The new estimate will add new fuel to the debate over President Biden’s student loan decision, which was cheered by advocates but immediately attacked by Republican lawmakers as a wasteful and inefficient use of government money. Biden announced his administration in August Up to $20,000 will be waived on student loans for low- and middle-class borrowers.
Proponents of student loan cancellation have argued in the past that similar estimates overestimate the cost of the policy to the federal government because many borrowers will not repay the loans even if the federal government is properly obligated to pay them back.
The Congressional Budget Office’s estimate excludes a move by the White House to cut the monthly amount at once. The policy would cost an additional $120 billion, according to estimates by the Committee for a Responsible Federal Budget, a DC-based think tank that opposed Biden’s policy.
“The president announced the most expensive executive action in history without a score, and we’re now seeing how expensive this policy will be,” said Mark Goldwyn, senior vice president for policy at the Committee on a Responsible Federal Budget. , in an interview before the release of the score.
More than 40 million Americans could receive some form of student loan relief under Biden’s plan. According to the White House, about half of them can completely cancel their debt. Management estimates that 60 percent of borrowers qualify to reduce their loan by $20,000. Bell GrantsFederal assistance to low-income students as undergraduates.
The release of the CBO report revived a long-standing debate among economists about how to properly calculate the cost of debt cancellation. Speaking to reporters on Monday, senior administration officials pointed to CBO’s denial that the estimates were “highly uncertain” because of the wide range of estimates of how much borrowers would have repaid. Administration officials also believe CBO overestimated the cost of the program because many eligible borrowers would not qualify for loan forgiveness as CBO recommended because of the barriers to applying. The officials spoke on condition of anonymity to explain internal White House discussions on policy. CBO estimates are based on 90 percent participation from eligible borrowers.
“The Biden-Harris administration’s student loan relief program provides breathing room for millions of working families,” White House spokesman Abdullah Hassan said. “It gives people struggling with student debt a little bit easier time starting a business, buying that first home or paying monthly bills.”
White House National Economic Council Deputy Director Bharat Ramamurthy told reporters last month that the cancellation policy would reduce average annual revenue from the student loan program by $24 billion a year over the next decade.
CBO found that a policy change would have a similar impact on annual cash flows to the federal government, but budget analysts typically estimate the cost of a new program based on how it will change the federal deficit over the long term. Goldwyn said the budget’s typical 10-year benchmark policy would increase the deficit by about $400 billion because these policy changes are imminent.
A recent Census Bureau analysis found that black and Hispanic women could benefit the most from a one-time cancellation policy. Both groups have a disproportionate share of educational debt compared to their peers.
White House officials said typical black borrowers would see their balances cut by nearly half, and more than one in four Pell recipients would have their loans wiped out before they could use the extra $10,000.
According to the Department of Education, the income of nearly 8 million borrowers has already been filed with the department. All others must apply In early October, When the agency expects to issue the form.
GOP lawmakers and state attorneys general have said they are exploring the possibility of a lawsuit to change the policy before it goes into effect. A conservative group, the Job Creators Network, has said it plans to sue the administration once the Education Department guidance is released.
“The CPO’s $400 billion cost estimate shows that this administration has lost all sense of fiscal responsibility,” said Rep. Virginia Foxx (NC), the top Republican on the House Education Committee. “Instead of working with Congress to lower college costs, President Biden has chosen to bury the American people under our unsustainable debt.”
Senate Majority Leader Charles E. Schumer (D.N.Y.) and Sen. Elizabeth Warren (D-Mass.), who spearheaded the debt forgiveness policy, issued a joint statement with assumptions based on the CBO analysis.
“It’s clear that pandemic pay freezes and student loan cancellations are policies that demonstrate how government can and should invest in working people, not the wealthy and billionaire corporations,” the pair said.
Some economists warned that the policy’s opponents often overestimate its price tag. Marshall Steinbaum, an economist at the University of Utah, says his research shows that more than 60 percent of outstanding student loans have increased in arrears over time — many of which are unpaid.
“A very large share of student loan debt that is already outstanding is not going to be repaid anyway, so I’m curious how CBO will account for the majority of student loan debt that is already uncollectible,” said Steinbaum, who supports student loan cancellation. An interview before CBO’s release.