WVXU: UC economist discusses pros, cons of student debt relief (2024)

FAQs

What is the downside to student loan forgiveness? ›

Individuals who receive debt forgiveness would have more disposable income to afford basic necessities, purchase homes or even start their own businesses. However, debt forgiveness could encourage future students to take on more debt or encourage some universities to charge more for tuition, Jones said.

Student loan forgiveness is regressive, inequitable, and it will not stimulate the economy. Instead, it will create an incentive for students to accumulate more debt and award as much as $192 billion to the top 20 percent of income earners.

Broad student loan debt forgiveness may help boost the national economy by making it more affordable for borrowers to participate in it. Due to a combination of family income, generational wealth, and other factors, student loan debt is disproportionately held by Black borrowers compared to their White counterparts.

Let me be clear: there is no such thing as canceling or “forgiving” student loan debt. This debt will be transferred to hardworking American taxpayers—many of whom did not take out student loans—and will only worsen inflation while rewarding overpriced colleges.

Summing the likely consumption effects of the Administration's student debt relief and SAVE programs results in billions of dollars in additional consumption annually.

College students are regretting taking out student loans before they even leave school, a new report from WalletHub revealed on Tuesday. Roughly 61 percent of college students said they regretted how much they borrowed with student loans, according to the report.

In the 2021-2022 academic year, 51% of bachelor's degree students who attended public and private four-year schools graduated with student loans, according to the College Board. These students left school with an average balance of $29,400 in education debt.

Huge Cost to Taxpayers

The $10,000 plan discussed in reason number two would cost taxpayers – the people who funded all these student loans whether they liked it or not – an estimated $260 billion. $50,000 per borrower with no cap would cost taxpayers around $1 trillion.

But “erasing” student loans, as well-intentioned as it may be, is not the panacea Americans have been led to believe. Upon closer examination, the President's forgiveness plan creates winners and losers, ultimately benefiting higher-income earners the most. In reality, this plan amounts to wealth redistribution.

What are 3 benefits pros of student loans? ›

Student loans are considered good debt due to their potential for long-term benefits, including increased earning potential. Other factors of good debt include lower interest rates, flexible repayment options, and potential tax deductions.

The Bottom Line. Although loan forgiveness can impact a credit score, the effect is often temporary. And for borrowers with federal student loans in default, the Fresh Start program could give them a clean slate, removing the default from their credit reports.

Canceling debt also seems to violate the moral principle of following through on one's promises. Borrowers have a moral duty to fulfill their loan agreements, the philosopher Immanuel Kant argued, because reneging on promises is disrespectful to oneself and others.

If the debt forgiveness program is permitted to move forward, at a time when consumer spending already is high, it could lead to more inflation, Jones said. “We certainly don't have a consumer spending problem right now,” he said. “Just last month, we saw some of the highest consumer spending numbers in two years.

Despite these benefits, these loans have a few disadvantages, including a lack of subsidized options for graduate students, difficulty qualifying for bankruptcy, and funding limitations.