Student-loan ruling may be windfall for US deficit reduction

Student-loan ruling may be windfall for US deficit reduction

The U.S. Supreme Court’s decision to strike down President Joe Biden’s student debt relief would result in the recovery of over $300 billion in costs associated with the program recognized last year. This would lead to a significant reduction in this year’s deficit, at least on paper.

On Friday, the court ruled 6-3 that Biden’s unilateral decision to offer one-time student debt forgiveness of up to $10,000 to $20,000 to couples earning up to $250,000 had violated Congress’ constitutional right to make spending laws. The debt relief program had been blocked due to legal challenges that ultimately led to the Supreme Court’s decision.

According to the Department of Education’s estimate, the debt relief program would have cost taxpayers approximately $30 billion annually over the next decade, totaling around $305 billion. The Department also projected the net present value of the loan forgiveness to be $379 billion over ten years.

Last year, the U.S. Treasury accounted for these costs, along with an extension of the general COVID-19 moratorium on payments through the end of 2022, resulting in a $430 billion charge against the fiscal 2022 budget. This move prevented a significant reduction in the fiscal 2022 deficit, which would have fallen below $1 trillion as COVID relief programs ended and revenues increased.

Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget (CRFB), estimated that approximately $320 billion of the pre-emptive costs would be reversed during fiscal 2023 following the Supreme Court ruling.

The Congressional Budget Office predicts an increased deficit of $1.539 trillion this year due to declining revenues, higher spending, and healthcare costs. However, a reversal of over $300 billion would make it appear that this year’s fiscal deficit slightly decreased compared to 2022.

Goldwein stated that it is “deficit reduction relative to a deficit increase that never really went into effect.” He pointed out that Biden announced the policy, but it was recorded as having increased the deficit before being implemented in any meaningful way.

The smaller reversal in comparison to the initial cost estimate of $380 billion is due to the recent expansion of income-driven repayment relief. This expansion will reduce undergraduate loan repayments by half for many borrowers and eliminate them entirely for families of four earning less than $62,400.

Goldwein mentioned that many borrowers who would have had their loans forgiven under Biden’s plan will now benefit from the more generous income-driven repayment scheme.

The cash flow impact of the Supreme Court ruling will be minimal, potentially adding back around $2 billion in monthly receipts that would have been lost if the forgiveness plan had been upheld.

Shai Akabas, economic policy director at the Bipartisan Policy Center, explained that another reason the deficit reduction resulting from the ruling would be lower than the initial cost recognition is because the general student loan repayment moratorium was extended into calendar 2023 by the Biden administration.

However, the debt ceiling legislation passed earlier this month prohibits any further extensions, and the Department of Education has announced that repayments will resume in October. Economists believe this will have a negative impact on the U.S. economy, as it will take hundreds of dollars per month out of the pockets of millions of consumers.

In conclusion, the Supreme Court’s decision to strike down Biden’s student debt relief program will lead to the recovery of over $300 billion in costs. This will result in a reduction in this year’s deficit, although the actual impact on cash flow will be minimal. The extension of the general student loan repayment moratorium and the upcoming resumption of repayments in October will also have economic consequences.

About News Team

Hi, I'm Alex Perez, an experienced writer with a focus on lifestyle and culture news. From food and fashion to travel and entertainment, I love exploring the latest trends and sharing my insights with readers. I also have a strong interest in world news and business, and enjoy covering breaking stories and events.

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