student loans

Biden’s Student-Loan Forgiveness Program Just Got Even Bigger

Photo: Anna Moneymaker/Getty Images

After the Supreme Court struck down the White House’s $430 billion student-debt cancellation plan last month, President Biden gave a press conference where he said, essentially, that he would keep trying to do it, anyway. On Friday, the Department of Education announced that it was forgiving $39 billion in student loan debt for 804,000 people — amounting to nearly one in every ten dollars that it was planning to wipe out. This brings the total amount of federal student loan debt eliminated since 2021 to $116 billion, and largely for the poorest borrowers. That’s a huge amount of money — far more than any other administration has zeroed out. And it looks like hundreds of billions of dollars’ worth of additional student-loan amnesty is on its way. Elimination has quietly grown so large, and so quickly, that it’s effectively become a new federal assistance program of its own under the Biden administration — one that’s about the size of the annual federal SNAP food-benefits budget.

To understand what is happening with federal student loans, it helps to understand what they are, and how the government thinks of and uses them. Most federal student debt is paid back with interest, meaning that borrowers would ultimately pay back more than what they first took out, barring a default or forgiveness. Whether interest on these loans is a good thing, or if it even makes sense, has been a subject of debate for years. In reality, most of that money just goes toward running the program, including paying servicers a small fee per person to collect those outstanding debts. The costs add up: A recent Government Accountability Office report found that the federal government loses money by lending to students, thanks to already-existing forgiveness programs and the pandemic-era pause on payments. Still, the money to pay for the loans in the first place comes from the U.S. Treasury, which sells bonds to investors. Those Treasury bills and bonds don’t just pay for student loans — they go toward funding every aspect of the government, like military programs or highways or food-assistance programs.

But it turns out that hundreds of thousands of those borrowers shouldn’t have even been paying anyway — meaning that they were effectively funding a program that they shouldn’t have been caught up in. The newest batch of forgiven loans are ones that have been around the longest — those that are more than 20 or 25 years, and, according to the Department of Education, are only still active because of “historical failures in the administration of the federal student-loan program.” (After 20 or 25 years, depending on the loan, debt is supposed to be wiped out under the federal income-driven repayment plan.) How could this happen? Essentially, people who spent periods of time in forbearance, or who were experiencing economic hardship or were making repayments, were spending extra time paying off their loans, even though they shouldn’t have had their loan period extended.

It’s not clear why this happened, or how it could have grown as large as it did. It amounts to about 2 percent of the 44 million student borrowers — a small but meaningful percentage, especially when you consider that the profile of these borrowers are those who have struggled to pay off their loans during the last few decades. (The DOE also made it clear that “borrowers who wish to opt out of the discharge for any reason should contact their loan servicer during this period.”)

Taken as part of a larger picture, the Biden administration’s plan to eliminate student debt is now one of the biggest initiatives in the federal government. According to the Education Department, $45 billion in federal loans have been canceled for public servants. $22 billion for those who went to so-called scam schools has been forgiven. Those with permanent disabilities had $5 billion of their loans cut. The total amount of loans the DOE says it has eliminated, $116 billion, isn’t just about the annual size of the most popular food-assistance program, it’s nearly double the Justice Department’s annual budget.

So this is great for older borrowers, but what about everyone else? Friday’s announcement also included new rules for a repayment plan, called the Saving on a Valuable Education plan, which can lower monthly payments by as much as $1,000 a month and applies to people who make as much as $60,000 a year. This goes into effect next July, but people can sign up now. This is different from the proposed changes to the income-driven repayment plan, which lowers monthly maximum payments and forgives outstanding federal student loan debt after ten years. And Biden has made it clear that he’s still going to try again to wipe out $10,000 to $20,000 for federal student-loan borrowers, a plan that would have affected more than 20 million people. It’s not clear if another swing at a one-time forgiveness plan could get past the Supreme Court, but the reality is that the White House’s biggest wins have been quiet, technocratic, and practically drama free. The math speaks for itself: Biden has quietly created what amounts to a juggernaut for federal assistance, all while few have even noticed it was happening.

Biden’s Student-Loan Forgiveness Program Just Got Bigger