How federal forgiveness proposals would affect student loan debt
Student loan debt is on the rise. Three proposals are being considered to forgive some or all public student loan debt in the US. An analysis of government data shows how each proposal would affect Americans depending on the size of their debt, their race or ethnicity or their income.
Student loans debt is the fastest growing category of consumer debt in the US and is now the largest form of non-mortgage debt. The Department of Education reports that federal student loans reached $1.6 trillion in 2020, with the average borrower owing $36,500. About one in five working-age Americans, or 43 million people, carried federal student loan debt in 2020. This is a 50% increase in the number of borrowers and almost triple the amount of debt carried since 2007.
Student loans fall into two categories — federal and private. Federal loans comprise most student loans. During the 2020 presidential campaign, many candidates discussed possibilities for student loan forgiveness.
What are the different proposals for student loan debt?
President Joe Biden endorsed federal student loan cancellation as part of his campaign. In his first 100 days of office, he supported targeted student loan forgiveness in the form of a universal $10,000 per borrower.
In September 2020, Senate Democratic Leader Chuck Schumer and Senator Elizabeth Warren proposed to cancel up to $50,000 in federal student loan debt per borrower. In March 2021, President Biden requested that Secretary of Education Miguel Cardona explore the feasibility of federal student loan forgiveness for up to $50,000 per borrower. Biden also suggested that canceling student loans should depend on the type of university, forgiving all federal student loans for public universities, but not private universities.
During his 2020 presidential campaign, Senator Bernie Sanders proposed eliminating all student loan debt.
If any of the proposals were enacted, how would each affect student loan borrowers?
Biden’sproposal would eliminate student loan debt for almost one-third of borrowers.
Almost one-third of federal student loan borrowers owed less than $10,000 in 2020, according to Department of Education data. Half of all borrowers owed between $10,000 and $60,000. On the other end, 7% of federal student loan borrowers owed over $100,000. These borrowers combined to account for 37% of federal student loan debt.
Seventy-five percent of borrowers owe less than $40,000 of student loan debt.
President Biden’s $10,000 universal student loan forgiveness proposal would eliminate the outstanding debt for almost one-third student loan borrowers. The plan would eliminate $377 billion or 24% of student loan debt.
Under Senator Warren’s proposal, if all loans under $60,000 were forgiven, the federal government would forgive almost $759 billion or 67% of all outstanding student loan debt. Almost 85% of all borrowers would have their entire debt forgiven.
Senator Sanders’ forgiveness of all student loans would eliminate the $1.6 trillion of student debt, which is 8.5% of all government debt held by the public.
Debt varies by race and ethnicity.
Black, non-Hispanic families owe the most in student loans while Hispanic or Latino families hold the least in student loans, according to median student loan debt data from the Federal Reserve’s 2019 Survey of Consumer Finances . White, non-Hispanic families held a median value of $23,000 of student loan debt while Black, non-Hispanic families held a median value of $30,000 of debt. Hispanic or Latino people held the lowest median amount in student loan debt of $17,000.
Black households have the highest median student loan debt.
President Biden’s student loan forgiveness plan would cancel out 57% of the median student loan debt for a Hispanic or Latino family. White non-Hispanic families would see a cut of 43% in the median student loan debt. About one-third of the median student loan debt for Black families would be forgiven as part of Biden’s plan. Both Warren’s and Sanders’ plans would clear out the median level of debt for all families of every racial/ethnic group.
Wealthy families hold the highest median student loan debt and the poorest families hold the lowest median debt. However, looking at student loan debt as a percent of pre-tax income shows the potential impact is largest for families in the lower ranges of income.
Student debt makes up a greater percentage of income for lower-income families.
Households in the 80-89.9 income percentile (a median pre-tax income of $151,700) have the highest median student debt at $28,000 per family. That’s equivalent to 18% of its median income.
For borrowing households in the bottom 20 income percentile, the median student loan debt of $15,000 is equal to 92% of the group’s median income. The median student loan debt for the bottom quintile is almost half the amount owed by families in the 80-89.9 percentile.
Biden’s $10,000 of student loan forgiveness would provide the most relief for families in the bottom quintile of income. Median student loan debt as a percentage of total before-tax income would decrease from 92% to 31%, a 61-percentage point decrease. For the wealthiest borrowers, the $10,000 forgiveness would result in a 3.4 percentage point decrease in median student loan debt as a percentage of total before-tax income.
More families would be aided by Senators Warren and Sanders’ student loan forgiveness plans, with more benefits extended to higher-income borrowers.
Check out the education section of our State of the Union feature for more details on the state of higher education in the US.
Correction- The headline for the chart showing the percent of borrowers holding ranges of debt was incorrect. The correct title is," Seventy-four percent of borrowers owe less than $40,000 of student loan debt."