted from making loan payments to 225 percent of the federal poverty level from the current threshold of 150 percent.

“The more than $400 billion price tag of the IDR plan could end up being more costly than Biden’s student loan bailout because it’s a permanent change, not a one-time handout,” Greibrok said. “This would be one of the most expensive executive actions in U.S. history, and it’s happening without congressional approval or oversight.”

The study indicates that this change, along with a reduction in the percentage of discretionary income borrowers must repay each month, would lower borrowers’ payments and shift the burden onto taxpayers. For instance, individuals earning $40,000 a year would see their monthly payments decrease to $30 from $151.

Additionally, the proposed changes would transfer loan balances to taxpayers after 10 years, instead of the current 20-year period, for certain borrowers. This would enable some borrowers to evade loan repayment entirely. The proposal also covers borrowers’ unpaid monthly interest, which would be shouldered by taxpayers, potentially resulting in a significant transfer of debt from borrowers to the general public.

While the proposed plan aims to address student loan debt, the FGA asserts that it fails to tackle the root cause: the rising cost of tuition. The FGA’s report argues that the administration’s plan would likely incentivize further increases in tuition as students respond to reduced payments and easier debt forgiveness by taking out larger loans.

The true cost of the proposed rule change is estimated to be even higher than official projections. The Department of Education estimates the cost at $138 billion, while the Congressional Budget Office projects it to be $230 billion. However, these estimates don’t account for potential increases in borrowers opting for the revamped IDR plan or taking on larger loan amounts, leading to a more substantial burden on taxpayers. The FGA estimates the cost could range from $332 billion to $471 billion.

The FGA’s research concludes by highlighting the negative implications of the proposed rule modification for responsible borrowers and taxpayers. It emphasizes that the change sets up borrowers for failure when managing other types of debt, such as car loans or mortgages.

Supreme Court Ruling

The relevant Supreme Court case, with a ruling expected this week, began with oral arguments on Feb. 28 when conservative members of the court appeared hesitant to accept the Biden administration’s plan.

The government stated that it has the power to cancel as much as $20,000 in loan principal per borrower for 40 million people who are in student loan debt.

U.S. Solicitor General Elizabeth Prelogar told the court that the federal Higher Education Relief Opportunities for Students Act gives the federal secretary of education the power to forgive all student loans at once. Several judges disagreed with this claim.

The White House didn’t immediately respond to The Epoch Times’ request for comment.