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How President Biden Canceled At Least $200 Billion of Student Loans Without Congress

Many student loan borrowers and consumer advocates have been disappointed that President Biden didn't live up to his campaign pledge to cancel $10,000 of student loan debt for every borrower. While he thus far hasn't delivered on that promise, Biden has canceled far more student debt than any American President. In fact, borrowers have yet to realize how much the President has canceled both now and in the future.

In this article, we'll look at actions taken by President Biden on student loans and how much more cancellation could be in store for borrowers.

Biden administration first continued cancellation started by President Trump

Given the personal and policy chasm between the two men, it's a bit ironic that the President who has canceled the second most student loan debt in history is President Trump.

The reason is simply that the COVID payment and interest freeze began on March 13, 2020, during the Trump administration. Lawyers in Trump's Education Department cite authority in the HEROES Act of 2003 to “waive or modify […] student financial assistance programs […] in connection with a war or other military operation or national emergency […].”

The law further states that the Secretary of Education may waive or modify provisions so that “affected individuals are not placed in a worse position financially” due to the national emergency.

How much student loan debt did Biden cancel with the payment and interest pause?

When President Biden came into office in mid-January, payments and interest were supposed to begin weeks later. Biden extended this freeze until August 29, 2023.

Loan debt canceled by waiving interest

Most studies suggest that the interest pause saves borrowers around $5 billion a month. Over approximately 16 months, President Biden will have canceled about $80 billion in student loan debt simply by waiving interest for federal student loan borrowers.

Loan debt canceled by waiving payments

The Roosevelt Institute conducted a study that found that student loan borrowers would pay approximately $85 billion annually when student loan payments resume on May 2, 2022.

If we use this number as an estimate for the amount in payments borrowers didn't have to pay during the pause, we can ask how much of these paused payments should count as cancellation.

Recall that the paused payments started under the CARES Act explicitly count for loan forgiveness programs such as PSLF and the 20- and 25-year Income-Based Repayment programs.

According to a CBO report from 2020 using 2017 data, at least 27% of borrowers use an IDR plan for their loans. A higher share of 39% of graduate school borrowers uses an IDR plan.

According to Federal Student Aid data, there were 7.51 million borrowers making IDR payments on federally owned student loans as of June 30, 2017.

As of September 30, 2021, there were 8.89 million borrowers making IDR payments on federally owned student loans, which represents an 18% increase.

Therefore, the number of borrowers on an IDR plan seems to have increased a cumulative 18% between 2017 and 2021. The number of borrowers overall increased only 1.8% during the same time frame. Therefore, we estimate roughly 31% of all borrowers are now on an IDR plan.

Paused IDR payments count as cancellation

According to a FOIA request on borrower data from the nation’s largest student loan company, 63% of borrowers who made a payment on their loans during the pandemic are still underwater on their loans. It's, therefore, a reasonable assumption that at least half of borrowers using an IDR plan will eventually have their loans forgiven between PSLF and the 20- and 25-year plans.

Thus, the cost of these suspended payments would count as student debt cancellation.

Take 31% (estimated share of borrowers on IDR in 2021) x 50% (share of borrowers on IDR that might get forgiven eventually) x $85 billion (cost of payment pause) and divide by 12 months to get a $1.1 billion monthly cost of the payment pause.

Multiply by the 16 month duration of the pause during the Biden administration and you have the total cost of $17.6 billion.

Types of miscellaneous student loan cancellation you haven’t heard about

After extending the COVID payment and interest pause, the Biden administration took aim at automating key processes for cancellation of the debt for specific classes of borrowers.

Biden's Department of Education canceled debt for the following classes of borrowers, according to Forbes:

  • Borrowers defrauded by their school: $1.5 billion
  • Borrowers who attended ITT Tech: $1.1 billion
  • Disabled borrowers: $5.8 billion

This figure totals $8.4 billion.

The biggest cancellation yet to be fully realized: the PSLF Waiver

The PSLF Waiver expired on October 31, 2022. Yet, borrowers and many Washington policymakers will have no idea how much debt President Biden canceled under the PSLF waiver because its effects haven't yet been fully realized.

FFEL debt to be canceled under the PSLF Waiver

We estimate that approximately $30 billion of FFEL student loans (or more) could be forgiven by 2023 under the PSLF waiver rules.

Consider that 25% of the workforce is in public service, and there are 10 million borrowers with $240 billion of FFEL student loan debt that has existed for at least ten years.

This debt wouldn't normally be eligible for PSLF, but under the rules of the waiver — after a consolidation — this debt can be canceled if the borrower served 10 years in full-time public service work.

While 25% of workers are in the public sector, a smaller share would have completed 10 years of full-time credit even though, by definition, all these borrowers have been around for at least 10 years (otherwise, the debt would have been forgiven due to death or disability).

If you assume half of the 25% of workers in the public sector with at least ten years experience in any workplace have been in public service for 10 years or more, you come up with $30 billion of cancellation.

Direct debt to be canceled under the Waiver

On December 31, 2012, there were approximately 23.4 million Direct Loan borrowers with a total of $508 billion in student debt. Much of these qualifying Direct Loans would eventually be forgiven under the rules of PSLF.

However, President Biden expanded qualifying repayment plans for PSLF to include ALL repayment plans, not just IDR plans.

Refund of payments not normally qualifying for PSLF is cancellation

Even if a borrower did not use a qualifying IDR plan, they get a refund if they have more than 120 months of payments.

The treatment of certain consolidation loans under the PSLF Waiver is cancellation

Additionally, borrowers who consolidate multiple loans with different numbers of qualifying payments could receive a “forgiveness windfall” if they consolidated loans from undergrad with loans from a later graduate program.

For example, assume a borrower who took out loans for undergrad from 2004 to 2008, worked in public health for ten years, and then went back to school for a master's in public health from 2018 to 2020 and then consolidated everything together. Since the loans from undergrad would have more than ten years' worth of payments, the entire consolidation loan would be forgiven despite the borrower not having more than ten years of payments on the loans from graduate school.

Total cost of Direct Loan cancellation under PSLF Waiver

Assuming that 25% of the 23.4 million borrowers from December 2012 worked in public service and that half would have accumulated ten years of full-time work experience in public service, that would leave approximately:

25% (share in public service) x 50% (estimated share with ten years of full-time work experience in the public sector) x $508.7 billion (Direct Loans that existed in 2012) = $63.6 billion potentially eligible for cancellation.

This figure doesn't include the refunds of payments and accelerated cancellation of graduate school loans included in consolidations with undergraduate loans, so this figure could potentially be higher as well.

Total cancellation from President Biden for student loan borrowers is the most in history

Given that the only other significant cancellation happened under President Trump, President Biden easily wins the crown for most student loan cancellations under an American President. Our total cancellation estimate was:

  • $80 billion in canceled student loan interest from the pandemic student loan pause.
  • $17.6 billion (estimated) in cancellation from suspended payments counted towards forgiveness programs.
  • $8.4 billion in cancellation for disabled or defrauded borrowers.
  • $29.9 billion (estimated) FFEL Loans Potentially Canceled under PSLF Waiver.
  • $63.6 billion (estimated) Direct Loans Potentially Canceled under PSLF Waiver.

Total canceled by President Biden from actions taken in his first year in office: $199.5 Billion.

How much cancellation will happen next?

Even though the PSLF Waiver expired in October 2022, not all of this cancellation has been fully realized yet, as the PSLF waiver will take a long time to be fully reflected in official statistics.

But President Biden was able to cancel a huge amount of student debt while bypassing Congress through executive actions and regulations taken by his Department of Education.

President Biden likely has canceled almost triple the amount of student loan debt in his first year as President Trump did in all four years in office.

However, cancellation has not come to many lower-income borrowers hoping for widespread cancellation. One reason why is the HEROES Act of 2003 specifies that borrowers may be no worse off due to a national disaster, but that particular statute doesn't allow for borrowers to be made “better off.”

That's one reason the administration has taken the path of least resistance and extended the student loan pause three times. Borrowers have received a large amount of cancellation. It's just gone disproportionately to specific groups of borrowers the Biden administration has selected.

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Comments

  1. Jill Thomason January 1, 2022 at 9:50 AM
    Reply

    I was told by Fed Loan that the PSLF program, that started in 2007 DOES NOT include any payments made prior to the enactment of the program.
    Secondly, noone seems to be talking about the large number of nurses, mental health counselors, and licensed clinical social workers who will not qualify for student loan forgiveness because the work for an insurance company.
    So in essence being punished for working for public health sector that is not a non profit, many hospital systems are also for profit. So despite paying on my student since 1996, I will never qualify.
    The type of employer needs to be addressed as well as the type of repayment plan when it comes to the overhaul of the PSLF program.

    • Abel at Student Loan Planner January 11, 2022 at 10:15 PM
      Reply

      Hey Jill, student loan consultant Meagan Landress has this to share: correct, payments pre-10/1/2007 will not count towards PSLF.

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