Biden’s Student Loan Scheme Would Cost More in First Year Than Inflation Reduction Act Cuts Deficits Over 10 Years

President Joe Biden’s student loan forgiveness program would cost taxpayers more in its first year as the Inflation Reduction Act is estimated to reduce the federal budget deficit over the coming decade, according to the University of Pennsylvania’s Penn Wharton Budget Model.

Biden is expected to announce that the federal government will forgive up to $10,000 in student debt for borrowers earning up to $125,000.

The Penn Wharton Budget Model estimates this will cost $300 billion in its first year. If the program is continued over the next decade, the cost will rise to $330, according to the model.

The same budget model estimates that the Inflation Reduction Act (IRA) will reduce budget deficits by $248 billion over a 10-year period. The Congressional Budget Office estimates the IRA will shrink deficits by $305 billion.

If there is no income cap in Biden’s proposal, the student loan forgiveness program would cost $344 billion in the first year, according to the Penn Wharton Budget Model.

As former Obama administration economic adviser and Harvard professor Jason Furman has pointed out, student loan forgiveness is not free. The burden removed from borrowers will be borne by taxpayers in the form of future tax increases, future spending cuts, and inflation.

Student loan forgiveness is likely to add to inflationary pressures in the U.S. economy because it will deliver more spending power into the hands of people with a high propensity to spend. There’s no offset to this additional demand or any measure to increase the supply of goods and services.

The Committee for a Responsible Federal Budget estimates that $10,000 of debt cancellation could add up to 15 basis points to inflation up front and create additional inflationary pressure over time.