As I noted yesterday, while Warren’s student-loan-relief plan makes some efforts to be “progressive” — such as capping relief at $50,000 and phasing out benefits for households with six-figure incomes — any plan to cancel student debt is almost by definition targeted at the wealthier segments of American society, simply because richer people are more likely to have gone to college. Warren’s economic analysis, echoed by some liberal commentary, evaded this fact by calculating the percentage of student debt that would be forgiven for each income group.
The top 20 percent of households receive about 27 percent of all annual savings, and the top 40 percent about 66 percent. The bottom 20 percent of borrowers by income get only 4 percent of the savings. Borrowers with advanced degrees represent 27 percent of borrowers, but would claim 37 percent of the annual benefit.
Roughly the top 5 percent of households won’t get any relief at all, per Warren’s analysis, but those a bit below that will get quite the windfall, with little going to those at the bottom.
Debt relief for student loan borrowers, of course, only benefits those who have gone to college, and those who have gone to college generally fare much better in our economy than those who don’t. So any student-loan debt relief proposal needs first to confront a simple question: Why are those who went to college more deserving of aid than those who didn’t? More than 90 percent of children from the highest-income families have attended college by age 22 versus 35 percent from the lowest-income families. Workers with bachelor’s degrees earn about $500,000 more over the course of their careers than individuals with high school diplomas. That’s why about 50 percent of all student debt is owed by borrowers in the top quartile of the income distribution and only 10 percent owed by the bottom 25 percent. Indeed, the majority of all student debt is owed by borrowers with graduate degrees.
Update: Matthew Chingos and Kristin Blagg of the Urban Institute report fairly similar results (emphases mine):
We estimate that 66 percent of federal student loan dollars would be forgiven under Warren’s plan. Applying this estimate to the most recent total debt in the federal student loan portfolio ($1.447 trillion) yields a cost estimate of $955 billion dollars. This estimate is higher than the one in the economic analysis (PDF) provided by Warren’s campaign, which used a different methodology.
. . . For households with federal student debt, the amount of federal debt forgiven increases as household income increases but drops for households in the top income quintile, which receive the same average benefit as those in the lowest quintile. This finding reflects the fact that average borrowing increases with household income, but the Warren proposal reduces the benefit for families in the top income group (with no forgiveness for families earning more than $250,000, who make up about 5 percent of households).
If we look at total dollars [for each quintile] rather than average forgiveness [among just those with student loans], the benefits skew even more toward the higher income groups. . . . 45 percent of cancelled loan dollars [go] to households . . . in the top two income quintiles and just 14 percent [go] to the bottom quintile. In other words, phasing out the benefit for higher-income households reduces the benefit for the top income group but does not tilt the benefits to substantially favor low-income households.