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

38 Pages Posted: 4 Jan 2023 Last revised: 28 Jun 2023

See all articles by Jacob Goss

Jacob Goss

Federal Reserve Banks - Federal Reserve Bank of New York

Daniel Mangrum

Federal Reserve Banks - Federal Reserve Bank of New York

Joelle Scally

Federal Reserve Bank of New York

Date Written: January 1, 2023

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

JEL Classification: H22, H31, H52, I22

Suggested Citation

Goss, Jacob and Mangrum, Daniel and Scally, Joelle, Assessing the Relative Progressivity of the Biden Administration’s Federal Student Loan Forgiveness Proposal (January 1, 2023). FRB of New York Staff Report No. 1046. Rev. June 2023, Available at SSRN: https://ssrn.com/abstract=4317144 or http://dx.doi.org/10.2139/ssrn.4317144

Jacob Goss

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Daniel Mangrum (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Joelle Scally

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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