Price Tag for College Loan Forgiveness Raises Eyebrows, Ire

It was bound to happen. Given the current political climate, where Democrats and Republicans agree only seldom — and then very narrowly — the opposition was bound to find fault with President Biden’s recently announced student loan forgiveness program.

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The volume and strength of Republican objections went up big-time when the Congressional Budget Office (CBO) finally produced the price tag for said forgiveness: $400 billion. As explained in this Politico story, the nonpartisan budgetary agency recently finalized its calculations.

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Assessing the Costs, Pondering the Value

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The CBO calculated costs by determining how much loan forgiveness would impact government revenues. How can this be? As the source of federal student loans, the government gets the payments, including interest, as and when students replay such loans.

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When the Feds forgive outstanding balances, they also forgo the payments that would otherwise keep flowing in. This has real value, says the CBO. In fact, simply extending the payment moratorium (called a "freeze on student loan payments through the end of 2022") comes with a price tag of $20 billion all by itself.

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GOP: That's Too Rich For My Blood

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The same GOP lawmakers who requested that the CBO conduct its analysis are the ones now waxing wroth over its results. Predictably, they are saying that the debt forgiveness program is "too costly for taxpayers” (from the Politico story).

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In that same vein, Rep. Virginia Foxx (R, North Carolina) is quoted as saying “this administration has lost all sense of fiscal responsibility.” Furthermore, says Rep. Foxx, the CBO estimate understates the potential impact.

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Fox says that CBO's projections are low because they do not include the current administration’s "expansion of other student loan benefits, including its forthcoming plan to reduce monthly payments and interest for millions of borrowers" (that's Politico’s phrasing, not the congresswoman’s).

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Not That Bad, Says the Biden Team

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As Politico further observes, the current administration has focused its impact analysis on short-term cashflow. It says that the forgiveness program will reduce federal revenues by $24 billion (the CBO’s number is $21 billion, BTW).

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Republicans counter that the feds are legally obliged to project costs over the lifetime of any loans forgiven. That means the long-term costs must also come into play. As far as I can tell, that’s what the CBO’s $400 billion number is getting at, though it qualifies this number as "highly uncertain."

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And Then, There’s a Lawsuit to Block Loan Forgiveness

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On September 27, the New York Times (NYT) reported that the conservative Pacific Legal Foundation filed a lawsuit against the government in the U.S. District Court for the Southern District of Illinois.

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The complaint asserts that while "Congress has declined to enact more sweeping debt cancellation," the President has asserted the authority under the HEROES Act "to 'automatically' issue blanket loan forgiveness to 8 million borrowers in the first week of October."

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The complainants go on to recite how the Department of Education did not follow the proper process for making such rules, nor did it solicit any public input or make a "formal order or directive setting out its cancellation program."

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In short, the suit asserts that the legal requirements for explaining what would be forgiven, as well as how such forgiveness would be implemented, were not followed.

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The complaint also asserts that “at least six states [treat] ... tax loan cancellation as income.” Consequently, certain parties who benefit from loan forgiveness "will face immediate tax liability" based on amounts forgiven. This is contrasted to a "Congressionally authorized program rewarding public service" which does not incur such tax liabilities.

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That is viewed as a "penalty" in the suit, which also asserts that "nothing about [the administration's] loan cancellation is lawful or appropriate," likening it to "an end-run around Congress." Ouch!

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What Does It All Mean?

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The negative reaction from the opposition, as well as the potentially impending change of majority in the House of Representatives, means that Republicans could pass a law to countermand the President’s forgiveness program when the handover occurs on January 3, 2023 (in a little over three months).

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That raises the interesting question of whether loans that have been forgiven by one administration can be reinstated by another. Thus, the point of the lawsuit could simply be to delay the grant of forgiveness long enough to see it reversed before it can take effect.

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Wow! What a mess. For the millions of Americans who believe their student loans have been forgiven (though it doesn’t actually take effect until next month, and may be put on hold thanks to the lawsuit), this could be a huge disappointment.

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Shoot, I thought it was done deal myself. But there may be more to follow, and the deal may not come to fruition. Stay tuned, and I’ll keep you posted. Literally, hundreds of billions of dollars hang in the balance.