Eakinomics: Who Benefits From Student Loan Forgiveness
It’s been such a long week of infrastructure that I almost forgot there were other issues with politics. Unsurprisingly, however, the minute I started looking, the first thing I ran into was student debt forgiveness from Fortune making report, “On Friday U.S. Department of Education announced he will pay off student loans totaling $ 55.6 million to students attending disadvantaged schools such as Westwood College, Marinello Schools of Beauty and the Institute of Legal Accountability. ” This forgiveness took place under the auspices of “borrower protection”But the concept of all-round forgiveness remains on the table.
Fortunately, Tom Lee has run numbers about the consequences of universal loan forgiveness, and they are mind-boggling. To begin with, “more than 60 percent of federal student loan holders have declared and have deferred their loans since the third quarter of 2020, up 47.8 percentage points from the previous quarter, while only 1 percent of all borrowers regularly making payments right now. “One, one, uno percent. So at least for now, no one is paying student loans. (Chart reproduced from Lee’s article.)
Chart 1: Distribution of Federal Direct Loans by Status
The next step is to write off $ 10,000 using administrative authority. The table below, reproduced from Lee’s article, shows the dramatic implications of this. Such a policy will completely exclude residuals from the smallest residual categories, but will have a large impact on those with large residuals.
Table 1: Federal Student Loan Portfolio by Borrower Debt as of Q2 2021
As it turns out, these large balances are concentrated among wealthier borrowers. As a result, the policy will “cut $ 380 billion in outstanding federal student loan debt, but more than half of that benefit will go to families with 40 percent income, and the poorest 40 percent will receive only a quarter of the benefit.” … “
There are many reasons for being skeptical about student loan forgiveness, but general, non-targeted approaches should be ruled out.