President Joe Biden on Wednesday announced the federal government will waive $10,000 of college debt for individuals earning less than $125,000 annually, as well as $20,000 for Pell Grant recipients. A White House fact sheet says the new plan would “provide relief” to as many as 43 million borrowers. The fact sheet doesn’t disclose the cost, which the Wall Street Journal and the Committee for a Responsible Federal Budget (CRFB) suggest could exceed $500 billion, with “none of it paid for” according to CRFB president Maya MacGuineas. Former Obama Council of Economic Advisers chair Jason Furman on Wednesday said “Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless.”

Even the New York Times admits “the move could cost taxpayers about $300 billion or more in money they effectively lent out that will never be repaid.” A new Penn/Wharton study, considering just part of the policy the administration announced yesterday, figures the costs to be $329 billion. As a review by the National Taxpayers Union Foundation notes, even that partial figure exceeds the entire expected deficit reduction from the recently enacted Inflation Reduction Act (IRA):

As the NTUF summarized:

President Biden is wiping away the first decade of deficit reduction from his signature legislation just a few weeks after its passage into law, and with the stroke of a pen.

But the deficit reality is even worse than that suggests.

In his May 30, 2022 Wall Street Journal op-ed titled “My Plan for Fighting Inflation,” President Biden argued “we need to keep reducing the federal deficit, which will help ease price pressures.” That anticipated the argument he made in signing the Inflation Reduction Act last week, when he praised the new law because it “cut the deficit . . . over the next decade.” “We’re cutting deficits to fight inflation,” Biden summarized.

But the president failed to mention that the deficit reduction he touted in the bill is back loaded. According to an analysis by the Tax Foundation, “by increasing spending, the bill worsens inflation, especially in the first four years” when they find “budget deficits would increase.” Yesterday’s actions will only increase those upfront deficits even more—this year. The Penn/Wharton study suggests that $298 billion of the expected $329 billion cost of just part of the administration’s college loan relief plan would fall in fiscal year 2022:

Table 1. Conventional Budget Estimates of the Broad Student Debt Forgiveness, FY2022-2031 (Billions of Dollars)

We’ll have to wait and see how much more of the even higher costs resulting from the administration’s full plan will hit immediately, and further undermine the president’s claims to be “cutting deficits to fight inflation.”

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