Agency says debt forgiveness might cost $400 billion


According to a neutral body that conducts economic studies of government initiatives, the Biden administration’s plan to forgive up to $20,000 in federal student loan debt for millions of Americans will cost the United States almost $400 billion over 30 years.

According to an analysis by the Congressional Budget Office (CBO), the extension of the debt repayment moratorium will cost an additional $20 billion. As part of the debt relief package, the Biden administration also delayed the commencement of debt repayments until January 2023, from September.

Some Republicans and those without college degrees believe that the cost of the debt-forgiveness plan is unfair to those who did not attend college but whose tax money will fund the initiative. After the release of the study, Republicans criticized the plan’s price tag, citing the CBO’s estimate, with Rep. Andy Biggs of Arizona tweeting that it was “even more expensive than we previously anticipated.”

Nevertheless, the CBO’s projection is lower than an earlier estimate from the Penn Wharton Budget Model at the University of Pennsylvania, which placed the forgiveness program’s cost over a decade at $519 billion.

States might tax forgiven student loans under President Biden’s proposal, according to MoneyWatch. 03:46

The CBO highlighted that its projections are “very uncertain” due to the fact that they depend on the amount that borrowers would have repaid if the debt relief plan had not been enacted, as well as the amount that borrowers will repay after all or a portion of their loans are forgiven.

Although the agency’s estimate is based on the premise that 65 percent of people who qualify for student loan forgiveness got at least one Pell Grant, its analysis does not break down the impact of the relief program by socioeconomic category.

Under the Biden administration’s plan, persons who received Pell Grants, which are intended for low-income students, got further aid. These debtors will receive up to $20,000 in loan forgiveness, which is double the amount that other borrowers will receive.

CBO estimates that around 95% of the approximately 37 million borrowers with direct loans from the federal government will qualify for the debt forgiveness program. The plan is limited to single borrowers earning less than $125,000 per year and married borrowers earning less than $250,000 per year.

According to the Penn-Wharton model, because Pell Grant recipients will receive twice as much debt reduction as other borrowers, the majority of the program’s benefits will accrue to low- and middle-income workers.

The original version of this article said that the CBO forecast exceeds 10 years. In actuality, the analysis period exceeds thirty years.


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