Student Debt Cancellation Is Progressive

New Roosevelt issue brief debunks the myth that student loan cancellation is regressive

Recently, student debt cancellation has come to the fore of the progressive policy agenda, with several proposals currently on the table; the Biden administration initially proposed a plan that cancels up to $10,000 of federally backed student loan debt for each borrower, and Senator Elizabeth Warren (D-MA) and Senate Majority Leader Chuck Schumer (D-NY) have proposed tasking the Department of Education with canceling up to $50,000 in federal loans per borrower. A growing chorus of Democratic lawmakers have urged the Biden administration to implement the Warren-Schumer proposal via executive action. As advocates and policymakers debate the path forward, however, one issue that has emerged as a recurrent flashpoint is a false narrative calling the policy regressive. 

A new Roosevelt issue brief released today, “Student Debt Cancellation IS Progressive: Correcting Empirical and Conceptual Errors,” calls these claims of regressivity a fallacy, arguing that they rest on five misleading assumptions: the inclusion of private student loans, conditioning analyses on borrowers only, focusing primarily on income rather than wealth distribution, highlighting the value of debt to the government rather than benefits to households, and ignoring the racial distribution of debt. Authored by Charlie Eaton, Adam Goldstein, Laura Hamilton, and Frederick Wherry, the paper draws from the 2019 Survey of Consumer Finances to correct these five errors and to prove that student debt cancellation is progressive. Canceling student debt would provide more benefits to those with fewer economic resources and could play a critical role in addressing the racial wealth gap and building the Black middle class. 

Additionally, the brief offers a few key takeaways for policymakers:

  • The more substantial the amount of student debt canceled, the more progressive the plan’s outcome. Canceling $50,000 in student debt leads to a more progressive outcome than canceling $10,000. 
  • Income eligibility cutoffs are an inefficient way to achieve progressivity. In practice, income cutoffs would likely prove counterproductive, as the need to collect information on borrower income as a precondition for cancellation will create additional administrative burdens for borrowers.
  • Income-driven repayment (IDR) plans are a poor substitute for student debt cancellation. Even if they work as advertised, IDR plans will not provide debt relief for Black professionals with limited household wealth but substantial household income, decreasing student debt cancellation’s abilities to reduce racial wealth inequalities.

Insight from the Authors:

“In the last decades of the 20th century, the US government shifted the financial burden for postsecondary education to students and families by prioritizing student loans as the primary funding mechanism for higher education. Now, we are tasked with cleaning up the mess created by that choice, which has financially devastated recent generations of Americans—especially those with limited-to-moderate economic resources,” said Hamilton.

“Student debt cancellation is not just a generational issue; it is also about racial equity. Student debt has played a central role in maintaining and exacerbating a persistent Black-white wealth gap in the US. Black families, who are more likely to have limited economic resources, rely more heavily on student debt than other borrowers, at both undergraduate and graduate levels of education,” said Wherry.

“Our analyses consider not just class but race—a glaring omission in some arguments against student debt cancellation. One of the most important and well-documented benefits of student debt cancellation is, in fact, the potential to increase Black net worth,” said Goldstein.

“Ensuring that not a single student debt cancellation dollar goes to the proportionately tiny numbers of advantaged households with some student debt is counterproductive—potentially derailing efforts to relieve masses of young borrowers, many of whom are Black and Latinx, from the burden of financing higher education. Debt cancellation is a necessary remedy for government policy that has come at a great cost to recent generations of Americans,” said Eaton.

About the Roosevelt Institute

The Roosevelt Institute is a think tank, a student network, and the nonprofit partner to the Franklin D. Roosevelt Presidential Library and Museum that, together, are learning from the past and working to redefine the future of the American economy. Focusing on corporate and public power, labor and wages, and the economics of race and gender inequality, the Roosevelt Institute unifies experts, invests in young leaders, and advances progressive policies that bring the legacy of Franklin and Eleanor into the 21st century.

To keep up to date with the Roosevelt Institute, please visit us on Twitter or follow our work at #RewriteTheRules.