At the end of June, 43 million borrowers – or about 14% of all adults in the U.S. – owed approximately $1.59 trillion in outstanding federal student loans. The average balance is $39,351 per borrower, with an average monthly payment of $393 per month. The standard repayment period for $39,351 in student loans is 20 years.
The amount of student debt outstanding varies greatly based on the type of degree pursued. The average bachelor’s degree debt is under $29,000, while the average dental school debt is more than 10 times higher at over $290,000.
Policymakers have put forth proposals to forgive anywhere from $10,000 to $50,000 or more per borrower.
President Joe Biden has stated that he is “prepared to write off a $10,000 debt.”
If up to $10,000 per borrower were to be canceled for all 43 million student loan borrowers, the cost would be $377 billion. This would completely eliminate the student loan balances for over 15 million borrowers. The total cost of forgiving up to $50,000 for all 43 million borrowers would be just over $1 trillion. It would also wipe clean the student loan balances for over 36 million people.
Some economists view the staggering amount of outstanding student debt as a drag on the economy. They argue that any forgiveness of student debt will stimulate the economy. However, I and other economists argue that any boost to the economy from student loan forgiveness would be small compared with the cost to taxpayers.
If $10,000 per borrower is forgiven, it is not as if the borrower is receiving $10,000 that they can go out and spend today. Rather, it is estimated this would free up only about $100 per month for the average borrower to spend or save over 10 years. If all $1.5 trillion in federal student loans were forgiven, the average borrower would have an extra $393 per month. It is estimated that the economy would only grow by about $100 billion, or about 0.5%, if all $1.5 trillion in federal student loans were canceled.
One criticism of forgiving student debt for everyone is that most of the benefits will go to those with higher incomes. In addition, relatively few of the benefits would go to those who borrowed to finance an undergraduate education. Sixty-eight percent of those who took out student loans for a bachelor’s degree borrowed less than $10,000.
If the idea behind loan forgiveness is to stimulate the economy, I believe loan relief should be targeted to those most likely to spend any savings from student loan forgiveness. This suggests student loan forgiveness should be targeted to those with low incomes, who typically have less than $10,000 in student loan debt but are more likely to default on those loans.
Any student loan relief program should consider the effect it may have on borrowers, as student debt impacts some groups more than others. For example, women owe approximately two-thirds of the outstanding student loan debt. About 69% of white college graduates owe student loans, compared with 85% of Black college graduates. The point is that women and people of color would benefit the most from student loan forgiveness.
William Chittenden is associate dean for graduate programs and presidential fellow at Texas State University. Distributed by The Associated Press.
