The Supreme Court’s decision to strike down President Biden’s student debt relief plan could claw back more than $300 billion, marking a major reduction in this year’s deficit — at least on paper.
The Department of Education had estimated that Biden’s student loan forgiveness plan would cost taxpayers about $30 billion annually over the next decade — about $2.5 billion per month — or about $305 billion in total.
To cover these costs, the Treasury last year took a $430 billion charge against the fiscal 2022 budget.
The move had the effect of limiting a reduction in the fiscal 2022 deficit to $1.375 trillion from $2.775 trillion the prior year.
Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget, a fiscal watchdog group, estimated that about $320 billion of the pre-emptive costs would be reversed during fiscal 2023 after the Supreme Court ruling.
The Congressional Budget Office is forecasting an increased deficit of $1.539 trillion this year, so a reversal of more than $300 billion would make it appear that this year’s fiscal deficit fell slightly from 2022.
“It’s deficit reduction relative to a deficit increase that never really went into effect,” Goldwein told Reuters.
Biden “announced the policy and they weirdly recorded it as having increased the deficit before they implemented the policy in any meaningful way.”
The court’s 6-3 decision ended Biden’s efforts to offer relief to debtors of between $10,000 and $20,000.
The justices ruled that Biden must seek authorization from Congress in order to get the green light for such a significant expenditure.
Republican lawmakers applauded the ruling as avoiding a “costly and inflationary” policy that would have benefited many college-educated Americans at the expense of others without such degrees.
“If this executive order had been allowed to move forward, every American taxpayer – whether they have student loans or not – would be on the hook to foot the bill,” said Republican Rep. Jason Smith, chairman of the House Ways and Means Committee.
The smaller reversal relative to the $380 billion initial cost estimate is due to a recent expansion of income-driven repayment relief, which will cut undergraduate loan repayments by half for many borrowers and drop them to zero for those in a family of four earning less than $62,400.
Many borrowers who would have seen loans forgiven under Biden’s plan will now benefit from the more generous income-driven repayment scheme instead, Goldwein said.
The cash flow impact of the Supreme Court ruling will be minimal, perhaps adding back about $2 billion in receipts per month that would have been lost had the forgiveness plan been upheld.
Shai Akabas, economic policy director at the Bipartisan Policy Center, said another reason the deficit reduction resulting from the ruling would be lower than the initial cost recognition was because the general student loan repayment moratorium was extended well into calendar 2023 by the Biden administration.
The debt ceiling legislation earlier this month prohibited any further extensions, and the Department of Education has said that repayments will resume in October.
This will take hundreds of dollars a month out of millions of consumers’ pockets and create new headwinds for the US economy, economists say.
With Post wires