Should the Federal Government Cancel Student Loan Debt? | Chicago News

Some Democrats are calling on President Joe Biden to forgive up to $ 50,000 in federal student loan debt thanks to executive action.

Biden had proposed cancel up to $ 10,000 in student loan debt.

Earlier this month, White House press secretary Jen Psaki said on Twitter that the Biden administration was explore whether executive action on this issue is possible.

It comes as the hiatus on federal student loan payments has been extended until at least October.

About 45 million Americans hold approximately $ 1.7 trillion in student loan debt. Borrowers owe an average of $ 36,510 in federal loans, according to EducationData.org.

“There are a lot of pieces to the puzzle here, obviously not all debt is created equal,” said Horacio Mendez, president of the Woodstock Institute, a Chicago economic interest group. “There are debts that are affordable based on the income you can get, and a lot of that comes from the education you get, the school you went to, and the work you were able to get through. following. There are others who are in debt because they couldn’t complete a program at a for-profit school that burdened them with really high and unaffordable debt, so it falls disproportionately, like most things in the economy, on low and moderate income. and communities of color, especially here in Chicago. “

Constantin yannelis is an assistant professor of finance at the Booth School of Business at the University of Chicago, whose research focuses on student loans. He said debt cancellation benefits high-income people rather than low-income people.

“Because they have higher student debt levels,” Yannelis said. “If you think of people like doctors, lawyers, many businessmen with MBAs, they went to college for a lot of years and so borrowed a lot, but they also earn. a lot of money. On the other hand, if you look at people like high school dropouts or other people who didn’t go to college, they have no student debt.

Mendez said that while student loan debt is still held by high-income families, the forgiveness could still impact low-income families.

“More than 50% of the outstanding debt belongs to the richest 40% of the income bracket. Now when we talk about handing over $ 10,000, not to mention $ 25,000, to someone in the lowest income, in the lowest 20%, from a representative standpoint, c is actually a big change. While this may help the top quartile more in terms of the income scale, I think there is a big benefit to forgiveness on the lower side of that scale as well.

While there may be some stimulus in forgiving student loan debt, it wouldn’t be the most effective way to stimulate the economy, Yannelis said.

“There are much more efficient ways to get money to the poorest households that will spend the most for every dollar they receive,” said Yannelis.