Millions of Americans will benefit if the federal student loan debt is canceled. But as the Biden administration plans to give more relief to borrowers, a new study finds that the percentage of people who will benefit from loan cancellation depends largely on several factors, including the amount forgiven.
This comes when the Biden administration earlier this month extended the pause in federal student loan payments until Aug. 31. The White House has said one cancellation decision the debt will be made by the end of August.
“In terms of loan forgiveness, there is no easy solution here, but we know our borrowers need relief,” Education Secretary Miguel Cardona told CBS News in an interview Thursday. He said the current pause provides that relief.
“So we’re trying to support all borrowers while looking for ways to alleviate loans for these programs, such as public service loan forgiveness, revenue-based repayment, and we’re talking about a relief program. of broader lending. “Cardona said.
During the campaign, President Biden called for $ 10,000 in student loan cancellations and for Congress to act, a measure that would limit legal challenges. But some top Democratic lawmakers want the administration to go further, forgiving $ 50,000 in student loans through executive action.
A new analysis by the Federal Reserve Bank of New York found that the total outstanding balance of federally owned student loans at the end of last year was $ 1.38 trillion. Limiting the cancellation to $ 50,000 in student loan debt would forgive the full balances of about $ 29.9 million – or 79 percent – of the 37.9 million federal borrowers. The average forgiveness would be more than $ 23,800 per borrower. The cost would be $ 904 billion.
Canceling $ 10,000 in federal student loan debt would eliminate $ 321 billion in debt and eliminate the entire balance of some 11.8 million borrowers, or 31.1% of borrowers. Under the plan, the average forgiveness would be more than $ 8,400 per borrower.
At the same time, there is a debate about whether there should be income limits for those who receive student loan forgiveness. The analysis found that putting a $ 75,000 income limit on student loan forgiveness in the $ 50,000 cancellation policy would mean that the move would cost nearly $ 400 billion less than $ 507 billion. Putting a revenue cap on the $ 10,000 proposal would reduce the cost by nearly $ 140 billion to $ 182 billion.
The Federal Reserve Bank of New York found that the smaller cancellation policy distributes a larger share of profits to borrowers with lower credit scores and those living in less affluent and minority neighborhoods. Increasing the amount of forgiveness increases the proportion of total debt forgiveness for borrowers with a higher credit score and those living in richer neighborhoods.
Although the Biden administration has not announced a determination as to whether it has the legal authority to unilaterally cancel student loan debt, if so, officials will also have to determine how much to cancel and whether there will be requirements. additional.
Meanwhile, the Department of Education has also focused on resolving issues affecting student loan borrowers and forgiveness and repayment plans. Since its inauguration, the Biden administration has canceled more than $ 17 billion in student loan debt, including debt from borrowers defrauded by their schools, with permanent disabilities, or in the forgiveness of service loans. public.
Monday, officials announced changes to public service loan forgiveness programs and income-based repayment plans. The Department of Education said the corrections meant that 40,000 borrowers would immediately receive debt forgiveness and that some 3.6 million borrowers would be at least three years closer to their loans being repaid through repayment plans based on income.
“We’re working very hard not only to consider ways to alleviate debt, but also to fix a broken system,” Cardona told CBS News. “Last year we worked very hard to fix the public service loan forgiveness system, and now we’re fixing the revenue-based repayment system, which means you shouldn’t have to pay more than you can afford. “.
Cardona said they have cleaned up the system and are putting people on the path to reimbursement and forgiveness. He also said that the administration is working to solve the cost problems that have caused the student debt crisis and to ensure that the university has a better return on investment.
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