The Daily Pennsylvanian is a student-run nonprofit.

Please support us by disabling your ad blocker on our site.

A Wharton study found that the Biden administration's student loan repayment program would cost double than what was projected. Credit: Jesse Zhang

A Penn Wharton Budget Model analysis found that President Joe Biden’s student loan repayment plan would cost more than double the amount projected by the Biden administration.

The analysis, published on Jan. 30, found that Biden's new Income-Driven Repayment plan would cost between $333 to $361 billion in the next decade. The finding comes after the U.S. Department of Education published the details of Biden’s student loan forgiveness plan, which was first introduced in August 2022. According to the Department of Education, the regulations would reduce the cost of loan repayment for low- and middle-income borrowers.

PWBM is a nonpartisan, data-based research organization that analyzes the economic impact of public policy. The organization’s new analysis incorporates the factor of higher student take-up rates, predicting a much higher cost of the newly proposed student loan relief program.

The newly published analysis finds that the costs of Biden’s program — between $333 billion to $361 billion — would be much higher than the Department of Education's initial estimate of $138 billion.

Biden's plan includes reduced monthly debt payments and lowers the amount of lifetime payments that have to be made toward student loans. Its cost was originally estimated at $137.9 billion over the next 10 years. The plan has run into legal challenges since it was announced.

Wharton professor and faculty director of PWBM Kent Smetters told The Daily Pennsylvanian that the model uses methods similar to those used by the government, but it considers the additional parameter of higher student take-up rates.

“To the Department of Education's credit, they were very transparent that they did not change the take-up rate," Smetters said. "But what we say is, using the criteria they would normally use for the Government Accountability Office, the take-up rates would of course increase and lead to a higher cost of the program."

The model estimates “that the [income-driven repayment plan] take-up rate will increase from 33% to between 70% to 75% of eligible loan volumes.” This increase led the estimated cost of the program to fall between $333 billion to $361 billion over the 10-year budget period.

In PWBM’s analysis, an IDR take-up rate of 74.5% would cost $228.5 billion in the first year and $360.8 billion over the budget window, while a take-up rate of 90.9% would cost $297.5 billion in the first year and $470.8 billion over the budget window.

According to Smetters, the potential for higher take-up rates is significant since students are currently borrowing only about a third of the total capacity that qualifies for the IDR. The IDR plan provides students the option to make a monthly payment based on the size of their family and income level.

“Not only is less of their income going to be considered to be discretionary income, but even within discretionary income, less of it will be subject to a repayment percentage," Smetters said, adding that there has not been consideration of how students respond to the program.

PWBM expects to continue working to analyze the impact of colleges and universities repricing tuition fees to take advantage of the relief program, as well as the program’s effect on enrollment and graduation rates.

Whether or not this plan will become the new standard will be determined later this year, as Biden's student loan proposal is subject to public comment for 30 days, after which the administration will make changes to the proposal as appropriate.

Because the new IDR plan is based on more loosely-written laws, it is less likely to be as heavily litigated as Biden’s loan forgiveness program, according to Smetters.