Where does student loan forgiveness stand? Borrowers wait on Biden

Kayla Camacho was halfway through her master’s degree when federal student loan payments were paused in March 2020.

When she graduated last year, Camacho put the money she would have spent paying off her $68,000 debt toward savings and her younger siblings, buying flights back home to Orange County, California, for one sister and dance shoes for another. The first in her family to graduate from college, Camacho became the family’s safety net.

But the pandemic relief was always meant to be temporary. Camacho and tens of millions of other borrowers have braced for months as the pause’s expiration date approached, only to be postponed multiple times — it is now set for Aug. 31.

“The uncertainty and the waiting game — the not knowing — is almost as stressful,” she said.

The pause and accompanying zero-interest rate have given borrowers a chance to breathe and regroup, allowing them to spend the last two years paying off credit cards and car notes, saving for down payments on homes and building up emergency funds, sometimes for the first time in their adult lives.

Now, ahead of the midterm elections, the Biden administration must come up with a student debt relief plan that doesn’t contribute to concerns over inflation while being generous enough to satisfy borrowers who’ve had a preview of what debt cancellation might look like. After months of delays, President Joe Biden is expected to announce in coming weeks that the government will forgive at least $10,000 in debt for people making less than $125,000, according to news reports.

If the move survives a likely legal challenge, it would eliminate a significant chunk of debt for millions of borrowers — the average federal student loan burden is $37,000. In total, 43 million Americans collectively owe the federal government $1.6 trillion, the highest amount of consumer debt in the U.S. after mortgages. In California alone, 3.8 million residents owe $141.8 billion, the largest share of any state.

But depending upon who is asked, $10,000 in forgiveness for some borrowers would go too far — or not far enough. Opponents of loan forgiveness say it would be expensive and regressive, with the biggest benefit going to borrowers with graduate degrees, who tend to have higher incomes.

“My main concern is that it’s a really poor use of money,” said Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget, a nonpartisan think tank. The plan “is really going to help some people, but it’s disproportionately going to go to people who don’t need it.”

Supporters of debt cancellation want the president to go higher than $10,000, ensure the aid is granted automatically — not through an application process — and remove the income cap, which they argue will hurt Black and Latino borrowers who have less generational wealth and are disproportionately impacted by student loans.

Black and Latino borrowers take longer to pay off their loans and are more likely to fall behind on payments than white and Asian borrowers.

“We need debt cancellation that really is designed in a way that benefits as many Americans as possible,” said Cody Hounanian, the executive director of the Student Debt Crisis Center, which advocates for borrowers and backs complete loan forgiveness.

Biden has also faced increasing pressure to end the repayment pause. Republicans have complained about the cost, an estimated $5 billion per month, and say it’s an attempt to improve Biden’s polling numbers ahead of the election and a gateway to debt cancellation.

Meanwhile, some Democrats have pushed for the president to cancel up to $50,000 in debt. They warn that doing nothing to help all borrowers isn’t a viable option, particularly ahead of midterm elections in which Democrats need the backing of younger voters to help maintain slim majorities in the House and Senate.

The government’s federal student loan portfolio has grown more than fivefold since 2004, when it totaled $250 billion. That increase has been spurred by more students going to college, borrowing larger amounts and taking longer to pay the money back, according to the Congressional Budget Office.

“Before the payments were paused, another student loan borrower defaulted on a loan every 26 seconds,” said Mike Pierce, executive director of Student Borrower Protection Center advocacy group, referring to people who are 270 days behind on payments. “No one should be rushing to go back to that world without actually fixing student loans and debt.”

The debt has hurt borrowers’ ability to buy homes and save for retirement. For many, the debt has become an obstacle to achieving the middle-class life college was meant to help provide.

Camacho said she always considered higher education a given. Paying for it was the question.

“Going to college was something that was viewed as, ‘You need to go to college so you can get a good job, and so you don’t have to continue that cycle of poverty,’” said the 29-yearold, who pays $1,750 a month for a studio apartment in Anaheim.

If she could do it again, she would ignore the advice she received as a high school senior: Enroll in the best school possible, regardless of the cost.

“Luckily, it all led me to where I am today, which is great — but with a very hefty bottle of loans,” she said.

When repayment resumes, she’ll owe $429 a month under the terms of her 20-year repayment plan for both her undergraduate and graduate debt, about 12% of her take home pay.