How does forgiving student debt cost taxpayers money?
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A big chunk of the loans made before 2010 are Federally backed loans, not Federally owned loans. That means someone else loaned the money and the Federal Government just promised to assume ownership of the loan if the borrower couldn’t pay. The Federal Government can’t just magic those loans away – the only way they can go away is if the government buys out the remaining balance on the loan.
For loans that are actually Federally owned, you’re basically getting into accounting weirdness. On a very simple level, the income from the loans is built into revenue projections for the Federal budget going out for the duration of the loan.
So imagine that next year the Federal deficit was projected to be $100 and student loan payments were generating $20 in revenue each year. Now that those loans are forgiven, the deficit will rise to $120 (the original $100, plus the $20 in income that is no longer coming in). That $20 has to be made up somehow. Either everyone pays for it through taxes, the government borrows more money and future generations pay for it with the taxes they pay to service that new debt, or $20 in programs get cut.
The thing that you have to keep in mind is that a cost isn’t just what you pay to get something – it can also come from a loss of income that you incur. IE, the way that you normally encounter financial costs in real life is by going out and buying something – for example, buying a $10 lunch.
But lets say I walk into your work right as your boss hands you your paycheck in the form of a burlap sack with a dollar sign on it. If I reach into that sack, pull out $10, and set it on fire, I’ve just cost you $10. If you were planning on spending the burned $10 on lunch tomorrow, then I just cost you that lunch. If you were planning on saving it, then I just cost you $10 in savings. The fact that the money disappeared before it got into your hands doesn’t matter – by depriving you of future income I have deprived you of the things that you would have bought with that income.
So as to your specific question – assuming that the Federal Government doesn’t reduce expenditures, then it costs taxpayers money because its transferring costs that would have been paid solely by student loan borrowers to taxpayers in general. If the Federal Government does reduce expenditures, then the costs are “paid” for by the people who were previously being paid by the cancelled expenditures. But at the end of the day, student loan payments were a cost to borrowers that was going into the Federal budget to pay for other things. Student loan borrowers are no longer paying that cost, so someone else has to.
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