Actions taken by the federal government will lead to roughly $100 billion in total student loan forgiveness between March 2020 and September 2021, according to Education Department (ED) data and analysis from experts.
The assessment of already-cancelled student debt comes as prominent Democrats — led by Senate Majority Leader Chuck Schumer (D-NY), Senator Elizabeth Warren (D-MA), and Representative Alexandria Ocasio-Cortez — urge a skeptical President Biden to cancel $50,000 in federally-held student loan debt via executive action (as opposed to legislation passed by Congress).
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed in March 2020, paused payments due and interest accrual related to federally-backed student debt, affecting more than 44 million borrowers. The Trump and Biden administrations extended that pause through at least September 2021.
ED recently stated that "borrowers are saving approximately $5 billion per month from the temporary 0% interest rate," which would add up to $90 billion in cancellation over 18 months.
Student loan expert Mark Kantrowitz estimated similar savings from the broad payment pause and found an additional $8 to $16 billion in savings from other measures taken during the pandemic.
'The equivalent of more than 6% of the outstanding federal student loan debt'
Kantrowitz analyzed data reported in the 2020 Federal Student Aid Annual Report and found that the three-month extension of the payment pause and interest waiver from October 1 to December 31, 2020 last year cost about $14.6 billion. Over 19 months — the payment pause is slated to be in effect from March 13, 2020 through September 30, 2021 — would be about $91.08 billion.
“Of course, even this figure is an estimate since the amount borrowed and number of borrowers have changed during this time period," Kantrowitz, author of How to Appeal for More College Financial Aid, told Yahoo Finance.
Kantrowitz added that also during the pause, "borrowers are counted as though they were still making payments for the purpose of Public Service Loan Forgiveness (PSLF) and the forgiveness after 20 or 25 years in an income-driven repayment (IDR) plan. In effect, that’s providing 19 months of forgiveness without having to make a payment." (Another expert previously described this as “free money.”)
And while it's difficult to calculate the amount effectively forgiven debt in those cases, Kantrowitz estimated that "the savings from the non-payment payments is probably $8 billion to $16 billion" in total for the roughly 8 million borrowers on PSLF and IDR plans.
Consequently, the total student debt forgiveness so far amid the pandemic is roughly $100 billion while the average savings for more than 44 million borrowers affected is more than $2,000.
“That's a significant financial benefit to borrowers, the equivalent of more than 6% of the outstanding federal student loan debt,” Kantrowitz said. “That's more than the cost of forgiving $10,000 in federal student loan debt per borrower owing less than $10,000. That's more than the cost of forgiving all federal student loans owed by people age 65 and older.”
The government absorbed $100 billion in interest and payments to fund the payment pause while student loan servicers have been forced to eat some costs amid the pandemic.
“The servicer fees structure was adjusted and fees were cut during the payment suspension by the [Education] Department,” Scott Buchnan, head of the Student Loan Servicing Alliance, a student loan lobby group, told Yahoo Finance.
Other ED actions amid pandemic and the larger forgiveness push
ED, which owns the vast majority of student loans (while the rest of student-loan debt is privately-held), has taken additional steps to help student loan borrowers.
The Biden administration cancelled roughly $1 billion in debt owed by borrowers who had received partial debt relief from borrower defense claims against schools found to be predatory, as well as $1.3 billion in debt held by borrowers who qualified for a total and permanent disability discharge.
The Biden-era ED also halted debt collection efforts for around 1.14 million defaulted loans in the Federal Family Education Loan Program (FFELP) that were not included in the original debt collection moratorium.
Kantrowitz advised against adding these forgiveness efforts to the cancellation analysis since it’s particularly difficult to quantify how exactly the numbers involved were calculated.
In any case, further reforms of the unwieldy student loan machinery could lead to more federally-mandated forgiveness. At the same time, however, some higher education experts argue that substantial progress in the student debt crisis would require broad forgiveness.
"While the current payment pause and interest waiver has helped millions of borrowers... [it] cannot be a substitute for across-the-board student debt cancellation," Ashley Harrington, a higher education expert at the Center for Responsible Lending, told Yahoo Finance. "And while it is great that the time in suspension counts towards IDR and PSLF, we know that these and other programs are desperately in need of improvement as very few borrowers have actually received relief through them."
Aarthi is a reporter for Yahoo Finance. She can be reached at email@example.com. Follow her on Twitter @aarthiswami.