How Much Will Student Loan Cancellation Cost Americans?

The legal fight over President Joe Biden's $430 billion student debt relief plan will come before the Supreme Court this week as justices hear oral arguments in two cases challenging the executive branch's authority to cancel loans held by tens of millions of Americans.

Biden's plan, which was announced last summer, delivers his campaign promise to forgive up to $10,000 in student loans per borrower. But lawsuits from GOP-led states popped up quickly, disputing the administration's use of the HEROES Act, which allows the education secretary to grant relief to a federal student loan program in times of national emergency.

Critics of the program have also pointed to the hefty price tag, questioning whether it makes sense for the federal government to spend billions of dollars given the state of the economy. The Congressional Budget Office estimates that the plan would cost $430 billion over a 30-year period.

A Newsweek analysis found that the CBO's projection would put the cost per taxpayer at roughly $2,730, or $91 annually over the next three decades. The calculations used the 157.5 million tax returns filed in 2020 to estimate the total number of Internal Revenue Service (IRS) taxpayers in the United States.

Another estimate from the National Taxpayers Union Foundation, a nonpartisan research and educational organization, puts the average, per-taxpayer burden of Biden's debt forgiveness plan at $2,500. Either way, tax experts say that extrapolating the cost per taxpayer is not as clear as these figures make it out to be.

"The CBO projections are in many ways fictional best guesses," Caroline Bruckner, a tax professor at American University, told Newsweek. "It's hard to accurately estimate over a 30-year window and I have been advised by multiple economists to not bother trying in my own research."

Bruckner, a former Capitol Hill staffer who worked on tax and budget issues, said that because budget estimates are more often wrong than right, much of the conversation surrounding the burden that Biden's plan will have on individual Americans is mostly "a guessing game." Even the CBO's report notes that its cost projections are "highly uncertain."

"The most uncertain components are the projections of how much borrowers would repay if the executive action canceling debt had not been undertaken and how much they will repay under that executive action," the office said in its September report.

Under Biden's plan, individual borrowers who earned less than $125,000 in 2020 or 2021 and married couples and heads of households who made less than $250,000 in 2020 or 2021 would be eligible to have up to $10,000 in federal student loan debt canceled. Qualifying borrowers who received a Pell Grant during their time in college could see up to $20,000 forgiven.

The total bill of $430 billion is roughly equal to the cost of stimulus checks given to Americans at the start of Biden's presidency, Newsweek previously reported.

Experts note that while it's clear the Federal Treasury will forgo billions of dollars if Biden's program moves forward, there are other economic factors that could come into play later on.

For example, the CBO's estimate fails to consider what the potentially 37 million eligible borrowers would do with their savings or what potential economic activity could come from those payments being forgiven.

"I've also wondered by homebuilders and realtors aren't shouting from the rooftops in support of this program—it could very well create an avenue for first-time homebuyers to make the leap into their first homes," Bruckner said.

At the same time, because debt relief is considered taxable at the federal level and in some states, students whose loans are forgiven could also see their taxes go up, Joann Weiner, an associate professor of economics at George Washington University, told Newsweek.

Bruckner said that the relief plan could also push universities and colleges to hike up their tuition rates, an outcome that is common in cases of tax breaks.

Although it remains uncertain how much Biden's plan could cost individual taxpayers, those estimates don't raise income taxes. Congress would have to pass a bill amending the Internal Revenue Code in order to issue a tax hike to pay for the debt forgiveness program—a move that hasn't been proposed yet.