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Student Debt Uncertainty

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Student Debt Uncertainty

January 24, 2023

The future of President's Biden's student debt forgiveness looks uncertain as it makes its way through the courts. It has been controversial because it is expensive, expected to cost nearly half a trillion dollars, much of the benefits will go to the upper middle class, as college graduates earn more over their lifetime, and it was decreed by executive order rather than going through Congress. But what's getting less attention is the plan to modify the income-based repayment plan. Under the latest plan borrowers only have to pay 5% of their income once they earn more than 225% above the poverty line. And for many borrowers the loans will eventually be forgiven. The Urban Institute calculated that only 22% of college students with a BA are expected to repay their loans under the new plan and nearly half of them will pay back less than 50% of the loan—if anything at all. The plan effectively creates a massive new entitlement that removes any incentive for universities to control costs—and all done by executive fiat. 

Source: Urban Institute

Allison Schrager is a senior fellow at the Manhattan Institute. Follow her on Twitter here.

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