The Loan Repayment Pause Is Welfare for the Rich

Student loan repayments have been paused since March 2020 and aren’t scheduled to resume until September, meaning that students have been spared from making payments for 30 months as a pandemic relief measure. And President Biden is widely expected to extend the pause to avoid restarting payments just months before an election, just as former president Trump did prior to the 2020 elections.

We won’t know just how much former students benefited from the pause until many years down the road, because only in retrospect can we determine if they repaid their loans in full. If they eventually repay in full, the pause will amount to an interest-free loan for 30 months (the pause also waived interest). But many students will not repay in full. Even before the pause, 72 percent of Graduate PLUS loans were expected to be forgiven, because borrowers enrolled in an income-driven repayment plan or Public Service Loan Forgiveness can have any remaining balance forgiven after making payments for periods ranging from 10 to 25 years. The payment pause is counted as 30 months of payments under these plans. In other words, for many students, payments weren’t paused: they were forgiven entirely.

My analysis of program-level data from the U.S. Department of Education’s College Scorecard offers a shocking snapshot of who is benefiting the most from the student loan repayment pause. Using the most recent cohort of graduates in the data (those who graduated in 2017–18 and 2018–19), graduates who earned an associate degree are saving a median of $134 per month during the repayment pause, or $4,020 in total over the 30 months from March 2020 to September 2022. Those who earned a bachelor’s degree are saving $225 per month ($6,750 in total). Even this substantial sum is dwarfed by how much those with advanced degrees are getting. Those who earned a master’s degree are saving $455 per month ($13,650 in total). Those who earned a doctoral degree save $861 per month ($25,830 in total) and those who earned a professional degree, such as medical doctors, dentists and lawyers, are saving $1,784 per month ($53,520 in total).

Earnings data for these students aren’t yet available. But using the inflation-adjusted earnings of an earlier cohort three years postgraduation as a proxy for the expected future earnings of these students reveals that the repayment pause is astoundingly regressive.

For example, recent graduates with a professional degree (median salary $78,226) are getting 13 times the benefit of those with an associate degree (median salary $34,123).

But the true extent to which the student loan repayment pause is welfare for the rich can be seen by examining the particular degrees that receive the largest benefit. Those who earned a doctoral degree in pharmacy have median earnings of $129,776. Yet the payment pause is saving them $3,296 per month ($98,880 in total). Those who earned a professional degree in dentistry earn a median of $137,404 and save $2,827 per month ($84,810 in total).

In contrast, those who earned a bachelor’s degree in education earn a median of $38,448 and save only $264 per month ($7,920 in total). In other words, pharmacists and dentists earn about triple what a new teacher earns, yet they benefit more than 10 times as much from the repayment pause.

New lawyers earn a median of $78,547 and save $1,361 per month ($40,830 in total). In contrast, those who earned an associate degree in legal support service earn a median of $31,309 but save only $208 per month ($6,240 in total). In other words, new lawyers earn more than double what many paralegals earn but get more than six times as much benefit from the student loan repayment pause.

The list of colleges with at least 1,500 borrowers whose graduates are benefiting the most also reveals that the student loan repayment pause is perversely targeted to provide welfare for the already or soon-to-be rich. Colleges in the top 25 in terms of benefits per student include Tufts University ($1,246 per month per borrower, $37,380 in total), Georgetown University ($989 per month, $29,670 in total), Columbia University ($934 per month, $28,020 in total), Harvard University ($851 per month, $25,530 in total), Wake Forest University ($769 per month, $23,070 in total), and Vanderbilt University ($761 per month, $22,830 in total). The median graduate from Georgetown and Harvard earns over $100,000, so it shocks the conscience that these same students are among the biggest beneficiaries of the repayment pause.

Welfare for the rich is a misallocation of taxpayer dollars, so it is well past time for the Biden administration to end the student loan repayment pause.