A newly reported plan from Democratic President Joe Biden seeks to cancel out thousands of dollars in student loans for each person and it seems to have a projected side effect of worsening inflationary pressures while heavily assisting higher income earners, explained a recently posted analysis from the University of Pennsylvania’s Wharton School.
Officials within the White House are discussing a new plan to cancel out roughly $10,000 of student debt per borrower that makes under the level of $125,000, as stated in a recent report from CNN, while some Democratic legislators have stated their support for going further to cancel out up to $50,000 per borrower. The overall final choice, which is projected to be revealed to the public at some point Wednesday, just as the White House also talked about whether or not the issue an extension to the currently paused federal student loan payments, which is slated to expire as of the 31st of August.
The cancellation of $10,000 in student loan debt per borrower would come with a price tag of $298 billion in 2020 and another $329 billion by 2031 if the policy is reinstated each year, as reported by a neutral analysis coming from Wharton. Just under 32% of the funding would end up benefitting Americans situated in the two lowest incoming quintiles, while a total of 42% would end up helping people who earn over a total of $82,400 per year.
“People in higher income households are more likely to have student debt and they owe more on average. So, most cancellation plans would benefit the wealthy more than middle-or lower-income families,” explained Colleen Hroncich, an education policy analyst for Cato Institute.
In the same vein, another report, this time from the Brookings Institution, explained that a total of one-third of all student debt is owed by the top 20% of households, while only roughly 8% is owned by the bottom 20% — which most likely stems from more degrees often being needed for the country’s highest paying jobs. “Postsecondary education typically results in much higher lifetime earnings — $1.2 million for a bachelor’s degree and $3.1 million for a professional degree like law or medicine,” highlighted Hroncich.
The analysts for Wharton claimed that a permanent loan cancellation announcement could end up pushing students to “eventually reorganize their financing toward additional borrowing.” While on the other hand, the new policy could also end up increasing access for students who would not otherwise have been able to get higher-level degrees.
Hroncich went on to add that the student loan cancellation is “an even more drastic distortion” because possible borrowers will start weighing the idea of more one-time cancellations in the future.
“All federal student aid creates market distortions through tuition and credential inflation,” Kroncich concluded. “When government gives people money to attend college, there will be more demand for college. And when more workers have college degrees, employers start looking for workers with degrees even for positions that historically did not require one.”