Many people have made proposals to address the student loan crisis. Some policy-makers have suggested that all student loan borrowers should have $50,000 of their student loan debt forgiven.

However, in a time when a $1 trillion student loan forgiveness package may be difficult to achieve, there are other options that can result in substantial relief targeted to borrowers who may be most in need of forgiveness.

A new paper outlines the impact and cost of some of these student loan forgiveness options, such as:

  • Forgive the federal student loan debt for all borrowers who owe $10,000 or less. This will eliminate federal student loan debt for one-third of borrowers (more than 15 million borrowers) and eliminate the student loan debt of the majority of borrowers who are in default. Total cost: $75 billion.
  • Forgive the federal student loan debt for all borrowers age 65 and older. These borrowers are unable to repay their student loans because they are on fixed income, leaving almost a third of borrowers age 65 and older in default on their federal student loans. Total cost: $59 billion.
  • Forgive the federal student loan debt for all teachers and social workers. Teachers and social workers have high student loan debt compared with their income. Total cost: $135 billion.

The combined cost totals less than $250 billion, due to overlap among the three proposals.

In contrast, forgiving up to $50,000 per borrower for all borrowers would cost about $1.05 trillion.

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Thus, targeting student loan forgiveness at borrowers with the greatest financial challenges will save $900 billion, which could be spent on other education priorities. For example, expanding the Federal Pell Grant program will increase college access and success and will also reduce future student loan debt.

Means-testing is another option for targeting student loan forgiveness. Forgiving federal student loans for borrowers who owe less than $50,000 and who earn less than $100,000 (twice the national average household income) will forgive the federal student loan debt of half of all borrowers at a total cost of $345 billion.

Additionally, streamlining and simplifying the current income-driven repayment plans will make these plans more affordable and easier for borrowers to understand, impacting the more than 8 million borrowers who are currently using income-driven repayment plans. Possible enhancements to income-driven repayment include:

  • Base discretionary income on the difference between adjusted gross income and a fixed dollar amount instead of the poverty line. This will yield simple lookup tables for monthly loan payments.
  • Base loan payments on a percentage of income instead of a percentage of discretionary income, with no payments required of low-income borrowers.
  • Cut the repayment term in half, from 20 years to 10 years, instead of cutting the percentage of discretionary income in half. With a 10-year repayment term, there will no longer be a need for any other repayment plans.
  • Base loan payments on earnings instead of adjusted gross income, thereby enabling employer withholding of student loan payments.
  • Allow life-of-loan authorization for the transfer of borrower income information from the IRS or Social Security Administration to the loan servicer, instead of requiring annual certification.

Combining targeted federal student loan forgiveness with a modernized income-driven repayment plan will reduce or eliminate student loan stress for more than 20 million borrowers.