Biden’s Student-Loan Forgiveness Plan Could Cost $400 Billion, CBO Says

President Biden’s plan to cancel student debt for some borrowers will cost the federal government an additional $400 billion, according to the nonpartisan Congressional Budget Office.

The estimates released Monday are the latest to put a price tag on the administration’s student-loan modification plans, in the absence of a detailed accounting from the White House. A range of analyst estimates reflects the considerable complexity of projecting the performance of the federal government’s student-loan portfolio, and raises questions about how the moves will ultimately affect the federal budget.

The CBO estimates the administration’s decision to extend a suspension of student-loan payments between September and December 2022 will increase the cost of outstanding student loans by $20 billion. After accounting for those suspensions, the administration’s plan to cancel up to $20,000 in student debt for certain borrowers will increase the government’s cost of student loans by an additional $400 billion, CBO said.

The estimates are highly uncertain, CBO director Phillip Swagel said in a letter to lawmakers.

“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,” Mr. Swagel said. “Those projections depend in part on future economic conditions and on how the terms of loans might be modified in the future.”

The office released the estimates in response to inquiries from Sen. Richard Burr and Rep. Virginia Foxx, both Republicans from North Carolina.

Mr. Biden in August announced a multitiered strategy to offer Americans student-loan relief, including a plan to forgive student debt for those making under $125,000 a year (or $250,000 for married couples), an extension of a pandemic pause on student loan payments and changes to income-driven repayment plans. The CBO’s analysis did not include estimates of the cost effects of the income-driven repayment provisions.

The White House has said that the debt-cancellation portion of its overall plan would reduce revenue the government receives from student-loan payments by about $240 billion over a decade. It hasn’t released estimates comparable to the CBO’s projections. Senior administration officials said Monday that the White House would release more detailed cost estimates of some of the plan’s provisions in the coming weeks.

In the absence of such estimates, analysts and deficit watchers have relied on private forecasts, which vary widely, complicating efforts to understand how the changes will affect the federal budget. The Penn Wharton Budget Model, whose analysis is frequently cited by policy makers, has said the total program could cost $1 trillion, with a price tag of up to $519 billion for the debt-cancellation portion over 10 years.

The Committee for a Responsible Federal Budget, a Washington-based think tank, estimates loan forgiveness will cost about $360 billion, while the extension of the repayment pause will cost an additional $20 billion.

“CBO’s new estimate confirms the outrageous cost of the White House plan to cancel large amounts of student debt, by executive order, to nearly all borrowers almost regardless of need,” said Maya MacGuineas, the CRFB’s president.

The CBO said its estimates rely on how the student-loan provisions will affect cash inflows over roughly the next 30 years. The White House’s estimates of how much debt forgiveness will reduce federal revenues rely on a cash-flow analysis of the impact to the federal budget over one year that was then averaged over a decade.

The CBO’s estimates assume that 90% of income-eligible borrowers will apply for debt forgiveness. The White House has said it assumes a take-up rate of 75%.

The administration has argued that the debt-forgiveness provisions are paid for through the sharp drop in the federal deficit that has occurred this fiscal year, which ends Sept. 30, amid a broader effort to tout deficit reduction as an economic achievement.

The CBO estimate “shows this administration has lost all sense of fiscal responsibility,” Ms. Foxx said. “Rather than working with Congress to bring down college costs, President Biden has opted to bury the American people under our unsustainable debt,” she added.

A senior administration official said debt relief will be a life-changing move for millions of Americans and will provide economic benefits for people who have been struggling with student debt. The White House has said that most of the relief will go towards individuals making less than $75,000 a year.

The CBO in its letter said 43 million borrowers held $1.6 trillion in federal student loans as of June 30. About $430 billion of that debt will be canceled, the CBO estimates.

Write to Amara Omeokwe at amara.omeokwe@wsj.com

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