Biden’s plan to write off some US student loan debt will cost $400 billion -CBO

By David Shepardson and Eric Beech

WASHINGTON (Reuters) – U.S. President Joe Biden’s executive action to write off some student loan debt will cost about $400 billion, or about a quarter of the funds owed, the Congressional Budget Office (CBO) said on Monday.

As of June 30, 43 million borrowers held $1.6 trillion in federal student loans. About $430 billion of that debt will be forgiven, the CBO estimated. CBO previously predicted that some of the funds forfeited by Biden’s action would have ultimately been forgiven anyway.

Of 37 million borrowers with direct loans from the federal government, the CBO estimated that 95% of borrowers meet the income criteria for eligibility and that 45% of income-eligible borrowers will have all of their outstanding debt forgiven.

In August, the White House released a “cash flow” estimate of lost loan repayments of $24 billion a year, or about $240 billion over a decade — assuming 75% of eligible borrowers apply.

Reuters reported in August that nongovernmental budget analysts projected the total cost of the program over 10 years at $500 billion to $600 billion, including extending a repayment pause on all federal student loans until Dec. 31 and reducing future payments based on income.

In March 2020, the US government temporarily suspended interest and payments on federal student loans at the start of the COVID-19 pandemic. Extending that September break to Dec. 31 will increase unpaid student loan costs by an additional $20 billion, the CBO said.

After taking these suspensions into account, the CBO estimates that the cost of student loans will increase by about another $400 billion.

The CBO said its estimates did not include any effects of actions affecting revenue-driven repayment plans, other changes to loan terms or the impact on loans issued after June 30.

Bharat Ramamurti, deputy director of the White House National Economic Council, told reporters last month that the plan was fiscally justified because the federal deficit was on track for a reduction of $1.7 trillion for the 2022 financial year compared to the previous year.

The CBO acknowledged that its estimates included large unknowns, in particular the uncertain projection “of how much borrowers would repay if executive action canceling the debt had not been taken and how much they would repay in the framework of this executive action”.

(Reporting by Eric Beech and David Shepardson; additional reporting by Caitlin Webber)

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