Wealthy Borrowers Will Benefit Most From Elizabeth Warren's Student Debt Forgiveness Plan. Here's Why

When Sen. Elizabeth Warren—a contender for the 2020 Democratic presidential nomination—released a bold plan this week to wipe out $640 billion in American student loan debt, one of the first questions became: Who stands to benefit most?

Two new reports from higher education researchers provide some answers.

The reports, from the think tanks Urban Institute and Brookings Institute, both find that the majority of benefits would go toward middle and upper-middle class earners.

Those findings are in part a simple result of who attends college. Students from higher-income families are more likely to go, and they disproportionately attend more expensive schools. They also borrow more. About 34% of all student debt is owed by borrowers in the top quartile of the income distribution, and only 12% is owed by those in the bottom 25%, according to an updated analysis from the Urban Institute.

To be fair, Warren’s proposal does have measures that’d make it more equitable than other calls for debt cancellations, like a bill introduced last year by then Congressman Jared Polis that called for eliminating all student debt. (Polis is now the Democratic governor of Colorado.) Unlike that bill, Warren would cap the amount of debt forgiven at $50,000, and she suggests phasing out the benefit with borrowers earning more than $100,000.

"Phasing out the benefit for higher-income households reduces the benefit for the top income group but does not tilt the benefits to substantially favor low-income households," the Urban Institute authors write.

They estimate households earning between $65,001 and $109,000 would have an average of $26,490 forgiven, while households earning less than $22,000 would have an average of $19,364 forgiven.

The average amount of debt forgiven by Warren's plan would increase as household income increases, both reports found—with the exception of the top income quintile. That's because Warren's plan would not apply to households earning more than $250,000.

Adam Looney, an economist and author of the Brookings analysis, describes Warren’s proposal as “regressive, expensive, and full of uncertainties.”

He finds the top two income quintiles would receive 66% of all annual savings, while the bottom 40% of households would get 14% of annual savings. Likewise, borrowers who have graduate degrees represent 27% of all borrowers, but they’d claim 37% of the benefit, Looney writes.

On the other hand, borrowers from the bottom two income quintiles were more likely to have their entire debt wiped out— even if it was a smaller sum than those who earned more. Roughly 85% of lower-income borrowers would see their debt wiped out, Looney estimates.

One key of Looney’s analysis is that he modeled the benefits based on how annual student loan payments would change under the plan. That allowed him to account for different interest rates for say, graduate school loans versus undergraduate loans, or the use of existing repayment plans that lower monthly payments. He says it's a more accurate picture of how the proposal would affect daily household income than a measure of the average debt forgiven (which he also modeled).

One bright area in the reports is the share of the benefits going toward black households. Warren specifically cites the racial wealth gap in education debt in her proposal. Black families have fewer assets, graduate with larger debt burdens, and default at far higher rates than their white peers. The Urban Institute analysis finds Warrens proposal could help ease that. Twenty-five percent of cancelled debt dollars would go to black households, which represent 16% of all households, while 59% would go to white households, which comprise 68% of all households.

This story has been updated after the authors of the Urban Institute report published corrected information on the share of student debt held by the top income quartile. It is 34%—not 50% as originally reported.