Canceling a student loan consolidation could cost $ 1,000 billion

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Canceling a student loan consolidation comes at a cost – and it could be $ 1 trillion.

Here’s what you need to know.

Student loans

A viral Facebook post from October 25, 2021 claims the federal government will save money if student loans are canceled:

“Wait, isn’t anyone going to tell me that American student loans are costing the government more than $ 60 billion more than they make in a year ??? They could literally be canceled that second and the government would have * more * money. ”

The author claims that the student loan department – which pays student loan service companies like Navient and Nelnet to collect student loan payments and handle customer service – costs the federal government $ 60 billion a year. If all student loans were canceled, the author argues, the federal government would save $ 60 billion a year. Is it really true?


Canceled student loans: the facts

No, the federal government doesn’t make more money if your student loans are canceled. The latest statistics on student loan debt show that 45 million student loan borrowers collectively owe more than $ 1.7 trillion. Of this total, student loan borrowers collectively owe more than $ 1.5 trillion to the federal government student loan consolidation”}” data-sheets-userformat=”{“2″:8705,”3”:{“1″:0},”12″:0,”16″:10}”>student loan consolidation

Cost: $ 1.5 trillion for student loan cancellation

So let’s start with Senator Bernie Sanders (I-VT), who proposed a plan to write off all student loans, including private and federal student debt. If the federal government were to write off every $ 1.5 trillion in federal student loans, the federal government would lose $ 1.5 trillion. (How to get approved for a student loan forgiveness). Why? The federal government would effectively receive no payment on the student loans it is owed, resulting in a massive loss – and not, as the author writes, a big gain.

Cost: $ 1,000 billion for student loan cancellation

Likewise, Senator Elizabeth Warren (D-MA) and Senate Majority Leader Chuck Schumer (D-NY) want President Joe Biden to write off up to $ 50,000 in federal student loans for each student loan borrower. eligible. (Here’s who qualifies for the student loan waiver right now). If passed, their student loan plan could cancel student loans for 36 million student loan borrowers. The estimated cost of this student loan cancellation could be around $ 1,000 billion.

Cost: $ 400 billion for student loan cancellation

Finally, there’s Biden’s plan to write off up to $ 10,000 in student loans, which could cost around $ 400 billion. In each of these scenarios, the federal government would lose at least hundreds of billions of dollars, and in two cases, at least $ 1,000 billion.


Canceling Student Loan Does Not Help Government ‘Make’ Money

Student loans cost borrowers money, but they also cost federal taxpayers money. (The student loan discount will not be available for these student loan borrowers). For example, according to the Congressional Budget Office, the United States Department of Education’s Federal Student Aid Office costs more than $ 3 billion a year. Canceling all federal student loans might save this money for the federal government, if the office were hypothetically closed, but this is a relatively small amount compared to student debt payments that the federal government would not collect. . The federal government is already giving borrowers large student loan discounts, which also costs money. Biden announced major changes to the cancellation of student loans last month. For example, Biden canceled $ 11.5 billion in student loans this year. This is in addition to the student loan exemption from income-based repayment plans, which are available after 20 years (undergraduate student loans) and 25 years (graduate student loans). These are all costs borne by the federal government, since the federal government will not collect the student loan payments or the interest on those canceled student loans.


Student loan cancellation: the cost of ignoring student loan cancellation

Supporters of large-scale student loan cancellation believe there is also a cost to not canceling student loans. (How to get student loan forgiveness even if you don’t work in the public service). Student loan borrowers would face life-changing levels of debt, further delay marriage or family formation, and forgo saving for retirement. They say the economy would be negatively affected, which can affect both student loan borrowers and non-student loan borrowers. They believe that failure to cancel student loans could increase inequality and widen the gap between the “haves” and the “have-nots”. Supporters of student loan cancellation do not see massive student loan cancellation as a necessary option. On the contrary, the cancellation of the student loan for them is a requirement. (This could be even more important than canceling a student loan). Without this essential student loan relief, they believe the higher education system will fail and student loan borrowers will continue to take on debt they cannot afford to repay.


Student loans: final thoughts

Canceling student loans, as some claim, would be a much needed financial lifeline for millions of student loan borrowers. However, canceling a student loan has substantial costs. You may think that these costs will be offset in other ways and that the massive student loan cancellation is a smart investment, but in any scenario, the federal government will not prosper financially if student loans are canceled. It’s like saying your grandmother is better off financially if someone steals her diamond ring because she won’t have to pay to polish it.

Student loan relief ends January 31, 2022. Make sure you understand all of your student loan repayment options. Here are some popular options for paying off student loans:


Student loans: related reading

Here’s who’s eligible for the student loan waiver right now

How to get approved for a student loan forgiveness

Student loan cancellation will not be available to these borrowers

How to get a student loan forgiveness


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