Student Loan Forgiveness and Really Big Number Syndrome

09/27/2022 7:41am

There were headlines all over the place yesterday telling us how the Congressional Budget Office (CBO) estimated that Biden’s student debt forgiveness plan would cost $400 billion. I suspect that sounded very scary to lots of people who heard it. After all, those not named Elon Musk will never see anything like $400 billion over our lifetimes.

But suppose reporters had to work for a living. They might have taken two minutes to read the three-page CBO report (actually a letter to two members of Congress).

If they had done that, they might have noticed that this is the discounted cost projected over a 40-year time horizon. Much of the reporting might have led people to believe it was over a year, and more informed types might have assumed it is over CBO’s usual 10-year budget time horizon. The period over which the cost is incurred does matter.

The reports also could have included some context since most people would not have a clear idea in their heads of how large $400 billion is over a forty-year time horizon. Here also reading the three-page report would have been of great help. Page 2 of the report has a very nice graph showing the reduction in student loan payments from the forgiveness package measured as a share of GDP.

It peaks at a bit more than 0.09 percent of GDP in 2023-25. That is less than one-thirtieth of the military budget. It falls to around 0.07 percent of GDP by 2032 and then drops further to 0.02 percent of GDP by 2042.

It would help if reporters covering budget issues saw it as their responsibility to convey information to their audiences rather than just engaging in fraternity rituals of writing down big numbers that are meaningless to almost everyone.  

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