Global Courant
By David Lawder
WASHINGTON (Reuters) – The US Supreme Court’s decision to stop President Joe Biden’s student debt forgiveness would recover more than $300 billion in costs associated with the program recognized last year, marking a significant reduction of this year’s deficit means – at least on paper.
The court ruled 6-3 on Friday that Biden’s unilateral decision to offer up to $10,000 to $20,000 in one-time student debt forgiveness to couples earning up to $250,000 had circumvented Congress’s constitutional right to make spending laws . The debt relief program had been stalled by the legal challenges that led to the Supreme Court’s decision.
The Department of Education had estimated that the debt relief would cost taxpayers about $30 billion a year over the next decade through loan defaults — about $2.5 billion a month — or about $305 billion in total. The ministry estimated the net present value of the loan forgiveness at $379 billion over ten years.
The U.S. Treasury Department last year took a $430 billion charge against fiscal year 2022 budget results to cover these costs, as well as an extension of the general COVID-19 moratorium on payments through the end of 2022. The move had led to This resulted in a dramatic reduction in the budget deficit for 2022 to $1.375 trillion from $2.775 trillion the previous year.
Without the prior recognition, the shortfall would have fallen to less than $1 trillion as COVID aid programs ended and revenues rose.
Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget (CRFB), a tax watchdog group, estimated that after the Supreme Court ruling, about $320 billion of preventative costs would be reversed in fiscal year 2023.
The Congressional Budget Office forecasts a larger deficit of $1.539 trillion this year due to declining revenues and higher spending and health care costs. A reversal of more than $300 billion would make it look like this year’s budget deficit is slightly down from 2022.
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“It’s a deficit reduction compared to a deficit increase that never really took effect,” Goldwein said. Biden “announced the policy and they oddly recorded it had increased the deficit before they implemented the policy in any meaningful way.”
The smaller reversal from the $380 billion initial cost estimate is due to a recent expansion of means-tested amortization exemptions, cutting undergraduate loan amortizations in half for many borrowers and reducing them to zero for those in a family of four earning less than $62,400.
Many borrowers who would have forgiven loans under Biden’s plan will now instead benefit from the more generous income-driven repayment arrangement, Goldwein said.
The cash flow impact of the Supreme Court ruling will be minimal, perhaps adding about $2 billion in revenue per month that would have been lost had the pardon plan been upheld.
Shai Akabas, director of economic policy at the Bipartisan Policy Center, said another reason the deficit reduction as a result of the ruling would be lower than the initial cost recognition was that the government’s general moratorium on student loan repayments Biden was extended well into calendar year 2023.
Debt ceiling legislation banned further extensions earlier this month, and the Department of Education has said repayments will resume in October. This will pull hundreds of dollars a month out of the pockets of millions of consumers and create new headwinds for the US economy, economists say.
(Reporting by David Lawder; editing by Andrea Ricci)
