Since 2010, outstanding student debt and debt per borrower in the United States have increased by 115% and 73%, respectively. Total student loan debt reached $1.77 trillion at the end of 2024, with the average loan balance over $40,000. With increasing concern about the effect of debt on borrowers’ livelihoods, as well as impacts to the broader economy, policymakers have called for broad-based student loan forgiveness, with goals ranging from redistributing toward low earners to providing economic stimulus. Despite this policy momentum and despite assumptions about the effects of such policies, we still do not have consensus on whether forgiveness will increase or decrease outcomes like spending and earnings.
To address this gap, this paper analyzes the largest student loan discharge in US history. Beginning in March 2021, the federal government ordered $132 billion in student loans cancelled, or 7.8% of the total $1.7 trillion in outstanding student debt. To assess how forgiveness is targeted and how it affects forgiven borrowers’ consumption, debt, and earnings, the authors study comprehensive national administrative data from TransUnion, one of the largest credit bureaus, complemented by employment records obtained from a second large credit bureau. The TransUnion panel data comprise a 10 percent sample of all individuals who have a credit history in the United States, and the employment data cover around 1/3 of the US workforce. Six percent of borrowers in the authors’ sample received forgiveness since March 2021, with an average of $32,000 discharged.
The authors find the following:
- Predicted monthly earnings of forgiven borrowers were $115 higher than borrowers who did not receive forgiveness and $193 more than the general population.
- Student loan forgiveness led to increases in mortgage, auto, and credit card debt by 9 cents for every dollar forgiven. Borrowers experiencing forgiveness increase mortgage borrowing by $2,300, auto loan borrowing by $230, and credit card borrowing by $220 over the six months following forgiveness.
- There is little to no effect on non-student loan delinquencies.
- Monthly earnings dropped by $44 (or 2.3%) pooled over the first six months post-forgiveness, with the decrease exceeding $75 in the sixth month, suggesting that borrowers may have been in higher-paying jobs or provided increased labor supply in part to pay back debt.
- There is more job switching across industries and out of public service. This latter effect is likely because forgiven borrowers no longer need to work in public service to qualify for future forgiveness; on that note, the authors estimate larger earnings drops for individuals initially employed in public service jobs.
- Finally, among hourly workers, the authors estimate a drop in hours worked, where the total earnings drop comes half from an hours reduction and half from a wage reduction. Labor market effects are largest for younger workers with lower earnings, hourly workers, and public service workers. For previously defaulted borrowers, the authors find that earnings increase.
Bottom line: Student loan forgiveness increases consumption in the short term, with sharp increases in mortgage, auto, and credit card debt following loan forgiveness, and with a negative effect on earnings and the probability of being employed. While this work helps policymakers understand the likely outcomes of loan forgiveness plans, future work could study optimal relief for borrowers, and how insurance acts with distributional and macroeconomic consequences of loan forgiveness and other policies to assist student debtors.