Price of Biden’s student debt relief is around $400 billion, CBO says
The Biden administration’s further extension of the student loan repayment freeze through the end of 2022 is expected to cost about $20 billion, the CBO said.
The CBO analysis was requested by leading congressional Republicans who have spoken out against Biden’s student debt relief action. GOP lawmakers pounced on the CBO’s score on Monday, saying it bolstered their arguments that the program was too costly for taxpayers.
The estimate « shows that this administration has lost all sense of fiscal responsibility, » Rep. Virginia Foxx (RN.C.), the top GOP legislator on the House Education Committee, in a report. She added that the estimate is « just the tip of the iceberg » because it does not include the Biden administration’s expansion of other student loan benefits, including its next plan to cut payments. monthly payments and interest for millions of borrowers.
White House officials sought to draw attention to how debt relief would affect the federal government’s annual cash flow, rather than the total cost of the program.
The OMB said last month that the debt relief program would reduce federal revenue by about $24 billion in the program’s first year. The CBO said Monday that cash flow would be reduced in the first year by 0.08% of GDP, or about $21 billion.
But federal law requires the government to estimate the cost of the federal student loan program by projecting the cost over the term of the loan. The administration will eventually have to produce an estimate based on this long-term cost.
Senior administration officials declined to say Monday whether their estimate would be higher or lower than what the CBO concluded. They only said that they would publish this information in the “coming weeks”.
Government estimates of the cost of the federal student loans program are uncertain and sometimes vary widely from year to year depending on long-term economic forecasts of how the loans might work in the future and how the government’s cost of borrowing. Estimates have become even more complicated in recent years because many borrowers participate in repayment programs in which their monthly payments are determined by their income. This requires, for example, modeling the future income of borrowers for decades.
The CBO acknowledged in its Monday report that the estimate for the debt relief package was « highly uncertain. »
He estimated that about 95% of borrowers will qualify for the program based on their 2020 or 2021 income. The Biden administration limited relief to borrowers earning less than $125,000 for individuals or $250,000 for pairs.
This roughly matches an analysis published last week by the Ministry of Education. The agency estimated, using income data from the Census Bureau, that some 42.4 million people across the country would be eligible for debt relief. About 45 million Americans in total owe federal student loans.
Biden’s student debt relief plan would provide up to $20,000 in loan forgiveness to federal borrowers who also received a Pell grant. Most other student borrowers will be eligible for relief of up to $10,000.
In total, the CBO said, it expects about $430 billion in debt to be forgiven under the Biden administration’s program. The agency said 45% of borrowers are expected to have all of their outstanding debt wiped out.
But a key remaining question that will determine the cost of the program is how many of these borrowers enroll in the program. The Biden administration has said it plans to start accepting nominations « in early October » and continue accepting them through the end of 2023.
The CBO estimated that 90% of eligible borrowers would ask the Education Department to cancel their loans. But administration officials have warned that may be an overly optimistic figure.
« One of the challenges this administration has faced is that relatively few students are taking advantage of many of the benefits we offer on student loans, » a senior administration official told reporters on Monday, pointing to rates relatively low participation rates in other student loan programs.
« The bottom line is: there’s a range of plausible estimates here, » the administration official said. “And we are all hoping for a 90% turnout. But even getting close to that number would be outside of anything I’ve seen in my 25 years of working on student aid programs.
Proponents of Biden’s student debt relief program have sought to compare student debt relief spending to the 2017 Republican tax bill.
« We do not agree with all of the CBO’s assumptions underlying this analysis, but it is clear that the pandemic suspension of payments and the cancellation of student debt are policies that demonstrate how the government can and should invest in workers, not in wealthy, billionaire corporations,” Majority Leader chuck schumer and sen. Elizabeth Warren (D-Mass.) said in a joint statement.
Abdullah Hasan, a White House spokesman, said in a statement that the administration’s student debt relief plan would provide « respite for tens of millions of working families » and free them to start. businesses or buy houses.
« It’s a stark contrast to Trump’s tax bill, which inflated the deficit by nearly $2 trillion and delivered the vast majority of the benefits to big business and the wealthiest individuals, » he said. declared.