Cancel student loan debt for those with income under $71K, researchers to tell Biden panel

Student loan researchers identified six categories of financial hardship they say the Education Department needs to consider in its debt relief talks, in a report shared first with USA TODAY.

Researchers on Tuesday will tell the Education Department’s student loan forgiveness committee to cancel all student debt for borrowers with household incomes below $71,000. 

Their new findings, shared first with USA TODAY, recommend lowering many Americans' student debt-to-income ratios, while honing in on a question that has plagued the panel since it first started meeting this fall: What types of financial “hardships” keep borrowers from paying back their loans?

Low credit scores are a useful metric for what ails borrowers, the researchers suggest in the report, which was published Friday by the University of California’s Student Loan Law Initiative and the Student Borrower Protection Center. 

Student debt relief advocates gather outside the Supreme Court on Capitol Hill in Washington, Tuesday, Feb. 28, 2023.

Other outstanding loans − for homes and cars, for instance − also provide a useful indicator, plus whether a borrower is already in the process of bankruptcy or foreclosure. 

“In any of those measures, it gets a lot worse to have any dollar of student debt,” said Dalié Jiménez, a law professor at the University of California, Irvine, and one of the authors of the report. 

At the department’s final round of negotiations on a student loan forgiveness plan, which span Monday and Tuesday, the researchers will push the agency to endorse the type of bold policy actions the Biden administration has tried to avoid since the Supreme Court cut down the president's initial student loan forgiveness plan this summer. 

Plan B:Large-scale student loan debt forgiveness likely off the table

That plan would have forgiven up to $20,000 in student debt for millions of Americans. Since it was undone, even incremental reforms the president has managed to eke out have faced a barrage of challenges from conservatives in Congress and in the nation’s courts. 

The fact that the researchers were asked to share their findings illustrates, to some extent, the amount of daylight that still exists between some of the negotiators – many of whom want structural change to the system – and the department, which avoided the hardship question in its latest proposal released this week. 

Biden's latest student loan relief plan:It would help borrowers with old loans, ballooning interest

The department largely centered its proposal on forgiving debt for longtime borrowers and those whose loans have ballooned because of interest. 

What prevents people from paying down their loans?

The 15-page report released Friday marks the first time researchers have used credit reporting data to measure how student debt can impact people's financial health. 

Data shows that adverse legal proceedings, including bankruptcy and foreclosure, affect borrowers' abilities to pay back their loans.

They point to six indicators that can foreshadow what they refer to as a “downward spiral” of a person's financial health, leaving them unable to repay their student loans. 

The six hardship metrics are:

  1. Credit scores,
  2. Outstanding mortgage balances,
  3. Unsecured credit utilization,
  4. Severe delinquency on loans,
  5. Adverse legal proceedings, such as foreclosures and bankruptcy, and
  6. Progress toward paying back car loans.

By comparing those metrics with borrowers’ outstanding student loans, plus how much money they make, Jiménez said they reached a simple conclusion. 

“Student debt should be erased completely for borrowers in the bottom half of the income distribution,” she said. 

For middle-income borrowers − those who make between $71,000 and $131,500 − the researchers are also advising the department to ensure their total student debt load is no greater than a third of their annual income. 

Student debt relief: What comes next?

The loan forgiveness panel is set to meet on Monday, and at the request of Kyra Taylor, one of the negotiators who represents legal assistance organizations, the researchers will present their work to the panel Tuesday. 

As for when Americans could actually see any student debt relief, the timeline stretches well into next year. A finalized version of Biden’s “Plan B” may not come until May at the earliest, and is likely to be further delayed by the regulatory process.

Once the plan is eventually finalized, it could be ensnared in court fights.

Zachary Schermele is a breaking news and education reporter for USA TODAY. You can reach him by email at Follow him on X at @ZachSchermele.