If Biden Forgives First $20K of Student Loans, It Erases Debt For 55% of Borrowers

The young woman from northern New Jersey graduated from law school in 2019, then found her first job as a law clerk this year, at a starting annual salary of $52,000.

It would be a good start for a promising career, if not for the $425,000 in student loan debt that she had accumulated in earning the bachelor's and law degrees she would need to qualify for it. She is about to begin payments on the debt of nearly $3,000 a month, 69.2% of her monthly pre-tax income.

The debt has dictated many of her important life choices, including moving back in with her parents and when she can get married.

"You expect that you're going to graduate and be able to go out into the world and be a real adult, be a functioning member of society," she told Newsweek. "But meanwhile you can't really do anything because you're tied down to these student loan payments every month."

Student Debt
Students protest the rising costs of student loans for higher education on Hollywood Boulevard on September 22, 2012 in the Hollywood section of Los Angeles, California. David McNew/Getty

Her situation is far from typical. She has 16 loans—one for each of her semesters in higher education—in a mixture of federal and private loans with repayment lengths ranging from eight to 15 years.

But her plight is one that's familiar to many of the estimated 45 millions Americans who have outstanding student loans. Help may be on the way in the form of new student loan forgiveness programs being discussed by President-elect Joe Biden and others in Washington.

Biden this week called for immediate congressional action to forgive up to $10,000 in student debt each for borrowers owing part of the $1.6 trillion in outstanding student loans.

"They're having to make choices between paying their student loan and paying the rent—those kinds of decisions," Biden said at a news conference on Monday. "It should be done immediately."

A recent College Board report says that 34% of student loan borrowers owe less than $10,000 in outstanding federal education loan debt.

But Democratic Rep. Alexandria Ocasio-Cortez and other members of The Squad—a group of four progressive congresswomen of color—are calling for much higher levels of student loans to be forgiven, along with other assistance.

Her official website says Ocasio-Cortez continues to support the Student Debt Cancellation Act of 2019, which would forgive "outstanding federal and private student loans of all previous and current students in our education system ... to liberate generations of Americans trapped in student loan debt and holding back from participating in the greater US economy."

To that point, the College Board report says, 55% of borrowers owe less than $20,000 in federal student loan debt. If Biden, then, were to increase forgiveness to $20,000, more than half of borrowers would be free of that debt.

Cancelling an amount closer to $50,000, a figure that fellow Democrats Senate minority leader Chuck Schumer and Sen. Elizabeth Warren have been calling for, would help even more Americans who are suffering under crippling student loan debt.

According to the College Board report, 76% of borrowers owe less than $40,000 in federal student loan debt.

A loan forgiveness program could lend assistance to people who owe far more as well. As of March 2020, 37% of the outstanding federal education loan debt was held by the 7% of borrowers owing $80,000 or more, according to the College Board's Trends in College Pricing and Student Aid 2020 report issued last month.

A number of other loans assistance and forgiveness programs are already in existence, and Biden has indicated that he intends to revamp and strengthen some of those existing programs and institute others that would reward public service.

But not everyone supports Biden's plans for student loan forgiveness.

According to an April 2020 Student Loan Hero survey of nearly 1,250 Americans, 46% of respondents said mass student loan forgiveness would be unfair to former borrowers, with 39.1% saying loan forgiveness would be unfair to those who never had student loans.

Opponents have been vocal in their objections to a student-debt bailout.

Lindsey M. Burke, director of the Center for Education Policy at the Washington, D.C.-based conservative think tank The Heritage Foundation, wrote in a commentary on the group's website this week that canceling student debt is unfair to "the nearly three-quarters of Americans who do not hold bachelor's degrees."

Her argument was framed in the terms of class warfare.

"Student loan forgiveness demands that those 210 million Americans take on the debt of those 45 million borrowers," Burke wrote, citing estimates that debt cancelation would cost $1 trillion.

"For those individuals who avoided debt—either by working their way through college, going to community college for two years before attending a four-year college to reduce costs, living at home, serving in the armed forces to later benefit from the GI Bill, working hard in high school to receive merit-based aid, or by eschewing college altogether—blanket student loan forgiveness is simply unfair," Burke wrote.

The northern New Jersey law clerk who spoke to Newsweek said she hopes to reduce the principal and monthly payments of her loans through one of the available programs by going into public service.

"I really want to become a prosecutor," she said. "But unfortunately it's a government job, so it's not going to pay as much as somebody would in the private sector. If I have to pay the bills every month, I'd have to consider going into private practice to be paid a little bit more, but not do what I want to do."