Erasing student loan debt could disproportionately benefit wealthy Americans

Biden 'taking a hard look' at whether to cancel student loan debt

President Biden has revived the possibility of erasing some student loan debt for millions of Americans, a policy that could disproportionately benefit wealthy Americans.  

Biden, who is facing mounting pressure from progressives as well as declining approval ratings, floated the possibility last week of eliminating $10,000 in debt per borrower, likely through executive action. 


"I am considering dealing with some debt reduction," Biden said Thursday in response to a question at the White House. "I am not considering $50,000 debt reduction. But I'm in the process of taking a hard look at whether or not there will be additional debt forgiveness."

A trombone player with the Too Much Talent band performs at a Student Loan Forgiveness rally on Pennsylvania Avenue and 17th Street near the White House on April 27, 2022 in Washington, D.C.  (Anna Moneymaker/Getty Images / Getty Images)

But a recent working paper published by the University of Chicago’s Becker Friedman Institute for Economics shows that erasing all student loan debt would distribute about $192 billion to the top 20% of earners in the U.S., and just $29 billion to the bottom 20% of U.S. households. That unequal distribution would likely be mirrored under a plan in which just $10,000 in debt is canceled. 

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.

The pattern is similar under policies forgiving up to $10,000 in debt, with higher-income households still seeing significantly more loan forgiveness, according to the study. 

Joe Biden

President Biden speaks about the COVID-19 relief package in the State Dining Room of the White House, Monday, March 15, 2021, in Washington.  (AP / AP Images)

"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.

President Biden exits the White House on the South Lawn as he walks toward Marine One on Nov. 12, 2021, in Washington, D.C.  (Drew Angerer/Getty Images / Getty Images)

Still, the Biden administration is reportedly considering income caps for eligibility for student loan relief that would exclude higher-income earners, according to the Washington Post. Officials have floated the possibility of limiting the relief to people who earned less than $125,000 or $150,000 as individual filers the previous year. That would amount to a threshold of roughly $250,000 to $300,000 for couples who file their taxes jointly. 

The White House officials cautioned that no final decision has been made. 


Biden supported erasing $10,000 in student debt for most borrowers during his presidential campaign, but has raised questions about his legal authority to do so via executive order. Last year, the president requested a memo from the Education Department to determine whether he had the power to unilaterally cancel student loan debt.

Such sweeping executive action would almost certainly face a legal challenge, and it's unclear whether it could survive. Critics have argued that using such power exceeds the president's authority granted by Congress. Canceling student loan debt would also add to the nation's already-ballooning national deficit, which totaled a near-record $2.8 trillion for the 2021 fiscal year.