With Joe Biden soon to install an administration with political positions that greatly differ from that of his soon-to-be predecessor, one of the things that many Americans will be watching is what happens as it pertains to student loan debt.
Many progressive Democrats have publicly urged Biden to sign an executive order that cancels all $1.6 trillion federally-held student loan debt upon taking office. As we’ve covered in these posts before, the thinking behind canceling student loan debt is that it will provide a needed boost to the economy as young professionals can put this new disposable income toward things other than repaying college credit hours, and room and board. Specifically, such cancelation is believed to help young professionals earning lower wages.
A new analysis, however, is shedding new light on who exactly a cancelation would benefit the most. According to a working paper from the University of Chicago’s Becker Friedman Institute for Economics, erasing all of the federally-held student loan debt would mean nearly $200 billion would be kicked back to the top 20 percent of earners in the United States. Conversely, the analysis says that just $30 million would be distributed to the bottom 20 percent of households.
In fact, it’s estimated that less than one-third of all student loan debt is held by households without a bachelor’s degree. That means big gains for the upper and middle class.
The study actually went on to conclude that full or even partial student loan debt forgiveness would be considered a regressive policy because it would offset the higher loans that higher-income professionals received and the lesser loans received by lower-income professionals.
So, what’s the solution to the mounting student loan debt crisis? The economists who authored the study suggest expanding income-based repayment plans so that student loan debt can be paid back more comfortably.
Where does Biden really stand on student loan forgiveness? While he’s suggested being in favor of a policy that can forgive at least up to $10,000 immediately for economically depressed households, he’s also been on record stating that student loan forgiveness is something that he would prefer to see taken up with bipartisan support and passed in both chambers of Congress.
It’s an interesting topic that’s sure to continue to be discussed in the coming weeks and months, and being able to assess studies such as that from the University of Chicago’s Becker Friedman Institute for Economics helps to put things in perspective even more.