Student Loan Forgiveness Sparks 27% Surge in Federal Budget Deficit Based on CBO Report

Congress spending and wasting your money.

The Congressional Budget Office (CBO) performs nonpartisan analysis for the U.S. Congress. The latest Budget and Economic Outlook released June 2024, offered dire projections for the country’s fiscal and economic landscape over the upcoming decades.

Unfortunately the federal deficit jumped 27% more than the estimates provided in February.

The budget deficit for fiscal 2024, which ends Sept. 30, is now expected to be $1.9 trillion.

4 Major Factors Responsible

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The majority of the rise in the fiscal 2024 deficit results from four factors projected to increase spending.

1. Student Loan Forgiveness – $145 Billion

2. Costs for “deposit insurance” – $70 Billion

3. Additional legislation – $60 Billion

4. Higher-than-expected Medicaid costs – $50 Billion


$145 Billion Spike Due to Biden’s Student Loan Forgiveness

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The majority of the rise in the fiscal 2024 deficit results from four factors projected to increase spending. The largest contributor is a $145 billion increase, attributed in part to adjustments made by the Biden administration to student loan repayment plans and a proposed forgiveness program that aims to waive accrued interest for millions of borrowers.

Although the forgiveness program is still pending finalization, it could potentially be implemented as early as this fall.

Judges Block Parts of Biden’s New Student Loan Forgiveness Plan

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Depositphotos Photo by slickspics

Biden’s new student loan repayment plan faces uncertainty following injunctions from two federal judges on Monday, halting further implementation and loan forgiveness pending lawsuits challenging the policy. The rulings raise questions about enrollment and loan cancellation for millions of affected borrowers.

The CBO Report was published prior to the rulings and will be subsequently adjusted based on court cases.

$70 Billion Spike Due to Deposit Insurance

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The CBO’s report outlines that costs for deposit insurance have increased by approximately $70 billion. This is because the Federal Deposit Insurance Corporation (FDIC) is not recovering payments made during bank failures in 2023 and 2024 as quickly as the CBO had previously anticipated.

$60 Billion Due to Additional Legislation

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Third, additional legislation has resulted in a further $60 billion in cost increases.

$50 Billion Due to Medicaid cost increases

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$50 billion in increased spending is due to higher-than-expected Medicaid costs.

The CBO found that most of the payment and delivery demonstrations launched by the Centers for Medicare and Medicaid Innovation (CMMI) from 2011 to 2020 did not save money as intended.

Instead, they cost the government $5.4 billion more than they saved, including administrative costs. The CBO also projected that CMMI would continue to be a net cost for Medicare through 2030.

Record High Federal Debt

Federal Debt Held by the Public Image by Congressional Budget Office
Federal Debt Held by the Public Image by Congressional Budget Office

Debt held by the public rises in each year, from 99 percent of GDP in 2024 to 122 percent in 2034 – higher than at any point in history.

The Federal debt is now totaling $34 trillion—approximately $6 trillion more than the nation’s gross domestic product (GDP), which represents the value of all goods and services produced by America’s 330 million residents in a year.

Including Social Security and Medicare liabilities, the total debt is several times larger than GDP.

Federal Deficit Increasing

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The deficit for the period from 2025 to 2034 is expected to reach $22.1 trillion, which is $2.1 trillion higher than the CBO’s February projection.

This increase is partially due to recent legislation, including emergency supplemental appropriations allocated in 2024.

Gap Between Spending and Revenue Increasing

Total Outlays and Revenues CBO June 2024
Total Outlays and Revenues CBO June 2024

Federal expenditures as a percentage of GDP surpass their 50-year average every year from 2024 to 2034 in the CBO’s projections.

Meanwhile, revenues remain below their 50-year average in 2024 and 2025.

Interest Cost Will Soar

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Rising interest rates and growing debt lead to higher net interest payments.

Starting in 2025, interest costs relative to GDP are higher than at any time since at least 1940 (the first year for which the Office of Management and Budget reports such data), surpassing expenditures for defense and nondefense programs and activities.

The U.S. government is projected to pay nearly $900 billion this year solely in interest on the national debt.

According to Congressional Budget Office (CBO) projections, assuming an ideal scenario with no major conflicts, recessions, or financial crises, debt service costs will steadily rise to about $5.3 trillion by 2054.

 Interest payments this fiscal year will be larger than defense spending.

Trust Funds Approaching Insolvency

Social Security and Medicare
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Critical trust funds face looming insolvency. The Highway Trust Fund is anticipated to exhaust its reserves by 2028, the Social Security retirement trust fund by 2033, and the Medicare Hospital Insurance trust fund is on track to deplete its funds by the mid-2030s. The insolvency of these funds would trigger automatic, across-the-board reductions in their payouts.

Social Security Insolvency

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The CBO projects that the Social Security Old-Age and Survivors Insurance (OASI) trust fund will run out of funds by 2033, coinciding with the moment when individuals currently aged 58 reach the official retirement age and the youngest of today’s retirees hit 71. Consequently, all recipients will experience an automatic 25 percent reduction in benefits, irrespective of their age or financial situation. The solvency analysis by CBO matches the projections included in the Social Security Trustees Report.

Outlook Worsened Drastically in Just 4 Months

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For the 2025–2034 period, CBO now projects that if current laws generally remained unchanged, the cumulative deficit would be $22.1 trillion.

That amount is $2.1 trillion (or 10 percent) more than the $20.0 trillion the agency projected this past February.

Measured in relation to the size of the economy, federal debt at the end of 2034 is now projected to equal 122 percent of gross domestic product (GDP).

In February, debt at the end of that year was projected to equal 116 percent of GDP.

U.S. Government Accountability Office Warning on Fiscal Health

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The CBO report is not the only agency sounding the alarm bells. The U.S. Government Accountability Office published a report in February on the nation’s fiscal health. The report states, “The federal government faces an unsustainable long-term fiscal path that poses serious economic, security, and social challenges if not addressed.”

The projected growth of debt outpaces economic expansion, expected to reach 200% of GDP by 2050 without changes to revenue and spending policies.

Persistent large budget deficits are fueled by rising Medicare and Social Security expenditures exceeding revenue.

Interest payments by the government as a percentage of GDP are set to peak by 2030, driven partly by increasing interest rates.


Bleak Outlook Based on the CBO Analysis

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The Congressional Budget Office (CBO) Economic Outlook, projects significant fiscal challenges for the U.S. over the next decade. Deficits for this year equal $1.9 Trillion and the debt is 99% of the GDP.

The gap between government spending and revenue continues to widen, with interest costs on the rise. Additionally, critical trust funds, including those for Social Security and Medicare, are approaching insolvency, threatening across-the-board cuts. Economic growth is anticipated to slow in 2024, leading to increased unemployment. With the U.S. consumer already under pressure, the upcoming decade looks challenging.

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11 Low-Stress Retirement Jobs to Keep You Happy and Healthy

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After working so many years, it feels great to be able to retire. All those years playing with the best retirement calculators and planning how to retire early have finally paid off. So many plans, like travel, relaxing, working in the yard and doing other things you’ve put off for years. But after a while, many retirees get bored. Getting a job after retiring is a great way to stay active physically and mentally. Most retirees want to stay stress-free while still working at a new job. Retirees have a lot of knowledge and skills to offer. There are many low-stress jobs that retirees can do. Thankfully, some of the best low-stress jobs are some of the more exciting jobs a retiree can do. Before we jump into the list of retirement jobs, there are 5 benefits of finding a low-stress job for retirees.

11 Low-Stress Retirement Jobs to Keep You Happy and Healthy

Exodus From California and Massachusetts to Florida and Texas Continues

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2023 saw booming demand for U-Haul equipment from California, Massachusetts, Illinois, and New Jersey as citizens chose to flee the West Coast and Northeast. On the U-Haul Growth Index, which shows net losses of one-way trucks in various states that year, California, Massachusetts and Illinois ranked 50th, 49th and 48th, respectively – marking their third consecutive year at the bottom positions. But what could be causing such a mass exodus from states like California, New York, and Illinois?

Exodus From California and Massachusetts to Florida and Texas Continues

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Top 10 Housing Markets Where Soaring Prices Leave Locals Priced Out, Defying Historical Norms

Retire Abroad and Still Collect Social Security? Avoid These 9 Countries Where It’s Not Possible

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Retire Abroad and Still Collect Social Security? Avoid These 9 Countries Where It’s Not Possible

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