Student Loan Cancellation Would Increase Your Wealth By This Much

This post was originally published on this site

New research shows that $50,000 of student loan cancellation would increase your wealth by this much.

Here’s what you need to know.

Student Loans

Student loan cancellation would increase wealth — not mostly for the wealthiest Americans as some have argued — but for those who need it most. That’s one of the conclusions from new research from The Roosevelt Institute, a non-profit think tank. Here is the amount of money that Americans in each wealth bracket would get, per capita, from $50,000 of student loan cancellation:

  • Top 10% wealth bracket: $562
  • 80th-90th % wealth bracket: $1,075
  • 70th – 80th % wealth bracket: $1,508
  • Bottom 10% wealth bracket (Latinx): $11,090
  • Bottom 10% wealth bracket (Caucasian): $12,617
  • Bottom 10% wealth bracket (African-American): $17,366

Student loan cancellation: more takeaways

1. Student loan cancellation is progressive.

According to the report, “The largest share of debt cancellation dollars goes to people with the least wealth, which addresses (but does not close) the racial wealth gap. 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 percent, and twice as much debt cancellation as people in the 80th to 90th percentiles.” Some critics of student loan cancellation say it would disproportionately benefit wealthier Americans with student loans. Concerns about regressivity have created an inaccurate picture of student loan cancellation, the authors say. The report says that “Debt cancellation leads to the highest reductions in the debt-to-income ratio for people with the lowest incomes” and that People from wealthy backgrounds (and their parents) rarely use student loans to pay for college.”


2. $50,000 of student loan cancellation is more progressive than $10,000 of student loan cancellation.

The authors say that the legislative proposal from Sen. Elizabeth Warren (D-MA) and Sen. Chuck Schumer (D-NY) to cancel up to $50,000 of student loan debt is more progressive than the $10,000 of student loan forgiveness proposed by President Joe Biden. If policymakers want to create more progressive policy, then they should cancel $50,000 of student loans, or more. According to the report, “At every point on the income and asset distributions, Black households would gain equally or more from cancellation relative to white households. Upwardly mobile Black and Latinx people in the 50th to 90th income percentiles would receive the largest average cancellation.” If there is any student loan cancellation, here are 5 potential changes that could happen following the Education Department’s review of Biden’s legal authority to cancel student loans.

3. Student loan cancellation shouldn’t have income limitations

Under the Warren-Schumer plan, only student loans borrowers who earn up to $125,000 annually would be eligible for student loan cancellation. This means that any student loan borrowers who earn more than income amount would not qualify for any stuednt loan forgiveness. However, the authors argue that income eligibility is an inefficient way to achieve a progressive aim. They say it would also create administrative burdens for student loan borrowers. According to the report, “Moreover, because Black-white racial gaps in student debt balances are greatest in the upper-middle (60th to 90th percentiles) portions of the income and wealth distributions, the imposition of an income cap in student debt cancellation would actually limit rather than enhance the policy’s effect in diminishing racial wealth gaps.

4. Income-driven repayment plans are a bad substitute for student loan cancellation

Many student loan borrowers are wondering if they should wait for student loan cancellation, even if it may not come. Or, if they should consider other options like student loan refinancing, given the record low interest rates, or student loan forgiveness through income-driven repayment. While income-driven repayment plans can lead to student loan cancellation, the authors say these student loan plans hurt student loan borrowers with high income but limited household wealth. They also say that the U.S. Department of Education has not “accurately and equitably” administered income-driven repayment plans and public service loan programs. As a result, they say this has contributed to relatively low rates of student loan cancellation for student loan borrowers.

If you have student loans, make sure you make the best financial decision for you. Here are some smart options to consider:

Student Loans: Related Reading

Biden will review student loan forgiveness—Here are 5 potential changes

4 ways that Biden enacts student loan cancellation

Democrats propose to forgive student loans with 4 changes

Student loan cancellation faces major setback

Related Posts