$ 10,000? $ 50,000? What different amounts of student loan forgiveness would mean for borrowers
The government’s response to the pandemic could accelerate the trend for companies to offer student loans as a perk.
Mark Chilton | iStock | Getty Images
Phyllis Wintter has been in student debt for more than 30 years. At 67, she still owes around $ 48,000.
Now she hopes that things will change and that President Joe Biden will extend her loans.
“It would be great if we could die free from this debt,” said Wintter, who lives in Georgia.
But she added, “$ 10,000 wouldn’t do it. I would still have $ 38,000 and I can’t afford that.”
More from Personal Finance:
Other universities make Covid vaccines mandatory
The new career prospects for college graduates look promising
A free college could become a reality under Biden
The likelihood of student debt relief becoming a reality has never been higher. President Joe Biden said during the election campaign he supported the cancellation of $ 10,000 per borrower and now he has asked his education secretary to prepare a report on his legal authority to wipe up to $ 50,000 for everyone.
Yet even among those working to pay off educational debts, there is disagreement, especially about how great the relief should be and who should get it. For example, some pioneered the idea of lending the loans to key workers or just low-income Americans.
College graduate Mark Kantrowitz recently put together a report comparing some of these different forgiveness plans and their possible implications.
Below are some of them.
Forgiveness by Age?
A growing number of Americans are bringing student loans into their old age. And many of them cannot afford the payments.
A third of student loan borrowers over 65 are in default, and half of those over 75 have defaulted, according to a report from the Government Accountability Office.
Although Wintter avoided defaulting, she said her student loans made it impossible for her to qualify for a mortgage. She tried again recently but was refused.
Source: Phyllis Wintter
She currently lives with her daughter for financial reasons, but longs for a home of her own, especially at this point in her life.
“It would mean being with me for a while,” said Wintter.
Cancellation of student loans for people over 65 would cost the government around $ 59 billion and affect 2 million people, according to Kantrowitz
The move wouldn’t be unprecedented. For example, the Swedish government provides loans to all borrowers over the age of 68, and the UK previously followed a similar policy.
Others have suggested erasing the credit of people in certain professions where the contribution to society is high, as well as the debt burden.
For example, Kantrowitz noted that canceling student loans from social workers would cost the government around $ 18 billion and relieve around 400,000 people.
The government would have to shell out around $ 117 billion to cancel teachers’ debts, which would leave around 3 million people out of debt.
The idea of canceling the educational debts of doctors and nurses has also grown in popularity during the pandemic. This would cost around $ 250 billion and likely affect around 1 million people.
According to income?
Some experts say that any student debt relief should target low-income Americans, pointing out that many with educational debts have high salaries.
Around two-thirds of student loan borrowers in the United States earn less than $ 100,000 a year. According to Kantrowitz’s analysis, it would cost the government around $ 938 billion to cancel loans for anyone below that threshold.
A third of borrowers make less than $ 50,000, and it would cost around $ 437 billion to just extend these people’s loans.
$ 10,000 or $ 50,000?
Right now, the main contention among student loan forgiveness advocates is how much debt should be scrapped.
If all federal loan borrowers were to cancel their debt at $ 10,000, the country’s outstanding educational debt would fall from $ 1.7 trillion to around $ 1.3 trillion, according to Kantrowitz.
And about a third of federal student borrowers, or 15 million people, would see their balances reset to zero.
Removing $ 50,000 for all borrowers, on the other hand, would reduce the country’s outstanding student loan debt from $ 1.7 trillion to $ 700 billion. Meanwhile, 80% of federal student loan borrowers, or 36 million people, would be completely gone.
Even under this more generous plan, not everyone would be happy.
One-fifth of federal student loan borrowers owe more than $ 50,000, and around 7% of borrowers owe more than six-digit amounts.