The Progressive Effects of Canceling Student Debt

by Vins

Many politicians and economists believe that cancelling student debt is regressive because cancellation would unfairly benefit wealthier households. However, a June 2021 Roosevelt Institute study found that cancelling student debt is actually progressive, benefitting lower income households while simultaneously lessening racial wealth inequality, Hannah Levintova from Mother Jones reported that month.

According to Mother Jones, opposition to student debt cancellation stems from a 2021 paper written by two finance professors from the University of Pennsylvania and the University of Chicago, who drew on household income data from the Federal Reserve’s Survey of Consumer Finances. The professors’ main argument stated that, because high-income graduates have the most debt due to taking out loans for graduate school, cancelling debt yields greater benefits for wealthier people with student loan debts.

The recent Roosevelt Institute study disputed these claims, however, insisting that the earlier paper focused too heavily on household income rather than net worth. They argued that net worth takes into consideration intergenerational wealth transfers that increase economic inequality, allowing certain households to easily pay off debt or avoid taking it on in the first place. The study described student debt cancellation as “a progressive wealth transfer at all proposed levels of cancellation.” Using the same Federal Reserve data that the 2021 paper did, the Roosevelt Institute examined net worth at different proposed levels of cancellation, finding that those with the least net worth saw the most benefit.

Besides investigating net worth data, the Roosevelt Institute study also examined cancellation impacts on the entire population and studied the distribution of student debt by race. By combining race and net worth data, they found that black students in debt received far more benefits than white students at any income level, mainly because black students owe twice as much money as white students.

During his presidential campaign, Biden promised to cancel upwards of $10,000 in student debt for individuals, as well as forgive debt up to $125,000 a year for alumni of public and historically black colleges. However, these promises have yet to be fulfilled by Biden now that he holds office. In addition to Biden’s cancellation plan, senators Elizabeth Warren and Chuck Schumer have also made proposals, cancelling up to $50,000 of debt. When examining their plan, the Roosevelt Institute found that it would give almost no benefits to the wealthy, an extra $1,000 on average to the group below them, and more than $4,000 to those in the 20th to 40th percentile of wealth, Mother Jones reported.

It should be noted that Business Insider and CNBC, two establishment news outlets, also reported on the Roosevelt Institute study, yet with some inconsistencies and fallacies. Business Insider reported that President Biden is against student debt cancellation, siding with those who claim it benefits high-earners more than low-earners. Yet Mother Jones cited how Biden made promises during his campaign to get rid of student debt, implying that he was in favor of it. Business Insider also made no mention of the Roosevelt Institute’s examination of net worth, a crucial component of the study. CNBC also neglected to mention President Biden’s position. Instead its coverage focused on how debt cancellation would affect those who attended for-profit schools, women, and older borrowers. This focus almost completely glosses over student debt cancellation’s most impactful effects on lower-income and Black students, as referenced throughout Mother Jones’s coverage.

Source: Hannah Levintova, “Is Canceling Student Debt Regressive? Actually It’s the Opposite, a New Study Finds,” Mother Jones, June 9, 2021.

Student Researcher: Caroline Thorner (Loyola Marymount University)

Faculty Evaluator: Kyra Pearson (Loyola Marymount University)

Review Article with Credder

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