The impact of income-driven repayment (IDR) educational financing plans by income, race, and gender is not generally well understood. Our analysis estimates that approximately 43 percent of the subsidies from President Biden’s Saving on a Valuable Education (SAVE) plan will accrue to current Black student borrowers and 71 percent to current female borrowers. While lower- to middle-income student borrowers stand to gain the most, we estimate that about a fifth of the benefits will go to households in the top 20 percent of the income distribution, and borrowers with graduate-level education who benefit from the SAVE plan tend to experience the highest savings on average.
Analysis of President Biden’s New Plans for Student Loan Debt Relief – April 2024
We estimate that President Biden’s recently announced “New Plans” to provide relief to student borrowers will cost $84 billion, in addition to the $475 billion that we previously estimated for President Biden’s SAVE plan. Moreover, some debt relief in the New Plans accrues to borrowers in households with income more than the SAVE plan coverage.
Income-Driven Repayment Plans: Modeling Take-up Rates
Federal student loan borrowers can currently choose between several repayment options. When estimating program costs, government agencies have considered several different behavioral repayment models. We find that the most financially savvy rule – where borrowers select the repayment option that minimizes the present value of their future repayments – best explains current borrower choices among repayment options that exist prior to the new Income-Driven Repayment Plan (IDR) “SAVE” plan to be implemented in July 2024.
Biden’s New Income-Driven Repayment (“SAVE”) Plan: Budgetary Cost Estimate Update
PWBM estimates that President Biden’s new Income-Driven Repayment Plan (the “SAVE” plan) will cost $475 billion over the 10-year budget window. This estimate includes the Supreme Court’s decision to invalidate President Biden’s Student Loan Forgiveness Plan and the Department of Education’s final regulations announced on July 10, 2023.
Budgetary Effect of “SAVE Students Act”
PWBM estimates that “SAVE Students Act” would cost about $276 billion less over the 10-year budget window relative to the Income-Driven Repayment (IDR) plan proposed by President Biden.
Budgetary Cost of Newly Proposed Income-Driven Repayment Plan
We estimate President Biden’s newly proposed Income-Driven Repayment (IDR) Plan will cost between $333 to $361 billion over the 10-year budget window, more than twice as much as the cost estimate released by the Biden Administration. These costs are in addition to the one-time cost of direct loan forgiveness that we previously estimated at $469 billion.
The Biden Student Loan Forgiveness Plan: Budgetary Costs and Distributional Impact
President Biden’s new student loan forgiveness plan includes three major components. We estimate that debt cancellation alone will cost up to $519 billion, with about two-thirds of the benefit accruing to households making $88,000 or less. Loan forbearance will cost another $16 billion. The new income-driven repayment (IDR) program would cost another $70 billion, increasing the total plan cost to $605 billion under strict “static” assumptions. However, depending on future IDR program details to be released and potential behavioral (i.e., “non-static”) changes, total plan costs could exceed $1 trillion.
Forgiving Student Loans: Budgetary Costs and Distributional Impact
We estimate that forgiving federal college student loan debt will cost between $300 billion and $980 billion over the 10-year budget window, depending on program details. About 70 percent of debt relief accrues to borrowers in the top 60 percent of the income distribution.
The Decline in Fertility: The Role of Marriage and Education
We relate the decline in the birth rate to two demographic factors closely associated with women’s fertility patterns: marriage and educational attainment. Married women are at least three percentage points more likely to have a child than unmarried women, and simultaneously marriage rates among women 25 to 29 declined 15.9 percent since 2006. Women who complete 4 years of college are less likely to have a child, while completion rates of 4 years of college rose 10 percent for women over the past decade.
Mortality by Education—an Update
In 2018 and 2019, age-specific mortality rates for ages 60 through 80 continued to decline by 0.5 percent annually. For the same age group, age-specific mortality increased for those without a high school diploma but decreased 2.5 percent for those with a BA or advanced degrees.
Total Cost of Universal Pre-K, Including New Facilities
We estimate that each new preschooler for a universal pre-K program requires about $21,000 in new construction costs for facilities expansion. Including non-construction costs, a universal pre-K program for three- and four-year-olds will cost about $351 billion over the 10-year budget window. If made permanent after 10 years, this program will have essentially no impact on long-run GDP. A pre-K program for just four-year-olds reduces the 10-year cost to $196 billion and slightly increases long-run GDP, if that program is made permanent.
President Biden’s FY2023 Budget Proposal: Budgetary and Economic Effects
We project that President Biden’s FY2023 Budget, taken as a whole, would reduce debt and grow the economy by 0.4 percent over time, with two major components of the Budget---"Build Back Better” and “New Provisions”---working in opposite directions.
The Impact of the Build Back Better Act (H.R. 5376) on Inflation
PWBM projects that the spending and taxes in the Build Back Better Act (H.R. 5376), as written, would add up to 0.2 percentage points to inflation over the next two years and reduce inflation by similar amounts later in the decade. As an illustrative alternative, if temporary major spending provisions were made permanent, the bill would add up to a third of a percentage point to near-term inflation and have a negligible impact on inflation later in the decade.
H.R. 5376, Build Back Better Act: Budget and Macroeconomic Effects
PWBM estimates that H.R. 5376, the Build Back Better Act, would increase spending by $2.1 trillion over the 10-year budget window while increasing revenue by $1.8 trillion, for a 10-year deficit of $274 billion. By 2050, the proposal would decrease GDP by 0.2 percent, relative to current law.
Macroeconomic Effects of the White House Build Back Better Budget Reconciliation Framework
PWBM estimates that the White House’s Build Back Better reconciliation framework would increase spending by $1.87 trillion over the 10-year budget window and revenues by $1.56 trillion over the same period. By 2050, the proposal would increase federal debt by 2.0 percent and decrease GDP by 0.1 percent, relative to the current law baseline.
COVID-19 Learning Loss: Long-run Macroeconomic Effects Update
Using recently available data on learning loss from pandemic school closures, PWBM estimates that projected 2051 GDP is 1.4 percent lower than it would have been without the learning loss. Extending the 2021-22 school year for all public schools by one month would cost $78 billion and limit the reduction in 2051 GDP to 1.0 percent—a net present value gain in GDP of more than $1 trillion over the next three decades, equal to a $15.14 return for each $1 invested.
Sens. Manchin and Schumer’s 2021 Senate Budget Reconciliation Agreement: Macroeconomic and Distributional Effects
PWBM projects that the long-run aggregate macroeconomic effects of Senator Joe Manchin's $1.5T reconciliation framework would be negligible. The economic benefits would largely accrue to younger, poorer households while the economic costs would fall mostly on richer households.
College Employment and Student Performance
Working part-time or full-time while enrolled in college is not uncommon, but students who do so tend to fall behind their peers in terms of grades or spending more time in undergraduate study, even after controlling for other characteristics such as household resources.
Is Income Implicit in Measures of Student Ability?
Measures of student ability typically used for college admissions implicitly reflect differences in family income across students. However, high school GPA reflects differences in income noticeably less than SAT and ACT scores. However, SAT and ACT scores do capture aspects of student ability missed by school-specific rankings alone.
Household Finances and Post-Secondary Enrollment
Even after accounting for differences in observed student ability, students coming from lower-income households are less likely to attend college. If they attend college, lower-income students are also more likely to attend a two-year community college.