Is canceling some or all of the student loan debt fair?
The answer to this question depends on a lot of things, including your philosophical and political point of view. It also depends on your understanding of who will benefit from the write-off of the $ 1.5 trillion in outstanding student loans.
New analysis suggests we may have a biased view of who it might be.
The Survey of Consumer Finances – a dataset widely used by think tanks and journalists to illustrate the income distribution of student loan borrowers ignores a key demographic: those who return to live with their parents.
And that makes the population of student loan borrowers appear richer than he actually is, Matt Bruenig, founder of the People Policy Project, a progressive think tank, wrote in a blog post Thursday.
This is a problem, Bruenig said in an interview, because it means that the raging debate over whether the recent proposals by Senators and Democratic presidential candidates Bernie Sanders and Elizabeth Warren unfairly benefit the wealthy is over. unstable ground.
“If we’re going to basically talk about the equity of student debt cancellation plans and your notion of fairness, it’s about whether it’s distributively equal,” Bruenig said. “You know what the distribution is and this data source doesn’t let you know that distribution well.”
Indeed, one of the main criticisms of student debt cancellation plans is that they are said to be a freebie for the wealthiest borrowers.
White households with a bachelor’s degree have a net worth of around $ 400,000, compared to $ 68,000 for black households with a college degree, according to a recent study by Demos, a left-wing think tank.
Higher student loan balances tend to be concentrated among borrowers with higher incomes, as they typically hold higher degrees. Higher education is associated with both higher debt and higher income, and because of this, these borrowers hold a significant portion of the outstanding student debt.
This means that they would theoretically benefit the most – at least measured in the amount of dollars delivered – from the type of debt cancellation plans offered by Warren and Sanders.
Bruenig’s post raises questions about how well off the population of student loan borrowers really is. The Survey of Consumer Finances assesses a household’s balance sheet by focusing on the breadwinner or breadwinner couple and asking them about household finances, including their debt load. This method could easily miss a 25-year-old struggling with debt who returns to live with his parents to help ease that burden, Bruenig said.
Even if the parents of the household choose to report their boomerang child’s debt, it would be reported as part of that of the household. This means that the debt would be correlated with the income of the parents, which is probably higher than that of the child.
As a result, the income and age of student loan borrowers reported by this widely cited survey are likely higher than reality, Bruenig said.
Bruenig is not the first to make this observation. Matthew Chingos, vice president, data and education policy at the Urban Institute, a think tank, said he heard a similar setback in 2014 against his own. research based on data from the Survey of Consumer Finances.
Chingos said his response at the time was along the lines of “Well it’s fine, but there’s no better data, that’s what we have,” he said.
In the years that followed, other data confirmed, more or less, the picture of the data portrayed by the Survey of Consumer Finances, Chingos said.
Research by Adam Looney, former Assistant Assistant Secretary for Tax Analysis at the Treasury Department, and Constantine Yannelis, professor of finance at the Booth School of Business at the University of Chicago, found that borrowers in the highest income quintile hold a larger share of student debt than those in the bottom income quintile.
This analysis was based on a match between tax data and student loans and therefore does not present the same challenges as the Survey of Consumer Finances, noted Chingos.
Yet 12 years after entering college, white men have paid off an average of 44% of their student loan balances, according to Demos. For white women, this share drops to 28%. Black women actually see their loan balances increase by 13% on average 12 years after leaving school, while black men see their balances increase by 11%.
So how poor are those with student debt? “We need better data, for sure,” added Chingos.