And that’s among people who went to college. When you consider who goes to college in the first place, college students are even more privileged. About 80 percent of children who grew up in the top 25 percent of families go to college, compared with 29 percent of children who grew up in the bottom 25 percent. 11 Those high-income students are six times more likely to complete their degree. Inequities like that helps explain why only 33 percent of Americans have a bachelor’s degree. 12
The barriers to going to college and graduating are particularly severe for Black and Hispanic Americans, who enroll in college at lower rates than whites and are less likely to complete a degree. Indeed, the intersection of these inequities mean that for Americans born in the early 1980s, there are more white Americans from the richest 10 percent of the income distribution who went to college than all Black Americans combined. 13
In contrast, borrowers who struggle with student loans are different. Almost 90 percent of borrowers who default on a student loan received a Pell Grant because their income and wealth was low when they applied to college. 14 Almost 46 percent of defaulted borrowers went to a for-profit school, even though they represent only 9 percent of students. 15 Half of defaulters never completed a degree, even though only 8 percent of student debt is owed by households without a degree. Other than the fact of having a student loan, the economic circumstances of struggling borrowers has almost nothing in common with borrowers from higher-income backgrounds and successful careers.
When considering policies to reduce the economic burdens of student loans, it is important to recognize that even modest student loan forgiveness proposals are staggeringly expensive and consume federal spending that would more effectively address economic hardship and inequities. The sums involved in loan-forgiveness proposals under discussion would exceed cumulative spending on many of the nation’s major antipoverty programs over the last several decades.
In terms of its scale in budget and cost to taxpayers, widespread student loan forgiveness would rank among the largest transfer programs in American history. Full forgiveness of existing student debt would cost more than the cumulative amount spent on programs like unemployment insurance, or the Earned Income Tax Credit, or food stamps in total over the last 20 years. 16 And in contrast to those targeted programs, the beneficiaries of student loan forgiveness would be vastly richer, whiter, better educated, and of higher socioeconomic status. 17
Indeed, a counterintuitive result of the analysis of who benefits most from student debt is that the money largely flows to borrowers who can and do repay their loans rather than those who cannot. Without targeting relief, that can increase inequities rather than reduce them.
An effective way to target loan relief is through income-based repayment plans, which limit student loan repayments to 10 percent of a student’s discretionary income (income minus 150% of the poverty line) and forgive undergraduate debt after 20 years. In principle, that program ensures that higher-income borrowers contribute to the cost of their postsecondary education, but provide relief to those who are less fortunate.