Written by David Shepardson and Eric Beach
WASHINGTON (Reuters) – The Congressional Budget Office said on Monday that executive actions by U.S. President Joe Biden to cancel some student loan debt would cost about $400 billion, about a quarter of the money owed.
As of June 30, 43 million borrowers hold $1.6 trillion in federal student loans. The Central Bank of Oman has estimated that about $430 billion of this debt will be written off. The CBO previously predicted that some of the money that was voided through the Biden procedure would eventually be released anyway.
Of the 37 million borrowers with direct loans from the federal government, the CBO estimated that 95% of borrowers meet the income criteria for eligibility and 45% of income-eligible borrowers will have their outstanding debts canceled in full.
In August, the White House released an estimate of the “cash flow” to repay lost loan payments of $24 billion annually, or about $240 billion over a decade — assuming 75% of eligible borrowers apply.
White House Chief of Staff Ron Klein said on Twitter (NYSE:) that the CBO’s estimate is a 30-year rather than a more common 10-year estimate.
He said the CBO agreed with the White House’s estimates and that the CBO “puts the cost of the first year to $21 billion.”
Reuters reported in August that nongovernmental budget analysts projected the total cost of the 10-year program from $500 billion to $600 billion, including extending the repayment halt on all federal student loans through Dec. 31 and reducing future payments based on income.
In March 2020, the US government temporarily suspended interest and payments on federal student loans at the start of the COVID-19 pandemic. The Central Bank of Oman said extending the moratorium from September until December 31 would increase outstanding student loan costs by another $20 billion.
The CBO said the $400 billion “present value” cost estimate does not include any effects of actions affecting income-driven repayment plans, which the Committee on Responsible Federal Budget estimates will cost another $120 billion.
Bharat Ramamurti, deputy director of the White House National Economic Council, told reporters last month that the plan is financially justified because the federal deficit is on track to cut $1.7 trillion for fiscal 2022 compared to the previous year.
The Central Bank of Oman acknowledged that its estimates include many unknowns, especially the uncertain expectations of “the amount of borrowers who will repay if the executive action to cancel the debt is not taken and the amount of repayment under this executive action.”