Proposed Debt Forgiveness Would Make Large Dent in Student Loan and Total Unsecured Debts

An analysis of recent U.S. Census Bureau data shows that parts of the student debt forgiveness plan announced by the administration last month — one of the largest ever — would completely eliminate student debt for a number of borrowers.

The plan would forgive up to $10,000 in federal student debt for individuals making less than $125,000 a year and married couples making less than $250,000 a year. Additionally, the student loans of income-eligible individuals who received Pell grants would be reduced by up to $20,000.

The Census Bureau’s recently released 2021 Survey of Income and Program Participation (SIPP) provides information about student debt balances as of December 31, 2020. Although loan balances would normally change over two years, pandemic policies allowed borrowers to temporarily pause payments without interest.

The 2021 SIPP data show that the plan to reduce student loans by $10,000 would completely wipe out balances for 29.0% of those with student debt and that certain demographic groups would benefit more than others.

In addition, any payments made after March 2020 can be refunded and then forgiven. Because of this, amounts owed in student debt in 2020 can serve as an approximation of loan balances in 2022.

In this article, we investigate who among adults not enrolled in college with at least a high school degree will benefit — and by how much — from this proposed policy, assuming all reported student loans in the SIPP are federal and that no one’s student debt will be reduced by more than $10,000.

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