Many student loan borrowers and consumer advocates have been disappointed that President Biden didn’t live up to his campaign pledge to cancel $10,000 of student loan debt for every borrower. While he thus far hasn’t delivered on that promise, Biden has canceled far more student debt than any American President. In fact, borrowers have yet to realize how much the President has canceled both now and in the future.
In this article, we’ll look at actions taken by President Biden on student loans and how much more cancellation could be in store for borrowers.
1. Biden administration first continued cancellation started by President Trump 2. How much student loan debt did Biden cancel with the payment and interest pause? 3. Types of miscellaneous student loan cancellation you haven’t heard about 4. The biggest cancellation yet to be fully realized: the PSLF Waiver 5. Total cancellation from President Biden for student loan borrowers is the most in history 6. How much cancellation will happen next?Biden administration first continued cancellation started by President Trump
It’s a bit ironic given the personal and policy chasm between the two men that the President who has canceled the second most student loan debt in history is President Trump.
The reason is simply that the COVID payment and interest freeze began on March 13, 2020, during the Trump administration. Lawyers in Trump’s Education Department cite authority in the HEROES Act of 2003 to “waive or modify […] student financial assistance programs […] in connection with a war or other military operation or national emergency […].”
The law further states that the Secretary of Education may waive or modify provisions so that “affected individuals are not placed in a worse position financially” due to the national emergency.
How much student loan debt did Biden cancel with the payment and interest pause?
When President Biden came into office in mid-January, payments and interest were supposed to begin weeks later. Biden extended this freeze until January 31, 2022, approximately 2.5 months longer than the Trump administration.
Loan debt canceled by waiving interest
Most studies suggest that the interest pause saves borrowers around $5 billion a month. Over approximately 12 months, President Biden has canceled about $60 billion in student loan debt simply by waiving interest for federal student loan borrowers.
Loan debt canceled by waiving payments
The Roosevelt Institute conducted a study that found that student loan borrowers would pay approximately $85 billion annually when student loan payments resume on February 1, 2022.
If we use this number as an estimate for the amount in payments borrowers didn’t have to pay between January 2021 and January 2022, we can ask how much of these paused payments should count as cancellation.
Recall that the paused payments started under the CARES Act explicitly count for loan forgiveness programs such as PSLF and the 20- and 25-year Income-Based Repayment programs.
According to a CBO report from 2020 using 2017 data, at least 27% of borrowers use an IDR plan for their loans. A higher share at 39% of graduate school borrowers use an IDR plan. Keep in mind that the percentage of borrowers using IDR will likely be significantly higher once measured again after payments restart.
Paused IDR payments count as cancellation
According to a FOIA request on borrower data from the nation’s largest student loan company, 63% of borrowers who made a payment on their loans during the pandemic are still underwater on their loans. It’s, therefore, a reasonable assumption that at least half of borrowers using an IDR plan will eventually have their loans forgiven between PSLF and the 20- and 25-year plans.
Thus, the cost of these suspended payments would count as student debt cancellation.
Take 27% (share of borrowers on IDR) x 50% (share of borrowers on IDR that might get forgiven eventually) x $85 billion (cost of payment pause) = $11.5 billion.
Types of miscellaneous student loan cancellation you haven’t heard about
After extending the COVID payment and interest pause, the Biden administration took aim at automating key processes for cancellation of the debt for specific classes of borrowers.
Biden’s Department of Education canceled debt for the following classes of borrowers, according to Forbes:
- Borrowers defrauded by their school: $1.5 billion
- Borrowers who attended ITT Tech: $1.1 billion
- Disabled borrowers: $5.8 billion
This figure totals $8.4 billion.
The biggest cancellation yet to be fully realized: the PSLF Waiver
Borrowers and even many Washington policymakers will have no idea how much debt President Biden canceled under the PSLF waiver because its effects haven’t yet been fully realized.
FFEL debt to be canceled under the PSLF Waiver
We estimate that approximately $30 billion of FFEL student loans (or more) could be forgiven by 2023 under the PSLF waiver rules.
Consider that 25% of the workforce is in public service, and there are 10 million borrowers with $240 billion of FFEL student loan debt that has existed for at least ten years.
This debt wouldn’t normally be eligible for PSLF, but under the rules of the waiver — after a consolidation — this debt can be canceled if the borrower served 10 years in full-time public service work.
While 25% of workers are in the public sector, a smaller share would have completed 10 years of full-time credit even though, by definition, all these borrowers have been around for at least 10 years (otherwise, the debt would have been forgiven due to death or disability).
If you assume half of the 25% of workers in the public sector with at least ten years experience in any workplace have been in public service for 10 years or more, you come up with $30 billion of cancellation.
Direct debt to be canceled under the Waiver
On December 31, 2012, there were approximately 23.4 million Direct Loan borrowers with a total of $508 billion in student debt. Much of these qualifying Direct Loans would eventually be forgiven under the rules of PSLF.
However, President Biden expanded qualifying repayment plans for PSLF to include ALL repayment plans, not just IDR plans.
Refund of payments not normally qualifying for PSLF is cancellation
Even if a borrower did not use a qualifying IDR plan, they get a refund if they have more than 120 months of payments.
The treatment of certain consolidation loans under the PSLF Waiver is cancellation
Additionally, borrowers who consolidate multiple loans with different numbers of qualifying payments could receive a “forgiveness windfall” if they consolidated loans from undergrad with loans from a later graduate program.
For example, assume a borrower who took out loans for undergrad from 2004 to 2008, worked in public health for ten years, and then went back to school for a master’s in public health from 2018 to 2020 and then consolidated everything together. Since the loans from undergrad would have more than ten years’ worth of payments, the entire consolidation loan would be forgiven despite the borrower not having more than ten years of payments on the loans from graduate school.
Total cost of Direct Loan cancellation under PSLF Waiver
Assuming that 25% of the 23.4 million borrowers from December 2012 worked in public service and that half would have accumulated ten years of full-time work experience in public service, that would leave approximately:
25% (share in public service) x 50% (estimated share with ten years of full-time work experience in the public sector) x $508.7 billion (Direct Loans that existed in 2012) = $63.6 billion potentially eligible for cancellation.
This figure doesn’t include the refunds of payments and accelerated cancellation of graduate school loans included in consolidations with undergraduate loans, so this figure could potentially be higher as well.
Total cancellation from President Biden for student loan borrowers is the most in history
Given that the only other significant cancellation happened under President Trump, President Biden easily wins the crown for most student loan cancellations under an American President. Our total cancellation estimate was:
- $60 billion in canceled student loan interest from the pandemic student loan pause.
- $11.5 billion (estimated) in cancellation from suspended payments counted towards forgiveness programs.
- $8.4 billion in cancellation for disabled or defrauded borrowers.
- $29.9 billion (estimated) FFEL Loans Potentially Canceled under PSLF Waiver.
- $63.6 billion (estimated) Direct Loans Potentially Canceled under PSLF Waiver.
Total canceled by President Biden in the first year: $170 Billion.
How much cancellation will happen next?
Not all of this cancellation has been fully realized yet, as the PSLF waiver will take a long time to be fully reflected in official statistics.
But President Biden was able to cancel a huge amount of student debt while bypassing Congress through executive actions and regulations taken by his Department of Education.
President Biden likely has canceled almost triple the amount of student loan debt in his first year as President Trump did in all four years in office.
However, cancellation has not come to many lower-income borrowers hoping for widespread cancellation. And many consumer advocates remain disappointed that the administration has not taken bolder action.
Time will tell if this wave of cancellation has crested or if there is still more yet to come.
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