Biden’s student debt relief plan has drawn criticism from Republican and Democrat lawmakers, as well as other experts who have questioned the plan, asserting that it could raise the national debt and taxes at a time when inflation is skyrocketing. In addition, 22 governors petitioned Biden early in September to drop the student debt relief plan.
The Congressional Budget Office (CBO) says that Biden’s plan to wipe out $430 billion in student debt will cost the federal government more than $400 billion over the next 30 years.
- According to the Congressional Budget Office, outstanding student loan costs are expected to increase by $20 billion.
- Previously, the White House estimated that the plan would cost approximately $24 billion per year for the next decade. Other estimates place the overall cost over a decade at $500 billion or higher.
CBO Estimates Cost Of Student Debt To Increase By An Additional $400 Billion In Present Value
The plan by the Biden administration to cancel student debt will cost the federal government $400 billion over the next 30 years, according to the Congressional Budget Office (CBO).
Biden’s plan, announced in August, calls for borrowers who earn less than $125,000 per year to get up to $10,000 in debt relief, and Pell Grant recipients who meet similar income requirements to get $20,000 in debt relief.
On June 30, 2022, $1.6 trillion was owed in federal student loans by 43 million borrowers. The CBO estimates that about $430 billion in debts will be forgiven. In response to a request for numbers, CBO Director Phillip Swagel told Republican legislators in a letter sent on Monday.
In its May 2022 baseline, the CBO predicted that a portion of the amounts canceled by executive action would be forgiven in the end for many borrowers with income-based repayment plans. Also, the CBO estimated that many borrowers with fixed-term repayment plans would have to pay interest on the principal amounts canceled by executive action. Because of the president’s decision, these borrowers will now pay less in principal and interest than was estimated in the baseline.
The CBO also thinks the cost of outstanding student debt will go up by $20 billion. This comes after President Biden’s “final extension” of a freeze on student loan repayments and interest in August. Since March 2020, the freeze has been in effect.
After considering the freeze, the CBO “estimates that the cost of student loans will increase by an additional $400 billion in present value” due to Biden’s plan to lower student debt, Swagel told Congress.
Ron Klain: “CBO First Year Estimates Lower Than Biden’s Estimates”
The Congressional Budget Office is neutral in the legislative branch of the United States government. It gives Congress information about the budget and the economy. Monday’s letter from Swagel is the first time a government agency has provided a full estimate of how much Biden’s plan to reduce student debt will cost.
Swagel said, “The CBO’s estimates are quite uncertain,” He noted that it’s hard to say how much borrowers would have paid back if Biden hadn’t taken his debt-relief measures.
Swagel also said that the CBO’s estimate of $400 billion “does not include any effects” of Biden’s plans for a new income-driven repayment plan, which the Committee for a Responsible Federal Budget, a non-profit public policy group, says will cost an additional $120 billion.
Similar to current plans that limit a borrower’s monthly payments based on their income, but with better terms. It would limit payments to 5% of a borrower’s discretionary income, down from 10% now, and wipe out any remaining balance after 10 years, down from 20 years.
Before, the Biden administration thought the plan would cost about $24 billion per year for the next ten years, or $240 billion for the decade. However, some estimates put the total cost at $500 billion or higher.
According to White House Chief of Staff Ron Klain, the CBO estimate “puts the first-year cost at [$21 billion],” which is less than the Biden administration’s estimate of $24 billion. He also said that this [CBO estimate] is a score for the next THIRTY years, while the CBO usually estimates the cost of a program for the first TEN years.”
Biden has played down the cost of his plan to cancel student debt by saying that it will be covered by other government plans to cut the deficit, like the Inflation Reduction Act.
Student Debt Relief Plan’ Illegal’
In response to Swagel’s letter, Rep. Virginia Foxx (R-North Carolina) said Biden’s plan to cancel student debt was “illegal.”
Foxx says that the CBO’s estimated cost of $400 billion proves that the Biden administration has given up all fiscal responsibility. The Education and Labor Committee chairman adds that Biden’s actions put more of a burden on Americans who have never gone to college.
In her statement, she says that the estimates do not include the cost of this administration’s other efforts to transfer wealth from college graduates to hardworking taxpayers who have never set foot on a college campus. For example, he rewrote and expanded the Public Service Loan Forgiveness and Income-Driven Repayment programs, which are ways to help people pay off their student loans.
“Instead of working with Congress to lower college costs, President Biden has chosen to bury the American people in unmanageable debt,” Foxx continued.
Separately, Senate Majority Leader Chuck Schumer (D-NY) and Sen. Elizabeth Warren (D-MA) issued a joint statement in which they said that the CBO report “shows that millions of middle-class Americans have more breathing room.”
The two contend that almost 90% of the relief money will go to people who make less than $75,000 annually. Stopping payments on the pandemic and getting rid of student debt are two ways the government can and should invest in working people instead of the rich and multibillion-dollar corporates.
The administration is scheduled to release its cost estimates in the coming weeks.