The U.S. has already cancelled roughly $100 billion in student debt amid the pandemic

The U.S. has already cancelled roughly $100 billion in student debt amid the pandemic

Actions taken by the federal authorities will result in roughly $100 billion in complete student loan forgiveness between March 2020 and September 2021, in line with Education Department (ED) information and evaluation from specialists.

The evaluation of already-cancelled student debt comes as distinguished Democrats — led by Senate Majority Leader Chuck Schumer (D-NY), Senator Elizabeth Warren (D-MA), and Representative Alexandria Ocasio-Cortez — urge a skeptical President Biden to cancel $50,000 in federally-held student loan debt through government motion (versus laws handed by Congress).

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, handed in March 2020, paused funds due and curiosity accrual associated to federally-backed student debt, affecting greater than 44 million debtors. The Trump and Biden administrations prolonged that pause by means of at the least September 2021.

ED just lately acknowledged that “borrowers are saving approximately $5 billion per month from the temporary 0% interest rate,” which might add as much as $90 billion in cancellation over 18 months.

Student loan professional Mark Kantrowitz estimated comparable financial savings from the broad fee pause and located a further $8 to $16 billion in financial savings from different measures taken in the course of the pandemic. 

Graduate Cameron Magee of the New Orleans Charter Science and Math High School class of 2020 celebrates after receiving his diploma at a drive-in graduation ceremony as a result of the COVID-19 pandemic, outside Delgado Community College in New Orleans, Wednesday, May 27, 2020. Students and family got out of their cars to receive diplomas one by one, and then held a parade of cars through city streets. (AP Photo/Gerald Herbert)

A graduate outdoors Delgado Community College in New Orleans, on May 27, 2020. (AP Photo/Gerald Herbert)

‘The equal of greater than 6% of the excellent federal student loan debt’

Kantrowitz analyzed information reported within the 2020 Federal Student Aid Annual Report and located that the three-month extension of the fee pause and curiosity waiver from October 1 to December 31, 2020 final 12 months value about $14.6 billion. Over 19 months — the fee pause is slated to be in impact from March 13, 2020 by means of September 30, 2021 — can be about $91.08 billion.

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“Of course, even this figure is an estimate since the amount borrowed and number of borrowers have changed during this time period,” Kantrowitz, author of How to Appeal for More College Financial Aid, told Yahoo Finance.

Kantrowitz added that also during the pause, “borrowers are counted as though they were still making payments for the purpose of Public Service Loan Forgiveness (PSLF) and the forgiveness after 20 or 25 years in an income-driven repayment (IDR) plan. In effect, that’s providing 19 months of forgiveness without having to make a payment.” (Another expert previously described this as “free money.”)

And whereas it is troublesome to calculate the quantity successfully forgiven debt in these circumstances, Kantrowitz estimated that “the financial savings from the non-payment funds might be $8 billion to $16 billion” in total for the roughly 8 million borrowers on PSLF and IDR plans.

Consequently, the total student debt forgiveness so far amid the pandemic is roughly $100 billion while the average savings for more than 44 million borrowers affected is more than $2,000.

“That’s a significant financial benefit to borrowers, the equivalent of more than 6% of the outstanding federal student loan debt,” Kantrowitz said. “That’s more than the cost of forgiving $10,000 in federal student loan debt per borrower owing less than $10,000. That’s more than the cost of forgiving all federal student loans owed by people age 65 and older.”

The government absorbed $100 billion in interest and payments to fund the payment pause while student loan servicers have been forced to eat some costs amid the pandemic.

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“The servicer fees structure was adjusted and fees were cut during the payment suspension by the [Education] Department,” Scott Buchnan, head of the Student Loan Servicing Alliance, a student loan lobby group, told Yahoo Finance.

Other ED actions amid pandemic and the larger forgiveness push

ED, which owns the vast majority of student loans (while the rest of student-loan debt is privately-held), has taken additional steps to help student loan borrowers.

The Biden administration cancelled roughly $1 billion in debt owed by borrowers who had received partial debt relief from borrower defense claims against schools found to be predatory, as well as $1.3 billion in debt held by borrowers who qualified for a total and permanent disability discharge.

WILMINGTON, DE - DECEMBER 23: Miguel Cardona speaks after President-Elect Joe Biden announced him as his nominee for Education Secretary at the Queen theatre on December 23, 2020 in Wilmington, Delaware. Cardona, the Connecticut Education Commissioner, will face the urgent task of planning to reopen schools safely during the COVID-19 pandemic. (Photo by Joshua Roberts/Getty Images)

Miguel Cardona, then-nominee for Education Secretary, speaks after then-President-Elect Joe Biden announced him as his at the Queen theatre on December 23, 2020 in Wilmington, Delaware. (Photo: Joshua Roberts/Getty Images)

The Biden-era ED also halted debt collection efforts for around 1.14 million defaulted loans in the Federal Family Education Loan Program (FFELP) that were not included in the original debt collection moratorium.

Kantrowitz advised against adding these forgiveness efforts to the cancellation analysis since it’s particularly difficult to quantify how exactly the numbers involved were calculated.

In any case, further reforms of the unwieldy student loan machinery could lead to more federally-mandated forgiveness. At the same time, however, some higher education experts argue that substantial progress in the student debt crisis would require broad forgiveness.

“While the present fee pause and curiosity waiver has helped thousands and thousands of debtors… [it] can’t be an alternative choice to across-the-board student debt cancellation,” Ashley Harrington, a higher education expert at the Center for Responsible Lending, told Yahoo Finance. “And whereas it’s nice that the time in suspension counts in the direction of IDR and PSLF, we all know that these and different packages are desperately in want of enchancment as only a few debtors have really acquired reduction by means of them.”

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Aarthi is a reporter for Yahoo Finance. She can be reached at [email protected] Follow her on Twitter @aarthiswami.

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