Elizabeth Warren's $640B plan to cancel student debt: Would you benefit?

By Personal FinanceFOXBusiness

Elizabeth Warren looks to erase student loan debt

Former George W. Bush senior staffer Brad Blakeman and Democratic strategist Kristen Hawn discuss some of the policies proposed by Sen. Elizabeth Warren (D-Mass.) ahead of the 2020 election.

Massachusetts Sen. Elizabeth Warren this week unveiled a plan to cancel student debt obligations for millions of Americans – a proposal that one group of experts says could have a “substantial impact” on loan forgiveness.

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Under her policy, individuals with incomes below $100,000 could have $50,000 worth of student debt wiped out which she said would benefit 42 million people. The $50,000 cancellation amount would phase out by $1 for every $3 in income above $100,000. Those with incomes above $250,000 would not be eligible for relief.

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As noted by Warren, she expects about 95 percent of borrowing households to be eligible for some forgiveness under the policy.

Here’s a look at who would benefit the most:

Experts from Brandeis University analyzed Warren’s proposal and found that as many as 76 percent of borrowers would experience total loan forgiveness. As intended, researchers found that households at the bottom and middle three income quintiles would experience higher levels of forgiveness (at 80 percent or more), compared with the top income earners (less than 50 percent).

Forgiveness rates by education levels within household:

Households headed by someone who attended, but did not complete college: 90 percent

Households headed by an Associate’s degree holder: 87 percent

Households headed by a Bachelor’s degree holder: 72 percent

Households headed by a doctoral/professional degree holder: 28 percent

Economic impacts:

Researchers found that the policy would also decrease the wealth gap between Black and Latino borrowing households, versus White households. Black borrowing households are expected to gain $15,700 in wealth, while Latino households’ wealth gains would be $27,000.

Overall, cancelling debt could free up more money each month for “consumption and investment.”

“It would likely entail consumer-driven economic stimulus, improved credit scores, greater home-buying rates and housing stability, higher college completion rates, and greater business formation,” researchers wrote.

Cost:

Warren’s office estimates her student debt cancellation proposal would cost $640 billion.

A separate policy within the proposal, for universal free public college tuition, would bring the total up to $1.25 trillion over the course of the decade.

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Warren said that would be entirely covered through a tax proposal she announced earlier this year, which she calls the “ultra-millionaire tax.” The tax would be equal to 2 percent for those with more than $50 million in assets, but would rise to 3 percent for those who have assets valued at more than $1 billion.

According to economists from the University of California, Berkeley, who helped write the proposal, the tax would raise $2.75 trillion over the course of a decade. It would only apply to less than 0.1 percent of the population or about 75,000 families.