Sweeping amounts of student loan forgiveness proposed by the Biden administration could cost as much as $400 billion, according to a Congressional Budget Office (CBO) estimate released Monday.
On August 24, President Joe Biden announced his plan to wipe out $10,000 in debt for those earning less than $125,000 per year, and $20,000 for those who had received Pell grants—the latter of whom comprise about one-third of U.S. undergraduate students.
Biden has already canceled over $25 billion in loans for 1 million student borrowers, though in total, more than 45 million Americans owe a combined $1.7 trillion in federal student debt. Nearly a third of those borrowers owe less than $10,000.
The CBO's estimate does not include any effects of actions affecting income-driven repayment plans, any other changes in loan terms, or effects on loans issued after June 30, according to a joint letter to Congress penned by Senator Richard Burr and Representative Virginia Foxx, two North Carolina Republicans who had requested the CBO report.
The CBO also estimated that the cost of outstanding student loans will increase by $20 billion due to suspended payments, interest accrual and involuntary collections from September 2022 to December 2022.
A moratorium on payments was scheduled to expire in August for the first time since they were postponed at the onset of the COVID-19 pandemic. Biden extended the moratorium until December of this year for what he said will be the final pause in payments.
"Today's CBO estimate makes clear that millions of middle class Americans have more breathing room thanks to President Biden's historic decision to cancel student debt," said Senate Majority Leader Chuck Schumer and Senator Elizabeth Warren, both Democrats, in a joint statement. The pair added that they "don't agree with all of CBO's assumptions that underlie this analysis."
The decision by the Biden administration has been ridiculed by former Education Secretary Betsy DeVos, who served in the Trump administration.
"However you add it all up, it's an unprecedented amount of spending, all brought about by executive fiat," DeVos said in a September 12 Newsweek op-ed. "Congress did not appropriate a dime. This brazen and unconstitutional 'forgiveness' decree will be challenged and will lose in court, but the truth is that it may not matter to Biden. The move was meant to buy votes, not reform lending or solve a problem."
Even Democratic Representative Tim Ryan of Ohio, who is running for a Senate seat against Trump-backed Republican J.D. Vance, said it sends "the wrong message" to those who have already contributed toward their debts.
"And while there's no doubt that a college education should be about opening opportunities, waiving debt for those already on a trajectory to financial security sends the wrong message to the millions of Ohioans without a degree working just as hard to make ends meet," Ryan said following Biden's announcement.
Arthur Laffer, who served on the Economic Policy Advisory Board in the Reagan administration, told Newsweek that Biden's decision "will clearly worsen inflation."
Debt relief is expected to begin in October for those who did not receive Pell Grants, accounting for about 43 million student loans reduced or forgiven entirely—including upward of 8 million borrowers automatically qualifying for support.
The Department of Education has estimated that about 27 million borrowers will be eligible to receive up to $20,000, with almost 90 percent of those eligible for loan forgiveness receiving the entire $20,000.
Newsweek reached out to Education Secretary Miguel Cardona for comment.
Uncommon Knowledge
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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
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Nick Mordowanec is a Newsweek reporter based in Michigan. His focus is reporting on Ukraine and Russia, along with social ... Read more
