The claim that student debt cancellation is regressive tends to be followed by pointing out that a large number of borrowers have a small amount of debt, and a relatively small number of borrowers carry a large portion of the total debt burden. That much is true, but the unstated implication is that the low number of high-balance borrowers that would benefit the most from cancelling outstanding balances tend to also have higher incomes.

That implication is false. The plurality of outstanding debt is held by borrowers with higher balances who live in census tracts in which the median income is between $20,000 and $40,000. Meanwhile, high-income my review here census tracts account for a very low number of borrowers, suggesting that better-off people are less likely to have student debt. The claim that student debt cancellation is regressive rests on a mistaken understanding of who has student debt and who has what amount of student debt. It vastly overinterprets the positive cross-sectional correlation between loan balance and income, and misconceives the definition of regressivity in the first place.

Why income-driven repayment is not a solution to student debt

There’s another good reason to cancel student debt: For many borrowers, it’s never going to be paid back. In fact, current policy encourages nonrepayment while at the same time failing to confront its implications. This is why student debt cancellation isn’t comparable to other policies for redistributing wealth or income-its impact, distributional or otherwise, can’t be evaluated de novo, because it’s already happening.

As student loan balances have escalated and the set of borrowers has diversified, repayment has become increasingly difficult. The policy solution for student loan default has been multifaceted, including refinancing defaulted loans with loans that are not (yet) in default. But perhaps the most effective cure has been to simply reduce required payments to a given percentage of disposable income, which has been done through income-driven repayment (IDR). The result is converting the short-term problem of delinquency into a long-term problem of nonrepayment.

IDR radically shifts the premise of the student loan program, away from a given principal balance and a fixed repayment term (generally 10 years), and toward income as the basis for repayment amounts. If IDR reduces required payments, the effect is to lengthen repayment terms (if payments are sufficient to cover interest) or to increase principal balances (if they aren’t). IDR programs all have this common structure: Borrowers are required to make payments equal to a given percentage of their disposable income for a certain number of years, and if any principal remains outstanding after that term, it is forgiven.

Figure 7. Percentage of original balance remaining of borrowers who began repaying loans in 2012, by type of repayment plan

The expansion of IDR enrollment has had its intended effect: Student debt defaults are down since 2015, as is repayment. Figure 7 comes from a Congressional Budget Office report on IDR, and shows repayment for loans in traditional plans versus IDR for borrowers who commenced repayment in 2012. Not surprisingly, balances on loans in IDR are increasing over time rather than decreasing.

To further illustrate this point, in Figure 8 we show nonrepayment on student loans across origination year. Our data shows that the share of loans in which the balance is increasing rather than being paid down is rising both over time and across origination years, to the point that a majority of loans now have a higher balance than they did initially. This is why we assert that these loans are never going to be repaid-the only question is whether borrowers carry the nominal balance until they reach the end of the IDR repayment period, or whether the bad debt is acknowledged now and the balance written down in the interim.