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The average annual cost of President Biden’s student debt plan is less than $15 billion a year—against a GDP of about $20 trillion.
The Republicans have made a huge deal of the fact that the Congressional Budget Office has “scored” the cost of President Biden’s student debt cancellation at $420 billion. But though CBO usually calculates the ten-year cost of an outlay, this widely quoted figure, oddly, is for 30 years. Divide by 30 and the average annual cost is less than $15 billion a year—against a GDP of about $20 trillion, or about one quarter of 1 percent of the federal budget.
And, as CBO admits, this scoring omits the benefits. Former students relieved of this debt burden will have more available money to purchase homes, start businesses, and otherwise thrive economically.
Calculating benefits as well as costs of federal outlays is in bad odor, because the right uses so-called “dynamic scoring” to claim that tax cuts pay for themselves (they never do). But social outlays do have actual benefits. They are impossible to calculate with precision, but their benefits are obviously more than zero. As CBO admitted in its letter to Republican Sen. Richard Burr and Rep. Virginia Foxx estimating projected budget costs, “The estimates presented here do not include any effects of the actions.”
Biden’s debt relief program was particularly well targeted. The extra relief—up to $20,000 of debt cancelation for Pell grant recipients (about 65 percent of those eligible) rather than the general limit of $10,000—will be a godsend for low-income students and former students saddled with debt.
There is, however, a dire problem that Biden’s debt cancellation problem doesn’t solve. It only addresses debt incurred in the past. For students beginning college, the debt clock starts ticking all over again.
Bernie Sanders has proposed that higher education at public universities should be free for students from families making less than $125,000 a year and paid on a sliding scale above that. To qualify for the federal contribution, state legislatures would have to pay a set minimum. The federal cost would be covered by a tax on financial transactions.
Kevin Carey, in a recent article in Slate, proposes a variant on Biden’s proposal for free community college. Under Carey’s plan, the federal government would subsidize $10,000 per student at four-year universities as well as two-year colleges. In exchange, institutions and presumably state legislatures would agree to an affordable tuition schedule. Carey proposes that families earning less than the median household income—currently about $70,000—would be charged $0 tuition. Those earning more would pay modest tuition, on a sliding scale.
These and other ideas should be on the table. Biden’s debt cancellation is the beginning of reform, not the end.
