What to Realistically Expect From Student Loan Forgiveness

As we consider the chances of student loan forgiveness — at any level — it's a good idea to explore what a realistic path toward some level of student loan debt cancellation might look like.

Right now, the Biden Administration continues to waffle on campaign talking points centering on student loan cancellation of up to $10,000. Some say an executive order is good enough, especially after members of Congress cleared the way for such a move. However, agreeing on the forgiveness amount and who should benefit from student debt relief is difficult.

Below are some paths that might increase the chances of student loan forgiveness for the more than 43 million borrowers with federal student loan debt.

Most realistic option: $10,000 federal loan forgiveness for all

Many believe the most tenable way to provide some level of relief is by canceling $10,000 in Direct Loans for every federal loan borrower. This wouldn't impact those with private student loans, but it benefits borrowers with federal student debt to some degree.

This is also considered one of the most realistic paths since the relatively small amount (compared to $50,000 pushed by Senators Elizabeth Warren and Chuck Schumer) would cost a little less than the country has spent on Temporary Assistance for Needy Families (what we call welfare) from 2000 to 2019. Plus, it's something President Joe Biden could potentially accomplish with the stroke of a pen.

The U.S. Department of Education under directions from the White House has already expanded its waiver program from Public Service Loan Forgiveness (PSLF). The temporary halt on federal student loan payments from certain programs, instituted by the CARES Act,  was also extended again due to the pandemic’s omicron variant.

Using an executive order to cancel $10,000 in federal student loan debt would be the most palatable way to deliver on what many see as a promise — and one of the main reasons people voted for a Democratic candidate during the 2020 election.

It would require making sure each loan servicer accurately updates their records, positively impact 43 million borrowers, and be the least “expensive” way to push this policy through.

Who benefits from higher amounts of student loan forgiveness?

For many progressives, $10,000 — though the most realistic chance of seeing a level of student loan cancellation — isn't enough. Part of the reason is that, while persons of color and low-income households would benefit from this level of forgiveness, a higher level of student loan cancellation could actually do more toward closing the racial wealth gap in a meaningful way.

Student loan cancellation at the $30,000 level

One suggestion is that the “magic” number for addressing those most in need is canceling $30,000 in federal student debt.

First of all, if you're in default, you're not eligible for PSLF. Student loan relief through cancellation gets rid of all loans — even those in default. Because 77.6% of borrowers owe $40,000 or less in defaulted student loans, $30,000 in forgiveness would wipe out borrowers’ debt, according to EducationData.org.

Additionally, according to an analysis by JPMorgan Chase, more than 75% of student loan borrowers in low to middle-income households would benefit at this level. The benefits would only amount to half that at the $10,000 cancellation level.

Student loan cancellation at the $50,000 level

Others suggest that the federal government should offer loan discharge up to $50,000. The Roosevelt Institute points out that federal student loan borrowers of color typically have higher amounts of debt. It argues that ongoing racial wealth inequality causes them to borrow more money to cover education costs.

According to the Roosevelt Institute, wiping out $50,000 in student loans would immediately increase the wealth of Black Americans by 40%.

The Brookings Institution puts the cost of $50,000 in loan forgiveness at about the same level as Supplemental Security Income (SSI) and all housing assistance programs between 2000 and 2019 and suggests more targeted federal student aid relief.

Other federal student aid and higher education options

Instead of focusing on student loan cancellation, whether by executive order or act of Congress, the Brookings Institution suggests that progressives should be looking at other ways to provide help for higher education costs. Some of the ideas the Brookings Institution suggests include:

• Increase the Pell Grant. President Joe Biden has suggested doubling it which would be more likely to benefit students of color.
• Overhaul income-driven repayment. Adjusting repayment plans so they are better targeted and work better, as well as result in debt forgiveness later could potentially make school more affordable without costing the government.

In addition to these ideas, it might be worth considering reducing the amount of interest charged on federal student loans, as well as allowing refinancing for federal loans, rather than forcing students to rely on consolidation or private student loan refinancing options.

Bottom line: what are the chances of student loan forgiveness?

Fewer progressives and others are relying on the Biden Administration’s debt relief in the form of student loan cancellation.

If some level of forgiveness is decided on, it's likely that President Biden will have to issue an executive order to make it happen as Republicans likely won’t support any level of student loan cancellation.

Their arguments are easy to anticipate. They will claim it's too expensive, it's unfair to those who’ve paid off their federal student loans, and that it's not right to “reward” those who have student debt when others didn't use loans to pay for school.

The fact remains that student loan debt continues to weigh on students — many of whom simply did what they were told to do by those “in charge.” And that weight could potentially hamper the economy for decades to come if some workable solution isn't found.