Many have heard the hype of the government planning to cancel federal student loan debt which is a common financial situation for Americans. Though it might seem easy like canceling a subscription or forgiving debt there is a lot more that goes into a strategic plan for the best success.

 

The White House is looking into what actions they may be able to take to forgive federal student loan debt with the outstanding federal student loan balance exceeding $1.7 trillio n. The staggering high rate of student loan debt can be contributed to the raising costs of schooling that is more than auto and credit card debt.

 

Student loan debt for a bachelor’s degree has tripled over the last 30 years from less than $10,000 in the early 1990s to $30,000 today with over 25% of borrowers estimated to be in default or delinquency resulting in damaging credit reports. The ongoing problems with student loan debt is well- known but there is no precedence of the government executing a progr am to forgive federal student loan debt.

 

 

The case for precedence was fallout from the 2008 financial crisis in which there was a cancellation of the taxes due on forgiven mortgages and President Biden made promises to forgive $10,000 in federal loan debt for all during his 2020 election campaign. If President Biden keeps his promise this student loan debt program would cost $377 billion while reducing the number of Americans with student loan debt to 30 million compared to the current estimate of 40 milli on.

 

Another student loan debt forgiveness program was proposed of canceling $50,000 in debt supported by Senator Elizabeth Warren (Dem. Massachusetts) and Senate Majority Leader Chuck Schumer (Dem. New York) for a combined $1.049 trillion in canceled deb t. This relief plan would lead to a smaller portion of Americans in debt down to 8 million under the conditions they will not help debt holders with private student loans.

 

Canceling all federal student loan debt will cost a total of $1.7 trillion resulti ng in no more federal student loan borrowers. Despite clearing the slate of Americans in debt, over time the numbers can start to increase again as patterns indicate between 4 – 5 million new borrowers enter the system each year.

 

People with student loan d ebt must work decades to pay off their student loans with a common issue of repayment troubles. Another issue is that the government’s expense wouldn’t match the amount of debt canceled as it’s unexpected to recoup losses, especially not anytime soon.

 

Th e government would lose $60 billion annually from interest earned on federal student loans in the case of broad cancellation and would likely have to generate an additional $28 billion annually to repay investors of the U.S. Treasuries after reaching their maturity date. Investors of securities are providing the government with funding for uses to grant federal student loans.