What impact does student loan forgiveness might have on you

student loan forgiveness

So here are some wild student loan stats. First off, Americans owe more than $1.7 trillion in student loan debt. That is more than credit card debt. That is more than auto. Education has just never been more expensive. Student loan debt is now growing six times faster than the nation’s economy. That is double the rate of inflation.

Student loan statistics

43 million Americans are carrying an average of $39,000 in student loans. Pick any of these stats, but it’s almost impossible to ignore that we have a big, big problem and no consensus on how we should handle it. So student loans in March 2020 Which was that whole Tiger King thing. The federal government put a pause on all federally held student loan payments, and that was part of the COVID relief plans. That has now been extended several times. So what’s the fuss? People are pretty divided when it comes to the idea of student loan forgiveness.

Pros and cons of student loan forgiveness

Some support student debt forgiveness, saying canceling student loans would stimulate the economy. And that argument is pretty simple. No more student loan payments mean those former borrowers have extra cash to invest or spend That also means more financial freedom. Maybe you’re going to start that business, retire a little sooner, or just buy even more avocado toast It also might help inequality a little bit.

Americans with generational wealth typically have fewer student loans, but not everyone agrees. The problem is that the programs that the Department of Education has put in place for debt forgiveness are not very well understood and they’re not very well administered. You have students able to take out huge amounts of loans without the lender knowing that they can repay them, but it would add to the deficit and it would increase inflationary pressures.

However, some of these students are not going to pay off the debt. It’s a complicated question for which there’s no precise answer. The challenge is understanding or maybe even appreciation. Most Americans don’t actually have student loans. Around 80% of adults either don’t have loans, didn’t go to college, or already paid off their debts. And those people are not exactly thrilled to pay for everyone else. Comes down to a perceived issue of fairness Some want to forgive everyone. Others think the whole point of those loans was to earn more money.

student loan forgiveness
The Newyork Times

How did Americans end up in debt for school?

Let’s talk about how we got here though. In 1980 the Pell Grant program which is the main federal assistance for pursuing higher education covered 80% of the cost of college. Today Pell grants only account for less than a third of the cost of college. The federal government has retreated and all of that costs have fallen on students and their families. We know that the average black student has significantly more debt than the average white student, where you have almost a ten-to-one gap in wealth between white families and black families.

Also Read: 3 Common Money Lies to Never Believe

Student Loan forgiveness plans under consideration

The federal government is by far the largest lender, and the White House announced plans to wipe the slate clean for more than 7 million borrowers who defaulted on their student loans. Congress is urging for at least $50,000 per borrower to be forgiven. But the president has reiterated that if he uses his authority for broad student loan forgiveness, it would only be for up to $10,000 per borrower. Not any more than that.

Let’s talk about whether it’s likely these policies move forward and what obstacles we can expect on the way to student loan forgiveness. The president can unilaterally cancel student debt. We would urge President Biden to cancel debt for all borrowers. And then we still have the problem of predatory for-profit colleges that really lie to students about what they’re going to provide and deceive them. And then that leaves the students often with no degree or a degree that isn’t recognized by employers.

We think the administration should publicize the number of programs that are already in existence, many put together by President Obama’s administration. But there are programs where students can work for a nonprofit. There are programs for doctors who have too much medical debt as programs for nurses. These programs are for teachers. So there are many different programs. Loan relief would likely be a one-time solution. The focus will be on lowering the cost of education and making community and state colleges even cheaper.

student loan forgiveness
The Hill

The cost of student loan forgiveness

So let’s talk about what student loan debt forgiveness would actually cost. Multiple estimates show that if the government cancels up to $10,000 per borrower, that’s going to cost more than $450 billion. Now, if it goes up to 50,000 each, that’s over 1 trillion. Naturally, there are some economic implications to all of that. Of course, there are all sorts of varying opinions on debt relief. But the thing that advocates and critics do agree upon is that loan forgiveness is going to have an impact on the economy.

Also Read: How and what is Lowest Amount To Live Off Dividends

The impact of student loan forgiveness on the economy, individuals

It definitely is not going to solve the whole problem, but for some people, it will make a difference. But what about the students who’ve worked very hard to pay off their debt or the parents who saved so that their students wouldn’t have to have any debt? Does it set what we call in economics a moral hazard problem where people might not pay off their debt in the future because they think that the federal government is just going to cancel it? The people who say that student debt cancelation doesn’t solve the problem in the long term.

We agree with that. That doesn’t mean we shouldn’t cancel the debt. If President Biden was to cancel $50,000 of student debt, you’d have 36 million Americans who would be liberated from those obstacles. But you should be able in any state to get a high-quality public education that’s going to serve you well in life without being saddled with debt. We have to correct the policy mistake of the last 40 years.


That makes this one of the largest transfers of wealth in American history. But maybe this is an opportunity to become more nuanced in how we issue student loans in the future. Ultimately, we know who’s going to pay for this. It’s the taxpayers. So that’s a lot of info, but we want to know what you think Let us know in the comments below.

Also Read: The majority of people do these 7 investing mistakes

Leave a Reply

Your email address will not be published.