According to new research, student loan forgiveness is regressive and only targeted student loan forgiveness works.

Here’s what you need to do.

Student loans

Proponents of large-scale student loan forgiveness claim, among other reasons, that student loan forgiveness will help close the socio-economic and racial wealth gap. However, according to new research from the Brookings Institution, student loan forgiveness is regressive whether measured by income, education, or wealth.

Why large-scale student loan cancellation is bad policy

Here’s what the new search contains:

Student loan repayment: financial wealth is a bad measure

  • The author argues that a student borrower’s financial wealth can be misleading.
  • For example, medical graduates can typically have over $100,000 in student debt, but that doesn’t mean they have less money than those who didn’t go to college.
  • Wealth, according to the author, “should include the value of educational investments that students have borrowed to make.”
  • Student debt is concentrated among very wealthy households, so large-scale student loan forgiveness is “an ineffective way to reduce economic gaps based on race or socioeconomic status.”

(Student borrowers will get $15 billion in student loan forgiveness).

Student loans are expensive, but they’re not just a liability

  • Student loans are a liability.
  • However, student loans are borrowed to finance an asset: education, which increases lifetime income.
  • Therefore, if liabilities (student loan debt) are measured, assets (increased income) must also be measured.
  • As the author notes, it’s like basing a homeowner’s wealth by focusing on the mortgage balance, but not the home’s value.

Is student debt cancellation the next step?

Student loan forgiveness is regressive

  • Student loan forgiveness and income-tested repayment plans, which should be improved, mean that student borrowers don’t actually pay their student loans based on their student loan balance.
  • In contrast, student borrowers who are enrolled in an income-based student loan repayment or forgiveness plan can usually pay off a fraction of their federal student loan balance before getting their student loan forgiven.
  • About a third of total student debt is owed by the richest 20% of households, while only 8% of student debt is held by the poorest 20%.

How Your Student Loans May Qualify for $1.7 Billion in Student Loan Forgiveness

Why targeted student loan cancellation is more effective

  • President Joe Biden wrote off $12.7 billion in student loan debt. Its strategy to date has been based on targeted student loan forgiveness, which has helped provide student loan forgiveness to government officials, student borrowers with permanent disabilities, and student borrowers who have been misled by their college or university through the borrower to defend until repayment. .
  • Senate Majority Leader Chuck Schumer (D-NY) and Sen. Elizabeth Warren (D-MA) disagree that targeted student loan forgiveness is the most effective policy. Democrats are pressuring Biden to cancel student loans after Biden extended student loan relief. (The student loan forgiveness may be the reason the Democrats lose the midterm elections).
  • Here’s the thing: not everyone will be eligible for student loan forgiveness. (Here’s Who Won’t Get Student Loan Forgiveness). If there is student loan forgiveness, it would likely be limited to federal borrowers only and have an income cap. It is also possible that large-scale student loan forgiveness will become targeted student loan forgiveness and focus on low-income borrowers, borrowers in student loan default, or borrowers in arrears on student loans.

Student Loan Forgiveness: Recommendations

According to the author, the best way to “bridge racial and socio-economic gaps in income and wealth” is:

  • means-tested grants and student loans;
  • greater oversight of colleges and universities that offer federal student loans;
  • better income-tested student loan repayment plans that protect student borrowers whose education is not paying, coupled with targeted student loan forgiveness to borrowers who can clearly demonstrate that their student loans are causing them significant economic hardship;
  • treat undergraduate, graduate, and professional degrees differently for student loan forgiveness; and
  • legislators should decide how much the federal government plans to subsidize higher education.

Student loan relief has been extended for 90 days, but this is only temporary student loan relief. Make sure you have a student loan repayment game plan. Understand all your options. Here are some popular strategies for paying off student loans faster:

Student Loans: Related Reading

Here’s who won’t get student loan forgiveness

Is student debt cancellation the next step?

Student borrowers will receive $15 billion in student loan forgiveness

How Your Student Loans May Qualify for $1.7 Billion in Student Loan Forgiveness