Warren Releases Academic Experts' New Analysis Showing Widespread Benefits of Student Debt Cancellation
Canceling $50,000 in Student Loan Debt Would Have Biggest Impact on Narrowing Racial Wealth Gap Among Borrowers
Letter to Senator Warren (PDF)
Washington, D.C. - Today, U.S. Senator Elizabeth Warren (D-Mass.) shared a new analysis on the benefits of various levels of student debt cancellation on student loan borrowers. The analysis was prepared by Dr. Charlie Eaton, Assistant Professor of Sociology at the University of California Merced, along with co-authors from UC Merced and Princeton University. The analysis shows that student debt cancellation would deliver substantial relief and opportunity to millions of borrowers and that higher levels of cancellation do more to advance racial equity and economic security.
"As this analysis clearly shows, cancelling 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. The more President Biden cancels, the more we narrow the racial wealth gap among borrowers and the bigger the boost to Americans' economic futures. This is the right thing to do," said Senator Warren.
“Our new analyses show that every level of student debt cancellation will provide relief to millions of borrowers who have experienced financial distress from their student loans. But bigger is better with higher levels of cancellation completely zeroing out debts for most of these borrowers, a disproportionate share of whom are Black and lack inherited household wealth." said Charlie Eaton, Assistant Professor of Sociology, UC Merced.
“The student debt crisis is a racial justice issue, an economic issue, and a moral issue. As this report clearly underscores, communities are grappling with increasing gas prices and food costs, and the more debt we cancel, the more people we will help. We need to tackle the racial wealth gap head on, and President Biden can do that with the stroke of a pen and cancelling $50,000 or more. We call on President Biden to deliver on his promise and cancel student debt now,” said NAACP President and CEO Derrick Johnson.
The analysis estimates how much relief reaches different types of borrowers when cancellation is increased by $10,000 increments from $10,000 to $50,000. These estimates exclude borrowers with more than $150,000 in annual income, in line with thresholds that are reportedly under consideration. The topline findings of the analysis show:
- All amounts of proposed cancellation would reduce loan balances for large shares of borrowers. For each $10,000 increment of maximum cancelation per borrower:
o $10,000 zeroes out balances for 32% of borrowers (13 million in total)
o $20,000 zeroes out 50% of borrowers (20 million in total)
o $30,000 zeroes out 61% of borrowers (24 million in total)
o $40,000 zeroes out 71% of borrowers (28 million in total)
o $50,000 zeroes out 76% of borrowers (30 million in total)
- Cancellation overwhelmingly benefits low-wealth borrowers because rich people rarely borrow and pay off debt quickly when they do:
o $10,000 reduces the share of people with debt from 15% to 10% in the bottom quintile for wealth and from 20% to 15% in the second-lowest quintile. It makes no difference for the 4% of individuals with debt in the top 10% for wealth.
o $20,000 reduces the share of people with debt from 15% to 7% in the bottom quintile for wealth and from 20% to 11% in the second lowest quintile.
o $50,000 reduces the share of people with debt from 15% to just 2% in the bottom quintile for wealth, lower than the 3% still with debt in the top 10% for wealth.
- Cancellation closes racial gaps in student debt associated with the racial wealth gap:
o $10,000 zeroes out loan balances for 2 million Black borrowers. This reduces the share of Black individuals with student debt from 24% to 17% and closes the Black-white gap in the share of individuals with student debt from 9 percentage points to 6 percentage points.
o $20,000 reduces the share of Black individuals with debt to below the present 15% share of white persons with debt.
o $50,000 reduces the share of Black individuals with debt to 6%, reducing the Black-white gap in the share of individuals with debt to just 3 percentage points.
- Cancellation provides substantial relief to those unable to repay debts because of inequalities in wealth and income that particularly impact Black borrowers:
o 66% of Black borrowers owe more than originally borrowed 12 years after starting college.
o 37% of Latinx borrowers and 30% of white borrowers owe more after 12 years.
o $10,000 zeroes out 14% of borrowers who owe more after 12 years.
o $20,000 zeroes out 32% of borrowers who owe more after 12 years.
o $30,000 zeroes out 46% of borrowers who owe more after 12 years.
o $50,000 zeroes out 67% of borrowers who owe more after 12 years.
- Cancellation would provide substantial relief for borrowers who have experienced default or a 91+ day delinquency:
o Over 10 million borrowers with outstanding balances, 23% of all federal loan borrowers, had experienced default or a 91+ day delinquency before the student loan repayment freeze in 2020.
o $10,000 zeroes out 45% (5 million) of these distressed borrowers
o $20,000 zeroes out 69% (7 million) of these distressed borrowers.
o $50,000 zeroes out 95% (9.5 million) of these distressed borrowers, leaving only 509,000 of these borrowers in debt.
- Cancellation would reduce racial disparities in negative net worth that are amplified by student debt:
o 19% of Black people (6 million in total) live in households with negative net worth compared to just 9% of white households.
o $10,000 reduces the total of Black people with negative net worth by 14% to 5 million.
o $20,000 reduces the total of Black people with negative net worth by 24% to 4.5 million
o $50,000 in cancellation reduces the total of Black people with negative net worth by 34% to 4 million.
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