As the president mulls Democrat calls to cancel up to $50,000 in federally-backed student loan debt via executive order, a new analysis shows how $10,000 in forgiveness would affect borrowers in each U.S. state.
Analyzing Education Department (ED) data as of September 2020, Student Loan Hero estimated that $10,000 forgiveness would cost roughly $315 billion and erase the entire balances for 34% of borrowers. (A payment pause on qualifying loans has been in effect since March 2020 and will last at least through September 2021.)
California, Texas, and a variety of states east of the Mississippi River with higher numbers of college graduates holding student debt would see the most relief from $10,000 in forgiveness. (Hover over map for more details.)
The analysis noted that cancelling $10,000 in student debt would have the most overall impact in states with smaller populations of borrowers: In Wyoming, 38% of borrowers would see their entire federal student loan balance wiped away, in Utah 37%, and in Nevada, 36%. At the other end of the spectrum, only 29% of borrowers in Maryland and Virginia would see their entire balances erased.
Preston Cooper, a visiting fellow at the center-right think tank Foundation for Research and Economic Opportunity, noted that student loan borrowers in states "where blue-collar industries are more dominant... are more likely to have taken it on to get a certificate or an associate's degree [as opposed to a bachelors degree and potentially graduate school], so the average borrower has a lot less debt."
That said, Cooper added, states where more citizens pursue college degrees "will benefit more from the $10,000 cancellation than the top line numbers let on." This is highlighted by the map above: While roughly 49,000 Wyomingites would see relief from $10,000 in forgiveness, nearly 1 million borrowers in Virginia would benefit.
Student Loan Hero first estimated how much of the roughly $1.7 trillion in total student debt is from federally-held loans, which include Direct Loans for undergraduate and graduate as well as Parent PLUS loans, and found that roughly $1.3 trillion in outstanding federal student loan debt across the country would be eligible for cancellation.
A previous analysis by Yahoo Finance found that cancellation would affect roughly $1.3 trillion in outstanding loans and that $10,000 forgiveness would erase the entire balances for 36% of borrowers at a cost of roughly $371 billion.
'A memo on the president's legal authority'
Senate Majority Leader Chuck Schumer (D-NY) and Senator Elizabeth Warren (D-MA) have repeatedly urged a somewhat skeptical Biden to cancel $50,000 in federally-held student loan debt via executive action (as opposed to legislation passed by Congress).
The basic argument, as detailed by the Legal Services Center of Harvard Law School, is that the Education Secretary has the power “to cancel existing student loan debt under a distinct statutory authority — the authority to modify existing loans found in 20 U.S.C. § 1082(a)(4).”
White House Chief of Staff Ron Klain recently told Politico that the president has asked Education Secretary Miguel Cardona to "prepare a memo on the president's legal authority" to cancel the debt before he makes a decision.
The ED under Cardona has already cancelled debt for certain borrowers, including some graduates of now-defunct for-profit colleges and debtors with total and permanent disabilities, while also suspending collections and interest on defaulted commercially-held Federal Family Education Loans.
"Millions of borrowers will be reentering student loan repayment in October... borrowers are paying hundreds if not thousands of dollars... on their student debt," student loan startup Summer Co-Founder and CEO Will Sealy told Yahoo Live (video at the top of article). "I am personally worried about how many millions of borrowers will be at risk of missing loan payments and defaulting on their student debt."
Warren, chairwoman of the Subcommittee on Economic Policy at the Senate Committee on Banking, Housing, and Urban Affairs, will oversee a hearing on April 13 to examine the issue of student debt in America.
Aarthi is a reporter for Yahoo Finance. She can be reached at email@example.com. Follow her on Twitter @aarthiswami.