If President Joe Biden were to forgive up to $50,000 in federal student loan debt per borrower, a proposal he is considering, it would wipe away student debt for 80 percent of Kentucky’s borrowers and cancel more than $8 billion in loans in the state.
That’s the top takeaway from a new analysis commissioned by the Kentucky Center for Economic Policy, which also found that another 125,800 Kentuckians would have a portion of their debt erased.
In addition, the move would free up purchasing power for Kentuckians to put money back into the economy and speed up its recovery, significantly narrow the racial wealth gap here and relieve borrowers who took out loans but were unable to secure degrees because of financial obstacles, the study said.
“Federal loan repayment deferral has been critical to Kentuckians getting by during the COVID-19 pandemic. But addressing the long-term student debt crisis is a necessary component of economic recovery,” KCEP Research Director Ashley Spalding wrote in a summary of the findings.
“Before COVID, the cost of higher education was steadily rising, wage trends remained mostly stagnant and a growing share of Kentuckians were taking on debt to finance their education. Without forgiveness, a brighter future will remain out of reach for many Kentuckians and our communities as a whole,” Spalding wrote.
A separate proposal in Washington to forgive up to $10,000 per borrower would have a much less pronounced impact. The analysis said 209,400 Kentucky borrowers would wipe away $1.09 billion in loans, with another 406,200 Kentuckians receiving partial forgiveness.
The median amount owed by Kentucky borrowers is about $18,000, but more than 125,000 owe more than $50,000 in federal student debt, according to the KCEP.
Black Kentuckians in particular, who are more likely to take out loans to finance their higher education and then struggle to pay back those loans, stand to gain from student debt forgiveness, the analysis found.
For example, a higher percentage of Black students who received federal student loans earned less than $30,000 than any other racial or ethnic group. Only 10.6% of Black former students at Kentucky public colleges and universities who got student loans ended up earning more than $48,000 in 2020. For comparison, for students from other racial and ethnic groups, 18% to 21% earned more than $48,000 in 2020.
The move would also offer substantial relief for Kentucky student borrowers still saddled with debt despite not having a degree to show for it.
Looking specifically at public colleges and universities and the students recently enrolled at those institutions in Kentucky (223,457 students who started college in 2012 or later), about 62% still have not received a degree, certificate or diploma. Out of that group, 18% have attained a bachelor’s degree or higher.
Further, the analysis said that, based on 2020 incomes, more than half of former students made less than $30,000, with a quarter making more, between $30,000 and $48,000. Only 4.6% had incomes above $75,000.
Still, any form of debt forgiveness would only be a single step toward the college access crisis, according to the KCEP.
“Debt relief would be a step toward racial equity, and is an effective policy tool for economic recovery,” Spalding wrote. “The next steps are reinvesting in public higher education to bring down the cost of attendance and to increase the supports for degree completion, as well as increasing the minimum wage and other labor standards improvements so that Kentuckians can afford to invest in their potential.”