Determining who will benefit most from student loan forgiveness (poor, middle class, wealthy) may sound like a simple task.

But an exact calculation is difficult, according to economists and education experts. Aside from the challenges associated with the available data, it is nearly impossible to model the future economic benefits accruing to any particular borrower, they said.

But take advantage of President Joe Biden’s Aug. 24 announcement to cancel federal student loans of up to $10,000 for most borrowers and up to $20,000 for some debtors. This issue is especially important because the public appreciates it. Also, this relief is limited to people whose annual income is less than her $125,000, or to married couples or householders whose annual income is less than her $250,000.

In remarks after the announcement, Biden said 95% of borrowers (43 million) would benefit from the debt relief plan. Let’s go, he said.

But which borrowers stand to benefit the most?

The White House has published a chart analyzing the distribution of the total amount allowed by the three income groups. It shows that he allocates 87% of the money to those whose annual income is less than her $75,000. Nothing flows to individuals earning more than $125,000.

Using the data, Biden said the plan is aimed at the poor and middle-class, the “families who need it most.”

This is true in at least two ways. The policy sets a permissible income cap and prevents the wealthiest households from participating. Also, a recipient of the Pell Grant, a type of financial aid for low-income families, compared to other borrowers, is eligible to receive double her maximum relief, or $20,000 for him.

But the White House analysis measures income per individual, not at the household level. Let’s say each spouse of the couple earns her $70,000 a year — their joint household income is her $140,000, but the White House income analysis counts her in the under-$75,000 group.

According to White House officials, the Biden administration believed that the analysis of individuals rather than households was more accurate because U.S. Department of Education data did not show whether borrowers were married.

Several agencies conduct independent analyzes that measure the impact on households as a whole. By most estimates, low- and middle-income households will receive the majority of the benefits. However, the exact share of dollars in overall forgiveness for those groups varies.

Economists at the Wharton School of the University of Pennsylvania estimate that households earning less than about $82,000 a year receive 74% of all absolution funds. These families fall into the bottom 60% of wage earners.

According to another Penn Wharton analysis for CNBC, people in the bottom half of the income earners get about 55% of their forgiveness dollars.

Kent Smetters, professor of business economics and public policy at the University of Pennsylvania, said, “This is not a giveaway for the rich.

There will be a “slight easing” in the lower half, largely thanks to the “Pell Grant Bonus,” Smetters said.

“But it doesn’t target low-income households as specifically as other transfer programs,” he added, citing income tax credits as an example of existing policies that better target poor households.

About 95% of total benefits go to households with incomes below $150,000, according to Penn Wharton research.

A senior White House official said Penn Wharton Research supports the basic finding that most of the profits go to low- and middle-income earners.

JPMorgan Chase Institute found in a separate study that a smaller proportion of all debt forgiveness, 51%, flows into the bottom 60% of households. JP Morgan defines this group as those earning less than $76,000 a year.

About two in three of the lowest-income borrowers were able to write off their federal student loans entirely, a JP Morgan study found. Analysis shows that black and Hispanic borrowers are more likely than white borrowers to be completely forgiven of their debt.

A separate Goldman Sachs report released on Aug. 25 said Biden’s policy would provide low-income households with student loans with “the largest proportional reduction in debt service” compared to middle- and high-income earners. Most low-income households don’t have students.

“We estimate that middle-income households will receive the largest increase in effective income from the announced debt forgiveness plans,” the analysis said.

So what do we do with all this? In short, it’s difficult to make definitive statements about which income brackets benefit from what.

One is to use different data sets that yield different results in each analysis. For example, Penn Wharton’s estimates draw on data from the Department of Education and the Federal Reserve’s Consumer Finance Survey. Economists say details of the Federal Reserve study take into account student debt of parents, but probably don’t capture the debt of recent graduates living with their parents. That’s it.

JP Morgan’s analysis, on the other hand, uses data from credit bureaus and Chase Bank. This analysis assumes, for example, that all borrowers with incomes of $125,000 for her to $250,000 for him are married. Bank data suggests that’s the case for the “majority” of these borrowers, but analysis shows the assumption skews the distribution of profits to wealthier households. , using data on bank customers may also exclude some low-income individuals.

“There is no perfect data. “Even the Ministry of Education doesn’t have complete data.”

Think of other oddities like: The government issues pel grants to students based on their parent’s income. As long as the borrower’s income is less than her $125,000, Pell is eligible to receive a “bonus” for her grant waiver based on her parents’ low income over the years, Smetters said. rice field.

There’s also the question of what “income” to consider when analyzing the benefits of a pardon, said Matt Bruenig, an economic policy analyst and head of the People’s Policy Project.

For example, economists can choose to look at parents’ current incomes, student borrower current incomes, or students’ expected future lifetime incomes, Bruenig said. This kind of data assumption gives different results.

“We want to do analysis that we can’t really do,” Brünig said.

Education experts say there are also many economic benefits from loan forgiveness that occur mostly among low- and middle-income earners, but are not captured in these data analyses.

Contrary to popular belief, borrowers with the least debt are most likely to default on their student loans, says Susan Dinarski, an education professor at Harvard University. These tend to be low- and middle-income borrowers, she said.

Defaults can negatively impact credit scores, hurt homeownership, hurt job prospects and raise the cost of other lines of credit, she said.

Dynarski says income analysis “doesn’t measure all of this.” “I think you’re underestimating the benefits of forgiving, especially for small loans.”

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Forgiving these relatively small balances may mean reducing the overall flow of federal dollars to these borrowers, but forgiving their debts would probably have a very large impact. prize.

“People’s economic lives have completely changed,” said Baker of Southern Methodist University.

Dynarski said many borrowers have defaulted due to the failure of the student loan system itself. For example, student loan servicers are making mistakes compared to income-driven repayment plans. Correcting these errors by forgiving debt is worthwhile, she explained, even if it means benefiting some wealthy households who “don’t need debt.”

“For those who have small loans and are hurt to get out of this system, it’s fine for a few middle-class people to get forgiveness,” Dinarski said. We see it as the cost of doing business.”