Who would benefit the most from Biden’s student loan forgiveness plan?

13 million out of 41 million borrowers — 32% — would be completely debt-free.

Elissa

By

Elissa Suh

Elissa Suh

Personal Finance Editor

Elissa Suh is a personal finance editor at Policygenius in New York City. She has researched and written extensively about finance and insurance since 2019, with an emphasis in estate planning and mortgages. Her writing has been cited by MarketWatch, CNBC, and Betterment.

Updated August 9, 2021|11 min read

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People with bachelor's degrees earn $1 million more over their lifetimes than people who didn’t graduate from college. [1] Many students and parents take out student loans to help pay for higher education, but as tuition costs have risen, borrowing for college has become a costly investment. The average student loan debt in 2020 was $36,510, which is 67% higher than it was a decade ago. High student loan debt is an obstacle towards building your net worth, and evidence even suggests that education debt has prevented young people from buying homes. [2]  

More than 400 organizations and advocacy groups have sent a letter urging President Biden to cancel student loan debt, which they believe could also stimulate the economy during the downturn caused by the coronavirus pandemic. According to a 2018 study by the Levy Economics Institute of Bard College, cancelling student debt would raise GDP by at least $86 billion per year, decrease unemployment up to 0.36%, and as much as 1.5 million jobs — while maintaining modest inflation and interest rate increases. [3]

Biden campaigned on a promise of student loan forgiveness and has expressed support for cancelling $10,000 in federal student loan debt per borrower since taking office. While some legal scholars believe the president has the authority to cancel federal student loan debt through an executive order, President Biden instead seems to be waiting on Congress to send him a bill, which, in a legislature bitterly divided along ideological lines, all but ensures that student loan forgiveness will be a long way off. 

How many people would be free of student debt under different levels of loan forgiveness

While the president has already forgiven about $3 billion of debt for select borrowers, including borrowers with a disability and borrowers defrauded by their institutions, this represents only a fraction of the $1.7 trillion in outstanding student loans. 

To better understand how student loan forgiveness could help borrowers, we analyzed 2020 data from the Department of Education to see who currently has federal student loan debt, how much debt they have, and how many borrowers would benefit from different levels of debt forgiveness — including Biden’s $10,000 proposal. 

Read on to learn what student debt looks like in America and what effects any potential Biden student loan forgiveness plan would have on borrowers.

Key Takeaways

  • The average federal student loan debt bill doubled from 2007 to 2020

  • $10,000 of student loan forgiveness would wipe out student debt for a third of borrowers

  • $40,000 of loan forgiveness would wipe out student debt for about three-quarters of borrowers

  • Repayments for federal student loans resume on January 31, 2022

Biden’s student loan forgiveness plan

At this time, President Biden has not released any proposal regarding federal student loan forgiveness, and the topic was not included in the most recent budget proposal.  

In March 2021, Congress approved a $1.9 trillion stimulus package (formally known as the American Rescue Plan) which included a provision, called the Student Loan Tax Relief Act, that makes student loan debt forgiveness tax-free until the end of 2025. Although this legislation does not actually cancel any student loan debt, it has further raised hopes that President Biden will forgive federal student debt in the near future. (Cancelled debt must be reported on your income tax return.) 

Because of the ongoing COVID-19 pandemic, federal student loan payments were paused until September 30, but some politicians and experts are calling on the president to extend the pause until at least March 31, 2022

UPDATE: The pause on student loan repayments has been extended until January 31, 2022 in what the Department of Education says will be its final extension.

What Biden has done so far

President Biden has cancelled some student debt multiple times since taking office, but only for borrowers who fall into specific categories of people. So far, 90,000 borrowers have benefited from $1.5 billion of debt forgiveness under the Borrower Defense Act, which discharges loans for students who attended colleges that engaged in deceptive practices.

Another $1.3 billion of student debt was cancelled for more than 41,000 borrowers living with a total and permanent disability. The borrowers had already qualified to have their debt discharged, but their loans were reinstated during the coronavirus pandemic when they didn’t file their earnings. Loan forgiveness for people living with a total and permanent disability is based on a three-year income monitoring period and requires extensive paperwork, which studies have proven to be an obstacle for borrowers in need of loan forgiveness.

Does Biden actually want to forgive student loans?

During his campaign President Biden proposed an expanded loan forgiveness program that would cancel $10,000 of student loans for every year of national or community service, up to five years. However, he has voiced skepticism about cancelling $50,000 in student debt, and has also said on multiple occasions that he did not believe he has the executive authority to do so. 

On April 2, 2021, he requested a memo on the legality of presidential loan forgiveness, according to a statement made by White House chief of staff Ron Klain. The Justice Department and Education Department have still not completed the memo, and no timeline has been set as to when it would be released.  

Arguments against student loan forgiveness

Opponents of student loan forgiveness argue that there are better ways to boost the economy and that federal spending would best serve funding other government programs that can offer more targeted help to those who need it most. Some studies have shown that student loan forgiveness could broadly benefit people with higher incomes instead of the neediest borrowers or households.

Other opponents believe that people who already paid off their loans “could rightfully feel cheated if those who graduated after them receive aid and assistance while they did not,” citing this unfairness as a reason why student loan forgiveness should not be broadly enacted for everyone.

Can Congress forgive student loans?

Senator Elizabeth Warren (D-MA) and Senate Majority Leader Chuck Schumer (D-NY) continue to lead the charge for a $50,000 in federal student loan debt forgiveness. If the president does not cancel student loans through an executive order, Senate Democrats can try to forgive student debt without the support of Republicans through budget reconciliation, which could happen in the fall. Only a simple majority of 51 votes is needed to pass legislation.

How can you get student debt forgiven now?

The Public Service Loan Forgiveness program (PSLF) discharges a portion of federal debt for teachers, government workers, and non-profit employees if they meet requirements like making payments for ten years. It is notoriously hard to qualify for the program; application data shows that 98% of people have been rejected

If you don’t qualify for PSLF, you may be able to make lower loan payments through an income-based repayment plan by contacting your loan servicer. Biden’s campaign included automatic enrollment in a more generous income-based repayment plan that would result in lower payments for borrowers. Under this plan, people making under $25,000 would not be responsible for payments or accrue interest. Other borrowers would pay 5% of their discretionary income, and loans would be forgiven after 20 years of repayment.

Who benefits the most from student loan forgiveness?

About 13 million out of 40.5 million borrowers, or 32.1%, would have all their student loan debt cancelled if President Biden forgives $10,000 of federal student loan debt per borrower. In order for half of all borrowers to be completely debt-free, up to $20,000 dollars of student debt would need to be forgiven. Cancelling $50,000 of debt, as Senators Elizabeth Warren (D-MA) and Chuck Schumer (D-NY) have advocated, would leave about 75% of borrowers free of debt. 

How different levels of loan forgiveness would affect student debt

Loan forgiveness amountNumber of borrowers with all student loan debt forgiven% of borrowers with all student loan debt forgivenTotal value of student loan debt forgiven
$10,00013.0 million32.1%$341.0 billion
$20,00021.3 million52.5%$570.5 billion
$40,00030 million74.1%$856.0 billion
$60,00033.8 million83.6%$1.0 trillion
$80,00036.2 million89.4%$1.1 trillion
$100,00037.5 million92.6%$1.2 trillion
$200,00039.6 million97.9%$1.4 trillion

You can see from our results that higher levels of loan forgiveness have less impact, as fewer borrowers benefit with each tier of added loan forgiveness. Not many borrowers carry a six-figure federal student loan debt — only 7% of borrowers owe more than $100,000. 

Where people would benefit the most if student loan debt was cancelled

We analyzed student loan data to see what states would benefit the most from a $10,000 loan forgiveness plan, based on:

  • The percentage of total borrowers who would be free of student debt

  • The number of borrowers who would be free of student debt

States where $10,000 of student loan forgiveness would help the largest percentage of total borrowers

State% of borrowers who would be debt-freeAverage student loan debt
Wyoming38.1%$30,476
Utah37.0%$32,150
Nevada36.3%$33,573
North Dakota35.7%$28,402
Alaska35.6%$33,083
Oklahoma35.0%$31,376
Nebraska34.9%$31,726
New Mexico34.9%$33,632
Louisiana34.8%$34,165
West Virginia34.7%$31,532

Wyoming, Utah, and Nevada are the three states where the highest percentage of borrowers would be totally free of student loan debt if Biden forgave $10,000 of loans. People in North Dakota hold the lowest amount of student debt on average.

While Wyoming has the highest percentage of borrowers who would benefit from this level of student loan forgiveness, it also has the lowest number of borrowers who would have all debt forgiven. 

States where $10,000 of student loan forgiveness would help the highest number of borrowers 

StateNumber of borrowers who would be debt-free
California1,299,700
Texas1,191,900
Florida792,400
New York760,500
Ohio554,600
Pennsylvania533,900
Illinois502,000
Georgia461,800
Michigan438,900
North Carolina371,000

California, Texas, and Florida are the three states where the most borrowers would be free of student debt if Biden cancelled $10,000 of federal loans. The top ten states where the most people would benefit from loan forgiveness are primarily the largest states, which have higher populations and more borrowers. However their order does not strictly correspond; Ohio ranks seventh in population, but fifth in the number of borrowers who would have their debt forgiven.

States where $40,000 of student loan forgiveness would help the largest percentage of total borrowers

Forgiving a higher amount of student debt however would benefit a different variety of states when viewing the percentage of people who would no longer hold debt.

State% of borrowers who would be debt-freeAverage student loan debt
North Dakota78.9%$28,402
Rhode Island78.6%$31,954
Iowa77.9%$30,381
Massachusetts77.7%$34,075
Wyoming77.5%$30,476
Nebraska77.2%$31,726
Wisconsin77.0%$31,766
Maine76.9%$32,543
South Dakota76.7%$30,946
New Hampshire76.7%$33,459

A student loan forgiveness plan of $40,000 per borrower would wipe out debt for a significant majority of people in every state. Certain states like North Dakota, Rhode Island, and Iowa have a greater percentage of students with higher debt levels, so they will see more benefits from a higher forgiveness amount.

You can use the tabs in the chart below to see the full impact that different levels of student loan forgiveness would have in every state and District of Columbia. (The rankings are preset by percentage of borrowers who benefit in a given state; click to sort alphabetically or by number of borrowers.)

What does student loan debt look like in America?

By looking back at data since 2007, we can see that the average student loan debt bill has doubled, while the number of borrowers hasn't increased at such a steep pace.

Average student loan debt over time

YearNumber of borrowersAverage student loan debtAverage tuition costs
200728.3 million$18,233$23,166
200829.9 million$19,298$24,024
200932.1 million$20,467$24,687
201034.3 million$21,860$25,287
201136.5 million$23,238$25,610
201238.3 million$24,757$26,132
201339.6 million$26,268$26,625
201440.7 million$27,759$27,190
201541.6 million$29,144$27,777
201642.3 million$30,548$27,755
201742.6 million$32,087$27,923
201842.9 million$33,548$28,123
201942.9 million$35,205Data not yet available
202042.9 million$36,510Data not yet available

*The total number of borrowers differ slightly from figured used in state calculations due to rounding and timing differences as per the Dept. of Education.

In 2020 the average student loan debt was $36,510. The average debt has increased every year since 2007 and it also doubled from 2007 to 2020. While college costs have also risen over the years, data shows that student loan debt increased at a faster rate. Tuition costs climbed less than 21% over a ten year period from 2007 to 2017, according to data from the National Center for Education Statistics (NCES), while the average student debt rose over 75% in the same time period.

Average incomes in America during this time have largely stagnated for middle-wage workers and declined for low-wage workers, according to the Economic Policy Institute, which may help to explain why the average size of student debt is growing. [4] As the prices of everything else, from food to housing to health care, increase faster than wages, students and their families may have less and less cash to pay for education so loans are a necessary way for students to cover the costs of college as it becomes unaffordable. 

Average student loan debt by age

Age groupNumber of borrowersAverage student loan debt
24 and younger7.8 million$14,808
25 to 3414.8 million$33,818
35 to 4914.2 million$42,373
50 to 616.2 million$42,290
62 and older2.3 million$37,739

Student loan debt varies a lot by age, and is the lowest for borrowers under 25 years old, most likely because this group includes younger students, like freshmen, who have only just started to receive their student loans, typically disbursed every semester or school year. 

Data reveals that older borrowers 35 and older still hold student loan debt, owing more than the national average, which was $36,510 in 2020. Over the past decade, debt has nearly doubled for seniors, which could prevent them from having a comfortable retirement.

Related: See how much retirement costs in your area.

Graduate school borrowers could account for the larger debt size for older Americans. While only 40,000 borrowers under 25 have six-figure loan amounts, 1.38 billion borrowers in the 35 to 49 age group have student debt over $100,000. Federal student loans are available for graduate school, and the loan limits (how much someone can borrow) are much higher. According to the College Board, the total average annual federal loan amount for 2019 was $23,990 for undergraduates and $44,440 for graduate students. [5] The average graduate school loan debt including private loans was estimated to be $71,000 in 2015, according to the NCES.

If the higher loan amounts are caused by taking on debt from graduate school, it’s surprising that debt balances are only about $4,000 to $8,000 more than the 25 to 34 age group and not higher. This could mean that older borrowers have been able to pay off more of their loans, which aligns with BLS data showing that people with higher degrees typically earn more money than people with just a bachelor-level education. 

About our data

Student loan data for this study came from the Federal Student Loan Portfolio from the U.S. Department of Education’s office of Federal Student Aid. The student loan data analyzed ran through September 30, 2020 — the final day of the fourth quarter of the 2020 federal fiscal year. When analyzing the amount of outstanding student loan debt that would be forgiven based on different levels of forgiveness, we did not include borrowers who did not report their state of residence or who lived outside of the 50 states and the District of Columbia.

Federal Reserve data, which we used to look at broad trends in people’s debt from 1989 to 2019, comes from the 2019 Survey of Consumer Finances and all values are inflation-adjusted to 2019 dollars. Information on college costs comes from the National Center for Education Statistics, a federal organization.

Image: Nastia Kobzarenko