Fact check: Student debt relief will cost federal government hundreds of billions of dollars

Chris Mueller, USA TODAY
·5 min read
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The claim: Student loan forgiveness isn’t paid for by anyone, it’s just numbers on a computer screen

The plan to cancel at least $10,000 in student loan debt for millions of borrowers, which was announced by President Joe Biden in late August, has faced criticism from some economists worried it will fuel inflation.

But a meme being widely shared on Facebook claims Biden's plan for student loan forgiveness will come at no cost.

“Federal student debt forgiveness isn’t paid for by anyone. It’s just numbers on a computer screen deleted by a few keystrokes,” reads an Aug. 25 post that was shared nearly 400 times in a month.

The meme was also shared by The Other 98%, a liberal Facebook page with nearly seven million followers, accumulating more than 2,000 shares before it was deleted. The claim continues to circulate on other social media accounts.

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But the claim is baseless. While cost estimates vary, experts say Biden's plan for student loan forgiveness is expected to cost the federal government hundreds of billions of dollars – a cost that will ultimately be passed along to taxpayers.

USA TODAY reached out to several users who shared the claim for comment.

Student debt relief comes at a cost, but specific estimates differ

The specific cost of Biden's plan is still up in the air, but the claim that student loan forgiveness isn’t paid for by anyone falls flat for a simpler reason.

“Student loans are standard debt contracts between students and lenders to borrow a sum of money and repay it with interest in the future,” Will McBride, vice president of federal tax policy at the Tax Foundation, told USA TODAY. “As such, there is no reason to think this is not real money owed to someone.”

In 2010, the federal government largely nationalized the student loan industry, choosing to make loans directly rather than guaranteeing loans from private lenders. The move was, at the time, expected to generate revenue, said McBride, who pointed out it helped pay for the Affordable Care Act.

But the rules for repaying student loans became more generous over time, McBride said, and in July the Government Accountability Office estimated the loans would "cost the government billions."

McBride said Biden's plan "greatly increases the cost to the federal government."

Fact check: Student loan forgiveness won’t be taxed by federal government, though states may

White House officials have estimated Biden's plan would cost the federal government about $24 billion a year for 10 years, assuming about 75% of eligible borrowers participate.

Other estimates, though, put a higher price tag on the student debt relief initiative.

An analysis by the Wharton School at the University of Pennsylvania says it would cost between $469 billion and $519 billion over 10 years. The overall cost of the plan, though, could be more than $1 trillion, depending on future details of the income-driven repayment program.

The Committee for a Responsible Federal Budget estimated the total cost of Biden’s plan to be about $500 billion, including about $360 billion specifically for debt cancellation.

New graduates line up before the start of a community college commencement in East Rutherford, N.J., on May 17, 2018.
New graduates line up before the start of a community college commencement in East Rutherford, N.J., on May 17, 2018.

Cost could be passed to taxpayers through inflation, taxes

The practical effect of Biden's plan is that a large amount of all federal student debt, which currently totals about $1.6 trillion, will be transferred from student borrowers to taxpayers, McBride said.

"In as much as the cost adds to the federal deficit without specified financing, it adds to inflation, which is essentially a tax on everyone who uses U.S. dollars," he said.

The analysis by the Committee for a Responsible Federal Budget says the plan is likely to increase inflation by more than a year-long extension of the current pause on student debt repayments, and it's also likely to cost more than double what was saved through the Inflation Reduction Act.

Forbes Advisor reported that the canceled student loans would immediately be added to the federal deficit, potentially passing the cost on to the general public through increased taxes or decreased spending.

The National Taxpayers Union Foundation estimated the average cost of the plan per taxpayer to be about $2,500, though taxpayers with higher incomes would pay more than those with lower incomes.

John Sellers, co-founder and executive director of The Other 98%, told USA TODAY the post was "obviously a sarcastic and satirical statement," and was "a hot take statement asserting that taxpayers won't have to pick up the tab for student debt relief."

Our rating: False

Based on our research, we rate FALSE the claim that student loan forgiveness isn’t paid for by anyone, it’s just numbers on a computer screen. Multiple estimates from different sources, including White House officials, say Biden's plan for student debt relief is expected to cost the federal government hundreds of billions of dollars. The cost could ultimately be passed to taxpayers through inflation, higher taxes and decreased federal spending.

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This article originally appeared on USA TODAY: Fact check: Student debt relief will cost government billions