Personal Finance

$10,000? $50,000? What different amounts of student loan forgiveness would mean for borrowers

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Key Points
  • The odds of student debt forgiveness becoming a reality have never been greater.
  • Still, there's much disagreement over the shape that relief should take.
  • Here are some different ideas and how they'd impact borrowers.
The government's stimulus response to the pandemic may accelerate the trend of companies offering student loan assistance as a benefit.
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Phyllis Wintter has had student debt for more than 30 years. At 67, she still owes around $48,000.

Now she hopes that change could be coming, and that President Joe Biden will forgive her loans.

"It would be great if we could die free of this debt," said Wintter, who lives in Georgia.

But, she added, "$10,000 wouldn't do it. I'd still have $38,000, and I can't afford that."

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The odds of student debt forgiveness becoming a reality have never been greater. President Joe Biden said on the campaign trail that he's in support of cancelling $10,000 per borrower, and now he's asked his education secretary to prepare a report on his legal authority to wipe out as much as $50,000 for all.

Yet even among those in support of cancelling education debt, there are disagreements, particularly over how big the relief should be and who should get it. For example, some have floated the idea of forgiving the loans of essential workers or only low-income Americans.

Higher education expert Mark Kantrowitz recently put a report together, comparing some of these different forgiveness plans and their potential impacts.

Below are some of them.

Forgiveness by age?

A growing number of Americans are bringing student loans into their old age. And many of them can't afford the payments.

One-third of student loan borrowers over the age of 65 are in default, and half of those older than 75 have fallen behind, according to a report by the Government Accountability Office.

Although Wintter has avoided default, she said her student loans have made it impossible for her to qualify for a mortgage. She recently tried again, but was denied.

Phyllis Wintter
Source: Phyllis Wintter

For financial reasons, she's currently living with her daughter but longs to have her own home, particularly at this point in her life.

"It would mean being able to be with myself for awhile," Wintter said.

Cancelling student loans for people over the age of 65 would cost the government around $59 billion and impact 2 million people, according to Kantrowitz

The move wouldn't be unprecedented. The Swedish government, for example, forgives the loans of all borrowers over the age of 68, and the United Kingdom used to have a similar policy.

By profession?

Others have proposed erasing the loans of people in certain professions where the contribution to society is high as well as the debt burden.

For example, Kantrowitz found that cancelling the student loans of social workers would cost the government around $18 billion and deliver relief to roughly 400,000 people.

The government would have to shell out around $117 billion to forgive the debt of teachers, which would leave around 3 million people debt-free.

The idea of forgiving the education debt of doctors and nurses has also gained popularity during the pandemic. Doing so would cost around $250 billion and likely impact around 1 million individuals.

By income?

Some experts say any student debt forgiveness should be targeted at low-income Americans, pointing out that many with education debt have high salaries.

Roughly two-thirds of student loan borrowers in the U.S. earn under $100,000 a year. It would cost the government around $938 billion to erase the loans for everyone under that threshold, according to the analysis by Kantrowitz.

A third of borrowers make less than $50,000, and it would cost around $437 billion to forgive just these people's loans.

$10,000 or $50,000?

At the moment, the main point of contention among student loan forgiveness proponents is over how much debt should be scrapped.

If all federal student loan borrowers got $10,000 of their debt forgiven, the outstanding education debt in the country would fall to around $1.3 trillion, from $1.7 trillion, according to Kantrowitz.

And roughly one-third of federal student loan borrowers, or 15 million people, would see their balances reset to zero.

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Biden wants to forgive $10,000 in student loans. Top Democratic senators want $50,000.

Canceling $50,000 for all borrowers, on the other hand, would shrink the country's outstanding student loan debt balance to $700 billion, from $1.7 trillion. Meanwhile, the debt for 80% of federal student loan borrowers, or 36 million people, would be gone entirely.

Even under that more generous plan, not everyone would be happy.

One-fifth of federal student loan borrowers owe more than $50,000, and around 7% of borrowers owe more than six-figures.