Is Student Loan Forgiveness Progressive or Regressive?

Beyond the Headlines: Personal finance news and research you may have missed

Beyond the Headlines

The financial news of late is all about supply and demand: Workers have found themselves in high demand as the economy continues to reopen, bringing restaurant and bar business back to pre-pandemic levels and pushing prices higher, including for travel and food.

On the other side of the coin, the relatively few homes for sale, showing a hint of improvement but tamping down expectations for the torrid real estate market, continues to drive bidding wars, and a shortage of rental cars has pushed prices for that hot commodity into high gear. Meanwhile, Federal Reserve officials, while acknowledging higher inflation is ahead, attribute much of it to temporary supply and demand factors.

But if you were busy trying to decide whether it was cheaper to rent a U-Haul than a car for your summer vacation, here’s what you might not have read about: Did you know that student loan forgiveness, if the president were to undertake it, may not help the economy as much as we think because it’s wealthier people who tend to benefit most from forgiveness? Or how about life insurance sales during the pandemic. Did you know that recent survey findings show younger Americans flocked to buy the policies, but now regret it in most cases?

To reach beyond the biggest headlines, we scoured the latest research, surveys, studies, and commentary to bring you the most interesting and relevant personal finance news you may have missed.

What We Found

Student Loan Forgiveness: Progressive or Regressive?

Progressive lawmakers have been pressuring President Joe Biden to single-handedly forgive $50,000 of federal student loan debt per person—a move that would wipe out student debt for 36 million borrowers and lower it for millions more. But neither this, nor a less ambitious proposal to wipe out $10,000 of student debt, would help the economy that much, and could cost more than $1 trillion, according to an analysis by the Committee for a Responsible Federal Budget (CRFB), a nonpartisan think tank that advocates against large spending deficits. 

As economic stimulus, canceling $10,000 or $50,000 of student debt would be much less effective than putting the money towards unemployment programs, state and local aid, or stimulus checks, according to a June 3 analysis from the CRFB. Such cancellations are estimated to generate between 2 to 27 cents of economic activity per $1 spent, depending on exactly how it’s done, compared with 36 cents to 88 cents for other pandemic relief measures or as much as $2 for other types of stimulus. 

Put another way, canceling $50,000 of debt per person would cost $950 billion but only add $91 billion to gross domestic product over three years.

One of the reasons for the disparity? The country’s current circumstances—a strong economic recovery characterized by unusually high savings rates and severe shortages of some supplies—may mean there’s not much room to further stimulate demand.

But it’s also because the highest-income earners would benefit most from student loan cancellation, the CRFB said, citing a University of Chicago analysis from April that calls debt cancellation regressive. It disproportionately benefits people who have higher loan balances because they got advanced graduate and professional degrees that have paved the way to lucrative careers. 

And these wealthier people, the CRFB argued, are less likely to go out and spend the windfall. In fact, bolstering income-driven repayment options would better help those who need it, the Chicago economists said.

Some economists have argued the opposite, of course, contending that canceling student debt would benefit the economy greatly. They believe the spending that student borrowers are currently putting into repaying their loans could be redirected to things that have been delayed by those debts, like starting businesses, buying homes, and having children. 

Researchers at Bard College estimated in a 2018 paper that if the $1.4 trillion in student debt had been wiped out in 2016, it would have boosted GDP by more than $1 trillion over the following decade, not to mention created jobs. 

When Do Higher Real Estate Prices Outweigh Lower Mortgage Rates? 

In today’s extreme seller’s market, the relatively few homes for sale have gotten more expensive than ever—but surprisingly, that doesn’t mean they’re less affordable than ever.

In fact, the typical house today is more affordable than it has been historically, and far more affordable than during the housing bubble that led up to the Great Recession, according to a new report from data company Black Knight. That’s because price isn’t the only factor in how affordable a house is—there’s also the mortgage interest rate to consider (it’s currently averaging just under 3%, not too far from record lows) and of course, the buyer’s income.

Considering these factors together, monthly payments on the median home as of June ate up 20.5% of median income, Black Knight said in a report earlier this month. That’s up a tad from the recent five-year average of 20.1%, but still below the longer-term average of 23.6% that prevailed over the last 25 years—and well below its housing-bubble peak of 34.3%. 

Still, those rising home prices are having an impact, and it wouldn’t take much of a bump in mortgage rates to put a serious dent in affordability. In fact, the current 20.5% payment-to-income ratio happens to be the exact “tipping point” experienced in the past—where home price growth has proven to be unsustainable enough that it starts to decelerate.

Indeed, if home prices continue on the same trajectory and mortgage rates rise to 3.5% by the end of 2022, the payment-to-income ratio would hit 21.6% by the end of this year and 25% by 2022, Black Knight estimates. For now, though, home prices continue to surge amid the severe shortage of homes for sale.

Feeling Invincible Again: Younger Life Insurance Buyers Have Remorse 

The pandemic saw booming sales of all kinds of things: houses, cars, cryptocurrency, and building materials among them. The life insurance industry has also seen an upsurge in interest, driven perhaps by consumers’ increased awareness of mortality amid COVID-19.

Insurance companies that saw a pandemic-driven bump in sales have younger generations to thank for it, according to a report out last week from Expertise.com, a website that recommends local professionals and businesses. Not only were the vast majority of Americans without life insurance when the pandemic struck under age 44, but the vast majority of the 25% who bought life insurance during the pandemic were under 44, according to an Expertise.com online poll of 1,000 U.S. adults taken on June 1.

However, signing up for life insurance may not have seemed like such a wise investment for younger people in the cold light of day. Of that younger group who bought life insurance during the pandemic, a whopping 74% now regret buying it, compared to just over 26% of those 45 and over.

“The data from this series of questions shows it was mainly younger Americans who catalyzed the red-hot life insurance market we have witnessed during the COVID-19 pandemic,” the Expertise.com researchers said in the report. “The data also shows many of these pandemic-induced, younger policy holders may have jumped the gun on buying life insurance before fully assessing the situation.”

Failure to Lunch: Survey Finds Workers Avoid Midday Breaks

A silver lining of the pandemic has been the work-from-home lifestyle. In fact, workers like telecommuting so much, many are willing to ditch jobs that won’t let them keep on doing it once offices reopen. 

But even if more people are working from their kitchen tables, that doesn’t mean they’re necessarily using them to step away from their jobs and eat something. In fact, 39% of people occasionally, rarely, or never take lunch breaks, according to a survey by Tork, a company that makes napkins, soap, and other cleaning products for restaurants. And women are more than twice as likely than men not to take a break.

Work culture might have something to do with the reluctance to take a break. Among the 1,600 residents of the U.S. and Canada surveyed, 22% said they felt guilty or judged for taking a lunch break in the middle of the day.

Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.