Biden's income-driven repayment plan comes with a $475 billion price tag, report says

Students may be incentivized to borrow more to pay for school

Biden's updated income-driven repayment plans come in a bit more expensive than what was previously estimated, according to recent analysts. (iStock)

The price tag on President Joe Biden's new income-driven repayment plan will cost more than was previously estimated, according to a recent analysis.

Biden's Saving on a Valuable Education (SAVE) plan could lower borrowers' monthly payments to zero dollars, reduce monthly payments in half and save those who make payments of at least $1,000 a year, the White House said in a statement

This new IDR plan will reduce federal student loan repayment for many borrowers, including borrowers in existing IDR plans and borrowers using the standard repayment option.

Writing off the loans could cost $475 billion over the next 10 years, according to the University of Pennsylvania's Penn Wharton budget model. 

previous analysis by Penn Wharton had estimated the cost would come in at between $333 billion and $361 billion over 10 years. The Congressional Budget Office (CBO) estimated in March that the "new income-driven repayment plan would increase the government's costs for federal student loans originated through 2033 by $230 billion." However, those calculations were made before Biden announced the new SAVE plan.

Roughly $200 billion will be applied to payment reductions from the $1.64 trillion in outstanding loans in 2023, according to the analysis. The remaining $275 billion will go toward the $1.03 trillion outstanding loans expected over the next 10 years.

"We estimate a take-up rate for future loans of 70%, implying that about $645 billion in future loans will be subsidized," Penn Wharton said. "About 6.57% of future borrowers (or 4.98% of total predicted loan volume) will never have to make any payments under SAVE."

If you hold private student loans, you could lower your monthly payments by refinancing to a lower interest rate. Visit Credible to speak with an expert and get your questions answered.


The new plan may incentivize more borrowing

Another fallout from the updated income-driven repayment plan is that student borrowers could be incentivized to take on more debt, according to the Penn Wharton analysis. 

"Due to the increased generosity of the newly proposed IDR plan, future student borrowers have the incentive to increase their federal student loan borrowing, shifting the current college financing pattern towards more loan borrowing instead of paying out-of-pocket," Penn Wharton said.   

Undergraduate students could borrow between $5,500 to $12,500 each year in Direct Subsidized Loans and Direct Unsubsidized Loans, depending on their year in school and dependency status. Graduate or professional students could borrow up to $20,500 each year in Direct Unsubsidized Loans. Direct PLUS Loans can also be used for the remainder of the college costs.

If you want to pay down your private student loan debt, a refinance could help you lower your interest rate and monthly payment. To see if this is the right option for you, contact Credible to speak to a student loan experts and get your questions answered.


Parents put paying for their child's college first

Most parents (78%) of college-aged kids put paying for college as their top financial priority, a recent College Ave survey said. Additionally, most parents said funding a college degree is more important than building savings, investing and retirement.

Moreover, 66% are using their savings and income as the top method to pay for college – an increase of 7% over 2022, according to the survey. More than half (55%) of these parents plan to use anywhere from $5,000 to $30,000 from their savings or income.

"For college-bound families, adding in the cost of college to a household budget – especially when some of those costs may be unknown – can be confusing if not stressful," College Ave Student Loans Cofounder and CEO Joe DePaulo said. "Despite the many financial priorities parents are juggling for college as well as everyday expenses and goals, our survey finds parents are deeply committed to investing in their child's education and future."

Borrowers with private student loans could still find relief by refinancing to lower their monthly payments. Visit Credible to find your personalized interest rate without affecting your credit score.


Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at and your question might be answered by Credible in our Money Expert column.