White House plan to relieve student loan debt will cost $400 billion, Congressional Budget Office says

The White House’s plan to cancel student loan debt for tens of millions of American borrowers will cost roughly $400 billion, according to a new estimate released by Congress’ nonpartisan scorekeeper.

The scorekeeper also found that the White House’s plan to temporarily extend an existing pause on student loan payments would cost roughly $20 billion.

The new estimate will add new fuel to the debate over President Biden’s student debt decision, which was cheered by advocates but immediately assailed by Republican lawmakers as a wasteful and inefficient use of government money. Biden announced in August that his administration would cancel up to $20,000 in student debt for lower- and middle-class borrowers.

Supporters of student debt cancellation have argued that similar estimates in the past have overstated the policy’s cost to the federal government, because despite formally owing the federal government money many borrowers never pay back the loans.

The Congressional Budget Office’s estimate excludes the White House’s simultaneous move to lower the monthly amount borrowers can be forced to repay as a percentage of their income from 10% to 5%. That policy is set to cost an additional $120 billion, according to estimates from the Committee for a Responsible Federal Budget, a D.C.-based think tank that has opposed Biden’s policy.

“The president announced possibly the most expensive executive action in history without a score, and we’re now seeing just how expensive this policy is going to be,” said Marc Goldwein, senior vice president for policy with the Committee for a Responsible Federal Budget, in an interview before the score’s release.

More than 40 million Americans could receive some level of student loan relief under Biden’s plan. Half of those could have their debt completely canceled, according to the White House. The administration estimates that 60% of borrowers are entitled to have their debt reduced by $20,000 because they received Pell Grants, federal aid for lower-income students, as undergraduates.

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The release of the CBO report revived a long-running debate among economic experts over how to appropriately count the cost of the debt cancellation. Briefing reporters on Monday, senior administration officials pointed to the CBO’s disclaimer that estimates “are highly uncertain,” because of a wide range of estimates of how much borrowers would have repaid forgiven loans. The administration officials also they believe the CBO overestimated the cost of the program, because not as many eligible borrowers will qualify for debt forgiveness as CBO suggests, because of barriers to applying. The officials spoke on the condition of anonymity, to explain internal White House deliberations about the policy. The CBO estimates are based on 90% participation from eligible borrowers.

“The Biden-Harris Administration’s student debt relief plan provides breathing room to tens of millions of working families,” said White House spokesman Abdullah Hasan. “It gives people who have been struggling with student debt that shot they want at starting a business, buying that first home, or just having a slightly easier time paying the monthly bills.”

White House National Economic Council deputy director Bharat Ramamurti told reporters last month that the cancellation policy would reduce the average annual revenue in the student loan program by $24 billion per year over the next decade.

CBO found the policy change would result in a similar impact to annual cash flow to the federal government, but budget analysts typically assess the cost of a new program based on how it will alter the federal deficit in the long run. A conventional 10-year score of the budget would find the policy increases deficits by roughly $400 billion, because these policy changes are immediate, Goldwein said.

A recent analysis by the Census Bureau said Black and Hispanic women could benefit the most from the one-time cancellation policy. Both groups hold a disproportionate share of education debt relative to their peers.

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White House officials have said the typical Black borrower will see their balance cut nearly in half, and more than one in four will have their debt erased altogether, even before applying the additional $10,000 for Pell recipients.

Roughly 8 million borrowers, whose income is already on file at the department, will have their loans automatically forgiven without having to apply, according to the Education Department. Everyone else will have to apply in early October, when the agency expects to release the form.

GOP lawmakers and state attorneys general have said they are exploring the possibility of a lawsuit to overturn the policy before it goes into effect. One conservative group, the Job Creators Network, has said it plans to sue the administration once the Education Department guidance is released.

“CBO’s $400 billion cost estimate shows this administration has lost all sense of fiscal responsibility,” said Rep. Virginia Foxx (N.C.), the top Republican on the House Education Committee. “Rather than working with Congress to bring down college costs, President Biden has opted to bury the American people under our unsustainable debt.”

Senate Majority Leader Charles E. Schumer (D-N.Y.) and Sen. Elizabeth Warren (D-Mass.), who led the charge on the debt forgiveness policy, released a joint statement taking issue with the assumptions underlying the CBO analysis.

“It is clear the pandemic payment pause and student debt cancellation are policies that demonstrate how government can and should invest in working people, not the wealthy and billionaire corporations,” the pair said.

Some economists cautioned that opponents of the policy frequently overstate its price-tag. Marshall Steinbaum, an economist at the University of Utah, said his research suggests that more than 60% of outstanding student loans have rising balances over time — suggesting that many of them are not being paid off.

“A very large share of already outstanding student debt was not going to be repaid anyway, so I’m curious how the CBO will account for the fact that most student debt was already uncollectable,” said Steinbaum, who supports student debt cancellation, in an interview before the CBO’s release.