Lake County News, CA – Debt forgiveness proposal would significantly reduce student loan and total unsecured debt
An analysis of recent data from the US Census Bureau shows that parts of the student debt cancellation plan announced by the administration last month – one of the largest ever – would completely eliminate student debt for a number of borrowers.
The plan would forgive up to $10,000 in federal student debt for people earning less than $125,000 a year and married couples earning less than $250,000 a year. In addition, student loans for income-eligible individuals who received Pell grants would be reduced by up to $20,000.
The 2021 Survey of Income and Program Participation, or SIPP, recently released by the Census Bureau, provides information on student debt balances as of December 31, 2020. Although loan balances normally change over two years , pandemic policies allowed borrowers to temporarily suspend interest-free payments.
In addition, any payment made after March 2020 can be refunded and then canceled. For this reason, student debt amounts owed in 2020 can serve as a proxy for loan balances in 2022.
In this article, we examine who among non-college-enrolled adults with at least a high school diploma will benefit—and to what extent—from this proposed policy, assuming all student loans reported in SIPP are federal. and that no one’s student debt will be reduced by more than $10,000.
Who will benefit from $10,000 in student loan forgiveness?
The 2021 SIPP data shows that the $10,000 student loan reduction plan would completely wipe out 29.0% of student debt balances and that certain demographic groups would benefit more than others.
Some of the largest reductions are expected among Hispanic individuals with associate degrees. A $10,000 reduction in student loans reduces the percentage of all student debt from 14.4% to 7.7%.
While the estimated student loan forgiveness is greatest for non-Hispanic associate degree holders who are black alone (identified as black in the rest of this story) – from 19.9% to 12.6 % – this reduction is not statistically different from the reduction for any other race group by education.
Those with higher degrees are expected to experience some of the smallest reductions in student loan holdings, ranging from 1.6 to 3.2 percentage points across racial and ethnic groups. These reductions are also small compared to the percentage who held student debt before the cancellation.
Likely reasons for differences by education: greater debt or higher income making them ineligible for loan forgiveness. Graduate degree holders had, on average, higher student debt ($69,000) than associate degree holders ($22,000).
Based on income, the share of higher degree holders with student debt eligible for debt cancellation 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 mestizos.
However, more than 90% of borrowers with an associate degree in all racial groups would qualify.
Women generally earn less than men and are more likely not only to have student debt, but also to owe more than men. As a result, they may find it harder to repay their student loans.
Black and Hispanic women are estimated to experience some of the largest percentage reductions with $10,000 relief plan student loans: 5.4 and 4.7 percentage points, respectively.
White men are expected to experience one of the smallest reductions (2.4 percentage points).
What difference can $10,000 in student loan relief make?
Because student debt burdens are 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.
Unsecured debt — such as student debt, credit card debt, or medical debt — isn’t secured by an asset like a house secures a mortgage, because lenders can’t repossess someone’s education if the individual does not repay a student loan.
Reducing student debt by $10,000 would reduce the total amount of unsecured liabilities owed by an average of 33.0% of those with student debt.
Hispanic people with a high school diploma but no college degree (43.2%) and associate degrees (38.4%) are expected to experience one of the largest reductions in what they owe in unsecured loans. Non-Hispanic people who are neither white nor black with a high school diploma, but no college degree (51.7%) and associate degrees (52.2%) should also experience one of the most steep reductions in unsecured amounts due.
The $10,000 reduction in student loans is expected to have one of the smallest impacts on unsecured amounts owed by higher degree holders: between 17.5% and 24.2% unsecured debt across racial groups and ethnic.
Hispanic women (40.4%) are expected to experience one of the highest shares of unsecured debt relief.
The strength of SIPP data – and survey data more generally – does not lie in estimating the total number of borrowers whose student debt will be entirely eliminated or the total dollar amount of outstanding student debt that will be relieved. .
Rather, the strength of the SIPP data lies in its rich description of who will benefit and the difference student loan forgiveness could make in the context of student borrowers’ assets and other debts.
In addition, the SIPP returns to interview the same people over several years.
Therefore, future SIPP data will show how the cancellation of student loans affected the student loan balances of sample members as well as any subsequent influence on their family formation, business start-up, participation in program and well-being (financial or otherwise).
SIPP does not ask borrowers whether their student loans are federal or private. According to estimates from other sources, private student loans accounted for less than 15% of total student debt in 2012. Therefore, this research assumes that all student loans are federal and this assumption tends to bias the impact on the debt burden up.
SIPP does not collect information on Pell Grant recipients, who would get up to $20,000 in debt relief on federal student loans. This research assumes a reduction in student debt of no more than $10,000, which tends to bias the impact on debt burden downward.
We are unable to determine the overall value of adverse effects from the above assumptions.
The SIPP is a nationally representative longitudinal survey administered by the Census Bureau that provides comprehensive information on the dynamics of income, employment, household composition, and participation in government programs.
More information on SIPP data quality can be found on the SIPP technical documentation page.
Neil Bennett is an economist in the Social, Economic and Housing Statistics Division of the Census Bureau. Michael D. King and Mark A. Klee are survey statisticians in the Social, Economic and Housing Statistics Division of the Census Bureau.