March 29, 2022
Potential Consequences of Continued Student Loan Forbearance, and Blanket Loan Forgiveness
More than half of federal student loan holders entered forbearance in 2020 when they were allowed to pause principal and interest payments in response to the COVID-19 pandemic; this forbearance continues today. Meanwhile, President Biden and congressional Democrats have proposed blanket student loan forgiveness. In a new insight, Data and Policy Analyst Tom Lee walks through the impacts of the ongoing loan forbearance and explores potential consequences should blanket forgiveness be enacted.
- Just over 1 percent of all borrowers are regularly making student loan payments, in large part due to COVID-19 forbearance provided by the Trump and Biden Administrations.
- Over half of federal student loan holders have entered and remained in forbearance since the third quarter of 2020, yet there remain calls for blanket student loan forgiveness.
- A $10,000 or $50,000 blanket forgiveness would reduce outstanding federal student loan debt by $380 billion or $1.1 trillion, respectively; provide greater relief to the affluent as half of the benefit would go to the top 40 percent of the income distribution; and would create moral hazard problems with future student loans.