The new estimate will fuel debate over President Biden’s decision on student debt, which was cheered by advocates but immediately attacked by Republican lawmakers as an unnecessary and ineffective waste of government spending. Biden announced in August that his administration would forgive up to $20,000 in student debt for lower- and middle-class borrowers.
Proponents of student debt forgiveness have argued that similar estimates in the past have overestimated the cost of the policy to the federal government, because although they officially owe the federal government money, many borrowers never repay the loans.
The CBO estimate excludes the White House’s concurrent decision to reduce the monthly amount borrowers may be required to repay as a percentage of their income from 10% to 5%. The policy is expected to cost an additional $120 billion, according to estimates from the Committee for a Responsible Federal Budget, a DC-based think tank that has opposed Biden’s policy.
“The president announced probably the most expensive executive action in history without a score, and now we see how expensive this policy is going to be,” said Marc Goldwein, senior vice president of policy at of the Committee for a Responsible Federal Budget. , in an interview ahead of the score’s release.
More than 40 million Americans could get some level of student loan relief under Biden’s plan. Half of them could see their debt completely cancelled, according to the White House. The administration estimates that 60% of borrowers qualify for $20,000 in debt relief because they received Pell Grants, federal aid for low-income students, as undergraduates.
Who qualifies for Biden’s student loan forgiveness plan?
A recent Census Bureau analysis said black and Hispanic women could benefit the most from the one-time cancellation policy. Both groups hold a disproportionate share of education debt compared to their peers.
White House officials said the typical black borrower will see their balance cut nearly in half and more than one in four will see their debt wiped out entirely, even before applying the extra $10,000 to Pell recipients. .
According to the Ministry of Education, about 8 million borrowers, whose income is already registered with the ministry, will have their loan automatically canceled without having to apply. Everyone else will need to apply in early October, when the agency plans to release the form.
GOP lawmakers and state attorneys general have said they are considering a lawsuit to overturn the policy before it takes effect. A conservative group, the Job Creators Network, said it planned to sue the administration once the Department for Education guidelines were released.
Calculate the amount of your student loan that can be forgiven
Some economists have warned that opponents of the policy often exaggerate its price. Marshall Steinbaum, an economist at the University of Utah, said his research suggests that more than 60% of outstanding student loans have growing balances over time, suggesting that many of them are not reimbursed.
“A very large portion of student debt that was already unpaid was not going to be repaid anyway, so I’m curious how the CBO will take into account that most student debt was already uncollectible,” said Steinbaum, who backs student debt cancellation, in a pre-release interview with CBO.
Danielle Douglas–Gabriel contributed reporting for this article.