Canceling student debt would mostly benefit middle- and high-income families, JPMorgan finds

• JPMorgan found student debt cancellation would mostly benefit middle- and high-income families.
• However, income cutoffs would significantly reduce the amount of debt forgiven.
• Any long-term solution for student debt should factor in low-income families' tuition costs and enrollment.

With student debt in the US totaling approximately $1.7 trillion, there is no question that forgiving that debt would be a welcome relief for many Americans. But whether $10,000 or $50,000 in student debt is cancelled per person, experts found middle- and high-income families would reap most of the benefits.

A new report from JPMorgan Chase examined four different cancellation scenarios: universal cancellation of up to $10,000, cancellation of up to $50,000 for people earning less than $125,000, cancellation of up to $25,000 for people earning less than $75,000 and phasing out at $100,000, and cancellation of up to $50,000 with the same phaseout.

The report found that income cutoffs would significantly reduce the total amount of debt forgiven and make a cancellation effort less regressive.

"This relative regressivity is driven by the fact that higher-income households carry larger debts, often from professional or graduate degrees," the report said. "Conversely, more aggressive income targeting does not necessarily result in a greater share of forgiveness going to borrowers in a debt trap or facing long repayment horizons."

Here are the main findings of the report:

• A $10,000 cancellation would forgive 27% of the total outstanding debt, a $50,000 cancellation with the income limit would forgive 50% of the debt, a $25,000 cancellation with a phase out would forgive 28% of the debt, and a $50,000 cancellation with a phase out would forgive 39% of the debt;
• A disproportionate amount of debt forgiveness would go to middle- and higher income families since they tend to hold more student debt;
• A greater share of forgiveness goes to borrowers in a debt trap or under long-term repayment plans when the cancellation ceiling is higher;
• And the distribution of cancellation benefits by race is fairly unchanged under the scenarios, meaning the scenarios may not be effective at closing the racial wealth gap.

The report also noted that if people believe more debt will be cancelled in the future, they might change their behaviors by taking out more debt or repaying it slower than anticipated. An income cutoff for debt forgiveness could also reduce people's incentives to work, whereas a one-time cancellation could avoid those problems.

Progressive lawmakers have been unrelenting in calling for President Joe Biden to cancel up to $50,000 in student loan debt. While Biden has said he would consider cancelling $10,000 in debt, lawmakers like Sen. Elizabeth Warren of Massachusetts and Senate Majority Leader Chuck Schumer have repeatedly argued that if the president can legally cancel $10,000 in debt, there's no reason he cannot cancel $50,000.

"If it's OK legally to do a small amount, it's OK legally to do a larger amount," Schumer said during a press call on Monday.

During a CNN town hall on February 16, Biden said he would support a higher amount of debt cancellation through legislation, but Schumer said executive action remained "far and away, the quickest, best, and easiest" method. White House Press Secretary Jen Psaki said during a press briefing on February 17 that the Justice Department would review Biden's ability to cancel student debt through executive action.

But despite the calls to cancel $50,000 in student loan debt, even the "most generous" cancellation scenario would not solve the bigger problems that drive the high debt levels in the country.

"Any economic forces that contributed to the current stock of student debt today, such as increasing tuition costs and increasing enrollment among low-income families, will continue to push tomorrow's students to accumulate debt," the report said. "Any long-term solution to relieving students is incomplete without addressing these underlying forces."