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The cost of student loan forgiveness

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Posted at 3:51 PM, Mar 25, 2022
and last updated 2022-03-28 12:28:09-04

DENVER, Colo. — Federal student loan payments are supposed to resume in May, more than two years after they were paused because of the pandemic, but many are wondering if President Joe Biden will pause loan payments for the fourth time or expand forgiveness programs further.

Loriann Weiss, who works in the financial aid department at the Metropolitan State University of Denver, said she’s worried if payments resume. She claims many students will still not be able to pay their bills.

“Obviously, having a little bit more time certainly helps them,” said Weiss. “But I think our concern is— are students really prepared? They've had a very long period of time to not have to worry about making this payment.”

This is an issue that impacts 43 million Americans. The average borrower owes around $36,000, which adds up to a total of $1.6 trillion in federal student debt.

President Biden has, so far, forgiven $16 billion dollars in student debt by expanding student loan forgiveness for certain borrowers including public service employees, people with severe disabilities, and people who were scammed at for-profit colleges.

Pausing or canceling federal student loans is a controversial issue.

Proponents of loan forgiveness said it could immediately boost the economy and give borrowers more money for other expenses. That would mean more financial security for many, especially in historically marginalized groups.

“Our cost of living has increased so much. So, to be able to absorb that funding and put it into other places, is certainly going to only help them,” said Weiss.

Some critics believe loan forgiveness is too expensive. According to the Department of Education 2021 report, the payment pause has cost the federal government and taxpayers at least $95 billion in unpaid interest.

Experts warn if student loans are forgiven, it could limit funding to other spending programs.

So what’s next? First, Biden could choose to forgive all $1.6 trillion in federal student loan debt. It would be the costliest social spending initiative of his presidency—outspending unemployment insurance, the earned income tax credit and food stamps.

Second, Biden could forgive some federal student debt. On the campaign trail and early in his presidency, he said he was open to eliminating at least $10,000 in student debt per borrower, which would cost the government $373 billion.

Thirdly, Congress could decide the fate of student loan payments. Two bills on the topic have recently been introduced. One would prevent future pauses on federal student loan payments. The other would pause payments until 2023 and cancel loans for more borrowers.

As the debate continues, experts warn borrowers to be prepared to make payments and not count on debt forgiveness.