Forgiving $10,000 in student loan debt would cost the U.S. $300 billion, according to new analysis

If the Biden administration forgives $10,000 in federal student loan debt for borrowers within a certain income cap, it will cost $300 billion.

There is still a question as to whether President Joe Biden will actually cancel any student loan debt at all.

According to new reports, Biden is considering up to $10,000 in loan forgiveness for federal borrowers who earn less than $125,000 per year. According to the Penn Wharton Budget Model, a one-time, wide-spread federal loan cancellation would cost $298 billion.

If loan forgiveness is extended over the next decade, the cost would be an additional $3.5 billion a year for new eligible borrowers, or around $329 billion total. Kent Smetters, faculty director for the Penn Wharton Budget Model, said that the 10-year window gave policymakers an idea of the additional cost if forgiveness was given this year.

Critics say high-earning people don't need student loan debt forgiveness. Without the cap, an estimated $311 billion or $344 billion would be spent on forgiveness.

The amount of debt forgiveness is more important than the income cap.

Even though $10,000 in forgiveness would be welcomed by many of the 44 million federal borrowers, some progressives have pushed for greater relief. It would cost $980 billion over the course of 10 years.

The Penn analysis found that wealthier households would be helped more by giving $10,000 in debt per person. Households in the top half of the income distribution would be the majority of the debt forgiven. The top 10% of households by income would only get 2.5% of the benefits.

Federal student loan forgiveness is a means-tested program that helps lower-income Americans, but Smetters says it would skew to higher-income people.

Someone has student debt. Some students who have separated from deferred status do not have a college degree. Those who have a college degree are more likely to be higher-earning.

Smetters says there are programs to help low-income Americans get their loans forgiven. Getting more people to sign up is a challenge.

He says a lot of people don't know there are income based repayment plans. You don't have to pay back any of them.

A report from the New York Federal Reserve found that forgiveness of $10,000 would wipe out nearly a third of borrowers' debts.

For several months, the Biden administration has debated whether to forgive student loan debt.

$32 billion is the most forgiven by any president. Billions of dollars in relief have been given to those who attended institutions that had predatory or misleading practices.

Federal student loan payments have been paused since the beginning of the COVID-19 epidemic. Unless Biden extends the pause, the bills will not restart in September.

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