Millions of Americans are behind on their student loans—how it impacts debt forgiveness

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U.S. student debt has ballooned for decades, but this year, legislators appear to be more serious about student debt forgiveness than ever before — prompting bold proposals and vigorous debate about potential impacts and costs. 

One variable often missing from these conversations: the billions of dollars of student loans that may never be repaid. 

In March 2020, the CARES Act put into place a pause on federal student loan payments. In April 2020, Pew estimated that 20% of student loan borrowers were in default — typically defined as having gone at least 270 days without making a payment. And more than a million student loans go into default each year. 

Sarah Sattelmeyer, director of Pew's student borrower success project says data suggests some $165 billion worth of federal-managed student loans are currently considered in default — and that this total may increase once the pause on federal student loan payments expires.

Brookings estimates that by 2023, nearly 40% of borrowers are expected to default on their student loans.

The "cost" of deferred debt

While the federal government and third-party vendors often recover the majority of debt owed, thanks to significant tools at their disposal (such as the ability to garnish wages, social security benefits and federal tax refunds) it is likely that any student loan forgiveness policy would include forgiving some debt that would never be collected anyway. 

"There should be broad student loan forgiveness," says Kevin Walker, a student loan expert and publisher of "It's something that would be good for the borrowers, and for the country, and also for the treasury because default rates on student loans are very high and so a lot of costs are already going to be incurred by the U.S. government, the taxpayer."

He continues, "Figuring out a way to provide relief to individual borrowers, understanding that a lot of that expense for the relief was already going to be incurred over time through defaults, makes a lot of sense. The hard part is figuring out what's the right amount to forgive."

Two main proposals

There are currently two student loan forgiveness proposals at play. 

House and Senate Democrats have urged President Biden to "broadly" forgive up to $50,000 of federal debt through executive order, an approach Senate majority leader Chuck Schumer has repeatedly reiterated Biden should take during his first 100 days in office.  

Biden however, is expected to call on Congress to forgive just $10,000 in student debt for borrowers

"$50,000 for everybody would shrink to the outstanding loan debt from $1.7 trillion to $700 billion," estimates Megan Coval, vice president of policy and federal relations at the National Association of Student Financial Aid Administrators. "And so this comes with a price tag of around $1 trillion."

"Forgiving $10,000 in federal student loan debt per borrower would cost $377 billion and would eliminate all federal student loan debt for about a third of borrowers," estimates higher education expert Mark Kantrowitz.

How student loans became a $1.6 trillion problem
How student loans became a $1.6 trillion problem

Bad debt on the books

Another factor that is often considered by legislators is how much federal student loan programs would lose if borrowers did not continue to repay their loans — as well as the interest on their loans. 

Josh Mitchell, Wall Street Journal reporter and author of the upcoming book "The Debt Trap: How Student Loans Became a National Catastrophe" points out that the Congressional Budget Office provides estimates to legislators about how much policies might cost, often referred to as a CBO score. 

Congress is often told that the Department of Education is "going to make a lot of money" on outstanding student debt that could be used for other programs such as Pell Grants, he says.

"So if you all of a sudden write off [student debt], it gets down to how accurate are the projections?" asks Mitchell. "I don't think Congress has really come to terms with how much bad debt is on their books. And therefore, they're still pretending like they're making a lot of money off of this."

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