Here’s Who Will Pay for Biden’s Student Loan Cancellations

President Biden is trying again cancel student loan debt for up to 25 million borrowers after Supreme Court killed your first effort to do this last year. The new plan is based on a different legal justification, one that Biden officials hope will be better able to survive the inevitable legal challenges.

If the plan holds, the government will reduce student loan balances for most Americans who have them by $5,000 to $20,000. For some, this will involve the full value of their loans. Economists expect the lower debt burden of millions of consumers to boost spending and economic growth (and, possibly, inflation).

But money is not free. Sure, it’s government money, which doesn’t seem completely real, but by canceling debt payments, the government forgoes future revenue, which increases annual deficits and the total national debt. Future taxpayers will essentially foot the bill.

In all, Biden’s debt cancellation plans will cost the government $559 billion in lost revenue over the next decade, according to Penn Wharton Budget Model Analysis. Biden proposes no new revenue to cover the costs, which means it goes straight to the top of the pile of what America owes its creditors.

As a share of the total national debt, $559 billion is not that much – just 1.6% of all federal borrowing. But if treated as a single program, $559 billion is a ton of money, even by Washington’s inflated standards. If Congress tried to pass a benefits package of this magnitude, there would be a huge fight and pronouncements on one side or the other that it is completely unaffordable. Packages of this size are only approved when there is an emergency like COVID or one party controls all branches of government and has the power to ignore the other party.

By way of comparison, the Inflation Reduction Act of 2022 included measures that would reduce annual deficits by about $275 billion over a decade. Biden bragged about it at the time. But now, Biden’s student debt cancellation will completely eliminate those savings and add an additional $284 billion in debt.

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There is an important reason Biden is trying to reduce student debt through regulatory and executive action: Congress will not do it through legislation. Even when Biden’s Democrats controlled both houses of Congress during his first two years in office, there was no serious effort to pass legislation that would cancel student debt. The votes just weren’t there. Republicans will never support the idea, and even many Democrats recognize that there is better uses of taxpayers’ money than student debt relief.

In federal aid programs, the best financial return typically comes from programs that target those who need it most, such as young children in low-income families, working parentsor older workers struggling with healthcare costs. Student debt relief, by contrast, tends to benefit people with a college degree or some college education, who typically fall into the richest 60% of the national income distribution. There is no matching aid for high school graduates who chose not to go to college or for students who completed college rather than take on debt.

Another problem: Without corresponding reforms to the extensive student debt program, loan cancellation will essentially serve as a one-time win for a group lucky enough to fall within the qualifying parameters. It will not apply to future debts or debts of previous borrowers that have already been paid off.

On a analysis of Biden’s first debt relief program, the Committee for a Responsible Federal Budget estimated that after a one-time cancellation of about $500 billion in debt, the total amount of outstanding student debt would return to the previous level of $1.6 billion within five years. And then? More debt relief, on an ongoing basis?

Still, Biden promised he would give student debt cancellation a chance when he was campaigning in 2020, and now that he’s running for reelection, he needs something to show for it. Republicans Will Attack Biden Over Offer, With Old-Fashioned Wall Street Journal Editorial Page describing Biden’s plan as an “illegal” effort “essentially turning college into an unlimited, taxpayer-funded right.”

Republicans, for their part, are also not stewards of fiscal probity. They hope that if Donald Trump wins the presidency, he reduce business taxes It is extend individual tax cuts which expire at the end of 2025 and mainly benefit the rich. Everyone worries about the growing national debt, except when it interferes with what they need to do to get elected.

Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman.

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