Assessing the Relative Progressivity of the Biden Administration’s Federal Student Loan Forgiveness Proposal

Jacob Goss, Daniel Mangrum and Joelle Scally

No 1046, Staff Reports from Federal Reserve Bank of New York

Abstract: We quantify the total stock of balances eligible for the Biden Administration’s student loan forgiveness policy announced and examine which groups benefit most. Up to $442 billion in loans are eligible. Those benefiting most are younger, have lower credit scores, and live in lower- and middle-income neighborhoods. We also find that Black and Hispanic borrowers disproportionately benefit from the proposal. We then compare the distribution of beneficiaries for the announced policy to several alternative hypothetical forgiveness proposals and three existing tax credits. The additional forgiveness for Pell grant recipients increased the progressivity of the policy at a cost of $129 billion. Reducing the income eligibility criterion in half from the announced policy would have reduced the cost by nearly $100 billion and made the policy more progressive. Compared to existing tax credits, the announced forgiveness policy is less progressive than the Earned Income Tax Credit but more progressive than the 2019 Child Tax Credit and higher education tax credits. We conclude by describing the remaining federal portfolio if the policy is implemented, and we summarize current credit conditions for federal borrowers. Rising credit card and auto delinquencies for borrowers with paused payments foreshadow future credit difficulties for borrowers if federal loan payments resume without relief.

Keywords: student loans; debt forgiveness; COVID-19; Policy analysis (search for similar items in EconPapers)
JEL-codes: H22 H31 H52 I22 (search for similar items in EconPapers)
Pages: 38
Date: 2023-01-01
New Economics Papers: this item is included in nep-ban, nep-pbe and nep-pub
Note: Revised June 2023.
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Citations: View citations in EconPapers (1)

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