President Biden’s student loan handout will drastically increase the nation’s deficit. The plan could cost up to $1 trillion and contains no way to pay for this enormous cost. This level of spending offsets the alleged deficit reduction in the so-called “Inflation Reduction Act.”
Last week, President Biden announced a plan to cancel $10,000 in student loan debt for borrowers making less than $125,000. Pell Grant recipients who make less than $125,000 would be eligible for $20,000 in cancellation. For couples that file jointly, the limit would be $250,000. The plan also extends the moratorium on student loan repayments until the end of the year.
Further, the plan imposes radical changes in income-driven repayment (IDR) rules. These changes would cap monthly payments to 5% of discretionary income, compared to the current rate of 10%. These changes would also raise the amount excluded from the calculation of discretionary income from 150% to 225% of the poverty line. IDR changes also include the federal government forgiving loan balances after 10 years of payments, instead of 20 years, if the balance of the account is less than $12,000.
The Penn Wharton Budget Model conducted an analysis finding that this plan could cost up to $1 trillion with the cost of debt cancellation alone costing up to $519 billion.
Democrats passed the “Inflation Reduction Act,” which included reckless tax hikes and green energy subsidies, alleging that it would reduce the deficit by $248 billion. This was the Democrats’ way of assuring the American people that they cared about surging inflation.
Technically, the reconciliation bill will not reduce the deficit given the numerous budget gimmicks lawmakers used. However, even if it did, all of those savings would be offset by the massive cost of canceling student loan debt.
This is yet another example of lawmakers and party leaders undermining the values they tout when trying to gain votes: in this case, fiscal responsibility.
It is clear that the country’s spending is out-of-control and unsustainable.
In 2020, the federal government spent over $6 trillion. Similarly, in 2021, the federal government spent $6.82 trillion, accounting for about 30% of the economy.
The national debt has already exceeded $30 trillion. The U.S. now holds over $244,000 of debt per taxpayer and the Congressional Budget Office projects that U.S. interest costs will triple within the next decade, accounting for 12% of the entire federal budget. In 2021, U.S. interest payments on its debt alone cost roughly $2,600 per household. Further, the Federal Reserve’s new, higher interest rates will increase the federal government’s interest costs by $128 billion a year.
Under current policies, the cost of the federal government’s interest expenses could reach $1 trillion a year. Eventually, the federal government’s responsibility to pay growing interest costs will leave it incapable of paying for basic government duties. Of course, the government could continue to borrow money to pay its interest costs, throwing the nation into a dangerous cycle.
Despite these dire consequences, here we are again: we are once again fighting a $1 trillion plan that will not be paid for. This level of reckless spending is unacceptable.