Here’s why federal student loan forgiveness could be coming

The Biden administration is considering wiping out hundreds of billions of dollars in student debt. Its announcement could come as soon as next month.

Why would the federal government relieve a large portion of the loans it gave out?

These are some of the main reasons, according to experts.

1. A growing sense the system is broken

With the cost of attending higher education ballooning and household wages sputtering over the last few decades, more families have had to turn to loans to cover their children’s college bills. Average student loan balances at graduation have almost tripled since 1980, from around $12,000 to more than $30,000 today.

The country’s outstanding education debt balance now exceeds $1.7 trillion and poses a larger burden to households than credit card or auto debt.

Borrowers complain that the lending system is riddled with problems.

About 20% of federal student loan borrowers attended for-profit colleges, many of which have come under fire for misleading students and failing to provide them with a quality education. Half of students who leave these schools end up defaulting on their loans.

The U.S. Department of Education has also not made good on many of its promises, said Persis Yu, policy director for the Student Borrower Protection Center.

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Millions of people enrolled in programs that supposedly lead to debt forgiveness after a certain period of time haven’t received promised help. That includes borrowers in income-driven repayment plans and the popular public service loan forgiveness program, who have been stuck continuing to pay after being rejected for the relief, often for technical and confusing reasons.

The companies that service federal student loans also have been accused of giving borrowers wrong and incomplete information.

“There have been decades of mismanagement, abusive practices and general incompetence, which has resulted in millions of borrowers missing out on many of the vital programs and benefits afforded under the law,” Yu said.

2. Concern that much debt won’t be repaid anyway

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One of the arguments for forgiving student loans is that millions of borrowers will never pay off their debt anyway.

According to a rough estimate by higher education expert Mark Kantrowitz, just about half of federal student loan borrowers, or 20 million people, were in repayment prior to the pandemic. A quarter — or more than 10 million people — were in delinquency or default. Many others had applied for temporary relief for struggling borrowers, including deferments or forbearances.

These grim figures led to comparisons to the 2008 mortgage crisis. 

In the meantime, student loan borrowers face a host of consequences from having tens of thousands of dollars on their personal balance sheets, including difficulty buying a house and starting a business.

3. Midterms are looming

The Biden administration has said that its announcement on student loan forgiveness is coming soon, which means the news could break shortly before Americans vote in the midterm elections in November.

Advocates have said that forgiving student debt will galvanize younger voters at the polls, which is likely appealing to the president. He’s been losing popularity with the demographic.

“It could make or break the Democrats in battleground states,” said Astra Taylor, co-founder of the Debt Collective, a union for debtors.

Yet sweeping student loan forgiveness will also likely anger many Americans, including those who never borrowed for their education or went to college. Some Republicans have said they will try to block an effort by the president to cancel the debt. Rep. Kevin Brady, R-Texas, ranking member of the House Ways and Means Committee, recently called student loan forgiveness “a giveaway to highly educated college grads.”

Overall, though, the majority of voters (62%) support student loan forgiveness, according to a poll by Morning Consult.

Debt Relief