In a letter the Senator Richard Burr (R-N.C.) and Representative Virginia Foxx (R-N.C.), the Congressional Budget Office (CBO) estimated that the Biden administration’s student loan bailout will cost $400 billion. This level of reckless spending will drive already-surging inflation.
Last month, President Biden announced a plan to cancel $10,000 in student loan debt for borrowers making less than $125,000. Pell Grant recipients who make less than $125,000 would be eligible for $20,000 in cancellation. For couples that file jointly, the limit would be $250,000.
The CBO explained that, of the $1.6 trillion of debt the federal government holds, $430 billion would be forgiven:
“As of June 30, 2022, 43 million borrowers held $1.6 trillion in federal student loans. About $430 billion of that debt will be canceled, CBO estimates. In its May 2022 baseline, CBO projected that for many borrowers in income-driven repayment plans, a portion of the amounts canceled through executive action would eventually be forgiven anyway.”
The CBO also broke down relevant demographics regarding the 37 million borrowers with direct loans:
- 95 percent of borrowers meet the income criteria for eligibility,
- 65 percent of income-eligible borrowers have received at least one Pell grant,
- 90 percent of income-eligible borrowers will apply for debt cancellation, and
- 45 percent of income-eligible borrowers will have their entire outstanding debt canceled.
Still, the CBO does make a point to describe their findings as “highly uncertain.” After all, we still have not seen the administration’s guidance with more detail about how the money will be dispersed and, more specifically, to who.
The agency’s findings is similar to an earlier analysis by the Penn Wharton Budget Model published in August. PWBM estimated that debt cancellation alone could cost between $469 billion and $519 billion:
“We estimate that President Biden’s proposed student loan debt cancellation alone will cost between $469 billion to $519 billion over the 10-year budget window, depending on whether existing and new students are included.”
This kind of spending will inevitably make inflation even worse than it is.
The federal government is already flooding the economy with so much money that demand is growing too fast for production to keep up. In July, inflation remained high at 8.5 percent. Inflation is costing American households an extra $635 a month. Even if prices stopped increasing altogether, the average American household will spend over $7,600 more this year due to inflation.
While most Americans – 87 percent of which do not have federal student loans – are living paycheck to paycheck, they must now subsidize the hasty financial decisions of those with college degrees and high earning potential.
Student loan cancellation should be the last priority on Democrats’ minds – especially as estimates and analyses consistently warn of the massive cost of this policy.