President-elect Joe Biden is facing mounting pressure from progressives to cancel student loan debt on his first day in the White House – but doing so may disproportionately benefit wealthy Americans, according to a new analysis.
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A working paper published Monday by the University of Chicago’s Becker Friedman Institute for Economics shows that erasing all student loan debt would distribute $192 billion to the top 20% of earners in the U.S., but just $29 billion to the bottom 20% of U.S. households.
Under a universal loan forgiveness program, the average individual among the top-earning borrowers would receive $5,944 in forgiveness, while those with the lowest incomes would receive $1,070 in forgiveness, according to the study, authored by economists Sylvain Catherine and Constantine Yannelis.
"Full or partial forgiveness is regressive because high earners took larger loans, but also because, for low earners, balances greatly overstate present values," they argued, noting that individuals on income-driven repayment plans will already have their remaining balances forgiven after 25 years.
Instead of canceling all student loan debt, the economists said, the federal government should consider expanding income-driven repayment plans to cover more people.
"Forgiveness would benefit the top decile as much as the bottom three deciles combined," they said. "Blacks and Hispanics would also benefit substantially less than balances suggest. Enrolling households who would benefit from income-driven repayment is the least expensive and most progressive policy we consider."
Less than one-third of all student debt is held by households without a bachelor's degree – while nearly two-fifths of debt is held by households with graduate degrees. A recent survey conducted by the Pew Research Center shows that most of the economic suffering from the crisis is concentrated among less-educated individuals.
Biden has endorsed canceling some student loan debt "immediately" upon entering the White House, reiterating his support last week for a provision of the HEROES Act, which the Democrat-controlled House passed earlier this year.
Under that legislation, economically distressed borrowers would immediately have $10,000 in student debt forgiven. The government would also cover monthly loan payments for people with private student loans until September 2021 and forgive $10,000 of their debt.
“Immediate $10,000 forgiveness of student loans, helping people up there in real trouble," Biden said recently. "They’re having to make choices between paying their student loan and paying the rent. Those kinds of decisions.”
A Biden official later told Fox News that the former vice president does not want to issue an executive order and instead wants Congress to legislate on the matter.