Biden Student Loan Forgiveness to Cost Roughly $500 Billion: Committee for a Responsible Federal Budget

President Joe Biden speaks on student loan debt at the White House on Aug. 24, 2022. (Alex Wong/Getty Images)

President Joe Biden’s plan to forgive thousands of dollars in student debt for millions of Americans and adjust repayment for others will cost roughly $500 billion, according to a nonprofit that analyzes such plans.

Biden said he'll cancel up to $10,000 of student debt owed to the federal government for households earning less than $250,000 per year and people earning less than $125,000 per year. That will cost the most: from $330 billion to $390 billion, according to the Committee for a Responsible Federal Budget.

Approximately 43 million people are eligible for the relief, with 20 million being poised to have their entire debt wiped out, according to Biden administration officials.

Another key part of the plan is adjusting repayments, including forgiving all loans at or less than $12,000 after 10 years of payments are made, down from 20 years. That will cost an estimated $90 billion to $190 billion, according to the nonprofit.

The last prong of Biden’s plan, keeping the federal payment extension pause in place through December, is pegged to cost an additional $20 billion.

“The changes announced today will likely cost more than double the amount saved through the recently passed Inflation Reduction Act, completely eliminating any disinflationary benefit from the bill,” stated the committee, which describes itself as nonpartisan.

“We will be releasing an inflation estimate of these student debt changes in a subsequent analysis, but the package is likely to increase inflation by more than a year-long extension of the pause, which we previously estimated would add up to 20 basis points to the Personal Consumption Expenditure inflation rate. The proposed loan changes also do nothing to reduce the amount of borrowing moving forward, setting up a future administration to be called on to cancel debt again.”

White House on Cost

White House officials said the cost of the programs would “offset.”

“Now, our view is, based on a lot of good empirical literature, relieving student loan debt burden is going to help people start small businesses. It’s going to make it easier for certain folks to actually save for that down payment and buy a home. All of that additional economic activity, in the medium term, is going to create additional tax revenue that comes into the government that offsets the cost on the front end,” Bharat Ramamurti, deputy director of the National Economic Council, told reporters in Washington.

When loan payments resume on Jan. 1, 2023, they'll “largely offset” the relief being handed out, Ramamurti later noted.

Biden, in announcing the plan, said it will be paid for “by what we’ve done.”

“Last year, we cut the deficit by more than $350 billion. This year, we’re on track to cut it by more than $1.7 trillion by the end of this fiscal year. The single-largest deficit reduction in a single year in the history of America. And the Inflation Reduction Act is going to cut it by another $300 billion over the next decade,” he said. “There is plenty of deficit reduction to pay for the programs—cumulative deficit reduction—to pay for the programs many times over.”

Another Model

Another estimate, this one from the budget model from the University of Pennsylvania, projected the cost of the student loan forgiveness to be between $300 billion and $980 billion over the next 10 years.

Most of the people who would have their debt forgiven are well-off, or those who are in the top 60 percent of income distribution, the university stated.

A number of critics cited the model.

“Who will have to pay for Biden’s debt transfer scam? Hard-working Americans who already paid off their debts or never took on student loan debt in the first place. It will cost at least $300 billion, and most benefits would go to households in the top 60% of earners,” House Minority Leader Kevin McCarthy (R-Calif.) said in a statement.

Rep. Ben Cline (R-Va.) said, “Biden’s cancellation of student loan debt would cost the federal gov’t over $300 billion over the next 10 years & worsen the already 40-year high inflation that’s eating the paychecks & savings of families. Who will fit the bill? Hardworking American taxpayers.”