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 WASHINGTON, DC - APRIL 15: U.S. President Joe Biden announces new economic sanctions against the ... [+] Russia government from the East Room of the White House on April 15, 2021 in Washington, DC. Meanwhile, President Biden continues to evaluate options for broad student loan forgiveness. (Photo by Chip Somodevilla/Getty Images) 
 
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As the Biden administration considers whether to enact broad student loan forgiveness through executive action, there are inevitable questions about the appropriate amount of student debt cancellation, and who would benefit. But for borrowers who are repaying their student loans under Income-Based Repayment plans, a smaller amount of student loan forgiveness may not be particularly beneficial. 
 
Biden has expressed consistent support for broad student loan forgiveness since his presidential campaign last year, but he has repeatedly indicated that he prefers a smaller, “targeted” amount of student loan forgiveness — $10,000 — rather than the $50,000 or more that advocates and progressives in Congress have been pushing for. Proponents of $10,000 in student debt cancellation argue that a smaller level of forgiveness would benefit lower-income individuals. New data released from the U.S. Department of Education indicates that forgiving $10,000 would eliminate all outstanding federal student loans for at least 15 million people, or a third of all current student loan borrowers, and would reduce the balances of another 9 million student loan borrowers by half. 
But for student loan borrowers with larger balances who are repaying those loans under an Income-Based Repayment plan, $10,000 in student loan forgiveness could have little or no benefit. That is because of the income formulas used by Income-Based Repayment plans to calculate monthly payments, and the fact that ongoing interest accrual could gradually erase any one-time student loan forgiveness benefit. 
 
Take the following as an example: a borrower with $50,000 in outstanding federal student loans. Let’s say the borrower is a single mother making around $40,000 per year, and has a family size of 3. Under a 10-year Standard repayment plan, assuming an interest rate of about 6%, she would normally have a monthly payment of over $550 per month — which could very well be unaffordable for her. Under an Income-Based Repayment plan, however, she would have a monthly payment of only $115 per month; much more affordable, but even that payment may represent a significant financial burden after accounting for her other household expenses, particularly childcare. 
 
 If President Biden enacted $50,000 in across-the-board student loan forgiveness, her debt would be completely wiped out, and she would have no more monthly payments. But if Biden enacted only $10,000 in student loan forgiveness, it would have no direct impact on her. Her payments under the Income-Based Repayment plan would remain unchanged at $115 per month, because that payment amount is calculated using a formula applied to her income, not her loan balance. 
 
Furthermore, the $10,000 in student loan forgiveness would not provide this borrower with an easier path to eliminating her debt. That is because interest would still accrue on her student loan balance, even while she makes her monthly payments and keeps her account current. Even after a $10,000 reduction of the balance following this hypothetical student loan forgiveness, her remaining $40,000 in federal student loans would still be accruing interest at the rate of about $200 per month, assuming an interest rate of 6%. So while this borrower would continue to make payments of $115 per month under Income-Based Repayment, her overall balance would continue to increase at the rate of $85 per month — the difference between monthly interest accrual and the amount of her monthly payment. Within five years, she would owe $5,100 more, and within 10 years, she would be right back at a $50,000 balance again. 
Income-Based Repayment plans provide for complete loan forgiveness of the balance after 20 or 25 years of repayment, depending on the specific plan. But under current law, this type of loan forgiveness would be considered taxable income. (Congress included a provision in President Biden’s recent stimulus legislation that exempts student loan forgiveness from taxation, but this is a temporary provision that only lasts until the end of 2025, unless it is subsequently extended or made permanent). Negative amortization — the process by which a student loan balance grows due to interest even while payments are made under an income-based plan — would also make a future payoff more expensive, if the borrower’s financial circumstances and income were to improve in subsequent years. 
Ultimately, while $10,000 in broad student loan forgiveness would undoubtedly help a substantial number of borrowers, millions more would see no effective changes to their financial position, even with a noticeable reduction to their balance. Barring more expansive student loan forgiveness, or concurrent reforms such as hard caps on interest accrual or changes to income-based repayment programs, student loan borrowers — including those who might be the very type of borrower the Biden administration genuinely wants to help — could be left with no meaningful relief. 
The White House continues to evaluate options for broad student loan forgiveness. Earlier this month, the administration announced that attorneys under Education Secretary Miguel Cardona will be exploring potential legal authorities that could be the basis for widespread student loan forgiveness implemented through executive action. The Department of Education will coordinate its efforts with the U.S. Department of Justice, which is also reviewing possible legal avenues for student loan forgiveness using executive authority. It could be weeks or months before a decision is made. 
<h2>Further Reading</h2> 
New Details: Student Loan Forgiveness Could Wipe Out The Debt Of Most Borrowers 
Biden Excludes Student Loan Forgiveness From Budget Proposal, But Calls For More Funding For Higher Ed: Key Details 
Key Moments From Elizabeth Warren’s Blockbuster Hearing On Student Loans 
4 Key Questions About Biden’s Student Loan Forgiveness Review 
Biden To Initiate Additional Student Loan Relief This Week — But Borrowers Demand Full Cancellation 
72,000 Borrowers Will Get $1 Billion In Student Loan Forgiveness - Do You Qualify? 
Is $10,000 In Student Loan Forgiveness Next, After Biden Administration Cancels $1 Billion? 
Senate Passes Stimulus Bill With Student Loan Tax Relief — Will It “Pave The Way” To Cancel Student Debt? 
Here’s Everyone Who Wants Biden To Cancel Student Loan Debt (It’s A Big List) 
Whether Biden Cancels Student Debt Will Depend On These 3 Things 
Could These Student Loan Borrowers Be Excluded From Biden’s Forgiveness? 
 
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For student loan borrowers with larger balances who are repaying their student loans under an Income-Based Repayment plan, $10,000 in student loan forgiveness could have little or no benefit. Here's why.

Why $10,000 In Student Loan Forgiveness May Not Help Borrowers In Income-Based Repayment