DAY SEVEN: White House refuses to explain who will pay for Biden's $500B student loan handout

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Sen. Cotton: Biden's student debt handout will hurt so many Americans

Sen. Tom Cotton, R-Ark., reacts to the Biden student loan plan and reflects on one-year since the Kabul attack

President Biden and White House officials remain silent about how they plan to pay for the cancelation of between $10,000 to $20,000 in student debt for millions of Americans. 

Despite unveiling the policy last week, administration officials have yet to explain how Biden's student loan handout will be paid for in the long term. Economists say that since the proposal calls for the government to forgive the lending outright, taxpayers are likely on the hook as the principle and interest are piled on top of the nearly $31 trillion in existing U.S. debt. 

"If this ends up being added to the national debt, it's just going to drive up the interest costs needed to not default on that figure," said Brian Riedl, a senior fellow in economics at the center-right Manhattan Institute. "All of that is eventually going to drive up taxes because at some point you'll have to figure out a way to pay that debt." 

Fox News Digital has reached out to the White House multiple times about how it plans to pay for the student loan handout or if future tax hikes will be needed. Administration officials have yet to provide an explanation but say the handout is "fully paid for" through deficit reduction that is occurring separately from the new handout. The deficit reduction is occurring after trillions in temporary federal spending to combat COVID-19.

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President Biden and White House officials continue to stay silent about how they plan to pay for the cancellation of between $10,000 to $20,000 in student debt for millions of Americans. (AP)

"It is paid for and far more by the amount of deficit reduction that we’re already on track for this year," said Bharat Ramamurti, the deputy director of the National Economic Council. "Like I said, we’re on track for $1.7 trillion in deficit reduction this year. That means, practically speaking, compared to the previous year, 1.7 trillion more dollars are coming into the Treasury than are going out. And we’re using a portion of that — a very small portion of it — to provide relief to middle-class families, consistent with the president’s plan."

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Biden announced last week plans to forgive $10,000 in student debt for borrowers making less than $125,000 annually. Pell Grant recipients will receive $20,000 in debt handouts, provided their income is below the $125,000 threshold. Administration officials claim that no individual or household in the top 5% of earners will benefit from the decision.

The White House is also extending a pause on student loan payments through the end of the year. Coinciding with the announcement is a new Education Department proposal that allows borrowers to cap undergraduate loan repayment at 5% of their monthly income, adding to the cost to taxpayers of the handout.

 The White House is also extending a pause on student loan payments through the end of the year. (Drew Angerer/Getty Images)

Administration officials claim that the cost of Biden's student loan handout cannot be fully accounted for since it's unclear how many borrowers will opt to take advantage of the opportunity. They say that it remains unclear how many individuals would have paid back the full amount of their loans over time anyway.

"All of this as when it comes to costs will also depend on how many of the loans canceled were actually expected to be repaid," said White House Press Secretary Jean-Pierre.

Protesters stage a rally in front of the White House to celebrate President Biden canceling student debt, Aug. 25, 2022. (Paul Morigi/Getty Images for We the 45m)

The National Taxpayers Union Foundation disagrees, however. The group issued an analysis earlier this week estimating that if the student loan handout adds nearly $330 billion to the deficit over the next decade. A budget model by the University of Pennsylvania's Wharton School of Business asserts, the average cost per taxpayer will be $2,085. 

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But that could be on the low end. The Committee for a Responsible Budget puts the cost of the handouts at between $440 billion and $600 billion.