New Analysis Argues Student Debt Cancellation Offers Progressive Relief

Related Topics in the Ref Desk: Direct Loans; Discharge, cancellation, forgiveness

By Hugh T. Ferguson, NASFAA Staff Reporter

A new report is aiming to rebut the idea that broad student loan debt cancellation would serve as a regressive policy by highlighting “empirical and conceptual errors” made in a past analysis, and specifically arguing that loan forgiveness would benefit those with the least wealth.

The new brief — published last week by the Roosevelt Institute —  follows a study from the Committee for a Responsible Federal Budget (CRFB), which found partial cancellation — in this case $10,000 or $50,000 for each borrower with federal student loans — would produce “only 2 to 27 cents of economic activity for every dollar of cost,” and declared that it is time “to retire the idea that the regressive cancellation of student debt is a cost-effective way to stimulate the economy.”

The authors of the Roosevelt Institute brief, on the other hand, conclude that more substantial cancellation policies would be more progressive, and highlight what they consider to be common mistakes that have led to the belief that student debt cancellation is regressive. Additionally, the brief offers methodological corrections to demonstrate the impact that $50,000 of student debt cancellation would have on borrowers.

In their analysis, authors Charlie Eaton, Adam Goldstein, Laura Hamilton, and Frederick Wherry, counter a number of those conclusions, and specifically aim to tackle what it refers to as the “myth of student loan cancellation regressivity.” The authors argue that this myth arises as a result of several straightforward empirical and conceptual errors that have plagued critiques of student debt cancellation, such as the methodology that other reports utilized, specifically citing an incorporation of private loan forgiveness when most policies only focus on federal student loans, along with modeling redistribution by wealth, not income.

The Roosevelt Institute brief also claims past reports also fell short by ignoring racial distribution of student loan debt, highlighting the value of debt to the government rather than to the borrower.

The authors issued their own corrections for those studies and determined in a number of metrics that the progressivity of debt cancellation becomes apparent.

In using the proposal put forward by Sen. Elizabeth Warren (D-Mass.) and Senate Majority Leader Chuck Schumer (D-N.Y.), the study looks to highlight how cancellation would provide  more benefits for those with the least wealth.

According to their analysis, the average person in the 20th to 40th percentiles for household assets would receive more than four times as much debt cancellation as the average person in the top 10%, and twice as much debt cancellation as people in the 80th to 90th percentiles.

Additionally, estimated debt cancellation from the Warren-Schumer plan would offer $562 in relief per person (including non-borrowers) in the top 10% of households for net worth. Estimated cancellation would offer $17,366 for Black persons and $12,617 for white persons in the bottom 10% for net worth.

According to the authors, examining borrowers alone provides an artificially inflated and misleading picture of the benefits that flow to higher-income households. “A full population analysis provides a more progressive picture of student debt cancellation’s effects," the authors write explaining why their analysis includes full population.

“Attempting to ensure that not a single student debt cancellation dollar goes to the proportionately tiny numbers of advantaged households with some student debt is counterproductive — potentially derailing efforts to relieve masses of young borrowers, many of whom are Black and Latinx, from the burden of financing higher education,” the authors write in their conclusion. “Debt cancellation is a necessary remedy for government policy that has come at a great cost to recent generations of Americans.”

The issue of student loan debt relief will likely be amplified as conversations surrounding how the Department of Education (ED) will approach the potential end of the student loan moratorium continue.


Publication Date: 6/14/2021

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