Student Loan Debt Cancellation Is Not Part of the Stimulus Package
The $1.9 trillion stimulus package does not include student loan debt cancellation. However, as one of his first executive actions, President Biden extended the date for student loan debt forbearance for the direct student loan program. The suspension of principal and interest is now valid until September 30, 2021, unless extended. The Biden administration has also called on Congress to cancel $10,000 of student loans immediately. However, rather than use an executive action for this purpose (which some argue the Executive Branch lacks), Biden is urging Congress to act. With Congress divided on this topic (like many others), bipartisan support for this proposal or another is unlikely to happen any time soon.
The Good News Is That Education Still Pays
Whatever the outcome, student loan borrowers can rest assured that education still pays. Recent New York Fed data examining the labor market for recent college graduates shows that college graduates (even recent ones) generally earn more and work more than high school grads. The median earnings for a Bachelor’s degree recipient exceeds the median earnings of high school grads by a two-thirds margin ($50,000 versus $30,000); see Figure 1. Moreover, recent college graduates work more. Since early in the pandemic (March 2020), the unemployment rate for recent college graduates has ranged from 3.9% to 12.9% compared to the unemployment rate range for all US workers (7.3–12.1%). Although the peak rate exceeded that of all US workers, the average unemployment rate for recent college graduates is slightly less than for all US workers.
The Topic of Forgiveness Will Take More Time and Debate
Despite some good news, the fact remains that although education pays, some borrowers cannot. The high cost of education and the burden of student loan debt continue to be scrutinized, with differing opinions about causes and cures. One thing is certain: student loan debt has grown enormously, reaching $1.6 trillion as of Q4 2020, according to the NY Fed’s latest Household Debt & Credit report. Moreover, student loan debt represents the largest balance of US households' non-mortgage debt (see Figure 2), exceeding auto loan debt by almost $200bb. Although some borrowers legitimately cannot repay their student loan debt, Citi’s strategists argue that forgiving student loan debt is too simplistic and could even be regressive. They also argue that debt forgiveness fails to hold universities accountable for rampant tuition inflation and for the students’ success. Therefore, the debate around this topic will continue to swirl, with Congress unlikely to reach a decision about whether to forgive student loan debt in the near future.
Figure 2. Total US Non-Mortgage Debt by Type, Q1 2003–Q4 2020 |
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Source: New York Fed Consumer Credit Panel / Equifax |
For more information on this subject, please see Consumer ABS Weekly - Student Loan Debt Forgiveness Update & Employment Data by Education.
Citi Global Insights (CGI) is Citi’s premier non-independent thought leadership curation.It is not investment research. The comments expressed herein are summaries and/or views on selected thematic content from a Citi Research report. For the full CGI disclosure, clickhere.
