The U.S. Department of Education announced that it estimates the Biden administration’s program to cancel student debt to cost $379 billion, or about $30 billion a year over the next 10 years.
The estimates are based on “highly uncertain assumptions about future economic conditions and participation rates,” the department noted.
The Biden administration’s plan is set to provide up to $10,000 in debt relief to borrowers who earn less than $125,000 per year, or $20,000 in debt relief to Pell Grant recipients who meet similar income standards. An application to receive the benefit is expected in early October.
“As a result of Student Debt Relief, millions of borrowers will no longer have to make repayments on their loans and millions more will be able to substantially reduce their repayments,” the Department of Education announced, adding it estimates that “over the next 10 years, the program will cost on average $30 billion annually.”
“The ten-year cost in terms of reduced cash flows into the government will be roughly $305 billion,” it noted.
“By law, the Department must also estimate the cost of student loan relief over the entire course of the program—in this case more than three decades—not just the next 10 years. That cost is adjusted to present-day dollar values, and then recorded fully in the current fiscal year. The Department’s estimate of this total cost in today’s dollars is $379 billion.”
The student loan cost estimate is based on the assumption that some 81 percent of eligible borrowers “will take the necessary steps to get relief.” According to the Department of Education, the assumption is “very uncertain, as other relief programs skew widely in terms of take-up rates.”
Approximately 43 million people are eligible for the relief, with 20 million being poised to have their entire debt wiped out, Biden administration officials have said.
The estimate is also based on other “highly uncertain assumptions,” it noted, citing examples including “interest rate projections, how quickly borrowers repay their loans, and wage growth projections.”
“Any variation in actual interest rates, wage growth rates, and other economic factors could lead to significant shifts in the costs of the student loan program and other Department programs,” the department noted.
Other Estimates
The White House had previously estimated the cost of canceling student debt under Biden’s plan at about $24 billion a year over the next 10 years—about $240 billion for the decade. Meanwhile, the Congressional Budget Office, a federal agency, recently estimated the cost to be over $400 billion over the next 30 years.“We’re on track for $1.7 trillion in deficit reduction this year. That means, practically speaking, compared to the previous year, 1.7 trillion more dollars are coming into the Treasury than are going out. And we’re using a portion of that—a very small portion of it—to provide relief to middle-class families, consistent with the president’s plan,“ he said, adding ”we consider it fully paid for.”
Biden administration officials have touted that nearly 90 percent of relief dollars will be provided for borrowers who earn less than $75,000 per year, and no borrower or household in the top 5 percent of earners in the United States will have their loans canceled.
“They’re just looking for any story they can tell that lets them get away from the fact that they’re making the nation’s finances worse,” Marc Goldwein, senior policy director at the nonpartisan Committee for a Responsible Federal Budget, told Fox News. “This is going to worsen the deficit. There is no way to dance around it.”
