Will Promises of Student Loan Forgiveness Be Scaled Back?
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By Mark Kantrowitz

April 20, 2021

There are many questions surrounding pending proposals for broad student loan forgiveness. Will there be any student loan forgiveness? Will President Biden use executive authority to forgive student loans? Or, will Congress pass legislation to forgive student loans? How much will be forgiven per borrower? What type of loans will be forgiven? Will the loan forgiveness be limited to borrowers in economic distress? Will there be income limitations on loan forgiveness? Will loan forgiveness be targeted in other ways?

Some policymakers have been urging President Biden to use executive authority to forgive up to $50,000 in student loans per borrower. President Biden has expressed support for forgiving $10,000 per borrower but doubts that he has the legal authority to forgive student loans without Congressional action.

The cost of student loan forgiveness may force limits on who is eligible for student loan forgiveness and the amount of loan forgiveness per borrower. Congress may need to use budget reconciliation to implement loan forgiveness. Budget reconciliation must reduce the budget deficit by compensating for budget increases with budget cuts and revenue increases. But, there are limited sources of potential funding, and President Biden has an ambitious and expensive agenda. There just isn’t enough money to do everything he wants to do without prioritizing and scaling back some initiatives.

Options for Student Loan Forgiveness

A new paper analyzes the cost and impact of many student loan forgiveness proposals, providing policymakers with a menu of options from which to choose.

This table, from the paper, shows the percentage of borrowers who would have their federal student loan debt completely erased at each forgiveness amount. It also shows how the cost increases with the amount forgiven.

Amount Forgiven % of Borrowers with All Debt Erased Cost to the Federal Government
$10,000 33.6% $377 billion
$20,000 53.8% $628 billion
$50,000 79.6% $1.049 trillion

Limiting eligibility for loan forgiveness to borrowers who owe less than the amount forgiven will significantly reduce the cost, without affecting the number of borrowers who have their federal student loans completely erased, as shown in this table.

Amount Forgiven (Borrowers Owe Less) % of Borrowers with All Debt Erased Cost to the Federal Government
$10,000 33.6% $75 billion
$20,000 53.8% $208 billion
$50,000 79.6% $584 billion

Eligibility could be further limited to borrowers who earn less than $50,000 or $125,000. This would reduce the number of borrowers who have their debt completely erased, as shown in this table.

Amount Forgiven (Borrowers Owe Less) % of Borrowers with All Debt Erased Cost to the Federal Government
AGI less than $50,000    
$10,000 10.3% $19 billion
$20,000 16.6% $56 billion
$50,000 26.5% $184 billion
AGI less than $125,000    
$10,000 23.5% $46 billion
$20,000 37.0% $127 billion
$50,000 57.1% $392 billion

The most likely scenario is up to $10,000 in student loan forgiveness per borrower, limited to borrowers who owe less than $10,000 in federal student loans. Means-testing would be more difficult to implement, especially if the goal is to provide automatic loan forgiveness.

Other options include:

  • Forgive the student loan debt of borrowers age 65 and older, at a cost of $59 billion. Nearly a third of these borrowers are in default, in part because they are on fixed income.
  • Forgive the student loan debt of borrowers who attended Historically Black Colleges and Universities (HBCUs), at a cost of $30 billion. Students at HBCUs are more likely to borrow and borrow more because of chronic underfunding of these institutions.
  • Forgive the student loan debt of social workers, at a cost of $18 billion.
  • Forgive the student loan debt of teachers, at a cost of $117 billion.

Targeting student loan forgiveness to borrowers based on economic distress and financial need is more justifiable than broad student loan forgiveness. Broad student loan forgiveness cancels the debt of borrowers who can afford to repay their own student loans.

White House chief of staff Ron Klain said in an interview with Politico on March 25, 2021 that President Biden has asked U.S. Secretary of Education Miguel Cardona to prepare a memo about the President’s legal authority to cancel up to $50,000 in student loan debt and related policy issues. White House Press Secretary Jen Psaki previously said in a press briefing on February 17, 2021 that President Biden would ask the Justice Department to conduct a legal review of the President’s authority to act by executive action and the Domestic Policy Council to consider how loan forgiveness should be targeted.

The paper also discusses ideas for improving income-driven repayment plans, such basing the loan payments on a percentage of earnings as opposed to discretionary income, which would make income-driven repayment easier to understand and which would enable mandatory employer withholding of student loan payments. Cutting the repayment term in half, to 10 years, would eliminate the need for most other repayment plans.

Keep in mind, however that federal forgiveness and repayment plan options are only available with federal student loans. If you have private student loans, you may be able to reduce the amount you owe by refinancing. With interest rates at all-time lows, refinancing could save you thousands of dollars over the life of your loan. See the best student loans for refinancing here.

A good place to start:

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