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An analysis of recent U.S. Office data shows that parts of the student debt relief plan announced by the administration last month — one of the largest ever — would completely eliminate student debt for a number of borrowers.
Student Loan Forgiveness Bill 2021
The plan would forgive up to $10,000 in federal student debt for individuals earning less than $125,000 a year and for married couples earning less than $250,000 a year. Additionally, the student loans of income-eligible individuals who received Pell Grants would be reduced by up to $20,000.
Student Loan Forgiveness Forms
The Bureau’s recently released 2021 Survey of Income and Program Participation (SIPP) provides information on student debt balances as of December 31, 2020. While loan balances would normally change over a two-year period, pandemic policies have allowed borrowers to temporarily suspend payments without interest.
2021 SIPP data shows that the $10,000 student loan relief plan would completely erase balances for 29.0% of those with student debt, and that some demographic groups would benefit more than others.
Additionally, any payments made after March 2020 may be refunded and then forgiven. For this reason, amounts owed in student debt in 2020 can serve as a proxy for loan balances in 2022.
In this article, we investigate who among non-college-enrolled adults with at least a high school diploma will benefit—and to what extent—from this proposed policy, assuming that all student loans reported in the SIPP are federal and that student debt no one will be erased. be reduced by more than $10,000.
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Some of the largest reductions are expected among Hispanic individuals with an associate’s degree. A $10,000 reduction on student loans reduces the percentage of any student debt from 14.4% to 7.7%.
Although estimated student loan forgiveness is higher for non-Hispanic associate degree holders who are only black (identified as black in the rest of this story) – 19.9% to 12.6% – this reduction is not statistically different from the reduction for any other race-by-education group.
Individuals with advanced degrees are expected to experience some of the smallest reductions in student loan tenure, ranging from 1.6 to 3.2 percentage points across race and ethnic groups. These reductions are also small compared to the percentage who held student debt before forgiveness.
The likely reasons for the differences by education: more debt or higher incomes that make them ineligible for loan forgiveness. Holders of advanced degrees had higher student debt ($69,000) on average than holders of associate degrees ($22,000).
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Based on income, the percentage of advanced degree holders with student debt eligible for debt relief ranges from 75.6% of non-Hispanics who are neither black nor white to 85.6% of black borrowers. People who are neither black nor white include Asians, American Indians or Alaska Natives, Native Hawaiians or other Pacific Islanders, and mixed-race individuals.
Women typically earn less than men and are more likely not only to have student debt but to have more debt than men. As a result, they may have a harder time repaying their student loans.
Black and Hispanic women are estimated to experience some of the largest percentage reductions with any student loan from the $10,000 relief plan: 5.4 and 4.7 percentage points, respectively.
Because student debt burden is sometimes high relative to income, student loans can go hand in hand with other types of unsecured debt. This means that student loan forgiveness is expected to have a significant impact on individuals’ overall unsecured debt burden.
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Unsecured debt – like student debt, credit card debt, or medical debt – is not backed by an asset the same way a house backs a mortgage because lenders can’t repossess someone’s education if the individual fails to pay a student loan.
The $10,000 reduction in student debt would reduce the amount of total unsecured liabilities owed by 33.0% on average for those with student debt.
Hispanic individuals with a high school diploma but no college degree (43.2%) and associate’s degrees (38.4%) are expected to experience the greatest reduction in the amount owed in unsecured loans. Non-Hispanic individuals who are neither white nor black with a high school diploma, but no college degree (51.7%) and associate’s degrees (52.2%) are also expected to experience the greatest reduction in unsecured amounts owed.
The $10,000 relief on student loans is projected to have some of the smallest impacts on unsecured amounts owed by those with advanced degrees: between 17.5% and 24.2% of unsecured debt across racial and ethnicities.
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The strength of the SIPP data – and survey data more generally – is not in estimating the total number of borrowers whose student debt will be completely eliminated or the total dollar amount of outstanding student debt that will be relieved.
Rather, the strength of the SIPP data is its rich description of who will benefit and how much of a difference student loan forgiveness could make in the context of student loan borrowers’ assets and other debts.
As a result, future SIPP data will show how student loan forgiveness affected sample members’ student loan balances, as well as any subsequent influences on family formation, business formation, program participation, and (financial) well-being or other).
The SIPP does not ask borrowers whether their student loans are federal or private. Estimates from other sources indicate that private student loans made up less than 15 percent of total student debt in 2012. As a result, this research assumes that all student loans are federal, and this assumption tends to skew the impact on debt burden.
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The SIPP does not collect information on Pell Grant recipients, who would get debt relief of up to $20,000 on their federal student loans. This research assumes student debt reduction of no more than $10,000, which tends to skew the impact on debt burden downward.
The SIPP is a nationally representative longitudinal survey, administered by the Bureau, that provides comprehensive information on the dynamics of income, employment, household composition, and participation in government programs.
Michael D. King and Mark A. Klee are statisticians in the Office’s Social, Economic, and Housing Statistics Division.
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The content on this page includes a link to a non-government website. Our linking to these sites does not constitute an endorsement of any products, services, or the information found on them. Once you link to another site, you are subject to the new site’s policies. How can people get rid of student loan debt and when is loan forgiveness an option? Statistics show how deep U.S. graduates’ student loan debts run, and the sums can be alarming for individual borrowers. Fortunately, students may be able to take advantage of income-driven repayment and forgiveness plans