Proof Points: Economists wary of student loan forgiveness proposals

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By Jill Barshay

Progressives are urging President-elect Joe Biden to use his executive powers to cancel student debt during his first 100 days in office and several proposals to cancel student debt are circulating around Washington, D.C. But economists who have studied the federal student loan data are warning against addressing the student loan crisis this way. That’s because a plan to cancel the same amount of debt for all is likely to benefit many more middle- and upper-middle class Americans, who can mostly pay their bills, than low-income Americans, who tend to struggle with student debt.
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Key Findings 
  • Forgiving $10,000 in student loans for borrowers in the bottom 20 percent would add up to $55 billion, according to a recent analysis of 2016 data by economist Matt Chingos at the Urban Institute. There were the same number of people making between $65,000 and $110,000 but these borrowers would reap almost twice as much or $100 billion in debt relief.  

  • Grad school is a growing segment of student loan debt. Almost half of fresh loans are being issued for graduate school. And more than half of outstanding debt is owed by people with a graduate degree, who tend to have high earnings. 

  • Fixing problems with income-driven repayment plans, where monthly student loan payments adjust based on a person’s earnings, would better target relief at low-income borrowers and those who are struggling, some economists say.

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Lit Review 
  1. Sandy Baum and Adam Looney, “Who owes the most in student loans: New data from the Fed,” The Brookings Institutions, October 9, 2020. 
  2. Matt Chingos, “Can We Design Student Loan Forgiveness to Target Low-Income Families?” Urban Institute, May 14, 2019 
  3. Adam Looney, “Who owes the most student debt?,” Brookings Institution, June 28, 2019.  
  4. Income-Driven Repayment Plans for Student Loans: Budgetary Costs and Policy Options,” Congressional Budget Office, February 12, 2020. 
  5. Matthew Chingos, “What do racial and ethnic wealth gaps mean for student loan policy?” Urban Institute, February 25, 2019.
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