The US Supreme Court’s decision to scrap President Biden’s student debt relief would recover more than $300 billion in program-related costs that were recognized last year, meaning a significant reduction in this year’s deficit — on paper, at least .
The court ruled Friday, 6-3, 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 violated Congress’s constitutional right to legislate to waive expenses.
The debt relief program had been blocked by the legal challenges that led to the Supreme Court decision.
The Ministry of Education had estimated that the debt relief would cost taxpayers about $30 billion annually over the next decade in forgoing loan repayments — about $2.5 billion a month — or about $305 billion overall.
The department estimated the net present value of the loan forgiveness at $379 billion over a decade.
The U.S. Treasury Department last year imposed a $430 billion charge on fiscal 2022 budget results to cover those costs, as well as extending the general COVID-19 payment moratorium through the end of 2022.
The move had the effect of capping the dramatic fall in the fiscal deficit in 2022 to $1.375 trillion from $2.775 trillion the year before.
Without the advance notice, the deficit would have slipped below $1 trillion as COVID relief programs ended and revenue increased.
Marc Goldwein, senior policy director for the Committee on Federal Budget Governance, a financial watchdog group, estimated that about $320 billion in pre-emptive costs would be reversed in fiscal 2023 after the Supreme Court ruling.
The Congressional Budget Office is forecasting an increased deficit of $1.539 trillion this year due to falling revenue and higher spending and healthcare costs. A reversal of more than $300 billion would make it appear that this year’s budget deficit has narrowed slightly from 2022.
“It’s a deficit reduction versus a deficit increase that never really came into effect,” Goldwein said. Biden “announced the policy and they found, oddly enough, that they had increased the deficit before implementing the policy in any meaningful way.”
The smaller reversal compared to the original cost estimate of $380 billion reflects a recent widening income-related repayment reliefThis will cut student loan repayments in half for many borrowers and drop them to zero for those in a family of four earning less than $62,400.
Many borrowers who would have been forgiven under Biden’s plan would now instead benefit from the more generous income-contingent repayment rule, Goldwein said.
The cash flow impact of the Supreme Court ruling will be minimal, potentially adding about $2 billion per month in revenue that would have been lost had the forgiveness plan been upheld.
Shai Akabas, director of economic policy at the Bipartisan Policy Center, said another reason the deficit reduction resulting from the ruling would be smaller than the initial cost recognition is because of the general moratorium on student loan repayments imposed by the Biden administration extended well into the 2023 calendar year.
Debt ceiling legislation earlier this month banned further extensions and the Department of Education has said repayments will resume in October.
This 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.