Planet Money’s Guide To The Student Loan Debate

$50,000 or $10,000, that is the question!

Was this forwarded to you? Subscribe to this newsletter and to our podcasts. Debt Debate, Decoded by Elissa Nadworny and Greg Rosalsky At a CNN town hall last Tuesday night, President Biden was asked if he supported forgiving up to $50,000 of student loan debt for Americans, a proposal that leading progressive Democrats have been fighting for. His answer: No. He supports cancelling $10,000 in debt. Any more, he argued, runs the risk of helping out Ivy League grads. "The idea that ... I'm going to forgive the debt, the billions of dollars in debt, for people who have gone to Harvard and Yale and Penn,” he said, is not a fair plan. But here's the problem: Regardless of the broader question about whether loan forgiveness is a good idea, Biden's comments do not reflect the true picture of the $1.6 trillion owed by student borrowers to the federal government — or of the borrowers who would benefit most from forgiveness.   Saul Loeb/Getty Images   Biden’s Arithmetic Error Most graduates did not rack up debt at Ivy League colleges, because most students, in general, do not go to these highly selective schools. Ivy Leaguers represent less than 0.5% of the nearly 15 million undergraduate college students in the U.S., and a lot of them don't have to take out student loans to do it. The majority of students who take out loans go to public schools, for-profit colleges and non-elite private schools. Think about it: Students who do go to the most selective schools tend to come from wealthy families, and many pay full tuition. Last year, 54% of undergraduates at the University of Pennsylvania, for example, didn't even qualify for financial aid, according to data from the school. At Harvard, the number was 45%. These highly selective colleges have long failed to enroll students who aren't from the top tier of wealth in this country. Today, low-income students who qualify for federal Pell grants make up less than 16% of enrollment at many of these schools. "The idea that small-level, or no debt cancellation is the best way forward because a trivial amount of rich people may benefit is a talking point to distract," says Jalil Mustaffa Bishop, a researcher at the University of Pennsylvania. Biden may be playing politics with his comments, but there is still a heated debate among education wonks over how much debt to forgive. The sticking point between the $10,000 and $50,000 proposals revolves around which borrowers would benefit the most. The Case for $10k More than a third of borrowers owe less than $10,000 in federal student debt, according to federal data. "Borrowers who have the lowest student debts are the ones who struggle the most," says Adam Looney, an economist at the University of Utah. Often borrowers with low debt balances, says Looney, went to college for a semester, or a year or two, and never completed a degree. Without a degree, those borrowers often earn less money, making it harder for them to pay off their student loans, and making them more likely to default. Roughly 8 million federal student loan borrowers are currently in default, and the typical defaulter takes out less than $10,000.  Economists arguing for forgiving $10,000 warn that anything higher runs the risk of rewarding borrowers who don't need the help. Higher debt balances often come from graduate degrees; opponents of the $50,000 proposal argue that many of these borrowers have careers with high incomes and don’t need help. But Why Not $50k? Forgiving $50,000 worth of student debt would wipe out the debts of about 80% of borrowers, according to federal data.  Proponents of this more generous proposal say it would help eliminate the racial wealth gap. Households with student debt tend to have the least amount of wealth, federal data show, and Black families tend to have significantly less wealth than white families, according to the Federal Reserve.  While white students are more likely to go to college than Black and Latino students, they are less likely to borrow, less likely to drop out, and less likely to default.  Black borrowers, meanwhile, are more likely to borrow, accrue a lot of debt, and default. Black graduates who earned a bachelor's degree are five times more likely to default than their white counterparts. That’s because Black borrowers face labor market discrimination, higher rates of unemployment, and tend to have lower family wealth. Advocates of the $50,000 proposal argue a higher level of forgiveness is about racial justice — the dollar amount comes from research that found the amount would help grow the wealth of the highest number of Black households. So when is this all going to happen? Senators Elizabeth Warren and Chuck Schumer say Biden should do it right now through executive action, without Congress. The Biden Administration isn’t so sure that’s legal, and it has repeatedly said they prefer to take action through Congress. Which means this will happen sometime before ¯\_(ツ)_/¯. Newsletter continues after sponsor message On Our Podcasts We Buy A Superhero: Origins — Marvel has 7,000 characters, many of them forgotten. We want to buy one from their vault and launch our own little Planet Money franchise. Listen here Why Printers Are The Worst — The real money is in the ink. Listen here We Buy A Superhero: Loophole — Marvel was not interested in selling us Doorman. 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