The Biden administration’s plan to cancel up to $20,000 in federal student loan debt for millions of Americans will cost the U.S. about $400 billion over a decade, according to the nonpartisan agency that conducts economic analyses of government policies.
The extension of the pause on debt repayments will cost another $20 billion, the analysis from the Congressional Budget Office (CBO) noted. As part of the debt relief plan, the Biden administration also pushed back a resumption of debt repayments from September until January 2023.
The cost of the debt-forgiveness plan has sparked debate among some Republicans and those without college degrees, who argue that the plan isn’t fair to people who didn’t attend college but whose tax dollars will support the effort. After the report was issued, Republicans decried the plan’s price tag, citing the CBO’s forecast, with Rep. Andy Biggs of Arizona writing on Twitter that it was “even more expensive than we initially thought.”
Even so, the CBO’s estimate is lower than an earlier forecast from the University of Pennsylvania’s Penn Wharton Budget Model, which pegged the forgiveness program’s cost at $519 billion.
The CBO noted that its estimates “are highly uncertain,” given that they depend on the amount that borrowers would have repaid if the debt relief plan hadn’t been created, as well as the amount that borrowers will repay after all or some of their loans are forgiven.
The agency’s analysis doesn’t break down the impact of the relief program by income group, although it said its estimate is based on an assumption that 65% of those who qualify for student loan forgiveness received at least one Pell Grant.
Under the Biden administration’s plan, extra relief is provided for people who received Pell Grants, which are geared to low-income students. These borrowers will receive up to $20,000 in loan forgiveness, double the amount of other borrowers.
About 95% of the roughly 37 million borrowers with direct loans from the federal government will qualify for the debt-forgiveness program, the CBO estimated. The other 5% of borrowers earn too much money to be eligible, as the plan is limited to single borrowers earning less than $125,000 a year or married borrowers earning less than $250,000.
Because Pell Grant recipients will receive double the debt relief as other borrowers, most of the program’s benefits will accrue to low- and middle-income workers, according to the Penn-Wharton model.