Democrats’ $50,000 student loan forgiveness plan would make 36 million borrowers debt-free

The Senate’s top Democrat, Chuck Schumer of New York, along with Sen. Elizabeth Warren, D-Mass., and other Democratic legislators on Thursday, introduced a resolution again calling on the White House to forgive $50,000 in student debt for all borrowers by executive action.

“During a time of historic and overlapping crises, which are disproportionately impacting communities of color, we must do everything in our power to deliver real relief to the American people, lift up our struggling economy and close the racial wealth gap,” Schumer said in a statement.

“Democrats are committed to big, bold action, and this resolution to cancel up to $50,000 in federal student loan debt is one of the strongest steps the president can take to achieve these goals.

The resolution, first made in the Senate last year, was also introduced in the House of Representatives by Rep. Ayanna Pressley, D-Mass.; Rep. Ilhan Omar, D-Minn.; and Rep. Mondaire Jones, D-N.Y.

More from Personal Finance:
Millions would get pay raise from a $15 minimum wage
Many have waited over a month for last round of unemployment aid
How the average stimulus check could change under Biden vs GOP plans

Although Biden has expressed hesitation about cancelling student debt through executive action, and didn’t include any debt forgiveness in his outline for another $1.9 trillion stimulus package, he is under mounting pressure from members of his own party to take action.

Tens of millions of borrowers are also looking to the new president to ease some of their debt burden. On the campaign trail, Biden vowed to forgive some of their loans. Around 3 in 4 Americans support $10,000 in student loan forgiveness, according to the latest College Investor survey.

“We took to heart his promise to make it a core priority,” said Nate Wlodarchak, 37, a Denver-area scientist who studies tuberculosis and owes around $12,000.

Here’s who would benefit the most from $50,000 in student loan forgiveness.

Cancelling $50,000 for all borrowers would shrink the country’s outstanding student loan debt balance to $700 billion from $1.7 trillion.

The plan would forgive all of the debt for 80% of federal student loan borrowers, or 36 million people, according to higher education expert Mark Kantrowitz.

To be sure, there are a rising number of student loan borrowers who owe more than $100,000 and would still be left with large balances even after the $50,000 in forgiveness.

The plan would also not help borrowers with private student loans.

Advocates say forgiving student debt is a crucial part of any meaningful response to the coronavirus pandemic, pointing out that borrowers were already struggling prior to the crisis.

Indeed, even before almost a year of record job losses and when the country was in the midst of its longest economic expansion in history, more than 1 in 4 student loan borrowers were in delinquency or default.

Now around 90% of federal student loan borrowers have accepted the government’s offer to put their monthly payments on pause during the pandemic.

And in a recent Pew survey, 6 in 10 borrowers said it would be difficult for them to start paying their student loan bills again. 

“Debt cancellation would have a tremendous impact on those most impacted by the coronavirus pandemic: Black Americans, older borrowers and recent graduates,” said Alexis Goldstein, a senior policy analyst at Americans for Financial Reform.

Women borrowers would greatly benefit from the proposal.

That’s because women owe around two-thirds of the country’s outstanding student loan debt, according to the American Association of University Women.

White women student loan borrowers owe an average of $31,300, compared to $29,900 for White male borrowers. Meanwhile, Black women borrowers owe an average of $37,600, versus $35,700 for Black male borrowers.

Black and Latino Americans would also be among the biggest winners from the proposal.

Nearly 85% of Black bachelor’s degree recipients carry student debt, compared with 69% of White bachelor’s degree recipients, according to the Center for Responsible Lending.

And around 38% of Black students who entered college in 2004 had defaulted on their student loans within 12 years — a rate three times higher than their White counterparts.

An aide for Sen. Warren said cancelling student debt would make the biggest strides toward closing the racial wealth gap since the Civil Rights movement.