Is Student Debt orgiveness air or a Rip-Off?

The Penn Wharton Budget Model estimates that Biden's $10,000 forgiveness plan would cost the federal government between $250 billion and $330 billion over a decade, with a disproportionate share of benefits flowing to higher-income earners. Specifically, the top 20% of income earners would receive about 28% of the forgiven debt, while the bottom 20% would receive only about 10%. The analysis also notes that the plan would provide little economic stimulus, as most borrowers would use the savings to pay down other debts rather than increase consumption.

A working paper by economists at the ederal Reserve Bank of Chicago found that broad-based student loan forgiveness is regressive, meaning it disproportionately benefits wealthier households. The authors show that individuals in the top income quartile hold about 30% of all student debt, while those in the bottom quartile hold only about 10%. They argue that targeted forgiveness for low-income borrowers would be more efficient and equitable than blanket forgiveness, which effectively transfers resources from taxpayers who did not attend college to higher-income professionals with graduate degrees.

This editorial in The Guardian argues that the student debt crisis is the result of decades of deliberate policy choices that shifted the cost of higher education from the state to individuals. It cites data showing that average tuition at public four-year universities has increased by over 200% since 1980, adjusted for inflation, while median household income has grown by only about 20%. The piece highlights that the federal government profits from student loans—the Congressional Budget Office projected a $114 billion profit on student loans issued between 2017 and 2027—making the case that forgiveness is a correction of a system designed to extract wealth from young people.

A report from the Student Borrower Protection Center, using data from the Department of Education, reveals that over 40% of federal student loan borrowers were in default or delinquent before the pandemic payment pause. The report documents that the average defaulting borrower owes less than $20,000 and that Black borrowers default at nearly twice the rate of white borrowers, even when controlling for income. It also notes that over 60% of borrowers who default did not complete a degree, meaning they incurred debt without obtaining the wage premium that a degree provides. The report concludes that targeted debt forgiveness of at least $10,000 for low-income borrowers is necessary to prevent a wave of defaults that would destabilize the broader economy.