Student Loan Repayment Pause Is Regressive (Notice)
Student loan repayments have been suspended since March 2020 and are not expected to resume until September, meaning students have been spared from making payments for 30 months as a pandemic relief measure. And President Biden is widely expected to extend the pause to avoid restarting payments a few months before an election, just as former President Trump did before the 2020 election.
We won’t know how much former students have benefited from the break for many years, as only in retrospect can we determine whether they have fully repaid their loans. If they end up repaying in full, the break will amount to an interest-free loan for 30 months (the break also waived interest). But many students will not refund in full. Even before the break, 72% of Graduate PLUS loans were to be forgiven, as borrowers enrolled in an income-based repayment plan or civil service loan forgiveness may have any remaining balances forgiven after making payments for periods ranging from 10 to 25 years. The payment break is counted as 30 months of payments under these plans. In other words, for many students, payments have not been interrupted: they have been canceled entirely.
My analysis of data at the program level of the U.S. Department of Education College Dashboard offers a shocking look at who benefits the most from the student loan repayment break. Using the most recent cohort of graduates in the data (those who graduated in 2017-2018 and 2018-2019), graduates who earned an associate degree save an average of $134 per month during the break from reimbursement, or $4,020 in total over the 30 months from March 2020 to September 2022. Those who earned a bachelor’s degree save $225 per month ($6,750 in total). Even this substantial sum is dwarfed by the amount received by those with advanced degrees. Those who earned a master’s degree save $455 per month ($13,650 total). Those who earned a doctorate save $861 per month ($25,830 total) and those who earned a professional degree, such as doctors, dentists, and lawyers, save $1,784 per month ($53,520 total) .
Income data for these students is not yet available. But using the inflation-adjusted earnings of an earlier cohort three years after graduation as an indicator of these students’ expected future earnings reveals that the repayment pause is surprisingly regressive.
For example, recent graduates with professional degrees (median salary $78,226) benefit 13 times more than those with associate degrees (median salary $34,123).
But the true extent to which the student loan repayment break is a welfare for the wealthy can be seen by looking at the particular degrees that receive the greatest benefit. Those who earned a doctorate in pharmacy have a median income of $129,776. Still, the payment break saves them $3,296 per month ($98,880 in total). Those with a professional degree in dentistry earn a median of $137,404 and save $2,827 per month ($84,810 total).
In contrast, those with a bachelor’s degree in education earn a median of $38,448 and save only $264 per month ($7,920 total). In other words, pharmacists and dentists earn about triple what a new teacher earns, and yet they benefit more than 10 times more from the reimbursement break.
New lawyers earn a median of $78,547 and save $1,361 per month ($40,830 total). In contrast, those with an associate’s degree in legal support service earn a median of $31,309 but save only $208 per month ($6,240 total). In other words, new lawyers earn more than double what many paralegals earn, but reap more than six times the benefit of the student loan repayment break.
The list of colleges with at least 1,500 borrowers whose graduates benefit the most also reveals that the student loan repayment pause is perversely targeted to provide welfare to the already wealthy or soon to be wealthy. Colleges in the top 25 by benefits per student include Tufts University ($1,246 per month per borrower, $37,380 total), Georgetown University ($989 per month, $29,670 total), Columbia University ( $934 per month, $28,020 total), Harvard University ($851 per month, $25,530 total), Wake Forest University ($769 per month, $23,070 total), and Vanderbilt University ($761 per month , $22,830 in total). The median Georgetown and Harvard graduate earns more than $100,000, so it shocks the conscience that these same students are among the biggest beneficiaries of the repayment break.
Welfare for the wealthy is a misallocation of taxpayers’ money, so it’s long overdue for the Biden administration to end the student loan repayment hiatus.