NAICU Washington Update

CBO Looking at Loan Forgiveness Costs

September 23, 2022

The Biden Administration’s proposal to provide one-time loan forgiveness targeted at low- and middle-income borrowers is being scrutinized from all angles, including the Congressional Budget Office (CBO).  Responding to a request from Rep. Warren Davidson (R-OH) for information on how estimates of the costs of the student loan programs have changed since 2010, the CBO indicated it is currently looking into the potential costs to the government should the administrative action materialize. The CBO says it will publish its analysis as soon as it is completed. 

According to the CBO, the estimated costs of the student loan program have increased since 2010, primarily because of increased enrollment in income-driven repayment plans (IDR), not because of the switching from the bank-based student loan program to the government-based direct loan program. A GAO report released this summer says the direct loan program is costing much more than anticipated when it was created 25 years ago. However, the CBO still views the direct loan program as providing budgetary savings to the federal government. 

The letter notes that student loans with fixed repayment plans generally cost the government less, even though they have slightly higher default rates than IDR plans. The CBO also notes in response to the specific question from Rep. Davidson that participation in IDR plans rose from 10% to 30% between 2010 and 2019 (the time period he requested) and IDR volume increased from $24 billion to $450 billion over the same period. 

This information from the CBO is another piece of the student loan debate that will continue to be analyzed in the coming months. 

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