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College Debt Moratorium: Only 10 Percent Of Benefits Goes To Bottom 40 Percent Of Families

College Debt Moratorium: Only 10 Percent Of Benefits Goes To Bottom 40 Percent Of Families

college debt

Photo: New graduates line up for commencement at Bergen Community College in East Rutherford, N.J., May 17, 2018. (AP Photo/Seth Wenig, File)

Calls for a national student loan debt forgiveness program have grown louder over the last year. Some advocates say such a program would help close the racial wealth gap, but new research shows otherwise. So who would benefit from a college debt moratorium?

Americans owe more than $1.59 trillion in student loan debt with Black students carrying a disproportionate load. Four years after graduation, the average Black college graduate owes $52,726 compared to $28,006 for the average white college graduate, according to the Brookings Institute.

But also, households in the upper half of the income distribution and those with graduate degrees hold a disproportionate share of that debt, according to recently released data from the Federal Reserve’s Survey of Consumer Finances.

The highest-earning 40 percent of households (those with incomes above $74,000) owe almost 60 percent of the outstanding education debt and make nearly three-quarters of the payments. The lowest-earning 40 percent of households hold just less than 20 percent of the outstanding debt and make only 10 percent of the payments, Brookings Institute reported.

This means that households with higher income would benefit the most from a student local debt moratorium and only 10 percent of the benefits would go to the bottom 40 percent of families carrying student loan debt. 

“There are vastly better ways to transfer 6 billion dollars a month to help struggling families and to redress racism than this moratorium, where only 10 percent of the benefits go to the bottom 40 percent of families,” tweeted economist Lawrence H. Summers, a current professor and former president at Harvard University. Summers served as Secretary of the Treasury for President Bill Clinton and as Director of the National Economic Council for President Barack Obama.


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Summers suggested that there were better ways to redress racism than a student loan moratorium.

“You need to look at payments not debt burdens since many are already enabled to service at low rates,” Summers continued in his tweet. “The right place for reform is in student lending to prevent subsidy to institutions that rip students off and to replace loans with grants.”

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Research confirms Summers’ views, according to Sylvain Catherine from the University of Pennsylvania and Constantine Yannelis from the University of Chicago Booth School of Business. 

They found that after universal student-debt forgiveness, the average person in the top decile of the earnings distribution would receive more than five times as much relief as the average person in the bottom decile. Almost half of all relief would go to people in the top 30 percent of the distribution.

“Patterns are similar under policies forgiving debt up to $10,000 or $50,000,” the researchers wrote in the Chicago Booth Review, “with higher-income households seeing significantly more loan forgiveness.”

Photo: New graduates line up for commencement at Bergen Community College in East Rutherford, N.J., May 17, 2018. (AP Photo/Seth Wenig, File)