As President Joe Biden crafts a plan for canceling student loans, new data finds that student loan cancellation would overwhelmingly benefit Black borrowers and low-income debtors, with the benefits multiplying with higher levels of debt canceled.
If Biden uses his executive power to cancel up to $10,000 of student debt for student loan borrowers, it would reduce the share of people in the bottom 20 percent of wealth from 15 percent to 10 percent. Among those in the second-lowest 20 percent wealth group, the number would be reduced from 20 to 15 percent, the data shows. The proportion of people in the top 10 percent of wealth with debt would remain the same, at 4 percent.
This gap closes even further with cancellation of $50,000 in loan debt. The proportion of people in the bottom 20 percent of wealth with debt would reduce to a mere 2 percent, while 3 percent of people in the top 10 percent or wealth would still have debts. “Cancellation overwhelmingly benefits low-wealth borrowers because rich people rarely borrow and pay off debt quickly when they do,” the report says.
These findings bolster previous findings that student debt cancellation is a progressive policy, meaning that it overwhelmingly benefits lower and middle income earners and not the high-income earners, as opponents of debt cancellation falsely claim.
The data was compiled for Sen. Elizabeth Warren (D-Massachusetts) by sociology scholars from University of California, Merced, and Princeton University, and provide a host of statistics about the impacts of student loan cancellation.
In a statement, Warren said that the analysis supports her proposal for Biden to cancel up to $50,000 of debt per borrower. “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,” she said.
Overall, $10,000 of debt cancellation would zero out debts for about a third of borrowers while making only a small dent for tens of millions of student loan holders. However, $50,000 of debt cancellation would zero out debts for about three-quarters of borrowers, or 30 million people.
Warren further emphasized the finding that debt cancellation would help Black and Latinx borrowers the most. “The more President Biden cancels, the more we narrow the racial wealth gap among borrowers and the bigger the boost to Americans’ economic futures,” she continued. “This is the right thing to do.”
Black and Latinx borrowers are disproportionately affected by student debt; the data shows that two-thirds of Black borrowers and 37 percent of Latinx borrowers owe more than their original loan amount 12 years after starting higher education, while only 30 percent of white borrowers experience the same.
If Biden canceled up to $50,000 of debt per borrower, the proportion of Black people with debt would reduce from its current rate of 23.8 percent to just 6.4 percent. This would go a long way in closing the racial wealth gap; the disparity between the proportion of white people and Black people who have debt would reduce from 8.7 percent to 2.8 percent.
The data comes as Biden is considering a narrow debt forgiveness plan in which he would cancel debt only for individuals making less than $125,000 a year. It’s unclear how much Biden is considering canceling, but he has insinuated that he would cancel less than $50,000 worth for those borrowers. He had promised during his campaign to cancel $10,000 of debt per borrower, but debt activists and progressive lawmakers say that’s not enough to trigger the most significant positive impacts for borrowers and the economy.
Racial justice advocates say that if Biden undertakes student debt cancellation, it would be a major step toward fulfilling his campaign promises to center racial justice. Polls indicate that it would also be a popular move for him to take – and crucial to garner support for his party in the upcoming midterm elections.