CBO: Biden’s Affordable Student Loan Repayment Plan May Cost $21B per Year

The Congressional Budget Office estimates that the new payment plan would cost $230 billion over the next 11 years.
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Matthew Arrojas is a news reporter at BestColleges covering higher education issues and policy. He previously worked as the hospitality and tourism news reporter at the South Florida Business Journal. He also covered higher education policy issues as...
Published on Mar 20, 2023
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  • President Biden's IDR plan would require borrowers to pay just 5% of their discretionary income each month.
  • The government would then completely erase the loan balance after 20 years of repayment.
  • Republicans admonished Biden's administration for the high projected costs of the new IDR plan.
  • The Department of Education's projected cost is nearly $100 billion lower than CBO's estimate.

A nonpartisan agency estimates that President Joe Biden's proposed income-driven repayment (IDR) plan may cost the federal government almost $100 billion more than initial projections.

The Congressional Budget Office (CBO) in a letter to congressional leaders said that Biden's proposed IDR plan would increase the cost of the federal student loan program by about $230 billion from 2023-2033 — approximately $20.9 billion per year.

The estimate is a stark contrast to the $138 billion price tag the Department of Education (ED) put on the program for the period 2023-2032, or $13.8 billion annually.

Republican leaders quickly seized on the CBO's high price tag as a reason to scrap the new IDR plan.

"The administration's [IDR] rule is nothing more than a backdoor attempt to provide free college by executive fiat," Education and the Workforce Committee Chairwoman Virginia Foxx, a Republican representing North Carolina, said in a statement. "Transferring $230 billion from borrowers who willingly took out debt to taxpayers who did not is fiscally irresponsible and morally reprehensible. Make no mistake; I soundly reject this illegal abuse of power."

For the plan's full details, see BestColleges' breakdown and FAQ.

The Reason Behind the Different Projections

CBO's and ED's estimates differ by just over $7 billion per year.

How did each department come to such a drastically different conclusion?

The answer lies in the projected take-up rate of the new IDR plan.

According to CBO's report, ED estimated that there would be no increase in enrollment in the new IDR plan among current or future borrowers. ED's estimate also assumes that the new plan would not lead to additional borrowing among eligible students in the future.

It's safe to assume that the favorable repayment terms would likely lead to an uptick in the number of borrowers enrolled in the IDR plan, according to the CBO's estimate.

The agency's analysis assumes that the share of loan volume from borrowers who will eventually enroll in an IDR plan would increase from 52% to 73% if the new IDR plan were to go into effect. That's because new borrowers would likely opt for the lower monthly payments rather than the fixed-rate repayment plan, while delinquent borrowers would be automatically enrolled in the new IDR plan.

CBO estimates that the new IDR plan would also lead to increased borrowing.

It projects that by fiscal year 2027, the total volume of loans will rise by about 12% annually above the current baseline. CBO expects this rise because students may borrow more if they know about the affordable IDR option, and students who may not have borrowed any money at all might see student loans more favorably due to the new plan.

Costs Rise Without Widespread Debt Forgiveness

CBO's estimate takes into account debt Biden's widespread loan forgiveness plan would cancel.

Biden proposed erasing up to $20,000 in federal student loans per borrower making less than $125,000 annually in August. However, the U.S. Supreme Court is currently deciding whether that plan is legal. Experts expect a final ruling on the program this summer, which could invalidate the plan altogether.

If the court were to rule that Biden's plan is unlawful, the outstanding loan balance across the U.S. would remain the same. That means more loans could be erased through the new IDR plan, adding to the plan's cost.

CBO estimates the total cost would increase to $276 billion from 2023-2033.

That's $46 billion more than its current estimate.