$10,000 Student Loan Forgiveness Could End Federal Debt for 1 in 3 Borrowers

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As the debate over student loan forgiveness continues, Student Loan Hero took a look at how borrowers would be impacted by the proposed $10,000 in forgiveness.

For deeply indebted borrowers, the impact of this action might be minimal, but for others, it could potentially free them from all their federal student debt.

The difference lies in how much debt each borrower carries, as well as what kind of student loans they have. Most likely, only federal loans owned by the government would be eligible for forgiveness, accounting for about $1.3 trillion or 76% of outstanding student debt.

However, benefits would be less likely for the 7.3 million borrowers with privately-managed federal loans that may not qualify, as well as those with private student loans.

We looked specifically at loans issued via the federal government’s main student Direct Loan program (including PLUS loans) and found that $10,000 in forgiveness would provide significant relief — though more in some places than in others.

Key findings:

  • Just over 1 in 3 (34%) borrowers could see all their federal student Direct Loans wiped away under a $10,000 forgiveness scheme. An additional 20% would see their balances cut by at least half. (Read more)
  • 38% of Wyoming borrowers would end up discharging all of their federal student debt, the highest percentage of any of the 50 states and District of Columbia. Rounding out the top three are Nevada and Utah. (Read more)
  • The District of Columbia has the lowest percentage of borrowers who would shed all their federal loans (25%), with neighbors Maryland and Virginia following close behind. D.C. also has the highest rate of borrowers who owe $100,000 or more in student loans. (Read more)
  • Just over 7% of all borrowers owe more than $100,000, meaning they’d still be on the hook for at least 90% of their balance. (Read more)

1 in 3 borrowers could have debt wiped away

According to our analysis, 34% of borrowers — about 12.8 million people — would see their entire federal Direct Loan debt wiped away under a $10,000 forgiveness scheme. All in all, this forgiveness would amount to $315.4 billion.

An additional 20%, or 7.7 million people, would see their balances cut by at least half. Likewise, 21% (8 million people) would see a quarter of their balance disappear, and 18% (6.8 million people) would get rid of at least 10% of their debt.

However, about 7% of borrowers owe more than $100,000 in student loans. For them, $10,000 in forgiveness wouldn’t make a huge dent in their balance, as they’d still owe at least 90% of their total federal student loan debt.

And as mentioned, the numbers above only account for Direct Loans — the most popular, but by no means the only type. Other federal student loans (such as FFEL and Perkins Loans) and all private student loans would continue to weigh on borrowers’ finances.

Since Direct Loans were the only loan types eligible for the emergency federal forbearance that was passed in response to the COVID-19 pandemic, we predict that they might be the only ones eligible for $10,000 in loan forgiveness. That said, we don’t know yet exactly which loans would be covered if loan forgiveness were to pass.

Wyoming, Utah, Nevada borrowers most likely to become debt-free student loan forgiveness

When we took a state-by-state look at the impact of $10,000 in loan forgiveness, we found that Wyoming, Utah and Nevada had the greatest numbers of borrowers who would probably see their federal student loan balance wiped away.

In Wyoming, 38% of the state’s borrowers would become student loan-free. In Utah, 103,839 borrowers — about 37% of the state’s total — would get a clean slate, and in Nevada, 36% of its borrowers could start fresh.

In comparison to some other states, these three have a fairly low population of student loan borrowers. Borrowers in these states also tend to have smaller debt loads, allowing for $10,000 in loan forgiveness to have a more significant impact.

That said, even in these top-of-the-list states, the average debt in each state is still significant. For example, our analysis of Utah student loans shows the average balance among borrowers is $31,046. Our stats on Nevada student loans yield an average balance of $32,402.

Other states that would have a high percentage of debt-free people under $10,000 forgiveness include North Dakota, Alaska and Oklahoma.

When exploring how many borrowers would have their debt eliminated with $10,000 in loan forgiveness, the District of Columbia, Maryland and Virginia sat at the bottom of the list.

This finding aligns with our analysis of student loan debt in these states. We found that the average balance in Maryland is $39,505, the second highest in the country, and in Virginia it’s $37,098, the fourth highest in the U.S.

However, all three locations, D.C., Maryland and Virginia, would still see a significant population of borrowers become debt-free. In D.C., 25% of its borrowers would shed their debt. In Maryland and Virginia, that percentage was slightly higher at 29%.

Close behind this cluster of those least likely to have eligible federal debt less than $10,000 are Georgia and the Carolinas.

D.C. also had the highest percentage of borrowers who owe more than $100,000, and thus would be left with at least 90% of their balance: 16%, or 17,275 people.

Neighboring Maryland and Virginia had the second and fourth highest rate of borrowers who owe at least $100,000 in Direct Loans: 11% and 9%, respectively. Georgia came in third at 10%.

Among states like North Dakota, Iowa and South Dakota, the percentage of borrowers who owe more than $100,000 was about half that, at 4%, 5% and 5%, respectively.

Large numbers of borrowers owe less than $10,000

While $10,000 in student loan forgiveness might not sound like much to borrowers with huge debt loads, it could go a long way toward helping some borrowers become debt-free.

Here’s what the student debt burden looks like for borrowers across the U.S.

  • 12.8 million owe less than $10,000
  • 7.7 million owe between $10,000 and $20,000
  • 8 million owe between $20,000 and $40,000
  • 6.8 million owe between $40,000 and $100,000
  • 1.9 million owe between $100,000 and $200,000
  • 758,356 owe more than $200,000

Even in the states with large average balances, at least 1 in 4 borrowers would see their entire balance wiped away by $10,000 in loan forgiveness.

Still, some locales have a large segment who owe more than $100,000 and would see limited benefits under this scenario. In D.C., 16% of borrowers, or 17,275 people, are burdened with this high level of debt, followed by Maryland (11%), Georgia (10%) and Virginia (9%).

The smallest percentage of over-$100,000 student loan borrowers were found in North Dakota (4%), Iowa (5%) and South Dakota (5%).

This chart breaks down how much of each state’s borrowers would see forgiven:

Other ways to get your student loans forgiven

Whether the federal government will forgive $10,000 in student loans for all borrowers remains to be seen. We also don’t yet know which loans would be eligible. But in the meantime, there are other ways to get your student loans forgiven.

The Public Service Loan Forgiveness (PSLF) program, for instance, will forgive your loans after 10 years of working in public service. The Teacher Loan Forgiveness program offers up to $17,500 in student loan cancellation after five years of working in an eligible school.

Most states also offer loan repayment assistance programs to borrowers in certain occupations, typically those who work in a high-need or underserved area. And more and more employers are offering student loan assistance as an employee benefit.

Finally, you could get your student loan balance forgiven after 20 or 25 years on an income-driven repayment plan. While you usually have to pay taxes on the forgiven amount, the government has waived this tax bill until at least Jan. 1, 2026 with the American Rescue Plan Act of 2021 (ARPA).

Published in News & Policy