Student Debt Forgiveness in U.S. to Total $207 Billion in Next Decade, CBO Says

The biggest benefits will go to Americans who borrow for graduate school, the CBO said in a report. The government will likely forgive $167.1 billion for such borrowers, or 56% of the amount extended. The forgiven amount includes the original loan amounts, or principal, as well as unpaid interest.

The government will forgive about $40.3 billion on new loans made for undergraduates over that period, or 21% of the original amounts, according to the CBO study, which was ordered in 2018 by the Senate Budget Committee Chairman, Sen. Mike Enzi (R., Wyo.)

Enrollment in the plans has surged in recent years. The CBO says the two main groups of borrowers are those in low-paid jobs and those with large student-debt balances. There is some overlap between those groups. Borrowers with big balances tend to have advanced degrees and land well-paying jobs. Many borrowers with small balances dropped out of college and have low-paying work.

The U.S. government is the nation’s primary lender for college and graduate students. About 43 million Americans owe $1.51 trillion in federal student loans. Current law requires that any balances forgiven for private-sector workers will be taxed as ordinary income.

The plans set monthly payments at 10% of a borrower’s discretionary income. In many cases the payments don’t cover the interest, causing the balances to rise. After the end of the repayment period, the government forgives the balances.