Law Blog

U.S. Government Plans to Forgive Around $108 Billion in Student Loans

In the coming years, the federal government is going to forgive at least $108 billion in student debt through the student loan repayment programs that students have been enrolled in. Enrollment in these income-driven repayment plans have been increasing at an alarming rate and so is the cost. The government is estimating that there is not enough budget to keep up with the pace of borrowers enrolling in these programs and it has become very expensive for the
government.

The numbers come from a soon-to-be release Government Accountability Report that is trying to estimate how much student loans will be repaid through these income-driven repayment plans.

How Do the Income-Driven Plans Work?

Under the Obama Administration, a student debt repayment program was created to help borrowers, who are knee deep in student loan debt, be able to manage the size of their monthly payments. The income-driven repayment plans are designed to prevent borrowers from defaulting on their loans. Borrowers of federal student loan programs are qualified to enroll in income-driven repayment programs that place a cap a borrower’s student loan payment at a percentage of their monthly income. Additionally, borrowers who make their payments under income-driven plans can have their remaining balance of the debt forgiven after a minimum of 20 years of payments.

What Is at Issue with the Income-Driven Plans?

Congress approved the plans and President Barack Obama has used executive arrangements to give out the most-generous terms to millions of borrowers.

Enrollment in the plans has more than tripled in the past three years and the students jointly owe $355 billion. The GAO believes that $137 billion of the total amount owed by borrowers would not be repaid and most of it, around $108 billion will be forgiven because of borrowers will be satisfying their commitments under income-driven repayment plans. The $108 billion only covers loans made through the current school year, and total sum could continue to grow together with enrollment increase.

How Can this Student Debt Problem Be Solved?

It’s uncertain how President-elect Donald Trump will treat President Obama’s income-based repayment plan. Trump has already said that he wants to set student loan payments to 12.5 percent of income while also suggesting he might remove the federal government’s role in
lending to students and make everything private loans. Another solution to this problem would be to start requiring colleges to cut costs and reduce administrative staff to lower the cost of college admission at public colleges. If colleges were at a lower expense, students would be able to take out lesser loans and be able to pay it back once the amount is owed.