Support for student debt forgiveness drops if it means certain trade-offs: poll

Americans don't support higher taxes or tuition costs as a result of student loan forgiveness

Student debt forgiveness may bring some trade-offs that Americans don’t like, according to a poll by the Cato Institute. (iStock)

Americans' support of student loan forgiveness drops if it means higher university costs, more taxes and primarily benefits higher income earners, a new poll said.

Libertarian think tank Cato Institute and YouGov conducted the poll before President Joe Biden unveiled his administration's student loan relief plan. The poll said that 64% of Americans opposed debt forgiveness if it meant increased taxes, 76% opposed it if it meant higher tuition costs and 68% opposed it if it primarily benefited higher-income people.    

Biden announced last month that his administration would cancel $20,000 in student loans per borrower if they received Pell Grants and $10,000 in student loan debt per borrower for those who didn't. 

The cancellation will apply to all federal student loan borrowers making less than $125,000 per year or $250,000 per year for married couples. They also unveiled a proposal that would allow those with undergraduate loans to cap their repayment options at 5% of their monthly income.

"Support for cancelling federal student loan debt plummets when Americans consider its trade-offs," Cato Institute's Director of Polling, Emily Ekins, said. "These data show that Americans don't like the costs that many experts believe are associated with federal student loan forgiveness."

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Experts say taxpayers on the hook to pay for the plan

By some estimates, the cost of Biden's plan is around $500 billion. It will "provide relief to up to 43 million borrowers, including cancelling the full remaining balance for roughly 20 million borrowers," according to the White House.

A blog post by the Council on Foreign Relations said that "since there is no provision for a special funding mechanism, all taxpayers will bear the brunt of this federal budget expense."

"Put another way, 320 million Americans are providing a benefit to 40 million Americans," it continued.

Some borrowers may also face a tax bill due to the loan cancellation. Although forgiven debt is usually subject to federal taxes, these canceled student loans won't be. That's because of a clause in the American Rescue Act that eliminates federal taxation on forgiven student loan debt through 2025. 

But the obligation to pay state taxes on forgiven debt isn't as clear. According to Mark Kantrowitz at The College Investor, 28 states, plus Washington D.C., either have no income tax or automatically conform with federal law and will not tax canceled student debt. 

However, Mississippi, Minnesota, Wisconsin, Arkansas and North Carolina treat debt forgiveness as income. And unless they change their laws to conform with the federal tax exemption for student loans, students would be on the hook to pay taxes on the debt, according to the Tax Foundation, a Washington, D.C.-based think tank. 

"Having your taxable income jump by $10,000 - 20,000 dollars can obviously have a major impact on your taxes," Chris Motola, a financial analyst at, said. "Furthermore, the difference in laws from state-to-state could mean that students in some states will benefit more from student relief than others."

If you have private student loans, these will not qualify for federal student debt cancellation. However, you can reduce your monthly payment by refinancing to a lower interest rate. Visit Credible to find your personalized interest rate without affecting your credit score.


Debt forgiveness may add to tuition inflation

Another trade-off that Americans participating in the Cato poll were against was debt forgiveness at the cost of higher tuition rates. Market experts have been vocal about the potential risk that the plan may spur students to take on more debt, as well as that the plan does little to address runaway tuition costs at colleges and universities. 

The cost of attendance for one year at a private 4-year university currently averages $38,000, and a year at a public university costs about $10,000, according to figures reported by the College Board

"The cost of college tuition has far outpaced inflation for years," Leslie Tayne, founder and head attorney at Tayne Law Group, said. "And with the promise of possible forgiveness in the future, students may be willing to take on more debt upfront. This would give schools the power to raise their prices, leading to a cycle of increased borrowing."

There is also a concern that the proposed changes to the income-driven repayment plan, which would see borrower repayments capped at 5% of their monthly income, might also incentivize universities and colleges to raise costs, Tayne said.  

"Regardless of the loan amount, borrowers will have to make the same monthly payments on student loan debt, which could leave students borrowing as much money as possible," she said. "Colleges and universities can then increase tuition costs, knowing the amount borrowed won't matter much to students with federal loans."

However, one expert believes that the basics of supply and demand should help rein in tuition and bring some normalcy to their significant cost increase. 

"While universities may see loan forgiveness as an opportunity to raise tuition, market forces may prevent large hikes," Jay Zigmont, founder of Childfree Wealth, said. "Students and their parents have become more price sensitive and are even starting to look at the ROI of college." 

One way to reduce your monthly payment on your private student loans is by refinancing to a lower interest rate. To see if this is the right option for you, you can contact Credible to speak to a student loan expert and get all your questions answered.

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