Why the Government Can’t Forgive All Student Loans

When Joe Biden was running for President, he said he would cancel $10,000 of every college borrower’s student debt if Congress consented. But Congress hasn’t acted.

Senators Elizabeth Warren and Charles Schumer have urged President Biden to cancel $50,000 of every borrower’s federal student loans, saying he has the executive power to do so. But that hasn’t happened either.

Why not? Given the hardship that student debtors are experiencing–especially since the COVID crisis began–why not just wipe the slate clean and cancel all $1.7 trillion in federal student debt?

In my opinion, President Biden and most members of Congress would like to cancel all student debt. After all, there are about 45 million student borrowers, and canceling their student loans would make them all very happy.

But Congress can’t do that, and neither can President Biden. And here’s why.

Student loans are carried on the nation’s balance sheet as assets. As of September 30, 2020, the United States held almost $6 trillion in assets, and about a quarter of that amount is listed as outstanding student loans.

As of September of last year, total national liabilities amounted to roughly $32 trillion, resulting in a national debt of around $26 trillion (give or take a few trillion).

Thus, if Congress simply wiped out all those student loans or President Biden canceled them through executive action, the nation’s balance sheet would look significantly worse than it already does. Instead of holding total assets of $6 trillion, our government would have only a little more than $4 trillion.

Simply put, the federal government pretends that all that student-loan debt–closing in on $2 trillion–will be paid back. And that fiction cannot be maintained if Congress wipes out all student debt or allows large numbers of distressed debtors to discharge their student loans in bankruptcy

If you are a student-loan debtor, you have benefited from the moratorium on making monthly loan payments–a moratorium that won’t be lifted until May 2022.

But just because you haven’t made any student-loan payments over the past two years, don’t get your hopes up that Congress will simply forgive all federal student debt. It won’t do it because it can’t do it. The Federal government’s balance sheet simply can’t take the hit.

Richard Fossey is a professor at the University of Louisiana in Lafayette, Louisiana. He received his law degree from the University of Texas and his doctorate from Harvard Graduate School of Education. He is editor of Catholic Southwest, A Journal of History and Culture.

9 thoughts on “Why the Government Can’t Forgive All Student Loans”

  1. The problem is that student loans are outsourced to private for profit banks that are making tons of money off ridiculously high interest rates. You can buy a home for 3% but your student loan is 13%. It also doesn’t help when the schools raise their fees because they know you are going to be handed well more money than you could ever need to pay tuition.

  2. The real reason student loans won’t be forgiven is because student loan asset-backed securities are making big money for gov’t officials and investors

  3. I apologize for my poor choice of words (holier than thou) but I respectfully disagree with you.

    Suggesting that the bankruptcy laws be changed to allow student debt to be discharged is not the solution. Having potentially millions of borrowers have their credit destroyed for the 7 years that a bankruptcy will remain on their credit report – and the impact that can and will have on their ability to rent an apartment, get insurance, get a mortgage, etc. – is IMHO overkill.

    The United States forgives debt all the time from foreign countries to the aforementioned PPE loans. Surely students who believed the hype that a college education will help them make more in the long run will never actually realize that if they are paying student loans into their 40s, 50s, 60s and possibly beyond.

    Thank you for reading my comments and taking the time to respond. Happy New Year to you.

    • Ellen,

      Two issues to consider. Forgiving student loans can be a taxable event. Congress would have to deal with that as well.

      Many have the misperception that bankruptcy destroys credit. In fact, people can rebuild credit quickly and be ready to make credit purchases within a year or so at market rates. While it is true that a Chapter 7 bankruptcy will remain on your credit for 10 years it is also true that delinquent student loan payments will remain for 7 years on the credit report.


  4. Hi, Ellen.

    I think you misunderstood the point I was trying to make.

    First, I agree that distressed student debtors are far more worthy of COVID relief than a lot of wealthy people who got PPP money and didn’t need it.

    Second, I am totally sympathetic to student loan debtors who are drowning in student loans. I have been advocating for student debt relief for 25 years.

    But just extending the moratorium on student-loan payments is not a solution for the 45 million people who owe $1.7 trillion in student debt. In fact, I’m not sure the government did college borrowers any favors when it allowed people to skip payments for two years.

    That two-year moratorium just sends a message of false hope to borrowers that somehow the feds will eventually discharge all student debt. And skipping payments for two years will just make it harder for a lot of borrowers to start making monthly payments again.

    My view on the student-loan crisis has not changed. Congress needs to amend the Bankruptcy Code to allow millions of insolvent borrowers who took out loans in good faith to discharge those loans in bankruptcy. It is outrageous that the Department of Education opposes bankruptcy relief in nearly every case that is filed in the bankruptcy courts.

    I am very sorry you interpreted my viewpoint as holier than thou. I think my record will show that I am a lot more sympathetic to student borrowers than many members of Congress who have expressed concern about the student-loan program but have not provided any solutions.

    Thanks very much for writing.

  5. The PPP provided more than 11.7 million forgivable loans totaling nearly $800 billion to small businesses and other eligible entities hurt by the economic impacts of the COVID-19 pandemic. Almost $400 billion has been forgiven to date. But that’s OK, right?

    Please stop posting these types of “holier than thou” articles. A lot of people are going to be in serious trouble come March if the government doesn’t do something. We don’t need non-helpful information like this.

    • In all fairness to Richard. I think we are talking about two different issues here. PPP loans were used to stimulate the economy by attempting to prevent that mass failure of business so capitalism could continue to post a unique and unusual event. Study after study continues to show little economic benefit from forgiving all student loans.

      If the point of focus is putting people first then I agree that forgiving all student loans would be beneficial. But if the powers that control government policy are looking to put capitalism and the balance sheet first then there is little chance of mass forgiveness happening. And even if it did, it would not include private student loans. See this for a look at the economic benefit of PPP versus federal student loan forgiveness. https://www.crfb.org/blogs/canceling-student-loan-debt-poor-economic-stimulus

      The only way to inject balance into the system would be to modify the bankruptcy code to allow struggling consumers a fresh start with each case being reviewed instead of blanket forgiveness to which many will cry foul.


  6. What a great point. Helps to explain why Congress is not in such a hurry to do a darn thing about this problem. The ultimate kick the can down the road. Just bring back simple inclusion in bankruptcy and let the individual circumstances dictate forgiveness.


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