Last week, the Urban Institute published a new report examining, in detail, the implications of President Biden’s latest scheme to forgive as much student debt as possible before the next election cycle: the SAVE repayment plan. This report brings much needed clarity to the question of exactly how Biden’s misguided attempts to forgive student debt through executive order will result in an unanticipated and undesirable allocation of resources. 

Announced in January, this plan would at least partially forgive many borrowers’ debts by allowing them to pay back just a small share of what they originally borrowed. Analysis of the program at the time of the announcement revealed that the plan would essentially be a boondoggle, but this new report details a bit more about where those wasted dollars will actually be spent. 

In addition to lowering the share of income that borrowers must pay on a monthly basis, the SAVE plan forgives any unpaid interest that results from borrowers making less than their full scheduled payments. 

The result of this Frankenstein, de facto loan forgiveness program is that typical students in a certificate degree program would repay just 35 percent of their original balance, and one in an associates’ degree program would repay just 69 percent of their original balance. Before the SAVE plan was put in place, the typical borrower on each of these paths would have repaid the entire sum of the amount the borrowed. That’s because the typical borrower ultimately earns an income that makes repayment of their debt affordable and thus doesn’t qualify for existing safety nets that reserve benefits for needier student borrowers. 

Within the set of bachelors’ degree programs, the rate of implicit subsidy varies across sectors. The highest subsidy will go to borrowers who attended for-profit institutions, as they tend to have borrowed at higher levels to be able to afford enrollment and ultimately reap relatively low earnings after graduation. Borrowers attending public institutions, which are typically more affordable, will benefit from the least forgiveness. 

The one good bit of new from this report is that benefits do seem to be concentrated among less-educated borrowers. And the typical borrower with graduate debt won’t seem to benefit. Since education is correlated, broadly, with education, this likely is consistent with a more progressive distribution of aid that might otherwise have been achieved through different policy design. But in reality, funds shouldn’t be allocated broadly and should be instead targeted to those who are struggling to repay their debt regardless of the amount they borrowed or the level of education they received. 

The report’s authors, Jason Delisle and Jason Cohn, state that “as the SAVE plan is set to provide larger benefits to a broader set of borrowers and may even encourage many students to take on student debt, policymakers must ensure the program is administered in an efficient and fair manner.” 

Expanded eligibility for aid must be accompanied by new constraints on borrowing or accountability measures for institutions. While the Administration’s new gainful employment (GE) rules will hold some institutions more accountable for the economic outcomes of their graduates, Delisle and Cohn calculate that the SAVE plan will still forgive mass amounts of debt for graduates even after factoring in the new GE rules. These rules are not strong enough to counteract the negative effects of Biden turning IDR into a de facto entitlement program. 

Without more forceful accountability measures, this ill-conceived policy will only exacerbate the existing challenges in higher education finance that have brought the issue to the forefront of our national political discourse.