Forgive Federal Student Loans

The federal student loan portfolio holds approximately $1.6 trillion in outstanding principal across roughly 43 million borrowers. As of June 2025, 5.3 million borrowers were in default on $117 billion in federal loans. The 2022 administrative cancellation plan was struck down in Biden v. Nebraska, 600 U.S. 477 (2023), on the ground that the Higher Education Relief Opportunities for Students Act of 2003 did not authorize the Secretary of Education to discharge debt at that scale. A statutory discharge would not be subject to the same authority challenge that voided the 2022 plan.

Composition of the federal student loan portfolio

The Department of Education holds federal student loans through three programs: the William D. Ford Federal Direct Loan Program, the legacy Federal Family Education Loan Program (FFEL), and the legacy Perkins Loan Program. In the Federal Reserve’s G.19 Consumer Credit release, federal student loans are the largest non-mortgage consumer debt category. The 2022 Survey of Consumer Finances found that Black households are roughly twice as likely as white households to hold student debt and carry larger balances, and that student debt is concentrated in households with the lowest pre-loan net worth.

The Department resumed collections on defaulted accounts in June 2025 after a five-year pause that began under the CARES Act in March 2020. Enforcement tools include Treasury Offset Program seizure of tax refunds and Social Security payments, administrative wage garnishment, and reporting to credit bureaus. The Income-Driven Repayment (IDR) plans created under 34 CFR Part 685 reduce monthly payments to a percentage of discretionary income; the SAVE plan published in the Federal Register on July 10, 2023 is currently enjoined.

Statutory and regulatory framework

After Biden v. Nebraska, the HEROES Act no longer supports unilateral executive cancellation. The compromise authority at 20 U.S.C. § 1082(a)(6) is the subject of pending rulemaking and active litigation. A statutory discharge does not require an emergency declaration and is not subject to the major-questions doctrine.

Cancellation legislation should:

• Discharge in full all loans held by the Department of Education under the Direct, FFEL, and Perkins programs as of the date of enactment.
• Treat the discharged amount as not includible in gross income for federal tax purposes, extending the treatment under American Rescue Plan Act § 9675 permanently.
• Direct the Secretary of Education to instruct loan servicers to mark all discharged accounts as paid in full and report the discharge to consumer reporting agencies within 60 days.
• Require the Treasury Offset Program to release any pending offsets, refund collected amounts seized after the date of enactment, and stop wage garnishments tied to the cancelled portfolio.
• Authorize negotiated rulemaking under 20 U.S.C. § 1098a to issue conforming regulations within 180 days, including treatment of mid-cycle Public Service Loan Forgiveness applications, Income-Driven Repayment crediting, and Borrower Defense to Repayment claims pending at the Department.

Companion legislation should address the conditions that produced the portfolio. It should fund the Pell Grant program at the level needed to cover the full cost of attendance at any public two- or four-year institution. It should cap federal student loan interest rates at the Treasury cost of funds. It should prohibit federal Title IV funding to for-profit institutions.

Precedent

The federal government has discharged student loans by statute and by regulation for specific categories of borrowers since the Higher Education Act of 1965. Public Service Loan Forgiveness at 20 U.S.C. § 1087e(m) cancels the balance of Direct Loans for borrowers who have made 120 qualifying payments while employed in qualifying public service. Total and Permanent Disability discharge is authorized at 34 CFR § 685.213. The Borrower Defense to Repayment regulation at 34 CFR § 685.222 cancels loans where the institution engaged in misrepresentation. The Closed School discharge at 34 CFR § 685.214 cancels loans where the school closed during enrollment.

International comparators come from countries with tuition-free public higher education. Germany abolished tuition fees across all 16 Länder by 2014; the Eurydice country profile reports no tuition in either first-cycle or second-cycle programs. Public institutions in Norway, Finland, Iceland, and the Czech Republic also charge no tuition to domestic students. The OECD Education at a Glance 2025 report shows that public expenditure covers a majority of tertiary education costs across OECD member states; the United States is one of the few in which household borrowing is the primary financing channel.

Empirical evidence on cancellation effects comes from peer-reviewed and working-paper sources. NBER Working Paper 33462 (Dinerstein et al., 2025) studied the August 2022 cancellation announcement and found that borrowers used freed-up cash flow to take on approximately 9 cents of additional consumer debt for every dollar forgiven, with the largest effects in mortgage and auto borrowing. NBER Working Paper 25810 (Di Maggio, Kalda, and Yao) found that borrowers whose private student debt was discharged had a higher rate of geographic and occupational mobility and increased earnings in the years following discharge. The Roosevelt Institute analysis of the 2019 Survey of Consumer Finances found that broad cancellation reduces the racial wealth gap in households below the 90th percentile.

First 100 days

Day one. The administration directs the Department of Education to suspend involuntary collections on all federally held loans, including Treasury Offset Program seizures and administrative wage garnishment, pending enactment.

Day thirty. The Office of Management and Budget transmits the cancellation legislation to Congress with the implementing regulatory framework drafted under 20 U.S.C. § 1098a. The Department of Education publishes the projected discharge timeline by servicer, with an interim freeze on credit-bureau adverse reporting for accounts on the discharge list.

Day ninety. Congress passes the cancellation Act. The Secretary of Education orders servicers to mark all covered accounts paid in full, refunds payments collected after the date of enactment, and issues the negotiated rulemaking notice for conforming regulations on PSLF crediting, IDR transition, and Borrower Defense.

Projected effects of cancellation

The full discharge of federally held student debt removes a recurring claim on borrower income that, as of June 2025, had pushed 5.3 million Americans into default. The Federal Reserve’s 2022 Survey of Consumer Finances and the 2025 FEDS Notes update document the racial concentration of the portfolio; cancellation removes that concentrated liability from household balance sheets. The companion tuition-financing provisions are designed to prevent the federal student loan portfolio from accumulating again following discharge.