Means-Testing Student Debt Cancellation is Still Costly and Regressive
May 3, 2022
Amid criticisms that student debt cancelation would be costly and regressive, the Biden Administration is apparently considering means-testing debt cancellation. Specifically, reports suggest the Administration may cancel $10,000 or more of federal student debt for individual borrowers making less than $125,000 or $150,000 per year and households making less than $250,000 or $300,000 per year. We estimate this would still cost at least $230 billion, with roughly 70 percent of the benefit going to those in the top half of the income spectrum. It would also worsen inflation and increase the cost of higher education.
Based on our previous estimates and adjusting for portfolio growth, we estimate that canceling $10,000 of student debt per borrower would eliminate $380 billion of federal student loan debt, at a cost of roughly $250 billion to taxpayers.
Phasing out debt cancellation between $100,000 and $150,000 of individual income and between $200,000 and $300,000 of household income would reduce the cost of debt cancellation by $15 to $20 billion. This slight reduction in cost would do almost nothing to alleviate the central issues with the policy, namely that it is regressive, inflationary, expensive, and would likely do more to increase the cost of higher education going forward than to reduce it.
