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CBO: The student loan cancellation plan of Biden will cost $400B

According to the Congressional Budget Office, President Joe Biden’s plan to cancel student debt will cost the federal government approximately $400 billion over the next thirty years.

These figures were made public Monday by Republican lawmakers, who opposed Biden’s plan largely because of its high costs. They quickly cited the estimates as proof that the plan would “bury” taxpayers, and pass the costs along to large numbers of Americans who never attended college.

The Biden administration had previously estimated that the plan would cost $24 billion per year over the next 10 Years — approximately $240 billion for the decade. Other estimates, however, put the total cost at $500 million or more over the ten years.

The White House pointed out Monday that CBO’s first-year cost estimate — $21 Billion — was lower than the administration’s initial estimate of $24 Billion.

Officials considered both the immediate costs of cancellation and the long-term effects, such as lower monthly payments that would have been higher without the cancellation.

According to the office, Biden’s latest extension for a student loan suspension will add $20 billion. Since the outbreak, federal student loans’ monthly payments have been frozen. Biden called for the last extension in August and continued the pause until the end of the calendar year.

Biden has downplayed the cost of the cancellation plan and said it would be offset with other measures to reduce federal deficits, such as his landmark Inflation Reduction Act. The White House supported the plan Monday by claiming that it would provide relief for struggling borrowers and allow them to start businesses, purchase homes, or simply pay their bills.

Abdullah Hasan, a White House spokesperson, stated that “it’s a stark contrast with the Trump tax bill which ballooned deficit by nearly $2 trillion” and provided the vast majority benefits to big corporations as well as the wealthiest people.

In the coming weeks, the administration will release detailed cost estimates.

Senator Elizabeth Warren, D.Mass., and Chuck Schumer (D-N.Y.), who were both in favor of debt cancellation, stated that they disagree with some assumptions behind the CBO estimates. The senators issued a joint statement stating that the estimates showed that millions of Americans in the middle class have more breathing space because of Biden’s plan.

Republicans did not see it that way.

“Rather than working with Congress in lowering college costs, President Biden has chosen to bury American citizens under our unsustainable debt,” stated Rep. Virginia Foxx (the top Republican on the House education committee).

Biden’s plan will cancel $10,000 of federal student loans for borrowers whose income is less than $125,000 per annum or households earning less than $250,000. An additional $10,000 would be available to those who were eligible for federal Pell Grants to pay college tuition.

The application for the benefit will be received by October 1. The fate of this plan will depend on its ability to withstand the legal challenges that conservatives promise to bring.

According to the Congressional Budget Office, 95% of federal student loan holders meet the income threshold for $10,000 relief. A Pell Grant was awarded to approximately 65% of those who received federal student loans. They are eligible for a $20,000 cancellation.

Biden’s actions made it clear that the office’s estimates were “highly uncertain”. Many borrowers would have had their debt canceled anyway if they were offered payment plans promising to cancel any remaining debt within 10 or 20 years.

These estimates are based on everything we know about Biden’s plans now. However, some details remain to be worked out. According to the office, it could revise its estimates as more details are discovered.

Not surprisingly, the $400 billion figure does not include a loan payment plan that Biden proposed to assist lower-income borrowers in the future. This plan would be identical to current plans, which limit monthly bills based upon a borrower’s income but with more generous terms.

It would reduce borrowers’ monthly payments to 5% of discretionary income (down from 10% now) and would forgive any balance after 10 years, instead of 20 now.

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