President Joe Biden’s decision to eliminate student loan debt for millions of borrowers and postpone loan payments, according to a report from the Congressional Budget Office, will cost the federal government $400 billion over the following 30 years.
Although the majority of the economic effects will be felt during the following decade, the analysis estimated the cost over a 30-year period.
The nonpartisan CBO says that Biden’s executive action in August, which erased up to $20,000 in student loan debt for Pell Grant recipients and $10,000 for other borrowers, will cost about $400 billion.
The CBO’s report says that Biden’s plan to put off student loan payments until the end of the year will cost an extra $20 billion.
Estimates are “highly uncertain,” the CBO warned.
Phillip Swagel, who is in charge of the CBO, said that it is not clear how much student loan borrowers would have to pay back if Biden’s action hadn’t been taken compared to how much they will have to pay back because of Biden’s action.
The numbers were released Monday after Republican lawmakers put in a request. One of the main reasons they don’t like Biden’s plan is because of the cost.
They were quick to use the estimates as proof that the plan would “bury” taxpayers by putting the costs on many Americans who never went to college.
To come up with the $400 billion number, officials looked at both the immediate cost of canceling and the long-term effects, such as lower monthly payments that would have been higher if the cancellation hadn’t happened.
The CBO said that the price tag might go up even more because Mr. Biden decided to delay federal student loan payments until the end of the year. This could cost about $20 billion.
Even though the office said the numbers were “uncertain,” they are mostly the same as what economists said after Mr. Biden announced the program in August.
The report will bring back the political debate over whether or not to forgive student loans just a few weeks before the midterm elections.
Critics say the plan is a costly handout that could worsen inflation. Still, the administration says it will help millions of low- and middle-income Americans get their feet on the ground in an unstable economy.
The White House’s estimate is also based on the idea that 75% of eligible Americans who have federal student loan debt will take part.
Most borrowers will have to fill out forms to show that they are eligible to have their debts forgiven.
The CBO thinks that the number of eligible borrowers who apply will go up to 90%, meaning that even less money would be paid back to the government.
Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, said, “This might be the most costly executive action in history.”
“It’s unacceptable that the president would implement it without offsets and without congressional approval.”
Senior Biden administration officials talked to reporters about the CBO’s estimate on the condition of anonymity.
They didn’t disagree with the $400 billion number, but they did say that getting 90% participation would be more than usual for federal programs like this.
Biden has played down the cost of the cancellation plan, saying that it would be covered by other ways to cut the federal deficit, such as his famous Inflation Reduction Act.
On Monday, the White House defended the plan by saying that it will help people who are having trouble paying their bills or starting businesses.
“It’s a stark contrast to the Trump tax bill,” said White House spokesman Abdullah Hasan, “…which ballooned the deficit by nearly $2 trillion and provided the vast majority of benefits to big corporations and the wealthiest individuals.”
In the coming weeks, the administration will likely put out its detailed cost estimates.
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References:
https://www.nytimes.com/2022/09/26/us/politics/white-house-student-loan-forgiveness.html