Student Loan Forgiveness

Student loan forgiveness has been proposed as a means to alleviate soaring student loan burdens. This paper uses administrative credit bureau data to study the distributional, consumption, borrowing, and employment effects of the largest event of student loan forgiveness in history. Beginning in March 2021, the United States federal government ordered $132 billion in student loans cancelled, or 7.8% of the total $1.7 trillion in outstanding student debt. We estimate that forgiven borrowers’ predicted monthly earnings were $115 higher than borrowers who did not receive forgiveness and $193 more than the general population. We find that student loan forgiveness led to increases in mortgage, auto, and credit card debt by 9 cents for every dollar forgiven. Borrowers’ monthly earnings and employment fell, at increasing rates for each month post forgiveness. The implied Marginal Propensities for Consumption (MPC) and Earnings (MPE) are 0.27 and -0.49, respectively.