Federal aid for college has expanded over the last several decades.
A new study by the Wharton School of the University of Pennsylvania on President Joe Biden’s student loan forgiveness showed that the yearly cost of the plan is estimated at $270 billion. It is estimated that the 10-year cost will likely surpass $1 trillion; this amount will be paid through federal taxes.
The student loan forgiveness plan is supported by most Democrats, including Sen. Catherine Cortez Masto (D-NV).
Masto was among the Democratic contingent in July 2021 who pressed the U.S. Department of Education to expand debt relief for student borrowers as soon as possible, according to a press release from her office.
“I don’t agree with today’s executive action because it doesn’t address the root problems that make college unaffordable,” Cortez Masto, who is up for re-election this year, told Axios after the news of Biden’s new student loan forgiveness plan unraveled, however.
Biden’s plan includes three major components: debt cancellation, loan forbearance, and income-driven repayment (IDR) programs, the Penn Wharton Budget Model noted. Under strict “static” assumptions, the total plan is estimated to cost $605 billion. Unknown future IDR program details and potential “non-static” changes are factors that will likely drive the total cost of the plan past the $1 trillion mark.
The College Board tracks how much money the federal government spends on college students annually. The organization reported that federal aid given throughout the 2020-2021 school year totaled $134.4 billion, according to an editorial from Issues & Insights. This number reached $1.7 trillion in the last 10 years, with states giving another $119 billion. The grants from institutions, individuals, and employers raised the total amount of college aid in the last decade to $2.6 trillion.
The Issues & Insights editorial said a college education is “an investment in yourself” and is intended to “pay dividends for the rest of a person’s life in the form of higher earnings.”
“So, why do taxpayers (most of whom never got a college degree) have to spend so much of their hard-earned money subsidizing others’ educations?” the editorial board at Issues & Insights asked. “If the past decade’s aid spending remains constant, the federal government will be spending upward of $270 billion a year subsidizing colleges. (That compares with $140 billion a year for food aid.)”
Several experts told FOX Business that Biden’s plan is expected to cause an increase in college tuition prices and add to the inflation crisis.
“Students will likely feel liberated to borrow more money on the assumption of future loan forgiveness, and universities will take advantage of the additional borrowing by raising tuition,” Brian Riedl, a senior fellow in budget, tax, and economic policy at the Manhattan Institute, said. “This is pretty similar to the fact that, historically, 60% of all student aid increases have been captured with tuition hikes, and this will be treated like an increase in student aid moving forward, which suggests that 60% will be countered by tuition hikes.”
“Between 2006-07 and 2021-22, the average grant aid per first-time, full-time, in-state student at public four-year colleges increased by $3,740 in 2021 dollars, from $4,360 to an estimated $8,100; the average published tuition and fees in this sector increased by $3,010, from $7,730 to $10,740,” research from the College Board showed.
Biden announced in late August that for borrowers making less than $125,000 a year, he will cancel $10,000 of federal student loan debt, according to FOX News. Biden’s forgiveness extends up to $20,000 in student loan debt for borrowers who attended college on a Pell Grant. The president extended pandemic-era loan payment freezes through the end of December as well.
