Here’s Who Benefits Most

Topline

Out of the roughly 45 million Americans with federal student loan debt, here’s who stands to benefit the most from the plan announced Wednesday by President Joe Biden that gives $10,000 in relief for all borrowers with an annual income below $125,000 and $20,000 in relief for those who qualified for federal Pell grants earmarked for low-income undergraduates below the income cap.

Protestors gather near the White House calling on Biden to cancel all student debt.

Getty Images for We, The 45 Million

Key Facts

32% of all borrowers: The initiative could instantly wipe out all outstanding federal student loans for up to 14.6 million borrowers who held less than $10,000 in debt as of the end of June, accounting for 32% of all borrowers, according to federal data, provided those individuals fall below the income cap.

Huge benefit for many: The policy will also erase at least half of the student loan debt held by the 20.5% of borrowers who owe between $10,000 and $20,000, and will take a significant chunk out of the $20,000 to $40,000 owed by another 21.4% of borrowers.

Only a little help for some: However, the relief does not move the needle much for the most indebted Americans: Some 38% of the $1.62 trillion in total outstanding federal student loan debt is held by borrowers with balances of more than $100,000, even though they account for just 7.5% of all borrowers.

Favors high-income Americans: Despite the $125,000 income cap, research shows the White House plan still slightly favors higher-income Americans: Analysis of a $10,000 blanket relief program published Tuesday by the Penn Wharton Budget Model found 69.79% of overall debt forgiveness would go to the top 60% of Americans by income, while individuals who make between $82,400 and $141,096—placing them between the 60th and 80th percentile—would receive the greatest share of overall forgiveness, at 28.1%, though the additional relief for Pell grant recipients should bring further benefit to lower-income borrowers.

Generally, higher-earning Americans hold more student loan debt, with the top 10% of individuals holding 17.4% of all debt compared to 13.8% for the bottom 20% of earners, according to the most recent installment of the Federal Reserve’s Survey of Consumer Finances in 2019.

Key Background

Since Biden took office in January 2021, progressives have pushed him to unilaterally take action on student loan relief, though he has been hesitant to act thus far, reportedly due to concerns about fairness, the legality of such an unprecedented move and how it may impact inflation. Roughly two-thirds of bachelor’s degree recipients take out federal student loans, according to the latest Department of Education data. Students who went to public colleges hold $714.6 billion in outstanding federal student loan debt at an average of $28,357 per borrower, compared to $561.1 billion in total debt for those who attended private colleges at an average of $40,956, according to the federal government. Students with more advanced degrees take on more debt on average: An analysis of Department of Education data by the Texas Public Policy Foundation found in 2017 and 2018, associate degree graduates borrowed an average of $14,000, compared to $23,000 for borrowers with bachelor’s degrees, $40,000 for master’s degree graduates, $73,000 for doctoral degree recipients and $144,000 for borrowers who sought professional degrees in fields like law and medicine.

Surprising Fact

A blanket $10,000 forgiveness plan would have cost the federal government $311 billion in 2022, according to Penn Wharton Budget Model estimates, but the $125,000 income limit would only save the government a relatively small $12.6 billion. Research shows the income cap helps make the policy less regressive and benefits poorer Americans more.

Big Number

Over 60%. That’s the proportion of borrowers who received Pell grants and are eligible for $20,000 in relief, according to the White House.

Chief Critic

Much of the criticism of Biden’s relief measure has focused on the immense cost of the program and its potential impact on inflation, which hit a 40-year high earlier this year. Some critics like Senate Minority Leader Mitch McConnell (R-Ky.) also point to how it fails to help blue-collar workers of varying income levels who never went to college. In a statement Wednesday, McConnell called the initiative “astonishingly unfair and “a slap in the face to every family who sacrificed to save for college, every graduate who paid their debt and every American who chose a certain career path or volunteered to serve in our Armed Forces in order to avoid taking on debt.”

Here’s Who Benefits Most—And Least