Photo by Charles DeLoye on Unsplash
After the Supreme Court blocked Biden’s student loan plan to cancel up to $20,000 in student loans for borrowers, costing roughly $400 billion, Biden is attempting to provide these bailouts through reforming income-driven repayment plans.
In July, Biden proposed the Saving on a Valuable Education (SAVE) plan. The plan implements new income-driven repayment (IDR) rules, which further ties a borrower’s monthly payment to their salary or wages by increasing the income exemption from 150 percent to 225 percent of the poverty line. This plan comes after Biden’s already-announced radical changes to IDR rules, which he announced last year. Further, in August, the Administration announced that it would “wipe out” over 800,000 student loan borrowers’ debt. These plans stand to cost taxpayers hundreds of billions of dollars, worsening inflation and creating a moral hazard.
The application for the SAVE plan opened in August. Already, over 4 million student loan borrowers have enrolled in the program. The plan promises to lower monthly student loan payments, which are set to resume in October. For the first time since March 2020, interest payments resumed for federal student loans on September 1st.
This plan would carry a tremendous burden on American taxpayers. According to the Penn Wharton Budget Model, the SAVE plan will incur a net cost of $475 billion over the 10-year budget window. About $200 billion of that cost will come from payment reduction for the $1.64 trillion in loans already outstanding in 2023. It is estimated that about 53 percent of the current loan volume will move to SAVE after it goes active in July 2024, implying that about $869 billion will be subject to enhanced subsidies under SAVE.
Prior to this latest policy, in August of 2022 alongside his student loan bailout proposal, Biden announced other significant changes to IDR rules. According to the Penn Wharton Budget Model, these changes cost between $333 billion to $361 billion over the 10-year budget window. Still, the Biden Administration sees it necessary to continue making changes, forcing American taxpayers to eventually foot the bill.
With the threat of reckless government spending comes with a surge of inflation. Inflation has run rampant in recent years and is hurting American families. The typical American household spent $709 more this past July than they did two years ago to buy the same goods and services, according to Moody’s Analytics. According to the Bureau of Labor Statistics, the consumer price index has increased 3.2 percent from July 2022 to July 2023. Additionally, there are significant increases in the food and the professional services sector. This consumer inflation has led to record high prices on things such as food, gasoline, and a college education.
Ironically, the Left’s “solution” to astronomical college debt is destined to worsen the problem. The cost of college has drastically increased in recent decades. The total cost of a year of college was about $10,600 in 1963. In 2020, it was almost $26,000. Across all types of schools, the cost of college has increased more than 143 percent, or 2.4 times, between 1963 and 2020.
There are concerns that the cost of education will drastically increase with the implementation of the SAVE plan.
The SAVE plan creates a moral quandary. According to Forbes’ Frederick Hess, student loan relief creates a situation of moral hazard, “Biden’s plan is a prime scenario of moral hazard, threatening to deceive those who’ve repaid their loans, attended cheaper institutions, or worked through college, while encouraging future students to borrow more and colleges to be ever more aggressive about raising tuition”. With the notion that students do not have to pay back loans, students will borrow more money and pay higher education costs. With larger loans being taken out by students, ultimately all the stopgaps against universities raising their tuition rates are removed.
With record inflation and cost of college, the SAVE plan would be an irresponsible use of taxpayer money that sets up a lose-lose situation for students and Americans alike.