How Much Would It Cost To Forgive All Student Loans
How much would it cost to forgive all student loans?
The answer is a whopping $1.5 trillion.
That’s how much the U.S. is currently owed in student loans, and it also represents the amount of money that would need to be spent in order for all those loans to be forgiven.
A lot of people have been asking how much it would cost to forgive all student loans, but there’s no easy answer—because the amount depends on how long you’ve been paying off your loan and how much interest has accumulated over time.
For example, if you were paying $300 per month toward your loan for 20 years with an interest rate of 6 percent, then it would cost about $30,000 in total before any forgiveness would happen. But if you were paying $300 per month toward your loan for 30 years with an interest rate of 6 percent, then it would cost about $60,000 in total before any forgiveness would happen. (You can use this calculator if you want to find out what your own payment plan might look like.)
How Much Would It Cost To Forgive All Student Loans
One of the main objections to forgiving federal student loans is that the U.S. government will be on the hook for more than $1 trillion in unpaid debt if borrowers no longer have to pay it. But some argue that the actual cost would be well below that — or even that the federal government could actually come out ahead.
The latter argument is based on the idea that the federal government could save billions of dollars in administrative costs if it no longer has to process federal student loans currently on the books.
Estimates from the Congressional Budget Office (CBO) show that the administrative costs of the Federal Student Aid office in 2021 was a little more than $3 billion, according to the KQ Education Group website. Others put the estimate much higher when you factor in total costs, including hiring collectors to track down delinquent borrowers.
But even the highest cost estimates pale in comparison to how much the federal government is owed in student loans, with estimates there ranging from $1.5 trillion to $1.8 trillion. Wiping out those loans through debt forgiveness would be an expensive proposition.
“This cost of losses on the student loan portfolio held by the federal government would by definition rise a lot with full forgiveness,” Josh Bivens, director of research at the Economic Policy Institute, said in an email to KQ Education Group.
A lot depends on how a student loan forgiveness package might look. A proposal from Sen. Bernie Sanders (I-Vermont) to cancel all student debt would cost roughly $1.6 trillion, according to a February estimate from the Brookings Institution.
A more modest plan from Sens. Elizabeth Warren (D-Massachusetts) and Chuck Schumer (D-New York) to forgive student debt up to $50,000 per borrower would cost an estimated $1 trillion, the Brookings Institute found. President Joe Biden proposed forgiving debt up to $10,000 per person when he was campaigning for office. Under this plan, the cost would be around $373 billion.
Even if you factor in saving money on costs associated with collecting unpaid student debt, experts say loan forgiveness would still cost the federal government a lot more money than it would save.
student loan cancellation
Federal student loans can be cancelled in certain circumstances. In some cases, you can cancel a loan due to serious problems with the school you attended. This is not a general cancellation simply because you didn’t like your school. You must meet the specific criteria of the school-related discharge. Other cancellations are available if you work for a certain period of time in a public service job. This includes military service members. Another category is for borrowers with serious disabilities or after a borrower dies so that the debt is not passed on to the borrower’s estate. You must apply for loan cancellation using the government forms. There is an important exception to this rule for certain borrowers eligible for closed school automatic discharges.
Types of Forgiveness, Cancellation, and Discharge
The summaries below offer a quick view of the types of forgiveness, cancellation, and discharge available for the different types of federal student loans.
Public Service Loan Forgiveness
Available for Direct Loans.*
If you are employed by a government or not-for-profit organization, you may be able to receive loan forgiveness under the Public Service Loan Forgiveness (PSLF) Program.
PSLF forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.
Learn more about the PSLF Program to see whether you might qualify.
Teacher Loan Forgiveness
Available for Direct Loans and FFEL Program loans.
If you teach full-time for five complete and consecutive academic years in a low-income elementary school, secondary school, or educational service agency, you may be eligible for forgiveness of up to $17,500 on your Direct Loan or FFEL Program loans.
Learn more about the Teacher Loan Forgiveness Program, eligibility requirements, and how to apply.
Note: You may not receive a benefit for the same qualifying payments or period of service for Teacher Loan Forgiveness and Public Service Loan Forgiveness.
Note: The limited PSLF waiver temporarily waives this restriction for individuals who previously received Teacher Loan Forgiveness. Learn more about the limited PSLF waiver.
Closed School Discharge
Available for Direct Loans, FFEL Program loans, and Perkins Loans.
If your school closes while you’re enrolled or soon after you withdraw, you may be eligible for discharge of your federal student loan.
Learn about the eligibility requirements for closed school discharge and how you can apply.
Perkins Loan Cancellation and Discharge
Available only for Federal Perkins Loans.
You may be eligible to have all or a portion of your Perkins Loan canceled (based on your employment or volunteer service) or discharged (under certain conditions). This includes Perkins Loan Teacher Cancellation.
Learn more about Perkins Loan Cancellation and Discharge to see whether you are eligible and how to apply.
Total and Permanent Disability Discharge
Available for Direct Loans, FFEL Program loans, and Perkins Loans.
If you’re totally and permanently disabled, you may qualify for a discharge of your federal student loans and/or Teacher Education Assistance for College and Higher Education (TEACH) Grant service obligation.
Learn more about the Total and Permanent Disability Discharge process, eligibility requirements, and how to apply.
Discharge Due to Death
Available for Direct Loans, FFEL Program loans, and Perkins Loans.
Federal student loans will be discharged due to the death of the borrower or of the student on whose behalf a PLUS loan was taken out.
Learn more about discharge due to death and what documentation is needed for discharge.
Discharge in Bankruptcy (in rare cases)
Available for Direct Loans, FFEL Program loans, and Perkins Loans.
In some cases, you can have your federal student loan discharged after declaring bankruptcy. However, discharge in bankruptcy is not an automatic process.
Learn about the process required to have federal student loans discharged in bankruptcy.
Borrower Defense to Repayment
Available for Direct Loans.*
You may be eligible for discharge of your federal student loans based on borrower defense to repayment if you took out the loans to attend a school and the school did something or failed to do something related to your loan or to the educational services that the loan was intended to pay for. The specific requirements to qualify for a borrower defense to repayment discharge vary depending on when you received your loan.
Learn about borrower defense to repayment process, eligibility requirements, and how to apply.
False Certification Discharge
Available for Direct Loans and FFEL Program loans.
You might be eligible for a discharge of your federal student loan if your school falsely certified your eligibility to receive a loan.
Learn about false certification discharge to see if you qualify and how to apply.
Unpaid Refund Discharge
Available for Direct Loans and FFEL Program loans.
If you withdrew from school and the school didn’t make a required return of loan funds to the loan servicer, you might be eligible for a discharge of the portion of your federal student loan(s) that the school failed to return.
Learn more about the unpaid refund discharge to see if you might qualify.
Forgery Discharge
Available for Direct Loans, as well as FFEL Program loans and Federal Perkins Loans held by the U.S. Department of Education.
Forgery is the creation of a false written document or alteration of a genuine one, with the intent to defraud. Victims of identity theft are frequently also the victims of forgery.
If you believe you were the victim of forgery, you might be eligible for a discharge of federal student loan(s) fraudulently made in your name.