Biden’s Student Debt Cancellation a Main Cause of $400B Increase in ’24 Deficit

President Joe Biden’s decision to cancel student loan debt through executive actions has led to a projected $400 billion increase in the federal government’s deficit for 2024, according to the latest estimate released by the Congressional Budget Office (CBO) on Tuesday.

The CBO now anticipates the deficit to reach $1.9 trillion, up from its previous estimate in February.

The CBO’s report highlights that the anticipated cost of Biden’s student loan cancellation is expected to exceed their initial February estimate by $145 billion.

Additionally, they caution that their projection could potentially be $66 billion lower than the actual cost, depending on whether a rule change on student loans proposed by the Biden administration can be finalized by the end of the fiscal year.

Should this rule change come into effect before September 30, the total increase in cost could soar as high as $211 billion for the year, as calculated by The Wall Street Journal.

It’s worth noting that President Biden’s original student loan forgiveness plan faced a setback in August 2023 when it was ruled against by the U.S. Supreme Court, which found that it exceeded his executive authority.

The plan, rooted in language from the HEROES Act of 2003, had an estimated cost of $430 billion.

In its 6-3 decision the Court said, “It is ‘highly unlikely that Congress’ authorized such a sweeping loan cancellation program ‘through such a subtle device as permission to ‘modify,’” quoting from case precedent.

The justices emphasized that decisions on such “major questions” must be made through congressional action.

Following that decision, Biden has announced several smaller measures using different legal authority, but these actions are also facing legal challenges.

In addition to the administration’s student debt cancellation programs, other factors contributing to the $400 billion increase in this year’s deficit include $95 billion in defense appropriations for the wars in Ukraine and Israel, as well as efforts to bolster allied military readiness in the Indo-Pacific region, which Congress approved in February.

Furthermore, the federal government incurred $70 billion in costs due to bank failures.

Medicaid costs were $50 billion higher than expected, and the federal government also approved an additional $60 billion for new discretionary spending programs.

A significant contributor to the overall federal budget deficit is the increased int

erest payment costs for servicing the national debt, which are projected to exceed $1 trillion by fiscal year 2026.

According to a graphic from the Federal Reserve, this year’s U.S. interest payments will surpass the total cost of funding the Defense Department, which has been the largest single expense aside from entitlement programs like Social Security and Medicare.

US federal interest payments now exceed the defense budget. pic.twitter.com/joZadHMP0U

— (((The Daily Shot))) (@SoberLook) June 18, 2024

The nonpartisan Committee for a Responsible Federal Budget further broke down the interest payment number for the fiscal year, which ends on Sept. 30.

“At a projected $870 billion, interest will surpass total spending on national defense ($822 billion) in 2024 and grow well beyond the defense budget over time,” the CRFB said.

In comparison, it was observed that net interest payments on the debt amounted to $223 billion in fiscal year 2015 and rose to $352 billion in fiscal year 2021, which encompassed the first nine months of Biden’s presidency.

During Biden’s tenure, significant new spending measures were enacted, including the $1.9 trillion American Rescue Plan, which lacked bipartisan support in Congress; the $1 trillion infrastructure bill, which received some backing from Senate Republicans and a few House members; and the Inflation Reduction Act, which did not have GOP backing.

In April 2023, researchers at the University of Pennsylvania’s Wharton School of Business, collaborating with investment firm Goldman Sachs, revised their estimated cost of the IRA’s green initiatives from $385 billion over a 10-year period to exceeding $1 trillion.

The Wall Street Journal’s editorial board published an opinion piece titled “Soaring U.S. Debt Is a Spending Problem,” highlighting that federal revenue as a percentage of Gross Domestic Product (the total size of the economy) has remained stable.

“Revenue is expected to total 17.2% of GDP this year—roughly the 50-year average before the pandemic,” but, they added that spending is expected to hit 24.2 percent of GDP this year.

Since World War II, the percentage has only surpassed 24% once, which occurred in 2009 during Barack Obama’s first year in office when he tackled the financial crisis with a “stimulus binge.”

Federal expenditures in FY 2023 reached $6.1 trillion, coming close to the $6.6 trillion spent in 2020 at the peak of the pandemic.

This contrasts with a pre-pandemic total of $4.4 trillion and a deficit of $984 billion in fiscal 2019 under then-President Donald Trump.

“If spending as a share of GDP remained at the pre-pandemic average, the deficit would be roughly $890 billion this year,” the editorial board noted.

They recommended if Trump wins in November and wants to keep his current tax policies in place, “the best way to finance that is by repealing the Biden spending blowouts in the Inflation Reduction Act, student-loan write-offs and pandemic-era welfare expansions.

“Failing to take on that challenge means either a monumental tax increase or a debt panic down the road.”