President Joe Biden returns to the White House after a day trip to Minneapolis on May 1, 2022.
Stefani Reynolds | AFP | Getty Images
President Joe Biden recently said he would make his decision on student loan forgiveness in a few weeks.
That means borrowers uncertain about their debt future, who heard about the possibility of debt cancellation even before the 2020 presidential primary, will likely get an answer soon.
But what will it be? That’s the big question.
Learn more about personal finance:
Here’s how to buy new work clothes on a budget
These are the best and worst places to die in the United States
Be sure to manage this risk as you approach retirement
White House aides are currently deliberating what form a broad cancellation should take, according to a recent report. Some of the ideas put forward include limiting the relief to those earning less than $125,000 or $150,000.
Here is an overview of the possible impact of some of the main proposals.
Limit forgiveness to certain employees
Some people push student debt forgiveness to target those with income below certain levels. It’s still unclear what the cap would be, if any.
However, about two-thirds of student borrowers in the United States earn less than $100,000 a year, according to an analysis by higher education expert Mark Kantrowitz.
It would cost the government about $938 billion to wipe out loans for everyone below that threshold.
A third of borrowers earn less than $50,000, and it would cost around $437 billion to cancel loans for just these people.
$10,000 or $50,000?
Currently, the main point of contention among proponents of student loan forgiveness concerns the amount of debt to be written off.
At a press conference last week, Biden said he had no plans to forgive $50,000 in student loans, which was the amount of relief requested by many advocates and some Democrats, including Senate Majority Leader Chuck Schumer of New York.
Yet the president, who previously expressed reluctance to write off any student debt without Congress, now appears ready to do so. Supporters will pressure the White House in the coming weeks to write off more, rather than less, student debt.
Canceling $50,000 for all would cost an estimated $900 billion and leave 80% of current federal student loan holders unpaid, according to a recent study by the Federal Reserve Bank of New York.
If Biden is still unwilling to move forward with that larger pardon amount, it’s unclear what number he might settle on. During the election campaign, he spoke out in favor of cutting $10,000 from people’s paychecks.
This would eliminate $321 billion in federal student loans and eliminate the entire balance for nearly 12 million people.
However, around 70% of student borrowers would still be in debt.