Changing America

Who will pay if Biden cancels student debt?

“It's a trillion dollars that adds to the national debt. That means that there are fewer resources available to other spending programs; more or higher taxes will be required in the future,” said Adam Looney, Brookings Institution fellow.
Senate Majority Leader Sen. Chuck Schumer of N.Y., center, accompanied by from left, Rep. Mondaire Jones, D-N.Y., D-Mass., Rep. Alma Adams, D-N.C., Rep. Ilhan Omar, D-Minn., Sen. Elizabeth Warren, D-Mass., and Rep. Ayanna Pressley, speaks at a news conference on Capitol Hill in Washington, Thursday, Feb. 4, 2021, about plans to reintroduce a resolution to call on President Joe Biden to take executive action to cancel up to $50,000 in debt for federal student loan borrowers. (Andrew Harnik/ AP)

Lawmakers are continually pressuring President Biden to cancel student loan debt. Whether it’s the $10,000 per federal borrower he promised on the campaign trail or a more aggressive $50,000 per borrower proposed by progressives, someone would have to foot the bill. 

Nearly 43 million borrowers collectively owe around $1.7 trillion in student loan debt and haven’t had to make a single monthly payment over the last two years thanks to a pandemic-inspired moratorium on repayments. The moratorium is set to expire on May 1, and lawmakers are seizing the moment to urge Biden to again extend it or commit to canceling student loans altogether — especially with midterm elections looming.  

Cancelling $10,000 per borrower would cost the federal government around $373 billion, while the estimated price of eliminating $50,000 per borrower would tally near $1 trillion.  

But some analyses show losses for the federal government would occur over time, as each federally issued loan hits its anticipated due date. 

No matter what amount of student debt is canceled, the government stands to sustain a loss as federal student loans would cost not only the remaining principal balance but the interest that was expected on all future payments.  


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There are also various loan types to consider. While the federal government issues about 92 percent of all student loans, 8 percent are owned by private banks and only managed by the government. Another 8 million borrowers collectively owe $175 billion in commercially owned student loans, data shows

A 2019 Moody’s analysis estimated loan cancellation could result in $86 billion in lost revenue from student loan principle, interest, and fees. 

A report from the Urban Institute also notes canceling student loan debt would gradually increase the national debt as the money has already been disbursed through the Treasury Department and eventually will not be paid back at the expected due date. 

“Forgiveness means that money that the government thought was going to come in a year from now, five years from now, 10 years from now, 20 years from now, isn’t coming in,” Donald Marron, director of economic policy initiatives at the Urban Institute and coauthor of the report, told Changing America.  

The federal government could pull funding from other programs to offset potential losses, but not all programs are on the table, Marron explained. Social security, for example, falls under trust fund guardrails that prevent the government from diverting those dollars elsewhere for different purposes.  

“But obviously, there are lots of other social programs the federal government has, both on the spending side and on the tax side, that if the federal government wanted to do a debt forgiveness, and then pay forward by reductions on the spending side, there’s certainly levers for doing that.”  

A separate analysis by Brookings Institution fellow Adam Looney found that any diversion of dollars could take away from vital social programs and create higher taxes in the future. 

“There are real trade-offs in terms of – in a sense of, there is a budget, and so the more you spend on one program, the less you have available to spend on other programs,” Looney told Changing America.  

Looney also pointed out that a loss of funding for some federal programs might not be the only consequence of issuing some form of blanket student debt forgiveness. 

“It’s a trillion dollars that adds to the national debt. It increases the amount of debt service — the debt the federal government has to spend servicing the debt. That means that there are fewer resources available to other spending programs; more or higher taxes will be required in the future,” Looney said. 

For example, Looney found in his analysis that forgiving up to $50,000 of student debt is similar in cost to the cumulative amount spent on Supplemental Security Income (SSI) and all housing assistance programs since 2000. That program alone provides cash assistance to 8 million people who are disabled or elderly and have little income and few assets — about half have zero other income. 

Meanwhile, the cost of canceling student debt — whether its $10,000 or $50,000 per borrower — would still surpass the amount the government has spent on several social safety nets over the past 20 years, according to Looney’s analysis.  

Taxpayers already bear the brunt of student loan defaults, and analysts note that rising debt would exacerbate their burden. A report from the Bipartisan Policy Center suggests the cost to taxpayers will rise alongside an increase of “generous repayment and forgiveness plans.” 

“As debt levels rise and repayment falters, taxpayers shoulder much of the risk, and the federal government stands to lose billions of dollars,” the report read

Despite the uncertain path ahead of Biden on the student loan front, progressive Democratic lawmakers continue to hammer the president a month out from the end of the two-year payment moratorium.  

Sen. Majority Leader Charles Schumer (D-N.Y) wrote on social media on Wednesday the fundamental issues created by the student debt crisis are twofold — an economic and a mental health crisis. 

“Student debt has helped create both an economic and a mental health crisis for millions of Americans. President Biden can use his existing legal authority to #CancelStudentDebt and provide much-needed relief right away,” Schumer tweeted.


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