Student loan cancellation would not only provide substantial relief to millions of borrowers, but would also help narrow the racial wealth gap and advance racial equity, according to to a new analysis led by a University of California Merced professor.
The analysis was released by Senator Elizabeth Warren (D-Massachusetts), who has been a vocal proponent of broad-based student loan forgiveness. The report shows the benefits that various levels of student debt forgiveness would have on borrowers overall, with a particular focus on the effect cancellation would have on low-wealth and Black borrowers. “As this analysis clearly shows, canceling student debt is a matter of racial justice and about providing relief to millions of hard-working people who invested in their education but are now drowning in debt. The more President Biden cancels, the more we narrow the racial wealth gap among borrowers and the bigger the boost to Americans’ economic futures. This is the right thing to do,” said Senator Warren.
The analysis, prepared by Dr. Charlie Eaton, looked at the impact of canceling different levels of student debt, ranging from $10,000 to $50,000 of relief for borrowers. The estimates excluded borrowers with more than $150,000 in annual income, which was an attempt to align with early reports of income limits that the Biden administration was considering; however, yesterday, White House Press Secretary Jen Psaki hinted that the limits may even lower at $125,000. A lower income threshold could alter some of the impact of Eaton’s findings.
Eaton’s analysis shows that even canceling $10,000 worth of student loan debt would zero out the balances for 32 percent, or 13 million borrowers. As context, there are approximately 40 million borrowers who hold $1.6 trillion federal student loans. Moving up to $20,000 of loan forgiveness would zero out the entire loan balance for half of borrowers and $50,000 would zero it out for over three-quarters of borrowers.
The report also analyzed the impact that cancellation would have on racial gaps in student debt, which would in turn impact the racial wealth gap. For example, $10,000 of loan cancellation would zero out loan balances for 2 million Black borrowers, which would “reduce the share of Black individuals with student debt from 24 percent to 17 percent and close the Black-white gap in the share of individuals with student debt from 9 percentage points to 6 percentage points.” $50,000 of forgiveness would reduce the share of Black individuals with student debt more steeply, dropping it to 6 percent.
The report also focuses more specifically on those struggling to repay loans finding that “cancellation provides substantial relief to those unable to repay debts because of inequalities in wealth and income that particularly impact Black borrowers.” While 30 percent of white borrowers owe more than they originally borrowed 12 years after starting college, the rate is 37 percent of Latinx borrowers and 66 percent for Black borrowers. Proposed loan cancellation could zero out the percentage of borrowers who owe more after 12 years, with $10,000 forgiveness wiping out balances for 14 percent of borrowers who owe more after 12 years and $50,000 doing the same for 67 percent of the segment.
“Our new analyzes show that every level of student debt cancellation will provide relief to millions of borrowers who have experienced financial distress from their student loans. But bigger is better with higher levels of cancellation completely zeroing out debts for most of these borrowers, a disproportionate share of whom are Black and lack inherited household wealth.” said Eaton.
Credit: www.forbes.com /