some notes on the impact of student debt forgiveness across income groups

The following is a guest post by Raphaël Charron-Chénier and Louise Seamster.

As the debate over student debt cancellation ramps up, some of the more basic information about the impact of different loan forgiveness plans is not easy to find. Because some of our work has informed the current debate, we often get questions about how some of the more prominent policy proposals would impact borrowers at different income levels. Here, we’re sharing some basic analyses that look at where Black and White borrowers tend to fall, and how Senators Schumer and Warren’s recent proposal to cancel $50,000 in debt for all households would impact them.

How many people actually have student loans?

We often get questions about just how many people have student loans and, by that token, stand to benefit from cancellation policies. This is a pretty basic question, yet it’s surprisingly hard to find this information directly. For our analyses, we have been using primarily the Survey of Consumer Finances. This is a great data source for information on households’ financial life, although it does have some drawbacks. Student borrowers in particular could be underrepresented in that data (see the data and methods section of our working paper). Keeping that in mind, here is the estimated number of borrowing households in the U.S. in 2019. A borrowing household is any household with student debt, regardless of whose education it supports. Roughly 21% of all households hold student debt.

In 2019, the quintile cutoffs for household income were roughly $26,000, $46,000, $74,000, and $127,000. For all tables, quintile #1 represents the bottom 20% of the income distribution (incomes below $26,000).

Of course, a count of borrower households without context isn’t necessarily all that informative. To understand not just the magnitude of student borrowing but its distribution across social positions, the proportion of households holding student debt across income/race categories is more useful. From table 2, its quite clear that student debt is racialized. For all but the poorest income group, Black households are much more likely to hold student debt.

There is also some debate about what the average debt burden looks like across incomes, with an assumption that cancelling less debt might somehow be more beneficial for lower income households. The next table shows the proportion of households in each income quintile that holds more than a given debt amount.

This table shows that even in the lowest income quintile, almost two thirds of borrowers hold more than $10,000 in student loans.

Who gets relief from student debt cancellation?

There have been many questions about exactly who would receive full debt cancellation under a relatively generous forgiveness policy. Households with higher income tend to have more debt, which raises questions about how progressive that kind of policy can really be. To help answer that, here is information on the proportion of borrower households who get full cancellation, by income (Table 4). In our work, we’ve used this quantity as an indicator of how widespread the relief provided by debt cancellation is. The estimates here mean that, for example, roughly 93% of Black borrower households in the bottom income quintile would receive full loan forgiveness under a policy cancelling $50,000 for all borrowers.

Another way to gauge how the benefits of debt cancellation vary with income is figuring out the income distribution of borrowers who would receive full cancellation under a given policy, and comparing that to the income distribution of borrowers who would not. Table 5 shows that. The table can be read as showing that, for example, 30% of White borrowers who would not receive full cancellation come from the top 20% of household incomes. All columns sum to 100%.

Note: Table 5 was corrected after the first version of this post was published.

Yet another way to gauge the impact of the policy is to examine how borrowers differ across policy outcomes. On average, are the finances of households receiving full forgiveness with a $50,000-per-person debt cancellation usually better off or worse off than borrowing households that only receive partial forgiveness? Here, we focus on income and wealth differences. Wealth is a bit tricky to measure in that context, since student debt is itself a component of wealth and households that don’t experience full cancellation necessarily have more student debt than the others. To get around that, we use assets as the measure of wealth. Table 6 shows that households receiving full debt cancellation from a $50,000 policy tend to have less income and fewer assets than households whose debt wouldn’t fully be cancelled.

Proportion of debt cancelled

Finally, there is a question of how much of the total debt burden would get cancelled for different groups. This final table shows what proportion of total student debt would be cancelled within each race/income category. The estimates show, for example, that 95% of debt held by Black households in the bottom income quintile would end up cancelled.

Raphaël Charron-Chénier is Assistant Professor of Justice and Social Inquiry & Sociology at ASU. Louise Seamster is Assistant Professor of Sociology & African American Studies at the University of Iowa.