Price tag of Biden’s student debt relief is about $400B, CBO says

President Joe Biden’s plan to cancel large amounts of outstanding student debt for tens of millions of Americans will cost the federal government roughly $400 billion, according to a new analysis released Monday by the Congressional Budget Office.

The report by the nonpartisan congressional budget scorekeeper is the first full, official cost estimate of Biden’s student debt plan issued by a government agency. And it adds new fuel to the contentious debate over whether the loan relief to tens of millions of borrowers is justified or an irresponsible use of taxpayer dollars.

The CBO analysis examined how Biden’s loan forgiveness program would reduce revenue to the government and how much that would cost the government over the lifetime of the loans, which can stretch out over 30 years. It concluded the cost would be about $400 billion.

The Biden administration’s further extension of the freeze on student loan payments through the end of 2022 is expected to cost about $20 billion, CBO said.

The CBO analysis was requested by top congressional Republicans who have railed against Biden’s student debt relief action. GOP lawmakers on Monday pounced on the CBO score, saying it bolstered their arguments that the program is too costly for taxpayers.

The estimate “shows this administration has lost all sense of fiscal responsibility” said Rep. Virginia Foxx (R-N.C.), the top GOP lawmaker on the House education committee, in a statement. She added that the estimate is “just the tip of the iceberg” because it does not include the Biden administration’s expansion of other student loan benefits, including its forthcoming plan to reduce monthly payments and interest for millions of borrowers.

White House officials have sought to focus attention on how debt relief would affect annual cash flows to the federal government, rather than the entire cost of the program.

OMB said last month the debt relief program would reduce federal revenues by about $24 billion in the first year of the program. CBO on Monday said cash flows would be reduced in the first year by 0.08 percent of GDP, or about $21 billion.

But federal law requires the government to evaluate the cost of the federal student loan program by projecting the cost across the lifetime of the loan. The administration will eventually have to produce an estimate that is based on that long-term cost.

Senior administration officials declined to say on Monday whether their estimate would be higher or lower than what CBO concluded. They said only that they would be releasing that information in the “coming weeks.”

Government estimates about the cost of the federal student loan program are uncertain and sometimes swing drastically from year to year based on long-range economic forecasts about how the loans might perform in the future and the government’s cost of borrowing. The estimates have become even more complicated in recent years because so many borrowers are participating in repayment programs in which their monthly payments are determined by their income. That requires modeling borrowers future income for decades into the future, for example.

CBO acknowledged that in its report on Monday that the estimate of the debt relief program is “highly uncertain."

It estimated that roughly 95 percent of borrowers will qualify for the program based on their 2020 or 2021 income. The Biden administration has limited relief to borrowers earning under $125,000 for individuals or $250,000 for couples.

That is roughly in line with an analysis released last week by the Education Department. The agency estimated, using Census Bureau income data, that some 42.4 million individuals across the country would be eligible for debt relief. About 45 million Americans in total owe federal student loans.

Biden’s student debt relief plan would provide up to $20,000 of loan forgiveness to federal student loan borrowers who also received a Pell grant. Most other student loan borrowers will be eligible for up to $10,000 of relief.

In total, CBO said, it expects that about $430 billion worth of debt will be canceled under the Biden administration’s program. The agency said 45 percent of borrowers are expected to have their entire outstanding debt wiped out.

But one key remaining question that will determine the cost of the program is how many of those borrowers sign up for the program. The Biden administration has said it plans to begin accepting applications in “early October” and continue to accept them through the end of 2023.

CBO estimated that 90 percent of eligible borrowers would apply to the Education Department to have their loans forgiven. But administration officials have cautioned that may be an overly optimistic figure.

“One challenge this administration has been facing is that relatively few students receive many of the benefits we offer on student loans,” a senior administration official told reporters on Monday, ticking off relatively low rates of uptake in other student loan programs.

“The bottom line is: There are a range of plausible estimates here,” the administration official said. “And we all hope for a 90 percent take-up rate. But even getting close to that number would be outside anything that I've seen in my 25 years working on the student aid programs.”

Proponents of Biden’s student debt relief program have sought to contrast the spending on student debt relief to the 2017 Republican tax law.

“We don’t agree with all of CBO’s assumptions that underlie this analysis, but it is clear the pandemic payment pause and student debt cancellation are policies that demonstrate how government can and should invest in working people, not the wealthy and billionaire corporations,” Majority Leader Chuck Schumer and Sen. Elizabeth Warren (D-Mass.) said in a joint statement.

Abdullah Hasan, a White House spokesperson, said in a statement that the administration’s student debt relief plan would provide “breathing room to tens of millions of working families” and free them up to start businesses or purchase homes.

“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,” he said.