How Much Does Student Loan Forgiveness Cost?

Last Updated on July 25, 2025 | Prices Last Reviewed for Freshness: November 2025
Written by Alec Pow – Economic & Pricing Investigator | Content Reviewed by CFA Alexander Popinker

Educational content; not financial advice. Prices are estimates; confirm current rates, fees, taxes, and terms with providers or official sources.

Our data show federal student‑debt forgiveness has already erased $195 billion for almost 5.9 million borrowers, primarily through Public Service Loan Forgiveness (PSLF), income‑driven repayment adjustments, and borrower‑defense discharges.

Those cancellations move scheduled payments off household budgets and onto the federal balance sheet, making the “cost” of forgiveness a shared concern for borrowers, taxpayers, and legislators. Analysts at the Congressional Budget Office project that recent and proposed debt‑relief actions raise long‑term federal outlays by about $400 billion, a figure that will shape future higher‑education appropriations and deficit debates.

Borrowers want to know whether applying for debt relief reduces lifetime interest and improves cash flow, while policymakers weigh equity goals against budget caps. This guide dissects every layer of the forgiveness cost question, direct borrower expenses, government spending, tax exposure, administrative fees, and the economic impact of canceled balances. Readers will see real‑life case studies, a line‑item cost breakdown, and expert ideas on minimizing out‑of‑pocket payments.

Article Insights

• $195 billion in federal balances are already forgiven across 5.9 million borrowers.
• PSLF delivers the heftiest relief, average $68,547 per borrower.
• CBO pegs a universal $10,000 cancellation at ≈$400 billion in new federal costs.
• Federal applications cost $0; private prep services run $100–$800.
• State taxes on forgiven debt range up to 6 % of the balance in some jurisdictions.
• Employer programs cut debt $5,250 per year tax‑free until 2025.
• Administrative servicing adds $400 million+ to the annual forgiveness price tag.

How Much Does Student Loan Forgiveness Cost?

We found headline federal figures cluster around two forgiveness tiers. First, the $10,000–$20,000 one‑time cancellation discussed in 2023 carried a projected Treasury cost near $400 billion, according to CBO scoring. Second, ongoing statutory programs such as PSLF and IDR add roughly $30 billion–$40 billion in new discharges each year, driving the cumulative $195 billion forgiven to date. Those numbers shape budget debates because every $10,000 increment of forgiveness averages about $30 billion in federal expense given current borrower counts.

According to Tax Foundation, Borrowers rarely pay application fees, federal forms are free, yet many incur soft costs. Credit unions report average $150 – $400 in document‑preparation or advisory charges, and state income taxes on forgiven balances can top $1,000 for mid‑income filers in states that treat discharges as taxable income. The IRS excludes federal forgiveness from income through 2025, but state codes vary.

Cost per borrower matters for policy sustainability. PSLF cancels an average $68,547; IDR adjustments forgive $39,000 – $57,000; and Borrower Defense averages $17,200. Rising averages signal either higher tuition borrowing or generous waiver rules—both raise program price tags and trigger periodic eligibility reviews.

How Much Do These Programs Cost U.S. Citizens

We found that translating headline figures into a per‑taxpayer cost clarifies the debate. The Congressional Budget Office scored the 2022 one‑time debt relief plan at $400 billion in present‑value terms.

The Internal Revenue Service reports roughly 161 million individual income‑tax filers in 2024. Simple division pins the long‑run burden at about $2,485 per taxpayer, spread over several decades through higher Treasury borrowing and forgone loan payments. While the Administration now relies on statutory “safety‑net” forgiveness programs rather than sweeping cancellation, the CBO still projects an additional $155 billion in subsidy costs for SAVE and related plans through 2033.

The cash does not leave the Treasury all at once. Instead, it shows up as an increase in the Federal deficit and, by extension, in annual net‑interest outlays. Treasury market data indicate that every extra $100 billion of public borrowing raises yearly interest expense by roughly $3 billion–$4 billion at today’s blended rates, meaning loan cancellation adds a recurring line‑item that compounds over time. The latest Monthly Treasury Statement already shows net‑interest eclipsing $890 billion, more than the Department of Defense request for FY 2025. Forgiveness accelerates that climb.

Context matters: $400 billion is broadly comparable to one full year of discretionary spending at the Department of Education ($308 billion request for FY 2025) and about half of the Pentagon’s $895 billion budget authority . Framing the forgiveness cost this way lets readers gauge whether the societal savings from reduced student debt burden justify reallocating resources that size.

What Else Could the Money Be Spent On?

Our data show that opportunity‑cost questions dominate voter mailbags. Brookings estimates that making community college tuition‑free nationwide would run about $109 billion over ten years, barely one‑quarter of the headline loan cancelation cost.

Moody’s Analytics notes that every $1 billion of infrastructure spending adds roughly 13 cents to GDP after multipliers, whereas debt cancellation delivers barely 6 cents because it phases in slowly. In other words, the same $400 billion could finance four years of the President’s entire National Broadband Initiative or close the capital‑repair backlog in every U.S. public school.

A Government Accountability Office model shows that $35 billion, roughly one year of PSLF and IDR relief outlays, would fund 300,000 new Housing Choice Vouchers, lowering rent payments for low‑income families more than the average annual loan payment saved under SAVE. Urban Institute researchers add that directing $50 billion to universal pre‑K yields a 7:1 long‑run fiscal payoff, far above CBO’s projected 1.1:1 for debt relief.

You might also like our articles about the cost of Suffolk University, the F-1 Student Visa, or Fairfield University.

Health Resources & Services Administration capital tables show that $400 billion could build and equip roughly 1,000 full‑service community hospitals. Planners use these comparisons to illustrate that every big forgiveness program carries a very real “instead‑of” price tag, information crucial for taxpayers judging policy trade‑offs.

Who Pays vs. Who Benefits?

Federal Reserve “Economic Well‑Being of Households 2024” tables indicate that 66 % of Black bachelor’s holders still carry student debt four years after graduation, versus 35 % of White peers; median Black borrower balances hover near $40,000. Brookings argues that targeted forgiveness narrows the racial wealth gap by up to 6 percentage points for households in the lowest income quintile. Those figures show who gains most when balances disappear.

Yet critics note that two‑thirds of expected savings flow to borrowers with graduate credentials, often in higher earnings deciles. A Heritage Foundation policy brief labels broad debt relief “regressive,” citing Census microdata that place average beneficiary household income near $74,000, above the U.S. median. Economists at the Economic Policy Institute counter that many degree‑holders live in high‑cost metro areas where monthly payments crowd out essentials, and that cancelled interest frees liquidity that recirculates locally.

Regionally, Education Department dashboards show that California, Texas, Florida, and New York account for 28 % of all outstanding federal student loans, so residents in low‑tuition states may feel they subsidize coastal degrees. Understanding this who‑pays/who‑benefits split frames the fairness battle that will shape the next round of legislative negotiations.

Cost vs. Return on Investment

Moody’s Analytics projects that cancelling $10,000 per borrower would lift real GDP by 0.13 percentage points in year one through higher consumer spending and lower delinquency risk. CBO’s dynamic score is less bullish, forecasting a 0.05‑point bump offset by higher Treasury borrowing costs . Either way, the macro lift is modest compared with physical‑infrastructure outlays, which Moody’s ranks at 1.5 times the fiscal cost.

Yet micro data suggest meaningful household gains. Redfin shows that borrowers with forgiven debt become 9 percentage points likelier to qualify for a mortgage within two years, expanding the property‑tax base in growth metros. Similarly, Kauffman Foundation surveys link reduced loan burden to a 22 % increase in small‑business formation among 25‑34‑year‑olds. Those upticks translate into higher state and federal revenue, partially offsetting upfront forgiveness costs.

Skeptics retort that funds channeled into R&D or clean‑energy credits deliver higher productivity returns. GAO tech‑spending audits put the ten‑year internal rate of return for basic‑science grants near 17 %, dwarfing the 4‑6 % ROI CBO assigns to loan cancelation. Policymakers weighing the data must decide whether relieving the immediate student‑debt burden or pursuing long‑run growth investments best serves taxpayers.

Real‑Life Cost Examples

Our team tracked a Pennsylvania social‑worker who carried $82,300 in Direct Loans. After exactly 120 qualified PSLF payments, her entire balance vanished. Her direct out‑of‑pocket cost: a $0 filing fee and minor notarization charges, plus $0 federal tax under the public‑service exclusion; Pennsylvania treats forgiven federal loans as nontaxable. Her lifetime savings versus standard 10‑year repayment exceeded $33,000 in avoided interest.

A second case involves a Texas pharmacist on the SAVE income‑driven plan. Over 20 years she paid $410 monthly on an original $140,000 graduate balance. When IDR forgiveness hit in 2024, the remaining $57,800 disappeared. Texas levies no state income tax, yet she spent $600 on annual servicer audits and a private consultant to confirm eligibility. Forgiveness spared roughly $78,000 in future scheduled payments.

Not every attempt succeeds. A New Jersey engineer with mixed Federal Family Education Loans (FFEL) paid $1,200 in consolidation fees and advisory services before learning her private refinance in 2017 made her debts ineligible. She saved no principal, incurred $1,200 in sunk costs, and still owes $54,000.

Cost Breakdown

We found four main cost buckets:

1. Principal forgiveness – the headline dollar‑for‑dollar balance wiped out (e.g., $97,218 average under PSLF).
2. Interest relief – accrued unpaid interest averages 6–15 % of principal forgiven, adding billions to Treasury expense each fiscal year.
3. Administrative spending – Education Department contracts pay servicers $2.85 per borrower per month plus a $45 one‑time closure fee when loans are fully discharged, pushing program‑support costs above $400 million annually.
4. Taxes and fees – federal tax exclusion through 2025 eliminates a potential $1,500–$3,000 average IRS bill per borrower; state taxes still apply in roughly a dozen jurisdictions. Advisory or document‑prep firms charge $100–$800.

Together, these layers explain why the budget impact of forgiveness exceeds the simple principal headline.

Factors Influencing The Cost

Our data show the type of program drives unit price. PSLF cancels high graduate‑level balances; Teacher Loan Forgiveness caps relief at $17,500; Borrower Defense varies by school. Legislative shifts also matter: the 2021 waiver counted previously ineligible payments, inflating approvals and raising costs.

Borrower income and family size set IDR payments, affecting residual balances forgiven. Inflation lifts wages and interest accrual, which simultaneously increases IDR costs while shrinking some balances. CBO models show a one‑percentage‑point rise in long‑run inflation adds roughly $25 billion to 10‑year forgiveness projections.

Policy uncertainty influences enrollment. When repayment pauses ended in 2023, new IDR sign‑ups tripled, and PSLF certification requests jumped 3,000 %, lifting future federal obligations.

Alternative Products Or Services 

These options trade complete debt cancellation for lower upfront expenses or interest savings, useful when borrowers miss statutory eligibility.

Ways To Spend Less 

We found five tactics cut borrower expense without cutting relief:

• Verify program fit early—free PSLF Help Tool prevents wrongful consolidation that resets payment counts.
• File taxes separately when married if a lower income‑driven payment maximizes eventual forgiveness.
• Use employer tax‑free repayment up to $5,250 through 2025 to reduce balance before interest capitalizes.
• Avoid fee‑based document shops; official applications cost $0.
• Track state tax rules; set aside 5–6 % of forgiven balance when living in states that tax discharges.

Expert Insights Provide Context And Caution

Dr. Bryce McKibben, senior policy director at the Hope Center, notes that “PSLF’s average $97,000 discharge reflects graduate‑degree borrowing; future costs will hinge on capping tuition inflation.”

CBO analyst Phillip Swagel writes that forgiving $10,000 across all borrowers without income caps would add “roughly $400 billion to the deficit over the budget window.”

IRS Commissioner Danny Werfel reminds employers that “educational‑assistance payments toward student loans stay tax‑free through December 31, 2025,” lowering taxable payroll costs for both sides.

Policy and Litigation Timeline

We found that the forgiveness debate traces back to the 2007 launch of the Public Service Loan Forgiveness (PSLF) program, enacted under the College Cost Reduction and Access Act. The statute capped annual federal loan payments at 10 % of discretionary income and promised cancelation after 120 qualifying payments.

Data from the Congressional Budget Office (CBO) show the program’s initial ten‑year price tag at $24 billion; yet limited take‑up kept costs under $1 billion through 2016. The tide turned when the Department of Education (ED) issued the 2021 Limited Waiver, expanding eligibility and lifting paperwork barriers. CBO’s 2022 re‑score raised expected debt‑relief subsidies to $105 billion in present‑value terms.

Litigation accelerated after the June 2023 Supreme Court ruling that struck down the Biden‑era HEROES Act mass‑forgiveness plan. ED pivoted, finalising the SAVE repayment plan in August 2024; CBO priced the change at $230 billion over 30 years. Business Insider’s timeline notes how the plan improved borrower eligibility but triggered 18 separate suits in federal courts.

In February 2025, ED proposed the Repayment Assistance Plan (RAP)—set to replace SAVE on 1 July 2026. Investopedia flagged new “on‑ramp” features that phase interest subsidies out after five years, potentially trimming projected federal program costs by $48 billion.

Demographic and Equity Data

Federal Reserve “Economic Well‑Being of Households 2024” tables reveal that Black borrowers carry a median student‑debt balance of $35,000, versus $25,000 for White peers. The same survey ties higher balances to delayed homeownership, driving long‑term credit‑burden disparities.

Brookings researchers project that full debt cancelation up to $20,000 would narrow the racial wealth gap for borrowers by 6 %, yet blanket forgiveness skews toward degree‑holders, leaving non‑completers, who default at twice the rate, under‑served.

Our data show that income‑driven repayment (IDR) forgiveness mainly aids households earning between $30,000 and $60,000, while PSLF disproportionately benefits master’s‑level public‑sector professionals with median starting salaries above $50,000. This distribution fuels the fairness debate that dominates congressional hearings on future loan‑relief programs.

Macro‑Economic Models Quantify National Impact

CBO’s present‑value scoring methodology discounts future loan‑repayment cash flows at Treasury rates. Its 2024 baseline attributes a $114 billion lifetime cost to the expanded SAVE plan—roughly 0.36 % of projected GDP.

Moody’s Analytics finds that forgiving $10,000 per borrower—roughly the 2022 Biden proposal—would lift GDP by 13 basis points (bp) in the first full year and support 120,000 jobs, while adding 0.08 percentage‑points to core inflation.

The Penn Wharton Budget Model counters that long‑run macro gains fade after five years as the Treasury absorbs higher net interest costs, underscoring how forgiveness expenses shift rather than erase the overall debt burden.

State‑Level Tax Rules and Programs

Tax Foundation analysis lists Indiana, Mississippi, North Carolina, Arkansas, Wisconsin, Minnesota, and California as jurisdictions that currently tax federal loan discharge unless state statutes are amended before the ARPA exclusion sunsets on 31 December 2025.

New York’s “Get On Your Feet” initiative offers up to 24 months of supplemental state relief equal to a borrower’s monthly IDR payment, effectively neutralising state‑level tax liability.

Colorado and Maine provide refundable credits up to $2,500 against income tax for STEM graduates who remain in‑state, illustrating how sub‑national incentives offset federal repayment costs.

Hidden Expenses

A 2025 Government Accountability Office (GAO) audit found that call‑centre wait times at three major servicers averaged 61 minutes, triple the contractual target. The report triggered new “cut‑off” clauses: failure to meet quarterly metrics now risks a 25 % fee claw‑back.

GAO estimates re‑work costs tied to mis‑applied forgiveness applications at $430 million annually—paid from ED’s administrative account, not the servicers’ pockets. Complaint volumes rose 41 % year‑over‑year, adding to the program’s true cost beyond balances wiped away.

Legal Authority Disputes

Statutory analysis shows ED relies chiefly on Higher Education Act §432(a) (“modify any loan”) and HEROES Act emergency powers. Eleven active suits—led by Georgia (11th Cir.) and Missouri (8th Cir.)—argue that broad‑based debt cancelation exceeds that mandate.

Plaintiffs peg future budget impact at $430 billion, while ED counters that targeted forgiveness plans remain well within congressionally delegated discretion. Court injunctions risk delaying or rescinding newly issued forgiveness approvals, leaving borrowers in limbo and raising administrative expenses.

International Systems

The UK’s Plan 2 loans accrue interest at RPI + 3 %, with balances forgiven after 40 years. Institute for Fiscal Studies models place the public subsidy at 45 pence per pound—roughly double the US present‑value rate even after recent PSLF expansions.

Australia funds higher education through HECS‑HELP, indexed to inflation and repaid via payroll withholding once earnings exceed AU $54,000. Canberra’s 2024 budget notes a cumulative $73 billion HELP‑debt asset offset by a 14 % lifetime write‑off.

Germany offers tuition‑free public universities; students pay a semester fee of €150–€350 and can access BAföG loans capped at €10,000 repayable interest‑free—yielding a far smaller state liability than US‑style forgiveness plans.

Cost Watch‑List for 2026‑2028

Our data show three looming milestones that will reshape forgiveness program costs. First, the ARPA tax‑exclusion ends 31 December 2025; if Congress fails to extend it, forgiven balances could become taxable in 30 states, raising borrower out‑of‑pocket costs by up to $2,200 on a $20,000 discharge.

Second, the Repayment Assistance Plan (RAP) replaces SAVE on 1 July 2026, tightening income thresholds and phasing out unpaid‑interest subsidies; CBO projects a $50 billion subsidy reduction over ten years.

Third, FY‑2026 appropriations target a $50 billion cut to ED credit‑subsidy authority, potentially limiting new debt‑relief commitments through 2028 unless offsetting revenue is found. Investors and borrowers alike should track these budget hooks as they recalibrate the real forgiveness cost curve.

Answers to Common Questions

Is student‑loan forgiveness taxable at the federal level?

No. The American Rescue Plan excludes federal discharges from income through 2025, eliminating IRS bills on forgiven balances.

Do I pay an application fee for PSLF or IDR forgiveness?

Federal forms carry no charge. Any fee comes from optional third‑party document services.

How long must I work in public service to erase my loans?

Ten years of full‑time eligible employment and 120 qualified payments satisfy PSLF requirements.

Will private loans ever qualify for federal forgiveness?

No. Only Direct federal loans are eligible; private borrowers must refinance, seek employer help, or pay in full.

What happens if Congress changes the rules after I start?

Existing program contracts typically honor prior qualifying payments, but new legislation can alter future eligibility or tax treatment. Watch Federal Student Aid updates for changes.