According to a new estimate released this week by the Congressional Budget Office, President Joe Biden’s federal student loan forgiveness plan will cost $400 billion over 10 years.
The White House, which is sensitive to charges that it is adding to rather than lowering the national deficit, quickly pushed back on the neutral federal agency’s assessment, despite the fact that it was lower than one leading outside estimate.
The Congressional Budget Office (CBO) pointed out in a letter sent Monday to North Carolina Republican senator Richard Burr and representative Virginia Foxx in response to their questions about vice president Joe Biden’s announcement last month to forgive up to $20,000 in federal student loans that delaying repayments until the end of 2022 would add another $20 million to the already astronomical price tag of $400 billion.
The White House has announced that beginning in October, Americans can seek for student loan relief.
The cost of another part of Biden’s plan, which reduces the maximum amount a borrower must repay to 5% of income from 10%, is not included in the CBO estimate. That would cost an additional $120 million, according to the nonpartisan Committee for a Responsible Federal Budget.
The score from the Congressional Budget Office (CBO), which the agency considers “highly uncertain” because of factors such as projections dependent on future economic conditions and on how future terms of loans might be modified, is just below the estimate from the Wharton Business School at the University of Pennsylvania that all three parts of the forgiveness plan would cost about $605 billion.
Democratic Party proponents claim the idea helps address education’s affordability difficulties, while opponents (including some of Biden’s own party members) say it’s impractical in a time of historically high inflation rates and gas prices.
The White House defends its student loan forgiveness plan by saying that its expense is negligible compared to the president’s capacity to encourage debt reduction in other areas.
Despite Biden’s support, the Inflation Reduction Act’s projected $300 million deficit savings won’t cover the cost of canceling the loans. According to ABC News, a senior administration official said that the net effect on cash flow from debt cancellation in 2023 would be around $21 billion.
HOW TO APPLY, WHO QUALIFIES, AND MORE ON SENATOR BIDEN’S STUDENT LOAN FORGIVENESS PLAN
A White House spokeswoman released a statement emphasizing that, despite the outlay for debt forgiveness, the president is still likely to lower the government deficit this year. The official compared the situation to the massive tax cut implemented by Biden’s predecessor, Donald Trump.
“Tens of millions of hardworking families can finally catch their breath because to the Biden-Harris Administration’s initiative to reduce student loan burden. It allows folks who have been weighed down by their student loans a fighting chance to invest in a business, buy a home, or even just get a handle on their monthly costs “According to Abdullah Hasan. This is in stark contrast to the Trump tax bill, which increased the debt by roughly $2 trillion while mostly benefiting large corporations and the wealthy.
The White House also released a document disputing the CBO estimate, pointing out that it was based on an unrealistically high level of program participation (90%) whereas similar, smaller-scale programs saw significantly lower levels of participation.
The White House memo questioned the basis for the CBO’s $400 billion estimate, arguing that the CBO’s own reasoning indicated a figure closer to $250 billion.
Registration for the debt elimination program will begin in October.