Erasing student loan debt could disproportionately benefit America’s wealthy
President Biden relaunched the ability to erase some student loan debt for millions of Americans, a policy that could disproportionately benefit wealthy Americans.
Biden, who is facing mounting pressure from progressives as well as declining approval ratings, last week raised the possibility of eliminating $10,000 of debt per borrower, likely through action by the executive.
BIDEN CANCELLING STUDENT DEBT WILL WORSEN INFLATION, EXPERTS WARN
“I’m looking at facing some debt reduction,” Biden said Thursday in response to a question at the White House. “I’m not looking at $50,000 in debt relief. But I’m carefully considering whether or not there will be additional debt relief.”
But recent work paper published by the Becker Friedman Institute for Economics at the University of Chicago shows that erasing all student loan debt would distribute about $192 billion to the top 20% earners in the United States and only $29 billion to the top 20 % of poorest US households. This uneven distribution would likely be reflected in a plan in which only $10,000 of debt is forgiven.
Under a universal loan forgiveness program, the average individual among the highest-earning borrowers would receive $5,944 in forgiveness, while those with the lowest incomes would receive $1,070 in forgiveness, according to the study. written by economists Sylvain Catherine and Constantine Yannelis.
According to the study, the trend is similar for policies that forgive up to $10,000 of debt, with higher-income households still benefiting from significantly more loan forgiveness.
“Full or partial cancellation is regressive because high incomes have taken out larger loans, but also because, for low incomes, the balances significantly overestimate current values,” they argued, noting that people benefiting from income-based repayment plans will already have their remaining balances canceled after 25 years. years.
Instead of canceling all student loan debt, economists said, the federal government should consider expanding income-based repayment plans to cover more people.
“Forgiveness would benefit the top decile as much as the bottom three deciles combined,” they said. “Blacks and Hispanics would also benefit far less than the sales suggest. Enrolling households who would benefit from income-based reimbursement is the least expensive and most progressive policy we are considering.”
Less than one-third of all student debt is held by households without a bachelor’s degree, while nearly two-fifths of debt is held by households with an advanced degree. A recent survey conducted by the Pew Research Center shows that most of the economic suffering of the crisis is concentrated among the least educated people.
Still, the Biden administration is reportedly considering income caps for student loan relief eligibility that would exclude high-income earners, according to the Washington Post. Officials have raised the possibility of limiting the relief to people who earned less than $125,000 or $150,000 as individual filers in the previous year. This would equate to a threshold of about $250,000 to $300,000 for couples who file their taxes jointly.
White House officials have warned that no final decision has been made.
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Biden supported writing off $10,000 in student debt for most borrowers during his presidential campaign, but raised questions about his legal authority to do so by executive order. Last year, the president requested a memo from the Department of Education to determine whether he had the authority to unilaterally write off student loan debt.
Such sweeping executive action would almost certainly face legal challenge, and it’s unclear whether it could survive. Critics have argued that the use of such power goes beyond the president’s authority granted by Congress. Canceling student loan debt would also add to the country’s already bloated national deficit, which totaled a record $2.8 trillion in fiscal year 2021.