When people debate whether to forgive some or all of the $1.75 trillion in student debt that weighs on millions of American families, opponents often argue that it would be wasteful and unfair: too many people relatively well-off and well-educated would benefit at the expense of all taxpayers, many of whom have never had the desire or the opportunity to go to college.
As reasonable as that sounds, it’s the wrong way to think about a policy that could actually do a lot of good, both for individuals and for the economy at large. It relies on a misleading concept of who counts as rich and ignores the extent to which debt itself is a manifestation of injustice.
It’s true that if you look at the US population by income, most student debt is owed by the top half of households. By one estimate, this group would receive about three-quarters of the forgiven dollars (in present value terms) if all debt was forgiven. This has led economists and politicians to call the policy “regressive”.
But this analysis is flawed on several levels. On the one hand, it’s an inappropriate way to assess the regressivity of politics: Social Security, the nation’s largest safety net program, may also appear regressive – until one recognizes that low-income participants receive greater benefits relative to what they contribute in taxes. In the case of student debt forgiveness, the income-based assessment does not take into account people’s starting positions – the household resources that determine so much in life, including whether they can attend school. university without debts. In the United States, these starting positions differ dramatically, largely due to a long and ignominious history of racism that, generation after generation, has kept black families from getting rich.
Consider the investments the government has made in education over the past century. After World War II, the GI Bill paid for the college education of millions of returning soldiers – except for black veterans, whose access to benefits was severely limited. Before the Civil Rights Act ended legal segregation in 1964, many public colleges and universities were largely free. But the political will to subsidize higher education waned as enrollment rates for blacks, Latinos and Asians rose. Along with policies such as redlining, this fostered extreme disparities, in which middle-class white families hoarded wealth to pay for higher education, while black families had to rely much more on student loans to earn college degrees. academics that were increasingly becoming a prerequisite for upward mobility.
Because of such federally engineered inequality, otherwise qualified and dedicated students graduate with vastly different debt burdens, defined to a disturbing extent by their race and marital status. A 2016 study found that four years after earning a bachelor’s degree, the average black graduate had about $53,000 in debt, nearly double the level of the average white graduate. Some 91% of black medical students emerge in debt, with a median amount of $230,000; comparable figures for white students are 71% and $200,000. Even if income-based plans keep payments low, these debts remain on personal balance sheets for decades, preventing borrowers from starting businesses, investing in homes and engaging in other activities – such as non-profit work or public service – that would increase their own and the nation’s prosperity.
Regressive tax policies compound the problem. In the decade from 2021 to 2030, for example, federal and state governments are expected to spend more than $55 billion on programs like 529 plans, which provide tax benefits to the wealthiest households who can afford to pay. save for college and have the resources to navigate the rules. In contrast, the government would have to spend less than half that amount on income tax deductions for student loan interest, which is capped at $2,500 a year — not very helpful for students. black medical graduates, whose interest payments could amount to more than $10,000 a year.
Efforts to reduce the student loan burden have so far proven woefully insufficient. The Department of Education has rejected around 98% of applications for its civil service loan forgiveness scheme. Participation in income-tested repayment plans is hampered by bewildering complexity, poor management, and predatory practices on the part of loan servicers. In the end, this does not solve the overwhelming balances. The Biden administration has moved to write off student debt fed to unscrupulous for-profit colleges, but the amounts are tiny compared to the overall burden. Even outright default offers little relief, as student debt remains almost impossible to pay in the event of bankruptcy.
Blanket debt cancellation, on the other hand, could have an immediate effect and would be well targeted at those with the least wealth and who have suffered the most discrimination. Researchers at the Roosevelt Institute estimate that if federal loans were canceled completely, about 70% of relief dollars would go to the poorest half of Americans, as measured by household assets. Here’s a breakdown by asset quantile, for cancellation capped at $50,000 (as proposed by Senators Elizabeth Warren and Chuck Schumer) and for full cancellation:
Using different data sources, we and the Roosevelt study find that forgiveness would also have an outsized effect on the wealth of black households. According to their estimate, a complete cancellation would increase the net worth of the median black household by about 50%, from $16,700 to $25,000. Our estimates find even stronger effects for low-wealth households.
Granted, the remission would not address the underlying inequalities that created the debt in the first place – which is why it should be accompanied by reforms to make quality public higher education free. While some relatively high-income people may qualify for relief, in many cases it is low-income households who have managed to join the middle class against all odds, and such “leakage” is an inadequate justification for reject a policy that could help so many people so quickly. . Instead of perpetuating the myth that canceling student debt is for the rich, politicians and the Biden administration should recognize how regressive the status quo is and do what is best for the nation and its people. .
Carl Romer is a data analyst at the California Policy Lab. Andre Perry is a senior Fellow at Brookings Metro. He is the author of “Know Your Price: Valuing Black Lives and Property in Black American Cities.”