Elizabeth Warren’s Student Loan Forgiveness Plan Mostly Helps the Middle Class, Think Tank Finds

HOUSTON, TX - APRIL 24: Democratic presidential candidate Sen. Elizabeth Warren (D-MA) speaks to members of the media after the She The People Presidential Forum at Texas Southern University on April 24, 2019 in Houston, Texas. Many of the Democrat presidential candidates are attending the forum to focus on issues important to women of color. (Photo by Sergio Flores/Getty Images)
Democratic presidential candidate Sen. Elizabeth Warren (D-MA) speaks to members of the media after the She The People Presidential Forum on April 24. Sergio Flores/Getty Images

Earlier this week, Sen. Elizabeth Warren became the first major Democratic presidential candidate to support mass student loan forgiveness, rolling out a plan that would cancel at least some debt for an estimated 42 million Americans. According to a new analysis published by the Brookings Institution, most of the benefits from her proposal would flow to middle-class households.

You would not necessarily guess that, however, based on some of the headlines the report has generated. The Wall Street Journal, for instance, ran a piece titled, “Warren’s Student-Debt Deal Would Most Benefit Stronger Earners, Study Finds.” The Brookings brief somewhat pushes that interpretation of its findings, calling Warren’s idea “regressive, expensive, and full of uncertainties.” I’d argue that it’s actual numbers, however, tell a more flattering story.

For years now, left-wing activists have dreamed of wiping out every last dollar of student loan debt on America’s books in one enormous jubilee. As many writers, myself included, have pointed out, such a move would be pretty regressive, since a disproportionate share of outstanding eduction debt belongs upper middle class and high-income households. Warren’s plan, however, is designed to take this into account. It caps forgiveness at $50,000 for individual in households making up to $100,000, and gradually phases down the amount of loan relief a borrower can receive as their income rises. Those earning $250,000 or more would not be eligible for any debt cancellation at all. The idea is to cancel debt for more borrowers, without giving a windfall to corporate lawyers and high-earning doctors who borrowed six-figures for their lucrative professional degrees.

Measured by the total amount of debt written off, Brookings finds that 73 percent of the benefit goes to Americans in the middle 60 percent of the country’s income distribution (the analysis only includes households headed by adults age 25 or older, and excludes people who are still in school). Almost a third of the benefits are especially concentrated in the 60th to 80th percentile, where households earn between $68,000 and $111,000 per year.

Distribution of student loan relief under Warren's plan
Jordan Weissmann/Slate

To be clear, this does not make the plan progressive. Low income households get the smallest share of the benefits. Some upper-middle class —those in the 80th to 90th income percentiles—get a slightly oversized oversized share of the haul. But Warren’s plan does a decent job of limiting the benefits of the very highest earners, while helping out middle-income families.

Looked at another way, Warren’s plan is a bit more favorable to six-figure earners. The Brookings report also measures the distribution of debt relief by measuring the actual reduction in annual payments households would see.* It’s a wonkier, less intuitive approach, but it makes some sense because there are many low-income households that will likely never pay off their full loan balance before they qualify for one of the federal forgiveness programs that already exist. If you look at the data from this angle, 23 percent of the benefit goes to households in 80th to 90th percentile.

Distribution of student loan relief under Elizabeth Warren's forgiveness plan
Jordan Weissmann/Slate

Personally, I think you have to look at both of these graphs to get a sense of who benefits under Warren’s plan. So, what are the take-aways?

• Warren’s plan is not strictly progressive.
•But it does successfully limit the amount of debt relief going to high-earning MD’s, JD’s, and MBAs, while keeping it concentrated in the broadly defined middle class.

There are definitely ways Warren could make her plan more progressive. She could drop the maximum forgiveness amount to $20,000—roughly the median that borrowers have graduated school with in recent years—and wipe out the loan balances of a lot of lower income students while limiting the rewards to six-figure earners. She could exclusively forgive undergraduate loans. You can tweak it in all sorts of ways.

On the other hand, Warren is planning to pay for her $650 billion proposal with proceeds from a wealth tax on people with assets above $50 million, and a partial reversal of the corporate tax cut Republicans passed. I don’t know if I’d personally place a debt-forgiveness plan like she has proposed at the very center of a left-wing agenda (the very poor could use some help first). But there are certainly much more appalling things than a transfer from the ultra-wealthy to the middle class.

Correction, April 25, 2019: This post originally misstated that the Brookings analysis also looked at monthly loans payments, rather than annual ones.