With nearly 45 million Americans holding student loan debt and an incoming White House administration that has voiced support for borrower assistance, it’s no wonder that student loan forgiveness is prominent in the news.
However, wiping away some or all education loans for some or all borrowers is as complex as it sounds, particularly at a time when this country’s student loan debt is still not fully understood.
To properly debate the merits of student loan relief proposals, we first need to agree on a set of shared facts. With that in mind, let’s bust 10 student loan myths that have so far clouded the conversation.
Even if there were bipartisan support for a 100% discharge of the country’s education loans, it’s simply not possible.
The federal government controls 75.9% — nearly $1.3 trillion — of the nearly $1.7 trillion in outstanding debt.
Still, to say that the government could wipe away every cent of the debt is misleading and gives false hope to borrowers holding loans that would be ineligible for relief, including:
- Federal Family Education Loans that were guaranteed by the government but are owned by private lenders
- Perkins loans that were lent via the Department of Education but are owned by colleges and universities
- Private or alternative loans that are funded and serviced by banks, credit unions, online lenders, state governments and other agencies
For the country’s balance to be wiped away in full, each of these entities would have to work in concert, which seems incredibly unlikely.
The student loan forgiveness proposal that drew the most attention during election season pushed the next president to unilaterally cancel up to $50,000 of federal loans per borrower.
In their call to action, Democratic U.S. Sens. Elizabeth Warren of Massachusetts and Chuck Schumer of New York drew on the Higher Education Act of 1965, which — affirmed by Harvard Law School — gives a president such authority.
Detractors of the proposal might say that $50,000 doesn’t go far enough, that it won’t end the federal education debt of a majority of borrowers.
That’s simply not the case. In fact, 75.6% of eligible federal loan borrowers — 28.2 million people — owe less than $40,000. More than half owe less than $20,000. Each of them would go from debt-burdened to debt-free.
And yet, borrowers who would benefit most from a $50,000 relief package carry less than a third ($411 billion) of the country’s outstanding federal education debt.
Students who take out loans for second and third degrees, perhaps to attend business, law or medical school, often borrow six figures before — eventually — entering high-paying careers. They would benefit from five-figure relief, too, but they wouldn’t be done with repayment. (Fields that require a master’s or doctorate but don’t pay as well, such as education, leave borrowers hanging.)
For what it’s worth, President-elect Joe Biden has so far resisted urging from within his own political party to support the Warren-Schumer plan. Biden’s higher education platform has included supporting $10,000 worth of loan forgiveness, given the coronavirus pandemic’s effect on family budgets nationally. If it came to pass, that would make 12 million — or 32.2% — eligible borrowers federal student debt-free.
Like looking down at their phones and eating avocado toast, repaying student loans is closely associated with millennial life. Maybe you even have young friends or family members with a heavy amount of education debt.
In reality, millennials are in the minority. About 3 in 10 Americans ages 25 to 34 have student loans that could be canceled by the government. That’s a lot, but it’s not most.
|30.5% of Americans ages 25 to 34 have eligible federal debt|
|Total number of people ages 25 to 34||45.6 million|
|Number of people ages 25 to 34 who have eligible federal debt||13.9 million|
|Percentage of people ages 25 to 34 who have eligible federal debt||30.5%|
It’s easier to argue that auto loans are more burdensome for younger generations. More than half of millennials are making car payments, according to LendingTree analyses. And Americans owe more than $1.2 trillion in auto loan debt as of September 2020, according to the latest available Federal Reserve data.
Students in their teens and 20s often borrow in their own name to cover higher education costs. And, yes, these are often young people with greater options and fewer obligations.
But it would be foolish to think that other family members don’t feel the brunt of student loans.
Federal parent PLUS loan borrowers, for example, often delay retirement and other financial goals to repay debt borrowed on behalf of their kids. According to a Trellis Co. study in 2019, just 45% of these Moms and Dads complete their repayment without interruption.
This isn’t a small population, either. Parent PLUS loans borrowed on behalf of about 3.5 million students are worth a combined $98.3 billion to Uncle Sam.
Parent or not, 35- to 44-year-olds dedicate more of their household income toward debt than all other age groups. The younger-than-35 and 45-to-54 cohorts aren’t far behind.
During the Trump administration, federal student loan forgiveness programs didn’t exactly loosen the purse strings:
- In its 2017 and 2020 budget proposals, the White House recommended shuttering the popular but ineffective Public Service Loan Forgiveness (PSLF) program. As of Sept. 30, 2020, the Education Department was stamping “eligible” on about 2% of PSLF applications.
- It also slowed processing for borrower defense to repayment applications made by students who claimed they were defrauded by their schools. The Betsy Devos-led education department also rolled back former President Barack Obama-era rules on defense to repayment.
- For its part, the Trump administration sought to make forgiveness applications more seamless for disabled veterans, but relief for civilians with a total and permanent disability was still hard to come by, according to reporting from NPR.
Despite all that, the federal government has forgiven, discharged or canceled student loan debt over the last two administrations, including nearly $4.4 billion to almost 470,000 borrowers.
|Amount of student loan debt forgiven by programs since their inceptions|
|Program||Amount forgiven (millions)||Forgiven borrowers (thousands)||Average balance forgiven|
|Public Service Loan Forgiveness||$260.5||3.5||$75,090|
|Temporary Expanded Public Service Loan Forgiveness||$87.4||2||$43,057|
|Automatic closed school discharge||$350.5||31.3||$11,198|
|Teacher Loan Forgiveness||$3,094.5||371||$8,340|
Unfortunately, federal loan forgiveness sometimes requires stacks of paperwork and lots of patience.
Millions of borrowers have filed applications for federal loan forgiveness but are awaiting approval. With PSLF, for example, nearly 1.4 million borrowers have submitted eligible employment certification forms. These borrowers have an average outstanding balance of $86,688, for a combined total of nearly $117.7 billion.
The cost of attending two- and four-year colleges and universities has certainly risen in recent decades, double the rate of inflation, according to data analysis by the Foundation for Economic Education.
With that said, and with some strategy, students can easily seek a degree without forking over $40,000 a year.
If a student has their heart set on a private school that’s perhaps out of state, the average cost of tuition, fees, and room and board drops below $30,000 once non-student loan financial aid is included. And you can cut that figure in half if the student is attending an in-state public school.
These amounts are still unaffordable for some families, but list prices and true costs are wildly different. (It’s best for students to make apples-to-apples comparisons between financial aid packages.)
When considering only tuition and fees — many students more cheaply live off campus — the actual price of school drops even further. Tuition and fees for in-state public colleges cost $3,210 on average.
Of course, there are other college expenses that aren’t included here. A net cost of attendance may also include the dollar value of books, supplies and transportation, among other things. To be fair, students might also find themselves with new living expenses that need to be covered with part-time income or credit card debt.
You might be under the impression that the nation’s student loan debt has jumped over the last decade because borrowing has increased. Just the opposite is true: Since its peak in the 2010-11 school year, federal loan borrowing has steadily decreased.
That aligns with our 2019 study revealing that borrowing had fallen by more than $15 billion over five years.
Graduate student borrowing also reached a high in 2010-11 but has since plateaued.
Still, students pursuing a second degree are borrowing in larger amounts per year. The amount of federal loans borrowed for every enrolled graduate student, whether or not they took out loans, was $17,740 in 2019-20, more than four times that of their undergraduate peers ($4,090). That difference is partly to blame for the debt-by-degree gap highlighted above in No. 2.
While college was certainly cheaper in past decades, far fewer baby boomers sought it out. In fact, the enrollment rate of 18- to 24-year-olds in 1973 (17.1%) nearly doubled among the same age group by 2018, to 31%.
As a result of lower attendance rates, boomers are less likely than millennials (and other, younger generations) to have secured bachelor’s or master’s degrees.
However, that doesn’t further the argument that higher education was and is any less important for boomers than for everyone else.
The difference in earnings between people with a high school diploma and a bachelor’s degree is even greater among baby boomers, and college-educated boomers make significantly more (about $43,000) than boomers with a high school diploma, on average.
|Average earnings in 2019|
|30- to 35-year-olds||55- to 60-year-olds|
|High school graduate||$35,342||$45,961|
Note: Excludes people with zero or negative earnings
After hearing stories of student loan borrowers mired in debt, paying thousands of dollars of interest, you’d be forgiven for questioning whether a college degree is worth it in the first place.
This fact hasn’t changed, however: Educational attainment and income potential are tied at the hip.
In fact, the average former student (age 30 to 35) who received a bachelor’s degree earns $30,089 more annually than the average high school graduate in the same age group. And that difference eclipses the average debt borrowed — $26,600 — by a comfortable margin.
So, the assumption that a degree isn’t worth the debt is unfounded. If you’re going to borrow student loans, though, graduating gives you a much better chance at being able to repay them.
There’s a common refrain among student loan borrowers who ended their debt without government intervention: Why should we pay off your debt when no one helped pay off mine?
The problem with this stance is that it assumes all borrowers face the same repayment. We know, for example, that student loan debt is disproportionately burdensome for Black and Latino students, in part because of the existing racial wealth gap. Matters are made worse if the student leaves school indebted but without a diploma.
The ongoing coronavirus pandemic is also likely to affect the career prospects of recent graduates in ways we haven’t seen since the Great Recession.
Even if you quibble over individual obstacles to a successful student loan repayment, it’s difficult to argue about outcomes. Few federal loan borrowers repay their federal loan debt on the standard 10-year schedule, according to our 2019 analysis.
Before the coronavirus pandemic struck, federal loan borrowers were already lowering their monthly payments in droves, switching to repayment plans that, in many cases, capped dues at a percentage of their disposable income.
Borrowers in income-driven repayment plans are stomaching accruing and capitalizing interest to make room in their monthly budgets. As a result, their loans stick around longer, inhibiting key financial goals like buying a home. For another example, 31% of recent graduates said their education debt stopped them from saving for retirement, according to our 2019 financial milestones survey.
And since many students eschew in-school payments to focus on their studies, repayment comes at them fast. Within one year of receiving a diploma, the average Class of 2016 graduate faced nearly $1,000 of payments toward their student loans, housing and car payments — while taking in entry-level earnings of $31,388, according to the National Center for Education Statistics.
For borrowers, young or old, without dependable and sufficient income to cover their debt (and other financial obligations), student loans can seem like they’re here to stay.
|Federal student loan portfolio by loan type|
|Number of borrowers||Outstanding debt||Average debt size|
|Stafford||32.8 million||$811.4 billion||$24,738|
|Graduate PLUS||1.4 million||$79.5 billion||$56,786|
|Parent PLUS||3.5 million*||$98.3 billion||$28,086|
|Consolidation||11.6 million||$550.2 billion||$47,431|
So, to posit that all student loan borrowers are embellishing their experience is to discount the fact that some borrowers are more challenged than others. Certainly, far fewer than 100% need their loans wiped away, but a sizable percentage is struggling in a way that only one-time, meaningful relief could help.
Student Loan Hero analysis of:
- Department of Education data as of Sept. 30, 2020
- 2019 Federal Reserve Survey of Consumer Finances
- 2019 (1-year) U.S. Census Bureau American Community Survey microdata
- “Trends in College Pricing and Student Aid 2020,” CollegeBoard.org