Cleveland Fed Study: Would Student Loan Cancellation Mostly Benefit the Rich or Poor?
Whether student loan forgiveness programs would primarily benefit rich or poor Americans depends crucially on how “rich” or “poor” are measured, according to a new Federal Reserve Bank of Cleveland research report.
In “Student Debt Incidence: Recent Data and Conceptual Issues,” researchers Jordan Manes, Emily Moschini, and Thomas Phelan examine the distributional implications of forgiving up to $10,000 or $50,000 in education debt. They find that when measuring by net worth, those in the lowest quintile would benefit the most. But the benefits are much more evenly distributed when financial means is measured by income or lifetime wealth.
However, the authors note that more work is needed to fully assess whether a student loan cancellation policy will increase or decrease inequality. Specifically, research needs to 1. Include an indication of where funding for cancellation and the attendant tax burden will come from and 2. Move beyond averages by quintile to a measure of overall welfare that considers differences in student debt burden and projected lifetime wealth within quintiles.
Federal Reserve Bank of Cleveland
The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.
The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.
Doug Campbell, firstname.lastname@example.org, 513.455.4479