The Washington PostDemocracy Dies in Darkness

CBO: White House plan to cancel student loan debt costs $400 billion

The substantial price tag added fresh fuel to raging debate over a policy expected to benefit more than 40 million borrowers.

Biden announced $10,000 in relief for student loan borrowers making less than $125,000 annually, and an additional $10,000 for Pell Grant recipients. (Video: Michael Cadenhead/The Washington Post)
6 min

A White House plan to cancel student loan debt for tens of millions of Americans will cost roughly $400 billion, according to a new estimate by the nonpartisan Congressional Budget Office, increasing federal budget deficits over the next decade and beyond.

The administration’s plan to temporarily extend an existing pause on student loan payments would further increase the cost, the CBO found, by roughly $20 billion.

The new cost estimate will add fresh fuel to the debate over President Biden’s decision to cancel up to $20,000 in student debt for eligible borrowers, a policy cheered by advocates as transformative for the middle class but assailed by Republican lawmakers as a wasteful and inefficient use of government funds. Delivered Monday in a letter to lawmakers, the estimate was requested by Republican leaders of the House and Senate education committees.

The CBO estimate does not address a simultaneous move by the White House to lower the amount borrowers can be forced to repay each month on their student loans, from 10 percent of their current income to 5 percent. That policy is expected to cost an additional $120 billion, according to estimates from the Committee for a Responsible Federal Budget, a D.C.-based think tank that has opposed Biden’s policy. Critics have complained that the president acted unilaterally — without approval of Congress — to forgive the loans and incur the hefty costs.

Student loan forgiveness application coming in October, White House says

“The president announced possibly the most expensive executive action in history without a score, and we’re now seeing just how expensive this policy is going to be,” said Marc Goldwein, senior vice president and senior policy director at the CRFB.

More than 40 million Americans could receive some level of student loan relief under Biden’s plan, which is set to take effect later this year. Sixty percent of borrowers are expected to have their debt reduced by the full $20,000, according to administration estimates; half could see their debt canceled completely.

The roughly $420 billion price tag is equal to the cost of the $1,400 stimulus checks Biden sent to Americans at the start of his presidency. And it exceeds the savings Democrats achieved in the recently-approved Inflation Reduction Act, which Biden has touted for lowering federal budget deficits, Goldwein said. But assessing the cost of student-debt forgiveness is more complicated than those more straightforward spending policies.

Once enacted, Biden’s forgiveness plan will immediately wipe out roughly $400 billion in assets on the federal government’s ledger. But because those assets had been expected to be repaid over time, the impact on federal budget deficits will also be stretched out. White House officials have argued that the impact from reduced loan payments would amount to less than $300 billion over the next decade, and said the CBO’s score should be looked at over a 30-year window.

The release of the CBO report revived a long-running debate among economic experts over how to appropriately assess the cost of the debt cancellation. Briefing reporters on Monday, senior administration officials pointed to the CBO’s disclaimer that its estimates “are highly uncertain” because of wide disagreement about how much of the forgiven loans would otherwise have been repaid.

Supporters of student debt cancellation argue that the true cost of the program is likely to be much smaller than official projections because many borrowers never actually repay the money they owe. Marshall Steinbaum, an economist at the University of Utah who supports debt cancellation, said his research suggests that more than 60 percent of outstanding student loans have balances that rise over time — suggesting they are unlikely to be paid off.

“A very large share of already outstanding student debt was not going to be repaid anyway,” Steinbaum said, “so I’m curious how the CBO will account for the fact that most student debt was already uncollectable.”

Administration officials also argue that the CBO overestimates the number of borrowers who will qualify for debt forgiveness, which are likely to be lowered by barriers to applying. The officials spoke on the condition of anonymity, to explain internal White House deliberations about the policy. The CBO estimates that 90 percent of eligible borrowers will participate in the program.

Last month, White House National Economic Council deputy director Bharat Ramamurti told reporters that the cancellation policy would reduce average annual revenue from the student loan program by $24 billion per year over the next decade.

“The Biden-Harris Administration’s student debt relief plan provides breathing room to tens of millions of working families,” said White House spokesman Abdullah Hasan. “It gives people who have been struggling with student debt that shot they want at starting a business, buying that first home, or just having a slightly easier time paying the monthly bills.”

Who qualifies for Biden’s student loan forgiveness plan?

A recent analysis by the Census Bureau said Black and Hispanic women could benefit the most from the one-time cancellation policy. Both groups hold a disproportionate share of education debt relative to their peers.

White House officials have said the typical Black borrower will see their balance cut nearly in half, and more than one in four will have their debt erased altogether, even before applying the additional $10,000 for Pell recipients.

Roughly 8 million borrowers, whose income is already on file at the department, will have their loans automatically forgiven without having to apply, according to the Education Department. Everyone else will have to apply in early October, when the agency expects to release the form.

GOP lawmakers and state attorneys general have said they are exploring the possibility of a lawsuit to overturn the policy before it takes effect. One conservative group, the Job Creators Network, has said it plans to sue the administration once the Education Department guidance is released.

“CBO’s $400 billion cost estimate shows this administration has lost all sense of fiscal responsibility,” said Rep. Virginia Foxx (N.C.), the top Republican on the House Education Committee. “Rather than working with Congress to bring down college costs, President Biden has opted 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 led the charge on debt forgiveness, released a joint statement taking issue with the assumptions underlying the CBO analysis.

“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,” the pair said.

Calculate how much of your student loan debt can be forgiven