Penn Analysis Estimates Biden Administration’s New Income-Driven Repayment Plan Will Cost $475 Billion Over 10 Years

By Maria Carrasco, NASFAA Staff Reporter

As the Biden administration begins to early implement parts of its new income-driven repayment (IDR) plan, the Saving on Valuable Education (SAVE) repayment plan, analysts at the University Pennsylvania on Monday released a new brief that puts an estimated price tag on the plan: $475 billion over the next decade.

Within that estimate, the Penn Wharton Budget Model analysts said that about $200 billion of the cost will come from currently outstanding loans that will have reduced payments as a result of the new plan. Under the SAVE plan, the amount of income protected from payments will rise to 225% of the federal poverty guideline. And after the SAVE plan goes fully into effect on July 1, 2024, analysts estimate that 53% of the current loan portfolio will move to the SAVE plan, resulting in about $869 billion in currently outstanding loans being reduced under SAVE.

The other $275 billion comes from the expected reduced payments for about $1.03 trillion in new federal student loans that will be made over the next 10 years, assuming a take-up rate of 70%, among future borrowers. According to these estimates, about 6.57% of future borrowers will never have to make any payments under SAVE.

The brief also presents a conservative estimate of the cost over 10 years, at $391 billion, and a maximum estimated cost of $559 billion. The Biden administration in January estimated that the new IDR plan would cost about $138 billion across all loan cohorts through 2032. The Department of Education did not respond immediately to a request for comment. 

The analysts noted that this estimate reflects the U.S. Supreme Court’s (SCOTUS) decision to strike down President Joe Biden’s student debt relief plan and the Department of Education’s final regulations for the SAVE plan announced earlier in July. The SCOTUS ruling will increase the amount of total debt that can qualify for the new SAVE plan, thereby increasing the plan’s cost, the analysts state. 

The methodology for the model was also updated to include two potential behavioral responses as a result of the final SAVE regulations: college students who may borrow more due to the generous terms of the plan, and more community colleges joining Title IV student loan programs due to the potential for a reduced cohort default rate. Some community colleges voluntarily do not participate in the federal student loan program because a high cohort default rate could jeopardize their access to other Title IV funds, the analysts note. However, since the SAVE plan introduces auto-enrollment with borrowers who are 75 days delinquent or more, the cohort default rate would drop for these institutions and could allow them to participate in the federal student loan program. 

Sen. Bill Cassidy (R-La.), ranking member of the Senate Health, Education, Labor, and Pensions (HELP) Committee, responded to this estimate, calling SAVE a “reckless” plan that will “incentivize community college students to collectively begin borrowing billions of dollars per year due to the expectation that they will not have to pay back their debt.” In June, Cassidy and a group of other Republican senators introduced the Lowering Education Costs and Debt Act, a package of five bills aimed at lowering student loan debt. 

“Make no mistake, Biden’s newest student loan scheme only transfers the burden from those who willingly took out loans to Americans who never attended college or who already fulfilled their commitment to pay off their loans,” Cassidy said. “This IDR rule is as irresponsible as it is unfair.” 


Publication Date: 7/18/2023

Jeff A | 7/19/2023 2:1:21 PM

What do our financial literacy efforts look like when the relationship between what you borrow and what you pay becomes so distorted that the most practical option is to borrow every dollar of federal student loans you can get your hands on. Esscrow what you don't need along with what you had saved for college. You will likely have a very nice grant leftover after using a portion of what you borrowed to repay the loans. Maybe someday a good portion will be forgiven right off the top as well.

Or...will all of this be struck down as illegal, and millions of borrowers are just pawns. What will repayment behavior look like given what is being dangled in front of them? IMO the student loan program is being compromised at the expense of students, not improved.

David S | 7/18/2023 11:21:27 AM

Darren, in countries with free or far more affordable college tuition, how do you think it's paid for? Taxpayers pay for it, because they recognize higher education as a public good. So their colleges are supported by public funding so that no one is turned away simply because they can't pay. Now, there are other differences between our higher ed system and those of other countries (most don't have the equivalent of open enrollment community colleges, for example), but providing an education costs money. Other countries realize that everyone benefits from that, so they believe it's worth the public investment.

Darren C | 7/18/2023 10:44:04 AM

It's always amazing to see these headlines with giant numbers, while no real change has ever been put in place to fix the broken education system. Can the tax paying citizens in this country afford to have another $475 billion squandered away for political reasons, no. Can they afford the completely out of control cost of education in this country, no. Can we ever expect the Dept. of ED or our political elite to do anything honest to address the deep seeded problems in FA, student loans and tuition costs, all signs point to no.

However, we can always count on them pandering to people for short term fulfillment, such as "loan forgiveness". Makes for a good headline.

Jesse H | 7/18/2023 9:53:26 AM

It's always such a weird flex for politicians to appeal to the "You struggled, so others should have to struggle, too!" emotion in mankind. If anyone is serious about the debt, give colleges more power to limit borrowing for refund purposes. Insisting on financially squeezing American students and their families harder and harder to pay for college while states and feds pull back is untenable. SAVE isn't a permanent solution, but I'm certainly not sorry to see families get this relief.

Ben R | 7/18/2023 8:40:45 AM

Per their estimate, just over 62 percent of the loan volume will never be repaid under this model. It seems to be taking "payment" out of income driven repayment.

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