The White House claimed Friday that President Joe Biden's student loan debt forgiveness plan will cost only $240 billion.
But a new analysis from the Penn Wharton Budget Model suggests administration officials are woefully miscalculating the extended cost of Biden's controversial plan.
What did the White House say?
Bharat Ramamurti, deputy director of the National Economic Council, told reporters at the White House press briefing that officials expect the plan to cost taxpayers $24 billion per year for the next decade.
"Our estimate is that the debt relief proposal will reduce average annual receipts in the student loan program by about $24 billion a year over the next 10 years," Ramamurti said.
"So the way to think about this is that, because we are providing debt relief, reducing the outstanding balance for some people, eliminating it for other people, that means we're not going to be collecting a certain amount of payments that we otherwise would have been collecting," he added.
Shockingly, Ramamurti reiterated the White House's position that the plan is fully financed by deficit reduction that is attributed to pandemic-related spending that has since waned.
But what did Penn Wharton say?
The analysis, published on Friday, found that Biden's plan to forgive $10,000 of student loan debt per borrower who earns less than $125,000 annually — and $20,000 per Pell Grant recipient — will cost $519 billion.
Additionally, Biden's extension of the payment moratorium will cost $16 billion.
The biggest question mark is the new income-driven repayment program, which is being significantly altered to ease the financial burden of paying back student loans. Penn Wharton said that portion of the plan will cost at least $70 billion.
However, Penn Wharton also explained the new IDR program could cost as much as $450 billion — or more.
From the analysis:
[M]any borrowers who anticipate not being qualified in future years [for the IDR program] would typically be better off enrolling in the intermediate years in which they are qualified. There would also be financial incentives for future borrowers to shift education financing toward more borrowing to take advantage of the 5% repayment threshold. If the Department of Education simply auto-enrolled borrowers for which it had sufficient information (i.e., switched from “opt in” to “opt out”), the additional costs of the IDR program alone could reasonably exceed $450 billion.
If the IDR program indeed costs that much, the total cost of Biden's plan could exceed $1 trillion, the analysis said, adding that additional study is needed as the administration rolls out more program details.