Future Retirement Success
  • Politics
  • Business
  • Investing
  • Stocks
  • Politics
  • Business
  • Investing
  • Stocks

Future Retirement Success

Investing

Biden’s Student Loan Repayment Plan Poses Danger to Taxpayers

by August 10, 2023
August 10, 2023

Neal McCluskey

The Biden administration has big plans for smaller federal student debt repayment. Arguably the centerpiece of this, now that mass cancellation by executive decree has been shot down, is Biden’s Saving on a Valuable Education (SAVE) proposal. As I showed last week, SAVE would significantly decrease what a borrower would have to repay, at least in their first year, in income‐​driven repayment (IDR).

Of course, student debt is not intended to be repaid in one year. With IDR, any remaining federal student debt incurred for undergraduate education will be forgiven after twenty years. To understand the full impact of Biden’s proposed changes on undergrad loans in IDR, we need to look at full life cycles of loans under current and SAVE IDR repayment.

For estimates of both, I start with average first year earnings for a new bachelor’s degree graduate ($58,862) and average debt ($29,719). I use a 3.3 percent earnings increase each year, except in the 6th, 11th, and 16th years, when the borrower receives a 5.3 percent raise. I also increase the federal poverty level for a single person, which determines how much income is walled off from repayment, by 3.3 percent each year. (Basically, 3.3. percent is the inflation rate.) To calculate each year’s debt after the first year, I subtract the previous year’s payment from the debt total and add 5.5 percent interest — the current rate on federal, undergraduate, student loans. Finally, any interest left unpaid would be added to the loan under the current IDR, but not SAVE. With the latter, unpaid interest is essentially forgiven.

The first figure shows the life cycle under current IDR, with the debt repaid in eight years. Payments run between $3,700 and $4,800 per year. I calculate that in total, the borrower will have paid $33,662, or $29,935 in year one dollars – a small, $216 profit for taxpayers that helps to cover risk from the overall federal student loan portfolio.

The second figure is the life of the loan under SAVE. Under this plan, the loan is paid off in 17 years, and payments run between $1,300 and $2,500 per year. I calculate that the borrower will have repaid $23,357 in year one dollars. That is a $6,362 loss for taxpayers.

Of course, different parameters will produce different results. But estimating around average income and debt for undergraduate borrowers, earnings rise significantly over the period relative to debt, but only the current program repays taxpayers. That is both a fiscal and fairness problem for SAVE.

0
FacebookTwitterGoogle +Pinterest
previous post
Cutting Farm Subsidies
next post
Building and BUILDING! The Power of Momentum

You may also like

Lawyers Who Anger the Feds Face New Penalties...

March 25, 2025

Four Reasons School Choice Is Good, but Federal...

May 13, 2025

Two Scholars Revisit Trump’s Election Fraud Claims

February 2, 2024

Protectionist Sightseeing in New York Harbor

December 13, 2024

California’s Latest Minimum Wage Hike Reaffirms the Destructiveness...

June 5, 2024

Feds Can’t Regulate “Ideological Diversity” at Schools Like...

April 17, 2025

Krugman Misses the Mark on CBDCs—Again

June 1, 2023

The State of Student Loan Forgiveness: May 2024

May 1, 2024

Should the Government Have the Power to “Turn...

June 26, 2023

The Best Political Argument for More Immigration Restrictions...

November 7, 2024

    Get free access to all of the retirement secrets and income strategies from our experts! or Join The Exclusive Subscription Today And Get the Premium Articles Acess for Free

    By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

    Recent Posts

    • Call with China’s Xi, and Trump-Musk exchange fueled barbs during 20th week in office

      June 7, 2025
    • Trump’s conservative allies warn Congress faces critical ‘test’ with $9.4B spending cut proposal

      June 7, 2025
    • Tech ETFs are Leading Since April, but Another Group is Leading YTD

      June 7, 2025
    • TIMELINE: Inside the evolving relationship between Trump and Musk from first term to this week’s fallout

      June 7, 2025
    • Deadly drone wars are already here and the US is horribly unprepared

      June 7, 2025
    • Week Ahead: NIFTY’s Behavior Against This Level Crucial As The Index Looks At Potential Resumption Of An Upmove

      June 7, 2025

    Categories

    • Business (8,152)
    • Investing (2,019)
    • Politics (15,564)
    • Stocks (3,136)
    • About us
    • Privacy Policy
    • Terms & Conditions

    Disclaimer: futureretirementsuccess.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2025 futureretirementsuccess.com | All Rights Reserved