Forgiving student loan debt could cost upward of $900 billion and disproportionately benefit wealthy Americans, according to a new analysis published on Tuesday.
The findings from the Penn Wharton Budget Model, a nonpartisan group at the University of Pennsylvania's Wharton School, come as President Biden announced that he will cancel $10,000 of federal student loan debt for certain borrowers earning less than $125,000, and $20,000 for Pell Grant recipients.
Penn Wharton estimated that a one-time forgiveness of $10,000 per borrower would cost about $300 billion if the policy is limited to individuals with incomes less than $125,000. The cost jumps to $330 billion if the program continues over the next decade and would cost $344 billion if the White House scrapped the income limits. Should Biden opt to wipe out $50,000 per borrower, it would cost the federal government roughly $980 billion, according to the analysis.
Canceling debt would also add to the nation's already ballooning national debt, which surged to a record-high $30 trillion last year.
Between 69% and 73% of any debt forgiven would accrue to households that are in the top 60% of income distribution in the U.S.
The White House has weighed for months whether to cancel some federal student loan debt. Biden campaigned on erasing at least $10,000 in student loan debt for most borrowers and has since floated income-based parameters that would cut off forgiveness for any household earning more than $125,000.
However, the matter has been complicated further by the soaring prices of everything from food to gasoline to rent, with fears that wiping out billions in loan debt could exacerbate the inflation crisis.
Critics, including former Treasury Secretary Larry Summers, have argued that putting more money back into borrowers' pockets could keep inflation painfully high in the coming months and years.
"I hope the Administration does not contribute to inflation macro economically by offering unreasonably generous student loan relief or micro economically by encouraging college tuition increases," Summers, a Harvard University professor, wrote in a series of tweets this week.
Biden also announced on Wednesday tha he intends to extend the federal student loan payment pause that was poised to expire at the end of August. The freeze — which also set the interest rate to 0% — began in March 2020 at the onset of the coronavirus pandemic.
About 41 million Americans are benefiting from the federal government’s pause on student loan payments, which has been extended six times — twice by former President Trump and four times by Biden. At least $72 billion has been provided in relief on student loan interest alone.