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Public Policy

CBO has calculated what it might cost the nation to forgive college student loans (Photo by Sarah Reingewirtz/MediaNews Group/Los Angeles Daily News via Getty Images)

By Tyler Hummel Leaders Staff

Tyler Hummel

Tyler Hummel

Tyler Hummel is a news writer for Leaders Media. He was the Fall 2021 College Fix Fellow and Health Care...

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Sep 27, 2022

Calculating the Real Cost of Student-Loan Forgiveness 

According to a report by the Congressional Budget Office, student-loan forgiveness is going to come at a high cost. 

Key Details

  • The Congressional Budget Office (CBO) says in a Monday letter that student-loan forgiveness is going to cost $400 billion over 10 years. 
  • “The cost of outstanding student loans will increase by $20 billion because an action suspended payments, interest accrual, and involuntary collections from September 2022 to December 2022,” says CBO. 
  • “CBO’s estimates are highly uncertain,” the group reports. “The most uncertain components are the projections of how much borrowers would repay if the executive action canceling debt had not been undertaken and how much they will repay under that executive action.” 
  • There is $1.6 trillion in outstanding student loan debt among 43 million borrowers. The CBO projects that $430 billion of it will be canceled by President Joe Biden’s executive order, and 90% of borrowers may be eligible for forgiveness. 

Why it’s news 

The letter confirms what many watchdogs and analysts have warned over the past month, that student loan forgiveness is going to cost a lot of money and have some negative effects on the budget and economy. 

As we previously reported, the CBO projected that student loan forgiveness would radically increase the deficit before the end of the fiscal year. 

Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, warned that the policy will increase deficits, increase inflation, and up the risk of recession—and that the executive order is doing without congressional approval was a mistake. 

The White House has defended the expenditure by showing that outstanding student loan debt is crippling to the middle class.

“The White House on Monday pushed back on a report by the Congressional Budget Office released earlier that day, arguing that 90% of federal student loan borrowers are unlikely to take advantage of President Biden’s forgiveness plan,” says The Hill. 

“While the CBO estimate is meant to reflect the full effects over the entire lifespan of the program, the annual cash flow effects—which is what matters for the federal debt and for economic impacts—are much smaller,” says a White House memo. 

Backing up a bit

“Biden last month announced a plan to forgive $10,000 in federal student loans for borrowers who earn less than $125,000 a year, or have a household income of under $250,000 if filing jointly. Low-income Pell Grant borrowers are eligible for an additional $10,000 cut,” says CNBC. 

“The White House says more than 40 million Americans may be affected by the student loan changes, and half of those could see their entire student debt eliminated.”

Home / News / Calculating the Real Cost of Student-Loan Forgiveness 
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