New Analysis Details How Targeted Student Debt Forgiveness Thresholds Increase Relief for Vulnerable Borrowers

By Hugh T. Ferguson, NASFAA Senior Staff Reporter

As borrowers continue with what will amount to be a 30-month reprieve from federal student loan repayments, new reports are continuing to provide details as to how varying forgiveness plans could best target relief for borrowers who struggle the most.

The New York Federal Reserve, in a new report, is seeking to answer who would most likely benefit from widespread student loan forgiveness and how setting parameters on the cancellation totals could bolster the financial relief administered to vulnerable borrowers.

Utilizing anonymized credit reports to identify federal loans — which allowed the New York Federal Reserve to calculate the total costs of forgiveness proposals and examine the benefits of student loan forgiveness — the report provides a macro analysis of how the relief would be allocated to borrowers by their age, income, credit score, and neighborhood demographics.

Specifically the report looks at proposals that would provide $50,000 and $10,000 in loan forgiveness, as well as the impact of placing a limit on those who can access the cancellation to a household income limit of $75,000.

One of the main findings of the report is that increasing student loan forgiveness from $10,000 to $50,000 would benefit more borrowers from higher income neighborhoods, but that capping the household income could “counterbalance” that effect.

Under a $75,000 income cap, the share of forgiven dollars going to high-income areas falls from the 30% range to roughly 18%, and the share of forgiven debt going to low-income areas increases from the 25% range to around 34%.

According to the analysis, capping the income threshold for forgiveness would lower the overall cost of the policy, while providing more relief to low- and middle-income neighborhoods, borrowers with lower and middle range credit scores, and majority-minority neighborhoods.

The report also argues that any of the forgiveness policy that incorporates means testing would be better tailored to borrowers facing greater struggles with repayment and make the policy meaningfully less regressive in nature.

Stay tuned to Today’s News for more coverage of the federal government’s student loan portfolio.


Publication Date: 5/2/2022

Robert F | 5/3/2022 11:9:06 AM

Given all of the tax mechanisms which exist for those of means to increase wealth on the backs of Taxpayers, it is time to help those who try to "pull themselves up by their bootstraps" to be given a fair chance to equalize the playing field. As this research clearly shows the feds should not let the "perfect be the enemy of the good". As a Taxpayer I am ok with the full $50K. Less talk, more action!

David S | 5/2/2022 12:49:06 PM

Thank you to the authors of this report, for showing how some nuance beyond "cancel all loans" provides what many - even those who continuously oppose student loan cancellation - would consider desirable results.

Is any way to cancel student loans perfect? No...just like everything else in financial aid. But is some cancellation, targeting those who need help the most, better than not doing any? Yes.

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