These borrowers could benefit most from student loan forgiveness.
Here’s what you need to know — and what it means for your student loans.
As millions of student loan borrowers wait for President Joe Biden’s decision on whether to cancel student loans, they may be wondering who will benefit most from student loan forgiveness. Yes, it’s easy to say that anyone who gets student loan forgiveness “benefits,” whether it’s $10,000 or $50,000 of student loan cancellation. There’s also the prospect of targeted student loan cancellation, such as the announcement last week that 9 million borrowers now qualify for student loan forgiveness. However, here are 3 specific groups of student loan borrowers who could be the biggest winners from wide-scale student loan cancellation.
1. Borrowers who earn less than $150,000
If you are a federal student loan borrower who earns less than $150,000 annually, you could benefit most from student loan cancellation. Biden could establish income caps, which could limit who qualifies for wide-scale student loan cancellation. The Biden administration has floated potential income caps for student loan forgiveness, including up to $150,000 of income for individual student loan borrowers. According to student loan data from CollegeBoard, as shared by Business Insider, here’s a snapshot of student loan borrowers by income (assuming 45 million total student loan borrowers):
Student Loan Debt By Income
- <$5,000: 16% of student loan borrowers
- $5,000 – $9,999: 17% of student loan borrowers
- $10,000 – $19,999: 21% of student loan borrowers
- $20,000 – $39,999: 21% of student loan borrowers
- $40,000 – $59,999: 9% of student loan borrowers
- $60,000 – $79,999: 6% of student loan borrowers
- $80,000 – $99,999: 3% of student loan borrowers
- $100,000 – $199,999: 5% of student loan borrowers
Based on this data, more than 90% of student loan borrowers earn less than $100,000 a year. An additional 5% earn between $100,000 and $200,000 annually. If Biden institutes an income cap of $150,000, then the vast majority of federal student loan borrowers would qualify for student loan forgiveness.
2. Student loan borrowers with low student loan balances
If Biden cancels $10,000 of student loans for each borrower, then student loan borrowers with low balances will benefit most. While each eligible borrower would get an equal amount of student loan cancellation, the relative impact is more significant for borrowers who owe less. For example, $10,000 of student loan forgiveness for a borrower with a $10,000 student loan balance would eliminate the entire student loan balance. In contrast, $10,000 of student loan cancellation would have a relatively lower impact on a borrower with $200,000 of student loan debt.
- Less Than $5,000: 7.8 million borrowers
- $5,000-$10,000: 7.4 million borrowers
- $10,000 – $20,000: 9.2 million borrowers
- $20,000 – $40,000: 9.7 million borrowers
- $40,000 – $60,000: 4.3 million borrowers
- $60,000 – $80,000: 2.6 million borrowers
- $80,000 – $100,000: 1.4 million borrowers
- $100,000 – $200,000: 2.4 million borrowers
If Biden cancels $10,000 of student loans, then approximately 15 million student loan borrowers would have all their federal student loan debt forgiven. With $50,000 of student loan forgiveness, approximately 36 million student loan borrowers would have no more federal student loan debt.
3. Student loan borrowers with graduate school student debt
If you have student loans from graduate school, then you could benefit most from student loan cancellation. Graduate school student loan debt represents nearly half of all federal student loans. So, any plan for broad student loan forgiveness will help these borrowers. That said, if there is an income cap of $150,000, for example, not all student loan borrowers with graduate school student loans would qualify. Importantly, student loan borrowers with advanced degrees such as a legal or medical degree, for example, can earn significantly higher incomes relative to a high school or college graduate. This means that current medical students or medical residents could qualify for student loan forgiveness even if their future potential earnings are expected to be more than $150,000.
Student loans: next steps
Biden hasn’t released any plan on wide-scale student loan forgiveness nor has he confirmed that he will cancel student loans. If Biden decides to cancel student loans, these three types of student loan borrowers could benefit. However, there’s no guarantee that Biden will cancel $10,000 or any other amount. Biden, who has canceled $25 billion of student loans since becoming president, said in late April he would decide on broad student loan forgiveness within weeks. However, the president hasn’t commented since on any next steps or potential timing for an announcement. With substantial inflation and the prospect of a recession, Biden could forgo wide-scale student loan cancellation for fear it could increase inflation. That said, Biden could be waiting to announce a decision on student loan forgiveness later this summer before temporary student loan relief ends on August 31, 2022. The end of student loan relief means you should prepare for the restart of student loan payments. Here’s how to conquer your student loans and save money:
- Student loan refinancing (lower interest rate + lower payment)
- Income-driven repayment (lower payment)
- Student loan forgiveness (federal student loans)