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Published: Sep 08, 2022 9 min read
Photo collage illustration of students walking through college campus
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Now that the college-loan-forgiveness cat is out of the bag, many Americans are wondering who really benefits from President Joe Biden’s plan to wipe out broad swaths of student loan debt.

The president’s plan, announced at the end of August, will provide federal student loan forgiveness of up to $10,000 for borrowers who earn less than $125,000. The announcement also included a surprise provision: up to $20,000 of forgiveness for borrowers who received a need-based Pell Grant during their time in college. The logic goes that this additional relief would focus the help on lower-income families who had demonstrated financial need around the time they took out the debt.

Response to the plan was predictably mixed. The president's political opponents say the play goes way too far, with some conservatives gearing up to challenge the Biden administration in court. Two recent polls, meanwhile, show that just over half of registered voters support Biden's debt relief plan, with much higher shares of young voters and Black and Hispanic voters saying they support it.

“Overall, the plan is really going to help people from low-wealth backgrounds who have to borrow to go to college,” says Charlie Eaton, co-founder of the Higher Education, Race and Economy Lab at the University of California, Merced. “People from wealthier backgrounds don't have to borrow to go to college in the first place.”

Eaton, who's also the author of Bankers in the Ivory Tower, says that low-wealth Black borrowers will particularly benefit.

Here’s a closer look at who Biden’s student loan forgiveness plan helps the most.

1. More than 40% of borrowers could have their student debt wiped out entirely

Approximately 45 million Americans have student loan debt, according to government officials.

Of those borrowers, about 43 million are eligible for some form of forgiveness — whether that’s up to $10,000 for non-Pell Grant recipients or up to $20,000 for those who did receive the Pell Grant at some point during their time in college.

That amount of forgiveness would wipe clean the entire balance for some 20 million student loan borrowers, officials say.

That accounts for roughly 44% of all federal student loan borrowers.

2. Most of the student debt relief will flow to lower-income Americans

One of the most consistent critiques against broad student debt forgiveness over the past couple years is that it mostly benefits the well off, and many groups have doubled down on that line lately.

A recent ad campaign run by the conservative advocacy group American Action Network, for example, says that Biden’s loan forgiveness plan is a “bail out for rich kids.” According to a fact-check by PolitiFact, that statement is mostly false.

One reason why: A key facet of Biden’s forgiveness plan is that it is income capped. Borrowers who earn more than $125,000 (double for married couples) aren’t eligible for forgiveness, thus excluding the highest earners from benefiting.

A nonpartisan analysis from economists at the University of Pennsylvania’s Penn Wharton Budget Model backs this up. It shows that the vast majority of debt relief will go to the bottom 60% of households by income. In other words, the study found that about 75% of the benefit will go to households earning $88,000 or less.

Biden’s plan will most help low-income families and people of color, says Abby Shafroth, a staff attorney and director of the Student Loan Borrower Assistance Project at the National Consumer Law Center.

“This debt cancellation will mean many will — for the first time in their adult lives — move from being in the red to being in the black,” Shafroth added in an email to Money. “That's life-changing.”

3. About 8 in 10 Black student borrowers may qualify for $20,000 of forgiveness

Experts say the Pell Grant provision in Biden’s plan, which provides up to $20,000 of forgiveness, helps borrowers of color and especially Black Americans.

The White House has said that 71% of Black federal student loan borrowers receive the Pell Grant. But Eaton, of UC Merced, says that figure underestimates who would realistically get up to $20,000 of their student debt canceled.

For one, the White House’s figures are based on data from a Census survey that does not directly track whether someone received the Pell Grant, officials told Eaton. Secondly, the calculation reflects the portion of Black borrowers who receive a Pell Grant in any given year.

Under the current plan, to be eligible for up to $20,000 in forgiveness, a borrower doesn’t have to receive the Pell Grant each year — but only once during their time in college. For that reason especially, the portion of those eligible for forgiveness of up to $20,000 will likely be higher than the estimate shared by the White House.

Eaton ran new models using different methods that were based on Education Department data that directly tracks which borrowers receive Pell Grants.

“This is the gold standard for estimating things [like] Pell status at the student level,” he says.

These models, which Eaton shared with Money, show that between 83% and 88% of Black borrowers receive a Pell Grant at least once throughout college. He notes that these numbers could be a slight overestimation in terms of the $20,000 forgiveness policy because they exclude Black borrowers with Parent PLUS loans — a small cohort of borrowers not eligible for additional forgiveness.

"[The actual number is] somewhere in between their estimate and my estimate,” he says, “closer to 8 in 10.”

By comparison, about 47% of white borrowers would be eligible for $20,000 of forgiveness, according to the same estimations by Eaton.

4. Borrowers with low debt, no degree will get a clean slate

It's difficult to estimate exactly how many people in total took out loans for schooling but did not complete their program. One estimate from a couple years ago, looking at borrowers who enrolled in 2011, found that 38% of students with debt had not earned a degree six years later.

What is very clear in the data we have is that dropping out without a degree is not rare. According to the Education Department, 36% of all bachelor's degree-seeking students who started college in 2014 had not finished their degree by 2020. For private, for-profit schools, those numbers look much worse: 71% of students didn't finish their bachelor's after six years.

When borrowers drop out, they get the worst of both worlds: student debt with no degree to show for it.

"A majority of people holding student debt have moderate incomes and low balances," wrote Susan Dynarski, a Harvard economist who studies education, in a recent New York Times op-ed. "Many have no degree, having dropped out of a public college or for-profit vocational school after a few semesters. They carry little debt, but they also do not get the benefit of a college degree to help them pay off that debt."

As a result, borrowers who didn't complete their program are at higher risk of falling behind on loan payments and defaulting. These are the folks who experts say would perhaps benefit the most from Biden's forgiveness plan.

“Those with the lowest debt levels are least likely to have degrees," Matthew Chingos, who directs the Center on Education Data and Policy at the Urban Institute, recently told the Times, "so $10,000 of forgiveness is most likely to fully eliminate debt for people with the least education."

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