Biden has forgiven $1.2 billion worth of student debt—more to come

Nearly 153,000 Americans will have $1.2 billion worth of student loans completely erased, thanks to Biden's SAVE plan.

The Biden administration said Wednesday that it would forgive student debt for all borrowers under the SAVE plan who’ve been in repayment for at least a decade and originally took out $12,000 or less.

“With today’s announcement, we are once again sending a clear message to borrowers who had low balances: if you’ve been paying for a decade, you’ve done your part, and you deserve relief,” said U.S. Secretary of Education Miguel Cardona.

The new forgiveness is part of President Biden’s accelerated timeline for student loan forgiveness under the SAVE plan, which was announced in January.

So far, Biden has canceled $138 billion worth of student loans for nearly 3.9 million borrowers—both startling figures considering that the president’s original plan was blocked by the Supreme Court last July.

And that might not be all.

The Biden Administration is currently negotiating Plan B—a second attempt at comprehensive debt relief that seeks to expand the definition of “financial hardship,” among other things.

Some experts critique Biden’s student debt relief as a display for his presidential re-election campaign. But for ordinary Americans living paycheck to paycheck, the relief couldn’t come soon enough.

College debt is still a major source of financial worry

When the government’s student loan forbearance program ended in October, a staggering 40% of borrowers missed their first payment.

Given that 60% of Americans live paycheck to paycheck, it’s not hard to see why.

Financial services company LendingClub also estimates that “outstanding debt balances could equal all paycheck-to-paycheck consumers’ savings balances in the next five years.”

Even academic studies published in Scientific American and the University of Georgia suggest that student debt has taken a toll on mental health.

“Student loan debt per se is not a bad thing, but people need to know what they’re getting into,” said Gaurav Sinha, lead author of a mental health study and an assistant professor at the University of Georgia.

“People have a limited cognitive bandwidth. We spend a lot of time thinking about money and our debts. That not only affects your financial health but also your mental health,” he explained.

It’s no wonder that roughly three-quarters of college debt holders told a MassMutual survey they planned to cut spending once student loan payments resumed.

Among them, 27% said they would purchase fewer luxury items, and 47% said they would cut back on essentials.

A separate survey by Data For Progress showed that 61% of student debt holders expressed low confidence in their ability to pay down their student loans. It’s no accident that a strong majority of them support the SAVE Plan.

As it turns out, their support for debt relief isn’t just about student loans, either.

A widening generational wealth gap

Experts say the SAVE Plan has a sneaky way of helping more young Americans qualify for a mortgage.

Under SAVE, “Switching to a repayment plan that has a lower monthly payment can help a borrower qualify for a mortgage,” according to student loan and financial aid expert Mark Kantrowtiz.

Millennials and Gen Z own a small fraction of the nation’s wealth—and the gap is widening thanks to retirees’ dominance of the real estate market.

Americans age 70-plus own 30.4% of the country’s net worth, whereas those 40 and younger own just 6.7%.

Although many millennials are expected to inherit most of that wealth from their parents, experts say student debt relief can help them get started sooner.

Marshall Steinbaum, an economics professor at the University of Utah, told Vox that student loans disproportionately affect people ages 35 to 49.

That's because their debt balances are so high that they may end up in an endless loop of barely covering their interest payments.

Nick Monzillo, an analyst for Moody’s Investors Service, said younger Americans are just as vulnerable because their student loans make up a bigger portion of their debt.

“Younger borrowers might just have less room in their budgets to absorb the cost increases,” he said.