What it would take for the government to cancel federal student loans

The White House is considering ways to cancel federal student loan debt.

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Under pressure from Democrats, advocates and borrowers, the White House is considering steps it could take to write off federal student debt.

The country’s outstanding federal student loan balance tops $1.7 trillion, dwarfing credit card and auto debt. The average debt for a bachelor’s degree holder has tripled over the past three decades, from less than $10,000 in the early 1990s to $30,000 today. It is estimated that a quarter or more of borrowers are in default.

There is no precedent for the government’s sweeping loan cancellation. Experts say the closest example may be the cancellation of taxes due on canceled mortgages following the 2008 financial crisis.

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During the election campaign, President Joe Biden promised to forgive $10,000 in federal student loans for everyone.

Such a move would cost about $377 billion and reduce the number of Americans in debt to about 30 million from more than 40 million today, according to estimates by higher education expert Mark Kantrowitz.

Meanwhile, the $50,000-for-all cancellation, which Senate Majority Leader Chuck Schumer, D-N.Y., and Sen. Elizabeth Warren, D-Mass., are pushing for, would cost $1.049 trillion , Kantrowitz found. Such relief would leave about 8 million Americans with student debt. Such measures would probably not help private student loan holders.

Canceling all federal student debt would cost about $1.7 trillion, and there would be no more federal borrowers. Although the number can quickly go up: between 4 and 5 million new borrowers enter the system each year.

The government’s spending wouldn’t match the amount of debt it wrote off, largely because it didn’t expect to get all that money back, especially not any time soon. People can take decades to repay their student loans, and repayment issues are common.

The long-term costs of broad cancellation would be the loss of $60 billion a year that the government earns in interest on federal student loans, Kantrowitz said.

It is also expected to generate an additional $28 billion a year to repay investors who bought maturing US Treasuries.

Those who buy these titles have provided the government with the funding it uses to issue federal student loans.

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