President Joe Biden (Photo by Alex Wong/Getty Images)
Who got the most student loan cancellation? The answer is not who you think.
Here’s what you need to know — and what it means for your student loans.
The student loan payment pause has been a financial lifeline for millions of student loan borrowers during the Covid-19 pandemic. In the wake of a national emergency, 41 million student loan borrowers received unprecedented student loan relief, including more than two years of no federal student loan payments. Now, a new study from the Committee for a Responsible Federal Budget shows surprising data about who benefitted the most from the student loan payment pause.
According to the study, on average for recent graduates, here’s who will get the most student loan forgiveness from the student loan payment pause:
Average amount of student loan cancellation for recent graduates, by degree type, who haven’t … [+]
According to the study, doctors and lawyers who are recent graduates and who have not started repayment will benefit most from the student loan payment pause. Why? Doctors typically borrow higher student loan debt — $265,000 on average, according to the study — and therefore pay relatively higher interest on their principal student loan balance. (Student loan payment pause: Senator says extending student loan relief is unfair to most Americans). In contrast, the average college graduate has $30,000 of student loan debt. One issue is that, on average, doctors and lawyers earn a higher income than student loan borrowers with a bachelor’s degree. This begs the question of whether the student loan payment pause is benefitting student loan borrowers who are struggling the most. This doesn’t mean that individual student loan borrowers haven’t saved money from the student loan payment pause. Rather, the study shows that doctors and lawyers disproportionately have received more student loan relief than student loan borrowers who may earn relatively less income. (Biden could extend the student loan payment pause forever).
According to the author, the student loan payment pause is regressive because it benefits higher-income earners with higher student loan balances. (Biden dropped student loan cancellation from budget). For example, the author notes the distribution of student loan debt by size:
In contrast, according to the author, $10,000 of student debt cancellation would be distributed more evenly across the student loan borrower population. Biden is still considering student loan forgiveness, and he has supported $10,000 of student loan cancellation. Importantly, “student loan cancellation” from the student loan pause is not outright student loan forgiveness. Rather, this represents “effective” student loan forgiveness through both canceled student loan interest and higher inflation. When Congress passed the Cares Act — the $2.2 trillion stimulus package — Congress temporarily set federal student loan interest rates at 0% with no new interest accrual. According to the U.S. Department of Education, student loan borrowers collectively have saved $5 billion a month on their student loans. The Federal Reserve Bank of New York estimates that student loan borrowers collectively have received $195 billion of savings through the student loan payment pause.
The student loan payment pause is scheduled to end on August 31, 2022. Democrats are calling to extend student loan relief, while most Republicans oppose any further extensions. Are you prepared for student loan repayment to restart? Make sure you know all your options. Here are some helpful options to save money: