Biden's student loan forgiveness plan: Breaking down the cost

Erasing $10,000 in student loan debt would cost the government $321B

President Biden this week revived the possibility of wiping out millions of Americans' student loan debt with the stroke of a pen, a policy that could cost the federal government $321 billion. 

Although Biden has so far canceled just a fraction of the debt that he promised to erase on the campaign trail, the president – who is facing mounting pressure from progressives as well as declining approval ratings – floated the possibility this week of eliminating $10,000 per borrower. 

"I am considering dealing with some debt reduction," Biden said Thursday in response to a question at the White House. "I am not considering $50,000 debt reduction. But I'm in the process of taking a hard look at whether or not there will be additional debt forgiveness." 


Erasing $10,000 per borrower would require the government to cancel about $321 billion in federally backed loans, according to an analysis published by the Federal Reserve Bank of New York last week. That would benefit about 11.8 million borrowers, or roughly 31.1%, and cancel 30.5% of loans delinquent or in default prior to pandemic forbearance. 

Under the policy, the average borrower would receive $8,478 in student loan forgiveness. 

President Biden speaks during an event about the Affordable Care Act, in the East Room of the White House in Washington, Tuesday, April 5, 2022. (AP Photo/Carolyn Kaster)

President Biden speaks during an event about the Affordable Care Act at the White House on April 5, 2022. (AP Photo/Carolyn Kaster / AP Newsroom)

Should the Biden administration put in some constraints around forgiveness, like a household income limit of $75,000, the cost of the program would fall from $321 billion to $182 billion, according to the New York Fed. As of December 2021, the total outstanding balance for federally owned loans was $1.38 trillion.

The nation's debt level is already at a historic high of $30 trillion following unprecedented levels of spending during the COVID-19 pandemic. 

Progressives, including Senate Majority Leader Chuck Schumer, D-N.Y., have urged Biden to cancel $50,000 in outstanding federal debt per borrower via executive order. The Democratic lawmakers have maintained that Biden could use existing executive authority under the Higher Education Act to order the Department of Education to "modify, compromise, waive or release" student loans.

Biden supported erasing $10,000 in student debt for most borrowers during his presidential campaign, but has raised questions about his legal authority to do so via executive order. Last year, the president requested a memo from the Education Department to determine whether he had the power to unilaterally cancel student loan debt.

Such sweeping executive action would almost certainly face a legal challenge, and it's unclear whether it could survive. Critics have argued that using such power exceeds the president's authority granted by Congress. Canceling student loan debt would also add to the nation's already-ballooning national deficit, which totaled a near-record $2.8 trillion for the 2021 fiscal year.

Chuck Schumer

Senate Majority Leader Chuck Schumer speaks to reporters at the Capitol on Sept. 28, 2021. (AP Photo/J. Scott Applewhite / AP Newsroom)

The plan may also disproportionately benefit wealthy Americans, according to an analysis by the University of Chicago’s Becker Friedman Institute for Economics. The study showed that erasing all student loan debt would distribute $192 billion to the top 20% of earners in the U.S., but just $29 billion to the bottom 20% of U.S. households.

Under a universal loan forgiveness program, the average individual among the top-earning borrowers would receive $5,944 in forgiveness, while those with the lowest incomes would receive $1,070 in forgiveness, according to the study.

Outstanding student loan debt has doubled over the past decade, nearing a staggering $1.7 trillion. About one in six American adults owes money on federal student loan debt, which is the largest amount of non-mortgage debt in the U.S. It has been cited as a major hindrance in people’s "economic life" by Federal Reserve Chairman Jerome Powell.

Brown University

People rest on grass at Brown University in Providence, Rhode Island, on Sept. 25, 2019. (AP Photo/Steven Senne, File)

The proposal comes as American consumers grapple with the hottest inflation in four decades, with consumer prices surging 8.5% in March from the year-ago period. The inflation spike has inflicted financial pain on millions of U.S. households, particularly low-income families, eroding wage gains and setting up a massive political challenge for Biden, who has seen his approval rating sink in conjunction with the rising prices.  


There is concern among some economists that putting more money into Americans' pockets at a time of already sky-high inflation could further exacerbate the problem.

"It is costly, inflationary, poorly targeted, and fails to address the root problems in our higher education financing system," Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in a statement Thursday. "Full debt cancellation would be a massive hand-out to rich doctors and lawyers, would worsen our inflation crisis, and would cost almost as much as the entire 2017 tax cuts."