Student loans

Biden’s plan to forgive part of student loan debt will cost $400 billion: CBO | New

WASHINGTON (Reuters) — President Joe Biden’s executive actions canceling some student loan debt will cost about $400 billion, or about a quarter of the funds owed, the Congressional Budget Office, or CBO, said Monday.

As of June 30, 43 million borrowers held $1.6 trillion in federal student loans. About $430 billion of that debt will be forgiven, the CBO estimated. CBO previously predicted that some of the funds forfeited by Biden’s action would have ultimately been forgiven anyway.

Of 37 million borrowers receiving direct loans from the federal government, the CBO estimated that 95% of borrowers meet the income criteria for eligibility and that 45% of income-eligible borrowers will have all of their outstanding debt forgiven.

In August, the White House released a “cash flow” estimate of lost loan repayments of $24 billion a year, or about $240 billion over a decade — assuming 75% of eligible borrowers apply.

White House Chief of Staff Ron Klain said on Twitter that the CBO’s estimate is a 30-year score rather than a more common 10-year estimate.

He said the CBO is in line with the White House estimate and that the CBO “puts the first-year cost at $21 billion.”

Reuters reported in August that nongovernmental budget analysts projected the total cost of the program over 10 years at $500 billion to $600 billion, including extending a repayment pause on all federal student loans until Dec. 31 and reducing future payments based on income.

In March 2020, the US government temporarily suspended interest and payments on federal student loans at the start of the Covid-19 pandemic. Extending that September break to Dec. 31 will increase unpaid student loan costs by an additional $20 billion, the CBO said.

The CBO said its $400 billion “present value” cost estimates do not include any effects of actions impacting revenue-driven reimbursement plans, which the Committee for a Federal Budget estimates. responsible, will cost an additional $120 billion.

Bharat Ramamurti, deputy director of the White House National Economic Council, told reporters last month that the plan was fiscally justified because the federal deficit was on track for a reduction of $1.7 trillion for the 2022 financial year compared to the previous year.

The CBO acknowledged that its estimates included large unknowns, in particular the uncertain projection “of how much borrowers would repay if executive action canceling the debt had not been taken and how much they would repay in the framework of this executive action”.