Effects of Cancelling Student Loan Debt (2024) : Short & Long-Term

Report Highlights. Cancelling student loan debt by up to $10,000 per borrower student loan borrower adds $1.083 trillion to the U.S. gross domestic product (GDP) over 10 years according to economic models.

The initial cost to cancel up to $10,000 per student loan borrower totals $352 billion for a potential return on investment (ROI) of 208%.
1-in-3 federal student loan borrowers (14.3 million) have an outstanding balance of $10,000 or less.
Cancelling student loan debt may reduce unemployment by adding up to 1.5 million new jobs.
The average federal student loan borrower owes $38,175; a total of
Federal student loans represent 90.8% of all student loan debt, public and privately held ($1.77 trillion total).

Bar graph: Cost of Student Loan Debt Cancellation by Forgiveness Limit according to the Office of Federal Student Aid

Who Would Benefit From Student Loan Debt Cancellation?

While research and statistics indicate there may be social benefits to canceling student loan debt, there is disagreement about the equity of student debt forgiveness and the debt burden among minority groups.

A total of 42.2 million student borrowers have outstanding federal loan debt.
Women owe 60.3% of federal student loan debt; women with bachelor’s degrees earned 72.3% of what their male counterparts earned in 2023.
Black and African American college graduates owe an average of 88.3% more in student loan debt than white college graduates.
48% of black college graduates owe more on their undergraduate student loans four (4) years after graduation than they did when they received their degree.
The median Black student borrower owes 95% of their debt 20 years after starting college; among white student borrowers, the median amount owed after 20 years is 6%.
Student borrowers who identify as LGBTQ have an average of 17.1% more in student loan debt than those who are not LGBTQ.
21.2 million student loan borrowers (50.2%) are under 35 years old; 9 million student loan borrowers (21.3%) are 50 and older.
Borrowers under 35 years old owe 35.9% of student loan debt ($578.40 billion); borrowers aged 50 years and older owe 24.9% of student loan debt ($401.10 billion).

Line graph: Student Debt Cancellation Return on Investment according to the Office of Federal Student Aid and Levy Economics Institute of Bard College

What Student Loans Would Be Cancelled?

Most legislators propose more federal student loan debt relief for lower-income borrowers, and proponents are in favor cancelling between $10,000 and $50,000. .

33.9% of federal student loan borrowers owe $10,000 or less.
A majority of federal student loan borrowers (over 80%) owe less than $50,000.
Up to 3.9 million student borrowers have outstanding debt for multiple federal loans.
26.9 million borrowers owe between $10,000 and $100,000 in federal student loans; the average balance among them is $33,825.
33.1 million federal student loan borrowers (78.4%) have an outstanding balance below $40,000; among them, the average balance per borrower is $14,517.
Under the $10,000 forgiveness plan, over 90% of borrowers with associate degrees would qualify.

Bar graph: Newly Debt-Free Student Borrowers by Forgiveness Limit according to the Office of Federal Student Aid

How Much Will It Cost to Cancel Student Loan Debt?

Administrative costs may be negated by the amount of interest paid by indebted student borrowers; most student loans net some amount of interest.

Cancelling up to $10,000 per student loan borrower would reduce the total debt by $352 billion.
Up to $40,000 in student debt relief per borrower would cost $844.5 billion.
Cancelling up to $60,000 per student loan borrower would cost $981.80 billion.
$50,908 is the average debt balance among the 30.3 million federal student loan borrowers with outstanding debt above $10,000.

Line graph: Student Debt Cancellation Effect on Annual Job Creation according to Levy Economics Institute of Bard College

Will Cancelling Student Debt Benefit the Economy?

Arguments for student loan debt cancellation include economic stimulus and business growth while arguments against claim cancellation would lead to inflation and higher interest rates.

Projections indicate cancelling student debt up to $10,000 per borrower would deliver an ROI between 145% and 208% after 10 years.
In the first year, the ROI for student debt relief of up to $10,000 per borrower would be between -75.5% and -69.3%.
Each time a consumer’s student debt-to-income ratio increases 1%, their consumption declines by as much as 3.7%.
Students with outstanding loan payments are 36% less likely to purchase a house.
Would-be entrepreneurs are 11% less likely to start a new business if they owe more than $30,000 in student loan debt.
When student debt grows by 3.3% the number of new start up businesses in the country shrinks by 14.4%.
One model estimates a negative ROI for partial loan forgiveness with each dollar spent on student loan forgiveness returning between 2 and 27 cents in economic activity.
In order to fight higher inflation rates, experts predict that the federal reserve would need to raise interest rates by 50 to 75 basis points.

Bar graph: Share of Student Loan Debt Cancelled by Forgiveness Limit according to the Office of Federal Student Aid

Who Supports Student Loan Debt Cancellation?

The power to cancel student debt lies with the executive and legislative branches of the federal government.

The American Rescue Plan passed in March 2021 includes a provision that student loan forgiveness issued between December 30, 2020 and January 1, 2026 will not be taxable to the recipient.
The U.S. Department of Education has eased restrictions on applications for student loan borrowers who apply for debt forgiveness via the Total and Permanent Disability Discharge program.
The Senate Committee on Health, Education, Labor, and Pensions recently passed the resolution requesting the President “take executive action to broadly cancel federal student loan debt.”

Line graph: Student Debt Cancellation Effect on State Budget Gains according to th Levy Economics Institute of Bard College

Who Would Benefit From Student Loan Debt Cancellation?

What Student Loans Would Be Cancelled?

How Much Will It Cost to Cancel Student Loan Debt?

Will Cancelling Student Debt Benefit the Economy?

Who Supports Student Loan Debt Cancellation?

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