By David Lawder
WASHINGTON (Reuters) – The U.S. Supreme Court’s decision to overturn President Joe Biden’s student debt relief would recover more than $300 billion in costs associated with the program that were recognized in the year last year, marking a major reduction in this year’s deficit – 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 circumvented Congress’s constitutional right to legislate on expenditure. The debt relief program was stalled by legal challenges that led to the Supreme Court decision.
The Department of Education had estimated that debt relief would cost taxpayers about $30 billion a year over the next decade due to lost loan repayments – about $2.5 billion a month – or about $305 billion in total. The department estimated the net present value of loan forgiveness at $379 billion over a decade.
Last year, the US Treasury took $430 billion from the results of the fiscal year 2022 budget to cover these costs, as well as an extension of the general COVID-19 moratorium on payments until the end of 2022. The move had the effect of limiting a dramatic reduction in the fiscal year 2022 deficit to $1.375 trillion from $2.775 trillion the previous year.
Without the early recognition, the deficit would have fallen below $1 trillion as COVID relief programs end and revenues rise.
Marc Goldwein, senior policy director of the Committee for a Responsible Federal Budget (CRFB), a budget watchdog group, estimated that about $320 billion in preventative costs would be reversed in fiscal year 2023 after the decision of the Supreme Court.
The Congressional Budget Office projects the deficit to increase by $1.539 trillion this year due to falling revenues and rising spending and health care costs. A reversal of more than $300 billion would make this year’s budget deficit appear to have fallen slightly from 2022.
“It’s deficit reduction versus deficit increase that never really kicked in,” Goldwein said. Biden “announced the policy and they weirdly recorded it as having increased the deficit before implementing the policy in a meaningful way.”
The lower reversal from the initial cost estimate of $380 billion is due to a recent expansion of income-driven repayment relief, which will cut undergraduate loan repayments in half for many borrowers. and reduce them to zero for members of a family of four earning less than $62,400.
Many borrowers who would have had their loans canceled under Biden’s plan will now benefit from the more generous income-driven repayment program instead, Goldwein said.
The cash flow impact of the Supreme Court’s decision will be minimal, possibly adding back about $2 billion in revenue per month that would have been lost had the discount plan been upheld.
Shai Akabas, director of economic policy at the Bipartisan Policy Center, said another reason the deficit reduction resulting from the decision would be less than the initial acknowledgment of costs was that the general moratorium on student loan repayments had been extended through 2023 by the Biden administration.
Debt ceiling legislation earlier this month barred any further extensions, and the Education Ministry said repayments would resume in October. It will take 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)