The State of Student Loan Forgiveness

There is a chance that this article will be out of date by the time you are reading it. The idea that the Biden administration is planning some sort of student loan forgiveness is one of the worst kept secrets in Washington right now. The scuttlebutt has it pinned at $10k for every borrower who has federal student loans (including parents) and makes less than $150k per year. There are plenty of reasons to be critical of a plan like this. In some sense, loan cancellation is like tax rates. If $10k is a substantial portion of your student loans, you don’t have a ton of student debt and are probably capable of paying it off over time, and if it isn’t then reducing it by $10k isn’t necessarily going to help you pay your loans when the payment pause ends.

Of course there is an obvious political motivation to do it like this, if Biden cancels $10k from EVERY student loan, then he will affect the largest possible number of voters at a lower price tag (estimated at $321 billion). Compared to a plan which started reducing loans by focusing on those who owe the most and creating a “maximum” possible student loan balance which would help the fewest possible of students but only those who need it the most (and to be clear, no politician is advocating for this).

Republicans have their own plan to target “those who need it most” which removes some existing loan forgiveness, and seems to create some complicated means testing to be eligible for forgiveness, because adding meanest testing to benefit programs is one of the right’s favorite ways to limit their impact on those the programs help. Only those with extra energy to invest in application are able to receive the benefits of these programs, which is why so little of the PPP loan money made it to those who could actually use it.

All of this comes after the GAO released a report saying that the student loan program has cost the government $197 billion over the past 25 years. It seems that the thinking at one point was that the program could actually make the government more than $100 billion on the interest, but the cost of servicing the loans (including the recent servicer reorganization) has flipped the sign on the money.

Biden has said that he will announce a decision by the end of August. Officially loan repayment is supposed to begin on September 1st, but that seems unlikely to happen whether there is loan forgiveness implemented this month or not. Biden has asked the loan services not to reach out to borrowers to notify them to start repaying, so some extension on the “pause” seems imminent. But the confusion and uncertainty is making it hard for borrowers to budget or know when they will be expected to start paying again.