Wiping out student loan debt for American college graduates would benefit the wealthy much more than it benefits less privileged students, according to a new working paper from the National Bureau of Economic Research. "Blacks and Hispanics would also benefit substantially less than balances suggest," the authors say.
In the paper, titled "The Distributional Effects of Student Loan Forgiveness," economists Sylvain Catherine and Constantine Yannelis conclude that universal student loan "forgiveness would benefit the top decile as much as the bottom three deciles combined."
Not all student-loan-forgiveness schemes would have the same effects, they note:
There are a number of ways in which debt can be discharged, with important distributional implications. For example, forgiveness can be universal, capped or targeted to specific borrowers. These debt cancellation policies can benefit different socioeconomic and ethnic groups. This paper explores their distributional impacts. We find that the benefits of universal debt forgiveness policies largely accrue to high-income borrowers, while forgiveness through expanding income-contingent loan plans instead favors middle-income borrowers.
Income-contingent payment plans and loan forgiveness schemes already exist in the U.S. Increasing enrollment in such plans "or increasing these plans' generosity is another option for targeted debt forgiveness," and one that would actually benefit middle-income debtors more than their wealth counterparts, the authors suggest.
But full or partial loan forgiveness regardless of income and loan size would be "highly regressive, with the vast majority of benefits accruing to high-income individuals," they conclude.
Reason's Mike Riggs offers some better ideas for student loan reform here.
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