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Is it fair to forgive student loans? Examining 3 of the arguments of a heated debate

Scott Horsley

Student loan borrowers stage a rally in front of The White House on Aug. 25 to celebrate President Biden cancelling student debt. The plan has sparked heated debate, including about its economic fairness. Paul Morigi/Getty Images for We the 45m hide caption

Student loan borrowers stage a rally in front of The White House on Aug. 25 to celebrate President Biden cancelling student debt. The plan has sparked heated debate, including about its economic fairness.

President Biden's plan to forgive hundreds of billions of dollars in student debt is sparking heated debate.

Biden last week announced plans to forgive up to $20,000 in federal student loan debt for Pell Grant recipients and up to $10,000 for others who qualify.

The news will provide relief for borrowers at a time when the cost of higher education has surged.

Student loan forgiveness is politically popular. But not all Democrats are on board

But critics are questioning the fairness of the plan and warn about the potential impact on inflation should the students with the forgiven loans increase their spending.

Here are three key arguments – for and against the wisdom of Biden's decision.

Raising living standards or adding fuel to inflation?

Undoubtedly, student debt is a big burden for a lot of people.

Under Biden's plan, 43 million people stand to have their loan payments reduced, while 20 million would have their debt forgiven altogether.

People whose payments are cut or eliminated should have more money to spend elsewhere – maybe to buy a car, put a down payment on a house or even put money aside for their own kids' college savings plan. So the debt forgiveness has the potential to raise the living standard for tens of millions of people.

Critics, however, say that additional spending power would just pour more gasoline on the inflationary fire in an economy where businesses are already struggling to keep up with consumer demand.

Inflation remains near its highest rate in 40 years and the Federal Reserve is moving to aggressively raise interest rates in hopes of bringing prices back under control.

Not all economists believe the debt forgiveness will do much to fuel inflation.

Debt forgiveness is not like the $1200 relief checks the government sent out last year, which some experts say added to inflationary pressure. Borrowers won't suddenly have $20,000 deposited in their bank accounts. Instead, they'll be relieved of making loan payments over many years.

President Biden announces student loan relief in the Roosevelt Room of the White House in Washington, D.C. on Aug. 24. Olivier Douliery/AFP via Getty Images hide caption

President Biden announces student loan relief in the Roosevelt Room of the White House in Washington, D.C. on Aug. 24.

Because the relief is dribbled out slowly, Ali Bustamante, who's with left-leaning Roosevelt Institute says Biden's move won't move the needle on inflation very much.

"It's just really a drop in the bucket when it come to just the massive level of consumer spending in our very service- and consumer-driven economy," he says.

The White House also notes that borrowers who still have outstanding student debt will have to start making payments again next year. Those payments have been on hold throughout the pandemic.

Restarting them will take money out of borrower's pockets, offsetting some of the additional spending power that comes from loan forgiveness.

Helping lower income Americans or a sop to the rich?

Another big point of contention has to do with fairness.

Forgiving loans would would effectively transfer hundreds of billions of dollars in debt from individuals and families to the federal government, and ultimately, the taxpayers.

Some believe that transfer effectively penalizes people who scrimped and saved to pay for college, as well as the majority of Americans who don't go to college.

They might not mind subsidizing a newly minted social worker, making $25,000 a year. But they might bristle at underwriting debt relief for a business school graduate who's about to go to Wall Street and earn six figures.

Students from George Washington University wear their graduation gowns outside of the White House in Washington, D.C, on May 18. Economists worry President Biden's plan to forgive student loans could encourage more people to take on debt in the hopes of also being forgiven. Stefani Reynolds/AFP via Getty Images hide caption

Students from George Washington University wear their graduation gowns outside of the White House in Washington, D.C, on May 18. Economists worry President Biden's plan to forgive student loans could encourage more people to take on debt in the hopes of also being forgiven.

The White House estimates 90% of the debt relief would go to people making under $75,000 a year. Lower-income borrowers who qualified for Pell Grants in college are eligible for twice as much debt forgiveness as other borrowers.

But individuals making as much as $125,000 and couples making up to $250,000 are eligible for some debt forgiveness. Subsidizing college for those upper-income borrowers might rub people the wrong way.

"I still think a lot of this benefit is going to go to doctors, lawyers, MBAs, other graduates that have very high earnings potential and may even have very high earnings this year already," says Marc Goldwein senior policy director at the Committee for a Responsible Federal Budget.

Helping those in need or making college tuition worse?

Goldwein also complains that the loan forgiveness doesn't address the larger problem of soaring college tuition costs.

In fact, he suggests, it might make that problem worse — like a Band-Aid that masks a more serious infection underneath.

For years, the cost of college education has risen much faster than inflation, which is one reason student debt has exploded.

And now what? The question that follows Biden's student loan forgiveness plan

By forgiving some of that debt, the government will provide relief to current and former students.

But Goldwein says the government might encourage future students to take on even more debt, while doing little to instill cost discipline at schools.

"People are going to assume there's a likelihood that debt is canceled again and again," Goldwein says. "And if you assume there's a likelihood it's canceled, you're going to be more likely to take out more debt up front. That's going to give colleges more pricing power to raise tuition without pressure and to offer more low-value degrees."

The old rule in economics is when the government subsidizes something, you tend to get more of it. And that includes high tuition and college debt.

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Share All sharing options for: The “fairness” debate over student loan forgiveness, explained

For many of the 43 million Americans with federal student loan debt, President Joe Biden’s plan to forgive up to $20,000 in debt is unequivocally good news.

But in the days since the policy was announced, it has also led to pushback, debate, and controversy — arguments that are likely to be studied for months and adjudicated by researchers for years, if not decades.

There are two leading — and overlapping — criticisms of the loan forgiveness plan. One question is whether debt forgiveness is the right thing to do. It asks whether forgiving student loans is the best way to spend an estimated $500 billion , given that some, though not all, of those who benefit have college degrees and relatively high household incomes.

The other is about whether debt forgiveness is the right thing to do right now. If households freed from the burdens of their debts spend more money, it could drive inflation higher — meaning that the consequences of loan forgiveness would be borne by everyone, and soon. To dampen inflation, the Federal Reserve is actively trying to get consumers to spend less.

It’s unsurprising that Biden’s political opponents have raised these concerns. But the criticism has also extended to some economists who have served in previous Democratic administrations or consider themselves sympathetic to Biden’s goals. “Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless,” Jason Furman, President Barack Obama’s chief economist, tweeted when Biden’s plan was announced.

Not all economists agree with Furman’s view . But the fact that the inflation debate is happening at all is a sign of how broader economic trends have shifted.

The push for student debt forgiveness was born a decade ago in the depths of the Great Recession, when even college graduates struggled to find work. Inflation was low and falling. It’s become reality under very different economic circumstances, and that shift is part of what’s fueling the current debate.

The first debate: Is loan forgiveness the right thing to do?

The Biden administration crafted its student debt forgiveness proposal in an attempt to avoid benefiting the wealthiest families. To be eligible for $10,000 in loan forgiveness, student debtors must have earned less than $125,000 (or $250,000 for a married couple) in the 2020 or 2021 tax years.

Students who receive Pell Grants to attend college — meaning they came from low-income families, overwhelmingly earning less than the median household income in the United States — are eligible for an additional $10,000 in debt relief. This is an extra boost for those who started higher education without the safety net of intergenerational wealth.

The proposal would entirely wipe out student debt for 20 million people — nearly half of the 43 million Americans who borrowed to pay for college and are still paying the loans back. An analysis from the Education Department found that almost 90 percent of the benefits would go to people earning less than $75,000 per year, though because any loans taken out before July 2022 are eligible for forgiveness, that figure includes current students and very recent graduates whose salaries could rise in the near future.

The reaction from Biden’s opponents has been to call forgiveness unfair, both to those who didn’t attend college and to those who already paid off their loans.

Senate Minority Leader Mitch McConnell, who would have perhaps the most to gain from a political backlash to the program, called the idea “a slap in the face to every family who sacrificed to save for college, every graduate who paid their debt, and every American who chose a certain career path or volunteered to serve in our Armed Forces in order to avoid taking on debt.”

This attitude is in line with how policymakers in the United States have typically viewed higher education. The federal government helps some students from poor families by offering Pell Grants that don’t have to be paid back, although the grant, which tops out at just under $7,000, means the majority of recipients still need loans . But the bulk of federal financial aid to students comes in the form of loans.

The American system of higher education finance is based on the idea that a college degree primarily benefits the individual who earns it. The federal government issues a small leg up by offering loans at a cheaper rate than a private bank would offer to an 18-year-old with no credit history or a young adult trying to support a family while earning a degree. (The current rate on an undergraduate student loan is just under 5 percent , compared to up to 14 percent from a private lender.)

A few assumptions underlie all of this: that most student loan borrowers are young people working toward bachelor’s degrees, that they will graduate, and that the degree will help them earn back more than enough to pay their debts. Hence the pushback against loan forgiveness: Why help out a 20-something who majored in philosophy at an expensive private college, instead of the 50-year-old next door with no degree at all?

But those assumptions are no longer always true. Biden’s plan is intended to fit the reality of the student loan program as it exists today. The lines between those who will benefit from debt forgiveness and those who are left on the sidelines are blurrier than blue-collar versus white-collar, working-class versus middle-class, old versus young.

One in five people with outstanding student loans is over age 50 , some of whom likely borrowed on their own behalf (including those who pursued graduate degrees) and some of whom took out loans to pay for their children’s education. Many student debtors are no longer young adults starting at a four-year college; they’re older and more likely to attend a community college or for-profit program. An analysis by Mark Huelsman, director of policy and advocacy at the Hope Center for College, Community and Justice at Temple University, found that almost 40 percent of those who entered college in the 2011-12 school year and took on student debt never earned a credential.

Forgiveness will be especially helpful to those in default — the terrifying Upside Down of the financial aid system, where, after at least 9 months of missed payments, the Education Department can garnish wages and even Social Security checks in order to get its money back. The typical defaulter did not graduate and owes just under $10,000 .

There are other versions of the fairness argument circulating. One holds that forgiveness is unfair to those who borrowed but paid off their debts — an argument that could be raised against any social program on behalf of those who were born too early to benefit from it.

The counterpoint to these critiques is that critics are holding student debt forgiveness to a fairness standard applied to few other government programs or benefits. Forgiveness could be life-changing for millions of people, especially those struggling with default, the argument goes, while hurting no one.

Which is where the other part of the critiques come in.

Is it the right thing to do right now?

The student debt forgiveness movement emerged about a decade ago from the crucible of the Great Recession. Students were borrowing more than ever to pay for college and, amid the cratering economy, were struggling to find jobs that would help them pay their loans back.

In 2012, the unemployment rate for bachelor’s degree holders was around 4.5 percent, and nearly 8 percent for college dropouts and those with two-year degrees. Interest rates were low. A prominent argument against student debt for the next eight years was that it was slowing down the economy: Young adults burdened by debt were being held back from buying homes, starting businesses, and spending money.

Few could foresee that by the time forgiveness became a reality, unemployment for bachelor’s degree recipients would have halved, interest rates would have more than doubled, and inflation would be the overriding economic concern. Even in 2019, when loan forgiveness became a serious issue in a Democratic primary campaign for the first time, inflation was rarely mentioned; by the 2020 election, with the economy contracting from the shock of the coronavirus pandemic, student debt forgiveness seemed to have a plausible path to becoming reality as a form of stimulus.

In the past year, though, things have changed. With consumer prices up 8.5 percent over a year ago, some economists now argue that debt cancellation is too big a risk. The concern is that, freed from loan debt or facing reduced payments, student borrowers will spend more at a time when the Federal Reserve is trying its best to get Americans to spend less and cool down the economy.

How much of an effect this will have — if it has one at all — is the subject of further debate.

The federal government paused repayment on most student loans during the pandemic, so millions of borrowers have not had to make a payment on their student loans in two years. The majority of student loan debtors will need to return to making some kind of payment in January, when the pause expires, even if it’s less than they would have had to pay before forgiveness.

The student loan pause was always supposed to end eventually, and it will in January. But for the past two years, the moratorium was extended multiple times, leading to an unusual situation: tens of millions of people owed student debt but didn’t have to make any payments.

Now, this situation is at the heart of the debate over inflation. When economists warn that student debt will drive up prices for everyone, what are they comparing it to? The current situation, where no one is making payments at all?

An analysis by Goldman Sachs economists found that the impact of forgiveness on inflation is likely to be offset by most borrowers resuming payments when the student loan pause ends in January. People who have had their loans forgiven will continue to pay what they’ve been paying for the past two years (nothing), meaning that their household spending should be unaffected. But people who owed more than Biden could forgive, or who earned too much to qualify for forgiveness, will have to resume making payments after two years of not doing so, meaning they’ll actually have less money to spend on everything else.

Or is the proper comparison an alternate path, where Biden allowed payments to resume for all loans, meaning that more people would owe more money per month than they will under the new plan?

Furman estimated that the loan forgiveness plan, even with the resumption of payments for most borrowers in January, could drive up inflation by 0.2 to 0.3 percentage points, compared to the alternative of resuming payments for everyone at their existing debt loads. If inflation continues to rise, prices will become more expensive for all households, meaning that American consumers broadly would pay for the consequences of debt forgiveness.

Ultimately, this argument about inflation is also tied up with the concerns about fairness. If student debt forgiveness drives inflation slightly higher, is that worth it?

Critics argue that it is not: “Student loan debt relief is spending that raises demand and increases inflation,” former Treasury Secretary Larry Summers tweeted last week. “It consumes resources that could be better used helping those who did not, for whatever reason, have the chance to attend college. It will also tend to be inflationary by raising tuitions.”

But that position is not universal. “I am not in favor of framing student-loan policy as a lever for managing inflation,” Sue Dynarski, a Harvard professor, an expert on higher education finance, and a former forgiveness skeptic, wrote in the New York Times on Tuesday. “Eliminating food subsidies for poor families — SNAP, as the food stamp program is known today — would definitely slow the economy, but that doesn’t mean we should do it.”

Where do we go from here?

One thing virtually all sides of the debate agree on is that one-time forgiveness is not enough. It is, by design, a one-off — siblings from the same family who graduate from college a few years apart, having borrowed the same amount to pay for it, could end up with debt loads that differ by thousands of dollars.

The Biden administration is hoping to make income-based student loan repayment more generous, outlining changes that would require borrowers to pay 5 percent of discretionary income per month (down from 10 percent in the current program).

But there is currently no federal plan to actually make college cheaper for students, to reduce borrowing, or to hold colleges accountable for whether students can pay off their loans. That’s not for lack of ideas or for lack of trying. The Obama administration proposed rating colleges based on the “value” they provide to students, an attempt that ultimately went nowhere.

In 2016, both Bernie Sanders and Hillary Clinton called for the federal government to partner with states to make college tuition cheaper. It inspired many of the same debates that loan forgiveness has provoked — should college be subsidized for everyone, and if so, by how much? But the “free college” program was ultimately one of the first things dropped from Democrats’ legislative agenda.

The scope of Biden’s student debt forgiveness plan might seem radical. But by leaving the ultimate structure of how American higher education is paid for unchanged, it’s actually a less dramatic departure than any of the alternatives.

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Student Opinion

Should the Government Cancel Student Debt?

President Biden announced on Aug. 24 that the federal government would cancel up to $20,000 of student loan debt for tens of millions of Americans. Is debt forgiveness the right approach?

By Jeremy Engle

Across the United States, 45 million people owe $1.6 trillion for federal loans taken out for college — more than they owe on car loans, credit cards or any consumer debt other than mortgages.

What’s your reaction to President Biden’s plan to cancel $10,000 in debt for those earning less than $125,000 and $20,000 for those who had received Pell Grants for low-income families? Do you believe that canceling some student debt is appropriate and fair? Does the plan not go far enough? Or is it fiscally irresponsible and unfair to those who have already paid off their loans or those who have not attended college?

In the Aug. 24 article “ Biden to Cancel $10,000 in Student Debt; Low-Income Students Are Eligible for More ,” Zolan Kanno-Youngs, Stacy Cowley and Jim Tankersley write:

President Biden announced a plan on Wednesday to wipe out significant amounts of student loan debt for tens of millions of Americans, saying he would cancel $10,000 in debt for those earning less than $125,000 per year and $20,000 for those who had received Pell grants for low-income families. The debt forgiveness, although less than what some Democrats had been pushing for, comes after months of deliberations in the White House over fairness and fears that it could exacerbate inflation before the midterm elections. “All of this means people can start finally to climb out from under that mountain of debt,” Mr. Biden said in remarks from the White House. “To finally think about buying a home or starting a family or starting a business. And by the way, when this happens, the whole economy is better off.” Mr. Biden also announced that a pandemic-era pause on student loan payments, which has been in effect since March 2020, would expire at the end of the year. The timing for the debt relief is uncertain; the Department of Education said it would set up an application process by the end of the year.

However, critics — including some members of Mr. Biden’s party — said the move was deeply unfair.

Jason Furman, a Harvard economist and former top economist for President Barack Obama, said the plan “would unnecessarily provide tens of thousands of dollars to many high-income households in a way that goes well beyond even what he promised in the heat of a Democratic primary when the problem facing the country was low inflation — not high inflation.” The Republican National Committee released a statement slamming the program as “Biden’s bailout for the wealthy.” Senator Ben Sasse, Republican of Nebraska, said the plan “forces blue-collar workers to subsidize white-collar graduate students. Instead of demanding accountability from an underperforming higher-education sector that pushes so many young Americans into massive debt, the administration’s unilateral plan baptizes a broken system.” Because Mr. Biden used executive action, rather than legislation, to forgive the loans, legal challenges are expected. It is unclear, however, who would have the standing to press their case in court. A recent Virginia Law Review article argued that the answer might be no one: States, for example, have little say in the operation of a federal loan system.

Students, read the entire article , and then tell us:

What’s your reaction to President Biden’s student loan forgiveness plan? Is it the right way to address the reality that 45 million Americans collectively owe $1.6 trillion in student loans? Or should it go further and cancel all student debt? Is it presidential overreach, as some critics contend? Or is it unfair to those who haven’t gone to college or who have already paid their loans in full?

How will the president’s debt relief plan affect you, your friends and family?

Are you considering attending college? Does the cost of college and the prospect of loans and debt affect how you think about your future? How concerned are you that the typical undergraduate student with loans now finishes school nearly $25,000 in debt?

Which of the arguments in favor of canceling student debt do you find most persuasive? For example, are you swayed by Mr. Biden’s belief that his plan will allow people to “climb out from under that mountain of debt” so that they can “finally think about buying a home or starting a family or starting a business” or the argument that debt forgiveness is necessary to address racial disparities in the economy?

Which of the arguments against canceling student debt do you find most compelling? Do you agree with Senator Ben Sasse that the plan “forces blue-collar workers to subsidize white-collar graduate students? Do you think that it makes sense to make a major investment that leaves out those who did not attend college? Is the plan fair to those students who have already repaid their student debt? Why?

The $1.6 trillion in student debt held in America is roughly equal to the size of the economy of Brazil or Australia. That figure skyrocketed over the last half-century as the cost of higher education increased . How would you like to see the country address college’s rising costs? Do you think that student debt cancellation is an important step in making higher education more affordable and accessible? Or does it leave the problem in place? Why or why not? What other reforms do you think would make a difference?

Students 13 and older in the United States and Britain, and 16 and older elsewhere, are invited to comment. All comments are moderated by the Learning Network staff, but please keep in mind that once your comment is accepted, it will be made public.

Find more Student Opinion questions here. Teachers, check out this guide to learn how you can incorporate them into your classroom.

Jeremy Engle joined The Learning Network as a staff editor in 2018 after spending more than 20 years as a classroom humanities and documentary-making teacher, professional developer and curriculum designer working with students and teachers across the country. More about Jeremy Engle

The pros and cons of student loan forgiveness

Examining some of the key arguments on either side of this contentious debate

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The Supreme Court has heard arguments both for and against President Biden's controversial student loan forgiveness plan , which, if allowed to proceed, would absolve borrowers of up to $20,000 in federal debt if they earn less than $125,000 a year. Here are some of the key points on either side of this contentious debate:

Con: Forgiving debt isn't fair to people who've already made their payments

Forgiving student debt would be a "great gift" to graduates, argues the Boston Herald editorial board — but so would having your "mortgages, car loans, and … credit card debt" forgiven. "That's not on the table" though, because "adults who assume debt are supposed to be responsible and pay for the things they purchase." For that reason, others have called debt forgiveness a "slap in the face to all who sacrificed and worked extra jobs to pay off their student loans."

Pro: Debt forgiveness is the empathetic solution

But "the argument that 'this is how it was for me, so why should it be any easier for you' is a lazy interpretation of — and solution for — a crisis decades in the making," writes Christina Wyman for NBC News . In fact, harboring such resentment is just "another sinister layer in our country's long-standing problem with empathy ." Ben Burgis puts the counterargument another way to Jacobin : "If a monster lives at the edge of town and makes a regular practice of eating bits and pieces of passersby, and after this goes on for years before the town finally brings in a monster hunter to put an end to it, do the people walking around with missing fingers because of past monster attacks have a legitimate complaint? ... It's not unfair that they're finally taking care of the problem."

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Con: Student loan forgiveness could worsen inflation

While student loan forgiveness might have "seemed like a good idea" in November 2020, that time has passed, Matt Yglesias argues at Bloomberg . The "supercharged" demand from the $900 billion stimulus package and the American Rescue Plan was "superdupercharged" due to the sanctions — and resulting high oil prices — following Russia's invasion of Ukraine, meaning the economy "no longer needs stimulus — in fact, it needs to restrain demand." Since a "majority of the public" doesn't have student debt, Yglesias writes, and higher-income individuals tend to be the ones who owe money, restarting collections would come largely at the "expense of a disproportionately high-income minority of the population" while also helping to "reduce the volume of customer demand in the economy," rather than further increase it.

Pro: An imperfect solution is better than nothing

Unburdening student loan borrowers with the sweep of his pen "might not be the best form of stimulus available" to Biden, admits Annie Lowrey in The Atlantic . "Nor would it fix the country's crushing student-loan crisis, or rationalize its higher-education financing structure." But even if debt forgiveness won't instantly solve America's problems with access to higher education, financial equality, or stimulating the economy, "this is a yes-and situation, not an either/or one." While student loan debt would benefit the wealthy too, "giving money to rich people does not erode the benefits of giving money to poor people." People shouldn't get too hung up on the policy being "ideally progressive," either, Lowrey adds, because "the principle matters here too. The fact that higher education should be a public good matters."

Con: Many with student loan debt don't actually need help paying it off

Proponents of canceling student debt say it would help relieve the financial burden on lower-income students who sought higher education. Yet "in 2019, the average graduate of a four-year, non-profit college who took on loans left school with only about $29,000 in debt " while "the average four-year degree holder makes six to seven figures more during their life than someone" who only went to high school, Neal McCluskey, the director of Cato's Center for Educational Freedom, writes . "Student debt is not only often manageable, for many, it is quite profitable." Indeed, "students from families earning more than $114,000 a year borrow at the same rate as the lowest-income students — and they take out loans nearly twice as large," argues Emma Ayers for USA Today , adding that "those who decided to sign 10 years of their future paychecks away on the dotted line at the loan office shouldn't get the most reprieve simply because they spent the most."

Pro: This isn't your father's student loan crisis

People who attended college in the 1968-69 school year paid $1,545 a year, adjusted for inflation, for tuition, fees, room, and board at a public four-year college, Elise Hammond notes at CNN . "If education costs remained in line with inflation, that number would be around $12,000 per year" today — instead of the $29,033 it actually cost in 2020-21. There are students today who cover those costs with loans and manage to pay them after leaving college, "even without starting salaries so high that they invite nosebleed," Erik Sherman writes at Forbes . "Then again, there are people who can run a four-minute mile" and "memorize the first hundred digits of pi." For all the "finger-wagging" about student debt, it's worth remembering that "what was once possible — 'Oh, I put myself through college working for $100 a week during the summer when gas-powered streetlights lit the sidewalks, so why can't kids today?' — no longer is for many, if not most. To pretend that it is becomes a different form of gaslighting."

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Update March 2, 2023 : This article has been updated throughout to reflect recent developments.

Jeva Lange was the executive editor at TheWeek.com. She formerly served as The Week 's deputy editor and culture critic. She is also a contributor to Screen Slate , and her writing has appeared in The New York Daily News , The Awl , Vice, and Gothamist , among other publications. Jeva lives in New York City. Follow her on Twitter .

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Go Ahead, Forgive Student Debt

Debt forgiveness is not the best form of stimulus available. But Joe Biden shouldn’t waver.

President-elect Joe Biden could conjure a sweeping financial-relief policy into existence on the first day of his presidency, without the participation of Congress, the Federal Reserve, or any other institution. That is, he could forgive student loans.

On Monday, Biden said that loan forgiveness figures into his plan to rev up the American economy, citing a provision in the House’s stalled-out HEROES Act that would pay off $10,000 a person in student loans. Senator Chuck Schumer, the minority leader, and Senator Elizabeth Warren are pushing the incoming administration to forgive up to $50,000 a person in federal student-loan debt. That would completely eliminate the burden of three in four borrowers.

That kind of radical provision might not be the best form of stimulus available. Nor would it fix the country’s crushing student-loan crisis, or rationalize its higher-education financing structure. Nor would it be a clear-cut political winner. Nevertheless, it would be a stellar policy for the Biden administration to undertake on day one.

Over the past few decades, higher education has become impossibly expensive, saddling 44 million Americans with $1.6 trillion in debt. The cost of a year at a private college is now $37,650, on average, and $10,560 at public institutions, more for out-of-staters. The heft of those bills obligates a majority of attendees and many of their parents to take out loans; in fact, 2019 graduates owe an average of $29,900. The United States is an outlier in the size and scope of its loan infrastructure ; in many peer countries, higher education is seen as a public good and a college degree is low-cost or free.

Even as getting millions more Americans into college has had tremendous social value, this metastasizing debt crisis has had tremendous social costs. An entire generation has been set back: Millennials are on track to be the first generation in modern history to end up poorer than their parents. Student loans are delaying retirements . They’re suppressing the housing market . They’re suffocating new business formation . They’re even leading young people to delay getting married and having children.

Derek Thompson: The scariest student loan number

They are also widening the country’s racial wealth gap. A higher share of Black college students take out loans than white students, and those loans tend to be bigger , because Black students have access to less familial wealth. The economist Thomas Shapiro notes that, two decades after they enter school, the median white borrower has paid off 94 percent of debt, whereas the median Black borrower has paid off just 5 percent. (“Are you sitting down?” he asked me, before rattling off the statistic.) Indeed, going to college now provides no boost in wealth for Black students, largely because it is so costly.

The student-loan crisis has an underappreciated emotional valence too: The debt makes people miserable. In one survey , more than half of borrowers said that they have experienced depression because of their debt. Nine in 10 reported experiencing anxiety. Even if taking on student-loan debt does tend to boost a person’s lifetime earnings, even if it is justifiable and manageable and makes sense on paper, people hate it.

It did not have to be this way, nor does it have to be this way. And although having a federal student-loan debt jubilee would not fix higher-education financing or end the COVID-19 recession, it would take a boulder off of millions of Americans’ backs—the exact number depending on how much Biden chooses to forgive and for whom.

Why not do it? Opponents make a few good arguments. First, as noted by the Harvard economist and former Obama adviser Jason Furman , the federal government would not get much bang for its buck. The Trump administration has already deferred student-loan payments through the end of the year, to give families some financial relief. Canceling payments outright would not lead to much of a boost in consumer spending. Using public dollars on another super-dole or on something like infrastructure would be a far better investment.

A second, related argument is that it is a regressive policy, which helps rich people more than poor people, much like the Trump tax cuts. Most student-loan borrowers are college graduates, and thus winners in this winner-take-all economy. A majority of student-loan debt is held by Americans toward the top of the income scale, with 56 percent held by those with graduate degrees. Doctors, dentists, lawyers, engineers, and statisticians do not need financial help from Uncle Sam right now, whereas the unemployed and minimum-wage workers really do.

Read: How the Democrats got radicalized on student debt

Third, the debt jubilee would be unfair: unfair to people who paid off their student loans; unfair to people who will take them out five or 10 years from now; unfair to people who declined to take them out and worked their way through school; unfair to people who chose community college instead of a private institution; unfair to people with private student-loan debt that the federal government could not disappear without an act of Congress. A debt jubilee might be bad politics too: College graduates helped deliver the election to Biden. Do they really need a five-digit thank-you?

Last, such a policy might prompt universities, colleges, and other institutions to increase tuition on the expectation that the federal government will absorb more of the cost of higher education going forward. It might create moral hazard for students, too, who might take out bigger loans expecting Washington to step in eventually. If it did not, the student-loan crisis would worsen.

For all that, student-debt forgiveness is still a good policy. It may not count as an effective stimulus, but there is no reason to frame it as such, given that debt forgiveness does not crowd out other forms of spending. (The government is borrowing for free right now.) This is a yes-and situation, not an either/or one: Why shouldn’t the government eliminate student-loan debt while also trying to pass another unemployment extension? That gets to another argument for debt forgiveness: Biden can do it unilaterally. Senators cannot filibuster executive orders.

As for the plan’s regressive elements: Wealthy individuals and individuals likely to become wealthy in the future do hold the most student debt. But millions of low-income and middle-income families, as well as young people without the fallback of familial wealth, are also burdened. The smallest borrowers struggle the most with their loans, as noted by the economist Susan Dynarski. Even $5,000 or $10,000 of forgiveness might be life-changing for them. Plus, many of the student-loan forgiveness options out there have progressive elements built in: Warren’s campaign, for example, pushed to forgive $50,000 in loans for households with less than $100,000 in income, while tapering off support at the $250,000 level. The fact that the giveaway would be so helpful to Black students and Black families should factor into the political calculus too.

Read: Yet another way student debt keeps people from buying homes

As a broader point, giving money to rich people does not erode the benefits of giving money to poor people; and the government should not avoid giving money to poor people because it would also entail giving money to rich people, at least not in this unusual case. The United States needs a much more progressive tax-and-transfer infrastructure, given how dramatically inequality has increased. But not every single policy needs to be ideally progressive to achieve that goal. The principle matters here too. The fact that higher education should be a public good matters.

The possibility that a jubilee would increase college costs down the road is perhaps the most serious concern—but hardly a reason not to help the people now in need, and people Biden could help without Congress. Politicians and policy makers could follow up debt relief with a plan to make college affordable and accessible, ideally with direct federal investment in higher-education financing.

This is a policy that would help middle-class families, could be passed instantly, and would advance racial justice. Student-loan debt is suffocating an entire generation. Why not, during this miserable pandemic, magic at least some of it away?

Putting student loan forgiveness in perspective: How costly is it and who benefits?

Subscribe to the hutchins roundup and newsletter, adam looney adam looney nonresident senior fellow - economic studies.

February 12, 2021

“Don’t tell me what you value. Show me your budget, and I’ll tell you what you value.” – Joe Biden

Even modest student loan forgiveness proposals are staggeringly expensive and use federal spending   that could advance other goals. The sums involved in loan-forgiveness proposals under discussion would exceed cumulative spending on many of the nation’s major antipoverty programs over the last several decades.

There are better ways to spend that money that would better achieve progressive goals. Increasing spending on more targeted policies would benefit families that are poorer, more disadvantaged, and more likely to be Black and Hispanic, compared to those who stand to benefit from broad student loan forgiveness. Indeed, shoring up spending on other safety net programs would be a far more effective way to help low-income people and people of color.

Student loan relief could be designed to aid those in greater need, advance economic opportunity, and reduce social inequities, but only if it is targeted to borrowers based on family income and post-college earnings. Those who borrowed to get college degrees that are paying off in good jobs with high incomes do not need and should not benefit from loan-forgiveness initiatives that are sold as a way to help truly struggling borrowers.

Putting loan forgiveness in fiscal perspective

In terms of its scale in budget and cost to taxpayers, widespread student loan forgiveness would rank among the largest transfer programs in American history. Based on data from the Department of Education , forgiving all federal loans (as Senator Bernie Sanders proposed ) would cost on the order of $1.6 trillion. [1] Forgiving student debt up to $50,000 per borrower (as Senators Elizabeth Warren and Chuck Schumer have proposed ) would cost about $1 trillion. Limiting loan forgiveness to $10,000, as President Biden has proposed, would cost about $373 billion. Under each of these proposals, all 43 million borrowers would stand to benefit to differing degrees.

To put those numbers in perspective, the chart below compares the cost of these three one-time student loan forgiveness proposals against cumulative spending on several of the country’s largest transfer programs over the last twenty years (from 2000 to 2019, adjusted for inflation).

Click on chart to enlarge.

Forgiving all student debt would be a transfer larger than the amounts the nation has spent over the past 20 years on unemployment insurance, larger than the amount it has spent on the Earned Income Tax Credit, and larger than the amount it has spent on food stamps. In 2020, about 43 million Americans relied on food stamps to feed their families. To be eligible, a household of three typically must earn less than $28,200 a year. The EITC, the nation’s largest antipoverty program, benefitted about 26 million working families in 2018. That year, the credit lifted almost 11 million Americans out of poverty, including about 6 million children, and reduced poverty for another 18 million individuals.

Forgiving up to $50,000 of student debt is similar in cost to the cumulative amount spent on Supplemental Security Income (SSI) and all housing assistance programs since 2000. Supplemental Security Income provides cash assistance to 8 million people who are disabled or elderly and have little income and few assets. Recipients must have less than $2,000 in assets. About half have zero other income.

The cost of forgiving $50,000 of student debt per borrower is almost twice as large as the federal government has spent on all Pell Grant recipients over the last two decades. In contrast to federal loans, which have no income eligibility limits and are available to undergraduates, graduate students, and parents, Pell Grants are awarded only to low- and middle-income undergraduate students with demonstrated financial need. About seven million students each year benefit, many of whom are poor and the majority of whom are non-white.

Even $10,000 in debt forgiveness would involve a transfer that is about as large as the country has spent on welfare (TANF) since 2000 and exceeds the amount spent since then on feeding hungry school children in high-poverty schools through the school breakfast and lunch program. Likewise, it dwarfs spending on programs that help feed low-income pregnant women and infants or provide energy assistance to those who otherwise struggle to heat their homes in winter.

Who benefits from comparable transfer programs?

Beyond the sums that debt forgiveness would represent, the beneficiaries of student loan forgiveness would be higher income, better educated, and whiter than beneficiaries of other transfer programs. The following table describes the economic and demographic characteristics of beneficiaries of selected income support programs as well as would-be beneficiaries of student debt forgiveness.

Food stamps, for instance, serve households whose median income is about $19,000 a year (half are in poverty), and provide $2,300 annually for the average household. Medicaid households earn about $33,000; about 34 percent are below the poverty line. Families that claim the Earned Income Tax Credit—the largest cash income support for working families—earn about $36,500; their average annual benefit is about $2,200.

Click on table to enlarge.

In contrast, the median income of households with student loans is $76,400, and 7 percent are below the poverty line. Among those making payment on their loans (and who would have an immediate cash flow benefit from forgiveness), the median income is $86,500, and 4 percent are in poverty. If debt forgiveness were capped at $50,000, the average benefit to these households would be roughly $26,000—about the same as we provide a family living on food stamps over the course of 11 years.

In terms of demographics and educational attainment, households with student debt largely mirror the characteristics of households in the population at large, except they are better educated. Student loan borrowers are more likely to be white and highly educated. Indeed, among those making payments on student loans the fraction of households that are white is the same as in the population at large, but they are about 70 percent more likely to have a BA and twice as likely to have a graduate degree.

In contrast, households that benefit from federal programs, like SNAP, the EITC, SSI, or Medicaid, are more likely to be Black or Hispanic, and have much lower levels of educational attainment; few have gone to college, and almost none have a graduate degree.

For reference, among all households, the Census reports that 66 percent identify as white, 13 percent Black or African American, and 14 percent as Hispanic. About 42 percent have a BA and 18 percent a graduate degree.

In short, beneficiaries of across-the-board student loan forgiveness would be higher income, better educated, and more likely to be white than beneficiaries of just about all other programs designed to reduce hardship and promote opportunity and targeted to those who need help.

Prioritizing spending on targeted programs would therefore be a more effective way to achieve progressive goals. Biden’s proposal to make the child tax credit fully refundable, for example, would exclusively benefit children living in poverty. Twenty six percent of beneficiaries of that policy would be Black and 29 percent Hispanic. That is a progressive change that would lift the incomes of millions of very poor children. It would also benefit many student loan borrowers—as well as many who don’t have student loans.

Targeting student loan relief

Student loan relief could be targeted to those who need help most.

Use borrower’s financial aid application: Every student with a federal student loan has already filled out an application for financial aid (and that application remains on record at the Department of Education). That information could be used to target aid based on students’ economic circumstances at the time of application. For example, the Pell Grant is available only to undergraduate students from low- and middle-income families. As a result, relative to other postsecondary students, Pell Grant recipients are from poorer families and are more likely to be Black and Hispanic students.

Biden has proposed to double the Pell Grant prospectively. If future students got additional grant money, you could argue that prior students should have had that opportunity too—and we could reduce borrowers’ undergraduate loan balances by the amount they should have gotten in Pell (plus interest). That would be more progressive and concentrate the benefit of debt forgiveness on students from disadvantaged backgrounds.

Income-driven repayment: Income-driven repayment plans (like Pay As You Earn, or PAYE) remain an excellent way to target debt relief and forgiveness to students whose post-enrollment incomes are too low to be able to make student debt payments. The Biden Administration has new tools enacted in the FUTURE Act that, if implemented, would make it easier for students to sign up and remain in income-driven plans.

Getting income-driven plans to work effectively is necessary because student lending isn’t going away. Even the most ambitious “free college” proposals would only modestly reduce the volume of new student debt because they only cover tuition and fees at public institutions. Graduate students, students at private colleges, and students who borrow to cover living expenses would still be reliant on loans to finance their education. Those costs represent the majority of loan dollars students borrow each year. Income-driven repayment will be necessary to help these future borrowers manage their loans.

Between targeted debt relief to students from low-income families, improvements in income-driven plans, and implementing forgiveness plans (like public service loan forgiveness) already on the books, Congress and the Biden Administration can reduce hardships imposed by federal lending and advance economic opportunity—without across-the-board loan forgiveness. Congress and the Administration can’t do it all. We need to weigh student-loan forgiveness against other spending priorities and be clear about what we value most.

[1] Administrative data from the Department of Education shows that borrowers owe a total of $1.57 trillion—the sum of balances under $50,000 is $1.05 trillion, and the sum of balances under $10,000 is $377 billion. CBO estimates the subsidy rate on student loans (the amount that would not be repaid in present value) is 3% on newly-originated loans in 2021. As a result, I assume the cost is 97% of the value reported by the Department of Education. For purposes of understanding the magnitude of the transfer, the face value is also relevant because it reflects the total amount of aid provided to students. These estimates are larger than estimates based on data from the Survey of Consumer Finances (SCF), because about a third of student debt is not reported in that survey.

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Opinion: Forgive $50,000 in Debt to Start, but Go Further and Fix Deeper Inequities in the System

• Previous: Intro: Should Student Loan Debt Be Forgiven?
• Next: Yes, Democrats Must Cancel All Debt

Should the Government Forgive College Student Loan Debt?

After more than two years of paused loan repayments, president biden is said to be weighing canceling federal student loan debt for some borrowers..

More than 45 million Americans hold student loan debt, with the total amount of such debt exceeding $1.7 trillion. College graduates from the class of 2020 who took out loans borrowed an average of about $29,900, according to data collected by U.S. News as part of its annual survey of colleges.

In March of 2020, as the pandemic accelerated in the United States, the Trump administration paused federal student loan payments for most borrowers. That pause has been extended numerous times under Presidents Trump and Biden, and it currently holds through the end of August .

Some advocates, including law students and college professors , say that such a pause doesn’t go far enough, and that the best course of relief for borrowers saddled with sometimes six-figure debt is wholesale forgiveness. Many Democrats , especially in the party’s progressive wing, are pushing for debt forgiveness to various degrees, such as full cancellation of loan tabs or forgiveness of up to $50,000 per borrower.

STEFANI REYNOLDS | AFP via Getty Images

Students from George Washington University wear their graduation gowns outside of the White House in Washington, on May 18, 2022.

Opponents counter that such a move would amount to something like a bailout for the upper and middle classes. Some say the nation would be better served by different approaches than government forgiveness, or that programs should be more targeted in scope , or that serious questions remain about who would really benefit from forgiveness .

This spring, The Washington Post reported that President Biden was looking at a more modest proposal to forgive up to $10,000 in federal loan debt per borrower, with certain income restrictions. The Wall Street Journal reported in early June that a decision would likely come later in the same. More recent speculation has suggested that another loan pause might be coming, but exactly what that might look like remains murky .

In this edition of The Forum, a U.S. News series that brings together multiple perspectives on the big questions of the moment, contributors explore the issue and the implications of student loan debt forgiveness.

America 2024

Debt relief is a short-term solution, but a more comprehensive overhaul of college costs is essential.

Should the federal government forgive student loan debt? The short answer is yes. While many people mistakenly put the blame on students, the current student loan debt crisis is the result of failed policies at both the state and federal levels.

Year after year, states spent fewer dollars on higher education , leading to astronomical increases in the cost of public college and shifting the burden of payment to students and their families. At the federal level, the Pell Grant , which is the primary source of non-loan financial aid for students from low-income backgrounds, currently covers less than 30% of the cost of attending a four-year public college or university. In the mid-1970s, during the program’s early years, it covered three-fourths of the average cost of attendance.

In addition, existing debt-relief programs have fallen far short. For example, the current web of income-driven repayment plans requires decades of payments that are often still not affordable and do not reduce the principal of a loan; instead, borrowers are stuck paying significant amounts of interest, which just keeps accumulating. What’s more, these repayment plans, particularly those designed to forgive loans in exchange for working in public service, are confusing to the consumer, which has only disillusioned and disappointed borrowers.

“I have worked at a nonprofit for 27 years and have tried to work with my multiple loan servicers to get public service forgiveness. I only get the run-around,” said one borrower responding to a national study of Black borrowers led by my organization, The Education Trust. “I tried the Department of Education, my congressmembers. I am 62 years old and do not know how I will retire.”

Today, approximately 45 million Americans carry $1.7 trillion in student loan debt, stunting not only their futures but our nation’s economy. Elected officials should do whatever they can to provide some financial relief for their constituents. The more complex and consequential question is how much and who should benefit.

Seth Wenig | AP

New graduates line up before the start of the Bergen Community College commencement at MetLife Stadium in East Rutherford, N.J., in 2018.

The Biden-Harris administration is said to be considering canceling $10,000 in student loan debt for every federal student loan borrower, with potential limits based on income. The move will free millions of borrowers from debt they are struggling to repay and reduce the debt burden for millions more. But that’s just a start. This action is a far cry from the relief needed for the hardest-hit borrowers: those who are the first in their families to go to college, Black and Latino borrowers, and people from low-income backgrounds.

It’s also a missed opportunity to do more to alleviate loan default rates, prevent millions more borrowers from being burdened with decades-long payments that they are unlikely to ever pay off, and to reduce the racial wealth gap. Research shows that Black borrowers lack generational wealth because of the accumulative negative effects of centuries of systematic racism. As a result, too many of them are forced to take on more debt than their peers while also struggling more to repay it in workplaces where they continue to face wage disparity and employment discrimination.

We also found that the crisis is especially acute for Black women borrowers, who experience racism and sexism at the same time. According to our research, a year after completing a bachelor’s degree, Black women hold more student debt than any other group – with an average of $38,800 in federal undergraduate loans, compared to between $24,300 and $27,000 for white men and women, respectively. And 12 years after starting college, Black women owe 13% more than they borrowed compared to white men, who, by that point, have paid off 44% of their debt.

These disparities keep me up at night. As a Black woman, I was fortunate to have the support of family and be eligible for federal work study to help pay for my bachelor’s degree. Yet I was still saddled with thousands of dollars of student loan debt when I graduated. This should not be the case. All students should be able to pursue a bachelor’s degree, which today is a requirement for most decent-paying jobs, without signing up for a lifetime of debt.

Canceling $50,000 per borrower in debt across the board, which is the position of Ed Trust and many other organizations, would do much more to amplify the positive effects of debt relief by creating pathways to financial stability for millions of Americans and narrowing the racial wealth gap. To forgive only a fifth of that amount would not go far enough.

While there is no question that the federal government should offer immediate and direct debt relief, this action alone will not fix the larger and more persistent problem: the rising costs of college. There’s more that must be done to address higher education affordability in a comprehensive way. In addition to canceling debt for current borrowers, Congress should at least double the Pell Grant and make meaningful progress toward debt-free college, so that students – especially students of color and those from low-income backgrounds – no longer have to mortgage their future to pay for a college education.

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A smarter way to solve the student debt problem, blanket loan forgiveness less effective than helping those who need it most, research suggests.

Editor’s Note: This piece was written by Constantine Yannelis, an assistant professor of finance at the University of Chicago Booth School of Business, and shared by Chicago Booth Review . The essay is based on testimony Yannelis submitted to the U.S. Senate Committee on Banking, Housing, and Urban Affairs’ Subcommittee on Economic Policy in April 2021.

Education is the single highest-return investment most Americans will make, so getting our system of higher-education finance right is fundamentally important for U.S. households and the economy.

A key point in the student-loan debate is that the outcomes of borrowers vary widely. Undeniably, a significant number of borrowers are struggling, and are sympathetic candidates for some kind of relief. Student-loan balances have surged over the past decades. According to the New York Fed, last year student loans had the highest delinquency rate of any form of household debt.

Most student borrowers end up as higher earners who do not have difficulties repaying their loans. A college education is, in the vast majority of cases in America, a ticket to success and a high-paying job. Of those who struggle to repay their loans, a large portion attended a relatively small number of institutions—predominantly for-profit colleges.

The core of the problem in the student-loan market lies in a misalignment of incentives for students, schools, and the government. This misalignment comes from the fact that borrowers use government loans to pay tuition to schools. If borrowers end up getting poor jobs, and they default on their loans, schools are not on the hook—taxpayers pay the costs. How do we address this incentive problem? There are many options, but one of the most commonly proposed solutions is universal loan forgiveness.

Various forms of blanket student-loan cancellation have been suggested, but all are extremely regressive, helping higher-income borrowers more than lower-income ones. This is primarily because people who go to college tend to earn more than those who do not go to college, and people who spend more on their college education—such as those who attend medical and law schools—tend to earn more than those who spend less on their college education, such as dropouts or associate’s degree holders.

My own research with Sylvain Catherine of the University of Pennsylvania demonstrates that most of the benefits of a universal-loan-cancellation policy in the United States would accrue to high-income individuals, those in the top 20 percent of the earnings distribution, who would receive six to eight times as much debt relief as individuals in the bottom 20 percent of the earnings distribution. These basic patterns are true for capped forgiveness policies that limit forgiveness up to $10,000 or $50,000 as well.

Another problem with capped student-loan forgiveness is that many struggling borrowers will still face difficulties. A small number of borrowers have large balances and low incomes. Policies forgiving $10,000 or $50,000 in debt will leave their significant problems unaddressed.

While income phaseouts—policies that limit or cut off relief for people above a certain income threshold—make forgiveness less regressive, they are blunt instruments and lead to many individuals who earn large amounts over their lives, such as medical residents and judicial clerks, receiving substantial loan forgiveness.

A fact that is often missed in the policy debate is that we already have a progressive student-loan forgiveness program, and that is income-driven repayment.

If policy makers want to make sure that funds get into the hands of borrowers at the bottom of the income distribution in a progressive way, blanket student-loan forgiveness does not accomplish this goal. Rather, the policy primarily benefits high earners.

While I am convinced from my own research that student-loan forgiveness is regressive, this is also the consensus of economists. The Initiative on Global Markets at Chicago Booth asked a panel of prominent economists to weigh in on this statement: “Having the government issue additional debt to pay off current outstanding loans would be net regressive.” The panel included economists from leading institutions from both the left and the right. The results of the survey were telling. Not a single economist disagreed with the idea that student-loan forgiveness is regressive. This is because the facts are clear—to borrow a phrase commonly used, “The science is settled”—student-loan forgiveness is a regressive policy that mostly benefits upper-income and upper-middle-class individuals.

Another facet of this policy issue is the effect of student-loan forgiveness on racial inequality. One of the most distressing failures of the federal loan program is the high default rates and significant loan burdens on Black borrowers. And student debt has been implicated as a contributor to the Black-white wealth gap. However, the data show that student debt is not a primary driver of the wealth gap, and student-loan forgiveness would make little progress closing the gap but at great expense. The average wealth of a white family is $171,000, while the average wealth of a Black family is $17,150. The racial wealth gap is thus approximately $153,850. According to our paper, which uses data from the Survey of Consumer Finances, and not taking into account the present value of the loan, the average white family holds $6,157 in student debt, while the average Black family holds $10,630. These numbers are unconditional on holding any student debt.

Thus, if all student loans were forgiven, the racial wealth gap would shrink from $153,850 to $149,377. The loan-cancellation policy would cost about $1.7 trillion and only shrink the racial wealth gap by about 3 percent. Surely there are much more effective ways to invest $1.7 trillion if the goal of policy makers is to close the racial wealth gap. For example, targeted, means-tested social-insurance programs are far more likely to benefit Black Americans relative to student-loan forgiveness. For most American families, their largest asset is their home, so increasing property values and homeownership among Black Americans would also likely do much more to close the racial wealth gap. Still, the racial income gap is the primary driver of the wealth gap; wealth is ultimately driven by earnings and workers’ skills—what economists call human capital. In sum, forgiving student-loan debt is a costly way to close a very small portion of the Black-white wealth gap.

How can we provide relief to borrowers who need it, while avoiding making large payments to well-off individuals? There are a number of policy options for legislators to consider. One is to bring back bankruptcy protection for student-loan borrowers.

Another option is expanding the use of income-driven repayment. A fact that is often missed in the policy debate is that we already have a progressive student-loan forgiveness program, and that is income-driven repayment (IDR). IDR plans link payments to income: borrowers typically pay 10–15 percent of their income above 150 percent of the federal poverty line. Depending on the plan, after 20 or 25 years, remaining balances are forgiven. Thus, if borrowers earn below 150 percent of the poverty line, as low-income individuals, they never pay anything, and the debt is forgiven. If borrowers earn low amounts above 150 percent of the poverty line, they make some payments and receive partial forgiveness. If borrowers earn a high income, they fully repay their loan. Put simply, higher-income people pay more and lower-income people pay less. IDR is thus a progressive policy.

IDR plans provide relief to struggling borrowers who face adverse life events or are otherwise unable to earn high incomes. There have been problems with the implementation of IDR plans in the U.S., but these are fixable, including through recent legislation. Many countries such as the United Kingdom and Australia successfully operate IDR programs that are administered through their respective tax authorities.

Beyond providing relief to borrowers, which is important, we could do more to fix technical problems and incentives. We could give servicers more tools to contact borrowers and inform them of repayment options such as IDR, and we could also incentivize servicers to sign more people up for an IDR plan. But while we may be able to make some technical fixes, servicers are not the root of the problem in the student-loan market: a small number of schools and programs account for a large portion of adverse outcomes.

To fix this, policy makers can also directly align the incentives for schools and borrowers. For example, Brazil, which has had similar problems with its student-loan program, recently gave schools skin in the game by requiring them to pay a fee based on dropout and default rates. This helped align the incentives of the schools and the student borrowers. Making revenues go directly to schools from IDR plans, or implementing income-share agreements in which individuals pay an uncapped portion of their income, could also help align the incentives of schools, students, and taxpayers.

Federal student loans are an important part of college financing and intergenerational mobility. The root of our student-loan crisis is a misalignment of incentives. Since the problem has been so slow moving and continuous, I like the analogy of a frog slowly boiling in a pot of water over a flame. Policies such as student-debt cancellation are not extinguishing the flame—they aren’t fixing the incentive problem. All they do is move the frog into a slightly cooler pot of water. And if we don’t fix the core of the problem, even if we forgive $50,000 of debt for current borrowers, balances will continue to grow, and we will be facing a similar crisis in 10 or 20 years.

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11 federal student loan forgiveness and discharge programs.

Senior Associate, JPMorgan Chase

If you belong to the cohort of Americans who collectively owe more than $1.6 trillion in student loan debt , you may wonder about the potential availability of student loan forgiveness options. From the Public Service Loan Forgiveness program to the Total and Permanent Disability Discharge Forgiveness program, options may be available to help eligible borrowers discharge some or all of their federal student debt.

Those who can access these programs may include but aren't limited to eligible teachers, government employees, nonprofit workers, medical professionals, and disabled workers. Those who've experienced forgery or deception, among other situations, may also be able to qualify for specific programs.

These programs also may come with a list of eligibility requirements – like needing to work several years before you're eligible for student loan forgiveness.

Let's break down what student loan forgiveness plans may be available for federal student loans and some of the eligibility requirements for these programs.

What's federal student loan forgiveness?

Federal student loan forgiveness is when the government discharges a part or the entirety of your student loan balance. Only federal student loans are eligible for these programs, not loans from private lenders like banks, credit unions, or fintech companies. That said, some private student loan borrowers may be eligible for forgiveness via their lender.

List of federal student loan forgiveness and discharge programs

Here's a list of current public student loan forgiveness programs you may qualify for.

1. Income-Driven Repayment (IDR) Forgiveness

An income-driven repayment plan determines your monthly payment amount based on income and family size. The newest IDR plan, the Saving on a Valuable Education (SAVE) plan , launched by the Biden-Harris Administration in August of 2023, forgives eligible low-balance borrowers.

The federal government may discharge your remaining balance if you originally borrowed $12,000 or less and have paid 120 payments on your loans. For every $1,000 you borrowed above that $12,000 amount, you'll have to make 12 more payments before you could see your loan balance forgiven. You can visit StudentAid.gov to check if you qualify, and if so, submit your application.

2. Teacher Loan Forgiveness

If you've taught at a low-income school or educational service agency for five consecutive years and meet other eligibility requirements, you may qualify for up to $17,500 in student loan forgiveness. You can check the Federal Student Aid office's Teacher Cancellation Low Income (TCLI) Directory to see if your elementary school, secondary school, or educational service agency qualifies.

Other requirements include that if you've taught for five consecutive years, at least one of those years must have been after the 1997-98 academic year. Another requirement is that you can't have an outstanding balance on your Direct Subsidized or Unsubsidized Loans or Federal Family Educational Loans (FFEL) as of October 1, 1998, or on the date you received a Direct Loan or FFEL after October 1, 1998.

You may want to keep in mind that you can't receive credit for both Teacher Loan Forgiveness and Public Service Loan Forgiveness during the same period.

3. Public Service Loan Forgiveness (PSLF)

The Federal Student Aid office reports that the government has discharged nearly $34 billion of student debt through its PSLF program. So, what's this program, and who may qualify?

If you're employed by a government or a nonprofit organization, you may be eligible for the PSLF program.

Eligibility requirements include that you're a non-defaulted federal Direct Loan borrower who's made 120 qualifying payments under an accepted repayment plan (consecutive and non-consecutive) on their loan and still has a remaining balance.

Another requirement is that you've made these 120 payments while working for an eligible employer at least 30 hours a week. These employers include but aren't limited to:

• U.S. based government organizations at any level (federal, state, local, or tribal), including the U.S. military
• Nonprofit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code
• Other nonprofit organizations devote most full-time employees to providing certain qualifying public services.

Does your job qualify you for PSLF? You can use the Federal Student Aid office's PSLF Help Tool to see if your employer is already in the database. If your employer isn't in the database, it may still qualify, too.

PSLF for those in military service

Have you served in the military for ten years and still have student loans? You may be a candidate for PSLF. While your loan servicer may automatically notify you that you qualify, you can also contact your loan servicer directly to find out if you do.

PSLF for those in AmeriCorps

If you served in the AmeriCorps, a U.S. agency that connects Americans with volunteer work, you may be eligible to have your student loans forgiven. You must be a current AmeriCorps member or have served in 2007 or later to have your loans forgiven, because your service can count towards the ten years of public service needed to qualify for PSLF.

4. Total and Permanent Disability Discharge

If you're disabled, you may potentially qualify for federal student loan forgiveness. To qualify you must be considered a totally and permanently disabled person, which is defined as someone who can't engage in any "substantial gainful activity" because of a physical or mental condition.

You may consider completing a total and permanent disability discharge application and providing documentation from a physician, the U.S. Department of Veterans Affairs, or the Social Security Administration in order to qualify.

Other requirements include that you have a Direct Loan, FFEL, or a Federal Perkins Loan. You can apply for a total and permanent disability discharge here .

5. Closed School Loan Discharge

The federal government may discharge your loans if you have Direct Loans, FFEL loans, or Federal Perkins Loans and faced one of three circumstances:

• Being an enrolled student during the time your school closed.
• Being on a qualified leave of absence during the time your school closed.
• Experiencing your school closing 180 days (about six months) after you withdrew your enrollment.

Your servicer may automatically discharge your loans or send you an application to discharge your loans in the event of any of these scenarios, but you can also reach out directly should you experience one of these events. You may want to keep in mind that you will not be eligible for loan discharge if you've already completed your program at your closed school.

6. Borrower Defense Loan Discharge

You may qualify for Borrower Defense Loan Discharge, according to StudentAid.gov, if you can demonstrate that you "enrolled in a school or continued to attend a school based on misleading information from the school or other misconduct covered by the regulation , and suffered a detriment that is of a nature and degree warranting a full discharge of their applicable federal loans."

If you believe you may qualify, visit StudentAid.gov for more information on eligibility requirements.

If approved, the federal government may discharge your existing federal student loans, and some borrowers may also receive a refund for any previous payments made. This is based on the loan servicer's discretion.

7. False Certification Discharge

If you've ever been falsely certified by your high school as a graduate or had an unauthorized signature on a student loan application, you may qualify to have your loans discharged.

Another scenario that may put you in this loan forgiveness ring is if someone stole your identity and secured a loan in your name. Both Direct and FFEL loans are eligible for this type of discharge.

8. Unpaid Refund Discharge

Have you been in a situation where your school failed to complete your request for a tuition refund?

You may qualify for the federal government's partial refund loan discharge if so. The government will excuse the amount you're owed in a refund from your student loan balance.

9. Forgery Discharge

If an outside party, such as a person or an institution, issued a student loan in your name without your consent, you may be eligible to have your loans discharged. This applies to situations in which your signature was forged or your personal information was used without your consent.

This type of forgiveness applies to borrowers with Direct, FFEL, or Perkins loans. If you submit a request for this type of discharge and the U.S. Department of Education approves your request to discharge your loans, then not only will your remaining balance be changed to zero, but you'll receive a refund for what you've paid. You can complete the form here to make this request if you believe you're eligible.

10. Discharge Due to Death

If you or someone who took out student loans on your behalf passes away, the U.S. Department of Education will discharge these student loans if someone submits proof of death to the loan servicer. Proof of death usually includes an original death certificate or a certified copy of a death certificate.

If a parent took out a Parent Plus Loan, which allows parents of undergraduate students to secure loans to help their children pay for college, and they pass away, these loans may be able to be discharged due to this policy. Please note that this discharge doesn't apply to a co-signer who passes away.

11. Perkins Loan Cancellation and Discharge

If you're an eligible student loan borrower who received a Perkins loan as an undergraduate or graduate student, you may be eligible to have these loans forgiven.

Some requirements include working in education, law, nonprofits, the military, and healthcare. You must have started working in these fields on October 17, 1998, or later. If the U.S. Department of Education approves the cancellation of your loan, you may not see your loan canceled at once but in increments over five years.

The federal government may also excuse 100 percent of your Perkins loans if you've endured bankruptcy, school closure, or a service-connected disability, among other reasons.

Things to watch out for when applying for student loan forgiveness

While several federal student loan forgiveness options are available for qualified borrowers, you should ensure any options you pursue come from a credible source. You can confirm that a program is credible by visiting the U.S. Department of Education's website.

Here are some instances that may be indicative of student loan forgiveness scams according to the U.S. Department of Education that you may want to be wary of:

• Programs with aggressive marketing language
• Programs that request a recurring fee
• Requests that require you to send your StudentAid.gov username and password
• Emails with "no reply" in the sender line
• Phone calls from those who claim they represent the U.S. Department of Education or other federal agencies

Final thoughts

A 2023 study by Western Governors University WGU Labs and Savi , a social impact technology startup, found that only 28% of student loan borrowers are aware of flexible repayment plans or the possibility of getting their debt discharged.

Consider reaching out to Federal Student Aid or your loan servicer to explore if any student loan forgiveness options are available to you. Even if you don't qualify, there may be options to defer or even partially excuse your debt, depending on your circumstances.

Some student loan borrowers may need to apply for forgiveness by April 30

Some student loan borrowers may qualify for a one-time debt cancellation or credit, but they'll have to take action by Tuesday.

Why it matters: Eligible borrowers who consolidate their loans by the deadline may see thousand of dollars of student debt forgiven thanks to a one-time adjustment from the U.S. Department of Education this summer.

• But some borrowers may need to opt-in by submitting a loan consolidation application to qualify.

Zoom in: To get the most credit toward loan cancellation, borrowers with the following types of federally managed loans must consolidate them: commercially-held Federal Family Education Loan (FFEL), Parent PLUS loans, Perkins loans and Health Education Assistance Loan (HEAL) Program loans.

• Payments a borrower has already made would be counted toward loan cancellation.
• Those with a Parent PLUS loan that has been in repayment for at least 25 years and is managed by the Department of Education will have their loans canceled automatically, per the Education Department.
• The Education Department expects the adjustment process to be completed by July 1.

Zoom out: The move is a part of the Biden administration's attempt to provide more student debt relief through fixes and workarounds after the Supreme Court blocked his large-scale forgiveness plan.

• President Biden introduced another proposal this month aimed at providing student debt relief for millions of borrowers
• The administration has so far doled out $153 billion in student debt relief to 4.3 million people through various actions. The new plan, if approved, would increase that aid to help more than 30 million borrowers.
• Biden admin shares proposal for new student debt relief plan
• What's going on with student loan relief
• How Biden forgives student debt despite the Supreme Court ruling

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What is student loan consolidation?

Will consolidating my student loans raise my interest rate, i don’t know if i’m eligible for student loan forgiveness. should i still consolidate my loans, how to consolidate your student loans, what happens if you miss the deadline, student loan forgiveness deadline: less than 24 hours to consolidate your student loans.

You can consolidate your loans online in a half hour to potentially increase the amount of debt relief you receive.

Courtney Johnston

Senior Editor

Courtney Johnston is a senior editor leading the CNET Money team. Passionate about financial literacy and inclusion, she has a decade of experience as a freelance journalist covering policy, financial news, real estate and investing. A New Jersey native, she graduated with an M.A. in English Literature and Professional Writing from the University of Indianapolis, where she also worked as a graduate writing instructor.

Tiffany Connors

Tiffany Wendeln Connors is a senior editor for CNET Money with a focus on credit cards. Previously, she covered personal finance topics as a writer and editor at The Penny Hoarder. She is passionate about helping people make the best money decisions for themselves and their families. She graduated from Bowling Green State University with a bachelor's degree in journalism and has been a writer and editor for publications including the New York Post, Women's Running magazine and Soap Opera Digest. When she isn't working, you can find her enjoying life in St. Petersburg, Florida, with her husband, daughter and a very needy dog.

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Key takeaways

• You until April 30 to consolidate your federal student loans in order to maximize your debt relief under the Biden administration’s latest student loan forgiveness plan.
• All federal loans are eligible for consolidation, including Perkins Loans, Parent Plus loans and Federal Family Education Loan Program loans. Private loans are not eligible.
• Most borrowers will benefit from this move, but if you’re not eligible for forgiveness, you may not benefit from loan consolidation.

Last month, the White House unveiled a new student debt relief plan aimed to cancel debt and wipe out runaway interest for millions of borrowers. But time’s running out to maximize your debt relief.

If you have any federal student loans, you have until midnight on April 30 to consolidate your loans into one new federal loan. Consolidating can help convert FFELP, Perkins and other non-Direct Loans into Direct Loans, which offer more debt relief benefits. And it can also streamline multiple loans with different payoff timelines into one monthly payment with one due date.

Even if you already have Direct Loans, if you have more than one, you might benefit from consolidating, said Mark Kantrowitz, a financial aid expert and CNET Expert Review Board member.

When you consolidate your loans, you’re able to select an income-driven repayment plan option. If you’ve been making payments for 20-25 years, depending on the IDR you select, your entire balance could be forgiven.

But you’ll need to move fast. Here’s how to decide if loan consolidation is right for you, why it could maximize your debt relief and how to consolidate your loans online.

Read more: Will Biden’s New Student Loan Forgiveness Plan Cancel My Debt?

Student loan debt consolidation is kind of like refinancing -- it lets you combine your existing loans into a new loan with a fixed interest rate. The federal loan consolidation application lets you consolidate any federal loans into a new Direct Consolidation Loan, which may then make you eligible for income-driven repayment and forgiveness programs like SAVE that you may have been previously excluded from.

Having one student loan to keep track of, rather than many, can also make it easier to manage payments. Depending on the payment plan you choose, a consolidation loan could lower your monthly payments but also extend your repayment period. But if you’re eligible for forgiveness after consolidating, this might not be much of a concern.

Private student loan companies also offer debt consolidation for student loans. Even if these programs offer lower interest rates or other perks, converting your federal student loan into a private loan rarely makes sense. Private student loans are not eligible for federal income-driven repayment programs or federal debt relief.

If you currently have low interest rates on your federal student loans, you won’t have to worry about your new consolidated rate spiking -- in most cases.

Your new Direct Consolidation Loan’s interest rate will be based on a weighted average of the loans you consolidate and it will be rounded up to the next 1/8th of 1%, according to Federal Student Aid , the Department of Education’s official student loan website.

There’s one exception, though. If you have a FFELP loan, you might lose some benefits when consolidating. “The main issue is borrowers who have a big interest rate reduction from the FFELP lender,” said Kantrowitz. “These discounts are provided by the lender and will disappear if you consolidate the loans.” 

You don’t have to consolidate all of your loans, so you might exclude your FFELP loans if you want to keep your current discount. You’ll need to weigh whether you qualify for forgiveness and how consolidating might affect your monthly student loan payment to decide if consolidating is right for you.

If you have unpaid interest on a student loan, it will be capitalized when you consolidate the loan and could increase your principal balance. Factor that in when deciding how much your new monthly payment would be and how much you may qualify for in forgiveness. 

For many borrowers, consolidating your federal student loans will help lower your monthly payment and could maximize your potential debt relief. If you currently hold federal student loans that are not Direct Loans, it can be particularly beneficial. Consolidating can also help you lock in a fixed interest rate if any of your federal student loans have a variable rate.

The latest student loan forgiveness program takes into account the date of your first student loan payment. Consolidating your loans helps ensure you get credit for your new Direct Loan starting with your earlier loan payment date.

So, let’s say you graduated from college and made your first federal student loan payment in 2004. Later, you went back to school for a second degree and started paying those loans in 2010. Under an income-driven repayment plan with a 20-year path to forgiveness, you might be eligible to have your loans from 2004 forgiven this year. But by consolidating your more recent loans with your older ones into one new Direct Loan, your entire balance could be wiped out this year. 

Even if you graduated more recently, consolidating your federal loans and enrolling in an IDR can help you get access to forgiveness sooner. And if you only have one student loan, if it’s not a Direct Loan, you may also benefit from consolidating. 

But if you don’t qualify for debt relief, it may not make sense to go through this step. “If you are not currently pursuing any kind of forgiveness (e.g., not even IDR forgiveness) and expect to never pursue forgiveness, then you don’t need to do it, ” said Kantrowitz.

You can consolidate your federal student loans online at StudentAid.gov. You’ll need to submit your application before midnight local time on April 30 to meet the deadline. You can consolidate after this date, but would miss out on some benefits.

To fill out the application, you’ll need your Federal Student Aid ID, some personal information, financial information and loan information to fill out the application. The FSA website says it takes approximately 30 minutes to complete the application for consolidating your loans.

You can fill out the application now at studentaid.gov/loan-consolidation . 

Once you apply, it can take up to 60 days to process your consolidation, said Kantrowitz. In the meantime, you might see your student loan payment count drop to zero. Don’t panic if this happens. It just means your adjustment count is being worked on.

If you consolidate your loans after the April 30 deadline, you can still get credit for past payments made on direct loans. But you might not get as much credit. Instead, your payment count would be based on a weighted average.

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