President Biden’s plan to eliminate student debt is estimated to cost $400 billion more to the federal government, according to the nonpartisan Congressional Budget Office.
In the absence of a full accounting from the White House, Monday’s projections represent the latest attempt to put a price on the administration’s student-loan-modification plans. A range of analyst projections underlines the significant complexities of estimating the performance of the federal government’s student-loan portfolio, raising uncertainties about how the changes would eventually affect the federal budget.
The CBO forecasts that the administration’s plan to prolong a suspension of student-loan payments between September and December 2022 will cost $20 billion more in outstanding student loans. After accounting for such suspensions, the CBO estimates that the administration’s plan to cancel up to $20,000 in student debt for some borrowers will boost the government’s cost of student loans by an additional $400 billion.
In a letter to Congress, CBO director Phillip Swagel stated that the projections are very unclear. The most uncertain components are forecasts of how much debtors would repay if the debt cancellation executive action had not been conducted and how much they will repay under that executive action, Mr. Swagel added. Those forecasts are contingent on future economic conditions and how loan terms may be amended in the future.
The figures were issued in response to queries from North Carolina Republican Sen. Richard Burr and Rep. Virginia Foxx.
In August, Mr. Biden announced a multi-tiered strategy to provide student-loan relief to Americans, including a plan to forgive student loans for individuals earning under $125,000 (or $250,000 for married couples), an extension of a pandemic pauses on student-loan payments, and changes to income-driven repayment plans. The CBO’s study did not include cost estimates for income-driven repayment arrangements.
According to the White House, the debt-cancellation component of the broader proposal would lower government revenue from student-loan payments by nearly $240 billion over a decade. It hasn’t given the comparable equivalent to the CBO. According to senior administration sources, the White House will issue more specific cost estimates for several of the plan’s features in the coming weeks.
Analysts and deficit watchers have depended on private projections in the lack of such assessments, which range greatly, confounding efforts to comprehend how the changes would affect the government budget.
According to the Penn Wharton Budget Model, whose research is regularly used by policymakers, the overall scheme might cost $1 trillion, with the debt-cancellation part costing up to $519 billion over ten years.
The Washington-based think tank Committee for a Responsible Federal Budget predicts that debt forgiveness will cost around $360 billion, and prolonging the repayment moratorium costs an extra $20 billion.
The CBO’s new assessment confirms the absurd expense of the White House plan to erase enormous sums of student debt by executive order, essentially regardless of need, said Maya MacGuineas, head of the CRFB.
The CBO stated that its projections are based on how the student-loan provisions will affect cash inflows over the next 30 years. The White House’s projections of how much debt forgiveness will affect government revenue are based on a cash-flow study of the impact on the federal budget over a single year, which is then averaged over a decade.
According to the CBO’s predictions, 90% of income-eligible borrowers will apply for debt forgiveness. The White House has stated that it anticipates a 75% take-up rate.
The administration has maintained that the debt-forgiveness provisions are paid for by the steep decline in the government deficit this fiscal year, which ends Sept. 30, as part of a larger campaign to promote deficit reduction as an economic triumph.
Ms. Foxx stated that the CBO projection shows this administration has lost all sense of economic prudence. Rather than working with Congress to reduce college expenses, President Biden has chosen to bury the American people beneath unsustainable debt, she continued.
According to a senior administration official, debt reduction will be a game changer for millions of Americans. It will give economic advantages to those burdened by student debt. According to the White House, individuals earning less than $75,000 a year will receive the biggest relief.
According to the CBO’s statement, 43 million borrowers had $1.6 trillion in federal student loans as of June 30. According to the CBO, around $430 billion of that debt will be eliminated.