Mar 18, 2021 - Economy

Report: Student loan forgiveness most effective if targeted

Data: Federal Reserve; Chart: Axios Visuals
Data: Federal Reserve; Chart: Axios Visuals

Proposals to forgive limited one-time sums of student loan debt that have been floated by the White House and members of Congress do little to address the heart of the $1.7 trillion problem, research from the JPMorgan Chase Institute finds.

Why it matters: Ballooning student loan debt "is a financial crisis for millions of Americans," JPMorgan Chase Institute co-president Fiona Greig said in a statement.

  • "Our analysis shows that targeting student loan forgiveness by income would be more cost-effective in channeling relief to the hardest-hit families whose circumstances make it difficult to repay and who, in some cases, face a long-term debt trap from their education."

The big picture: "Any long-term solution to relieving the burden of student debt is incomplete without addressing underlying issues, such as increasing tuition costs," the research paper argues.

Between the lines: Previous studies from the institute have found that younger and low-income families are the most burdened by student loan payments and that low-income families are less likely to make consistent loan payments (44%) compared to high-income families (63%).

One level deeper: Using anonymized administrative banking and credit bureau data to estimate the benefits of student loan forgiveness, the institute found that "income cut offs significantly reduce costs and make cancellation more progressive, though all scenarios distribute forgiveness across borrowers by race in roughly the same way."

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