Who Benefits from Student Debt Cancellation?

Abstract

The COVID-19 pandemic has caused historic levels of unemployment and economic hardship while student debt balances are also at record levels. We use administrative banking and credit bureau data to estimate how the benefits of different debt cancellation scenarios would be distributed by household income, borrowers’ remaining time to pay off their debt, and borrower race and ethnicity. We examine four scenarios: (1) universal cancellation of up to $10,000 of every debtor’s balance; (2) cancellation of up to $50,000 of debt for people earning less than $125,000; (3) cancellation of up to $25,000 for people earning less than $75,000 and phasing out at $100,000; and (4) cancellation of up to $50,000 with the same income phase-out as scenario 3. We find that income cut offs significantly reduce the total amount of debt forgiven and make cancellation less regressive, while all cancellation scenarios we examine distribute forgiveness across borrowers by race in roughly the same way. In general, cancellation disproportionately benefits middle- and high-income families, though income targeting makes cancellation less regressive. Most notably, the $25,000 cancellation with income phase-out cancels the same amount of debt as the $10,000 universal cancellation while completely wiping out debt for a higher fraction of low-income borrowers.