‘I’d love to be married now. I would love to be a dad by now. I’d love to have a home by now’: The winners and losers in Biden’s plan to cancel $10,000 in student-loan debt

Outstanding student-loan debt currently held by Americans across the country totaled $1.59 trillion as of the first quarter of 2022, according to the New York Fed.
The White House is planning to cancel $10,000 in federal student loans per borrower but will limit forgiveness to those who earned less than $150,000 the previous year or for married couples filing jointly, $300,000 the previous year, according to the Washington Post.

For about a third of borrowers, cancellation of $10,000 wipes out their entire student-loan balance.

For others, like Perkins, who holds nearly $250,000 in federal loans, and more than $30,000 in private student loans, Biden’s plan wouldn’t affect his monthly payment. Prior to the payment pause enacted due to COVID-19, Perkins was paying around $1,000 to $1,500 a month on his student loans. Thanks to the interest-free pause, he was able to use the savings to pay his rent while living and working remotely in Philadelphia over the last few years.

“It is maddening — I get chills when I think about what I could do with the money I could save on student loan payments,” Perkins said. “I could save for my children, I could save to plan a wedding, to buy a house. I currently cannot do any of these things …because I live paycheck to paycheck.”

Here’s a breakdown of who likely stands to gain the most — and the least from Biden’s student-loan cancelation plan:

The winners

Borrowers with low levels of debt

Student debtors belonging to two specific groups are going to see a bigger benefit from Biden canceling $10,000 than others.

“The biggest winners are going to be the people that owe less than $10,000,” Betsy Mayotte, president of the Institute of Student Loan Advisors, told MarketWatch.

Borrowers with under $10,000 in debt have typically been repaying their loans for a “very long time,” and are close to the finish line on their debt, or they have debt, but no degree, Mayotte said. Those with debt and no degree tend to have higher rates of defaulting on their loans, she added.

“So those are obviously the big winners and the people that sort of need the help the most,” Mayotte said.

The median student-loan debt for a graduate with an associate’s degree is $14,000; for a graduate with a bachelor’s degree it’s $23,000, according to a 2021 report by the Texas Public Policy Foundation.

Many borrowers — especially those who had attended college but never finished and never obtained their degree — have low balances in comparison to their peers who owe six figures in student-loan debt. These borrowers will be one of the biggest beneficiaries of loan cancellation of $10,000, experts said. This is a group that “is disproportionately students with little college experience, who dropped out,” Robert Kelchen, professor of higher education at the University of Tennessee, Knoxville, told MarketWatch.

Debtors who are nearing the finish line with their student-loan balances are also going to be heavily impacted. These are “people who are pretty close to paying off their debt before the pandemic,” Kelchen said.

Younger Americans with student-loan debt

Younger Americans who have yet to finish paying off their balances will see a bigger benefit from cancellation than borrowers over 60.

More than 60% of the loan dollars forgiven would benefit borrowers under 40, according to the New York Federal Reserve. Even though those above 60 years of age make up 32% of the U.S. adult population, they would only receive around 6% of forgiven dollars, the Fed said. In contrast, 57% of balances are owed by those under 40.

Women who hold student loans

As women make up the majority of students at the grad and undergrad levels in the U.S., they stand to reap more of the benefits of student-loan cancelation compared to men in the U.S., who are now less likely than women to attend college or hold student-loan debt.

And according to the American Association of University Women (AAUW), women aren’t just a majority on campus, they also take on bigger loans to finance their education, and they’re more likely to borrow to pay for their education. In a given year, 44% of women in undergraduate programs take on student loans as compared to 39% of men.

These women take on an average of about $3,100 in debt per year, which is $400 more than the average  man. By graduation, the typical woman who was getting a bachelor’s in 2011-2012 owed $1,500 more in student loans than their male counterparts, based on the data analyzed by AAUW.

Minority student-loan borrowers

Minority borrowers, particularly Black debtors, may see a bigger impact to their balances than their white counterparts, should Biden cancel $10,000 across the board.

That $10,000 in cancellation zeroes out balances for about a third of borrowers — 13 million in total — according to research prepared by professors for Elizabeth Warren, a Democrat from Massachusetts.

Forgiveness of $10,000, according to the New York Fed, would erase $321 billion in federal student loans, and the average borrower is expected to receive about $8,500 in loan forgiveness.

Canceling $10,000 also zeroes out loan balances for two million Black borrowers, and reduces the share of Black individuals with student-loan debt from 24% to 17%, the researchers said.

Median student debt for Black households has increased by “nearly 100%” in six years, according to one report. Additionally, 66% of Black borrowers owe more than they originally borrowed 12 years after starting college, the Warren report found.

Ultimately, $10,000 in forgiveness not only provides a “greater share of benefit” to debtors with low- and mid-range credit scores, the New York Fed said, but also to those residing in low- and middle-income neighborhoods, and also reduces the total cost of any forgiveness policy.

Yet there’s still a lot that’s unclear about Biden’s student-debt cancellation plan, said experts.

“We still don’t know 100%, or even 50%, of what this might look like,” Mayotte stressed. “Does it include Parent PLUS loans? Is forgiveness going to include graduate loans? Is it going to include loans for people that are still in school, or just took out a loan in the last six months, or a year? Those are just some of the few unanswered questions.”

It’s also unclear if defaulted loans will be eligible for cancellation, as well as Federal Family Education Loans (which were more common before 2010). Defaulted student loans are expected to be restored to good standing by the Department of Education — given a “fresh start” — which is separate from the cancellation plan.

Being “strapped with this suffocating student debt” while being told that “this is all our fault and we shouldn’t have done any of this” was a frustrating sentiment to hear, Perkins said.

“I’d love to be married now. I would love to be a dad by now. I’d love to have a home by now. A big part of the reason that none of those things have happened is money,” he added.

Asking student debtors to just pay off their dues, since they were the ones who signed the contract, is an argument frequently made by some.

But he said this debt “started with me signing a contract when I was 17 years old — my brain would not be fully developed for another 10 years,” Perkins stressed.

There’s a reason they don’t let you rent a car until you’re 25 in some countries, he said. “A young person that’s 18 and 19 years old, it’s laughable that they would be able to appreciate something as gargantuan as a quarter of a million dollars in debt later on in their life.”

The losers

People on income-driven loan programs with high levels of debt

While most borrowers will see some debt knocked off, debtors on income-driven plans don’t gain as much.

Specifically those who have lower incomes but shoulder high levels of debt and are on an income-driven repayment plan — meaning that their monthly loan payment is pegged to their income level – may not even see any change to their monthly payment, because their payments are already so low, both Mayotte and Kelchen said.

For a borrower who, for example, owes $200,000 in loans and makes $50,000 in income and is on an income-driven repayment plan with a $150 monthly payment, “after they forgive the 10 grand, you’re still gonna owe $150 a month,” Mayotte said.

“There are going to be some people frustrated that they’re on income-driven repayment, there’s $10,000 debt forgiven, but their payments will never change,” Kelchen said. “The benefit they see is they’ll have less debt forgiven, say 15 years from now,” he said, referring to the loan forgiveness that people on income-driven plans become eligible for after they’ve paid their loans for a certain number of years.

“The benefit they see is that the balance looks smaller and they feel better about it. But they’re going to pay the exact same amount of money,” Kelchen said.

People who refinanced their loans

Student debtors who had refinanced their federal student loans prior to the cancellation will miss out on the benefit. When a borrower refinances their federal student loan, they no longer qualify for federal loan forgiveness.

“They’re going to be out of luck,” Mayotte said, of those who refinanced their loans.

Private student-loan holders

Private student debtors are also in the same boat, given that their loans are not federally owned. According to the Student Borrower Protection Center, the private student-loan market stands at nearly $130 billion. Some 16% of the student loans taken out by the graduating class of 2019 were private, according to Student Loan Hero.

People who paid off their loans

Debtors who have paid off their balances will not benefit from the $10,000 cancellation plan.

“There are definitely people and people who feel it’s unfair, and one group that is really kicking themselves right now is people who paid off the last $10,000 of student debt during the pandemic,” Mayotte said. “They didn’t have to make the payments. They chose to make the payments. And now they don’t get forgiveness unless the Department of Education wants to retroactively forgive for those people.”

People who never went to college, and/or took on student loans

And for many Americans who had never even gone to college, asking them to support student-loan forgiveness is like “a slap in the face,” according to one financial advisor from Ohio.

The rollout of the $10,000 in cancellation will not only raise questions of fairness by the groups above, but implementation also looks extremely challenging, experts said.

Adding an income limit is going to massively complicate the forgiveness rollout, Kelchen, the professor in Tennessee said.

“The best case scenario is that the Biden administration has been working with student-loan servicers on how to handle this, and the Department of Education has lots of guidance ready and they have people available to answer [borrowers’] questions,” Kelchen said.

But “it seems like very little has happened so far. Student-loan servicers say they really haven’t been a part of this, and they’re going to get slammed with calls and questions,” he added.

Jonathan Perkins, meanwhile, told MarketWatch that he was very grateful to the White House for its efforts to help low-income student debtors. But since the $10,000 in student-loan forgiveness is not going to affect him much, he was going to wait until he reaches the qualification to receive Public Service Loan Forgiveness. PSLF requires 120 monthly payments for a full write-off, which is around 10 years. He’s about six years in.

“Forgiving $10,000 of federal student debt is addressing the very, very edges of a massive problem,” Perkins said.