The student debt plan could cost $400 billion

By Collin Binkley | Associated Press

President Joe Biden’s student debt relief plan will cost the federal government about $400 billion over the next 30 years, according to new estimates from the Congressional Budget Office.

The numbers were released Monday in response to a request from Republican lawmakers who oppose Biden’s plan largely because of its cost. They were quick to cite the estimates as evidence that the plan would “bury” taxpayers and pass the cost on to large numbers of Americans who never went to college.

The Biden administration previously estimated that the plan would cost about $24 billion per year over the next 10 years — about $240 billion for the decade — while other estimates put the total cost at $500 billion or more im quantified over the decade.

On Monday, the White House noted that the estimated cost of the CBO in its first year — $21 billion — is actually lower than the administration’s early estimate of $24 billion.

To reach the CBO’s $400 billion figure, officials looked at the immediate cost of termination along with the longer-term impact, including lower monthly repayments that would have been higher had it not been for the termination.

The bureau separately estimated that Biden’s recent extension of a student loan freeze will cost an additional $20 billion. Monthly federal student loan payments have been frozen since the first weeks of the pandemic. Biden continued the hiatus through the end of the year in August, calling it the definitive extension.

Biden has downplayed the cost of the cancellation plan, saying it would be offset by other measures to reduce the federal deficit, including his landmark Inflation Reduction Act. On Monday, the White House defended the plan, saying it will help struggling borrowers start businesses, buy homes or simply pay their bills.

“This is in stark contrast to the Trump tax bill, which added nearly $2 trillion to the deficit and gave most of the benefits to big corporations and the wealthiest individuals,” said White House spokesman Abdullah Hasan.

Administration is expected to release its own detailed cost estimates in the coming weeks.

Senate Majority Leader Chuck Schumer, DN.Y., and Sen. Elizabeth Warren, D-Mass., who supported debt relief, said they disagree with some of the assumptions underpinning the CBO estimates. But a joint statement from the senators said the estimates show “millions of middle-class Americans will have more breathing room thanks to Biden’s plan.”

Republicans didn’t see it that way.

“Instead of working with Congress to lower college costs, President Biden chose to bury the American people under our unsustainable debt,” said Rep. Virginia Foxx, the top Republican on the House Education Committee.

Biden’s plan promises to forgive $10,000 in federal student debt for borrowers earning less than $125,000 a year or households earning less than $250,000. Those who received state Pell scholarships to attend college would have an additional $10,000 deleted.

An application for benefits is expected by early October. The plan’s fate largely depends on whether it can survive the legal challenges promised by the Conservatives.

The Congressional Budget Office estimates that of the 37 million Americans who have government student loans, about 95% meet the $10,000 income threshold in relief. About 65% also received a Pell Grant, which made them eligible for a $20,000 cancellation.

The bureau warned that its estimates are “highly uncertain” because it’s difficult to know exactly how much borrowers would have paid going forward without Biden’s actions. Some borrowers probably would have gotten their debt forgiven anyway by using payment plans that promise to cancel the remaining debt after 10 or 20 years.

The estimates are based on everything that is now known about Biden’s plan, but some details have yet to be worked out. The bureau said it may revise its estimates once details become available.

Notably, the $400 billion total doesn’t include a separate loan payment plan that Biden has proposed to help lower-income borrowers going forward. The new plan would be similar to existing plans that cap monthly bills based on a borrower’s income, but with more generous terms.

It would cap borrowers’ payments from the current 10% to 5% of their discretionary income, and it would waive any remaining balance after 10 years, up from 20 years now.