Would Income Limits Help Sell Student Loan Forgiveness?

OK, then. I wrote about this topic on April 8 right here at GoCertify.com (Revisiting Student Loan Forgiveness). In that story I said "The people least able to repay their student loans ... are the ones who will benefit most from easing of their financial obligations." I'm pleased to report that the current administration in Washington, D.C. apparently agrees.

Consider this front-page story from the April 30 Washington Post White House officials weigh income limits for student loan forgiveness. The story's subtitle "Biden aides consider how to cut off eligibility to exclude high-earners" pretty much sums up what is likely to matter to most people, especially those who have taken out Federal student loans that still have an outstanding balance.

Up-front Disclosure: I Took Out Student Loans in the 70s and 80s

Before I get into the details and ponder the reported cut-offs for eligibility, a personal disclosure: I attended Princeton from 1970 to 1973, and the University of Texas at Austin from 1976 to 1982. Upon finishing my post-secondary education adventures, I had accumulated around $10,000 in federal student loans (that's less than, but close to, $30,000 in today's dollars according to the CPI Inflation Calculator).

I paid those loans off by the early 1990s, but I was never out of work or unable to work following graduation. I don't think I would have qualified for the cut-offs the Biden Administration is considering except that my wife doesn't work outside the home and we therefore qualify as married, but with only a single income.

What Are Those Reported Cut-offs?

According to the afore-linked WAPO story, the cut-offs under consideration are between $125,000 and $150,000 for single filers, and between $250,000 and $300,000 for married couples filing jointly. According to Statista, the percentage of the percentage of all Americans who earned less than $100,000 per year in 2020 came to 66.5.

Nearly half of the population over age 15 is married (Source: USA Today), so it's probably safe to include 45 percent of the remaining 23.3 percent of Americans who earn less than $150,000 in that total as well. That amounts to a conservative estimate of 76.6 percent covered by the upper bound on single earners.

Throw in another 4.6 percent for those earning $200,000 per year or more (while deducting the 3-to-4 percent who actually earn more than $300,000 per year) brings that total up to 78 or 79 percent. Thus, I am not out of line to say that as many as four out of every five federal student loan holders could benefit from forgiveness.

The reporting in The Washington Post puts the numbers even higher. It quotes Matt Bruenig, founder of the People's Policy Project as it asserts that "In 2019, the most recent year for which data is available, 97 percent of all student debt was held by people earning below the threshold of $150,000 per single and $300,000 per couple ... "

That includes almost everybody. Estimated cost of $10,000 forgiveness for this population comes to $245 billion. Average loan balances for college graduates in 2020, according to the same paragraph, were $28,400, but 54 percent of those borrowers owed less than $20,000, while only 10 percent owed $80,000 or more. Thus 36 percent or so owe between $20,000 and $80,000 by extrapolation. Very interesting!

Frankly, I'd rather see the Biden administration increase the amount of loan forgiveness to be extended (reported to be at least $10,000 and not more than $50,000 per loan holder) and reduce the income level covered.

Given the Statista distribution linked above, I would recommend raising the forgiveness bar for those earning $50,000 or less (a still-hefty 37.8 percent of the population) if filing singly, and $100,000 for those filing jointly. This would represent more like 60-to-65 percent of all borrowers going by the numbers. It also hearkens back to my opening assertion that it's best to forgive debt for those "who will benefit most from easing of their financial obligations."

I'm glad to see this kind of discussion is underway. I will be most curious to learn how the actual plan plays out in practice. Right now, however, things are looking potentially positive for as many as 30 million of the 41 million Americans who currently owe something on a federal student loan balance, as per the numbers in my April 8 story.

The Post story also quotes President Biden that decisions on this matter should be forthcoming "in the next couple of weeks." Stay tuned: I'll definitely keep you posted.