Schumer Tells Biden To Cancel $50,000 Of Student Loans, But New Research Says Student Loan Cancellation Benefits Wealthy

Senate Majority Leader Chuck Schumer (Photo by Samuel Corum-Pool / Getty Images)

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Termination of the student loan – who does it help most?

Here’s what you need to know.

Student Loans

At a Brookings Institution event Monday, Senate Majority Leader Chuck Schumer (D-NY) renewed his request to President Joe Biden to cancel student loans of $ 50,000, but new research from Wharton Business School and the University of Chicago show that student loan cancellation is primarily beneficial to high net worth student loan borrowers. If so, this conflicting research could raise eyebrows, as many believe that canceling student loans would primarily help lower-income borrowers and others who are financially in trouble after the Covid-19 pandemic. After this research:

• The cancellation of the student loan is regressive;
• High-income people – many of whom have college or university degrees – generally borrow larger amounts of student loans;
• The low-income student loan balance “exaggerates present values” due to the waiver of student loans through income-oriented repayment plans;
• Student loan waivers would benefit the top 10% as much as the bottom 30% of income earners combined;
• Admitting lower-income student loan borrowers or borrowers who have financial problems in an income-based repayment plan “is the most cost effective and advanced policy we will consider”.
• Income-based repayment plans provide student loan borrowers with a student loan waiver after 20 to 25 years, depending on whether they have a student loan or a master’s degree.
• Income-based repayment plans are a powerful tool for targeted student loan relief, and the benefits mainly help middle-income borrowers.

The researchers argue against random cancellation of student loans and in their research explain the various distributive effects of student loan waiver, including universal student loan waiver (each student loan waiver), limited student loan waiver (e.g. US $ 10,000 or $ 50,000 for each borrower), and targeted student loan cancellation (for certain types of student loan borrowers). Senator Bernie Sanders (I-VT) has proposed universal student loan forgiveness for every $ 1.7 trillion in student loan debt. Biden has proposed a $ 10,000 student loan cancellation, and Schumer and Senator Elizabeth Warren (D-MA) have proposed a $ 50,000 student loan cancellation. Biden has canceled $ 3 billion in student loans since taking office as president, which is an example of targeted student loan cancellation. There are other ways to qualify for student loan termination, such as income-based repayment, public service loan issuance, and bankruptcy, among others. (The US Supreme Court recently declined to hear a bankruptcy proceeding to terminate student loans). There are also separate concerns about who would ultimately qualify for student loan cancellation under the existing student loan cancellation proposals.

“Many low-income families struggle to make enough payments so that their balances drop significantly or at all over time,” the researchers write. “But to the extent that their debts are ultimately canceled under applicable law, their balance can greatly overstate the value of actual future payments, and therefore how much debt cancellation would benefit these families financially and how much it would cost taxpayers. “For example, with income-oriented repayment plans, borrowers can pay as little as $ 0 per month, depending on income and family size. The researchers argue that canceling the student loan would have less of an impact on these borrowers than their student loan balance suggests.

Student Loan Cancellation: This study found that student loan cancellation benefits borrowers with lower incomes

Notably, other research shows that terminating the student loan would increase wealth for low-income earners, which came to an alternative conclusion. According to a study by the Roosevelt Institute, a not-for-profit think tank, canceling student loans would increase student loan borrowers’ worth in the following ways:

• Top 10% asset class: $ 562
• 80-90 % Asset class: $ 1,075
• 70. – 80.% asset class: $ 1,508
• Bottom 10% asset class (Latinx): $ 11,090
• Bottom 10% asset class (Caucasian): $ 12,617
• Bottom 10% asset class (African American): $ 17,366

After this research:

• The cancellation of the student loan is progressive;
• Most of the student loan debt relief goes to the student loan borrowers with the lowest wealth;
• Termination of the student loan results in the highest reductions in the debt-to-income ratio of the student loan borrowers with the lowest incomes;
• Cancellation of the student loan of $ 50,000 is more progressive than the forgiveness of the student loan of $ 10,000;
• There should be no income restrictions on student loan termination as this is administratively burdensome and does not achieve a progressive goal; and
• Income-oriented repayment plans like IBR, PAYE, REPAYE, and ICR are an ineffective substitute for full student loan cancellation, especially for student loan borrowers with higher incomes but lower household wealth.

If you have a student loan, keep in mind that you need a game plan. If Congress or Biden issues a major student loan cancellation that is not guaranteed, you may not qualify, and any waivers you receive can only help reduce a fraction of your total student loan debt. So make sure you are proactive based on your individual financial circumstances. Here are a few smart options to consider:

Student Loans: Read More

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Disclosure: Zack Friedman holds an MBA from Wharton Business School.

source https://collegeeducationnewsllc.com/schumer-tells-biden-to-cancel-50000-of-student-loans-but-new-research-says-student-loan-cancellation-benefits-wealthy/