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Student loan debt is frequently in the news as politicians debate solutions to the rising costs of college that lead to sometimes crippling amounts of debt. For those with outstanding student loans, such debt can be discharged in two ways: forgiveness and bankruptcy.
Americans owed a collective $1.75 trillion in student loan debt as of Apr. 2024, with an average of $28,950 owed per borrower. By comparison, in Dec. 2010, Americans owed about $845 billion in student loan debt, which means student loan debt has increased by about 102% over the last ten years. 43.2 million million Americans held outstanding student loan debt at the end of 2024. [1] [2] [52] [53]
The New York Federal Reserve reported that about 11% of student loan debt payments were either late or in default (270 or more days late) at the beginning of 2020. By all indications, this debt, and the late payments and defaults as well, will continue to rise as college costs outpace average incomes. [5] [6] [7]
Some have proposed that the U.S. federal government forgive some or all existing student loan debt in order to relieve the financial pressure on individuals and the country. Student debt forgiveness proposals range from a discharge of $10,000 per borrower (which would forgive the entire debt bills held by about 15 million borrowers) to $50,000 per borrower (which would forgive the entire debt bills held by about 36 million borrowers) to plans that would forgive all outstanding student loan debt. Each plan would include forgiveness for those with late or in-default accounts, as well as partial debt forgiveness for many more borrowers. [8]
The Wharton School of the University of Pennsylvania estimated that, depending on details, over ten years college debt cancellation will cost between $300 billion for a one-time cancellation of $10,000 for borrowers earning under $125,000 per year and $980 billion for a one-time cancellation of $50,000 per borrower. [43]
Others have proposed making student loan debt easier to discharge through bankruptcy. Credit card debt, medical bills, auto loans, and even gambling debt can be canceled by declaring bankruptcy, but due to a 1976 federal law, discharging student loan debt is much more difficult. Private student loans have also been protected from discharge in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. According to the U.S. Department of Education, people who declare Chapter 7 or Chapter 13 bankruptcy can have student loan debt canceled but only if a court finds there is evidence of “undue hardship.” Getting student loans discharged is so difficult and rare, however, that many lawyers advise clients not to try: less than 0.5% of students clear their debts through bankruptcy. [9] [10] [11] [12] [13]
In Mar. 2020, at the beginning of the COVID-19 pandemic, President Trump paused federal student loan payments, interest accrual, and debt collection. Congress voted to keep the pause through Sep. 30, 2021, and Trump extended it again through January 2021. President Biden maintained the pause with several renewals after taking office through Dec. Dec. 31, 2022. While some disagree with the continuation of payment, interest and collection pauses, others question why federal student loan debt can’t be canceled if the federal government can do without payments for almost three years. [41]
On Aug. 24, 2022, President Biden announced a cancellation of “up to $20,000 of federal student loan debt for Pell Grant recipients, and up to $10,000 for other qualifying borrowers.” The White House stated about 43 million borrowers would qualify the cancellation, with 20 million borrowers qualifying to have their debt completely cancelled. The debt cancellation program, mired in lawsuits since its announcement, was stayed until, on June 30, 2023, the U.S. Supreme Court struck down the student loan program in a 6-3 vote under the premise that federal law does not permit the U.S. Department of Education to cancel such student loans. [42] [48] [49] [50]
As a result of the invalidation of the mass cancellation program, the Biden administration has cancelled student loan debt for several smaller groups, including students taken advantage of by “predatory” institutions. The administration states that, as of May 1, 2024, it has forgiven “more than $160 billion [in student loan debt] for nearly 4.6 million borrowers.” [51]
1. Should the U.S. federal government forgive student loan debt? How much? For whom? Explain your answers.
2. Should student loan debt be easier to discharge in bankruptcy? Explain your answer.
3. Explore the pros and cons of other programs to resolve the student loan debt issue, such as targeted relief programs, employment assistance, or aid to colleges in order to lower tuition. Explain why your chosen programs are better or worse than debt forgiveness.
4. Consider how you felt about the issue before reading this article. After reading the pros and cons on this topic, has your thinking changed? If so, how? List two to three ways. If your thoughts have not changed, list two to three ways your better understanding of the “other side of the issue” now helps you better argue your position.
5. Push for the position and policies you support by writing U.S. national senators and representatives.
