Who Biden’s student loan forgiveness plan helps the least

President Biden’s student loan forgiveness plan announced on Wednesday would effectively wipe out federal loan balances for at least a third of student borrowers. 

The administration’s plan eliminates up to $10,000 per federal borrower earning less than $125,000 per year or families making less than $250,000, making it the largest ever effort toward federal student loan forgiveness.  

An extension of the federal moratorium on student loan payments was extended through Dec. 31.  

Borrowers who received a federal Pell Grant during college and meet the income criteria will be eligible to receive $20,000 in loan forgiveness — about 7 million students receive Pell Grants every year. 

However, out of the approximately 45 million borrowers in the U.S., about 15 million have loan debt under $10,000. Millions will likely see their loan balances slightly lowered and little change to monthly payments once they resume. 

Biden’s plan does not address those borrowers who have privately held loans, with a bank or credit union, which accounts for about 13 percent of student borrowers and 8 percent of the nation’s outstanding loan debt — close to $140 billion. 

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Data shows the average student borrower owes more than $37,000 in federal student loan debt to be paid off over 20 years.   

Many borrowers who are on income-driven repayment plans — about 1 in every 3 student borrowers — also may not see their monthly payments change, as their payments are dependent on their earnings, not their loan balance. 

“If the borrower is in an income-driven repayment plan, there will be no impact on the loan payments, since those are based on the borrower’s income and not the amount owed. It is possible that it will cause the loan to be paid off in full sooner,” student loan expert Mark Kantrowitz told Changing America in an emailed statement. 

Loan forgiveness will also cost the federal government, according to Kevin Miller, associate director of higher education at the Bipartisan Policy Center, who told Changing America that there will be a loss incurred.  

“For some loans, the federal government wasn’t going to recover balances in full anyway. But forgiveness offered to borrowers who were making timely payments will be a real cost for the government,” said Miller.   

Miller also noted that the cost of forgiveness for the federal government will also be determined by the guardrails established for eligibility, like limiting the benefit to those who earn less than $125,000 annually. 

One analysis by the Brookings Institution estimated that a $10,000 loan forgiveness plan could cost the federal government about $373 billion.  

Yet Biden’s plan falls short for progressives, who pushed the president to cancel $50,000 per borrower, arguing it would help narrow the racial wealth gap, provide immediate relief to millions during a recession and become a massive consumer-driven stimulus to the economy. 

Sen. Bernie Sanders (I-Vt), a vocal advocate of complete student loan forgiveness, wrote on social media before reporting emerged on the administration’s expected announcement that Biden holds the power to eliminate student debt entirely given the federal government’s recent history of corporate bailouts. 

“If we can bail out Wall Street after their greed, recklessness, and illegal behavior drove us into the worst recession in modern history, then YES — we absolutely can cancel every single cent of student debt in this country,” Sanders tweeted. 

—Updated at 1 p.m.

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