Biden's new student loan repayment plan would cost billions more than White House projected

A key part of President Biden's student loan debt plan that would cut the monthly bill for certain borrowers could cost up to $361 billion over the next decade, according to new findings from the Penn Wharton Budget Model.   

The proposed rule from the Education Department would overhaul one of the income-driven repayment plans – known as REPAYE – by further reducing borrowers' payments to a certain percentage of their discretionary income. 

"We cannot return to the same broken system we had before the pandemic, when a million borrowers defaulted on their loans a year and snowballing interest left millions owing more than they initially borrowed," Education Secretary Miguel Cardona said in a statement.

The plan would reduce monthly obligations for undergraduate borrowers by as much as half, according to the White House; a typical graduate from a four-year university could save as much as $2,000 annually under the plan. 

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But that relief comes with a hefty price tag: The Penn Wharton Budget Model, a nonpartisan group at the University of Pennsylvania's Wharton School, projected the proposal could cost between $333 billion to $361 billion.

That is more than double the net federal budget impact of $137.9 billion provided by the Department of Education. 

The discrepancy is because the government assumed that enrollment in the income-driven plans would remain constant, while Penn Wharton projected the more generous plan would cause the take-up rate to jump from 33% to 75% of eligible loan volume. 

"Taking this factor into account, our estimates provide a range of potential budgetary cost for the government over the 10-year budget window starting in 2023," the analysis said. "Higher costs emerge at higher take-up rates."

In a statement provided to FOX Business, the Education Department said that it's proposing the new re-payment plan "responsibly."

"The plan would cut monthly payments in half for undergraduate borrowers from low- and middle-income families all while the Biden-Harris administration is reducing the deficit at record levels," a department spokesperson said. "The same can’t be said for Republican officials who racked up the deficit through a $2 trillion tax giveaway for the ultra-wealthy."

The analysis is likely to fuel further criticism of the plan by budget hawks and Republican lawmakers, who have already condemned Biden's executive order earlier this year canceling at least $10,000 and up to $20,000 in student loan debt for tens of millions of borrowers. Wharton estimates that broad forgiveness could cost as much as $469 billion. 

The debt cancelation plan, however, has attracted an onslaught of lawsuits since it was announced at the end of August. 

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The Supreme Court is set to hear oral arguments in February in two cases challenging the debt relief program, a stalwart of Biden's domestic agenda. 

In the meantime, the Biden team extended a pause on federal student loan payments and interest while the forgiveness plan remains in legal limbo. Payments on student loan debt will not be required until June 30 or until 60 days after court challenges to the forgiveness plan are litigated and settled. 

Erasing debt, and reducing borrowers' payments until the REPAYE system, will also add to the nation's already ballooning national debt, which is currently at a record-high of $31.5 trillion.