The Distributional Effects of Student Loan Forgiveness

36 Pages Posted: 3 Dec 2020 Last revised: 10 Dec 2020

See all articles by Sylvain Catherine

Sylvain Catherine

University of Pennsylvania - Finance Department

Constantine Yannelis

University of Chicago

Multiple version iconThere are 2 versions of this paper

Date Written: December 9, 2020

Abstract

We study the distributional consequences of student debt forgiveness in present value terms, accounting for differences in repayment behavior across the earnings distribution. Full or partial forgiveness is regressive because high earners took larger loans, but also because, for low earners, balances greatly overstate present values. Consequently, forgiveness would benefit the top decile as much as the bottom three deciles combined. Blacks and Hispanics would also benefit substantially less than balances suggest. Enrolling households who would benefit from income-driven repayment is the least expensive and most progressive policy we consider.

Suggested Citation

Catherine, Sylvain and Yannelis, Constantine, The Distributional Effects of Student Loan Forgiveness (December 9, 2020). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-169, Available at SSRN: https://ssrn.com/abstract=3739900 or http://dx.doi.org/10.2139/ssrn.3739900

Sylvain Catherine

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

Constantine Yannelis (Contact Author)

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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