WASHINGTON — President Biden’s plan to erase massive amounts of student loan debt for tens of millions of Americans could cost about $400 billion, the nonpartisan Congressional Budget Office said in a report Monday. which makes it one of the most expensive programs in the President’s Program.
The CBO said the price could rise further due to Mr. Biden’s decision to extend a pause in federal student loan repayments until the end of the year, which could cost some $20 billion. The report assessed the cost over a 30-year period, although the bulk of the effects on the economy will be felt over the next decade.
Although the office called the numbers “uncertain,” they are generally in line with those economists put forward after Mr Biden announced the program in August. The report is certain to rekindle the political debate over student loan forgiveness just weeks before the midterm elections. Critics have touted the plan as an expensive giveaway that could exacerbate inflation, while the administration says it will help millions of low- and middle-income Americans gain a foothold in a volatile economy.
Mr. Biden’s plan cancels $10,000 of debt for those earning less than $125,000 a year and $20,000 for those who had received Pell grants for low-income families. In its report, the CBO said that of the 37 million borrowers receiving direct loans from the federal government, 90% of those eligible could benefit from debt cancellation once it becomes available. (White House officials have suggested that a much lower share of eligible borrowers are likely to join the program than the budget office predicts, which would reduce its cost.)
In a joint statement, Senators Chuck Schumer of New York, the Majority Leader, and Elizabeth Warren of Massachusetts, two Democrats who lobbied Mr Biden to embrace the policy, said the estimate of the CBO “clearly shows that millions of middle-class Americans have more breathing room.” room thanks to President Biden’s historic decision to cancel student debt.
Yet critics have accused the Biden administration of hiding the true cost of the plan.
Marc Goldwein, senior vice president of the Committee for a Responsible Federal Budget, said the CBO’s score failed to account for an important part of the administration’s loan relief program: a plan to cut payments. for prospective borrowers earning little post-college income, which outside analysts say could house hundreds of billions of dollars more.
“You’re basically buying a very expensive lottery ticket,” Goldwein said. “When you take out the loan, you have no idea how much you’re going to pay back.”
Monday’s report, released by an apolitical budget accountant, is one of several attempts to estimate the full cost of the program, which Mr. Biden signed into law using executive action rather than legislation. The Committee for a Responsible Federal Budget calculates the cost between $440 billion and $600 billion over a decade. The University of Pennsylvania’s Penn Wharton budget model estimates just over $600 billion over 10 years. The White House has yet to release its own estimate, but officials say it should be available in the coming weeks.
Administration officials have tried to portray the potential costs as far lower than outside groups’ estimates, saying debt cancellation is “paid for” by higher-than-expected tax revenue this year – an explanation that defies traditional budget accounting conventions.
“Under the president’s leadership, we are on track to reduce the deficit by more than $1 trillion this year,” White House spokesman Abdullah Hasan said Monday in a statement defending the plan. cancellation.
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But the budget deficit is not only decreasing thanks to the increase in tax revenues. The government also borrowed trillions more than usual last year to pay for a $1.9 trillion stimulus package aimed at helping people, businesses and government weather the pandemic — and hasn’t. then did not do a similar borrowing cycle this year. Administration officials actually argue that they are partly paying for student loan relief by not borrowing more money for pandemic relief.
In a call with reporters Monday, shortly after the CBO’s score was released, administration officials called the estimate “highly uncertain.” In an effort to put the headline figure in a rosier context, officials pointed out that the administration’s plan would reduce the amount repaid to the Treasury by about $21 billion, or 0.08% of gross domestic product, by 2023, an amount reflected in the CBO report.
The budget office uses a more conventional method of estimating the costs of policies such as debt cancellation, called the present value calculation. It estimates the cost of a plan as if it were delivered in a single bargain. She, too, called her estimates highly uncertain.
The official timing of debt relief is uncertain; the Ministry of Education said it would set up an application process by the end of the year. About 60% of student borrowers have received Pell grants, and the majority come from families earning less than $30,000 a year. The Department of Education estimated that 27 million borrowers would qualify for relief of up to $20,000.
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Millions more borrowers will be eligible for $10,000 debt relief, provided they earn less than $125,000 a year or are in households earning less than $250,000. Borrowers will be assessed based on the income they reported in 2021 or 2020.
Proponents of the measure have argued that black and Hispanic Americans could benefit the most from the initiative. Analysis released by the Census Bureau last week estimated that some of the biggest debt reductions would be for Hispanics with associate degrees, and that black and Hispanic women would see some of the biggest reductions in the together.
“We do not agree with all of the CBO’s assumptions underlying this analysis, but it is clear that the pandemic suspension of payments and the cancellation of student debt are policies that demonstrate how the government can and should invest in workers, not in wealthy, billionaire corporations,” the statement from Mr. Schumer and Ms. Warren said.
Republicans quickly pounced on the report, pointing out that taxpayers who have never taken out federal student loans should help make up the difference.
“Every American should be outraged by the president’s cynical scheme and the real cost he imposes on those who benefit least from it,” said Sen. Richard M. Burr of North Carolina, the top Republican on the Senate committee that focuses on health and education and a legislator to whom the CBO report was directed.
The White House said Monday it would press ahead with its plan despite the response from conservative critics. Officials in several states, including Arizona, have threatened to launch legal challenges.
Karine Jean-Pierre, the White House press secretary, told reporters the criticism amounted to “noise” and said eligible Americans should be able to ask for forgiveness “very soon”.
Emily Cochrane contributed reporting from Washington.