Only 32 Americans have ever qualified for student debt cancellation

Millions of Americans have enrolled in a federal program that cancels the balance of federally backed student loan debt after their participation in an income-based repayment plan for up to 25 years.

But only 32 people have ever qualified for loan cancellation, according to an analysis of government data from the National Consumer Law Centre.

The first income-driven repayment plan was made available in 1995. Other similar programs followed, basing monthly payments on borrowers’ income, with the promise of full cancellation of remaining debt after 20 or 25 years.

More than 8 million people have enrolled in income-driven repayment plans. Roughly 2 million people have been in repayment for more than 20 years, still holding debt – with interest – tied to their undergraduate tuition.

The centre reports that the promise of loan cancellation is critical to enrollment in the plans “because many borrowers’ loan balances grow ... due to their monthly payments often being less than the interest that accrues on the loan each month.”

“Cancellation was designed to ensure that low-income borrowers are able to eventually get out from under the burden of unaffordable debt and insulate them from the harmful financial effects” that have turned student loan debt into similar “debt traps” like payday loans and predatory subprime mortgages, according to the report.

Read more:

“If this structure worked as intended when first authorized more than two decades ago, low- income borrowers would routinely see their debts cancelled” through the program, the report says.

More than 45 million Americans hold a collective $1.7tn in student loan debt, a figure that has surged within the last decade as private university enrollment grew and federal and state governments made steep cuts to higher education funding against growing wealth inequality.

Most of that outstanding debt is in the form of government-backed loans.

In the 1970s, federal grants covered up to 80 per cent of student costs for undergraduate students. That figure has plummeted by more than half. Average annual costs at public institutions, including tuition and housing, have reached nearly $22,000 for in-state universities and more than $38,000 for out-of-state universities. Those rates skyrocket for private colleges and universities.

A provision inside the $1.9 trillion coronavirus relief package signed into law by President Joe Biden makes loan cancellation tax-free through 2025.

Senator Elizabeth Warren – among a group of congressional Democrats pushing the administration to cancel student debt balances – said the provision in the American Rescue Plan gives the president “an opportunity to fix that with a stroke of a pen”.

“This bill helps pave the way to cancel $50,000 in student loan debt,” she told reporters on Monday.

The National Consumer Law Centre said that federal repayment plans’ “abysmal track record demonstrates how 25 years of repayment policies have failed” and has urged the Biden administration to support “outright debt cancellation” rather than rely on existing programs.

“Congress’s intention to give federal student loan borrowers an affordable path out of debt is buried by flawed program design, failed implementation by the student loan industry, and ongoing mismanagement” by the Education Department, the group reported.