Brief #115

Student Loan Forgiveness:  Who Should Benefit and By How Much?

Rosalind Gottfried    

April 25, 2021  


Americans owe 1.7 trillion dollars in student debt.  This figure represents an increase of 102% from 2010.  The issue is seen by many as one of racial and economic equity.  This is because the greatest portion of student debt accrues to lower and middle income students and to students who are Latinx , African American and/or women.  Twenty five percent of African Americans and twenty percent of Hispanic Americans are behind in their debt payments.  Students of color are also more likely than other bearers of student loans to have left school without a degree or to have jobs where their pay is not commensurate with the average college graduate’s pay scale.

President Biden’s recent corona virus relief bill provided for a moratorium on loan payments until September 30, 2021 and exempted them from accruing interest during that time period.   He has also exempted debt forgiveness or cancellation from being taxed.  At the same time, a recent US Court of Appeals ruling has made it more difficult to excuse student loans if a person declares bankruptcy.  This would not impact a one-time loan cancellation but applies to people making payments on existing loans which would not be canceled under a new guideline.

Candidate Biden attacked the issue of student loan with some vigor but his current positions appear less vehement.  There is also a question of whether he has the authority to forgive loans through executive mandate or whether he will go with a congressional strategy.  He has asked for a memo clarifying his authority to address the loan issue through executive order and there are some signs that he might favor a Congressional approach, though the likelihood of gaining support in each House seems unlikely.

The more specific issues are in regard to how much might be excused and who, or what, loans would be included.  There are resolutions proffered by Democrats in the House and Senate to forgive up to $50,000 in federal student loan debt.   The Senate Bill, promoted by Senators Elizabeth Warren and Chuck Schumer, would forgive up to $50,000 in federal student loans for individuals making less than $125,000 annually.  Two hundred civil right and consumer protection groups support this effort. This would eliminate the debt of 36 million people of the 45 million loan holders.  Biden currently seems more likely to go with a figure of $10,000 in federal student loans  wiping out the debt of 15 million borrowers.


One large rationale for loan forgiveness addresses the myriad ways in which such an action would bolster the economy.  These include:

  • Reducing the wealth gap
  • Providing an economic stimulus to the middle class
  • Promoting home purchases
  • Increasing the development of small businesses
  • Increasing the ability to save for retirement
  • Supporting the desire of young people to start a family

The conditions to qualify for the full loan forgiveness are controversial but likely will have an income limit and apply to students who attended public colleges and universities.  The feeling is that students who have attended more elite universities have not  accrued much loan debt and, if they did, are more likely to be among the higher earners which could pay back their loans.  Critics of loan forgiveness assert that higher income earners are likely to gain the most from loan forgiveness though there is little evidence to support this.  The cost of higher education has indisputably outpaced family income, representing an incomprehensible portion of assets; it is hard to argue against the idea of loan forgiveness.   Many economists agree that what stimulates an economy most, over the longer term, is a healthy, solvent middle class and eliminating, or at least reducing, student debt certainly would improve the outlook for many young people.

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