Congressional Budget Office: Biden’s debt cancellation will cost $400 billion

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Dive Card:

  • President Joe Biden’s student loan forgiveness plan will cost the U.S. government about $400 billion over the next three decades, the nonpartisan Congressional Budget Office estimated in a report was released on Monday.
  • According to CBO estimates, 95% of student loan borrowers meet the plan’s income criteria, which limits forgiveness to those earning up to $125,000 annually, or $250,000 for married couples filing jointly. They are slated to receive $10,000 in loan forgiveness, or up to $20,000 if they had Pell Grants. About two-thirds of eligible borrowers have received at least one Pell Grant, according to the report.
  • CBO predicts that 90% of eligible borrowers will apply for debt relief. Nearly half of eligible student loan borrowers, 45%, will have their entire outstanding debt forgiven.

Dive Insight:

The analysis is likely to fuel critics who oppose Biden’s loan forgiveness plan. These conversations have important implications for higher education, as conservative policymakers have called for colleges to be held accountable for student loan forgivenessrising tuition costs and the country’s high student debt.

However, the agency says its estimates are highly uncertain. That’s partly because it’s hard to predict how much borrowers would have repaid if Biden had taken executive action to write off his debt. Future economic conditions and potential changes to loan terms also cloud the picture.

The $400 billion estimate does not include changes to income-driven repayment plans, which lower borrowers’ monthly payments by basing them on income. Biden’s income-driven repayment regulatory proposal would lower the percentage borrowers must pay, potentially pushing the overall cost higher.

The report provided political ammunition to Republicans, who have argued that the debt relief plan is fiscally irresponsible and unfairly benefits college-goers at the expense of people who never enrolled.

“CBO’s $400 billion cost estimate shows that this administration has lost all sense of fiscal responsibility,” said Rep. Virginia Foxx, a Republican and ranking member of the House Education and Labor Committee, said in a statement. “Instead of working with Congress to bring down college costs, President Biden has chosen to bury the American people under our unsustainable debt.”

Democratic lawmakers came to the plan’s defense after the report was released. Sens. Chuck Schumer, of New York, and Elizabeth Warren, of Massachusetts, said in a statement that they do not agree with all of CBO’s assumptions.

They argued for debt relief and other policies that a pandemic-era pause in loan repayment “shows how government can and should invest in working people, not the rich and billionaire corporations.”

CBO’s analysis is lower than other recent estimates. The Penn Wharton Budget Model, a research organization at the University of Pennsylvania, expected in August that the debt relief plan would cost between $469 billion and $519 billion over the next decade. Including proposed changes to income-driven repayment plans, the cost could exceed $1 trillion.

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