Top business profs say student loan forgiveness bad for the poor!

A working paper from professors at two of the nation’s top business schools is adding to the data calling student loan forgiveness policies into question.

University of Pennsylvania Wharton School Professor Sylvain Catherine and University of Chicago Booth School Professor Constantine Yannelis found student loan forgiveness, a policy supported by former Vice President Joe Biden, to be a “highly regressive policy,” disproportionately benefiting wealthier Americans.

Catherine took to social media to summarize the study’s core findings.

Notably, the average person in the bottom decile of income earners would receive $3,000 of balance forgiveness in present value terms, while someone in the top three deciles would receive roughly $8,000,

The professors noted that benefits to black and Hispanic citizens would benefit “substantially less” than current balances suggest. They founded that the real benefit offered to African-American borrowers could be negligible, especially for a repayment plan of $10,000 per borrower.

Because African-Americans tend to carry larger amounts of debt with lower fair values, loan forgiveness policies are likely to cancel the debt that would not have been repaid in the first place.

“Overall, the bottom 10% receives less than 10% of the benefits of all the policies we consider,” concluded Catherine. “Outstanding student debt is inversely correlated with economic hardship, so it is difficult to design a forgiveness policy that does not accentuate inequality.”

The Wharton and UChicago study adds to many other analyses questioning the efficacy and distributional effects of student debt forgiveness programs.

Matt Bruenig of the left-leaning People’s Policy Project wrote in November that “student debt forgiveness is possibly the least effective stimulus imaginable on a dollar-for-dollar basis,” since it would not lead to higher liquid cash holdings for American households.

Last year, the Brookings Institution called student loan forgiveness plans “regressive, expensive, and full of uncertainties.” In analyzing presidential candidate and Massachusetts Sen. Elizabeth Warren’s proposal, Brookings fellow Adam Looney found that the top 40 percent of income earners would reap 66 percent of the policy’s benefit.

Warren’s free college plan provided additional grounds for skepticism: “How can we sustain a system with open-ended borrowing and broadly available loan forgiveness?

Read the rest at: forgiveness student loan BAD


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