President Joe Biden’s plan for student debt cancellation will cost the federal government about $400 billion over the next 30 years, according to new estimates from the Congressional Budget Office.
The figures were released Monday in response to a request from Republican lawmakers who oppose Biden’s plan in large part because of its costs. They were quick to cite the estimates as evidence that the plan will “bury” taxpayers, passing along the costs to huge numbers of Americans who never went to college.
The Biden administration previously estimated the plan would cost about $24 billion a year over the next 10 years — about $240 billion for the decade — while other estimates put the total cost at $500 billion or more over the decade.
On Monday, the White House noted that the CBO’s estimated cost in the 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 cancellation along with the longer-term impact, including lower monthly repayments that would have been higher if not for the cancellation.
The office separately estimated that Biden’s latest extension of a student loan pause will cost an additional $20 billion. Monthly payments on federal student loans have been frozen since the first weeks of the pandemic. Biden in August continued the pause through the end of the year, calling that the final extension.
Biden has played down 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 provide relief to struggling borrowers, allowing them to start businesses, buy homes or just pay their bills.
“It’s a stark contrast to the Trump tax bill, which ballooned the deficit by nearly $2 trillion and provided the vast majority of benefits to big corporations and the wealthiest individuals,” White House spokesman Abdullah Hasan said.
The administration is expected to release its own detailed cost estimates in coming weeks.
Senate Majority Leader Chuck Schumer, D-N.Y., and Sen. Elizabeth Warren, D-Mass., who supported debt cancellation, said they don’t agree with some of the assumptions underpinning the CBO estimates. But a joint statement from the senators said the estimates show that “millions of middle class Americans have more breathing room” thanks to Biden’s plan.
Republicans didn’t see it that way.
“Rather than working with Congress to bring down college costs, President Biden has opted 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 cancel $10,000 in federal student debt for borrowers with incomes of less than $125,000 per year or households making less than $250,000. Those who received federal Pell Grants to attend college would get an additional $10,000 erased.
An application to receive the benefit is expected by early October. The fate of the plan largely depends on whether it can survive legal challenges that conservatives have promised to bring.
The Congressional Budget Office estimates that, out of 37 million Americans who have federal student loans, about 95% meet the income limit for $10,000 in relief. About 65% also received a Pell Grant, making them eligible for a $20,000 cancellation.
The office warned that its estimates are “highly uncertain” because it’s hard to know exactly how much borrowers would have paid in the future without Biden’s action. Some borrowers probably would have gotten their debt canceled anyway using payment plans that promise to cancel remaining debt after 10 or 20 years.
The estimates are based on everything that’s known about Biden’s plan now, but some details have yet to be hashed out. The office said it may revise its estimates as details emerge.
The $400 billion total notably does not include a separate loan payment plan that Biden proposed to help lower-income borrowers in the future. The new plan would be similar to existing plans that limit monthly bills based on a borrower’s income, but with more generous terms.
It would limit borrowers’ payments to 5% of their discretionary income, down from 10% now, and it would forgive any remaining balance after 10 years, down from 20 years now.